Arbitrator's Order Determining Substantive Rights Of Parties Constitutes “Award”, Amenable To Challenge U/S 34 Of Arbitration Act: Delhi HC

The Delhi High Court division bench of Justice Navin Chawla and Justice Shalinder Kaur has held that orders passed by the Arbitrator during the pendency of Arbitral proceedings, which finally determines any substantive rights of the parties, constitutes an interim Arbitral Award, and can be challenged under Section 34 of the Arbitration and Conciliation Act, 1996. Brief Facts The appellant, a Swiss company engaged in manufacturing mountaineering boots, entered into a contract with the respondent (Union of India) for supplying boots to the Defense Forces via a Contract Purchase Order dated 01.07.1999. The appellant supplied the agreed boots in five consignments and received 90% of the invoice payments but did not receive the remaining 10% due to alleged defects in the boots. A warranty claim was raised by the respondent. The Respondent encashed the “Warranty Guarantee”. The appellant protested against the said encashment. The appellant thereafter invoked arbitration. The Supreme Court vide its order dated 29.08.2006 appointed the Sole Arbitrator to adjudicate the disputes between the parties. The appellant filed four applications before the Arbitrator seeking discovery of documents, applying the principles of Order XI Rules 12 & 14 of the Code of Civil Procedure. These applications were dismissed on 18.11.2010. The appellant challenged the Arbitrator's decision on document discovery as an "interim award" under Section 34 of the A&C Act. The Single Judge vide the impugned Judgment dismissed section 34 petition, observing that the decision dated 18.11.2020 is not an interim award but is an order on the applications that it disposes of, and therefore, not subject to challenge under Section 34 of the A&C Act. The Judge noted that the Arbitrator had only passed orders in relation to the discovery and inspection of documents and had not passed any 'award' on the dispute between the parties. It was observed that the characterization of an order as an 'interim award' depends on whether it finally decides any substantive rights or obligations of the parties. Procedural orders, even if detailed, do not qualify as 'awards'. The Appellant filed the appeal under Section 13(1A) of the Commercial Courts Act, 2015 read with 37 of the A&C Act challenging the impugned Judgment dated 20.08.2024. Submissions Senior Counsel for the Appellant submitted that the Sole Arbitrator had conclusively and finally decided the issues of substance between the parties and was an interim Award. He submitted that the Single Judge had based only on the self-certification of the Sole Arbitrator in the Impugned decision dated 18.11.2010 and the Order dated 05.04.2011, held that the Impugned decision decides only the applications and not the controversy in the arbitration proceedings. It is therefore not an Arbitral Award. Senior Counsel for the Respondent submitted that the Sole Arbitrator in the decision dated 18.11.2010 had merely decided the four applications filed by the appellant. The Sole Arbitrator had clarified that any observations made in the decision dated 18.11.2010 were only for the purposes of deciding the applications and should not be considered as a final expression of opinion on the merits of the arbitration dispute.Therefore, the decision dated 18.11.2010 does not amount to an interim award and cannot be challenged u/s. 34. Observations At the outset, the court noted that the A&C Act does not define “interim award”. The court referred to IFFCO Ltd. v. Bhadra Products which held that the Arbitral Tribunal can make an interim arbitral Award on any matter with respect to which it may make a final Award; and the term “matter” in Section 31(6) of the A&C Act includes any point of dispute between the parties which has to be answered by the Arbitral Tribunal. The Supreme court had held that while the arbitration proceedings can be terminated only by way of a final Award, there can be one or more interim Awards before the final Award, which conclusively and finally determine some of the issues between the parties, finally leading upto the final Award. The court relied upon Cinevistaas Ltd. v. Prasar Bharti which held that while determining whether the order passed by the Arbitral Tribunal can be considered to be an “interim Award”, regard should be had to whether the order determines substantial rights of the parties. In MBL Infrastructure Ltd. v. Rites Limited & Anr., it was observed: “A decision of an Arbitral Tribunal which brings a quietus to an issue before it and is an order which the Arbitral Tribunal is empowered to pass at the final stage would constitute an interim award within the meaning of Section 31(6) as also Section 34 of the Act.” In Goyal MG Gases Pvt. Ltd. v. Panama Infrastructure Developers Pvt. Ltd. & Ors., it was held that a decision of the Arbitrator dismissing an application filed under Order I Rule 10 ...

Arbitrator's Order Determining Substantive Rights Of Parties Constitutes “Award”, Amenable To Challenge U/S 34 Of Arbitration Act: Delhi HC

Tazeen Ahmed

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