THE HIGH COURT OF MADHYA PRADESH AC.124.2018 [M/s Mool Chand Jain Vs. Union of India and another] 1

Gwalior, Dated : 16/01/2019

Shri M.L. Swarnakar, learned counsel for the applicant.

Shri Vivek Khedkar, learned Assistant Solicitor General for respondents/Union of India.

With the consent of learned counsel for the parties, the matter is finally heard.

Vide this application under Section 11(6) read with Section 14(1) and Section 15(2) of the Arbitration & Conciliation Act (Amendment) Act, 2015 (for brevity "the Act"), the applicant seeks appointment of a substituted arbitrator for Agreement No.15/EE/GCD/2000-01.

The agreement relates to work of construction of Officers' Mess and Suites at ITBP, Karera.

That dispute arose from the said agreement which was referred to sole Arbitrator as per term of agreement.

That by order dated 23.08.2018, the arbitration proceedings were terminated. The reasons find mention in the operative portion of the order, extracted below:

"11. As per sub-section (1) of section 23 of Arbitration & Conciliation (Amendment) Act, 2015, sufficient time up to 16.08.2018 was given to Claimant for submitting their Statement of Claim but Claimant failed to submit the same

THE HIGH COURT OF MADHYA PRADESH AC.124.2018 [M/s Mool Chand Jain Vs. Union of India and another] 2

on or before 16.08.2018. So looking to these facts and provision in sub-section (a) of section 25 of Arbitration & Conciliation (Amendment) Act 2015, the proceedings of this arbitration case are hereby terminated.

The proceedings, thus, have been brought to an end under Section 25(a) of Act which envisages that unless otherwise agreed by the parties, where, without sufficient cause the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the arbitrator shall terminate the proceedings.

The question is whether when the arbitral proceedings are terminated under Section 25(a) of Act whether it will be within the right of the party to invoke Section 11(6), read with Section 15(2) and 14(1) of the Act.

Sub-section (1) of Section 14 of the Act stipulates:

"14. Failure or impossibility to act.- (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if-

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or

THE HIGH COURT OF MADHYA PRADESH AC.124.2018 [M/s Mool Chand Jain Vs. Union of India and another]

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the parties agree to the termination of his mandate."

Similarly, sub-section (2) of Section 15 of the Act provides for:

"15. Termination of mandate and substitution of arbitrator.-

(1) XX XX XX

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

In the case at hand, none of the events as find mention under Section 14(1) and 15(2) has taken place, as would lead to an accrual of right in favour of the party to the agreement to invoke Section 11(6) of the Act.

Then, what is the remedy?

Recently, Hon'ble Supreme Court in "SREI Infrastructure Finance Limited Vs. Tuff Drilling Private Limited [(2018) 11 SCC 470]", in seisin with the following issues:

(i) Whether arbitral tribunal which has terminated the proceeding under Section 25(a) due to non filing of claim by the claimant has jurisdiction to consider the application for recall of the order terminating the proceedings on

AC.124.2018

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sufficient cause being shown by the claimant?

(ii) Whether the order passed by the arbitral tribunal under Section 25(a) terminating the proceeding is amenable to jurisdiction of the High Court under Article 227 of the Constitution of India?

(iii) Whether the order passed under Section 25(a) terminating the proceeding is an award under the 1996 Act so as to be amenable to the remedy under Section 34 of the Act?"

has held:

"20. In the present case, proceedings were terminated vide Order dated 12.12.2011 under Section 25(a). After termination of proceedings, application to recall the said order was filed by claimant on 20.01.2012, which was rejected by arbitral tribunal on the ground that it has no jurisdiction to recommence the arbitration proceedings. Section 25 contemplates a situation that when the claimant fails to communicate his statement of claim within the time as envisaged by Section 23, the arbitral tribunal has to terminate the proceedings. This section thus contemplates a situation where arbitration proceeding has not been started. The most important words contained in Section 25 are "where without showing sufficient cause – the claimant fails to communicate his statement of claim". Under Section 23(1), the claimant is to state the facts supporting his claim within the period of time agreed upon by the parties or

AC.124.2018

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determined by the arbitral tribunal. The question of termination of proceedings thus arises only after the time agreed upon between the parties or determined by the arbitral tribunal comes to an end. When the time as contemplated under Section 23(1) expires and no sufficient cause is shown by the claimant the arbitral tribunal shall terminate the proceedings. The question of showing sufficient cause will arise only when the claimant is asked to show cause as to why he failed to submit his claim within the time as envisaged under Section 23(1) or the claimant, on his own, before the order is passed under Section 25(a) to terminate the proceedings comes before the arbitral tribunal showing sufficient cause for not being able to submit his claim within the time. In both the circumstances, i.e. when a show-cause notice is issued to the claimant as observed above or the claimant of his own shows cause for non-filing the claim within the time the arbitral tribunal shall take a call on terminating the proceedings. It is easy to comprehend that in the event, the claimant shows a sufficient cause, the arbitral tribunal can accept the statement of claim even after expiry of the time as envisaged under Section 23(1) or grant further time to the claimant to file a claim. Thus, on sufficient cause being shown by a claimant even though time has expired under Section 23(1), it is not obligatory for the arbitral tribunal to terminate the proceedings. The conjunction of the wordings "where without showing sufficient cause" and "the claimant fails

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to communicate his statement of claim", would indicate that it is a duty of the arbitral tribunal to inform the claimant that he has failed to communicate his claim on the date fixed for that and requires him to show cause why the arbitral proceedings should not be terminated? Opportunity to show sufficient cause for his failure to communicate his claim statement can only be given after he has actually failed to do so. Whether in a case where the claimant failed to file a statement of claim and has failed also to show cause before an order of termination of proceedings is passed, claimant is entitled to show cause subsequent to the termination, is the question which has fallen for consideration.

21. When the arbitral tribunal without sufficient cause being shown by the claimant to file the claim statement can terminate the proceedings, subsequent to termination of proceedings, if the sufficient cause is shown, we see no impediment in the power of the arbitral tribunal to accept the show cause and permit the claimant to file the claim. The scheme of Section 25 of the Act clearly indicates that on sufficient cause being shown, the statement of claim can be permitted to be filed even after the time as fixed by Section 23(1) has expired. Thus, even after passing the order of terminating the proceedings, if sufficient cause is shown, the claims of statement can be accepted by the arbitral tribunal by accepting the showcause and there is no lack of the jurisdiction in the arbitral tribunal to

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recall the earlier order on sufficient cause being shown.

26. There cannot be a dispute that the power exercised by the arbitral tribunal is a quasi-judicial. In view of the provisions of the 1996 Act, which confers various statutory powers and obligations on the arbitral tribunal, we do not find any such distinction between the statutory tribunal constituted under the statutory provisions or Constitution insofar as the power of procedural review is concerned. We have already noticed that Section 19 provides that arbitral tribunal shall not be bound by the rules of procedure as contained in Civil Procedure Code. Section 19 cannot be read to mean that the arbitral tribunal is incapacitated in drawing sustenance from any provisions of the Code of Civil Procedure. This was clearly laid down in Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corpn., (2009) 8 SCC 646. In para 98(n), the following was stated: (SCC p. 693)

"(n) It is not bound by the procedure laid down under the Code. It may however be noticed in this regard that just because the Tribunal is not bound by the Code, it does not mean that it would not have jurisdiction to exercise powers of a court as contained in the Code. "Rather, the Tribunal can travel beyond the Code of Civil Procedure and the only fetter that is put on its powers is to observe the principles of natural justice." (See ICICI Ltd. v. Grapco

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Industries Ltd., (1999) 4 SCC 710)"

35. Coming to Issues (ii) and (iii), in view of what we have said regarding Issue (i) that arbitral tribunal has jurisdiction to consider an application for recall of order terminating the proceedings under Section 25(a), it is not necessary for us to enter into Issues (ii) and (iii) for purposes of this case. For deciding the present civil appeal, our answer to Issue (I) is sufficient to dispose of the matter."

In view whereof, in given facts of present case, an application under Section 11(6) read with Section 14(1) and 15(2) of the Act is not tenable. Instead the applicant is at liberty to invoke the course as held in SREI Infrastructure Finance Limited (supra).

The application is finally disposed of in above terms. No costs.

(Sanjay Yadav) Judge

PAWAN DHARKAR 2019.01.1 8 11:00:02 -08'00'

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