Power Of Arbitral Tribunal To Pass Order To Terminate Proceedings Lies Only U/S. 32(2) A&C Act: Supreme Court

The Supreme Court held that the power of the Arbitral Tribunal to pass an Order to terminate the proceedings under the scheme of the Arbitration and Conciliation Act, 1996 (A&C Act) lies only in Section 32(2).

The Court held thus in a Civil Appeal arising from the Judgment and Order of the Punjab and Haryana High Court by which the Petition for appointment of an Arbitrator under Section(s) 11(5) and (6) of the A&C Act was rejected.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed, “Section 32 of the Act, 1996 is exhaustive and covers all cases of termination of arbitral proceedings under the Act, 1996. The power of the arbitral tribunal to pass an order to terminate the proceedings under the scheme of the Act, 1996 lies only in Section 32(2).”

The Bench said that Sections 25, 30 and 38 of the A&C Act respectively, only denote the circumstances in which the Tribunal would be empowered to take recourse to Section 32(2) and thereby, terminate the proceedings.

Senior Advocate Nakul Dewan and Advocate Samarth Sagar appeared on behalf of the Appellants.

Facts of the Case

The Appellant No. 2 and the Respondent entered into a partnership agreement to form a partnership firm vide a partnership deed in the year 2013. The said firm was engaged in the business of providing health care and hospitality services as-well as the operation of specialty care hospitals in Amritsar. Sometime thereafter, the Appellant No. 1 also came to be inducted as a partner into the said firm by way of a fresh partnership agreement entered between the parties vide a partnership deed. The said deed provided that in the event of any dispute or difference arising out of the said partnership agreement, the same would have to be resolved through arbitration alone. Sometime in the year 2017, various disputes cropped up between the Appellants and Respondents in respect of the capital contributors and the day-to-day management of the partnership firm.

Hence, a legal notice was issued by the Appellants for dissolution of the partnership firm with immediate effect and to refer the disputes to arbitration, by calling upon the Respondent to mutually appoint an Arbitrator in terms of Clause 13 of the said partnership deed. Since no reply was received from the Respondent, the Appellants filed a Petition seeking appointment of an Arbitrator under Section 11 of A&C Act before the High Court. The Court allowed the same and appointed a Sole Arbitrator. Both the Appellants and the Respondent, preferred an application raising certain objections to the determination of fees by the Sole Arbitrator. The Arbitrator dismissed the application of the Respondents and held that as per Section 38 of A&C Act, both the contesting parties are liable to bear the fees of arbitration in equal proportion. Thereafter, the arbitral proceedings were terminated. The Appellants then filed a Petition for appointment of Arbitrator before the High Court, which it declined to entertain. Hence, the case was before the Apex Court.

Court’s Observations

The Supreme Court after hearing the contentions of the counsel, noted, “The power of the arbitral tribunal to terminate the proceedings is available only under Section 32(2) of the Act, 1996. The other provisions, namely, Section(s) 25, 30 and 38 of the Act, 1996, only denote the circumstances in which the tribunal would be empowered to take recourse of Section 32(2) and thereby, terminate the proceedings.”

The Court clarified that under no circumstances, can a party file a fresh application under Section 11 of the A&C Act and initiate a second round of arbitration.

“The use of the expression “the mandate of the Arbitral Tribunal shall terminate” in Section 32 of the Act, 1996 and its omission in Section(s) 25, 30 and 38 of the said Act, cannot be construed to mean that the nature of termination under Section 32(2) is distinct from a termination under the other aforesaid provisions of the Act, 1996”, it said.

The Court elucidated that the expression “mandate of the Arbitral Tribunal” is merely descriptive of the function entrusted to the Tribunal, namely, the authority and duty to adjudicate the disputes before it and it refers to the obligation of the Arbitral Tribunal to administer the arbitration by conducting the proceedings in order to adjudicate upon the disputes referred to it.

“Irrespective of whether the proceedings are terminated on account of the passing of a final award, or by the withdrawal of claims, or on account of default by the claimant, or the intervention of any impossibility in the continuation of the proceedings, the legal effect remains the same, inasmuch as the arbitral tribunal thereafter stands divested of its authority to act in the reference”, it added.

The Court remarked that the common thread that runs across Sections 25, 30, 32, and 38 of the A&C Act respectively is that although the arbitral proceedings may get terminated for varied reasons, yet the consequence of such termination remains the same i.e., the arbitral reference stands concluded and the authority of the tribunal stands extinguished.

“There is a clear distinction between a procedural review and a review on merits. The arbitral tribunal possesses the inherent procedural power to recall an order terminating the proceedings as such power is merely to correct an error apparent on the face of the record or to address a material fact that was overlooked. It does not tantamount to revisiting the findings of law or reappreciating the substantive issues already decided”, it explained.

The Court observed that where an Arbitral Tribunal passes an Order for terminating the proceedings under the A&C Act the appropriate remedy available to the parties would be to first file an application for recall of such Order before the Arbitral Tribunal itself and the Tribunal would then in turn be required to examine whether the Order does or does not deserve to be recalled.

“If a favourable order is passed for recommencing arbitration proceedings, the only option available to a party aggrieved therefrom, would be to participate in the proceedings and thereafter, challenge the final award under Section 34 of the Act, 1996. … If, however, the recall application is dismissed, the party aggrieved therefrom, would be empowered to approach the court under Section 14(2) of the Act, 1996. The court would then in turn examine whether the mandate of the arbitrator stood legally terminated or not. If it finds that the proceedings were not terminated in accordance with the law, it would be empowered to either set-aside the order of termination of proceedings and remand the matter to the arbitral tribunal, or, if the circumstances so require, proceed to appoint a substitute arbitrator in terms of Section 15 of the Act, 1996”, it also enunciated.

Conclusion

Moreover, the Court said that once the fees had been determined by the Sole Arbitrator in accordance with the Fourth Schedule of the A&C Act and the Appellants had given their consent to the same, it was no longer open for them to refuse to deposit the said amount.

“If at all, the appellants were facing any financial difficulty, the correct approach should have been to request the arbitrator to suspend the proceedings in terms of Section 38 sub-section (2) of the Act, 1996 till the time they could arrange the requisite sum”, it noted.

The Court disapproved the stance of the Appellants insofar as they submitted that they were not in a position to pay the arbitral fees for both the claim and the counter-claim, and could pay their share of the fees in respect of the claim alone.

“… where either party defaults, the responsibility to pay the fees falls on the other party. … A claimant is responsible for his own claims, and thus responsible to pay his share of fees in respect of the same. Likewise, the respondent is responsible to pay the share of fees for his counter claims. This responsibility extends to bearing the other party’s share as well, if the latter declines to pay, at least insofar as their claim or counter-claim, as the case may be, is concerned”, it concluded.

Accordingly, the Apex Court partly allowed the Appeal, remanded the case to the High Court for the appointment of a substitute Arbitrator, and directed the Registry to forward one copy each of the Judgment to all the High Courts and one copy to the Department of Legal Affairs, Ministry of Law & Justice, Government of India.

Cause Title- Harshbir Singh Pannu and Anr. v. Jaswinder Singh (Neutral Citation: 2025 INSC 1400)

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