Del HC | “Order of Termination of Arbitration under S. 32(2)(c), A&C Act is not an award; challenge under S. 14(a) maintainable”: Read full Report

Delhi High Court: Vibhu Bakhru, J. held that an order of the arbitrators terminating the arbitral proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (“A&C Act”) is NOT an “award”; and therefore a challenge to such order under Section 14(1)(a) is maintainable.

Facts and Issue

The petitioner, a Joint Venture constituted by Progressive Construction Ltd. and SUNCON Construction Berhard, Malaysia,  filed the present petition, inter alia, impugning an order passed by the two arbitrators terminating the arbitral proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996. The present application was filed under Section 14(1)(a) read with Section 15 of the Act.

The arbitral proceedings were terminated because the arbitrator nominated by the petitioner had resigned and the petitioner had not taken steps to nominate another arbitrator in his place. Consequently, the arbitral proceedings could not proceed and the remaining two arbitrators constituting the Arbitral Tribunal concluded that it was impossible to continue the proceedings and, accordingly, terminated the same. The petitioner claimed that there was a communication gap and the petitioner was not aware that the arbitrator appointed by it had resigned. The Arbitral Tribunal had not issued any notice to the petitioner in this regard prior to terminating the arbitral proceedings.

The respondent, National Highways Authority of India (“NHAI”), contests the maintainability of the present petition as well as contends that the impugned order cannot be faulted.

Analysis

The foremost question addressed by the High Court was: Whether the impugned order constitutes an award?

The contention of the NHAI 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 A&C Act was founded on the assumption that the impugned order is an award. Notably, recourse to a Court against an award is available only under Section 34 of the A&C Act.

The High Court analysed that the term “award” is defined under clause (c) of sub-section (1) of Section 2 of the A&C Act and noted that”

It is now well settled that an award constitutes a final determination of a particular issue or a claim in arbitration.

It was also noted that Section 32 of the A&C Act also draws a clear distinction between a final arbitral award and orders passed by an Arbitral Tribunal. In terms of Sub-section (1) of Section 32 of the A&C Act, arbitral proceedings stand terminated by a final award or by such orders as are specified under Sub-section (2) of the said A&C Act.

The Court made reference to its earlier decision in Rhiti Sports Management (P) Ltd. v. Power Play Sports & Events Ltd, 2018 SCC OnLine Del 8678 wherein the Court had noted various decisions on the question as to what constitutes an award.

Relying on the Supreme Court decision in IFFCO Ltd. v. Bhadra Products, (2018) 2 SCC 534, the High Court noted that 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.

Viewed in this context, the Court concluded:

“It is clear that an order, which terminates the arbitral proceedings as the Arbitral Tribunal finds it impossible or unnecessary to continue the arbitral proceedings, would not be an award. This is so because it does not answer any issue in dispute in arbitration between the parties; but is an expression of the decision of the Arbitral Tribunal not to proceed with the proceedings.”

The Court also stated that an order terminating the proceedings on failure of the claimant to file its Statement of Claims within the stipulated time, is also in the nature of an order under Sub-section (2) of Section 32 of the A&C Act and not an arbitral award because such an order does not decide any of the points on which the parties are in issue in the arbitration.

Decision

In the present case, the impugned order passed by the arbitrators expressly stated that the arbitral proceedings were terminated under Section 32(2)(c) as in their view, it had become impossible to continue the said proceedings. Indisputably, an order terminating the proceedings under Section 32(2)(c) can be impugned under Section 14(2) of the A&C Act.

It was contended on behalf of NHAI that even though an application under Section 14(2) may be filed, the present application which was under Section 14(1)(a) and Section 15 was not maintainable. This contention, according to the High Court, was unpersuasive:

“A plain reading of sub-section (2) of Section 14 of the A&C Act indicates 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 remains concerning any of the grounds referred to in Sub-section 14(1)(a) of the A&C Act.”

It was also noted that the impugned order was an expression of the view of the arbitrators that they were unable to continue with the proceedings on account of the default on the part of the petitioner to fill the vacancy caused by the resignation of their arbitrator. Even though NHAI had preferred certain counterclaims, it too did not take any steps to ensure that the said vacancy was filled. It was also open for NHAI to apply to the Court for the appointment of an arbitrator, however, NHAI also chose not to do so.

Further, although the arbitrators had passed the impugned order, it was not disputed that a notice that they were contemplating the termination of the proceedings was not issued to the petitioner, prior to passing of the impugned order.

However, said the Court that, it could not be denied that the petitioner was responsible for the delay in the proceedings as it had inordinately delayed the appointment of an arbitrator. Whilst the Court was of the view that the petitioner ought not be rendered remediless to urge its claims, NHAI‘s contention that the petitioner must be visited with costs was merited.

Accordingly, the High Court set aside the impugned order, albeit, subject to payment of costs of Rs 25000 by the petitioner.

Further, now the petitioner had already nominated an arbitrator. It was directed that the Arbitral Tribunal will resume the arbitration proceedings at the stage obtaining on the date on which the arbitral proceedings were terminated. [PCL Suncon v. NHAI, 2021 SCC OnLine Del 313, dated 12-1-2020]

Join the discussion

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.