Navigating Termination of Arbitration Proceeding under Section 32 of the Arbitration Act, 1996

Introduction

Section 32 of the Arbitration & Conciliation Act, 1996, lays down the grounds for terminating arbitration proceedings. Among these grounds, the third one presents a degree of ambiguity as it allows termination if the arbitral tribunal finds the continuation of the proceedings to be “unnecessary” or “impossible.” Unlike the first two grounds, which are straightforward, these terms lack explicit definition within the Act.

The absence of precise definitions for “unnecessary” and “impossible” implies that their interpretation varies case by case. The arbitral tribunal holds discretion in determining whether the circumstances warrant termination under these grounds. Notably, this section acts as a catch-all provision, covering scenarios not explicitly addressed elsewhere in the Act.

It is crucial to note that Section 32(2)(c) operates as an exception clause, necessitating strict adherence to its conditions. The party invoking this clause must convincingly demonstrate that the reasons provided fall within the scope of “unnecessary” or “impossible.” Broadly, these terms encompass situations where the continuation of proceedings would result in significant resource wastage.

Supreme Court’s Ruling on Interpretation of Section 32(2)(c)

A recent judgment by the Supreme Court in 2024 offers valuable insights into the interpretation of Section 32(2)(c). The court emphasized that the mere existence of a reason for termination is insufficient; rather, termination should only occur when the continuation of proceedings is both unnecessary and impossible. In this context, the court linked the concept of abandonment of a claim by the claimant to the grounds for termination.

According to the court’s interpretation, abandonment must be evident from the claimant’s conduct and must be compelling enough to justify termination. Additionally, the court mandated that the arbitral tribunal conduct a hearing before terminating proceedings, even in the absence of a request from the parties. Termination should only occur if parties are absent without reasonable cause. [i]

The Supreme Court’s ruling highlights how crucial it is to provide evidence supporting the reasons for termination under Section 32(2)(c). It clarifies that termination cannot be based on vague or unsupported claims of inaction. Instead, the decision must be rooted in concrete evidence of abandonment or similar circumstances.

The intrinsic vagueness of Section 32(2)(c) raises concerns about possible exploitation by aggrieved parties looking to obstruct and delay proceedings. Therefore, a strict approach is required to ensure the provision is not arbitrarily utilized. The arbitral tribunal must exercise discretion judiciously, taking into account the possible effects of termination on the parties involved.

The tribunal must also determine if termination will escalate disputes or impose financial burdens on the parties. While Section 32(2)(c) allows for flexibility in addressing unforeseen circumstances, its application must be tempered with prudence to uphold the integrity of the arbitration process.

Conclusion

In conclusion, thorough consideration of the underlying facts and compliance with established legal principles are necessary for the interpretation and application of Section 32 (2) (c). interpretation and application of Section 32(2)(c) require Although the provision allows for flexibility, it must be used cautiously to avoid abuse and ensure fair and efficient resolution of disputes through arbitration.

References:

[i] Dani Wooltex Corpn. v. Sheil Properties (P) Ltd., 2024 SCC OnLine SC 970

~ Sanjay Sethiya is the Managing Partner at Law Square, Advocates & Solicitors.

~ Sumedha Srinath is an Associate at Law Square, Advocates & Solicitors.