The Hon’ble Supreme Court of India recently delivered a significant judgment in the case of Dani Wooltex Corporation & Ors. vs. Sheil Properties Pvt. Ltd. & Anr., which has far-reaching implications for the termination of arbitration proceedings in India. The case revolves around the validity of an order of termination of arbitral proceedings passed by an Arbitral Tribunal under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996.

Factual Background:
The dispute began when Dani Wooltex, the Appellant, acquired land in Mumbai to be developed by Sheil Properties under a Development Agreement. Marico was to purchase the other half of the land under a Memorandum of Understanding (“MOU”). Sheil filed an objection with Marico stating that any transaction between the Appellant and Sheil shall be subject to the MOU. This led to a series of disputes, and two separate claims of Sheil and Marico were submitted to arbitration before the same Arbitral Tribunal. Marico's claim was arbitrated and awarded, but Sheil's claim remained unsettled. The Arbitral Tribunal terminated the proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (“1996 Act”) on the basis that Sheil had not pressed their claim for 8 years. Sheil appealed to the Hon’ble Bombay High Court, which overturned the termination. Thereafter the case was appealed before the Hon’ble Supreme Court.

The primary issue raised was relating to the legality and validity of the order of termination of the arbitral proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996, passed by the Arbitral Tribunal.

Observations of the Hon’ble Supreme Court
The judgment highlights the following key points with respect to Section 32 of the 1996 Act:

1. The power granted by Section 32(2)(c) of the 1996 Act can only be exercised if the continuation of proceedings has become unnecessary or impracticable for any reason.
2. Unless the Arbitral Tribunal records its satisfaction based on the evidence already filed, that proceedings have become unnecessary or impracticable, the power under Section 32(2)(c) cannot be utilized. If the power is exercised casually, it will negate the purposes of the 1996 Act.
3. The Arbitral Tribunal is responsible for scheduling a hearing, even if parties do not request for the same proactively. The Tribunal is given the duty to resolve the issue referred to it and has to ensure to adjudicate the same within the timelines of the 1996 Act. The Tribunal can, however, use relevant provisions of the 1996 Act, such as Section 25, if parties are absent without reasonable cause on a scheduled meeting/hearing date.
4. The abandonment of a claim by a claimant can be used to invoke Section 32(2)(c) and such abandonment can be either explicit or implicit. However, the abandonment cannot be readily implied. There can be an implied abandonment when known or proven facts or the claimant's established conduct leads to just one conclusion, that the claimant has given up their claim.

Judgment and Conclusion:
In the present case, the Hon’ble Supreme Court, held that the Arbitral Tribunal's decision to terminate Sheil's claim lacked sufficient grounds. The Tribunal failed to recognize its duty to proactively fix hearings and relied heavily on the claimant's failure to request hearings. The Hon’ble Court pointed out that Sheil's participation in Marico's arbitration and the absence of any meetings regarding Sheil's claim until March 2020 (coinciding with the onset of the COVID-19 pandemic) indicated that the claim was not abandoned. Therefore, the appeal was dismissed, affirming the Bombay High Court’s decision to continue the arbitral proceedings. The Hon’ble Court directed the parties to appoint a substituted Arbitrator following the withdrawal of the original Arbitrator.

This case reinforces that an Arbitrator must base decisions on concrete evidence rather than assumptions. The Hon’ble Court further emphasized that the power under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 can only be exercised if the continuation of proceedings has become unnecessary or impossible. This judgment underscores the importance of an Arbitrator’s active role in managing arbitration proceedings and the stringent criteria for terminating such proceedings under Section 32(2)(c).

By - Sayjal Deshpande & Sanskriti Bakaya