Author: Anany Tiwari is a 4th-year B.A., LL.B. (Hons.) student at Hidayatullah National Law University, Raipur
ABSTRACT
The article examines the recent Supreme Court ruling in Dani Wooltex Corporation & Ors. v. Sheil Properties Pvt. Ltd. & Anr., which addressed the issue of claim abandonment in arbitration proceedings. The Court clarified that a claimant's mere failure to request a hearing does not justify the termination of arbitration under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996. The judgment emphasized the need for a strict interpretation of the terms "unnecessary" and "impossible," aligning with international arbitration standards. The article further discusses the implications of this ruling on India's Alternative Dispute Resolution (ADR) regime, advocating for a high threshold to terminate arbitration proceedings to prevent unjust terminations and preserve the integrity of the arbitration process. This case reinforces the importance of upholding parties' rights in arbitration unless compelling evidence of abandonment is presented.
Introduction
Recently, the Supreme Court in Dani Wooltex Corporation & Ors. V. Sheil Properties Pvt. Ltd, & Anr. has ruled that a mere failure on the part of the claimant to request for a hearing cannot lead to the termination of the arbitral proceeding. The court stated that abandonment can be grounds to terminate the arbitration proceeding but the same must be proved. Further, the court stated that not attending a meeting cannot be equated to mean that the proceeding had become unnecessary or impossible under section 32(2)(c) of Arbitration and Conciliation Act 1996 (A&C/ Act). This judgement underscores the importance of strict interpretation of termination grounds, aligning with international arbitration standards and ensuring that parties' rights to arbitration are upheld unless compelling evidence proves otherwise. This article discusses the intricacies involved in this case and analyses the impact of this judgement in the overall ADR regime.
Factual Matrix and Brief of the case
In this case, Dani Wooltex Corporation (Dani) owned land in Mumbai and it entered into a development agreement with Sheil Properties (Sheil) to develop a certain part of this land. Dani also entered an MOU with Marico Industries to sell another portion of the property. Marico was given the benefit of a certain quantity of FSI/TDR. Marico through a public notice invited objections, and Sheil objected and claimed rights under its agreement. Disputes arose between Sheil, Marico, and Dani, leading to arbitration. The Parties reached a consensus to appoint a sole arbitrator and the same was appointed in the suit filed by Marico by an order passed on 13.10.2011. The suit filed by Sheil was disposed of by referring the matter to the same sole arbitrator.
Marico and Sheil submitted their respective claims to the Arbitration Tribunal. Marico moved with its claim leading to an award in May 2017. On the other hand, Sheils claim remained unresolved for several years. consequently, in 2019 and 2020, Dani requested the tribunal terminate Sheil’s claim due to alleged abandonment. Several attempts were made to address the issue but Sheil’s arbitration did not progress. Eventually, the tribunal terminated Sheils’s arbitration in December 2020 under section 32(2)(c) which allowed termination on the ground of arbitration becoming unnecessary due to the claimant's inaction.
Sheil challenged the termination in Bombay HC because the tribunal terminated the arbitration without Dani proving that the same had become impossible and unnecessary. They also contended that the tribunal didn’t address the legality of termination under section 14(2) of the A&C Act.
The Bombay HC accepted Sheils contention, the termination order was reversed. Dani challenged the order of the HC in the Supreme Court. Referring to section 32(2)(C) the Supreme Court said mere non-appearance doesn’t render a proceeding unnecessary. Failure to schedule a hearing won’t constitute abandonment the Supreme Court ruled. The court held that power under section 32(2)(C) is to be used only when the proceedings have genuinely become unnecessary or impossible. Procedural lapses such as the one that occurred in this case of not scheduling a meeting won’t warrant revocation of the proceeding. The failure of Sheil to schedule a meeting will not automatically mean the abandonment of the claim, such a claim must be established through compelling evidence.
Strict Interpretation of "Unnecessary or Impossible"
In this case, Dani vouched for a liberal interpretation and stated that the tribunal acted within its power by dismissing the claim due to Sheil’s inaction. A strict interpretation of “unnecessary” would require Dani to prove that the proceedings were completely pointless.
Section 32 of A&C is based on Article 32 of the UNCITRAL Model Law on International Commercial Arbitration 1985. The explanatory notes for Article 32 prescribed that the termination of arbitration proceedings should be done only when the same becomes a waste of time and money. It is pertinent to note that the drafter of the UNITRAL Model law changed the word ‘inappropriate’ to ‘impossible’ which showcased their intent to have a high threshold. It is suggested that since section 32 of the arbitration act is based on Article 32 of the Model the Indian courts should also follow the approach that was intended by the model law. This would lead to the Indian courts having a high threshold requirement under Section 32 to match with the international standards.
Normally, arbitration proceedings end with the passing of the final award. However, section 32(2)(c) is an exception to this general rule as it leads to termination of an arbitration proceeding before passing of the final award. In IRDP v P D Chacko the court stated that an exception clause must be interpreted Strictly under the Indian laws. Therefore, section 32(2)(c) should be interpreted strictly because it is an exception to the general rule. A strict interpretation would ensure that complete justice happens and the proceeding is not terminated without it becoming unnecessary or impossible. A high threshold would make the party requesting termination to prove that the same is pointless.
In Maharashtra State Electricity Board v Datar Switchgear Ltd the court stated that the objective of section 32(2)(c) is to provide for situations that could not have been foreseen while drafting the act. Just like the model law, it is left to the discretion of the arbitration tribunal to decide when the proceedings have become unnecessary or impossible. The power given to the tribunal is discretionary under this section but it must be applied by it in a strict sense. If the power under this section is exercised carelessly it would lead to grave injustice as parties right to arbitration would be taken away without it wanting the same to be taken away. This would ultimately lead to appeals in the courts leading to long litigation, which would ultimately ruin the entire purpose of having arbitration as alternate mechanism of dispute resolution. The appeals under sections 34 and 37 of the act can turn into long litigation as seen in the DMRC case where it took around 10 years to resolve the dispute. If parties have to litigate towards the end they would turn to traditional litigation, resulting in dilution in the effort that has been put throughout the years to turn India into a pro-arbitration jurisdiction.
Arbitral Tribunal's Duty to Conduct Hearings and Adjudicate in Absence of Parties
The Supreme Court in this case stated that the Arbitration Tribunal must fix a meeting for a hearing even if the parties do not request the same. If on the date fixed by the tribunal, a party to the dispute is absent in such a scenario the arbitration tribunal can take measures under section 25 of the Act. Section 25 allows the tribunal to proceed ex parte if the tribunal considers it appropriate. The case of Nagasirinivasulu vs. GLADA Finance Ltd highlighted that even after a notification a party doesn’t appear, and the arbitrator mentions this in the hearing minutes with a warning of proceeding ex parte, a subsequent ex parte award can be valid. This means that not attending a meeting cannot be directly equated to abandonment, as the same can be grounds to terminate the proceeding under section 32(2)(c) when one of the parties to the arbitration doesn’t take any active steps to schedule a meeting or doesn’t attend a meeting on the scheduled date cannot be equated to abandonment ultimately leading to termination. The courts can take recourse available under section 25 and can move ex-parte without terminating the proceeding.
Section 25(c) gives the power to the tribunal to proceed ex parte. In the present case, Sheil did not appear for one of the meetings pre-covid and Dani argued that the same showed the intention of Sheil that it no longer wanted to continue the proceeding. This claim of Dani is not sustainable as per the power given to the arbitration tribunal to move the ex-parte under section 25 of the Act. The arbitration tribunal could have moved ex-parte. Therefore, not attending a meeting cannot be said to be grounds to say that the proceeding had become unnecessary or Impossible.
Abandonment of Arbitral Proceedings
In Himachal Sorang Power Private Limited & Another v. NCC Infrastructure Holding Limited, the court referred to the black law Dictionary to define abandonment. Abandonment involves an intention to relinquish a right permanently without the intention of claiming the same again. Sheil attended meetings held to hear Marico’s claim which showed that Sheil did not intend to give up its claim. Abandonment of a claim by the claimant can be grounds to terminate the arbitration proceeding. However, the abandonment must be proved because abandonment would amount to proceedings becoming unnecessary which would ultimately lead to termination of the arbitration proceeding.
Conclusion
In the case of Dani Wooltex Corporation & Ors. v. Sheil Properties Pvt. Ltd. & Anr., the Supreme Court ruled that mere failure to request a hearing by the claimant cannot lead to the termination of arbitral proceedings. The court emphasized that abandonment must be proven and not merely inferred from non-attendance at meetings. Under Section 32(2)(c), arbitration can only be terminated if it is genuinely unnecessary or impossible, and procedural lapses do not meet this criterion. This judgement underscores the importance of strict interpretation of termination grounds, aligning with international arbitration standards and ensuring that parties' rights to arbitration are upheld unless compelling evidence proves otherwise.
Hence, it can be concluded that it is in the best interest of stakeholders to have a strict interpretation of the words unnecessary and impossible. If these words under section 32(2)(C) are loosely interpreted the same would lead to uncalled terminations of the arbitration proceedings. Therefore, the SC has set a right precedent of high threshold requirements under this section.
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