M/s. Hyderabad Metropolitan Development Authority v. M/s. Ramky Elsamex Hyderabad

CITATION	(2014) 7 SCC 2552022 SCC Online Del 34012018 (11) SCC 470
DATE OF JUDGEMENT	21.04.2023
COURT	HIGH COURT TELANGANA
PETITIONER	M/s. Hyderabad Metropolitan Development Authority
RESPONDENT	M/s. Ramky Elsamex Hyderabad Ring Road Limited
BENCH	P Naveen Rao, Nagesh Bheemapaka

Introduction

In the case of M/s. Hyderabad Metropolitan Development Authority v. M/s. Ramky Elsamex Hyderabad Ring Road Limited, the Telangana High Court clarified that an Arbitral Tribunal does not possess the authority to revive terminated arbitration proceedings. The Court emphasized that parties cannot confer jurisdiction contrary to the statutory mandate and held that the participation of parties in subsequent proceedings holds no legal consequence when the proceedings have already been terminated. 

Facts of the case

1. On 18th August 2007, the Petitioners entered into a concession agreement (“Agreement”) with M/s. Ramky Elsamex Hyderabad Ring Road Limited (“Respondent”) for execution of work of designing, construction, development, finance, operation and maintenance of expressway on a Build Operate and Transfer (BOT) basis.
2. On dispute being arisen on non-payment of additional sum of Rs. 12 Crores, the Respondent initiated the arbitration. As per Clause 39.2 of the Agreement, both parties appointed their nominees. However, as the parties could not decide on the appointment of the third arbitrator.
3. During the arbitration proceedings, the Arbitral Tribunal passed an order dated February 10, 2022 regarding the payment of the arbitrator’s fees. 
4. As the fees of the arbitrators were still pending, the Arbitral Tribunal directed parties to deposit fees within 2 weeks and added a condition that on failure to deposit the same, the Arbitral Tribunal proceedings shall stand terminated on the ground that the parties have no interest in proceeding.
5. Subsequently, the Petitioner No.2 i.e. M/s. Hyderabad Growth Corridor Limited filed an Interim Application under Section 32 of the Act before the Arbitral Tribunal to estop the proceedings further as the Arbitral proceedings terminated due to non-payment of fees as per the said Order.
6. Out of the 3 arbitrators, 2 arbitrators rejected the application and held that they would continue the proceedings as parties continued to participate in the said proceedings. However, the third arbitrator held that the arbitral proceedings stood terminated under Section 32 of the Act due to non-payment of fees and therefore, the mandate of the Arbitral Tribunal also stood terminated., thus Petitioner filed a Civil Revision Petition.

Issue Raised

Is it permissible for the Arbitral Tribunal to allow parties to continue or revive the proceedings once terminated?

Contentions of Petitioner

1. Pursuant to Section 38 (2) of the Act, the counsel for the Petitioner submitted that the Arbitral Tribunal has been vested with the power to terminate the arbitral proceedings if both or either of the parties fails to pay their share of fees to the arbitrator.
2. The counsel for the Petitioner referred to Sai Babu vs M/s. Clariya Steels Pvt. Ltd.[2] wherein the arbitral proceedings were terminated by the arbitrator under Section 32 (2) (c) of the Act. Subsequently, on the filing of an application for recalling the order, the arbitrator allowed the same. 
3. It also referred to an order passed by the Delhi High Court in the matter of MS Vag Educational Services vs Aakash Educational Services Ltd. herein it was held that once the mandate of the arbitrator terminates by virtue of Section 32 (3), the arbitrator is rendered functus officio. the order.

Contentions of respondent

1. The counsel for the Respondent submitted that even after the said Order, the parties participated in the arbitral proceedings. Therefore, as the Petitioners never raised any objections and continued with the arbitral proceedings, the said Order was waived off.
2. The Respondent had deposited their share of fees within two weeks and the same was communicated to the arbitrators. In light of this, the counsel for the Respondent submitted that on perusal of clause 6 of the said Order, the termination of the arbitral proceedings would only arise if both parties failed to deposit the fees.
3. The counsel of the Respondent also submitted that even if it is assumed that the arbitral proceedings are terminated by virtue of the said Order, the mandate of the arbitrators would not be terminated unless the decision is made under Section 32 (3) of the Act.

Judgement

Upon considering the submissions, the Bench observed that the conditions mentioned under Order 9 of the Tribunal made it impossible to continue with the proceedings. This satisfied the requirement of the “unnecessary and impossible” clause stated in Section 32(2)(c) of the Arbitration and Conciliation Act.

The Bench concluded that once the proceedings were terminated as per the aforementioned clauses, it was not permissible for the Arbitral Tribunal to initiate or continue the arbitration proceedings. The Court emphasized that the Tribunal had grossly erred in ordering the continuation of the proceedings when the proceedings had already been terminated by the Tribunal itself through Order No. 9 dated September 10, 2022. As a result, the Bench held that the Arbitral Tribunal became functus officio upon the termination of the proceedings.

Analysis

According to Section 32 (2) of the Act, the second proviso clearly states that if either party fails to pay their share in respect to claim or counter claim, the arbitral tribunal can suspend or terminate the arbitration proceedings in respect of such claim or counter claim. In the present case, as the Petitioners failed to pay the fees of the arbitrator, the arbitral tribunal was vested with an option to terminate the arbitration proceedings. Therefore, the argument made by the Respondent was rejected.

Pursuant to the conduct of one party not depositing the fees, it was “impossible” for the Arbitral Tribunal to proceed with the case. Therefore, it would attract Section 38 (2) and Section 32 (2) (c) of the Act. Once arbitral proceedings are terminated under these provisions of the Act, the arbitral tribunal has no competence to revive the arbitral proceedings. Thus, in such cases, merely because parties participated in the subsequent proceedings shall have no legal consequences.

The provision under Section 32 (3) of the Act evidently holds that once the arbitration proceedings are terminated, the mandate of the arbitral tribunal shall also get terminated. The Act does not envisage revival of the arbitral proceedings once they are terminated.

Conclusion

The Hon’ble Court observed that the Arbitral Tribunal had grossly erred in continuing the arbitral proceedings after it stood terminated by virtue of said Order. The Hon’ble Court held that after such termination, the Arbitral Tribunal became functus officio and had no jurisdiction to entertain the arbitral proceedings. Thus, it allowed the Civil Revision Application to set aside the said Order passed by the Arbitral Tribunal rejecting the prayer for not proceeding further with the arbitral proceeding.

References

1. https://www.lexology.com/library/detail.aspx?g=b432edf5-7eff-40f9-8410-6472766e224d
2. https://cnica.org/arbitration-times/telangana-hc-tribunal-lacks-competence-to-revive-terminated-arbitration-proceedings/
3. https://indiankanoon.org/doc/13848456/

This article has been written by Vaidehi Sharma, student of NMIMS,NAVI MUMBAI, Intern at Legal Vidhiya.

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