Arbitrator's Power Under Section 32(2)(c) Can Be Exercised Only If Continuation Of Proceedings Has Become Unnecessary Or Impossible: Supreme Court

The bench held that the mere existence of a reason for terminating the proceedings is not sufficient. The reason must be such that the continuation of the proceedings has become unnecessary or impossible.

It held that:

“The abandonment of the claim by a claimant can be a ground to invoke clause c of subsection 2 of Section 32 The abandonment of the claim can be either express or implied The abandonment cannot be readily inferred There is an implied abandonment when admitted or proven facts are so clinching that the only inference that can be drawn is of the abandonment Only if the established conduct of a claimant is such that it leads only to one conclusion that the claimant has given up hisher claim can an inference of abandonment be drawn Even if it is to be implied there must be convincing circumstances on record which lead to an inevitable inference about the abandonment Only because a claimant after filing his statement of claim does not move the Arbitral Tribunal to fix a date for the hearing the failure of the claimant per se will not amount to the abandonment of the claim”

Brief Facts:

The matter pertained to the development of certain land in Mumbai owned by Dani Wooltex Corporation wherein SheilProperties was involved under a Development Agreement. Marico Industries also entered an agreement to purchase a portion of the property from Dani Wooltex Corporation. Sheilobjected to this transaction, claiming rights under its existing agreement. Consequently, disputes arose between Sheil, Marico, and Dani Wooltex Corporation which ultimately led to arbitration.

Both Sheil and Marico submitted their claims to the Arbitral Tribunal. Marico's arbitration proceeded first, resulting in an award in May 2017. However, Sheil's claim remained unresolved for several years. In 2019 and 2020, Dani WooltexCorporation requested the Arbitral Tribunal to dismiss Sheil'sclaim due to alleged abandonment. Despite attempts to address the issue, including meetings and filings, Sheil'sarbitration did not progress.

The Arbitral Tribunal eventually terminated Sheil's arbitration proceedings in December 2020, referring to Section 32(2)(c) of the Arbitration and Conciliation Act (“Arbitration Act”), which allows termination if proceedings become unnecessary due to a claimant's inaction. Sheil challenged this termination in the Bombay High Court, arguing against the Tribunal's authority to terminate without proving that continuation was impossible or unnecessary. Additionally, Sheil contended that the Arbitral Tribunal did not sufficiently address the legality of termination under Section 14(2) of the Arbitration Act.

In defense, Dani Wooltex Corporation argued that Sheil's lack of participation despite opportunities indicated abandonment justified termination. It also emphasized that the Tribunal attempted to accommodate Sheil's participation, which was declined.

Sheil argued that termination required proof of necessity or impossibility of continuation, which was lacking. It argued that the Tribunal's decision failed to adequately assess the legality of termination under Section 14(2) of the Arbitration Act. Moreover, it contended that Sheil's actions were justified, given the separate nature of Sheil's and Marico's claims and the absence of clear directives after preliminary directions were issued in Sheil's arbitration.

The High Court reversed the termination order. Feeling aggrieved, Dani Wooltex Corporation approached the Supreme Court.

Observations by the Supreme Court:

The Supreme Court referred to Section 32, which outlines circumstances leading to the termination of arbitral proceedings. While subsection (1) specifies scenarios such as issuing a final arbitral award, subsection (2) elucidates additional grounds for termination, including the claimant's withdrawal or mutual agreement by parties. Clause (c) of subsection (2) allows termination if the continuation of proceedings becomes unnecessary or impossible due to unforeseen circumstances.

In interpreting Section 32(c), the Supreme Court emphasized that mere non-appearance of a party does not automatically render proceedings unnecessary. Instead, abandonment must be unequivocally established, either expressly or impliedly, through compelling evidence. The Supreme Court rejected the notion that a claimant's failure to schedule a hearing constitutes abandonment.

The Supreme Court noted that separate arbitral proceedings were initiated pursuant to orders passed on 13th October 2011 and 17th November 2011, involving distinct claimants and respondents. Marico and Sheil were the respective claimants, with the first appellant and Sheil as respondents in one proceeding, and Sheil and Marico as respondents in the other.

During the initial stages, both claimants were directed to file their statements of claim, setting the procedural foundation for the arbitral process. Subsequently, Marico's claim was heard first, during which Sheil, the respondent, actively participated in all proceedings. However, the Supreme Court noted that there was no indication or directive from the Arbitral Tribunal to simultaneously hear Sheil's claim alongside Marico's. Despite this, Sheil diligently attended hearings until the passing of the award on Marico's claim.

The Supreme Court held that the power to terminate proceedings under Section 32(2)(c) should only be invoked if the continuation of proceedings becomes genuinely unnecessary or impossible. Mere procedural lapses or non-appearance without reasonable cause do not warrant such termination.

Furthermore, it underscored the duty of the Arbitral Tribunal to actively manage proceedings and adjudicate disputes, irrespective of parties' requests. The failure of a claimant to schedule a hearing date does not automatically imply abandonment of the claim, which must be established through compelling evidence.

Consequently, the Supreme Court dismissed the appeal.

Case Title: Dani Wooltex Corporation & Ors. vs SheilProperties Pvt. Ltd. & Anr.

Case Number: CIVIL APPEAL NO.6462 OF 2024

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