Source: Supreme Court

Why in News?

Recently the Supreme Court held that if the party fails to appear for a hearing after filing a claim, the learned Arbitrator cannot say that continuing the arbitral proceedings has become unnecessary.

What was the Background of Dani Wooltex Corporation & Ors v. Sheil Properties Pvt. Ltd. & Another. Case?

• Dani Wooltex (first appellant) was a partnership firm, and certain lands were owned by this firm in Mumbai.
• Sheil Properties (first respondent) was a private limited company and involved in real estate development. Marico Industries (second respondent) also a limited company in the consumer goods business
• It was permitted that part of the first appellant’s property will be developed by Sheil properties (Sheil) under the Development Agreement in 1993.
• The first appellant and Marico Industries (Marico) executed the Memorandum of Association (MOU) by which the first appellant agreed to sell another portion of its property to Marico.
• Under the MOU, Marico was given the benefit of a certain quantity of FSI/TDR.
• A public notice was issued by Marico for inviting objections. An objection was submitted by Sheil and stated that any transaction between the first appellant and Marico would be subject to the Agreement.
• Because of this dispute a suit was instituted by Sheil for the specific performance of the MOU as modified by the alleged consent terms.
• The first appellant and Marico both were parties in this suit.
• Another suit was filed by Marico against first appellant, and Sheil was also made a party defendant to the suit.
• The dispute between the first appellant and Sheil led Sheil to institute a suit.
• The order was passed on 13^th October 2011 for the appointment of the sole Arbitrator in the suit filed by Marico.
• A suit was disposed of (filed by Sheil) by referring to the dispute with the same sole Arbitrator.
• Now the Arbitral Tribunal had to deal with the claims filed by Sheil and Marico, both against the first appellant.
• In the Arbitral proceeding the claims of Marico was heard and end with award but the claim filed by Sheil did not proceed.
• A communication was made by the first appellant to the Arbitral Tribunal and requested to dismiss the claims filed by Sheil on the ground that the company had abandoned the claim.
• After that an application was filed by the first appellant invoking the power of Arbitral Tribunal under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (A&C Act).
• The contention of the first appellant was that Sheil's conduct of not taking any steps for eight years shows that the said company abandoned the arbitral proceedings.
• An affidavit was filed by Sheil and contended that no ground was made out to act under Section 32(2)(c) of the A&C Act. Sheil also raised other factual contentions and denied the allegation of abandonment.
• The Arbitral Tribunal passed an order and terminated the arbitral proceedings in the exercise of power under Section 32(2)(c) of the A&C Act.
• An appeal was filed before the Supreme Court and the issue was related to the legality and validity of the order of termination of the arbitral proceedings under Section 32(2)(c) of A&C Act.

What were the Court’s Observations?

• The Supreme Court (SC) held that the power under Section 32(2)(c) of A&C Act can be exercised only if, for some reason, the continuation of proceedings has become unnecessary or impossible.
• Unless the Arbitral Tribunal records its satisfaction based on the material on record that proceedings have become unnecessary or impossible, the power under Section 32(2)(c) cannot be exercised. If the said power is exercised casually, it will defeat the very object of enacting the A&C Act.
• Abandonment by the claimant of his claim may be grounds for saying that the arbitral proceedings have become unnecessary. However, the abandonment must be established. Abandonment can be either express or implied. Abandonment cannot be readily inferred.
• The SC observed that merely because a claimant, after filing his statement of claim, does not move the Arbitral Tribunal to fix a date for the hearing, it cannot be said that the claimant has abandoned his claim.
• The court held that 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.

What is a Statement of Claim?

• The statement of claim is a document on which a legal claim based on.
• It provides a simple and clear understanding of the claims and remedies you are asking the court.
• A suit to officially began, the statement of claim filed.
• It sets out the framework for the proceedings in the suit.
• A statement of claim should include the party's name and their roles, court information, relief, damages, liability etc.

What is the Legal Provision Involved in this Case?

• Section 32(2)(c) of A&C Act: Termination of proceedings. —

(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub­section (2).

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where—

(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.