"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Friday, January 7, 2011

Functus Officio: PMA Shukkoor v. Muthoot Vehicle and Asset Finance Ltd.

An interesting issue came up before the Kerala High Court in PMA Shukkoor v. Muthoot Vehicle and Asset Finance Ltd. (Muthoot). An arbitrator was appointed in a dispute between PMA Shukkoor (PMA) and Muthoot Vehicle and Asset Finance Ltd. (Muthoot). Dispute arose between the parties and was referred to arbitration. The arbitrator allegedly passed an award ex parte. PMA applied to the arbitrator to set aside the award. The arbitrator, claiming absence of powers, refused to do so. PMA approached the relevant District Court challenging the arbitrator’s order. The District Court allegedly didn’t receive the petition and hence the petitioners approached the High Court seeking an order directing the District Court to receive the petition.

The High Court had to decide whether the arbitrator was correct in deciding ex parte and refusing to take up the petitioner’s application to set aside the ex parte order. The High Court held, rightly, that an arbitrator may, for reasons contemplated in S 25 of the Arbitration and Conciliation Act, 1996, pass an award in favour of one party ex parte. S 25 provides:
"Default of a party: Unless otherwise agreed by the parties, where, without showing sufficient cause,
(a) the claimant fails to communicate his statement of claim in accordance with sub-section (1) of section 23, the arbitral tribunal shall terminate the proceedings;
(b) the respondent fails to communicate his statement of defence in accordance with sub-section (1) of section 23, the arbitral tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations by the claimant.
(c) a party fails to appear at an oral hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the arbitral award on the evidence before it
Further the court also held that once the arbitrator passes an award, his jurisdiction ceases to exist. Once the award is passed, the arbitrator becomes functus officio, that is, is deemed to have discharged his duty. Once the arbitrator becomes functus officio, he cannot review his award. Hence, the court held that the arbitrator was right in citing absence of powers and refusing to set aside the ex parte award. Check out the judgement from here.
The judgement provides an interesting read. Comprehensive research has been done on the Indian and (even) English precedents. Notwithstanding the judge’s efforts, we have a reason to complain. But before going into that, we will deal in slight detail with the said doctrine.

As per the Wharton's Law Lexicon (14th Ed.) (cited in the Kerala High Court judgement) functus officio is defined, "[a] person who has discharged his duty, or whose office or authority is at an end." Once the arbitrator passes his final award, the arbitrator’s jurisdiction in almost every sense of the term extinguishes.

The functus officio doctrine has been recognized in India for a long period of time (even as early as in 1875 as regards non-arbitration contexts and in 1888 in the arbitration context). So there’s really nothing surprising about the judgement of the Kerala High Court. But what is shocking is the disconnect between the statute and the court. There is clearly a provision in the statute which incorporates the effect of this doctrine of functus officio, but the judge completely ignored it and yet quoted English decisions of the nineteenth century but not the statute! Section 32 of the Arbitration and Conciliation Act, 1996 provides:
Termination of proceedings.- (1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2)... 
(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings
Thus, the mandate of the tribunal will terminate once the final award is given by the tribunal. It may be noted that the the statute recognizes two exceptions to the termination of the arbitral proceedings (and of the mandate of the tribunal): (1) where the arbitral tribunal decides, on application by a party, to correct clerical, typographical, computational or other errors contemplated in S 33 of the 1996 Act, and (2) where the court decides, under S 34(4), to remit the award to the arbitral tribunal.

We’ll look at the rationale behind this functus officio rule in another shorter post in the immediate future.


Davis @ asset finance said...

Alright, we'll wait for the shorter post of this immediate tribunal. Hoping on this next post things are clear already.

To where will it be given?

Badrinath Srinivasan said...

@ Davis your comment is not clear. If your are looking for the next post on the topic you can access the below link