Case Note & Summary
The petitioner, Vishal Engineering Works, filed an Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dated 7.9.2011. The arbitrator had dismissed the petitioner's claims and also the respondent's counterclaim, observing that under Section 25 of the Act, the claimant had defaulted in submitting the statement of claims within the time frame and various extensions granted, thereby forfeiting his right. The High Court examined Sections 23 to 25 of the Act. It noted that Section 25 empowers the arbitral tribunal to terminate the proceedings if the claimant fails to communicate his statement of claim, but only after giving notice to the defaulting party. The court found that the arbitrator had not issued any notice or given any opportunity to the petitioner to show cause before terminating the mandate. The court held that such an award is patently illegal and in conflict with the public policy of India, warranting interference under Section 34. Consequently, the court set aside the impugned award and restored the arbitration proceedings to the stage prior to the dismissal, directing the arbitrator to proceed afresh in accordance with law after giving due notice and opportunity to both parties.
Headnote
A) Arbitration - Termination of Mandate - Section 25 of the Arbitration and Conciliation Act, 1996 - Default in Submitting Statement of Claim - The arbitrator dismissed the claimant's claims under Section 25 for failure to submit statement of claim within the time frame and extensions granted, without giving any notice or opportunity to the claimant to show cause. The High Court held that before terminating the mandate under Section 25, the arbitrator must give notice to the defaulting party and provide an opportunity to explain the default. The impugned order was set aside as it was in conflict with the public policy of India. (Paras 1-5)
B) Arbitration - Challenge to Award - Section 34 of the Arbitration and Conciliation Act, 1996 - Public Policy - The court held that an award passed without giving notice and opportunity to the defaulting party before terminating the mandate under Section 25 is patently illegal and in conflict with the public policy of India, and thus liable to be set aside under Section 34. (Paras 4-5)
Issue of Consideration
Whether the arbitrator was justified in dismissing the claimant's claims under Section 25 of the Arbitration and Conciliation Act, 1996 without giving notice and opportunity to the claimant to show cause before terminating the mandate.
Final Decision
The court allowed the petition, set aside the impugned order dated 7.9.2011, and restored the arbitration proceedings to the stage prior to the dismissal. The arbitrator was directed to proceed afresh in accordance with law after giving due notice and opportunity to both parties.
Law Points
- Section 25 of the Arbitration and Conciliation Act
- 1996 requires notice to the defaulting party before terminating mandate
- Section 34 of the Arbitration and Conciliation Act
- 1996 permits challenge to award if in conflict with public policy
- Arbitrator cannot dismiss claims without giving opportunity to show cause
Case Details
2012 LawText (BOM) (02) 78
Arbitration Petition No.106 of 2012
Mr. Ramesh Ramamurthy for the petitioner, Ms. S.I. Joshi i/b S.I. Shah & Co. for the respondents
The Chief Engineer (Electrical) MTNL & Anr.
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Nature of Litigation
Arbitration petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award dismissing claims for default under Section 25.
Remedy Sought
Petitioner sought setting aside of the arbitral award dated 7.9.2011 and restoration of the arbitration proceedings.
Filing Reason
The arbitrator dismissed the petitioner's claims under Section 25 of the Act for failure to submit statement of claim within the time frame and extensions, without giving notice or opportunity to show cause.
Previous Decisions
The arbitrator passed an order dated 7.9.2011 dismissing the claims and counterclaim, observing that the claimant had defaulted in submitting the statement of claims within the time frame and extensions granted, thus forfeiting his right.
Issues
Whether the arbitrator was justified in dismissing the claimant's claims under Section 25 of the Arbitration and Conciliation Act, 1996 without giving notice and opportunity to the claimant to show cause before terminating the mandate.
Submissions/Arguments
Petitioner argued that the arbitrator erred in dismissing the claims without giving any notice or opportunity to show cause, as required under Section 25.
Respondents supported the arbitrator's order.
Ratio Decidendi
Before terminating the mandate under Section 25 of the Arbitration and Conciliation Act, 1996 for default in filing statement of claim, the arbitrator must give notice to the defaulting party and provide an opportunity to explain the default. An award passed without such notice is patently illegal and in conflict with the public policy of India, and liable to be set aside under Section 34.
Judgment Excerpts
The petitioner has invoked section 34 of the Arbitraton and Conciliation Act (for short “Arbitration Act”) against order dated 7.9.2011 passed by the arbitrator whereby the claims of the petitioner-original claimants have been dismissed and so also the respondents counter claim by observing that “As per section 25 of the Arbitration and Conciliation Act, 1996, the claimant has defaulted to submit the statement of claims within the time frame and various extension granted and thus forfeited his right.”
The impugned order itself reflects that there is no notice given to the petitioner before passing such order. The order is passed without giving any opportunity to the petitioner to show cause. The order is therefore patently illegal and in conflict with the public policy of India.
Procedural History
The petitioner filed a claim before the arbitrator. The arbitrator granted extensions for filing the statement of claim. The petitioner failed to file within the extended time. The arbitrator passed an order on 7.9.2011 dismissing the claims and counterclaim under Section 25 of the Act. The petitioner challenged this order under Section 34 before the Bombay High Court.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 23, 24, 25, 34
