The Supreme Court has delivered a significant judgment, in , with far-reaching implications for the termination of arbitration proceedings in India. The case revolves around the validity of a termination of arbitral proceedings passed by an arbitral tribunal under section 32(2)(c) of the Arbitration and Conciliation Act, 1996.
The dispute began when appellant Dani Wooltex acquired land in Mumbai to be developed by Sheil Properties under a development agreement. A second respondent, Marico Industries, was to purchase the other half of the land under a memorandum of understanding. Sheil filed an objection with Marico, stating that any transaction between Wooltex and Sheil should be subject to the MOU.
This led to a series of disputes. Two separate claims of Sheil and Marico were submitted to the same arbitral tribunal. Marico’s claim was arbitrated and awarded, but Sheil’s claim remained unsettled. The arbitral tribunal eventually terminated proceedings on the basis that Sheil had not pressed its claim for eight years. Sheil appealed to the Bombay High Court, which overturned the termination. The case was then appealed before the Supreme Court.
The primary issue was the legality and validity of the arbitral tribunal’s termination order. The Supreme Court judgment highlights the following key points about section 32:
- The section’s power can only be exercised if a continuation of proceedings has become unnecessary or impracticable for any reason;
- Unless an arbitral tribunal records its satisfaction, based on already filed evidence, that proceedings have become unnecessary or impracticable, the section cannot be utilised;
- The arbitral tribunal is responsible for scheduling a hearing even if parties do not request it. The tribunal is to resolve the issue referred to it and has to adjudicate within the timelines of the act. The tribunal can, however, use provisions of the act, such as section 25, if parties are absent without reasonable cause on a scheduled meeting/hearing date; and
- The abandonment of a claim by a claimant can be used to invoke section 32(2)(c), and that abandonment can be either explicit or implicit. However, abandonment cannot be readily implied. There can be an implied abandonment when known or proven facts or the claimant’s established conduct leads to just one conclusion: that the claimant has given up their claim.
In Wooltex v Sheil, the Supreme Court held the tribunal’s decision to terminate Sheil’s claim lacked sufficient grounds. The tribunal failed to recognise its duty to proactively fix hearings and relied heavily on the claimant’s failure to request hearings.
The court pointed to Sheil’s participation in Marico’s arbitration and the absence of any meetings regarding Sheil’s claim until March 2020 (coinciding with the covid-19 pandemic) as indicators that the claim was not abandoned. Therefore, the appeal was dismissed, affirming the Bombay High Court’s decision to continue the arbitral proceedings. The court directed the parties to appoint a substituted arbitrator following the original arbitrator’s withdrawal.
This case reinforces the notion that an arbitrator must base decisions on concrete evidence rather than assumptions. The court emphasised that section 32(2)(c) can only be exercised if a continuation of proceedings has become unnecessary or impossible. This judgment underscores the importance of an arbitrator’s active role in managing arbitration proceedings and the stringent criteria for terminating such proceedings.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
