Mohit RohatgiPartner
Ashwini TakAssociate
Pravah RankaAssociate
Key Developments
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Supreme Court clarifies that a party’s failure to attend arbitral proceedings does not amount to abandonment of its claim
The Supreme Court issued a significant ruling clarifying that a party’s failure to appear before the arbitrator is not a ground for terminating arbitration proceedings under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 (Arbitration Act).
In a recent case,1 the respondent in an arbitration proceeding sought the dismissal of the applicant’s claim stating that it had “abandoned the claim”. This averment was on account of the applicant “not taking any steps for eight years” in the arbitration proceedings. The arbitrator terminated the proceedings under Section 32(2)(c) of the Arbitration Act. However, this order was set aside by the Bombay High Court. The matter was then appealed before the Supreme Court. The apex court held that if a party fails to appear for a hearing after filing its claim, the arbitrator cannot say that continuing the arbitral proceedings has become unnecessary. The Court further held that abandonment, as provided under Section 32(2)(c), must be established and cannot be readily inferred. The test laid down by the Court states that “only if the established conduct of a claimant is such that it leads only to one conclusion that the claimant has given up his/her claim can an inference of abandonment be drawn”.
This judgment clarifies that while an arbitrator may terminate his or her mandate, the proceedings cannot be terminated as easily and strengthens the sanctity of arbitral proceedings in the Indian arbitration law regime.
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Supreme Court limits the Enforcement Directorate’s power to make arrests once a special court is seized of a matter under the Prevention of Money Laundering Act, 2002
The Supreme Court recently held that once a special court constituted under the Prevention of Money Laundering Act, 2002 (PMLA) takes cognizance of a case, the Enforcement Directorate (ED) cannot exercise its powers of arrest under Section 19 of the PMLA to take the accused into custody.2
The Court clarified the procedure to be followed for summoning or arresting an accused for offenses triable by the special courts as under.
- If a special court has taken cognizance of a complaint under Section 44(1) of the PMLA (Complaint) and the accused has not already been arrested till the filing of the Complaint, the special court must ordinarily issue summons to the accused. The exception to this rule is if the accused is charged with a heinous crime and there are concerns of potential tampering with evidence and evasion of law. In such cases, the special court may issue a warrant for arrest.
- If an accused was not arrested before the filing of the Complaint, he/she cannot automatically be “deemed to be in custody” and the question of seeking bail cannot arise. However, the Supreme Court clarified that if the ED needs to take the accused into custody when he/she is responding to the summons, it is required to file the necessary application before the special court. The special court may then permit custody only if it is satisfied that “custodial interrogation at that stage is required, even though the accused was never arrested under Section 19”.
This clarification protects the right of personal liberty of citizens accused of money laundering since special courts have regularly been taking accused parties into custody when they appear before the courts in response to the summons. The accused parties are therefore compelled, upon receiving the summons, to apply for bail or anticipatory bail apprehending arrest. According to the Supreme Court, this practice of the special courts “may offend the right to liberty guaranteed by Article 21 of the Constitution of India” and this decision seems to be a step towards remedying this concern.
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Supreme Court expands its curative jurisdiction to arbitral awards; lays down the standard for court intervention
The Supreme Court recently prescribed the standard for exercising its jurisdiction to entertain curative petitions under Article 142 of the Constitution in challenges to arbitral awards. It held that arbitral awards should not be interfered with as a matter of practice unless they result in “grave miscarriage of justice”. In such exceptional cases, the Supreme Court can set aside the arbitral award by exercising its review or curative jurisdiction.
While this judgment seemingly adds another layer to an arbitral award attaining finality and sets back the pro-arbitration stance, the Court emphasised that this jurisdiction must not be abused to open the floodgates for court intervention with arbitral awards. In the case under review, the Supreme Court found the arbitral award to be patently illegal and providing an undeserved windfall to one party, and accordingly set aside the arbitral award.3
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Delhi High Court holds that receipt of notice of arbitration by the respondent is a prerequisite for commencement of arbitration proceedings
The Delhi High Court held that merely sending a notice of arbitration under Section 21 of the Arbitration Act to the respondent is not sufficient to commence arbitration proceedings.4 Receipt of this notice by the respondent is the actual prerequisite.
The Court was dealing with a petition under Section 11(6) of the Arbitration Act seeking the appointment of a sole arbitrator to adjudicate the disputes between the petitioner and the respondent. The respondent objected to a valid notice having been issued in terms of Section 21 of the Arbitration Act since the notice of arbitration was sent to an incorrect address.
The Court relied upon an earlier decision5 passed in a challenge to an arbitral award under Section 34 of the Arbitration Act to conclude that ‘service’ and not mere issuance of a notice is necessary for a notice to be validly issued under Section 21.
This safeguards a party’s right to participate in arbitration proceedings and to appoint an arbitrator of its choice. It also clarifies the date of commencement of proceedings, which is a crucial aspect in any arbitration.
[1]Dani Wooltex Corp. v Sheil Properties (P) Ltd.
[2]Tarsem Lal v Directorate of Enforcement Jalandhar Zonal Office
[3]Delhi Metro Rail Corporation Ltd. v Delhi Airport Metro Express Pvt. Ltd.
[4]Indian Spinal Injuries Centre v Galaxy India
[5]Alupro Building Systems Pvt. Ltd. v Ozone Overseas Pvt. Ltd.
