Abandonment Of Arbitral Claim: An Analysis In Light Of The Dani Wooltex Judgement

INTRODUCTION:

The Supreme Court of India considered the nuances of Section 32(2) of the Arbitration & Conciliation Act, 1996 (the "Arbitration Act") in relation to abandonment of claims in arbitral proceedings, and when does it stand abandoned if not actively pursued, in the case of Dani Wooltex Corporation vs. Sheil Properties Private Limited¹ (‘Dani Wooltex Judgement’). It is pertinent to note here that ‘Abandonment’ of an Arbitral Claim is not the same as ‘withdrawal’. In P. Dasa Muni Reddy v. P. Appa Rao², the Hon’ble Supreme Court had observed that “abandonment of right is much more than mere waiver, acquiescence or laches…. Waiver is an intentional relinquishment of a known right or advantage, benefit, claim or privilege….”.³

The present article shall discuss at length, the Dani Wooltex Judgement⁴ and further present a comparison with other common law jurisdictions in relation to the issue of ‘Abandonment of an Arbitral Claim’.

FACTUAL MATRIX:

By executing a Development Agreement (Agreement), Dani Wooltex Corporation ('Dani') gave Sheil Properties ('Sheil') access to its land for development. Subsequently, an MOU was entered between Dani and Marico Industries (‘Marico’) wherein, Dani agreed to sell Marico another section of its property. However, Sheil filed an objection to a public notice that Marico had released, stating that any deal involving Dani and Marico would be governed by the previous Agreement signed between Dani and Sheil.

Sheil sued Dani and Marico for specific performance⁵ of the MOU as modified by the alleged consent terms. In response, Marico sued Dani as well, and Sheil was also made a party to the suit⁶. By agreement, the three parties agreed to present the dispute before an Arbitral Tribunal. Consequently, the Court designated a third party arbitrator in the suit filed by Marico, to settle disagreements between the parties. Whereas, Sheil's lawsuit was settled separately by noting that the same Arbitrator shall handle the disagreement posed in the suit filed by Sheil. Thus, Sheil and Marico's claims against Dani had to be addressed in the same proceedings. Sheil and Marico both made claims against Dani in the arbitration proceedings. However, an award was made in Marico's claim against Dani, which was heard first. However, Sheil's claim was not taken up for hearing, as Sheil did not participate in the proceedings after the filing of its claim.

In view of the same, Dani requested the Arbitrator to reject the claims made by Sheil, as two years had passed since the commencement of Arbitral Proceedings, and in Dani's opinion, Sheil had abandoned their claim in view of its non-participation in the proceedings. Dani filed a formal application under Section 32(2)(c) of the Arbitration Act in furtherance of its plea and asserted that since Sheil's has not participated in the arbitration since past 8 years and thus, its claim may presumed to be abandoned. They further urged the arbitrator to terminate the arbitration process since Sheil had not sought for any date to continue the proceedings after the award with respect to Marico's claim had been passed, making any further proceedings in this respect, ‘unnecessary’.

As a result, in accordance with Section 32(2)(c), the Arbitrator terminated the proceedings by placing reliance on the case of NRP Projects Pvt. Ltd. v. Hirak Mukhopadhyay⁷. Sheil appealed against the Arbitrator's decision before the High Court of Judicature at Bombay under Section 14(2) of the Arbitration Act, in the purview of which the Courts can decide on disputes pertaining to the termination of arbitrator's mandate on the grounds that the arbitrator has, among other things, become de facto or de jure incapable of carrying out his duties. The High Court granted this motion and overturned the Arbitrator's decision to terminate the arbitration proceedings under Section 32(2)(c) and directed the Arbitrator to resume the arbitration proceedings with respect to the claims by Sheil. Dani thereafter, challenged this order before the Hon’ble Supreme Court in the current proceedings.

CONTENTIONS RAISED BY THE PARTIES:

The petitioner, Dani, in support of its challenge presented the following contentions:

• Section 14 of the Arbitration Act does not give courts the power to set aside an Arbitral Tribunal's decision, particularly when that judgement is based on the evaluation of the relevant facts and a reasonable opinion has been expressed. It was also mentioned that the Arbitral Tribunal made an effort to guarantee Sheil's attendance in Marico's arbitration. However, following the Arbitral Tribunal's decision regarding Marico's claims, Sheil opted not to attend the subsequent proceeding.
• In the event where it is demonstrated that Sheil, has done nothing to warrant further proceedings, the arbitrator may rightfully exercise the power granted to it by Section 32(2)(c) of the Arbitration Act.
• Lastly, it was contended on behalf of Dani that Section 32(2)(c) of the Act requires a broad or liberal interpretation of the phrase "unnecessary."

On the contrary, Sheil put forth the following contentions:

• The power granted by Section 32(2)(c) of the Arbitration Act cannot be used unless a clear determination is made that it is either impractical or impossible to proceed with the hearings.
• It was contended that ‘abandonment of claim’ cannot be presumed. Since Marico and Sheil's claims were distinct from one another, so were the arbitral proceedings. Further, Sheil and Marico had not pursued any legal action against one another. Nonetheless, the parties decided to proceed with Sheil's reference after Marico's reference was resolved because there was a similarity between the two references regarding the enforcement of the consent terms.

FINDINGS BY THE HON’BLE SUPREME COURT:

In view of the contentions raised by both of the parties, the Hon’ble Supreme Court noted its view in Para 21 of the Judgement, while concurring with the view taken by the learned Single Judge of the High Court:

“…The abandonment of the claim can be either express or implied. The abandonment cannot be readily inferred. There is an implied abandonment when admitted or proved facts are so clinching that the only inference which can be drawn is of the abandonment. Only if the established conduct of a claimant is such that it leads only to one conclusion that the claimant has given up his/her claim can an inference of abandonment be drawn. Even if it is to be implied, there must be convincing circumstances on record which lead to an inevitable inference about the abandonment. Only because a claimant, after filing his statement of claim, does not move the Arbitral Tribunal to fix a date for the hearing, the failure of the claimant, per se, will not amount to the abandonment of the claim.”

It was noted that chapter V of the Arbitration Act contains requirements relating to the conduct of Arbitral proceedings. If the parties cannot agree on the dates for filing statements of claim and defence, the Arbitral Tribunal may fix the deadlines for filing pleadings under subsection (1) of Section 23. Thus, the failure of the claimant to request the Arbitral Tribunal to fix a date for hearing, per se, is no ground to conclude that the proceedings have become unnecessary.

Further, Sections 14 and 15 of the Act were brought into discussion and the Court observed that in case the proceedings are not moving ahead due to the reason of non- participation, or any other reason apart from this, an Arbitrator always retains the right to withdraw from the position. Section 15(1)(a) of the Arbitration Act clearly allows the Arbitrator to resign from the position, which results in the termination of their mandate⁸. However, the arbitral process can continue with a new arbitrator taking the place of the resigning one. Thus, an Arbitrator evidently has the option to withdraw, if the parties fail to cooperate in the proceedings. However, in such instances, only the Arbitrator's mandate will cease, but the arbitral proceedings will not be terminated.⁹ As also observed in

The court adjudged that there had neither been an inferred nor explicit abandonment in this instance. The Arbitrator merely deduced the abandonment based on the fact that Sheil did not contest award rendered in Marico’s claims, or that it did not take any action to call the Arbitral Tribunal meeting subsequently. Simply not attending proceedings or failing to participate does not automatically mean abandonment. Abandonment can only be inferred if the conduct of a claimant clearly indicates that they have given up their claim.

The Arbitral Tribunal's ultimate responsibility is to render a decision on the matter that has been referred to it. In the event that parties fail to show up for a scheduled meeting or hearing without a valid explanation, the Arbitral Tribunal may always refer to the applicable sections of the Arbitration Act, including Section 25 to conclude the proceedings as indicated.

ANALYSIS AND CONCLUSION:

The issue of abandonment by the Claimant has received due consideration by the Hon’ble Supreme Court in view of this judgement. However, Indian jurisprudence and even the common law jurisprudence, does not yet provide the time limit or threshold of when such abandonment of claim can kick in, in an ongoing Arbitral proceeding. The English courts as well, have handled a significant number of cases in which the Claimant had initiated arbitration but then failed to follow through on it.

The prevailing view in English courts¹⁰ is akin to that of Dani Wooltex¹¹ Judgement that- a claimant's reluctance to pursue his case cannot be interpreted as an invitation to withdraw from the arbitration because inaction does not imply abandonment.¹² However, in the case of Multiplex Constructions Pty Ltd v Suscindy Management Pty Ltd¹³ the Hon’ble Supreme Court of New South Wales has enumerated the following guidelines pertaining to abandonment of Arbitral Claim, stating that in order to establish abandonment, it is necessary to show that:

i. A clear inference can be drawn from the inactivity of one party- that it does not wish nor intend to proceed with the arbitration, and thus offered to abandon their claim.

ii. A clear inference to be drawn from the inactivity of the other party is the acceptance of the offer to abandon the arbitration

iii. Lastly, this second inference clearly exhibits, or at the least does not conflict with, the respondent’s understanding of the position.¹⁴

It was noted that in such cases, it is the responsibility of the party that seeks abandonment at the behest of other or itself, to offer evidence of anything other than the passage of time—or, if time alone was to be trusted, to demonstrate a greater magnitude of consequences on passage of time — in order to support an assumption of abandonment.

An argument can be made that a demarcation of such time limit to deem ‘abandonment’ is essential to make Arbitration time effective in practice. Such time limit can be agreed upon by the Parties to the Arbitration itself, on a case to case basis. When such threshold is crossed, the Arbitral Tribunal may either proceed with grant of award by virtue of its powers under S. 25(c) instead of dragging a proceeding for n long years, which, in the case of Dani Wooltex¹⁵ turned out to be nearly a decade, or the Tribunal may terminate the proceeding altogether, in interest of justice and commercial viability with regards to the opposite party, resultantly terminating the Tribunal’s mandate. Lastly, it is opined that rather than leaving the provision under Section 25 of the Arbitration Act vague and subject to interpretation, the legislators may ideally give a remedy under the Act against an order made under Section 25, in such scenarios wherein abandonment is alleged, but it is either accepted or rejected by the Arbitral Tribunal.

Disclaimer: This article was first published in the S&A Law Offices - 'Indian Legal Impetus' newsletter in July 2024.