Tuff Drilling Pvt. Ltd. vs Srei Infrastructure Pvt. Ltd.

Harish Tandon, J.—A point is raised in this revisional application as to whether the Arbitral Tribunal becomes functus officio on termination of the proceeding under Section 25(a) of the Arbitration and Conciliation Act, 1996 and is denuded of any powers to recall the said order.

The parties agreed to refer the disputes to the arbitrator but failed to appoint the same. The claimant/petitioner filed an application Section 11 of the Arbitration and Conciliation Act, 1996 and during the said proceeding the parties ultimately consented for appointment of a sole arbitrator who subsequently entered upon the reference.

Despite the direction passed by the arbitrator for submission of statement of claim by the claimant/petitioner, it could not be filed; even the time to file the same was extended from time to time. On subsequent occasions there no representation on behalf of the claimant/petitioner, the arbitrator thereafter terminate the proceeding under Section 25(a) of the Arbitration and Conciliation Act, 1996.

To recall the said order showing the cause for non appearance and non filing of the statement of claim, an application was taken out before the arbitrator which upon dismissal is impugned in this revisional application.

The arbitrator did not dismiss the said application on merit but on the ground that after the termination of a proceeding under Section 25(a) of the said Act, it has become functus officio and no power is vested upon it to recall the same.

''Power to terminate'' is enshrined under Section 25 and Section 32 of the said Act. Section 25 deals with the eventuality where the claimants defaulted in communicating his statement of claim, the respondent fails to communicate his statement of defence and the party who fails to appear at oral hearing or to produce documentary evidence. Under Section 32, the arbitral proceeding is terminated by the final award order by an order of the arbitral tribunal where the claimant withdraws his claim, on consent of the parties to terminate the proceeding or the arbitral tribunal finds that the continuation of the proceeding has for any reason become unnecessary or impossible. Sub-Section (3) of Section 32 of the said Act clearly stipulates that the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceeding subject, however, to Section 33 and Sub-section (4) of Section 34 of the said Act.

Section 34 contains the full mechanism for setting aside the arbitral award by the Court. A detailed discussion on the scope thereof would be dealt with later.

The arbitral award is defined to include an interim award under Section (2)(c) of the Act. The final award made by the arbitral tribunal terminates the arbitral proceedings and it is also terminated by an order made under sub-section 2 of section 32 of the said Act. From the cumulative reading of the aforesaid provisions, the moment the final award is passed or by an order of the arbitral tribunal, the mandate of the arbitral tribunal is terminated. The tribunal, therefore, becomes functus officio and does not retain power to proceed further. Sub-section (2) of Section 32 contains the different modalities for termination of a proceeding which does not imbibe within itself the powers conferred upon the arbitral tribunal to terminate the proceeding under Section 25(a) of the said Act.

Section 19 of the Act retains the power of the arbitral tribunal to determine the rule of procedure. It grants freedom to parties to determine the procedural to be observed through out the proceedings subject, however, to certain interdictions; at the same time it provides a default alternative procedure in the event the parties fails to expressly agree to the procedure. Sub-section (3) of Section 19 gives power to the arbitral tribunal to conduct the proceedings, it considers appropriate on the failure of disagreement. Although Sub-section (1) of section 19 at the threshold indicates that the arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 or the Evidence Act, 1872, the language employed therein indicates that the arbitral tribunal is not strictly bound by the procedural statutes but it is not precluded from adopting or adhering to the principles of law judicially developed therein. Therefore, the fundamental principles underlying the Code of Civil Procedure or the Evidence Act does not expressly prohibits the arbitral tribunal from drawing some substance therefrom but it is certainly not bound by the rigorous provisions thereof.

In absence of an express provisions provided under the Arbitration and Conciliation Act, 1996 the arbitral tribunal, in absence of any consensus by the parties on the procedure, may adopt the principles of the procedure prescribed under the Code of Civil Procedure, 1908. Procedural law as defined in Advanced Law Lexicon, 3rd Edition, 2005 by P. Ramanatha Aiyer is the law that prescribes procedures and matters for enforcing rights and duties and for obtaining redress which is distinguished from law that creates defence or regulates rights.

The phrase ''the arbitral tribunal shall not be bound'' by the provision of the procedural law should not be understood to mean that the tribunal is barred from following the principles evolved therefrom. It is a discretion which is conferred upon the arbitral tribunal to conduct the proceeding, it considers appropriate if the parties fails to agree on a procedure.

There is no express or specific bar conferred upon the arbitral tribunal under the said Act to regulate its own procedure if an order is passed under Section 25 of the said Act. Though the power is bestowed upon the arbitral tribunal to proceed ex parte and to terminate the proceeding meaning thereby the dismissal of the proceedings which ensued and or commenced under Section 21 of the said Act, it is inconceivable that the power to resolve the proceedings is beyond its competence.

Reliance can be made to a judgment of the Patna High Court in case of Senbo Engineering Limited Vs. State of Bihar and Others in this regard.

Aftab Alam, J (as His Lordship then was of the Patna High Court) faced the similar question whether the arbitral tribunal has the power or authority, in appropriate case, to recall its own order terminating the proceeding under Section 25(a) of the Act. His Lordship upholding the power of the arbitral tribunal on failure of any agreement by the parties to rule the procedure as enshrined under Section 19(3) of the Act, held:

"I find the submissions of Mr. Chatterjee well founded. Mr. Chatterjee has relied upon the provisions of the Act itself (i.e. to say, the internal aids to interpretation) in respect of point that on sufficient cause being shown, the arbitral tribunal has full authority and power to regulate an order under Section 25(a) of the Act. I think that one would arrive at the same conclusion on the basis of some external aids to interpretation."

His Lordship considered the provisions contained under Section 11(1) of the Industrial Disputes Act which stood peri materia with Section 19(3) of the Arbitration and Conciliation Act, 1996, and held:

"The two Supreme Court decisions under the Industrial Disputes Act are also a pointer in the direction that the arbitral tribunal must he held to have the power of procedural review and the authority to recall, on sufficient cause being shown, an order terminating the proceeding under Section 25(a) of the Act. The second question is, thus, answered in the affirmative and in favour of the petitioner."

The Apex Court in case of M/s. J.K. Synthetics Ltd. Vs. Collector of Central Excise, (1996) 7 AD 152 : AIR 1996 SC 3527 : (1997) 57 ECC 49 : (1996) 86 ELT 472 : (1996) 7 JT 674 : (1996) 6 SCALE 299 : (1996) 6 SCC 92 : (1996) 5 SCR 295 Supp while considering the provisions contained under Rule 20, Rule 21 and Rule 41 of the CEGAT (Procedure Rule, 1982) held that the power to make order or give directions as might be necessary or expedient to give effect to prevent the abuse of the process and to secure the ends of justice can set aside the ex parte order in absence of any express provision conferred in this regard in the following words:

"(5) Rule 20 of the CEGAT (Procedure) Rules deals with case where the appellant has developed his Rule 21 empowers CEGAT to hear appeals ex parte. The fact that Rule 21 does not expressly said that an order on an appeal heard and disposed of ex parte can be set aside on sufficient cause for the absence of the respondent being shown does not mean that CEGAT has no power to do so. Rule 41 gives CEGAT wide powers to make such orders or give such directions as might be necessary or expedient to give effect or in relation to its orders or to prevent abuse of its process or, most importantly, to secure the ends of justice."

"(6) If, in a given case, it is established that the respondent was unable to appear before it have no fault of his own, the ends of justice would clearly require that the ex parte order against him should be set aside. Not to do so on the ground of lack of power would be manifest injustice. Quite apart from the inherent power that every tribunal and Court constituted to do justice as in this respect, CEGAT has clothed with express power under Rule 41 to make such order as is necessary to secure the ends of justice. CEGAT, has, therefore, to power to set aside an order passed ex parte. Respondent before it, if it is found that the respondent on, that sufficient cause, been unable to appear."

Much emphasis is put on the unreported judgment of the coordinate bench in case of NRP Projects Pvt. Ltd. and Anr. -vs-Hirak Mukhopadhyay and Anr. (W.P. 16240 (W)/2012 decided on September 25, 2012) that the application under Article 227 of the Constitution is not maintainable. The coordinate bench took note of the judgment of the Patna High Court in case of Senbo Engineering Ltd. - Vs- State of Bihar and Ors (Supra) was noticed therein in the limited purpose whether an application under Section 226 of the Constitution can be maintainable against an order passed by the arbitral tribunal under Section 25(a) of the said Act.

His Lordship dissented with the view of the Patna High Court on such limited score but had no occasion to consider whether the power of the arbitral tribunal to recall its order terminating the proceeding under Section 25(a) of the said Act is retained or not.

His Lordship in paragraph 66 of the said judgment held that the order terminating the proceeding under Section 25(a) cannot come within its purview with these words :

"66. However, that is not the case with an order terminating proceedings under Section 25(a) of the Act. Take for instance a case where the claimant seeks to set up a case before the arbitral tribunal that there has been no default on his part in filing the statement of claim in terms of Section 23(1) of the Act but the arbitral tribunal passes an order under Section 25(1) thereof holding that there has indeed been a default, should the determination made by the arbitral tribunal be not construed as one on the merits of the dispute that he is called upon to decide and, therefore, an award? should such an order be allowed to attain finality on the specious ground that the Act does not provide a remedy against such an order? This Court finds it difficult to accept the position."

His Lordship has not ruled out that the other avenues to recall the order is not embedded in the arbitral tribunal although it is held that the second reference may be resorted to by the aggrieved party. The entire issue in the said unreported judgment is whether a writ jurisdiction under Article 226 of the Constitution is available or not and it is held that it is not capable being challenged under the writ jurisdiction.

In S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, AIR 2006 SC 450 : (2005) 3 ARBLR 285 : (2005) 128 CompCas 465 : (2006) 2 CompLJ 7 : (2005) 5 CTC 302 : (2005) 9 JT 219 : (2005) 9 SCALE 1 : (2005) 8 SCC 618 : (2006) 1 UJ 156 : (2005) AIRSCW 5932 : (2005) 7 Supreme 610 the majority view expressed therein put a note of caution that any order passed by the arbitral tribunal during the arbitration should not be corrected by the High Court under Article 226 and 227 of the Constitution but had to wait until the award is pronounced the aggrieved party has a right under Section 34 to ventilate his grievance against the award and further right to appeal is conferred under Section 37 of the Act.

The matter once approached the Court the proceeding is regulated by the procedural law applicable to the said Court. Therefore, the applicability of the Code of Civil Procedure recalling the proceeding before it is not ruled out. In an appeal the principles akin to Section 105 of the Code can be resorted to and the parties are not remediless. The majority view taken in SBP and Co. -Vs- Patel Engineering Ltd. and Anr (Supra) may be considered whether the proceeding is not terminated and an order passed during the proceedings are being assailed and or challenged under Article 226 and 227 of the Constitution but the same cannot be construed as such in the event the proceeding culminated into the award or terminated by any of the provisions of the said Act.

I do not find any reasons to disagree with the view expressed in case of Senbo Engineering Ltd. -Vs- State of Bihar and Ors (Supra) whether his Lordship held that the power to recall is embedded under Section 19(3) of the Act and, therefore, the arbitral tribunal enjoins the power to recall its own order.

The next point which springs out from the respective submissions whether an order passed under Section 25(a) of the Code can be assailed before the High Court under Article 227 of the Constitution. The superintendence power should be exercised over all the subordinate Court or tribunal to keep them within the boundaries of law. The arbitral tribunal is a quasi-judicial authority and discharges judicial function.

Apart from the definition assign to arbitral award to include an interim award, there is no extensive definition given for the same in the statute. Section 31(3) of the said Act mandates the statement of reasons on which the arbitral award is based. By virtue of Section 36 of the said Act, the arbitral award partakes a character of a decree enforceable or executable under the Code of Civil Procedure in such manner. When there is a conclusive determination of rights of parties upon adjudication, the said decision in certain circumstances can have the status of an award which is akin to decree. The determination conclusively put to rest the rights of the parties. The right to challenge the award is provided under Section 34 of the said Act and may be set aside, if the situation incorporated in Sub-Section 2 thereof is satisfied. The said Act have further provided the remedy by way of an appeal under Section 37 of the said Act. None of the aforesaid provisions have included the situation where a proceeding is terminated under Section 25(a) of the Act. By the impugned order, the arbitral tribunal have simply rejected the application as it becomes functus officio after the termination of the proceeding. There is no further remedy provided to the litigant under the statute.

If a tribunal declines to adjudicate on the ground that it had no jurisdiction or expresses its inability by stating that it lacks jurisdiction, the status of the order is different. Had the arbitral tribunal apart from expressing the view that it becomes functus officio, the situation would have been different. This Court, therefore, does not find any impediment in entertaining an application under Article 227 of the Constitution.

To sum up this Court finds that the arbitral tribunal has the power to recall its own order and, therefore, the order impugned is not sustainable.

The order is, therefore, set aside since the arbitration tribunal has not disputed the application on merit the matter is relegated back to the arbitral tribunal to decide the said application on merit holding that it has a power to recall its own order.

The revisional application is disposed of.

However, there shall be no order as to costs.

Urgent photostat certified copy of this order, if applied for, be given to the parties on priority basis.