Supreme Court Clarifies Arbitral Tribunal’s Power to Recall Termination Orders in Arbitration Proceedings

Introduction

Date of the Judgment: 20 September 2017

Citation: (2017) INSC 834

Judges: A.K. Sikri, J., Ashok Bhushan, J. (authored the judgment)

Can an arbitral tribunal, after terminating proceedings due to a claimant’s failure to file a statement of claim, recall its order if the claimant shows sufficient cause for the delay? The Supreme Court of India addressed this crucial question in a recent judgment, clarifying the extent of an arbitral tribunal’s powers under the Arbitration and Conciliation Act, 1996. This case revolves around the interpretation of Section 25(a) of the Act, which deals with the termination of proceedings when a claimant defaults in submitting their claim.

The core issue was whether an arbitral tribunal, after terminating proceedings under Section 25(a) of the Arbitration and Conciliation Act, 1996, becomes functus officio (having no further power or authority) or retains the power to recall its order if the claimant provides a sufficient reason for their default. The Supreme Court, in this judgment, has settled the position of law on this point.

Case Background

The dispute arose from a contract between SREI Infrastructure Finance Limited (the appellant) and Tuff Drilling Private Limited (the respondent). The respondent initiated arbitration proceedings by filing an application under Section 11 of the Arbitration and Conciliation Act, 1996, seeking to refer the dispute to arbitration. With the consent of both parties, an arbitrator was appointed, and the application under Section 11 was dismissed as not pressed.

The arbitral tribunal held its first sitting on 27 August 2011, directing the respondent to file its statement of claim. The respondent failed to file the claim by the stipulated date, and despite further opportunities, the claim was not filed. Consequently, on 12 December 2011, the arbitral tribunal terminated the proceedings under Section 25(a) of the Arbitration and Conciliation Act, 1996.

On 20 January 2012, the respondent filed an application seeking recall of the termination order, citing reasons for the delay and requesting an extension of time to file the statement of claim. The appellant objected, arguing that the arbitral tribunal had become functus officio after terminating the proceedings and lacked the power to recall its order. The arbitral tribunal upheld the appellant’s objection on 26 April 2012, rejecting the respondent’s application.

Aggrieved, the respondent challenged the arbitral tribunal’s order before the Calcutta High Court under Article 227 of the Constitution of India. The High Court set aside the arbitral tribunal’s order, holding that the tribunal had the power to recall its own order. The High Court remitted the matter back to the arbitral tribunal to decide the respondent’s application on merits. The appellant then appealed to the Supreme Court.

Timeline

Course of Proceedings

The respondent, aggrieved by the arbitral tribunal’s order dated 26 April 2012, approached the Calcutta High Court under Article 227 of the Constitution of India. The appellant objected to the maintainability of the application under Article 227, arguing that the arbitral tribunal had become functus officio after terminating the proceedings and had no power to recall its order.

The Calcutta High Court, relying on a judgment of the Patna High Court in M/s Snebo Engineering Ltd. Vs. State of Bihar and Ors., AIR 2004 Patna 33, held that the arbitral tribunal had the power to recall its own order. The High Court overruled the appellant’s objections and set aside the arbitral tribunal’s order, remitting the matter back to the arbitral tribunal to decide the respondent’s application on merits.

Legal Framework

The core legal provisions at play in this case are Sections 25(a) and 32 of the Arbitration and Conciliation Act, 1996.

Section 25 of the Arbitration and Conciliation Act, 1996, titled “Default of a party,” states:

“25. 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;
(b) the respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited;
(c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.”

Section 32 of the Arbitration and Conciliation Act, 1996, titled “Termination of proceedings,” states:

“32. Termination of proceedings.—(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where—
(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.
(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.”

The interplay between these sections is crucial. Section 25(a) mandates the termination of proceedings if the claimant fails to file a statement of claim without sufficient cause. Section 32 outlines the general circumstances under which arbitral proceedings are terminated, and subsection (3) specifies that the mandate of the arbitral tribunal terminates with the termination of the proceedings. The question is whether the termination under Section 25(a) is the same as the termination under Section 32(2), particularly concerning the tribunal’s power to recall its order.

Arguments

Appellant’s Submissions:

• The arbitral tribunal had terminated the proceedings on 12 December 2011 due to the claimant’s failure to file a claim, despite being granted multiple opportunities.
• The arbitral tribunal became functus officio after terminating the proceedings and lacked the jurisdiction to recall the order dated 12 December 2011.
• An application under Article 227 of the Constitution of India was not maintainable against the order of the arbitral tribunal.
• The remedy available to the claimant was to file an application under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the order dated 12 December 2011.
• The appellant relied on the judgment of the Supreme Court in Lalit Kumar V. Sanghavi Vs. Dharamdas V. Sanghavi & Ors., 2014(7) SCC 255, to argue that a writ petition was not maintainable against the order of the arbitral tribunal.

Amicus Curiae’s Submissions:

• The termination of proceedings under Section 25(a) and Section 32(2) are distinct. Termination under Section 32(2) leads to the termination of the arbitral tribunal’s mandate, whereas termination under Section 25(a) does not have the same consequence.
• Section 32(3) does not apply to cases falling under Section 25(a) of the Arbitration and Conciliation Act, 1996.
• The Arbitration and Conciliation Act, 1996, does not explicitly provide a remedy against an order under Section 25(a).
• The remedy under Section 34 is not available against such an order unless the order under Section 25(a) is treated as an award.
• There is a legislative gap concerning Sections 25(a) and 32(2)(c) of the Act.
• It is more appropriate to treat an order under Section 25(a) as an award to make it amenable under Section 34.
• An arbitral tribunal can recall an order passed under Section 25(a) based on the principles underlying Order IX Rule 13 of the Code of Civil Procedure.
• The amicus curiae referred to judgments of the Patna High Court, Delhi High Court, Madras High Court, and Bombay High Court to support these submissions.
• The judgment in SPP Vs. Patel Engineering is not applicable when Sections 34 and 37 of the Arbitration and Conciliation Act, 1996, are not applicable.
• The case of Lalit Kumar involved proceedings terminated under Section 32(2)(c), not Section 25(a).
• The legislative gap apparent in the context of Sections 25(a), 32, and 34 needs to be addressed in light of the object of the legislation.

Submissions [TABLE]

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether an arbitral tribunal that has terminated proceedings under Section 25(a) due to the non-filing of a claim by the claimant has the jurisdiction to consider an application for recall of the order terminating the proceedings, on sufficient cause being shown by the claimant?
2. Whether an order passed by the arbitral tribunal under Section 25(a) terminating the proceedings is amenable to the jurisdiction of the High Court under Article 227 of the Constitution of India?
3. Whether an order passed under Section 25(a) terminating the proceedings is an award under the Arbitration and Conciliation Act, 1996, so as to be amenable to the remedy under Section 34 of the Act?

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases:

• Grindlays Bank Ltd. Vs. Central Government Industrial Tribunal & Ors., 1980 (Supp) SCC 420 – The Court considered this case to determine the power of a tribunal to set aside its ex-parte award on sufficient cause being shown. The Court held that a tribunal has the power to pass an order if it is in the interest of justice, even if there is no express provision in the statute.
• Kapra Mazdoor Ekta Union Vs. Birla Cotton Spinning and Weaving Mills Ltd. & Anr., (2005) 13 SCC 777 – The Court relied on this case to reiterate that a quasi-judicial authority has the power to invoke procedural review. The Court held that procedural review can be invoked when a decision is made without notice to the opposite party or under a mistaken impression that notice was served.
• Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corporation, (2009) 8 SCC 646 – This case was referred to highlight that an arbitral tribunal is not bound by the procedure laid down under the Code of Civil Procedure, but it can draw sustenance from the fundamental principles underlying it.
• M/s. Senbo Engineering Ltd. Vs. State of Bihar & Ors., AIR 2004 Patna 33 – The Patna High Court held that an arbitral tribunal has the power to review an order passed under Section 25(a) on sufficient cause being shown.
• Anil Sood Vs. Presiding Officer, Labour Court II, (2001) 10 SCC 534 – This case was referred to by Patna High Court to support the view that an arbitral tribunal has the power of procedural review.
• Awasthi Construction Co. Vs. Govt. Of NCT of Delhi & Anr., 2013 (1) Arb. LR 70 (Delhi)(DB) – The Delhi High Court held that an arbitral tribunal can condone a default on sufficient cause being shown, whether before or after the termination of proceedings.
• ATV Projects India Ltd. Vs. Indian Oil Corporation Ltd. & Anr., 200(2013) Delhi Law Times 553 (DB) – The Delhi High Court reiterated the principle that an arbitral tribunal can recall an order terminating proceedings under Section 25(a).
• Bharat Heavy Electricals Limited Vs. Jyothi Turbopower Services Private Limited & Ors., 2017(1) Arb. LR 289 (Madras) – The Madras High Court held that an arbitral tribunal can recall an order under Section 25(a) on sufficient cause being shown.
• PMA Shukkur Vs. Muthoot Vehicle, (2010) Arb. LR 121 (Kerala) – The Kerala High Court held a contrary view that the power to set aside an ex-parte award vests in the Court, and the arbitrator does not have any concurrent power to set aside an ex-parte award.
• Lalit Kumar V. Sanghavi Vs. Dharamdas V. Sanghavi & Ors., 2014(7) SCC 255 – The appellant relied on this case to argue that a writ petition was not maintainable against the order of the arbitral tribunal. However, the amicus curiae pointed out that this case involved proceedings terminated under Section 32(2)(c), not Section 25(a).

Legal Provisions:

• Section 11 of the Arbitration and Conciliation Act, 1996 – Appointment of arbitrators.
• Section 18 of the Arbitration and Conciliation Act, 1996 – Equal treatment of parties and full opportunity to present their case.
• Section 19 of the Arbitration and Conciliation Act, 1996 – Determination of rules of procedure.
• Section 23 of the Arbitration and Conciliation Act, 1996 – Statements of claim and defence.
• Section 25(a) of the Arbitration and Conciliation Act, 1996 – Default of a party, specifically the claimant’s failure to file a statement of claim.
• Section 32 of the Arbitration and Conciliation Act, 1996 – Termination of proceedings.
• Section 33 of the Arbitration and Conciliation Act, 1996 – Correction and interpretation of award.
• Section 34 of the Arbitration and Conciliation Act, 1996 – Application for setting aside arbitral award.
• Article 227 of the Constitution of India – Power of High Courts to exercise superintendence over all courts and tribunals.
• Order IX Rule 13 of the Code of Civil Procedure – Setting aside decree ex-parte.

Authorities [TABLE]

Judgment

How each submission made by the Parties was treated by the Court?

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure fairness and justice in arbitration proceedings. The Court emphasized that the arbitral tribunal should have the power to rectify procedural errors and prevent injustice, especially when a party has a valid reason for not complying with procedural requirements.

The Court was also guided by the principles of natural justice, which require that parties be given a full opportunity to present their case. The Court noted that Section 18 of the Arbitration and Conciliation Act, 1996, mandates that parties be treated equally and given a full opportunity to present their case. The Court reasoned that denying the arbitral tribunal the power to recall its order would be contrary to these principles.

Furthermore, the Court considered the object of the Arbitration and Conciliation Act, 1996, which is to provide an efficient and effective alternative dispute resolution mechanism. The Courtrecognized that a rigid interpretation of Section 25(a) that does not allow for recall of orders would hinder the efficient resolution of disputes.

The Court also noted that the Arbitration and Conciliation Act, 1996, does not explicitly bar the arbitral tribunal from recalling its order passed under Section 25(a) on sufficient cause being shown. The Court relied on the principle that when a statute is silent on a particular aspect, it is permissible to draw sustenance from the fundamental principles underlying the Code of Civil Procedure.

Ratio Analysis

The Supreme Court’s decision can be analyzed through the following ratios:

Flowchart

Conclusion

The Supreme Court’s judgment in SREI Infrastructure Finance Limited vs. Tuff Drilling Private Limited clarifies the power of an arbitral tribunal to recall its order terminating proceedings under Section 25(a) of the Arbitration and Conciliation Act, 1996, due to the claimant’s failure to file a statement of claim. The Court held that an arbitral tribunal has the power to recall its order if the claimant shows sufficient cause for the delay. This decision ensures that arbitration proceedings are conducted fairly and justly, allowing parties a chance to present their case even if they have defaulted on procedural requirements.

The judgment also highlights a legislative gap in the Arbitration and Conciliation Act, 1996, concerning the remedies available against an order passed under Section 25(a). While the Court did not directly address this gap, it emphasized the need for a more comprehensive legal framework that provides clarity on the powers of the arbitral tribunal and the remedies available to the parties.

This judgment is significant for arbitration law in India as it provides clarity on the powers of arbitral tribunals and ensures that the principles of natural justice are upheld in arbitration proceedings. It also sets a precedent that arbitral tribunals are not functus officio after terminating proceedings under Section 25(a) and can recall their order on sufficient cause being shown.