Supreme Court Rules: Arbitrator's Authority Limited To Unnecessary Or Impossible Proceedings Termination Under Section 32(2)(c)

Supreme Court Rules: Arbitrator's Authority Limited To Unnecessary Or Impossible Proceedings Termination Under Section 32(2)(c)

The Supreme Court bench, comprising Justices Abhay S. Oka and Pankaj Mithal, ruled that the authority granted under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996, can only be invoked if there is a reason making the continuation of proceedings either unnecessary or impossible.

The bench held that simply having a reason to terminate the proceedings is not enough. The reason must be significant enough to render the continuation of the proceedings unnecessary or impossible.

The bench observed that “the abandonment of the claim by a claimant can be a ground to invoke clause c of subsection 2 of Section 32. 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 proven facts are so clinching that the only inference that can be drawn is of the abandonment. Only if the established conduct of a claimant is such that it leads only to the conclusion that the claimant has given up his claim can an inference of abandonment be drawn. Even if it is to be implied, there must be convincing circumstances on record that 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.”

The case involved the development of Mumbai land owned by Dani Wooltex Corporation, with Sheil Properties engaged under a development agreement. Marico Industries also sought to purchase a portion of the property, leading to disputes among Sheil Properties, Marico Industries, and Dani Wooltex Corporation, culminating in arbitration.

Both Sheil and Marico presented claims to the Arbitral Tribunal. Marico's arbitration concluded first, but Sheil's remained unresolved for years. In 2019 and 2020, Dani Wooltex Corporation sought to dismiss Sheil's claim, alleging abandonment. Despite attempts to address this, Sheil's arbitration stagnated.

In December 2020, the Arbitral Tribunal terminated Sheil's proceedings under Section 32(2)(c) of the Arbitration Act. Sheil contested this in the Bombay High Court, arguing for the necessity of proving the impossibility or unnecessary continuation. In response, Dani Wooltex Corporation claimed Sheil's non-participation amounted to abandonment.

Sheil argued for a higher threshold for termination, emphasizing the tribunal's duty to manage proceedings and the need for compelling evidence of abandonment. The High Court sided with Sheil, leading to Dani Wooltex Corporation's appeal to the Supreme Court.

The Supreme Court referred to Section 32 of the Arbitration Act, noting that termination should occur only if continuation genuinely becomes unnecessary or impossible. Mere procedural lapses or non-appearances aren't sufficient grounds for termination.

Furthermore, the Court stressed the Tribunal's responsibility to oversee proceedings and resolve disputes, irrespective of party requests. It rejected the notion that a claimant's failure to schedule a hearing equates to abandonment, requiring clear evidence.

Consequently, the Supreme Court dismissed the appeal.