Whether Rejection Of Application For Amendment of Counter-Statement Constitutes An 'Interim Award': Calcutta High Court Explains

The concerned petition was filed before the Court for setting aside an alleged "interim award" dated 15th October, 2020 passed by a Sole Arbitrator. The Arbitrator vide the said award had rejected the petitioner's application for amendment of the counter-statement seeking introduction of counter-claims/equitable set-off by the petitioner.

The counsel for the petitioner had argued that the impugned order of the Arbitrator constituted an 'interim award' on the ground that the Arbitrator had finally decided the counterclaim/ set-off and held that the claims made therein were barred by limitation. Thus the petitioner contended that in rejecting the aforementioned claims, the Arbitrator had put an end to the lis between the parties.

Whereas, the counsel for the respondent had submitted that the Memorandum of Understanding (MOU) dated 28^th October 2016 under dispute was an independent contract and that the arbitration was only confined to the twelve Purchase Orders (POs). Further, it was contended that the MOU did not have an arbitration clause and thus could not be interpreted to be a part of the original reference to the arbitral tribunal. Thus, the impugned order does not constitute an 'interim award'.

After examining the rival contentions, Justice Moushumi Bhattacharya proceeded to make observations on the following issues,

Maintainability of the petition under Section 34 of the Arbitration and Conciliation Act, 1996:

The counsel for the petitioner submitted that the impugned order of the Arbitrator rejecting the amendment to the Statement of Defence of the respondent for incorporating a Counter-Claim constitutes an "Interim Award" under the 1996 Act and would therefore come within the purview of section 34 for setting aside of the said award.

On the other hand, the counsel for the respondent argued that the order under challenge is not an award/interim award and further that the arbitral tribunal lacked jurisdiction under section 23(2A) of the Act to adjudicate the Counter Claim. Therefore, such a petition under section 34 of the Act is not maintainable.

The Court observed that under section 31(6) of the Act, an 'interim award' is described as one which an Arbitrator has the option to give at 'any time' during the course of the arbitral proceedings before making the final award. Therefore, by definition an 'interim award' denotes a pronouncement in the interregnum similar to an interim order which proposes to settle a part of the claim pending final hearing of the action filed in the court. However, the Court added an important caveat by observing,

"…an interim award cannot go beyond what the tribunal is empowered to grant by way of final relief on a complete consideration of the facts or upon trial. It is hence axiomatic that a decision which is intended as an interim measure, must be within the span and possibilities of the relief which can be granted by the Court/ Tribunal in the action filed."

Pursuant to the perusal of the record, the Court opined that the concerned Memorandum of Understanding or the consequences of its breach was not a part of the reference before the Arbitrator. Elucidating further, the Court observed,

"In the present case, the rejection of Lindsay's application for amendment may have primarily been on the bar of limitation but was also on the fact that Lindsay's claim for damages of Rs 10 crores did not arise out of the 12 transactions which formed the subject matter of the reference. Shorn of any other consideration, the basic premise is that rejection of an attempt to introduce a new cause of action, which is not part of the subject matter of the reference, cannot amount to an interim award under section 31(6) of the Act. This is by reason of the fact that the decision (of rejection) of the matter (being a claim for damages arising out of the alleged breach of the MOU) was not a part of and had no causal or factual link to the claim arising out of the 12 POs."

The Court therefore ruled that the impugned order did not constitute an 'Interim Award' as defined under sections 29(1)(c) and 31(c) of the Act. As a result, the present application was not maintainable under Section 34 of the Act.

Relevance of Section 23 of The Arbitration and Conciliation Act, 1996:

Amendment of pleadings in an arbitration is governed by Section 23 of the Act which has been enumerated below for reference,

23. "(1) Within the period of time agreed upon by the parties or determined by the arbitral tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought, and the respondent shall state his defence in respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements.

(2) The parties may submit with their statements all documents they consider to be relevant or may add a reference to the documents or other evidence they will submit".

Furthermore, Section 23(2A) of the Act was promulgated through the 2015 Amendment which clearly states that for an arbitral tribunal to adjudicate a counter-claim or set-off by a respondent, the cases made out must fall squarely within the definition of the arbitration agreement.

Accordingly, the Court observed that such a statutory bar is operative in the present case by ruling,

"By Lindsay's own showing, the MOU, the alleged breach of which by IFGL results in the claim for damages, does not contain an arbitration clause (at paragraph 29 of Lindsay's set-off and counterclaim). Hence, the statutory bar under 23(2A) in the matter of adjudication by the arbitral tribunal on the proposed amendments becomes operative."

The next aspect for consideration before the Court was whether there was delay in the making of petitioner's application and if yes, whether the rejection of the amendment by the Arbitrator was justified on that ground. In order to make this determination, a reference was sought to Section 23(3) of the Act which states,

23. (3) Unless otherwise agreed by the parties, either party may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.

(4) The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment."

Thus, the Court noted that Section 23(3) of the Act while preserving the liberty given to the parties to amend or supplement the pleadings filed under Sections 23(1) and (2A), empowers the arbitral tribunal to curtail such liberty if the tribunal is of the opinion that there has been an inordinate delay in the making of such amended pleading.

Pursuant to the perusal of the record, the Court determined that there was a delay of 9 months on the part of the petitioner in filing the concerned counter claim.

"Lindsay filed its SOD on 20th September 2019 although it was required to file the SOD by 30th April 2019. The SOD filed on 20^th September 2019 was not accompanied with a counter-claim, which was only filed on 23rd January 2020 together with an application for amendment of the SOD. There was hence admitted delay - 9 months - on the part of Lindsay. The Sole Arbitrator received notice of his appointment in or around January/February 2019. Hence the statements of claim and defence, together with amendments/supplements thereto, should have been completed by August 2019", the judgement observed.

In order to further accentuate the importance of such a delay, the Court referred to Section 23(4) of the Act which came into effect from 30^th August 2019,

23. (4) "The Statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment."

The Court further took into consideration that the bar of limitation on which the petitioner's application was rejected by the tribunal is different from the delay contemplated under section 23(3) and (4) of the 1996 Act. However, advocating for an expansive interpretation of the language of Section 23(3) of the Act, the Court observed as follows,

"Under the 1996 Act, the delay is in relation to the making of the application for amendment of pleadings by a party during the course of the arbitral proceedings. The language of 23(3) must however be taken in an expansive context and not in a restrictive and narrow sense. While treating 'delay' as a ground for not allowing an application under 23(3), the words therein do not suggest that the tribunal would be precluded from considering the delay in the making of the application under the laws of limitation or confine itself only to the delay envisaged under section 23(4), which provides a time frame within which the pleadings have to be completed.

Accordingly, the Court upheld the decision of the Arbitrator by acknowledging that there has indeed been a delay on the petitioner's part with reference to the time frame provided under Section 23(4) of the Act.

Finally, Justice Bhattacharya noted that the impugned order not being an 'Award' is not amenable to challenge under Section 34 of the Act and therefore dismissed the petition.

"Having found that the counter-claim of Lindsay was beyond the scope of the arbitration agreement and the arbitral tribunal could, therefore, not make an interim arbitral award based on the counterclaim, the impugned order dated 15th October, 2020 falls outside the purview of the recourse available for setting aside an arbitral award under Section 34 of the Act. Due regard has been given to the definition of an award under Sections 2(c) and 31(6) read with 23(2A) of the Act", the Court concluded.

Case Title: Lindsay International Private Limited v. IFGL Refractories Limited