In present appeal, the Supreme Court discussed the issue regarding the legality and validity of the order of termination of the arbitral proceedings under Clause (c) of Sub-section (2) of Section 32 of the Arbitration and Conciliation Act, 1996 (“the Act”) passed by the Arbitral Tribunal.
The case arose from an appeal challenging the Bombay High Court's order that set aside the arbitral tribunal’s termination of arbitral proceedings between the Appellant and the Respondents (referred as “Sheil” and “Marico”) under Section 32(2)(c) of the Act, 1996.
The factual matrix in the present case is that Sheil and Marico had filed separate suits against the Appellant, which were referred to the same sole arbitrator by court orders in 2011. The arbitrator first heard Marico's claim and passed an award in 2017. In 2020, the Appellant filed an application under Section 32(2)(c) of the Act. seeking termination of Sheil’s arbitral proceedings on the ground that Sheil had abandoned its claim by not taking any steps for 8 years after filing the statement of claim. The arbitrator allowed the application and terminated Sheil’s proceedings, holding that Sheil had abandoned the claim. The Bombay High Court set this order aside.
The Supreme Court upheld the High Court’s order, making some important observations on the scope of Section 32(2)(c) of the Act. It held that the power under this provision can only be exercised if the arbitral tribunal records its satisfaction based on material on record that continuation of proceedings has become unnecessary or impossible. Mere failure by a Claimant to request the tribunal to fix a hearing date cannot lead to the conclusion that the proceedings have become unnecessary.
The Court states that it is the arbitral tribunal’s duty to fix meetings/hearings even if parties do not make such requests. The failure of a Claimant to do so, by itself, is no ground to conclude that proceedings have become unnecessary. As for abandonment of claim by a Claimant being a ground to invoke Section 32(2)(c), the Court said abandonment cannot be readily inferred. Only if the established conduct of a Claimant leads to the sole conclusion that the claim has been given up, can abandonment be inferred.
Applying these principles, the Court found that in the present case, there was no material to conclude that Sheil had abandoned its claim against the Appellant. The fact that Sheil did not challenge the Marico award or take steps for hearings after that award did not amount to abandonment. The termination order was thus held to be illegal.
Accordingly, the appeal was dismissed, and parties were directed to get a substitute arbitrator appointed for the pending Sheil vs Dani Wooltex arbitration, as the previous sole arbitrator had withdrawn.