S. 32 A&C Act Is Not A Restriction On Power Of Arbitrator To Permit Withdrawal Of Claim: Bombay High Court
The Bombay High Court observed that Section 32 of the A&C Act declaring the termination of the mandate of an Arbitral Tribunal is a consequence of the withdrawal of a claim and is not a ground on which an objection to withdraw a claim can be sustained.
Justice Revati Mohite Dere, Justice Neela Gokhale, Bombay High Court
The Bombay High Court held that Section 32 of the Arbitration and Conciliation Act, 1996 (A&C Act) is not a restriction on the power of the Arbitrator to permit withdrawal of claim.
The Court held thus in a batch of Writ Petitions preferred against the Order of the Arbitral Tribunal which dismissed the claims as withdrawn.
A Division Bench comprising Justice Revati Mohite Dere and Justice Neela Gokhale observed, “… the Arbitral Tribunal is under no misconception of enjoying a continued mandate and to remain seized of the arbitral proceedings even after withdrawal of the claim. Section 32 of the Act as canvassed by the Petitioner, is a consequence of termination of mandate and not a restriction on the power of the Arbitrator to permit withdrawal of claim. In this view of the matter, the decisions cited by the Petitioner do not carry the case of the Petitioner any forward.”
The Bench said that Section 32 of the A&C Act declaring the termination of the mandate of an Arbitral Tribunal is a consequence of the withdrawal of a claim and is not a ground on which an objection to withdraw a claim can be sustained.
Senior Advocate Janak Dwarkadas appeared for the Petitioners while Advocate Karl Tamboly appeared for the Respondents.
Factual Background
The Petitioner and the Respondents were parties in their respective disputes referred to arbitration. The Petitioner was a Depository, an organization facilitating the holding of securities in an electronic form. The Respondents/Claimants were the individuals claiming to be beneficial owners of securities and holders of dematerialized (DEMAT) accounts registered with the Petitioner. An agreement was executed between the Petitioner and the Respondent who opened a trading and demat account with the Stock Broker. Funds and securities were transferred to the broker from time to time towards margin obligations and for trades in the future options and segments. Disputes arose between the parties leading to the Respondent addressing a notice, calling upon the Petitioner to indemnify him towards loss caused to him due to negligence.
By this notice, the Respondent invoked arbitral proceedings. It was the Petitioner's further case that the Arbitral Tribunal being of the view that since the time for passing of the award had expired in May 2024, an amendment was not possible and hence, offered two options to the Claimant - to either withdraw the arbitration cases and file a fresh application if they so desire, or, to continue with the present claim. The Respondent through his counsel informed the Tribunal that he would like to withdraw his claim. The Tribunal dismissed the proceedings as withdrawn while granting the Respondent liberty to file fresh claim. This Order was impugned by the Petitioner before the High Court.
Reasoning
The High Court after hearing the arguments from both sides, noted, “The Arbitral Tribunal undoubtedly is not bound by the CPC or the Indian Evidence Act, however, failing any agreement on the procedure to be followed in conduct of the proceeding, the Arbitral Tribunal has the power to determine conduct of the proceeding in the manner it considers appropriate.”
The Court remarked that there is no glaring perversity, least of all of a kind which “stares in the face” in the Order impugned, to justify any interference in the same.
“In any case, there is no counter claim of the Petitioner herein in the arbitral proceedings and the Petitioner has no legitimate interest to claim a final award. As such, the impugned order does not cause any prejudice or irreparable damage to the Petitioner”, it added.
The Court further emphasised that the powers of the High Court to issue Writs under Articles 226 and 227 of the Constitution of India is a basic feature of the Constitution and it cannot be curtailed by parliamentary legislation, in this case, Section 5 of the A&C Act; however, this power is to be exercised in exceptional rarity where one party is left remedy less or clear bad faith is shown by one of the parties.
“We are satisfied that the facts in the present case do not comprise such 'exceptional rarity' to justify any interference. There is also no doubt that once the proceedings are terminated, the Arbitral Tribunal is rendered functus officio and has no jurisdiction to continue with the proceedings”, it said.
The Court also noted that the Arbitral Tribunal itself has declared that the Respondents/Claimants shall have to give a fresh notice of invocation of arbitration if the Claimant decides to initiate fresh proceedings after withdrawal.
“We do not find any perversity in the impugned order to warrant interference in the same, in exercise of our jurisdiction Articles 226/227 of the Constitution of India. The order does not depict any bad faith and no case of extreme rarity seems to exist either”, it concluded.
Accordingly, the High Court dismissed the Petitions and upheld the impugned Order.
Cause Title- Central Depositories Services (India) Limited v. Ketan Lalit Shah (Neutral Citation: 2025:BHC-OS:4806-DB)
Appearance:
Petitioners: Senior Advocate Janak Dwarkadas, Advocates Kunal Dwarkadas, Rahul Dwarkadas, Sanaya Contractor, Rahil Shah, and Rahul Deshpande.
Respondents: Advocates Karl Tamboly, Ravichandra Hegde, Parinaz Bharucha, Ashok Panday, and Kandarp Trivedi.
