Delhi High Court: Order terminating arbitration proceedings under Section 32(2)(c) of Arbitration and Conciliation Act, 1996 is not an award March 22, 2021
Published in: Between The Lines
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The Delhi High Court (“DHC”) has in its judgment dated January 12, 2021 in the matter of M/s PCL Sunconv. M/s National Highway Authority of India [O.M.P. (T) (COMM.) 80/2020], held that an order terminating arbitration proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (“ACA”) is not an award, and can be disputed under Section 14(2) of the ACA.
The National Highway Authority of India (“Respondent”) had invited bids for “Four laning and strengthening of the existing two lanes between Km. 317 and Km. 65 on NH-2, in the State of U.P. and Bihar for construction package IV-A: Contract Agreement No. GTRIP/5.”. Pursuant to the same, M/s.PCL Suncon (“Petitioner”), a joint venture constituted by Progressive Construction Limited and SUNCON Construction Berhard, Malaysia, submitted its bid on December 15, 2001. The Petitioner’s bid was accepted and by a letter dated February 23, 2002, the Petitioner was awarded the contract for an amount of INR 3,96,47,78,901/-. Pursuant thereto, a formal agreement between the parties was executed on March 28, 2002 (“Contract”). Due to a dispute arising between the parties, the Petitioner invoked the arbitration clause under the Contract, inter alia, claiming INR 57,84,00,000/- towards overstay/ overhead charges; INR 2,50,00,000/- as refund of the liquidated damages deducted by the Respondent; and INR 40,04,000/- for rehabilitation of Bridge 58/1. For the purpose of constituting the arbitral tribunal, the Petitioner nominated Justice E. Padmanabhan as its nominee and the Respondent appointed Mr. S. R. Pandey as its nominee, and both the nominated arbitrators nominated Mr. B. Majumdar as the presiding arbitrator (“Presiding Arbitrator”). With the appointment of the Presiding Arbitrator on August 3, 2015, the arbitral tribunal was constituted (“Arbitral Tribunal”) where upon the Petitioner filed its statement of claims to which the Respondent filed its counter claims before the said Arbitral Tribunal. The Arbitral Tribunal last sat on October 11, 2017, when the arguments on behalf of the Petitioner were heard and dates for further hearings were allotted on January 16, 2018, January 17, 2018 and January 18, 2018. However, the said hearings were cancelled due to non- availability of Justice E. Padmanabhan who subsequently resigned as an arbitrator and requested the Petitioner to nominate another arbitrator in his place. Copies of Justice E. Padmanabhan’s resignation letter were forwarded to the other co-arbitrators as well.
The Petitioner attempted to appoint a substitute arbitrator but the process was delayed as the persons who were approached by the Petitioner, did not consent to be appointed as an arbitrator, and in addition, the authorized officer of the Petitioner, who was pursuing the matter on its behalf, abandoned his assignment due to personal reasons. Consequently, on April 20, 2020, the Arbitral Tribunal passed the impugned order terminating the arbitral proceedings under Section 32(2)(c) of the ACA (“Order”). The Petitioner, however, did not receive any communication from the remaining two arbitrators informing it of their intention to terminate the arbitral proceedings nor was the said Order communicated to the Petitioner. On May 22, 2020, the Petitioner sent a letter to the Respondent and the arbitrators, nominating Mr. Subhash I. Patel as its nominee arbitrator and requested
the Presiding Arbitrator to schedule a hearing. In response to the same, the Petitioner was informed about the Order by a letter dated May 27, 2020.
In the Order, the arbitrators had noted that hearings could not be fixed as no response had been received from Justice E. Padmanabhan to the communication letters sent by the Presiding Arbitrator. It was further noted that there was also lack of initiative on the part of the Petitioner as no proposal had been made for fixing any new dates to proceed with the adjudication process. The Petitioner was accordingly advised to check the convenience of Justice E. Padmanabhan for further hearings, but while the Arbitral Tribunal was awaiting the Petitioner’s response, Justice E. Padmanabhan had by a letter dated February 19, 2019, resigned as an arbitrator and requested the Petitioner to nominate another arbitrator. The arbitrators noted that more than a year had elapsed and the Petitioner had not appointed an arbitrator in his place. The arbitrators noted that because of the deadlock, the continuation of proceedings had become impossible and accordingly, terminated the arbitral proceedings under Section 32(2)(c) of the ACA. The Petitioner, thereafter, filed the present petition under Section 14(1)(a) read with Section 15 of the ACA before the DHC, against the said impugned Order.
Whether the Order terminating arbitration proceedings under Section 32(2)(c) of ACA is an award.
Contentions raised by the Respondent:
The Respondent, inter alia, contended that the present petition was not maintainable as the entire arbitral proceedings had been terminated in terms of Section 32(2)(c) of the ACA and this was not a case where arbitrators had withdrawn from the proceedings or the mandate of any arbitrator had been terminated as contemplated under Section 14(1)(a) of the ACA. It was further argued that the Petitioner could approach the court under Section 15 of the ACA only in a case where the arbitrator had withdrawn from the arbitral proceedings or had become de jure or de facto unable to perform its functions. In such circumstances, a substitute arbitrator could be appointed. However, in a case where the entire arbitral proceedings had been terminated, there was no case for appointing any arbitrator under Section 15(2) of the ACA. The Respondent referred to the decision of the Division Bench of the Calcutta High Court in The India Trading Company v. Hindustan Petroleum Corporation Limited [2016 SCC OnLine Cal 479] and basis the same, contended that the decision of the Arbitral Tribunal to put an end to the proceedings was a final award, which could be challenged only by way of an application for setting aside the same under Section 34(2) of the ACA. The Respondent contended that in view of the said decision, the recourse to an application under Section 14 of the ACA was not available to the Petitioner. In addition, reference was also made by the Respondent to the decision of a Coordinate Bench of DHC in Angelique International Limited v. SSJV Projects Private Limited and Another [2018 SCC OnLine Del 8287], wherein the court had accepted the contention that the termination of proceedings in respect of the claim filed by the petitioner would amount to an arbitral award, which could be challenged only by a petition under Section 34 of the ACA. It was also contended
that the Petitioner was responsible for the delay in appointment of an arbitrator in place of Justice E. Padmanabhan and therefore, the decision of the Arbitral Tribunal to terminate the arbitral proceedings could not be faulted.
Contentions raised by the Petitioner:
The Petitioner on the other hand contended that it was well settled that an order terminating the proceedings under Section 32(2) of the ACA could not be considered as an award. The Petitioner submitted that termination of the arbitral proceedings on account of non-prosecution of claims also could not be construed as an award and which could be challenged under Section 34 of the ACA. It was further argued that the abovementioned decision in Angelique International Limited v. SSJV Projects Private Limited and Another [2018 SCC OnLine Del 8287] (supra) struck a discordant note inasmuch as it held that only a petition under Section 34 of the ACA would be maintainable against an order terminating the arbitral proceedings under Section 32(2)(c) of the ACA. It was argued that the said decision was per in curiam as it ignored the binding decisions of the DHC in Bridge and Roof Co. (India) Limited v. Guru Gobind Singh Indraprastha University and Another [2017 SCC OnLine Del 10412], Puneet Kumar Jain v. MSTC Limited and Others [MANU/DE/7910/2017], Shushila Kumari and Another v. Bhayana Builders Private Limited [2019 SCC OnLine Del 7243], Gangotri Enterprises Limited v. NTPC Tamil Nadu Energy Company Limited [(2017) 237 DLT 690] and Pandit Munshi and Associates Limited v. Union of India and Others [2015 (2) ARB LR 40 (Delhi)]. Lastly, the Petitioner argued that the Order was liable to be set aside as no pre-emptory notice was issued by the arbitrators before proceeding to terminate the arbitral proceedings.
Observations of the Delhi High Court
The DHC observed that, as per Section 34 of the ACA, “(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).” The use of the word ‘only‘in Section 34(1) of the ACA was significant and it clearly implied that except under Section 34 of the ACA, no other recourse was available against an arbitral award, to which Part-I of the ACA applied. The contention that the present petition was not maintainable and the only recourse available to the Petitioner was to file an application under Section 34 of the ACA was founded on the assumption that the impugned Order was an award. Clause (c) of Sub-section (1) of Section 2 of the ACA, defines an ‘arbitral award‘ to include an interim award. Section 31 of the ACA provides for the form and the content of an arbitral award. The question as to the distinction between an award and an order of an arbitral tribunal had been a subject matter of a number of rulings. It was now well settled that an award constituted a final determination of a particular issue or a claim in arbitration.
It was also observed that Section 32 of the ACA drew a clear distinction between a final arbitral award and interim orders passed by an arbitral tribunal. In terms of Section 32(1) of the ACA, arbitral proceedings stood terminated by a final award or by such orders as were specified under Section 32(2) of the ACA. In Rhiti Sports Management Private Limited v. Power Play Sports and Events Limited [2018 SCC OnLine Del 8678], the DHC had noted that “A plain reading of Section 32 of the Act indicates the fact that the final award would embody the terms of the final settlement of disputes (either by adjudication process or otherwise) and would be a final culmination of the disputes referred to arbitration.….To put it in the negative, any procedural order or an order that does not finally settle a matter at which the parties are at issue, would not qualify to be termed as ‘arbitral award’.”
As opposed to the reasoning held in Angelique International Limited v. SSJV Projects Private Limited and Another [2018 SCC OnLine Del 8287] by the DHC, the Supreme Court (“SC”) had, in the case of Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products [(2018) 2 SCC 534] considered the question of whether an award on the issue of limitation could be considered to be an interim award and whether the decision on the point of limitation was a matter of jurisdiction and therefore, be covered under Section 16 of the ACA and held that since the award had finally determined one of the issues between the parties, the same could be considered as an interim award inasmuch as it finally determined a claim that could not be re-adjudicated all over again. Thus, in order for a decision of the arbitral tribunal to qualify as an award, the same must finally decide a point at which the parties are at issue. In cases where the same is dispositive of the entire dispute referred to the arbitral tribunal, the said award would be a final award, which would result in termination of the arbitral proceedings. In light of the above, the DHC observed that, it was clear that an order which terminated the arbitral proceedings as the arbitral tribunal found it impossible or unnecessary to continue the arbitral proceedings, would not be an award. This was because it did not answer any issue in dispute in arbitration between the parties but was an expression of the decision of the arbitral tribunal not to proceed with the proceedings. Section 32 of the ACA made a clear distinction between an award and an order under Sub-section (2) of Section 32 of the ACA. Indisputably, an order under Sub-Section (2) of Section 32 of the ACA was not an award.
Further, the DHC observed that the Order passed by the arbitrators expressly stated that the arbitral proceedings were terminated under Section 32(2)(c) of the ACA as in their view, it had become impossible to continue with the said proceedings. Indisputably, an order terminating the proceedings under Section 32(2)(c) of the ACA could be impugned under Section 14(2) of the ACA. The Respondent’s contention that even though an application under Section 14(2) of the ACA may be filed, the present application which is under Section 14(1)(a) and Section 15 of the ACA is not maintainable, appeared to be unpersuasive. A plain reading of Sub-section (2) of Section 14 of the ACA indicated that unless otherwise agreed by parties, a party could apply to a court to decide on the question of termination of the mandate, if a controversy remained concerning any of the grounds referred to in Sub-section 14(1)(a) of the ACA.
Decision of the Delhi High Court
Allowing the petition, the DHC noted that, although the arbitrators had passed the Order, it was not disputed that a notice intimating that they were contemplating terminating the proceedings was not issued to the Petitioner, prior to passing of the Order. However, it could not be denied that the Petitioner was responsible for the stalling of the proceedings as it had inordinately delayed the appointment of an arbitrator. Whilst the DHC was of the view that the Petitioner ought not be rendered remediless to urge its claims, the Respondent’s contention that the Petitioner must be visited with costs was merited. Hence, the DHC set aside the impugned Order, albeit, subject to payment of costs of INR 25,000/- by the Petitioner.
Since the Petitioner had already nominated an arbitrator, Mr. Subhash I. Patel, the Arbitral Tribunal was directed to resume the arbitration proceedings. The Arbitral Tribunal was further directed to conclude the arbitral proceedings as expeditiously as possible and preferably within one year from date of the DHC’s judgement.
Vaish Associates Advocates View:
In light of the previous judgments on same question of law and interpretation, dealt with and decided by the SC, the DHC has fittingly interpreted Section 32 and Section 34 of the ACA, to distinguish between an ‘award’ and an ‘order’.
Aside from the clear intent of the legislation, which is evident in the text of Section 32, it would appear logically inconsistent to treat a procedural order as an award, while provision has been given for both in the law and in the way they are to be dealt with in case parties to a contract want to challenge the same before a court of law. Also, considering that the impugned Order itself stated that the same was passed under Section 32 (2)(c) of the ACA, to treat it as an award under Section 32 (1) would have been inappropriate.
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