Supreme Court – When Abandonment of Claim can result in the end of the Arbitral Ballad

In a recent decision under Section 32(2)(c) of the Arbitration and Conciliation Act (Act), the Supreme Court has held that a mere failure on the part of the Claimant to request for a hearing cannot automatically warrant the termination of the arbitral proceedings by the Tribunal. Once a claim is filed, the rule ought to be Bryan Adams’ “Can’t stop this thing we started.”[1]

A Development Agreement was executed between Sheil Properties Pvt. Ltd. (Sheil) and Dani Wooltex Corporation & Ors. (Dani Wooltex) for the former to develop a portion of the latter’s land. A Memorandum of Understanding was also executed between Dani Wooltex and Marico Industries Pvt. Ltd. (“Marico”) by which Dani Wooltex agreed to sell another portion of the land to Marico.

Disputes arose between Sheil and Dani Wooltex on one hand under the Development Agreement and between Marico and Dani Wooltex under the MoU. In the suits filed by Sheil and Marico respectively against Dani Wooltex, in 2011, it was agreed that the disputes be referred to arbitration to a sole arbitrator (Arbitrator). Separate claims were preferred by Sheil and Marico against Dani Wooltex respectively.

Marico’s arbitration culminated in 2017 and an award was passed by the Arbitrator. In such arbitration, Sheil was also represented by its counsel. However, no progress was made with respect to Sheil’s arbitration as Sheil did not request a hearing therein.

In 2019 and 2020, Dani Wooltex requested the Arbitrator to dismiss Sheil’s claims on the ground that it had abandoned the claims. Subsequently an application was filed invoking the Arbitrator’s power under Section 32(2)(c) of the Act. Sheil contested the application and denied the allegation of abandonment. The Arbitrator agreed with Dani Wooltex and terminated the proceedings by exercising of powers under Section 32(2)(c) of the Act.

Sheil challenged the legality of the order before the Bombay High Court wherein the order of the Arbitrator was set aside. The Arbitrator was directed to continue the proceedings. Dani Wooltex challenged the order of the Bombay High Court before the Hon’ble Supreme Court.

The Supreme Court held that an arbitrator may terminate the proceedings under Section 25(a) if the claimant fails to present its claim in accordance with Section 23(1). Reading Section 25(b) and 25(c), the Supreme Court held that once the claim is filed, as was the case here, the arbitrator is bound to proceed with the matter and can only terminate the proceedings under Section 32:

• Upon issuance of the final arbitral award
• Upon the claimant withdrawing his claim without any objection from the respondent
• Upon the parties’ agreement
• Where the arbitral tribunal finds that the continuation of proceedings has become unnecessary or impossible for any other reason

Considering the last limb, i.e., where the continuation of proceedings has unnecessary or impossible, the Supreme Court held that:

• Merely because a claimant does not seek a hearing date, the proceedings cannot be terminated.
• Abandonment of claims must be either express or implied. Mere absence from proceedings and failure to participate does not, per se, amount to abandonment.
• It is the Arbitrator’s duty to call for a hearing even if the parties do not make such a request. Upon claimant’s failure to appear, the arbitrator can take recourse to Section 25(c), and continue to issue the arbitral award.
• It is not the legislature’s intention to enable the arbitral tribunal to casually terminate the proceedings on the ground that the proceedings have become unnecessary or impossible. On the facts, it was found that Sheil had not abandoned the proceedings as it was appearing in the proceedings involving Marico’s claims and was awaiting the outcome thereof. Sheil had also demonstrated that it had, save on a few instances, responded to the Arbitrator’s communications and contested the application seeking to terminate the proceedings.

We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

Alok Jain, Partner – Email – alokjain@elp-in.com

Vinuta Rayadurg, Principal Associate – Email – vinutarayadurg@elp-in.com

Anuli Mandlik, Associate – Email – anulimandlik@elp-in.com

[1] From the album Waking Up the Neighbors by Bryan Adams, 1991

[2] From the album Innuendo by Queen, 1991