Order Refusing To Terminate Arbitration Is Not An Interim Award: Bombay High Court Dismisses Challenge U/S 34 A&C Act

The Bombay High Court dismissed a petition under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) challenging an order passed by the Arbitral Tribunal by which it had refused to terminate the ongoing proceedings holding that the order was merely a prima facie view, interlocutory one and not an arbitral award capable of being challenged. Justice Somasekhar Sundaresan held that a company's invocation of arbitration cannot be treated as non est merely because it had only one director at the time of invocation, contrary to the quorum requirement under Section 174(2) of the Companies Act. The court further that the mere absence of quorum does not mean the company lacked a corporate mind. The dispute arose out of a Business Agreement under which Sarel Drill agreed to transfer its business to Master Drilling. After dispute arose, Sarel invoked arbitration and a sole arbitrator was appointed. Master Drilling filed an application before the Arbitrator under Section 31(6) read with Section 32(2)(c) of the Arbitration Act contending that the arbitration was void ab initio as Sarel had only one director when the arbitration was invoked which was in contravention of quorum requirement under section 174(2) of the Companies Act. The tribunal dismissed the application holding that the issue required evidence to be led and could not lead to termination of proceedings at the threshold. Master Drilling had filed a petition under section 34 before the High Court terming the order of the tribunal as an interim award. The Court observed that the arbitral tribunal's order refusing to terminate the proceedings was not a final adjudication of rights and therefore cannot be termed as an interim award under section 31(6) of the Arbitration Act. It further observed that the tribunal's view was just a prima facie view leaving all issues to be adjudicated. Section 37 does not provide appeals against such orders. It further observed that clever drafting cannot convert an interlocutory order into an award. Referring to sections 5 and 19, the court observed that the tribunals are the master of their proceedings and the courts cannot be interfered unless explicitly permitted. Determining admissibility and relevancy of evidence is within the exclusive domain of the tribunal. On quorum requirement, the court rejected the absolutist argument that the company with only one director had no corporate mind and therefore could not initiate arbitration holding that section 174(2) of the Companies Act merely provides for quorum and is not a capacity destroying clause. It further observed that if the argument of the Master Drilling is accepted, the companies would not be able to file tax returns, sign cheques and carry on their routine business. It held that “If the proposition that the company must necessarily be paralysed is accepted, the company (purportedly without a corporate mind) would never be able to file tax returns, enter into a contract, renew an existing contract, terminate a contract, and even employ any person or taken to its logical length, sign any cheque, whether for a routine payment (say pay cheques of employees) or a non-routine payment (say purchase of vital spare parts or of replacement machinery).” It held that doctrine of necessity prevents such paralysis. Quoting the Supreme Court's judgment in Presidential Poll, In re, the court observed that “the mandatory character of a legal requirement would not get denuded and yet, the law would accept as a valid excuse, the impossibility of performing the obligation, if circumstances so arise.” The Court dismissed the petition and refused to interfere with tribunal's order. It further imposed ₹2 lakh costs on Master Drilling for impeding the arbitration's progress. Case Title: Master Drilling India Private Limited Versus Sarel Drill & Engineering Equipment India Private Limited Case Number: COMMERCIAL ARBITRATION PETITION NO. 777 OF 2024 ALONGWITH INTERIM APPLICATION NO. 3682 OF 2024 Judgment Date: 12/11/2025 Mr. Sharan Jagtiani, Senior Advocate a/w Ms. Anirudha Mukherjee, Mr. Aviral Sahai, Ms. Shreya Som, Mr. Sushil Jethmalani, Ms. Soumya Dasgupta, Mr. Shivam Tiwari, Ms. Aanya Anvesha i/b Cyril Amarchand Mangaldas for Petitioner. Mr. Rashmin Khandekar a/w Mr. Chirag M. Bhatia, and Mr.Rakesh K. Taneja i/b Mr. A.R. Shaikh for Respondent. Click Here To Read/Download The Order

Order Refusing To Terminate Arbitration Is Not An Interim Award: Bombay High Court Dismisses Challenge U/S 34 A&C Act

Mohd Malik Chauhan

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