Can an order for the Termination of arbitration proceedings be challenged?
Case titles:
PCL Suncon v NHAI (2021) SCC OnLine Del 313
Future Coupons Private Limited v Amazon.com NV Investment Holdings (2022) SCC OnLine Del 3890
A significant yet relatively little discussed aspect of Indian arbitration law is the termination of arbitration proceedings under section 32 of the Arbitration and Conciliation Act 1996 (the Arbitration Act).
Under Indian law, for a decision of the arbitral tribunal to qualify as an award, the decision must finally decide a point or claim at issue in the arbitration proceedings. An order under section 32(2)(c) of the Arbitration Act to terminate arbitration proceedings is therefore merely a procedural order and does not constitute an award on the merits, as such an order does not answer any issue at dispute in arbitration between the parties and is merely an expression of the decision of the arbitral tribunal not to continue with the arbitration proceedings.
An order under section 32(2)(c) is also not subject to proceedings under section 34 of the Arbitration Act, which permits a challenge to an award on the grounds listed therein, as is otherwise the case with an arbitral award to the same effect.
In fact, section 32 recognises a clear distinction between a final award and an order to terminate the arbitration proceedings passed under section 32(2). This distinction is also manifest from a reading of section 32(2)(a), which allows the respondent to seek an award as against an order for termination as a matter of legitimate interest in situations where the claimant withdraws its claims.
An application under section 32(2)(c) cannot be equated to, or used as, a proxy application for summary or early dismissal of claims. For instance, Rule 29 of the Singapore International Arbitration Centre Arbitration Rules 2016 allows a party to apply to the arbitral tribunal for early dismissal of a claim or a defence on the basis that the claim or defence is manifestly without legal merit or manifestly outside the jurisdiction of the arbitral tribunal.
In early dismissal cases, the arbitral tribunal may allow the application for early dismissal of a claim or defence, and make an award on application. This is substantially different from section 32(2)(c) of the Arbitration Act, wherein the arbitral tribunal does not exercise its powers to terminate the arbitration proceedings based on its view of the merits of the case.
Challenging an order under S.32 of the Arbitration Act:
Recently, the right to challenge an order passed under section 32(2)(c) of the Arbitration Act drew significant attention in India with the dismissal of an application filed by Future Group seeking the termination of its ongoing Singapore International Arbitration Centre-administered arbitration proceedings against Amazon (Amazon v Future Group).
On 25 March 2021, in the midst of Amazon v Future Group, Future Group filed a complaint with the Indian antitrust regulator, the Competition Commission of India (CCI), seeking revocation of the approval that was granted to Amazon on 28 November 2019 for its investment in Future Group.
Despite the questionable timing of the complaint, Future Group successfully secured an order from the CCI wherein, on 17 December 2021, the CCI held in abeyance the approval granted to Amazon for its investment and directed Amazon to reapply for the approval pursuant to fresh filling.
Based on the CCI’s order, Future Group filed an application under section 32(2)(c) of the Arbitration Act seeking termination of the Amazon v Future Group arbitration. The basis of the application was that, absent an existing CCI approval, the underlying agreements that were the subject matter of the arbitration were rendered incapable of performance under Indian law.[30] On 28 June 2022, the termination application was dismissed by the arbitral tribunal on the grounds that the continuation of Amazon v Future Group was not rendered unnecessary or impossible, and arguments based on the CCI’s order would be required to be considered and determined by the arbitral tribunal in the final award.
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Aggrieved by this, Future Group filed a petition before the Delhi High Court under article 227 of the Constitution of India, which grants supervisory jurisdiction to the high courts over all lower courts and tribunals in India. The jurisdiction of the high courts envisaged in article 227 is required to be exercised in exceptional circumstances (eg, the order passed suffers from a fundamental lack of inherent jurisdiction, one party is left remediless under the statute or clear bad faith is shown by one of the parties).
In light of this position, the Delhi High Court dismissed the petition filed by Future Group as being impossible to maintain and, in doing so, clarified the manner in which orders under section 32(2)(c) of the Arbitration Act can be challenged under Indian law.
The Delhi High Court highlighted a distinction between the two kinds of orders that may be passed under section 32(2) of the Arbitration Act, which are:
In the first scenario, the Delhi High Court held that the party may be left remediless as there is no provision under the Arbitration Act that would permit the party to raise a challenge against such an order because it would neither be an award amenable to challenge under section 34 or an interim order amenable to challenge under section 37.
In such situations, the Delhi High Court has opined that a petition under article 227 of the Constitution of India may be held to be maintainable against an order passed under section 32 of the Arbitration Act.
In the second scenario, however, the right to challenge the final award under section 34 of the Arbitration Act would subsist and is merely deferred until the final award is passed. Accordingly, if the arbitration proceedings deserved to be terminated, the option for the party to urge the same grounds (if the occasion arose) in a challenge to an award under section 34 would always be available. In such situations, it has been held that a petition under article 227 of the Constitution of India would not be maintainable against an order passed under section 32 of the Arbitration Act.
In light of this, the petition filed by Future Group seeking termination of its arbitration with Amazon was dismissed as being impossible to maintain.
This judgment of the Delhi High Court upholds the sanctity of the arbitral process, and ensures that there is no unwarranted interference with the arbitration proceedings in cases where the arbitral tribunal dismisses an application under section 32 of the Arbitration Act and continues with the arbitration proceedings. Recognising the principle of indestructability of arbitration proceedings, the Delhi High Court observed:
Clipping of arbitral wings is against the basic ethos of the 1996 Act. Allowing free flight to arbitration is the very raison d’etre of the reforms that the UNCITRAL arbitral model sought to introduce. The 1996 Act, founded as it is on the UNCITRAL model, is pervaded by the same philosophy.
At the same time, the judgment recognises the right of a party to challenge an order terminating the arbitration proceedings to ensure that no party is left remediless.
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3mothere are judgments that in the second scenario, the order can be challenged under section 14(2) and a party can approach court for terminating the arbitration.