The Arbitration and Conciliation Act, 1996
Recall of termination of proceedings
IN THE SUPREME COURT OF INDIA
M/S CLARIYA STEELS
(civil appeal no. 4956 of 2019) dated: 1st MAY 2019
This appeal arises from the Karnataka High Court judgment dated 14.06.2017.
The parties in this case were involved in an arbitration proceeding. However, for certain reasons the Sole Arbitrator terminated the arbitration proceedings under Section 32 (2) (c).
This termination of proceedings order was pronounced on 4.05.2017. However, on 5.05.2017, the Arbitrator received an application asking to recall the termination order and citing reasons for continuation of arbitration proceedings.
Hence, on 18.05.2017 the Arbitrator having found merit in the reasons, recalled his termination order and continued with the arbitration proceedings.
This order was challenged in the Karnataka High Court by the Appellant. However, the challenge was dismissed by the Karnataka High Court on 14.06.2017.
The appellant thus filed an appeal to the Supreme Court on the basis of the above-mentioned facts.
ISSUE BEFORE SC
Whether the Sole Arbitrator, after termination of proceedings under Section 32 (2) (c), can recall the order?
The Supreme Court, in the bench comprising of Justice Rohinton Nariman and Justice Vineet Saran, heard both the parties thoroughly.
The Court simplified the interpretation of Section 32 of the Arbitration & Conciliation Act, 1996.
Section 32 talks about "Termination of Proceedings" and provides different situations under which the parties or the arbitrator can terminate the proceedings.
Sub – section 1 provides for a situation for automatic termination when the arbitration proceedings shall get terminated on account of pronouncement of the final award.
Sub – section 2 provides for a situation where the Arbitral Tribunal may issue an order of termination of proceedings. The cases under which such a situation can happen are as under:
(a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,
(b) the parties agree on the termination of the proceedings, or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.
Out of the reasons mentioned above, this case fell under the category (c) where the Arbitrator had terminated the proceedings because he found that it was unnecessary or impossible for him to continue the proceedings.
The Court also took note of the circumstances of the case and took Section 25(a) into consideration.
Section 25(a) talks about a situation where the Arbitral Tribunal can terminate the proceedings if the Claimant does not provide for his Statement of Claim without giving a sufficient reason.
The Court considered the usage of words "unnecessary" and "impossible" in Section 32 (2) (c). The Court found that the purpose of using these words particularly shall not encompass a situation already covered under Section 25 (a). The situation covered under Section 25 provides for a specific termination which is not covered under Section 32 and hence cases under Section 32 shall be separate from termination cases under Section 25.
The Court also noted that sub – section (3) of Section 32 provided for the termination of mandate of the arbitrator once a termination order under Section 32 has been provided.
However, the same eventuality and finality was not attached to termination orders under Section 25.
Hence, the Court opined that the Arbitrator could not recall its termination order since his mandate was terminated along with the termination of the proceedings, as he had passed a termination order under Section 32 and not under Section 25.
The Court also took note of the need for quick resolution of the dispute and appointed a substitute arbitrator as per the requirement under Section 15 (2).
The Supreme Court observed that this case was no longer res integra. There was a precedent available for a similar situation, in order to base their interpretation of law.
The Supreme Court relied on the findings of the case of SREI Infrastructure Finance Ltd v. Tuff Drilling Private Ltd. [ (2018) 11 SCC 470]
In this case, the Court had stated:
"The eventuality as contemplated under Section 32 shall arise only when the claim is not terminated under Section 25(a) and proceeds further. The words "unnecessary" or "impossible" as used in clause (c) of Section 32(2), cannot be said to be covering a situation where proceedings are terminated in default of the claimant. The words "unnecessary" or "impossible" has been used in different contexts than to one of default as contemplated under Section 25(a). Subsection (3) of Section 32 further provides that the mandate of the Arbitral Tribunal shall terminate with the termination of the arbitral proceedings subject to Section 33 and Section 34."
The Court further held the following:
"On the termination of proceedings under Sections 32(2) and 33(1), Section 33(3) further contemplates termination of the mandate of the Arbitral Tribunal, whereas the aforesaid words are missing in Section 25. 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 with a purpose and object. The purpose and object can only be that if the claimant shows sufficient cause, the proceedings can be recommenced."
Thus, taking note of the above-mentioned case, the Court passed an order in this case to not let the Arbitrator recall the termination order that he had passed under Section 32
In the present case, the Court gave importance to following a precedent that the Supreme Court had already set.
The Court also correctly distinguishes the intention of the termination order under Section 32 and the finality attached to it, from the termination order under Section 25(a).
The Court also appointed a substitute arbitrator for quick resolution of the dispute which in our view was the correct and just way to move ahead and was the correct interpretation of the law.
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