The Supreme Court in the case of Sai Babu v. M/S Clariya Steels Private Limited (decided on May 1, 2019), held that once the sole arbitrator terminates the arbitration proceedings under Section 32(2)(c) of Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the same cannot be subsequently recalled.

FACTS
In an arbitration between Sai Babu (“Appellant”) and M/S Clariya Steels Private Limited (“Respondent”), the learned arbitrator, by its order dated May 4, 2017, terminated the arbitration proceedings under Section 32(2)(c) of the Arbitration Act. However, an application dated May 5, 2017 was made by the Respondent before the arbitrator to recall the order of termination of arbitration proceedings. Having found merit in the reasons, the arbitrator on May 18, 2017, recalled its earlier order of termination of arbitration proceedings. Further, the said order of recalling the arbitration proceedings was challenged before Karnataka High Court by the Appellant. However, the challenge was dismissed by the Karnataka High Court on June 14, 2017. Aggrieved by the order of Karnataka High Court, the Appellant filed an appeal in the Supreme Court and the following issue came up for determination:

ISSUE
Whether an arbitrator can recall the arbitration proceedings which were earlier terminated under Section 32(2)(c) of the Arbitration Act?

RELEVANT PROVISIONS
Section 25 of the Arbitration Act provides that:
“25. Default of a party. —
Unless, otherwise agreed by the parties, where, without showing sufficient cause, —
(a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the arbitral tribunal shall terminate the proceedings;

(b) the respondent fails to communicate his statement of defence in accordance with sub-section (1) of Section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant and shall have the discretion to treat the right of the respondent to file such statement of defence as having been forfeited;

(c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it.”

Sections 32(2)(c) and 32(3) of the Arbitration Act provides that:
“32. Termination of proceedings. —
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where—

(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.

(3) Subject to Section 33 and sub-section (4) of Section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.”

OBSERVATIONS OF THE SUPREME COURT
The Supreme Court referred its earlier judgment in case of SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited [(2018) 11 SCC 470], where the issue involved was whether the arbitral tribunal which had terminated arbitral proceedings under Section 25(a) of the Arbitration Act due to non-filing of claim by the claimant, had any jurisdiction to consider an application for recall of its order terminating the arbitration proceedings upon sufficient cause being shown by the claimant. In the said judgement, the Supreme Court held that the arbitral tribunal had jurisdiction to recall its order of terminating the arbitration proceedings under Section 25 of the Arbitration Act.

The Supreme Court in the aforesaid case further observed that Section 32 of the Arbitration Act deals with the termination of the arbitral proceedings wherein the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible. Moreover, the Supreme Court observed that the eventuality as contemplated under Section 32 of the Arbitration Act will only arise when the claim is not terminated under Section 25(a) of the Arbitration Act and proceeds further. The usage of words “unnecessary” or “impossible” stipulated in Section 32(2)(c) of the Arbitration Act does not cover a situation where proceedings were terminated due to default of the claimant. Section 32(3) of the Arbitration Act also provides that subject to Sections 33 (Correction and interpretation of award; additional award) and 34(4) (resume the arbitral proceedings in order to eliminate the grounds for setting aside the arbitral award) of the Arbitration Act, the mandate of an arbitral tribunal shall be terminated, once the order of termination under Section 32 of the Arbitration Act has been passed. However, the aforesaid phrase “mandate of the arbitral tribunal shall terminate” in Section 32 of the Arbitration Act have not been used in Section 25 of the Arbitration Act and hence it has to be treated with a purpose and object. The Supreme Court noted that the purpose and object of Section 25 of the Arbitration Act could only be achieved when the claimant shows sufficient cause, and accordingly, the proceedings could then be recommenced.

DECISION OF THE SUPREME COURT
Relying on the distinction made in its earlier judgement between the mandate terminating under Section 32 and proceedings coming to an end under Section 25 of the Arbitration Act, the Supreme Court concluded that no recall application would be covered in cases covered by Section 32(3) of the Arbitration Act. Consequently, the Supreme Court allowed the appeal by setting aside the order of the Karnataka High Court. Further, pursuant to Section 15(2) of the Arbitration Act, upon termination of mandate of the arbitrator, the Supreme Court appointed the sole arbitrator to decide all disputes between the parties.

Vaish Associates Advocated View
The Supreme Court relied upon its earlier judgement in case of SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited (supra) and laid down its importance while basing its decision in the instant case. The Supreme Court made a clear distinction as regards the purpose of order of termination of proceedings under Section 25 of the Arbitration Act vis-à-vis Section 32 of the Arbitration Act.

The primary concern here was whether the arbitrator had the jurisdiction to recall the arbitration proceedings terminated under Section 32(2)(c) of the Arbitration Act. The Supreme Court was of the opinion that the eventuality as envisaged under Section 32 of the Arbitration Act would arise only when the claim is not terminated under Section 25(a) of the Arbitration Act. Therefore, once the mandate of the arbitral tribunal is terminated with termination of arbitral proceedings, the arbitrator does not have the authority to recall the proceedings terminated under Section 32 of the Arbitration Act.

For more information please write to Mr. Bomi Daruwala at [email protected]

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