Order Deciding Director's Authority Is Not An Arbitral Or Interim Award, Not Open To Section 34 Challenge: Karnataka High Court

The Karnataka High Court has held that an order passed by an arbitral tribunal deciding a preliminary or a factual issue such as whether the directors were authorised to execute agreements does not amount to an arbitral award or an interim award and therefore cannot be challenged under section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). A Division Bench comprising Justice Anu Sivaraman and Justice Vijaykumar A. Patil allowed a commercial appeal and set aside the order of the Commercial Court, which had interfered with such an arbitral order by entertaining a Section 34 petition. Background: The dispute arose out of agreements executed between ITW Consulting Private Limited (“Claimant") and Intellicomm Solutions and Enterprises Private Limited (“Respondent”). During arbitral proceedings, the respondent objected to the maintainability of the claim on the ground that its Marketing Director, Mr. Mohammad Shoaib was not authorised to execute the agreements. The arbitral tribunal framed a preliminary issue based on this objection and rejected the contention holding that the director was authorised to execute the agreements. Aggrieved, the respondent challenged the order before the Commercial Court under section 34 which allowed the petition and set aside the order. This prompted the claimant to approach the High Court under section 13(1A) of the Commercial Courts Act, 2015. The claimant argued that a petition under section 34 is maintainable against an arbitral award or an interim award, not against interlocutory or procedural orders and that the arbitrator merely decided a preliminary factual issue and did not finally adjudicate any claim. Opposing the plea, the respondent submitted that the order deciding the issue of authorisation goes to the root of the arbitration and was therefore amenable to challenge under section 34. Findings: The court examined the scheme of the Arbitration Act and particularly referring to sections 2(c), 16, 31(6) and 37 reiterated that section 34 can be invoked only against an arbitral award including an interim award. Clarifying the meaning as what constitutes an interim award, the court observed that an order can be called an interim award only if the arbitrator finally decides an important part of the dispute which it could also decide in the final award. It said: “The language employed in Section 31(6) of the Act makes it very clear that the Arbitral - Tribunal has a power to make an interim award on any matter with respect to which it may make a final award.” Rejecting the contention of the respondents, the court held that the arbitrator by the impugned order only decided an incidental factual issue i.e. whether the said director was authorised to execute the agreements and did not adjudicate any substantive claim nor terminate the arbitration. “In the case on hand, the issue is with regard to whether a particular Director of a respondent Company is authorized to enter into an agreement or not and the learned Arbitrator has considered the said issue as a preliminary issue and held in favour of the appellant claimant. Such an order of the learned Arbitrator cannot be termed as an interim award.”, the court held. The Bench further explained: “A simple reading of Sections 2(c), 16, 31(6), and 37 of the Act shows that an order can be called an “interim award” only if it finally decides an important part of the dispute between the parties—something that the Arbitrator could also decide in the final award. An interim award must settle a real issue in such a way that it could even end the arbitration, like a decision on limitation or jurisdiction.” Based on the above, the court held that since the arbitrator's order neither determined rights nor concluded the proceedings, it could not be treated as an interim award. On jurisdiction of the Commercial Court, the court held that the Commercial Court had clearly exceeded its jurisdiction by entertaining a petition under section 34 against an order which could neither be termed as an interim award nor a final award. Accordingly, the court allowed the present appeal and set aside the impugned order holding that determination of an incidental factual issue cannot be treated as an interim award. Case Title: ITW Consulting Private Limited Vs. Intellicomm Solutions And Enterprises Private Limited Case Number: Commercial Appeal No.297/2024 Judgment Date: 16/12/2025 For Appellant: Sri. Laxmikantha K.B. Adv. For Respondent: Sri. Vishnu Hegde, Adv., Click Here To Read/Download Order

Order Deciding Director's Authority Is Not An Arbitral Or Interim Award, Not Open To Section 34 Challenge: Karnataka High Court

Mohd Malik Chauhan

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