India: Apex Court Rules On Inherent Power Of Arbitral Tribunals For Procedural Review

Last Updated: 19 October 2017
Article by Kshama Loya Modani and Sahil Kanuga

Supreme Court holds that:

  • An arbitral tribunal has inherent power to recall its order of termination in the event of default in filing statement of claim.
  • Argument of tribunal being functus officio stands dealt with insofar as proceedings where termination is due to default in filing statement of claim.

Introduction:

In a recent decision in Srei Infrastructure Finance Ltd. ("Srei Infrastructure") vs. Tuff Drilling Private Limited ("Tuff Drilling/Claimant"),1 the Supreme Court ("Court") has held that in the event an arbitral tribunal terminates the proceedings under Section 25(a) of the Arbitration & Conciliation Act, 1996 ("A&C Act"), it can recall its order if sufficient cause is shown by the claimant for committing default in filing its statement of claim. The Supreme Court held that if the arbitral tribunal is empowered to condone default on sufficient cause being shown, this can be done by the tribunal recalling its order after the proceedings are terminated.

Facts:

As per the first preliminary meeting between the Sole Arbitrator and the parties on August 27, 2011, the Tuff Drilling was required to file its Statement of Claim by November 19, 2011. The Claimant failed to submit the SOC. The date for submission was extended to December 9, 2011. The Claimant failed again in making its submission. On December 12, 2011, the tribunal terminated the proceedings in view of Section 25(a) of the A&C Act3.

On January 20, 2012, the Claimant filed an application stating reasons for delay in detail, praying for condonation of delay in filing the SOC and recall of the order of termination. On April 26, 2012, the Tribunal rejected the Claimant's application on the ground that it had become functus officio and consequently could not recall its order of termination.

Aggrieved by the Tribunal's order, the Claimant filed a revision application under Art. 227 of the Constitution before the Calcutta High Court. The High Court held that tribunal has power to recall its own order. The High Court set aside the order of the arbitral tribunal and remitted the matter back to the arbitral tribunal to decide the Claimant's application on merits. Aggrieved by the Calcutta High Court judgment, the Original Respondent approached the Supreme Court in appeal.

Issues:

  • Whether arbitral tribunal, which has terminated the proceeding under Section 25(a) due to non-filing of claim by claimant, has jurisdiction to consider the application for recall of the order terminating the proceedings on sufficient cause being shown by the claimant?
  • Whether the order passed by the arbitral tribunal under Section 25(a) terminating the proceeding is amenable to jurisdiction of High Court under Article 227 of the Constitution of India?

Judgment:

The Court upheld the decision of the Calcutta High Court and held that the arbitral tribunal can recall the order and re-commence the proceedings after termination of proceedings under Section 25(a) on sufficient cause being shown by the Claimant. It directed the tribunal to proceed to decide the Claimant's application expeditiously. The reasoning of the Court is encapsulated below.

The scheme of Section 25(a)

Section 25 empowers an arbitral tribunal to terminate the proceedings upon failure of the Claimant to communicate his SOC within the time as envisaged by Section 23, unless sufficient cause is shown by the Claimant. The Court considered that conjunction of the words "where without showing sufficient cause" and "the claimant fails to communicate his statement of claim" imposes a duty on the tribunal to inform the claimant to show-cause why the arbitral proceedings should not be terminated. The Tribunal had done so. However, the Court stated that the Scheme of Section 25 of the Act clearly indicates that on sufficient cause being shown, the statement of claim can be permitted to be filed even after the time as fixed by Section 23(1) has expired. Hence, it did not matter if the cause was shown before or after termination of the proceedings under Section 25(a). The Court held3 that an arbitral tribunal is not denuded from accepting the cause and allowing the submission of SOC after an order under Section 25(a).

Termination under Section 25(a) versus Section 32(2)(c):

The Court made a comparative analysis of termination under Sections 25(a) and under Section 32(2). Whilst Sections 32(2)(a) and 32(2)(c) were not applicable to the present case, the Court delved into Section 32(2)(c) – where a tribunal may terminate proceedings if it finds that the continuation of the proceedings has for any other reason become 'unnecessary' or 'impossible'. The Court held that these terms did not cover a situation of 'default' as under Section 25(a). Further, Section 32(2) would come into play when a situation under Section 25(a) is absent i.e. the proceedings have continued. The Court also sought aid from Section 33(3) which reiterates termination of the 'mandate of the arbitral tribunal'. The absence of these words in Section 25(a) further reinforces the legislative intent and purpose in making a distinction between the two provisions.

Ancillary powers of the arbitral tribunal: Power of Review

The Court drew a comparison between ancillary powers of an industrial tribunal to set aside its ex-parte award on being satisfied that there was sufficient cause, despite absence of an express provision under the Industrial Disputes Act, 1956. The Court held that a Tribunal or body should be considered to be endowed with such ancillary or incidental powers as are necessary to discharge its functions effectively for the purpose of doing justice between the parties, unless there is any indication in the statute to the contrary.

While recognizing that power of review has to be expressly conferred by a statute, the court held that power of review of merits is distinguishable to review of procedure. A quasi-judicial authority is vested with inherent powers to invoke procedural review. When a party establishes that the procedure followed by the quasi-judicial authority suffers from illegality vitiating the proceeding, the order passed is liable to be recalled and reviewed.

The Court also analyzed Section 19(2) of the A&C Act which permits the parties to agree on the procedure to be followed by the arbitral tribunal. The Court held that this provision permitted parties to agree upon a remedy of review/revival of arbitral proceedings in the arbitration agreement. Consequently, the Court opined that while parties could agree to such a review, there was no reason to denude a tribunal from reviving the arbitral proceedings already terminated – in the absence of such agreement.

Order IX Rule 9 of Code of Civil Procedure, 1908

The Court held that the tribunal could rely on Order IX Rule 9 of the Code of Civil Procedure, 19084 in setting aside an order of dismissal where sufficient cause is shown after the order. The Court held that under Section 19 of the A&C Act5, the tribunal is not bound by the procedure laid down under the Code. However, it is not incapacitated from relying on the CPC. It can also travel beyond the Code of Civil Procedure and the only fetter that is put on its powers is to observe the principles of natural justice. The Court held that principles of Order IX Rule 9 could therefore be invoked by the arbitrator.

Scheme of the A&C Act

Delving into the object and purpose of the A&C Act, the Court held that upon denuding the arbitral tribunal from recalling its termination order under Section 25(a), the parties would only be left with the remedy to approach the High Court under its writ jurisdiction. This would be contrary to the object and purpose of the A&C Act to provide effective dispute resolution. Going a step further, the Court held that if the tribunal was denuded from its power to recall its decision under Section 25(a), it would also be denuded from recalling or reviewing a decision under Section 25(b) where the respondent fails to communicate its Statement of defence and the tribunal continues with the proceedings – leaving the respondent to approach the High Court by way of a writ petition.

Analysis:

Shutting the door on the oft heard argument of the arbitral tribunal being functus officio, this judgment reiterates the purport of Section 5 of the A&C Act6 which remains central to effectuating speedy and effective dispute resolution under the A&C Act. Courts in India are increasingly adopting the policy of minimal court intervention in arbitration proceedings, thereby leaving a lion's share of the proceedings emanating out of arbitration to be dealt with by the arbitral tribunals themselves, wherever appropriate.

The judgment recognizes the critical distinction between power of review on merits – a statutory power, as opposed to powers of a tribunal to review procedure – an inherent power. This distinction significantly cuts down the scope of court interference where procedural defects arise in matter. Being procedural in nature, these defects can be effectively cured by the forum involved and reduce the scope of court intervention. By extending the power of procedural review to arbitral tribunals and vesting an arbitral tribunal with ancillary inherent powers, the Supreme Court has taken a wide step towards empowerment of arbitral tribunals. This judgment also places arbitral tribunals at a pedestal equal to quasi-judicial authorities – entailing equal applicability of principles governing procedure.

Footnotes

1 Civil Appeal No. 15036 of 2017, decided on September 20, 2017

2 Section 25(a): "Default of a party—Unless otherwise agreed by the parties, where, without showing sufficient cause—

(a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of section 23, the arbitral tribunal shall terminate the proceedings;"

3 Relying on the decision of the Delhi High Court in Awasthi Construction Co. vs. Govt. Of NCT of Delhi, 2013 (1) Arb. LR 70 (Delhi)(DB).

4 Order IX Rule 9:"(1) Where a suit is wholly or partly dismissed under Rule 8, the plaintiff shall be precluded from bringing a fresh suit in respect of the same cause of action. But he may apply for an order to set the dismissal aside, and if he satisfies the Court that there was sufficient cause for his non-appearance when the suit was called on for hearing, the Court shall make an order setting aside the dismissal upon such terms as to costs or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit."

5 Section 19: "(1) The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872). (2) Subject to this Part, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. (3) Failing any agreement referred to in sub-section (2), the arbitral tribunal may, subject to this Part, conduct the proceedings in the manner it considers appropriate. (4) The power of the arbitral tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence."

6 Section 5: "Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Kshama Loya Modani
Sahil Kanuga
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions