Case Note & Summary
The dispute arose from a partnership firm where the original claimant, father of the petitioners, had initiated arbitration proceedings in 2004. After multiple hurdles, the three‑member tribunal terminated its mandate in 2007, and the original claimant’s subsequent application for a fresh tribunal was dismissed by the High Court in 2010. The original claimant died in 2012. The petitioners, as his legal heirs, challenged the High Court’s order before the Supreme Court. The Supreme Court in 2014 substituted them as legal representatives and granted liberty to challenge the termination of the earlier mandate. Pursuant to that, the High Court in 2015 restored the proceedings before the same three‑member tribunal. However, due to non‑payment of fees, that tribunal terminated the reference again. A fresh sole arbitrator was appointed by consent in 2016, who was directed to continue from the stage at which the previous tribunal left. The petitioners then applied for formal substitution in the arbitration. The sole arbitrator, by the impugned order dated 20 July 2017, dismissed the application holding it was belated and no prayer for condonation of delay was made, effectively terminating the proceedings as to the claimants. The petitioners challenged this order under Section 14 of the Arbitration and Conciliation Act, 1996. The respondents raised a preliminary objection that the petition was not maintainable under Section 14 and that the impugned order ought to be challenged as an award under Section 34. The Court examined whether the order dismissing the substitution application was an award or a termination of the mandate. It held that the order did not decide any claim on merits and effectively brought the arbitral proceedings to an end regarding the claimants; hence, it was not an award but a refusal by the arbitrator to perform his functions, falling under Section 14(2) read with Section 32. The Court further noted that even the respondents agreed the mandate had terminated upon the order, making it a case under Section 14(1)(b). On merits, the Court found the arbitrator’s reasoning perverse because the Supreme Court had already substituted the petitioners, the arbitration proceedings were restored, and there was no occasion to apply abatement principles or requirement of condonation for delay. The right to sue survives, and the refusal to substitute would frustrate the arbitration. Consequently, the Court set aside the impugned order and directed the sole arbitrator to allow the petitioners’ substitution application and proceed with the arbitration.
Headnote
A) Arbitration - Maintainability of Petition - Termination of Mandate - Arbitration and Conciliation Act, 1996, Sections 14, 32, 34 - The sole arbitrator's order dismissing the substitution application of the legal heirs effectively terminated the arbitral proceedings as to the claimants; such an order does not decide any claim on merits and hence is not an 'award' capable of challenge under Section 34. The petition under Section 14 is maintainable because the arbitrator has refused to perform his functions, and the parties agreed that the mandate stood terminated upon the impugned order. Held that the petition is maintainable under both Section 14(1)(b) and Section 14(2) of the Act. (Paras 15-18)
B) Arbitration - Substitution of Legal Heirs - Application of Limitation and Abatement Principles - Arbitration and Conciliation Act, 1996, Section 14 - In the peculiar facts where the Supreme Court had already substituted the petitioners as heirs of the original claimant and the arbitration proceedings were restored after a lapse, the sole arbitrator's dismissal of the substitution application on the ground of belated stage and absence of condonation of delay was perverse. Principles of abatement applicable to civil suits do not strictly apply to arbitration proceedings, and the right to sue survives. Refusal to substitute amounts to denial of justice and frustrates the arbitration. Held that the impugned order is set aside and substitution shall be allowed. (Paras 19-21)
Issue of Consideration
Whether the petition under Section 14 of the Arbitration and Conciliation Act, 1996 is maintainable against an order of the sole arbitrator dismissing an application for substitution of legal heirs and effectively terminating the proceedings; and whether the impugned order is perverse and arbitrary warranting interference.
Final Decision
The Court held that the petition under Section 14 was maintainable as the impugned order effectively terminated the mandate and was not an award. On merits, the Court found the arbitrator's order perverse and arbitrary because the petitioners had already been substituted by the Supreme Court, the proceedings were revived, and there was no occasion for applying abatement principles or requiring condonation of delay. The impugned order was set aside, and the sole arbitrator was directed to allow the substitution application and proceed with the arbitration.
Law Points
- maintainability of petition under Section 14 against order terminating proceedings
- distinction between award and termination of mandate
- substitution of legal heirs in arbitration
- application of abatement and limitation principles in arbitration
- refusal by arbitrator to perform functions constitutes termination under Section 14(2)
- perversity and arbitrariness of order dismissing substitution
- interpretation of Section 14(1)(b) and Section 32 of Arbitration Act
Case Details
2019 LawText (BOM) (02) 42
Arbitration Petition No. 626 of 2017
Mr. Sanjay Jain, Mr. Atul Daga, Mr. Niranjan M. Deshpande, Mr. Nimay Dave, Mr. Prakash R. Shah, Mr. Hiren G. Shah, Mr. Rahul Raut, Mr. Ashish Gohil
Neeta Lalitkumar Sanghavi & Anr
Bakulaben Dharmadas Sanghavi & Ors
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Nature of Litigation
Challenge under Section 14 of the Arbitration and Conciliation Act, 1996 to an order of the sole arbitrator dismissing an application for substitution of legal heirs of the original claimant and effectively terminating the arbitral proceedings.
Remedy Sought
The petitioners sought to set aside the impugned order dated 20 July 2017 and to direct that they be brought on record as the heirs and legal representatives of the deceased original claimant in the arbitration proceedings.
Filing Reason
The sole arbitrator had dismissed the petitioners' substitution application on the ground that it was filed at a belated stage without any explanation for the delay, holding that the proceedings had abated.
Previous Decisions
The original three‑member tribunal terminated its mandate on 29 October 2007. The original claimant’s application for a fresh tribunal was dismissed by the High Court on 24 September 2010. The Supreme Court by order dated 4 March 2014 substituted the petitioners as heirs, granted liberty to challenge the termination of the earlier mandate. The High Court by order dated 12 August 2015 restored the proceedings before the same three‑member tribunal. The tribunal again terminated the reference on 24 February 2016. A new sole arbitrator was appointed by consent on 23 November 2016 to continue the proceedings from the stage at which the previous tribunal left off.
Issues
Whether the petition under Section 14 of the Arbitration and Conciliation Act, 1996 is maintainable against an order of the sole arbitrator dismissing the substitution application and terminating the proceedings, or whether it should have been challenged as an award under Section 34.
Whether the impugned order of the sole arbitrator is perverse and arbitrary, warranting interference under Section 14.
Submissions/Arguments
The petitioners argued that the impugned order is not an award but effectively terminated the arbitration proceedings, falling within the ambit of Section 14, and that the arbitrator had refused to perform his functions; moreover, substitution had already been allowed by the Supreme Court and the High Court, so the dismissal on grounds of delay was perverse.
The respondents argued that the petition under Section 14 was not maintainable as the impugned order partook the character of an award and should have been challenged under Section 34; on merits, they contended that the substitution application was filed at a highly belated stage without any prayer for condonation of delay, and the arbitrator correctly held that the proceedings had abated.
Ratio Decidendi
An order of an arbitrator dismissing an application for substitution of legal heirs, which has the effect of terminating the arbitral proceedings as to the claimants without deciding the merits of the claim, is not an 'award' under Section 34 of the Arbitration and Conciliation Act, 1996 but constitutes a refusal by the arbitrator to perform his functions, making a petition under Section 14 maintainable. In peculiar circumstances where superior courts have already granted substitution and the right to sue survives, the refusal to substitute is perverse and frustrates the arbitral process.
Judgment Excerpts
the present Petition is maintainable not only under Section 14(1)(b) but also falls within the ambit of Section 14(2) of the Act.
The impugned order ... effectively brings the arbitral proceedings to an end ... therefore, it clearly falls within the ambit of Section 14 of the Act.
the impugned order is perverse and arbitrary ... the sole arbitrator completely lost sight of the fact that the petitioners were already substituted as the heirs of the original claimant by the Supreme Court.
Procedural History
In 2004, a three‑member Arbitral Tribunal was constituted by the High Court to adjudicate disputes relating to the partnership firm 'Sanghavi Brothers' at the instance of the original claimant (father of the petitioners). The tribunal terminated its mandate on 29 October 2007. The original claimant's subsequent Section 11 application for a fresh tribunal was dismissed by the High Court on 24 September 2010. The original claimant died on 7 August 2012. The petitioners, as his legal heirs, filed a Special Leave Petition before the Supreme Court challenging the 2010 High Court order; the Supreme Court by order dated 4 March 2014 substituted them as legal representatives and granted liberty to challenge the termination of the earlier mandate under Section 14. The High Court, by order dated 12 August 2015, allowed the Section 14 petition, set aside the 2007 termination order, and restored the proceedings before the same three‑member tribunal. The tribunal held meetings but on 24 February 2016 terminated the reference again due to non‑payment of fees. The petitioners then filed Arbitration Petition No. 855/2016 under Sections 14 and 11, and a consent order dated 23 November 2016 appointed Mr. Salil M. Shah as sole arbitrator, directing him to continue from the stage at which the previous tribunal left off. The petitioners applied for formal substitution; the sole arbitrator dismissed that application by the impugned order dated 20 July 2017. Hence, the present petition.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Sections 11, 14, 16, 32, 34, 37
