Arbitral Proceedings Cannot Be Terminated Twice; Recall Rejection Cannot Be Challenged As An Award: Delhi HC

Arbitral proceedings, once terminated, cannot be terminated a second time, the Delhi High Court has held while ruling that a party cannot treat an arbitrator's refusal to recall an earlier termination order as a fresh termination capable of challenge as an arbitral award.

“Arbitral proceedings can be terminated only once and once terminated they cannot again be terminated a second time. The dismissal of the recall application could not, therefore, be treated as a second order terminating the arbitral proceedings again relatable to Section 25 of the 1996 Act. It was clearly an order which was refusing to recall the order terminating the arbitral proceedings.,” the court held.

A Division Bench of Justice C Hari Shankar and Justice Om Prakash Shukla set aside a Single Judge's order dismissing U.P. Infraestate Pvt. Ltd.'s petition against a sole arbitrator's refusal to recall an earlier termination of arbitral proceedings, holding that the challenge itself was not maintainable under Section 34 of the Arbitration and Conciliation Act in view of the Supreme Court's ruling in Harshbir Singh Pannu v Jaswinder Singh.

“It holds, in unequivocal terms, that a dismissal of a recall application, by the Arbitrator, has to be challenged under Section 14(2) of the 1996 Act. Clearly, therefore, the petition of the petitioner before the learned Single Judge, having been preferred under Section 34 of the 1996 Act, was not maintainable and the order of the learned Single Judge, having been passed under Section 34 of the 1996 Act, is equally unsustainable in law on that ground alone,” the bench held.

The dispute arose out of arbitration proceedings between U.P. Infraestate Pvt. Ltd. and Rivaj Infratech Private Limited.

By an order dated November 1, 2019, the sole arbitrator terminated the arbitral proceedings after U.P. Infraestate, which was the claimant before the tribunal, failed to file its statement of claim in time. Instead of independently challenging that order, the company filed an application seeking recall of the termination order. The arbitrator rejected that recall plea on January 14, 2023.

U.P. Infraestate then filed a plea under Section 34 before a Single Judge of the Delhi High Court challenging the arbitrator's refusal to recall the earlier order. The Single Judge dismissed the petition on April 26, 2023, prompting the present appeal.

Before the Division Bench, senior counsel Ramesh Singh appearing for Rivaj raised a preliminary objection that the Section 34 petition itself was not maintainable in light of the Supreme Court's ruling in Harshbir Singh Pannu, which held that if a recall application against termination of arbitral proceedings is dismissed, the remedy lies under Section 14(2), where the court examines whether the arbitrator's mandate legally stood terminated.

Rivaj also argued that even if the impugned order were to be treated as one under Section 14, no appeal would lie under Section 37. The Bench rejected that submission, holding that since the Single Judge had in fact exercised jurisdiction under Section 34, the appeal against that order was maintainable.

“We are also not able to sustain Mr. Singh's argument that the present appeal would not be maintainable, as an appeal under Section 37 does lie against an order passed under Section 34 of the 1996 Act. We, therefore, hold that the present appeal is maintainable,” the Court said.

On merits, U.P. Infraestate argued that the January 14, 2023 order effectively continued the termination of proceedings and should therefore itself be treated as an order terminating arbitration.

It also argued that when its Section 34 petition was originally filed, earlier Division Bench rulings of the Delhi High Court permitted such challenges, and the subsequent Supreme Court ruling should not retrospectively extinguish that remedy.

Rejecting the contention, the Bench said the only order terminating the proceedings was the November 1, 2019 order, which was never challenged.

“In fact, the order terminating the proceedings had been passed on 1 November 2019 under Section 25 of the 1996 Act, as none appeared on behalf of the claimant. The order dated 1 November 2019 was never challenged by the petitioner by any means known to law. Rather, the petitioner moved an application for recall of the order dated 1 November 2019. It is that application which was rejected by the order dated 14 January 2023,” the court noted.

The bench also rejected the argument that the Supreme Court's ruling should not apply retrospectively merely because the legal position was previously unsettled.

“Unless, therefore, the Supreme Court itself expressly makes its judgment prospective, every judgement, which declares the law, declares it as it always stood,” the Court held.

The Court further found that no vested right of U.P. Infraestate had been taken away because the company still remained free to pursue the proper statutory remedy.

“In any event, there is no divesting of any right which vested in the petitioner, as it is always open to the petitioner to challenge the order refusing the recall application by moving a proceeding under Section 14 of the 1996 Act,” the bench held.

Holding that the original Section 34 proceedings were not maintainable, the Court quashed the Single Judge's order and dismissed the underlying petition, while reserving liberty to U.P. Infraestate to pursue appropriate remedies in accordance with law.

For Appellant (U.P. Infraestate Pvt. Ltd.): Advocate Raman Gandhi.

For Respondents (Rivaj Infratech Private Limited & Anr.): Advocates Ramesh Singh, Harish Kumar Garg, Nisha, S. Panda.