SC urges Parliament to fix ‘termination’ loophole in proposed Arbitration Bill
Calling the absence of remedies “a lacuna that must be addressed,” the court stressed that the new Bill must explicitly provide the nature and effect of termination orders
The Supreme Court has urged Parliament to eliminate long-standing ambiguity surrounding the power of arbitral tribunals to terminate proceedings under the Arbitration and Conciliation Act, 1996, and to introduce a clear statutory remedy against such termination orders.
A bench of justices JB Pardiwala and R Mahadevan on Tuesday said it was “indeed very sad” that the problem, which was born in the UNCITRAL Model Law (a template drafted by the UN to harmonise arbitration standards worldwide) adopted nearly 40 years ago, continues to persist not only under the 1996 Act but even in the proposed Arbitration and Conciliation Bill, 2024, which is meant to replace the existing law.
“It is high time that the uncertainty surrounding the power of the arbitral tribunal to terminate the proceedings under the various provisions of the Act, 1996, is either consolidated into a single provision…or the contradictory phraseology used in the various provisions is tweaked to make the provisions consistent,” the bench said.
Calling the absence of remedies “a lacuna that must be addressed,” the bench stressed that the new Bill must explicitly provide the nature and effect of termination orders, including whether the tribunal retains authority to entertain a recall application. “A proper remedy against an order terminating the proceedings is the need of the hour,” it said.
Recalling that the 1996 Act replaced the 1940 law with the promise of speed and efficiency, the court said it was disheartening that such elementary procedural issues continue to dog the Indian arbitration landscape almost 30 years later.
“The Department of Legal Affairs has now, once again, proposed to replace the existing legislation … Unfortunately, even the new Bill has taken no steps whatsoever to ameliorate the position of law as regards the termination of proceedings,” the court said.
The court urged the Department of Legal Affairs, Ministry of Law and Justice, to take a “serious look” at India’s arbitration regime and to address the issue while the Bill is still under consideration. It expressed concern that the Bill fails to remedy this core defect.
The bench suggested that the Bill should consolidate all termination provisions into a single, simplified clause, mirroring SIAC Rules that bring together defaults, settlements, withdrawals, impossibility, and non-payment of deposits. It also observed that the proposed law should define the nature and effect of termination orders, particularly whether the tribunal may recall them, besides providing a statutory appeal against termination orders, similar to appeals permitted when the tribunal upholds a jurisdictional plea.
It also called for clarity on future recourse after termination, as to whether claims can be revived or whether a party should be barred from “a second bite at the cherry”.
Advocate Abhishek Gupta, an expert in arbitration law, applauded the judgment, commenting that the provisions relating to premature and abrupt termination of the arbitral proceedings have become an “unwieldy horse”.
“The principles enunciated by the Supreme Court provide a much-needed clarity on the issue and an impetus to the legislature to consider an appropriate remedy. With a proper statutory redressal mechanism in place, the clouds of incertitude and ambiguity over the aftermath of termination would dissipate to a large extent. In my view, the courts are best equipped to adjudge the validity and tenability of a termination order, and balance the rights and interests of all parties in the process.”
The court’s observations came while deciding a petition seeking the appointment of an arbitrator afresh, prompting the bench to examine the broader legal framework governing termination of arbitral proceedings and the lack of clarity in the law.
The bench noted that the 1996 Act is completely silent on what remedy a party has when the arbitral tribunal terminates proceedings. While Section 15 provides for the appointment of a substitute arbitrator when the mandate ends due to withdrawal or agreement of parties, there is no equivalent mechanism when proceedings are terminated under various other provisions of the law.
This silence has resulted in contradictory judicial approaches, noted the court as it referred to divergent views taken by the Supreme Court and various high courts. The bench described this “cleavage of opinion” as an anathema to business and commerce, quoting its ruling in the Gayatri Balasamy case (2025) that uncertainty in arbitration law undermines the regime’s credibility.
Until Parliament intervenes, the court recommended a purposive interpretation of Section 14(2) of the Act, which allows a court to decide if an arbitrator’s mandate has legally terminated. This provision, the bench said, should be expanded to include challenges to termination orders themselves.
It laid down a three-step remedial roadmap—first, the aggrieved party must move a recall application before the arbitral tribunal itself; if the recall is rejected, the party may approach the court, which may then either set aside the termination order and revive proceedings, or appoint a substitute arbitrator. However, the bench made it clear that no fresh application can be filed to restart arbitration anew.
The bench also warned against allowing “mischievous parties” to deliberately let proceedings lapse to reinitiate arbitration for tactical advantage, cautioning that such abuse would have a “chilling effect” and exacerbate delays in an already overburdened system.
“Arbitration is not infinite,” noted the bench, adding that termination triggered by a party’s own “obdurate stance” should generally prevent it from recommencing proceedings.
