Order Terminating Arbitration For Non-Filing Of Statement Of Claim Is Not 'Award', Cannot Be Challenged U/S 34 A&C Act: Delhi High Court

The Delhi High Court held that an order terminating arbitral proceedings under section 25 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) on account of non-filing of statement of claim does not amount to an arbitral award and therefore cannot be challenged under section 34. Justice Jasmeet Singh held that “the Award can only be considered to be an award once it adjudicates the rights of the parties. The order terminating the proceedings for non-filing of a statement of claim cannot be considered an award under Section 32(2).” The court allowed Mecwel Constructions Pvt. Ltd's petitions directing that the arbitration proceedings be revived before the same arbitrator who was earlier appointed by the court. Background: The dispute emerged from multiple contracts between GE Power Systems India Pvt. Ltd. (respondent) and Mecwel Constructions Pvt. Ltd. (petitioner) for erection, testing, commissioning, and handover of steam turbine and generator auxiliaries at various thermal power projects. GE Power had sub-contracted some parts of its project to Mecwel through purchase orders. Subsequently, due to breaches and delays, the contract was terminated by GE Power. Mecwel has challenged the invocation of guarantees under section 9 of the Arbitration Act before the court at Vijayawada which was later transferred to the Delhi High Court. The court allowed GE Power to encash the guarantees and directed that the proceeds be kept in Fixed Deposits (FDRs) and simultaneously appointed the arbitrator. The arbitrator entered reference but closed the proceedings under section 25(a) of the Act as Mecwel had failed to file its Statement of Claims (SOC) and did not pay its share of arbitral fees. Mecwel had filed petitions under sections 14 and 15 seeking substitution of the arbitrator or revival of the proceedings. GE Power submitted that the order terminating proceedings amounted to an arbitral award and therefore the only remedy available to the petitioner to challenge it under section 34. Findings: The court relied on the Supreme Court's judgment in Lalitkumar V. Sanghavi where it was held that orders terminating proceedings due to impossibility of continuation fall under Section 32(2)(c) and such orders can be challenged under section 14(2). “By virtue of Section 32(3), on the termination of the arbitral proceedings, the mandate of the Arbitral Tribunal also comes to an end. Having regard to the scheme of the Act and more particularly on a cumulative reading of Section 32 and Section 14, the question whether the mandate of the arbitrator stood legally terminated or not can be examined by the court “as provided under Section 14(2) ”, the Apex Court had held. The court further held that an award must adjudicate upon the rights and obligations of the parties either finally or on an issue in dispute. An order that closes proceedings due to default does not meet that threshold. It held that “an order under Section 25(a), being procedural in nature and not addressing the substantive lis between the parties, lacks the essential attributes of an arbitral award.” The court further noted that the Delhi High Court in Awasthi Constructions had held that such orders amounted to arbitral awards. However, a coordinate bench of the Delhi High Court PCL Suncon , the court noted, held otherwise relying on Lalitkumar Sanghavi. It had held that “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 Sub section (2) of Section 32 of the A&C 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.” The court in the present case concurred with the view taken by the Delhi High Court in PCL Suncon holding that the earlier decision in Awasthi Constructions predated the authoritative pronouncement in Lalitkumar Sanghavi and therefore could not be treated as laying down good law. “Even though the decision in Awasthi Construction was by a Division Bench, it preceded the authoritative pronouncements of the Supreme Court. The correct view, as reaffirmed in PCL Suncon, is that orders under Section 25(a) are not awards”, the court held. The court further relying on Gangotri Enterprises held that orders closing the right to file statements of claims terminate the arbitrator's mandate with respect to those claims and can be challenged under section 14(2) of the Act, not under section 34. The court further observed that the arbitrator had left sufficient scope to revive the proceedings upon compliance. It further noted that Mecwel had shown compliance by depositing fees and proceeding diligently. This the court held was sufficient to allow continuation of the arbitration. It held that “the Award can only be considered to be an award once it...

Order Terminating Arbitration For Non-Filing Of Statement Of Claim Is Not 'Award', Cannot Be Challenged U/S 34 A&C Act: Delhi High Court

Mohd Malik Chauhan

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