Featured image for Supreme Court Judgment dated 20-09-2017 in case of petitioner name SREI Infrastructure Finance Lt vs Tuff Drilling Pvt. Ltd.
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Arbitration Proceedings and Tribunal’s Recall Powers: SREI Infrastructure Finance Ltd. vs. Tuff Drilling Pvt. Ltd.

The case of SREI Infrastructure Finance Ltd. vs. Tuff Drilling Pvt. Ltd. revolves around the question of whether an arbitral tribunal has the power to recall its own order terminating arbitration proceedings. The Supreme Court had to decide if the tribunal, after terminating proceedings due to non-filing of a claim, could subsequently entertain an application for recall of that order and allow the claimant to proceed with arbitration.

The case also examined whether a party aggrieved by an order of termination under Section 25(a) of the Arbitration and Conciliation Act, 1996 could approach the High Court under Article 227 of the Constitution.

Background of the Case

The dispute between SREI Infrastructure Finance Ltd. (the appellant) and Tuff Drilling Pvt. Ltd. (the respondent) arose out of an agreement dated 21st January 2008, concerning a 1500 HP diesel-electric rig. Due to a disagreement between the parties, the respondent sought arbitration. The matter was referred to a sole arbitrator, and the first sitting was held on August 27, 2011, where the arbitrator directed the respondent to file its statement of claim.

However, on the next scheduled date, November 19, 2011, the respondent was absent, and the tribunal extended the deadline for filing the statement of claim to December 9, 2011. The respondent again failed to file the claim, leading to an order dated December 12, 2011, terminating the arbitration proceedings under Section 25(a) of the Arbitration and Conciliation Act, 1996.

Subsequently, on January 20, 2012, the respondent filed an application seeking recall of the termination order, citing valid reasons for the delay. The appellant objected, arguing that the tribunal had become functus officio and lacked the jurisdiction to recall its own order. The tribunal upheld this argument and rejected the recall application on April 26, 2012.

Aggrieved, the respondent approached the Calcutta High Court under Article 227 of the Constitution, challenging the arbitral tribunal’s refusal to recall its termination order. The High Court ruled in favor of the respondent, holding that the arbitral tribunal had the power to recall its order. The appellant, SREI Infrastructure Finance Ltd., then appealed to the Supreme Court.

Legal Issues

The Supreme Court identified the following key legal issues:

  • Did the arbitral tribunal have the power to recall its own termination order under Section 25(a) of the Arbitration and Conciliation Act?
  • Could an aggrieved party challenge the tribunal’s order under Article 227 of the Constitution?
  • Was the tribunal’s refusal to recall its order legally justified?
  • Did the tribunal become functus officio after terminating the proceedings?

Arguments by the Appellant (SREI Infrastructure Finance Ltd.)

The appellant argued:

  • Once an arbitral tribunal terminates proceedings under Section 25(a), it becomes functus officio and lacks jurisdiction to recall the order.
  • The only remedy available to the respondent was to file an application under Section 34 of the Arbitration Act for setting aside the termination order.
  • The Calcutta High Court erred in entertaining the respondent’s petition under Article 227, as arbitration proceedings are meant to be autonomous and courts should not interfere in the process.
  • The tribunal had correctly applied the law in terminating the proceedings and rejecting the recall application.

Arguments by the Respondent (Tuff Drilling Pvt. Ltd.)

The respondent countered:

  • The tribunal’s termination order was procedural and could be recalled upon sufficient cause being shown.
  • Unlike termination under Section 32 of the Arbitration Act, termination under Section 25(a) does not extinguish the tribunal’s authority.
  • The principles of natural justice require that an opportunity be given to the claimant before dismissing the arbitration proceedings.
  • Article 227 provides a valid remedy when an arbitral tribunal commits an error in law by refusing to exercise its discretion in favor of recall.

Observations of the Supreme Court

The Supreme Court carefully analyzed the provisions of the Arbitration and Conciliation Act, 1996, particularly Sections 25(a) and 32. The Court observed:

‘Section 25(a) allows an arbitral tribunal to terminate proceedings when the claimant fails to file its statement of claim. However, this does not mean that the tribunal loses all jurisdiction over the matter.’

The Court further noted:

‘The power to recall an order is inherent in any quasi-judicial authority where procedural fairness demands it. If a party can demonstrate sufficient cause for non-filing, the tribunal should have the discretion to allow the claim.’

Regarding the maintainability of the High Court petition under Article 227, the Court stated:

‘Judicial intervention in arbitral proceedings should be minimal. However, when a tribunal misinterprets its own powers and refuses to exercise discretion, a High Court may interfere to ensure that justice is done.’

Final Judgment

The Supreme Court upheld the decision of the Calcutta High Court and ruled:

  • The arbitral tribunal had the power to recall its order terminating proceedings under Section 25(a).
  • The tribunal’s refusal to consider the recall application was incorrect.
  • The Calcutta High Court was justified in entertaining the matter under Article 227.
  • The tribunal was directed to reconsider the recall application and decide the matter on its merits.

The Supreme Court thus dismissed the appeal filed by SREI Infrastructure Finance Ltd. and reinstated the arbitration proceedings.

Impact of the Judgment

This ruling has significant implications for arbitration law in India:

  • It establishes that an arbitral tribunal has the power to recall its own order terminating proceedings under Section 25(a).
  • It reinforces the principle that procedural fairness should prevail in arbitration.
  • It clarifies that Article 227 can be invoked when an arbitral tribunal commits a jurisdictional error.
  • It ensures that parties are not deprived of their right to arbitration due to procedural lapses.

Conclusion

The Supreme Court’s judgment in SREI Infrastructure Finance Ltd. vs. Tuff Drilling Pvt. Ltd. upholds the principle that arbitration proceedings should be conducted in a fair and just manner. The ruling ensures that tribunals cannot arbitrarily terminate proceedings without allowing claimants an opportunity to present their case. By affirming the power of tribunals to recall termination orders, the Court has strengthened the arbitration framework in India, ensuring that procedural technicalities do not override the fundamental right to justice.

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