Supreme Court of India: Abandonment of Claim by a Party as a ground to Terminate Arbitration Proceedings by the Arbitrator

Supreme Court of India: Abandonment of Claim by a Party as a ground to Terminate Arbitration Proceedings by the Arbitrator

In Dani Wooltex Corporation & Ors. v. Sheil Properties Pvt. Ltd. & Anr. 2024 INSC 433, the Hon’ble Supreme Court has dealt with the issue of abandonment of claim by the claimant as a ground to terminate arbitral proceedings by the arbitrator.

FACTUAL MATRIX

Dani Wooltex Corporation (‘Dani’) provided its piece of land to Sheil Properties (‘Sheil’) for development by signing a development agreement (‘Development Agreement’). Dani and Marico Industries (‘Marico’) entered into an MoU by which Dani agreed to sell another portion of its property to Marico. Marico issued a public notice inviting objections, to which Sheil submitted an objection and stated that any transaction between the Dani and Marico would be subject to the Development Agreement.

This led Sheil to file a suit for specific performance against Dani and Marico. Marico inturn also filed a suit against Dani and Sheil. All three parties by consent referred the matter to arbitration. As a result, the Court appointed an arbitrator to resolve disputes between the parties. This order to appoint arbitrator was passed in the suit filed by Marico.

This attains relevance because as per the order, the dispute in Marico’s suit was referred to arbitration. Separately, the suit filed by Sheil was disposed of by referring the dispute under the said dispute to the same Arbitrator. Thus, the Arbitrator was required to deal with claims filed by Sheil and Marico against Dani.

In the arbitration, both Sheil and Marico filed claims against Dani. However, Marico’s claim against Dani was heard first in chronology and an award was passed in that claim. Pertinently, arbitration in respect of Sheil’s claim never proceeded.

After two years of passing of award, Dani requested the Arbitrator in respect of Sheil’s claim requesting the Arbitrator to dismiss it as according to Dani the same was abandoned by Sheil. On the directions of the Arbitrator, Dani made a formal application under Section 32(2)(c) of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) contending that Sheil’s has not taken any step in the arbitration and hence its claim is deemed to have been abandoned. In view thereof, Sheil requested the Arbitrator to terminate the arbitration proceedings under Section 32(2)(c) as the same have become “unnecessary”.

Per contraI Sheil contended that no ground to terminate the proceedings under Section 32(2)(c) has been made out by Dani in its application and it further contended that it has not abandoned the arbitration.

Arbitrator terminated the arbitration proceedings under Section 32(2)(c). This decision of the Arbitrator was challenged by Sheil before the High Court under Section 14(2) of the Arbitration Act which empowers the Court to decide the controversy related with the termination of mandate of arbitrator on the grounds of inter alia arbitrator becoming de jure or de facto unable to perform his function. The High Court allowed this application, set aside the order of termination of arbitration passed by the Arbitrator and further directed the arbitrator to set continue with arbitration proceedings.

This order of the High Court was challenged by Sheil before the Hon’ble Supreme Court in the present proceedings.

PARTIES CONTENTIONS

Supporting the judgment of High Court, Dani argued as under:-

• That the Arbitrator was entitled to invoke its power under Section 32(2) (c) of the Arbitration Act if it is proved that the proceedings have become unnecessary due to the claimant’s (Sheil’s) inaction.
• Section 14 of the Arbitration Act does not empower the Court to second-guess the Arbitral Tribunal, especially when the decision of the Arbitral Tribunal is based on the appreciation of facts and a plausible view has been taken.
• The word “unnecessary” used in Section 32(2)(c) of the Arbitration Act will have to be widely or liberally interpreted.

Per contra, Sheil contended as under:-

• Without recording a positive finding that it is either unnecessary or impossible to continue the proceedings, the power under Section 32(2)(c) of the Arbitration Act cannot be exercised.
• The Court, while exercising the power under Section 14(2) of the Arbitration Act, is required to go into the issue of the legality of the termination of mandate by the Arbitral Tribunal.
• The abandonment cannot be inferred.

LEGAL POSITION

• The power under clause (c) of subsection (2) of Section 32 of the Arbitration Act can be exercised only if, for some reason, the continuation of proceedings has become unnecessary or impossible.
• Unless the Arbitral Tribunal records its satisfaction based on the material on record that proceedings have become unnecessary or impossible, the power under clause (c) of subsection (2) of Section 32 cannot be exercised. If the said power is exercised casually, it will defeat the very object of enacting the Arbitration Act.
• It is the Arbitral Tribunal’s duty to fix a meeting for hearing even if parties to the proceedings do not make such a request. It is the duty of the Arbitral Tribunal to adjudicate upon the dispute referred to it. If, on a date fixed for a meeting/hearing, the parties remain absent without any reasonable cause, the Arbitral Tribunal can always take recourse to the relevant provisions of the Arbitration Act, such as Section 25;
• The failure of the claimant to request the Arbitral Tribunal to fix a date for hearing, per se, is no ground to conclude that the proceedings have become unnecessary; and
• 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 proved facts are so clinching that the only inference which 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 his/her 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.

HELD

• Sheil regularly attended meetings held to hear Marico’s claim. In any case, there is no express abandonment. Even if it is to be implied, there must be convincing circumstances on record which lead to an inevitable inference about the abandonment.
• In the facts of the case, there was no abandonment either express or implied. In a case where the claim is abandoned, the learned Arbitrator can take the view that it would be unnecessary to continue the proceedings based on the already abandoned claim.
• In this case, the inference of the abandonment has been drawn by the learned Arbitrator only on the grounds that Sheil did not challenge the Marico award and took no steps to convene the meeting of the Arbitral Tribunal.
• The failure to challenge the award on Marico’s claim will not amount to abandonment of the claim filed by Sheil.
• Hence, the finding of the learned Arbitrator that there was abandonment of the claim by Sheil is not based on any documentary or oral evidence on record.
• The finding is entirely illegal. Such a finding could never have been rendered on the material before the Arbitral Tribunal. Thus, the learned Arbitrator committed illegality.

In view thereof, the Hon’ble Supreme Court concurred with the decision of the High Court and dismissed the appeal filed by Sheil directing the parties to appoint a substitute arbitrator as the existing arbitrator refused to continue to serve as an arbitrator.