"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.

Saturday, June 8, 2013

A Limited Power of the Arbitral Tribunal to Review: ATV Projects v IOC

We have, in this blog, written a bit about the doctrine of functus officio in arbitration (here and here). In a drastic departure from the said rule, a Division Bench of the Delhi High Court has stated that an arbitral tribunal could review its own decision made under Section 25 of the Arbitration and Conciliation Act, 1996 (1996 Act). The Division Bench reiterated its decision in another case. This post provides a descriptive comment on the case. 

Case Details: LPA No.862/2004 dt. 29.04.2013
Coram: Murugesan, C.J. and Rajiv Sahai Endlaw, J.

Disputes arose between ATV Projects (ATV) and Indian Oil Corporation (IOC) under contract. ATV referred the disputes to arbitration. Due to inaction from IOC in participating in the appointing process, ATV approached the District Court under Section 11 of the 1996 Act (this happened in the pre-Patel Engineering period- 2002). An arbitrator was appointed by the Court.

After the arbitrator entered into reference, ATV, the Claimant did not file the Statement of Claim. Hence, the arbitrator pass an order that the Claimant lost its right to file the Statement of Claim (Order). IOC submitted before the arbitrator that it had counter-claims against ATV. Hence, the same were filed by IOC. Within three months from the Order, ATV applied to the Tribunal for recalling the order and the same was allowed (Recall Order). 

IOC filed a writ petition against the Recall Order. The Single Judge decided that the writ petition was maintainable and set aside the Recall Order on passing that order the mandate of the arbitrator had terminated, making him functus officio (Indian Oil Corporation Ltd. v. ATV Projects India Ltd. 112 (2004) DLT 701). IOC filed an intra-court appeal in 2004. During the pendency of the appeal, the court allowed the tribunal to continue with the arbitral proceedings but stayed the delivery of the final award.

By the time the hearing in the Appeal commenced, the same Division Bench of the High Court had already delivered a decision in Awasthi Construction Co. v. NCT of Delhi (2012) which held the judgement of the Single Judge in IOC v. ATV Projects as wrong. Hence, the Division Bench asked the counsel for the parties to restrict their submissions to the question as to whether Awasthi Construction required re-consideration. The primary submission of ATV (Appellant)  was that a writ petition was not maintainable against an order of the arbitrator as was held in N. Jayalaxmi v. R. Veeraswamy 2004(1) Arb LR 31 (AP).  IOC (Respondent) argued that Awasthi Construction fails to note the judgements in Punjab Agro Industries v KS Dhillon (2008) 10 SCC 128 and Punj Lloyd v. Petronet MHB (2006) 2 SCC 638 holding that writ remedy was available in respect of arbitral proceedings.
The decision was based chiefly on Patel Engineering, Awasthi Constructions and judgements of High Courts on the issue. Below is a summary of the same:
  •  Punjab Agro Industries v KS Dhillon (2008) 10 SCC 128 and Punj Lloyd v. Petronet MHB (2006) 2 SCC 638 were held as the law applicable was the Pre-Patel Engineering Law. After SBP & Co. v. Patel Engineering, writ remedy did not lie against the order of Chief Justice/ Designate under Section 11. 
  • There are decisions of the High Courts to the effect that Writ Petition was maintainable against an order of the High Court.
  • In Senbo Engineering v. State of Bihar, the Patna High Court held that the arbitral tribunal has sufficient powers to recall its orders made under Section 25(a) of the 1996 Act. [Section 25(a) reads: "25.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;]
  • A Single Judge in the Bombay High Court in Anuptech Equipments Ltd. v. Ganapati Co-op Society (1999) had held that a writ was maintainable  from an order under Section 25(a). The same Judge sat as the Chief Justice of the High Court of Allahabad held in SK & Associates v. Indian Farmer & Fertilizers Co-op Ltd. MANU/UP/2357/2010 and held a writ petition to be maintainable against an order of the arbitrator. The Bombay High Court has held in Rashtriya Chemicals Fertilizers Ltd .v .JS Ocean Liner that writ remedy was available but must be exercised sparingly.
  • Although the Supreme Court in State of Arunachal Pradesh v. Damani Construction Co. (2007) 10 SCC 742 held that the arbitrator does not have the power of review of its award, in the context of the power of an industrial adjudicator, the Supreme Court has affirmed in Grindlays Bank v. CGIT (1980) Suppl. SCC 420 and in Kapra Mazdoor Ekta Union v. Birla Cotton Spg & wvg. Mills Ltd. (2005) 13 SCC 777 that the power of procedural review (and not a review on merits) is available. There, it was held that justice demanded that the adjudicator be empowered to correct a procedural defect or an inadvertent error in order to prevent abuse of process. Damani Construction concerned with the power of review of the arbitrator of its award, which was a review on merits.
  • Section 25(a) does not provide that termination of the proceedings shall take place automatically in case the Claimant fails to communicate his Statement of Claim. Discretion is available to the tribunal to look into the sufficiency of the cause for failure to do so. 
  • Here, drawing a distinction between showing sufficient cause before or after the termination of the proceedings  would be too superficial.
  • This reading of the law is in line with the principle that the 1996 Act should be interpreted so as to make the alternative dispute resolution mechanism effective and not in a way to make the same cumbersome.
  • Interpreting otherwise would make arbitral proceedings amenable to challenge under writ jurisdiction and the same would also be inefficient for parties located far away from the High Court.
  • Sections 19(2) empower the parties to agree on the procedure of arbitration. The parties could even expressly provide for the power of review or revival of arbitration proceedings and such an agreement would be binding on the tribunal.
  • In case the Tribunal exercised such a power, following would be the consequences:
    • Challenge to the order by the tribunal of restoration of proceedings would be available as per Section 34 of the Act.
    • In case the tribunal terminates the proceedings if it is not satisfied with the sufficiency of the cause, the said decision would be an award under the Act and can be challenged under Section 34.
    • Section 32 (termination of proceedings) provides for termination of arbitral proceedings either by way of an award [Section 32(1)] or by way of an order [Section 32(2)]. Since a decision dismissing the application for review/ recall of the termination order does not come within the scope of Section 32(2), the said decision would be an award under Section 32(1). 
    • Since such an order would be an "award" the same shall be accompanied by reasons in line with Section 31(3) of the Act.
  • If writ remedy is available, then it would empower High Courts to exercise jurisdiction against private parties and arbitrators which is not desirable when an there is a remedy available within the Act itself.
  • In the case, since the tribunal was satisfied with the sufficiency of the cause shown, its order to recall the termination order and proceed with the arbitration is valid.
Consequently, the court allowed the appeal, set aside the order of the Single Judge and directed the arbitrator to continue the arbitral proceedings.

1 comment:

Narendra Sharma said...

A seven-judge Constitution Bench of hon’ble Supreme Court in M/s S.B.P. & Co. Vs M/s Patel Engineering Ltd. & Anr {2006 AIR 450, 2005(4), 2005(8) SCC 618; Date of Judgment: 26/10/2005} has, inter alia, held as follows.

44. It is seen that some High Courts have proceeded on the basis that any order passed by an arbitral tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the arbitral tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the arbitral tribunal acting under Section 16 of the Act. The party aggrieved by any order of the arbitral tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The arbitral tribunal is after all, the creature of a contract between the parties, the arbitration agreement, even though if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the arbitral tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India. Such an intervention by the High Courts is not permissible.

46. We, therefore, sum up our conclusions as follows:

(i) to (v).........xxx.......

(vi) Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.