The Author, Benson Binoy is a student at NUALS,Kochi and is currently doing internship with LatestLaws.com.
The Arbitration and Conciliation Act of 1996 is based on the UNCITRAL Model Law on International Commercial Arbitration and is primarily responsible for governing the arbitration law in India. The Act’s enactment was with the objective of creating a comprehensive, expansive and modern framework sufficient for the settlement of commercial disputes via alternative dispute resolution mechanisms such as arbitration, mediation and conciliation.
The Act is divided into four parts. Part I deals with general provisions, including the scope and applicability of the act, the definition of arbitration and its types, and the appointment of arbitrators. Part II deals with the conduct of arbitral proceedings, including the procedure for conducting the proceedings, the powers of arbitrators, and the making of awards. Part III deals with conciliation, while Part IV deals with the recognition and enforcement of foreign awards. The act contains provisions for the appointment of arbitrators, the conduct of arbitral proceedings, and the recognition and enforcement of arbitral awards in India. In addition to the former, the act also provides for the establishment of arbitration institutions such as the Indian Council of Arbitration with the purpose of promoting the use of alternative dispute resolution mechanisms.
The section 32 of the Arbitration and Conciliation Act of 1996 is based of article 32 of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 and the section is a provision for the termination of arbitration proceedings. Section 32(2)(c) in particular provides for the termination of arbitration proceedings when the arbitral tribunal finds the continuation of proceedings to be impossible for any reason other than previously specified in the clause 2 of section 32.
As per the section, an arbitral tribunal has the authority to terminate arbitral proceedings either if the claimant fails in communicating their statement of claim in accordance with agreed procedure or if the respondent fails in communicating their statement of defence in accordance with agreed procedure. The intention behind this particular provision is to ensure the parties compliance with agreed procedures for submission of respective cases.
This provision is based off an article in the UNCITRAL Model Law which recognizes that the parties to an arbitration agreement are free to agree on the procedures to be followed in the arbitration. Furthermore, failure on the side of the parties to comply with specific previously agreed upon procedures for the submission of claims and defences may result in the termination of arbitration proceedings.
The termination of arbitration proceedings under Section 32(2)(c) does not, however, prevent the claimant from initiating fresh arbitral proceedings in accordance with the arbitration agreement.
The primary base objective of the section also appears to have been to take the form of a residuary provision that can encompass situations that were unforeseen during the time of the drafting of the Act. The Indian lawmakers have taken inspiration from the Model Act to leave it to the tribunal’s discretion the determination of when the continuation of proceedings has become unnecessary or impossible. This was seen in the Maharashtra State Electricity Board v Datar Switchgear Ltd (2002) case.
As seen in cases such as IRDP v P D Chacko (2010) and Union of India v Wood Papers Ltd (1990), an exception clause must undergo strict interpretation and the party seeking to invoke the exception bears the onus of establishing that the situation at hand falls within the scope of the exception. Thus, Section 32(2)(c) must be interpreted strictly and applied only in exceptional and rare cases due to the same being an exception clause.
The wordings of Section 32(2)(c) also make it clear that this provision may be applied for the termination of arbitration proceedings only in cases wherein ‘for any other reason’ the arbitration proceedings become unnecessary or impossible. The section thus implies that such reasons are exclusionary of the circumstances presented under Section 32, clauses (a) and (b) and other provisions such as proceedings under Section 16 (Competence of arbitral tribunal to rule on its jurisdiction), Section 25 ( Default of a party) or Section 30 (Settlement).
The Supreme Court drew a distinction between termination of arbitration proceedings contemplated under sections 25 and 32(2)(c) of the Arbitration Act in the SREI Infrastructure Finance Limited v Tuff Drilling Private Limited case.
A high threshold has been set for the application of this exception which is made evident by the use of the expressions ‘impossible’ and ‘unnecessary’. Furthermore, the explanatory notes of Article 32 of the Model Law have prescribed that the termination van be applied only when the continuation of proceedings is very manifestly a wastage of resources.
Commentators such as Ilias Bantekas have indicated that certain specific situations such as a failure of the parties to pursue the arbitration proceedings despite being so requested by the arbitral tribunal, or a refusal by the parties to make an advance on costs or arbitration fees may be grounds to terminate arbitration proceedings under article 32(2)(c).
Indian courts have also similarly interpreted the section in a constrained manner to cover only exceptional situations. This was further reiterated in the Maharashtra State Electricity Board v Datar Switchgear Ltd case, wherein the Bombay High Court observed that clause (c) of sub-section (2) of Article 32 vested residuary powers in the Arbitral Tribunal to terminate the proceedings where it finds that a continuation thereof has for any other reason become unnecessary or impossible.
The responsibility is with the party seeking the termination of arbitration proceedings to satisfy the arbitral tribunal that the exception envisaged under section 32(2)(c) of the Arbitration Act is applicable to their case and that the subsequent continuation of the arbitration proceedings has become unnecessary or impossible. It is not an uncommon observation that discontent parties file frivolous applications under section 32(2) with the sole purpose of derailing and delaying the completion of arbitration proceedings and therefore it is essential to purposively and objectively interpret section 32(2)(c) in such a manner that parties are not allowed to seek termination of arbitration proceedings merely by filing recalcitrant applications.
