13 Sep 2023 6:15 AM GMT
In the realm of arbitration proceedings, interim awards play a critical role in navigating the course of dispute resolution. In appropriate cases, interim awards help in substantially reducing the scope of adjudication of the dispute, thereby contributing towards effective and expeditious resolution, which is fundamental to arbitration. Under the provisions of the Arbitration...
In the realm of arbitration proceedings, interim awards play a critical role in navigating the course of dispute resolution. In appropriate cases, interim awards help in substantially reducing the scope of adjudication of the dispute, thereby contributing towards effective and expeditious resolution, which is fundamental to arbitration. Under the provisions of the Arbitration and Conciliation Act of 1996 ("Act”), interim awards hold significant importance as they address specific issues concerning merits of the case and have a bearing on the substantive right of the parties. As the arbitration landscape continues to evolve, understanding the key elements that characterize interim awards becomes essential from the perspective of enhancing the overall effectiveness and credibility of the process.
In the aforesaid background, navigating the landscape of interim awards is not without its challenges. One notable hurdle stem from the absence of a precise statutory definition of interim awards within the Act. This absence often leads to a conundrum where parties mistakenly perceive routine procedural or interlocutory orders as interim awards and challenge those orders under Section 34 of the Act. The ambiguity surrounding thi distinction can result in confusion, potentially altering the dynamics of the arbitration process as challenging a mere procedural order may result in delaying the process of arbitration and wastage of judicial time. Stakeholders may find themselves at crossroads, grappling with whether a particular order constitutes an interim award or merely an intermediate step in the proceedings.
The need for a clear delineation between interim awards and procedural orders is paramount to ensure the seamless conduct of the arbitration proceedings. This article aims to address these concerns by discussing some relevant judicial pronouncements as examples that elucidate the essence of interim awards, thereby fostering a deeper comprehension of their implications and helping parties make informed decisions. By exploring the nuances of interim awards and dissecting such judicial interpretation in various fact scenarios, we endeavour to provide practitioners, arbitrators, and parties with a comprehensive understanding of the factors that contribute to the identification and formulation of interim awards. Needless to mention the circumstances listed and discussed in this article are not exhaustive but can be used as a reference point and provide guidance for testing specific facts scenario to determine whether or not the same qualifies the test of being an interim award.
Determination on the issue of Limitation
The Supreme Court in IFFCO v. Bhadra Products held that a determination by the arbitral tribunal on the issue of limitation is an adjudication on the merits of the claim. The Court observed that once the tribunal has held the claims to be within/outside limitation, the finding becomes final. It held that an issue of limitation is not a jurisdictional issue, ergo, it does not have to follow the drill of Section 16(5) of the Act and the aggrieved party can challenge the interim award under Section 34 of the Act without waiting for the determination on the rest of the issues.
Decision as to Place of arbitration under Section 20 of the Act
This issue fell for consideration before the Supreme Court in the case of Sanshin Chemicals Industry v. Oriental Carbons. The Apex Court held that a decision of the tribunal on the venue of arbitration is not an interim award as the same does not involve any adjudication of the dispute i.e., legal rights between the parties, ergo, it cannot be challenged under Section 34 of the Act. The Court observed that any determination on the venue of arbitration is of utmost importance as it determines the law that would be applicable to the arbitral proceeding, however, it would not clothe it with an interim award as any erroneous determination on the venue could be raised under Section 34(2) of the Act.
Determination on plea of res judicata
The High Court of Gujarat in Babasaheb Ambedkar Open University v. Abhinav Knowledge Services held that an order of the arbitral tribunal dismissing an objection regarding the plea of res-judicata is an interim award susceptible to challenge under Section 34 of the Act. The Court relied on the decision of the Supreme Court in IFFCO (supra) to hold that when a tribunal rejects a plea of res-judicata, it conclusively determines the issue of res-judicata which has a direct bearing on the dispute between the parties.
Decision of tribunal rejecting application under Section 27 of the Act
The High Court of Bombay was considering whether an order of the arbitral tribunal rejecting an application seeking leave to apply to the Court for assistance in taking evidence. The High Court held that for a determination to fall within the rubric of an ‘interim award’, it has to necessarily be a final determination of a claim, part of claim or counter claim along with meeting the other requirements of Section 31 of the Act. Accordingly, the Court held that a determination by the tribunal on Section 27 of the Act does not finally decide any claim submitted to it and the aggrieved party would have the option to challenge the final award under Section 34(2) if the order of the tribunal has caused any prejudice.
Determination on an application seeking amendment to Claim/Counterclaims
The High Court of Delhi in its recent judgment in NTPC v. L&T Limited dealt with the issue of whether an order of the arbitral tribunal refusing to allow amendment to counterclaims amounts to an interim award. It held that the rejection of amendment by the tribunal on grounds of delay under Section 23(3) of the Act is not an interim award as it is not a determination on the merits of the claims. A similar view was taken by the High Court of Bombay in the case of Punj Lloyd Limited v. ONGC wherein it held that an order refusing amendment to claims does not have the trappings of a final award as it does not involve any adjudication of the rejected claims on their merits.
However, a note of caveat is important at this juncture as the rejection of amendment due to bar of limitation amounts to an interim award as held in Cinevistas v. Prasar Bharti. This distinction is well explained by the Delhi High Court in its judgment in Punita Bhardawaj v. Rashmi Juneja wherein the court distinguished between the rejection of a belated amendment under Section 23(3) of the Act and rejection of amendment due to claims being barred by limitation. It held that rejection of amendment due to claims being barred by limitation amounts to a final determination on the merits of the claims, therefore, an interim award. However, mere refusal to allow amendment due to the same being sought at a belated stage of arbitration does not foreclose the right of a party to seek adjudication of such claims before a different forum and is merely an interlocutory order. The distinction lies in the res judicata effect being given to rejection due to bar of limitation and absence of the same under Section 23(3) of the Act.
Similarly, an order of the tribunal rejecting an amendment seeking an equitable set-off amounts to an interim award as was held by the High Court of Delhi in Lt. Col. H.S. Bedi v. STCI Finance Limited. The Court held that with the rejection of the amendment, the claim of the aggrieved with regard to equitable set-off would attain finality. It must be kept in mind that the relief of equitable set off is only available in the same arbitration/ suit.
Determination on admissibility of an evidence due to non-payment of stamp duty on it
In Ranjiv Kumar v. Sanjiv Kumar the issue before the Calcutta High Court was whether a decision of the arbitral tribunal admitting in evidence an unstamped document would fall within the rubric of an ‘interim award’. The Court held that a decision of the arbitral tribunal admitting in evidence an admittedly unstamped document is only a procedural order under Section 19(4) of the Act. The Court held that any decision of the arbitrator on a procedural aspect of the arbitration proceeding, including admissibility of a document is not an ‘interim award’ under 2(c) of the Act as it does not finally decide any issue relating to claim/ counterclaims of a party. The order was upheld by the division bench in appeal.
Similarly, the High Court of Karnataka in M.A. Mohd. Amanulla v. B.R. Chandrashekar held that a decision of the arbitral tribunal on non-admissibility of an evidence due to insufficiency of stamp duty is only a procedural order and cannot be equated with an interim award. The Court held that even if the arbitrator has wrongly decided on the point of admissibility of evidence, the aggrieved party has to await the passing of the final award and challenge it under Section 34 of the Act.
Determination by Tribunal on the Issue of Authorization to File the Claims
The High Court of Bombay examined this issue in the case Palmview Investments Overseas v. Ravi Arya.The Court held that an order of the arbitral tribunal, on an application under Sections 31(6) read with 32 of the Act, rejecting the claims of a party on the ground of invalidity of the board resolution authorizing a person to file such claims amounts to rejection of the claims, and thus, qualifies to be an interim award. Similarly, in Maharashtra State Electricity Distribution Company Ltd. (MSEDCL) Vs. Godrej and Boyce Manufacturing Co. Ltd, the High Court had entertained an application under Section 34 of the Act against an order of the tribunal refusing to reject the claims for lack of authorization.
Determination by Tribunal on Impleadment of a Party
In Goyal MG Gases v. Panama Infrastructure, the High Court of Delhi held that an order of the arbitral tribunal on an application under Order 1 Rule X of the Civil Procedure Code, 1908 (“CPC”) seeking impleadment of a party does not constitute an interim award as it neither finally decides any substantive issue between the parties nor touches upon the merits of the case which is a sine qua non for an order to qualify as an interim award. A similar view has been taken by another coordinate bench in NHAI v. Lucknow Sitapur Expressway Ltd.
Rejection of application to bring additional documents/ evidence on record
This issue was decided by the High Court of Delhi in the case of Rhiti Sports v. Power Play Sports wherein the Court held that an order of the arbitral tribunal rejecting an application filed under Order VIII Rule 1A (3) of CPC for taking on record certain additional documents is merely a procedural order which does not decide any substantive issue. The observation made by the Court under paragraph 19 of this judgment is relevant to be considered:
19. In an arbitral proceeding, there may be several procedural orders that may be passed by an arbitral tribunal. Such orders may include a decision on whether to hold oral hearings for the presentation of evidence or for oral argument, or whether the arbitral proceedings are to be conducted on the basis of documents and other materials as required to be decided - unless otherwise agreed between the parties - in terms of Section 24(1) of the Act. There are also other matters that the arbitral tribunal may require to determine such as time period for filing statement of claims, statement of defence, counter claims, appointment of an expert witness etc. The arbitral tribunal may also be required to address any of the procedural objections that may be raised by any party from time to time. However, none of those orders would qualify to be termed as an arbitral award since the same do not decide any matter at which the parties are at issue in respect of the disputes referred to the arbitral tribunal.
Another coordinate bench of the High Court of Delhi followed this position in ONGC Petro Additions v. Tecnimontwherein the Court held that an order of the arbitral tribunal on an application under Section 19 of the Act for placing additional documents and evidence on record does not have the trappings of an arbitral award. The Court noted that an order may finally decide an application, however, it would not be called an interim award unless it decides the subject matter of the arbitration and the right of the parties in respect of the issues raised before the tribunal.
Decision of the Tribunal on Consolidation of Claims
The issue before the High Court of Delhi in DTIDC v. AOM Advertising was whether the decision of the arbitral tribunal to consolidate claims arising out of three concession agreements amounts to an interim award. The Court relied upon the decision of the Supreme Court in Duro Felguera v. Gangavaram Port to hold that there cannot be consolidation of claims when they arise out of different though identical contracts and must be decided in different arbitral proceedings though before the same tribunal. On the issue of whether a decision allowing consolidation of claims would amount to an interim award, the Court held that once the arbitral tribunal had decided that the proceedings would be consolidated, they would proceed in a consolidated fashion till completion, therefore, it would be a final determination at an interim stage.
However, in our respectful view, the Court in this case did not elucidate how the determination by tribunal regarding consolidation of claim has any bearing on the substantive rights of the parties which is an essential requirement for an order to translate into an interim award and may not be reflective of the correct position.
Order of Tribunal Refusing to Delete a Party from Arbitration Proceedings
In Liberty Shoes Ltd v. Harish Kumar Gupta the issue before the High Court of Punjab and Haryana was whether an order of the arbitral tribunal refusing to delete the name of a party on the ground that it was not a party to the arbitration agreement amounts to an interim award. The Court observed that the order of the tribunal relates to its jurisdiction to proceed against a party and falls under Section 16 of the Act and held that it is not an order with respect to which a final award is to be passed by the tribunal, lacking the features of an interim award.
Determination by Tribunal on bar of Section 69 of Partnership Act
In Noida Toll Bridge v. Mitsui Marubeni Corporation the High Court of Delhi held that an order of the tribunal by which it decides an objection as to applicability of bar (institution of suit or any other proceedings by an unregistered firm) under Section 69(3) of the Partnership Act to arbitration proceedings is an interim award. The Court held the objection regarding bar of Section 69 of the Partnership Act pertains to infirmity attributed to the claim itself and not to the jurisdiction of the tribunal. The Court also distinguished between jurisdictional objections and objections regarding maintainability of the claims. It held that “Lack of jurisdiction is a deficiency/disability statutory, pecuniary or territorial attached to the adjudicating authority whereas bar of limitation or other statutory bars to entertain a particular claim is a deficiency/infirmity attached to the claim itself.”
The paramount nature of an interim award lies in its ability to decisively determine an issue at an interim stage. A crucial hallmark of an interim award is its direct connection to the merits of the claims and disputes at hand. It is imperative to recognize that the term "interim award" should be reserved exclusively for decisions that possess the capacity to conclusively resolve substantive issues.
A perusal of the above cited judgments would reveal that order of the arbitral tribunal on issues such as limitation, res judicata, bar under a statute, authority to file claims etc, are adjudication on substantive issues and qualify as an interim award as they conclusively determine a lis between the parties, however, mere procedural orders on issues such as admissibility of evidence, place of arbitration, amendment to claim/counter-claim, court’s assistance in taking evidence, etc. would not typically fall within the head of interim award as they govern only the procedural aspect of arbitration without touching upon the issues or the merit of claims.
Despite the diligent efforts made by the judiciary to address the bewildering uncertainty that veils the differentiation between interim awards and procedural orders, these endeavours have yielded limited results owing to the lack of a definitive and clear-cut definition. Consequently, a pivotal juncture has been reached where the government's intervention is not only warranted but imperative. This is particularly relevant given the establishment of an expert committee tasked with proposing modifications to the existing Act. It is now incumbent upon the government to seize this opportune moment and contemplate the inclusion of a well-defined framework for interim awards. Such an incorporation would not only rectify the existing ambiguity but also enhance the overall effectiveness and credibility of the arbitration process, aligning it more cohesively with the evolving landscape of arbitration practices and global standards.
Mr. Jeevan Ballav Panda is an advocate practising before the Supreme Court of India and the High Court of Delhi. Mr. Ausaf Ayyub is an Arbitration Journalist at LiveLaw. Views expressed in the article are personal .
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