Supreme Court of India: whether an award deciding the issue of limitation is an interim award, and whether such interim award can then be set aside under the permissible grounds to set aside an award

Supreme-Court-of-India-1_85138_730x419

In the case of M/s. Indian Farmers Fertilizer Co-Operative Ltd. Vs. M/s. Bhadra Products [Civil Appeal No. 824 of 2018 arising out of SLP (C) No.19771 of 2017 dated January 23, 2018], the Supreme Court of India while addressing the issue of whether an award delivered by an Arbitrator, which decides the issue of limitation, can be said to be an interim award, and whether such interim award can then be set aside under Section 34 of the Indian Arbitration and Conciliation Act, 1996 (the Act), held that the order of the tribunal finally determines the issue of limitation and therefore, such an order is an interim award within the meaning of Section 2(1)(c) of the Act which is amenable to challenge under Section 34 of the Act.

Factual Matrix

The parties entered into contract for supply of Defoamers to be used for production of P2O5. The responded failed to meet the agreed target which resulted in considerably delay. After the expiry of the term of contract, the respondent issued a legal notice to the appellant. The parties went into arbitration and the arbitrator while deciding the issue of limitation held that the claim is not time barred. The appellant’s appeals were dismissed in lower court and High Court on the reasoning that that the aforesaid award could not be said to be an interim award and that, therefore, the Court lacked jurisdiction to proceed further under Section 34 of the Act.

Applicable Legal Principles

2. Definitions.—(1) In this Part, unless the context otherwise requires,—

(c) “arbitral award” includes an interim award;

16. Competence of arbitral tribunal to rule on its jurisdiction.—

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with

respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

31. Form and contents of arbitral award.—

(6) The arbitral tribunal may, at any time during the arbitral proceedings, make an interim arbitral award on any matter with respect to which it may make a final arbitral award.

32. Termination of proceedings.—

(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).

37. Appealable orders.—

(1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:—

(a) refusing to refer the parties to arbitration under section 8;

(b) granting or refusing to grant any measure under section 9;

(c) setting aside or refusing to set aside an arbitral award under section 34.

(2) Appeal shall also lie to a court from an order of the arbitral tribunal—

(a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

Appellant’s Contentions

The appellant rose following contentions

  • That the award is an interim award therefore, be amenable to challenge under Section 34 of the Act.
  • That the point of limitation being one of the issues rose by the parties, was finally decided by the aforesaid award and would, therefore, be amenable to challenge.

Respondent’s Contentions

The Respondent argued as follows:

  • Relied Section 16 (Kompetenz-kompetenz) and Section 37 (Appealable orders) of the Act.
  • That a ruling on the point of limitation is a ruling on “jurisdiction” and any finding thereon goes to the root of the case. The drill of Section 16 has to be followed, and as the plea of limitation has been rejected by the learned Arbitrator, the arbitral proceedings have to continue further and the challenge has to be postponed only after all other issues have been decided.
  • That the scheme of Section 37, in particular Section 37(2)(a), also makes it clear that appeals lie only from an order under Section 16 accepting the plea but not rejecting it.
  • That the impugned award cannot be said to be an interim award, but is merely an order passed under Section 16 of the Act.

Analysis

The Court noticed that the language of Section 31(6) is wide in nature. In Court’s view, a reading of the said sub-section makes it clear that the jurisdiction to make an interim arbitral award is left to the good sense of the arbitral tribunal, and that it extends to “any matter” with respect to which it may make a final arbitral award.

The Court observed that the Act is silent on what constitutes an interim award and placed reliance on Section 47 of the English Arbitration Act, 1996 which is reproduced below:

47 Awards on different issues, &c.

(1) Unless otherwise agreed by the parties, the tribunal may make more than one award at different times on different aspects of the matters to be determined.

(2) The tribunal may, in particular, make an award relating—

(a) to an issue affecting the whole claim, or

(b) to a part only of the claims or cross-claims submitted to it for decision.

(3) If the tribunal does so, it shall specify in its award the issue, or the claim or part of a claim, which is the subject matter of the award.

Based on this section the Court concluded that more than one award finally determining any particular issue before the arbitral tribunal can be made on different aspects of the matters to be determined.

The court has also relied on Sections 30 and 31 of the English Arbitration Act, 1996 while dealing with the Respondent’s argument of Kompetenz-kompetenz. The Court observed that it is well-settled that “jurisdiction” is a coat of many colours, and that the said word displays a certain colour depending upon the context in which it is mentioned.

The Court relied on its another ruling in National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft wherein while dealing with the meaning of the word ‘Jurisdiction’ in light of Section 16 and Section 37(2) held as under:

But, if the Tribunal declines jurisdiction or declines to pass an award and dismisses the arbitral proceedings, the party aggrieved is not without a remedy. Section 37(2) deals with such a situation. Where the plea of absence of jurisdiction or a claim being in excess of jurisdiction is accepted by the Arbitral Tribunal and it refuses to go into the merits of the claim by declining jurisdiction, a direct appeal is provided. In the context of Section 16 and the specific wording of Section 37(2)(a) of the Act, it would be appropriate to hold that what is made directly appealable by Section 37(2)(a) of the Act is only an acceptance of a plea of absence of jurisdiction, or of excessive exercise of jurisdiction and the refusal to proceed further either wholly or partly.

Conclusions

The Court held as under:

  • That any point of dispute between the parties which has to be answered by the arbitral tribunal can be the subject matter of an interim.
  • Relied on McDermott International Inc. v Burn Standard Co. Ltd. (2006) 11 SCC 181 and held that an interim award or partial award is a final award on matters covered therein made at an intermediate stage of the arbitral proceedings.
  • That as the arbitrator has disposed of the issue of limitation finally, the impugned award is an “interim award” within the meaning of Section 2(1)(c) of the Act and being subsumed within the expression “arbitral award” could, therefore, have been challenged under Section 34 of the Act.
  • That an award, which does not relate to the arbitral tribunal’s own jurisdiction under Section 16, does not have to follow the drill of Section 16(5) and (6) of the Act and hence, can be challenged separately and independently under Section 34 of the Act.

 

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