The Delhi High Court in the case of PCL Suncon vs. National Highway Authority of India[1] discussed what constitutes an ‘award’ under the Arbitration and Conciliation Act, 1996 and whether an order for terminating the arbitral proceeding will constitute an ‘award’ under the Act.
Background
The petitioner filed the present petition against an earlier order dated April 20, 2020 passed by the two arbitrators terminating the arbitral proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (“the Act”). The respondent on the other hand contests the maintainability of the present petition and contends that the impugned order cannot be faulted.
The arbitral proceedings were terminated because the arbitrator nominated by the petitioner had resigned and the petitioner had not taken steps to nominate another arbitrator in his place. Thereafter, the arbitral proceedings couldn’t proceed and the remaining two arbitrators constituting the Arbitral Tribunal concluded that it was impossible to continue the proceedings and accordingly terminated the same.
Facts
· The Petitioner claims that there was a communication gap and the petitioner was not aware that its chosen arbitrator had resigned. Further, the Tribunal had not issued any notice to the petitioner in this regard prior to terminating the arbitral proceedings.
· National Highway Authority of India invited tenders for a project and the petitioner’s bid was accepted by way of a letter dated February 23, 2002 and a formal agreement was executed between the parties on March 28, 2002. The task was divided into three parts: the first section was to be completed within 18 months, the second within twenty-four months and the third section was to be completed within a period of 36 months from the date of commencement i.e. March 30, 2005.
· It is claimed by the petitioner that due to some disputes between the parties, the NHAI claims that the petitioner did not complete the order within the stipulated time and was therefore liable to pay liquidated damages.
· Subsequently, the petitioner invoked the arbitration clause. Along with other charges and damages, the petitioner also claimed interest an addition on INR 10 lacs. The petitioner also filed a petition under section 9 of the Act seeking certain measures of interim protection. The said petition was disposed of and the recovery of liquidated damages was stayed by an order dated January 09, 2015.
· The arbitral tribunal was constituted on August 03, 2015. On February 19, 2019, the arbitrator sent a letter to the petitioner that further hearings could not take place due to difficulty in managing time and differences with the co-arbitrators, hence he was resigning as an arbitrator.
· However, the petitioner did not receive any communication from the remaining two arbitrators informing their intention to terminate the arbitral proceedings. The petitioner claims that an attempt was made on its part to appoint a substitute arbitrator but the process was delayed due to unavoidable reasons.
· On April 20, 2020 the Tribunal passed the impugned order terminating the arbitral proceedings under Section 32(2)(c) of the Act. The petitioner claims that the said order was not communicated. Further, the petitioner claims that a letter was sent to NHAI for appointment of another arbitrator, the impugned order was informed to him with a cover letter dated May 27, 2020.
Respondent’s Case
· The Respondent relied on a precedent[2] wherein the court had accepted the contention that the termination of proceedings in respect of the claim filed by the petitioner would amount to an arbitral award, which can be challenged only by a petition under Section 34 of the Act. The court further reasoned that termination of arbitral proceedings on the ground that the petitioner was not proceeding with the same would be akin to dismissal of a suit on the ground of non-prosecution and therefore, could be challenged only in an application under section 34 of the Act and on the limited grounds as available to an aggrieved party under the said provision.
· Further, the petitioner was responsible for the delay in appointment of an arbitrator and therefore, the decision of the Tribunal to terminate the arbitral proceedings cannot be faulted. Furthermore, in the event that the impugned order is set aside and the proceedings are commenced, the same ought to be with costs.
Petitioner’s Case
· It was contented that it is well settled that an order terminating the proceedings under Section 32(2) of the Act could not be considered as an award. It was submitted that termination of the arbitral proceedings on account of non-prosecution of claims also cannot be construed as an award, which can be challenged under section 34 of the Act.
· That the impugned order was liable to be set aside as no preemptory notice was issued by the arbitrators before proceeding to terminate the arbitral proceedings. However, he also conceded that the petitioner had been remiss in diligently prosecuting the arbitral proceedings and there was a considerable delay in nominating an alternate arbitrator.
Court’s comments and decision
The Court deliberated on the question – ‘Whether the impugned order constitutes an ‘award’?’. The following points were made by the Court.
· Recourse to a court against an award is available only under section 34 of the Act. The use of the word “only” in section 34(1) is significant and it implies that except under section 34, no other recourse is available against an arbitral award, to which Part of the Act applies. The contention that the present petition is not maintainable is founded on the assumption that the impugned order is an award.
· According to the Act, ‘arbitral award’ includes an interim award. It has been settled after few rulings that an constitutes a final determination of a particular issue or a claim in arbitration. Further, section 32 of the Act also draws a clear distinction between a final arbitral award and orders passed by an Arbitral Tribunal. Sub section (1) says the arbitral proceedings stand terminated by a final award or by such orders as are specified under sub section (2) of the Act.
· After considering a slew of decisions[3], the court concluded that in order for a decision of the Tribunal to qualify as an award, the same must finally decide a point at which the parties are at issue. In cases where the same is dispositive of the entire dispute referred to the Tribunal, the said award would be a final award, which would result in termination of the arbitral proceedings.
· Section 32 of the Act makes a clear distinction between an award and an order under sub section (2) of section 32 of the Act. Indisputably, an order under 32(2) is not an award.[4]
· An order terminating the proceedings on failure of the claimant to file its Statement of Claims within the stipulated time, is also in the nature of an order under section 32(2) of the Act and not an arbitral award because such an order does not decide any of the points on which the parties are in issue in the arbitration.
Court’s Decision
· In the present case, the impugned order passed by the arbitrators expressly states that the arbitral proceedings are terminated under section 32(2) of the Act as in their view, it has become impossible to continue the said proceedings.
· It is relevant to note that the impugned order is passed by two arbitrators, as the functioning of the Tribunal had been stalled due to the vacancy caused by resignation of the petitioner’s nominated arbitrator. The impugned order is thus an expression of the arbitrators that they are unable to continue with the proceedings on account of the default on the part of the petitioner to fill the vacancy. The NHAI did not ensure that the vacancy is filled either.
· Although the arbitrators had passed the impugned order, it is not disputed that a notice, that they were contemplating terminating of the proceedings, was not issued to the petitioner, prior to passing of the impugned order.
· It cannot be denied that the petitioner is responsible for the delay in the proceedings as it had inordinately delayed the appointment of an arbitrator. The court found it appropriate to set aside the impugned order, subject to payment of costs of INR 25000.
Conclusion
The Hon’ble Court discussed in detail as to what constitutes an ‘award’ in arbitral proceedings and based on statutory provisions read with judicial precedents and came to the conclusion that an order passed for the termination of pending arbitral proceedings cannot be termed as an arbitral ‘award’. This is yet another pro-arbitration judgment passed by the Hon’ble Court.
[1] OMP (T) (COMM.) 80/2020. Access here. [2] Angelique International Limited v. SSJV Projects Private Limited and Anr., 2018 SCC OnLine Del 8287. [3] Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products, (2018) 2 SCC 534; Exmar BV v. National Iranian Tanker Co. (The “Trade Fortitude”), [1992] 1 Lloyd’s Rep. 169; Satwant Singh Sodhi v. State of Punjab and Ors.: (1999) 3 SCC 487; McDermott International Inc. v. Burn Standard Co. Ltd. and Ors. (2006) 11 SCC 181. [4] The India Trading Company v. Hindustan Petroleum Corporation Limited, 2016 SCC OnLine Cal 479.
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