Supreme Court Rules on Termination of Arbitration Proceedings: Key Clarifications on Abandonment and Arbitrator’s Role
The Supreme Court of India recently ruled in Dani Wooltex Corporation & Ors. v. Sheil Properties Pvt. Ltd. & Anr., addressing the termination of arbitration proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996. The Court clarified that an arbitral tribunal cannot terminate proceedings solely on the ground that the claimant failed to initiate hearings. Instead, there must be clear evidence of abandonment of the claim.
Background of the Case
The case involved a dispute over property development in Mumbai. The first appellant, Dani Wooltex Corporation, owned land that was being developed by Sheil Properties Pvt. Ltd. under a Development Agreement dated August 11, 1993. Additionally, a Memorandum of Understanding (MOU) was executed between Dani Wooltex and Marico Industries for the sale of another portion of the land. Disputes arose, leading to litigation and eventually arbitration.
Arbitration was initiated with separate claims filed by Sheil Properties and Marico against Dani Wooltex. The arbitral tribunal first heard and decided Marico’s claim, issuing an award on May 6, 2017. However, proceedings on Sheil’s claim remained pending for several years.
In November 2019, Dani Wooltex requested the tribunal to terminate Sheil’s claim, arguing that Sheil had abandoned its case by not taking any steps for eight years. The tribunal agreed and terminated the arbitration proceedings under Section 32(2)(c) of the Arbitration Act on December 1, 2020.
Sheil’s Challenge Before the Bombay High Court
Sheil Properties challenged the tribunal’s order before the Bombay High Court under Section 14(2) of the Arbitration Act. The High Court ruled in favor of Sheil, setting aside the termination order and directing the arbitral tribunal to continue proceedings. Dani Wooltex then appealed to the Supreme Court.
Key Legal Issues
- Whether an arbitral tribunal can terminate proceedings under Section 32(2)(c) for non-participation of a claimant.
- Whether Sheil Properties had abandoned its arbitration claim.
- Whether the Bombay High Court had the authority to intervene under Section 14(2) of the Arbitration Act.
Arguments by Dani Wooltex (Appellants)
- The tribunal was justified in terminating the proceedings since Sheil had not taken any steps for eight years.
- Under Section 32(2)(c), the tribunal has discretion to terminate proceedings if continuation becomes “unnecessary or impossible.”
- Sheil’s failure to request hearings indicated an implied abandonment of its claim.
Arguments by Sheil Properties (Respondents)
- There was no express or implied abandonment of its claim.
- Sheil actively participated in Marico’s arbitration proceedings and was awaiting its conclusion.
- The arbitral tribunal never issued directions for hearings, so Sheil’s inaction could not be equated with abandonment.
Supreme Court’s Observations
A bench comprising Justices Abhay S. Oka and Pankaj Mithal held:
- Under Section 32(2)(c), an arbitral tribunal can terminate proceedings only if it finds continuation has become “unnecessary or impossible.”
- An arbitral tribunal has a duty to proactively schedule hearings rather than waiting for parties to do so.
- Mere failure of a claimant to request hearings does not imply abandonment of the claim.
- Abandonment must be explicitly proven and cannot be inferred solely from inaction.
The Court also noted:
- “The arbitrator is duty-bound to conduct proceedings. It is not open to the tribunal to remain passive and expect parties to take the initiative.”
- “Abandonment requires clear and compelling evidence. The mere absence of steps by a claimant does not meet this standard.”
Final Judgment
- The Supreme Court upheld the Bombay High Court’s decision.
- The tribunal’s termination order was quashed.
- The arbitral proceedings on Sheil’s claim were directed to continue.
- A new arbitrator was to be appointed since the original arbitrator had withdrawn.
Implications of the Judgment
- The ruling clarifies the scope of Section 32(2)(c) and prevents arbitrary termination of arbitration proceedings.
- It reaffirms that an arbitrator has an active duty to manage proceedings rather than relying on parties to drive the process.
- Claimants cannot be penalized for procedural delays unless there is clear evidence of abandonment.
- The judgment strengthens the role of courts in reviewing arbitrator decisions under Section 14(2).
Conclusion
The Supreme Court’s ruling in Dani Wooltex Corporation v. Sheil Properties reinforces the principle that arbitration should not be dismissed on technical grounds unless there is strong evidence of claim abandonment. This judgment ensures that arbitration remains a fair and efficient dispute resolution mechanism, preventing tribunals from prematurely closing cases without due cause.
Petitioner Name: Dani Wooltex Corporation & Ors..Respondent Name: Sheil Properties Pvt. Ltd. & Anr..Judgment By: Justice Abhay S. Oka, Justice Pankaj Mithal.Place Of Incident: Mumbai.Judgment Date: 16-05-2024.
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