Order Terminating Arbitral Proceedings Without Issuing Show Cause Notice Is Unsustainable And Perverse: Delhi HC

The Single Bench of Justice Prateek Jalan held that to ensure that an Arbitral Tribunal performs the duty entrusted to it is a core aspect of the supervisory function of the High Court, and thus where the Arbitral Tribunal has failed to decide the review applications filed by the claimant seeking recall of the order terminating the arbitral proceedings, the Court can invoke Article 227 of the Constitution of India.

A contract was entered into between the petitioner Union of India and the respondent Delhi State Consumers Co-operative Federation Limited. Thereafter, several disputes arose between the parties which were referred to arbitration. The Arbitrator passed an order terminating the arbitral proceedings under Section 25(a) of the A&C Act, holding that the claimant/Union of India had failed to file its statement of claims in accordance with Section 23(1) of the A&C Act.

The Union of India filed an application before the Arbitrator for recall of the order terminating the arbitral proceedings, however the Arbitrator did not pass any orders. The Union of India filed a petition under Article 227 of the Constitution of India before the Delhi High Court against the order passed by the Arbitrator. In the alternative, the Union of India sought directions to the Arbitrator to consider the applications filed for recall of the orders.

The Union of India submitted before the High Court that the Arbitrator had failed to exercise its jurisdiction by declining to consider the applications made by the Union of India seeking recall of the orders terminating the arbitral proceedings. The Union of India contended that in view of the law laid down by the Supreme Court in the case of Srei Infrastructure Finance Limited versus Tuff Drilling Private Limited (2017), an order terminating the arbitral proceedings under Section 25 of the A&C Act ought to be preceded by a notice to the concerned parties, and such an order was susceptible to an application for review or recall.

The Union of India averred that the supervisory jurisdiction of the High Court was available even in respect of arbitral proceedings, and that since the Arbitrator had failed to exercise the power vested in her, a petition under Article 227 was maintainable before the High Court.

The respondent Delhi State Consumers Co-operative Federation Limited submitted that the Union of India displayed a lethargic attitude in prosecuting its claims and had taken adjournments on each occasion since it was unable to appoint a counsel on time. The respondent contended that the Union of India should not be allowed to take advantage of its own delays.

The High Court observed that the Supreme Court in the case of Srei Infrastructure Finance Limited versus Tuff Drilling Private Limited (2017) had held that it is a duty of the Arbitral Tribunal to inform the claimant that he has failed to communicate his statement of claim on the fixed date, and that the claimant is required to show cause why the arbitral proceedings should not be terminated. The Supreme Court had ruled that subsequent to the termination of the arbitral proceedings, if sufficient cause is shown by the claimant, there is no impediment in the power of the Arbitral Tribunal to permit the claimant to file the statement of claims.

Thus, the High Court noticed that as per the law laid down by the Supreme Court, the Arbitral Tribunal has jurisdiction to consider the application for recall of the order terminating the arbitral proceedings under Section 25(a) of the A&C Act.

The Court held that the grievance raised by the Union of India was not just against a substantive decision made by the Arbitrator, but also against the Arbitrator's failure to decide the review applications filed by the Union of India. Thus, the Court noted that the grievance of the Union of India was that the Arbitrator had neglected to exercise the jurisdiction vested in her. The Court ruled that to ensure that an Arbitral Tribunal performs the duty entrusted to it is a core aspect of the supervisory function of the High Court. Thus, the Court added, it could invoke Article 227 in respect of the said arbitral proceedings.

The Court observed that it was being called upon not to interdict the arbitral process, but to aid and support it.

The Court held that exercise of jurisdiction by the Court would give the defaulting claimant an opportunity to explain its conduct to the Arbitrator. The Court added that if the Arbitrator gets satisfied with the explanation offered by the claimant, the process could be recommenced and taken to its logical conclusion. Thus, the Court held that the case presented an "exception circumstance", wherein exercise of jurisdiction by the High Court would be a step in aid of the arbitral proceedings and not an interference with the arbitral process.

The Court observed that the Arbitrator had failed to exercise the jurisdiction vested in her since she failed to pass an order on the applications filed by the Union of India, seeking recall of the order passed by the Arbitrator terminating the arbitral proceedings.

Therefore, the Court ruled that an order terminating the arbitral proceedings under Section 25(a) of the A&C Act can be recalled by the Arbitral Tribunal on the application of the claimant, and that where the Arbitral Tribunal has failed to interfere, the interference of the writ court is justified.

The Court observed that the Union of India was given time by the Arbitrator to file the statement of claims on the next date of hearing. However, the Court noted, no hearing was held thereafter. The Court thus ruled that the abrupt issuance of the orders terminating the arbitral proceedings, without holding any hearing and without issuing any show cause notice to the Union of India, was unsustainable. Thus, the Court held that the order passed by the Arbitrator terminating the arbitral proceedings suffered from perversity of approach.

The Court thus partly allowed the writ petitions filed by the Union of India and directed the Arbitrator to consider the applications filed by the Union of India seeking recall of the orders terminating the arbitral proceedings under Section 25(a) of the A&C Act.

The Court added that whether the Union of India was able to show sufficient cause for its delay in submitting the statement of claims or not, was a matter for the Arbitrator to consider.

Case Title: Union of India versus Delhi State Consumer Co Operative Federation Ltd.

Citation: 2022 LiveLaw (Del) 435

Dated: 09.05.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Rakesh Kumar, CGSC

Counsel for the Respondent: Ms. Anju Bhattacharya, Advocate

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