An Analysis of Section 32 of the Arbitration and Conciliation Act, 1996: Termination of Arbitral Proceedings in India

An Analysis of Section 32 of the Arbitration and Conciliation Act, 1996: Termination of Arbitral Proceedings in India

Introduction

The Arbitration and Conciliation Act, 1996 (hereinafter "the 1996 Act") was enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration, and enforcement of foreign arbitral awards, as also to define the law relating to conciliation. A crucial aspect of managing arbitral proceedings is their timely and definitive conclusion. Section 32 of the 1996 Act addresses the mechanisms for the termination of arbitral proceedings. This article seeks to provide a comprehensive analysis of Section 32, examining its provisions, judicial interpretations, and its interplay with other sections of the Act, while also drawing upon the historical context provided by its predecessor, the Arbitration Act, 1940.

Historical Context: The Bar on Suits under the Arbitration Act, 1940

The Arbitration Act, 1940 (hereinafter "the 1940 Act") contained provisions, particularly Section 32, which explicitly barred suits concerning arbitration agreements or awards. Section 32 of the 1940 Act stated:

"Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act." (As quoted in Moolchand Jothajee v. Rashid Jamshed Sons And Co., Madras High Court, 1945; Sait Pamandass Sugnaram v. T.S Manikyam Pillai And Others, Andhra Pradesh High Court, 1959).

This provision was interpreted by courts to mean that all questions regarding the validity, effect, or existence of an award or an arbitration agreement were to be decided by the court in which the award had been, or might be, filed, and by no other court (Ramchander v. Munshi, Patna High Court, 1949, referring to Section 31(2) of the 1940 Act). The objective was to prevent parties from reagitating questions decided by arbitrators in any manner other than that provided by the Act itself (Sait Pamandass Sugnaram v. T.S Manikyam Pillai And Others, Andhra Pradesh High Court, 1959).

Courts consistently held that Section 32 of the 1940 Act ousted the jurisdiction of civil courts to entertain suits challenging the existence or validity of an arbitration agreement or award; such challenges could only be made under the provisions of the 1940 Act, typically Sections 30 or 33 (Beena Misra v. S.K Jain & Others, Delhi High Court, 1997; Union Of India v. M/S. Central India Machinery Mfrs. Co. Ltd., Delhi High Court, 2007). The bar was considered comprehensive, aiming to ensure that matters decided by arbitration were not reopened through fresh suits (Lachhuman v. Makar, Patna High Court, 1953). However, the Supreme Court clarified that Section 32 did not bar a suit challenging the validity of the main contract merely because it contained an arbitration clause, distinguishing it from a challenge to the arbitration agreement itself (Orient Transport Co. Gulabra And Another v. M/S Jaya Bharat Credit And Investment Co. Ltd. And Another, 1987 SCC 4 421).

The interpretation of Section 32 of the 1940 Act underscored the legislative intent to make the arbitration process self-contained and to limit judicial intervention to the avenues prescribed within the Act. This historical backdrop is relevant to understanding the framework of the 1996 Act, which, while structured differently, also aims to promote arbitral autonomy and finality.

Section 32 of the Arbitration and Conciliation Act, 1996: Text and Scope

Section 32 of the 1996 Act provides for the termination of arbitral proceedings. The text of the section is as follows:

32. Termination of proceedings.—
(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where—
    (a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute;
    (b) the parties agree on the termination of the proceedings; or
    (c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.
(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings. (M/s. Hyderabad Metropolitan Development Authority and another v. M/s Ramky Elsamex Hyderabad Ring Road Limited, Telangana High Court, 2023).

This section outlines two primary ways arbitral proceedings can be terminated: by a final arbitral award (sub-section 1) or by an order of the arbitral tribunal under specific circumstances enumerated in sub-section (2). Sub-section (3) links the termination of proceedings to the termination of the arbitral tribunal's mandate, subject to certain exceptions.

Analysis of Section 32(1): Termination by Final Arbitral Award or Order

Section 32(1) stipulates that arbitral proceedings conclude either with a "final arbitral award" or an "order of the arbitral tribunal under sub-section (2)." A final arbitral award resolves the substantive disputes between the parties. The 1996 Act also recognizes interim awards (Section 2(1)(c) read with Section 31(6)) and partial awards, which can be final in respect of the issues they decide (McDermott International Inc. v. Burn Standard Co. Ltd. And Others, (2006) 11 SCC 181). A "final arbitral award" under Section 32(1) would typically be one that disposes of all remaining claims and issues in the reference.

Crucially, the Delhi High Court in ECONOMIC TRANSPORT ORGANISATION v. SPLENDOR BUILDWELL PVT. LTD. (2018 SCC OnLine Del 9970) clarified the distinction:

"Section 32(1) of the Act makes it amply clear that the arbitral proceedings may either be terminated by a final award or by an order of the arbitral tribunal under sub-section (2)... an order terminating the proceedings cannot be termed as an award and, therefore, the impugned order [of termination under Section 25 in that case, analogous to Section 32(2) orders] cannot be challenged by way of this petition under Section 34 of the Act."

This distinction is vital: a termination by a "final arbitral award" is subject to challenge under Section 34, whereas a termination by an "order" under Section 32(2) is not, in itself, an award and thus not amenable to a Section 34 challenge.

Analysis of Section 32(2): Grounds for Termination by Order

Section 32(2) empowers the arbitral tribunal to issue an order terminating the proceedings in three specific scenarios:

Section 32(2)(a): Claimant Withdraws Claim

This clause permits termination if the claimant withdraws their claim. However, it is subject to a proviso: if the respondent objects and the tribunal recognizes a legitimate interest on the respondent's part in obtaining a final settlement of the dispute, the proceedings may continue. This safeguards the respondent from a claimant withdrawing a claim strategically to avoid an adverse finding or to re-litigate elsewhere, especially if the respondent has, for instance, a counterclaim or seeks a declaration of non-liability.

Section 32(2)(b): Parties Agree to Terminate

This reflects the consensual nature of arbitration. If all parties to the arbitration agree that the proceedings should end (perhaps due to a settlement or other reasons), the tribunal shall issue an order terminating them.

Section 32(2)(c): Continuation Unnecessary or Impossible

This is a residual and more discretionary ground. The arbitral tribunal can terminate proceedings if it finds that their continuation has, for "any other reason," become "unnecessary or impossible."

The Supreme Court, in DANI WOOLTEX CORPORATION v. SHEIL PROPERTIES PRIVATE LIMITED (2024 SCC OnLine SC 907), extensively analyzed Section 32(2)(c). The Court laid down several principles:

  • The power under Section 32(2)(c) cannot be exercised casually, as it would defeat the object of the Arbitration Act.
  • It is the arbitral tribunal's duty to fix a meeting for hearing, even if parties do not request it, and to adjudicate the dispute. If parties are absent without reasonable cause, recourse can be had to provisions like Section 25 (Default of a party).
  • The mere failure of a claimant to request the tribunal to fix a hearing date is not, per se, a ground to conclude proceedings have become unnecessary.
  • Abandonment of the claim by a claimant can be a ground. Abandonment can be express or implied, but implied abandonment cannot be readily inferred and requires clinching and convincing circumstances leading to an inevitable inference.

The Karnataka High Court in SAI BABU v. M/S CLARIYA STEELS PVT LTD (2017, WP No. 24998/2017) dealt with a situation where an arbitrator invoked Section 32(2)(c) due to the repeated absence of a witness. The arbitrator later recalled this termination order upon being shown sufficient cause, an action the High Court found to be a proper exercise of discretion. This indicates that "impossibility" might arise from persistent non-cooperation making progress untenable.

Recalling Termination Orders Issued Under Section 32(2)

A significant question is whether an arbitral tribunal, having issued an order terminating proceedings under Section 32(2), becomes functus officio or retains the power to recall such an order. The Supreme Court's decision in Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited ((2018) 11 SCC 470), though dealing with Section 25(a) (default of claimant in communicating statement of claim), provides strong analogous support for such a power. The Court held that a tribunal is not functus officio after terminating proceedings under Section 25(a) and can recall such an order if the claimant shows sufficient cause. The Court reasoned that such orders are procedural and not awards on merits, and the tribunal possesses inherent and ancillary powers to ensure justice.

The action of the arbitrator in SAI BABU v. M/S CLARIYA STEELS PVT LTD (2017), in recalling the termination order under Section 32(2)(c) upon payment of costs and being satisfied with the explanation for non-appearance, was upheld by the High Court. This aligns with the principle that procedural orders, especially those not finally adjudicating the merits, can be revisited by the tribunal in the interest of justice, provided sufficient cause is demonstrated. This ensures that the objectives of fairness and efficiency in arbitration are met.

Section 32(3): Termination of Arbitral Tribunal's Mandate

Section 32(3) provides that the mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings. This is a logical consequence: once the proceedings are concluded, either by a final award or by an order under Section 32(2), the tribunal's authority over the dispute ceases.

However, this termination of mandate is "subject to section 33 and sub-section (4) of section 34."

  • Section 33 allows parties, within thirty days of receiving the award (unless another period is agreed upon), to request the tribunal to correct computational, clerical, or typographical errors, or to give an interpretation of a specific point or part of the award. A party may also, with notice to the other party, request an additional award as to claims presented in the arbitral proceedings but omitted from the arbitral award.
  • Section 34(4) empowers a court, when faced with an application to set aside an arbitral award, to adjourn the proceedings (if appropriate and requested by a party) to give the arbitral tribunal an opportunity to resume the arbitral proceedings or take other action to eliminate the grounds for setting aside the award. The Supreme Court in Kinnari Mullick And Another v. Ghanshyam Das Damani ((2018) 11 SCC 328) clarified that this power can only be exercised upon a written request by a party and not suo motu by the court.

The implication of Section 32(3) read with these provisions is that even after a "final arbitral award" leads to the termination of proceedings under Section 32(1), the tribunal's mandate can be revived for the limited purposes specified in Section 33 or if a court remits the matter under Section 34(4). This ensures that mechanisms for correcting awards or curing defects are available without necessitating entirely new arbitral proceedings.

Consequences of Termination and the Modern Approach to Barring Suits

Unlike Section 32 of the 1940 Act, Section 32 of the 1996 Act does not contain an explicit clause barring suits. However, the overall scheme of the 1996 Act achieves a similar objective of channeling disputes related to arbitration agreements and awards through the mechanisms provided within the Act itself.

  • Section 5 limits the extent of judicial intervention, stating that "Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."
  • Section 8 mandates a judicial authority to refer parties to arbitration if an action is brought before it in a matter which is the subject of an arbitration agreement, provided a party so applies not later than submitting their first statement on the substance of the dispute.
  • Section 34 provides the exclusive recourse to a court against an arbitral award, and only on specified grounds.

The term "final arbitral award" in Section 32(1) itself implies a degree of finality and binding effect (subject to challenge under Section 34). Once proceedings are terminated, especially by a final award, the issues decided therein attain finality between the parties, subject to the outcome of any Section 34 proceedings. The principle of res judicata can also apply to arbitral awards (Gammon India Ltd. And Another v. National Highways Authority Of India, 2020 SCC OnLine Del 659, although this case primarily discussed multiple arbitrations).

Therefore, while Section 32 of the 1996 Act focuses on the *modalities* of termination, the Act as a whole ensures that challenges to arbitration agreements or awards, or attempts to re-litigate decided matters, are primarily dealt with under its own framework, thus discouraging parallel or subsequent suits on the same subject matter.

Conclusion

Section 32 of the Arbitration and Conciliation Act, 1996, plays a pivotal role in the arbitral process by defining the circumstances and procedures for the termination of arbitral proceedings. It distinguishes between termination by a final arbitral award, which is subject to challenge under Section 34, and termination by an order of the tribunal on specific grounds (claimant's withdrawal, party agreement, or proceedings becoming unnecessary/impossible), which is not an award.

Judicial interpretations, particularly in cases like DANI WOOLTEX CORPORATION, have provided crucial guidance on the exercise of the tribunal's discretion under Section 32(2)(c), emphasizing that this power must be used judiciously and not to casually dismiss claims. The developing jurisprudence also supports the arbitral tribunal's inherent power to recall procedural termination orders (akin to Srei Infrastructure and as seen in SAI BABU) upon sufficient cause, fostering procedural fairness.

The termination of the tribunal's mandate under Section 32(3) is logically tied to the end of proceedings, yet thoughtfully allows for revival for limited purposes under Sections 33 and 34(4), ensuring that awards can be corrected or deficiencies cured. While Section 32 itself does not replicate the explicit "bar to suits" language of its 1940 Act predecessor, the comprehensive scheme of the 1996 Act, particularly Sections 5, 8, and 34, effectively channels arbitration-related disputes through the statutory framework, thereby upholding the principles of arbitral autonomy and finality. Section 32 is thus a cornerstone in ensuring that arbitral proceedings are concluded in an orderly, fair, and definitive manner, contributing to the efficacy of arbitration as a dispute resolution mechanism in India.