India: Arbitral Tribunal Power To Recall Its Order Under Section 25(A), Arbitration And Conciliation Act, 1996

The Hon'ble Supreme Court recently in Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited, Civil Appeal No. 15036 of 2017 held that the arbitral tribunal has power to recall its order terminating the proceeding under Section 25(a) of the Arbitration and Conciliation Act, 1996.

Factual background

Tuff Drilling Private Limited (Respondent/ Claimant) filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (Act) for appointment of arbitrator based on the agreement entered between Srei Infrastructure Finance Limited (Appellant) and the Respondent. During the pendency of this application, an arbitrator was appointed with the consent of the parties. Subsequently, application under Section 11 was dismissed and the arbitral tribunal in its first sitting, held on 27.08.2011, directed the Respondent/ Claimant to file the statement of claim. The Respondent/ Claimant failed to file its statement of claim on two subsequent events, that is, on 19.11.2011 and 09.12.2011. On this ground, the tribunal vide its order dated 12.12.2011 terminated the arbitral proceeding under Section 25(a) of the Act. The Claimant filed an application on 20.01.2012 praying to recall the tribunal's order dated 12.12.2011 and condoning the delay in filing the statement of claim along with the reasons for the same. The Appellant questioned the maintainability of this application dated 20.01.2012 on the ground that arbitral tribunal has become functus officio in view of termination of proceedings under Section 25(a), hence arbitral tribunal cannot recall its order terminating the proceedings. The arbitral tribunal accepted the preliminary objection raised by the Appellant and rejected the application of Respondent/ Claimant vide order dated 26.04.2012. The Claimant challenged the said order of the tribunal before the Hon'ble Calcutta High Court under its revisionary jurisdiction in C.O. No. 3190 of 2012. The Hon'ble High Court after entertaining the application under Article 227 held that arbitral tribunal has the power to recall its own order passed under Section 25(a). The Hon'ble High Court accordingly set aside the order of the tribunal and remitted the matter back to the arbitral tribunal to decide the application dated 20.01.2012. The Appellant challenged the decision of the Hon'ble High Court before the Hon'ble Supreme Court.

Contentions of the Appellant

It was contended by the Appellant that the arbitral tribunal had become functus officio and had no jurisdiction to recall its order dated 12.12.2011 terminating the arbitration proceeding. The order dated 12.12.2011 passed by the arbitral tribunal under Section 25(a) of the Act cannot be challenged under Article 227 of the Constitution. Moreover, it was argued that the remedy, if any, available to the claimant against the order of the tribunal under Section 25(a) of the Act was to file an application under Section 34 of the Act for setting aside the order dated 12.12.2011.

Submissions of the amicus curiae

The amicus curiae appointed to assist the Hon'ble Apex Court had submitted that the termination of proceedings under Section 25(a) of the Act and termination of proceedings under Section 32(2) of the Act are two eventualities. When the proceedings are terminated under Section 32(2), the mandate of the arbitral tribunal also terminates whereas no such consequence can be read in termination of proceedings under Section 25(a). Under Section 25(a), proceedings are terminated on default of the claimant to file the statement of claim. Section 32(3) would not apply to case falling under Section 25(a) of the Act. The Act does not provide for remedy against the order under Section 25(a) and the remedy under Section 34 is not available against such an order unless the order under Section 25(a) is also treated as an award. There seems to be a legislative gap with respect to Sections 25(a) and 32(2) (c). Regarding whether arbitral tribunal can exercise the power akin to principles underlying Order IX Rule 9 of the Civil Procedure Code, 1908 (CPC), the amicus curiae submitted that arbitral tribunal can recall an order passed under Section 25(a) on the principles of Order IX Rule 9 CPC.

Issues framed

  1. Whether arbitral tribunal which has terminated the proceeding under Section 25(a) of the Act due to non- filing of claim has jurisdiction to consider the application for recall of the order terminating the proceedings on sufficient cause being shown by the claimant?
  2. 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?
  3. Whether the order passed under Section 25(a) terminating the proceeding is an award under the Act so as to amenable to the remedy under Section 34 of the Act?

Decision

The Hon'ble Supreme Court held 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. Thus, even after passing the order of terminating the proceedings, if sufficient cause is shown, the claims of statement can be accepted by the arbitral tribunal by accepting the show-cause and there is no lack of the jurisdiction in the arbitral tribunal to recall the earlier order on sufficient cause being shown.

Further, the Hon'ble Supreme Court dealt with the issue whether the termination of proceedings by an order under Section 25(a) can be treated to be covered by Section 32(2)(c). It was held that on termination of proceedings under Sections 32(2) and 33(1), Section 33(3) contemplates termination of the mandate of the arbitral tribunal, whereas no such similar provision is found for termination under Section 25. The Court observed that when the legislature has used the phrase "the mandate of the arbitral tribunal shall terminate" in Section 32(3), non- use of such phrase in Section 25(a) has to be treated as an intentional exclusion. The purpose and object of this exclusion can only be that if the claimant shows sufficient cause, the proceedings can be re-commenced.

The Hon'ble Court also upheld the view that every tribunal has inherent powers to review its order on the grounds of a procedural defect. It was held that arbitral tribunal, being a quasi- judicial authority, is vested with the power to invoke procedural review. The Court also stated that there is no distinction between the statutory tribunal constituted under the statutory provisions or Constitution in so far as the power of procedural review is concerned. It was further noted that Section 19 of the Act, which provides that arbitral tribunal shall not be bound by the rules of procedure as contained in CPC, cannot be read to mean that arbitral tribunal is incapacitated in drawing sustenance from any provisions of CPC. Thus, the principles underlying Order IX Rule 9 can be invoked by arbitrator.

It may be noted here that the Hon'ble Supreme Court did not deem it necessary to discuss issue nos. 2 and 3 after holding that arbitral tribunal has jurisdiction to consider an application for recall of order terminating the proceedings under Section 25(a) of Arbitration and Conciliation Act, 1996.

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