Bombay High Court: Applicable Limitation Period to Challenge An Interim/Partial Final Award which had Subsumed into Final Award

609231-hc-mumbai-040517

Consider a situation where an Interim/ Partial Final Award is passed in aid to the final award wherein the arbitrator has decided the rights and liabilities of the parties however has not quantified the exact amount payable by them which is left to be decided in the final award.

In such a scenario, is it possible to assail such an Interim/ Partial Final Award under Section 34 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) which has merely declared rights and liabilities of parties? If yes, what will be the applicable limitation period to challenge such an Interim/ Partial Final Award? What if such an Interim/ Partial Final Award is subsumed into a final award. In that case, what will be the date of reference to compute the limitation period prescribed under proviso to Section 34 of the Arbitration Act to assail such an award? Will it be the date of such an Interim/ Partial Final Award or will it be the date of final award in which such Interim/ Partial Final Award had subsumed? Whether an arbitrator becomes functus officio after passing an Interim/ Partial Final Award. Further, whether interim or final award, if it is declaratory in nature of the rights and liabilities, can be made a subject matter of challenge under section 34 of the Arbitration Act, unless it is made executable? This article covers the above issues as dealt with by the Bombay High Court in Aero Club v. Solar Creations Pvt. Ltd. Appeal (Ld.). No. 63 of 2020 decided on 20 March 2020.

Meaning: ‘Arbitral Award’, ‘Interim Award’, Partial Final Award

In order to consider the above questions, it is useful to first discuss what is an “arbitral award” and an “interim award” or “partial final award”. The partial final award is called as an interim award. The provision of section 2(1)(c) of the Arbitration Act states that an “arbitral award includes an interim award”. The expressions “award” or “interim award” or “partial final award” are nowhere defined under the Arbitration Act.

The Courts in India have tried to understand the meaning of the aforesaid expressions with reference to the provisions of subsections (1), (2) and (3) of section 31 of the Arbitration Act regarding the form and contents of an arbitral award, which sets out the requirements of an award. An award to be valid, must satisfy the following requirements:

  • that it must be in writing;
  • it is signed by the member or the members of the Tribunal;
  • it contains the reasons upon which it is based, except for the exceptions set out under section (3) therein; and
  • it bears the date and place of arbitration.

Sub-section (6) of section 31 of the Arbitration Act delineates the scope of an interim award and it states that the arbitral tribunal may make an interim award on any matter with respect to which it may make a final arbitral award. However, it is not that every order, decision or adjudication of the arbitral tribunal on the matters referred to it becomes an award or an interim award.

When does an Interim/ Partial Final Award becomes a Final Award?

The question whether an Interim/ Partial Final Award is final to the extent it goes or has the effect till the final award is delivered, depends upon the form and contents of an award. If the interim award is intended to have the effect only so long as the final award is not delivered, it will have the force of the interim award and it will cease to have the effect after the final award is made. If on the other hand, the interim award is intended to be determination of all the rights of the parties, it will have the force of a complete award and will have the effect even after the final award is delivered.

If all these tests are satisfied, then, interim award or partial final award shall become an “arbitral award” as per section 2(1)(c) of the Arbitration Act and consequently, the bar of limitation under sub-section (3) of section 34 of the said Act shall be attracted in each case, even in respect of such an award.

Does an Arbitrator becomes Functus Officio after passing an Interim/ Partial Final Award?

Section 32 of the Arbitration Act deals with the termination of the arbitral proceedings. Sub-section (1) therein states that the  arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2). Thus, the arbitral proceedings would be terminated only by final arbitral award as opposed to an Interim/ Partial Final Award.

There can be one or more Interim/ Partial Final Awards prior to final award which ultimately decides all the remaining issues between the parties. What proceedings can be terminated other than by an award, are set out under sub-section (2) of section 32 of the Arbitration Act. It is not that every order, decision or adjudication terminating the arbitral proceedings under section 32 of the Arbitration Act can be called as an award.

The arbitrator even after signing the Interim/ Partial Final Award becomes functus officio, but that does not mean that in no circumstances could there be further arbitration proceedings where the same arbitrator could never have anything to do with the award with respect to the same dispute.[1]

The arbitrator becomes functus officio after passing of an “interim award” in respect of the subject matter of such award made and to that extent only. It cannot further decide that part of claim or counter claim which has been adjudicated by an interim award.[2]

Whether Non-Executable nature of an Interim/Partial Award can be a ground to attract limitation under Section 34(3) of the Arbitration Act to challenge such Interim/Partial Award?

The question then arises as to whether it is the test of executability of an award, which is required to be applied to find out whether an Interim/ Partial Final Award can assume the character of final award. In the given scenario, it can be argued that mere declaration of rights and liabilities in the Interim/ Partial Final Award without its enforceability is not enough to treat an order of an Arbitrator as an Interim/ Partial Final Award so as to attract the bar under sub-section (3) of section 34 of the Arbitration Act.

It is noteworthy that the question of executability or the enforcement of an arbitral award under section 2(1)(c) of the Arbitration Act is governed by section 36 therein. The proceedings under section 34 of the Arbitration Act regarding challenge to an Interim/ Partial Final Award, cannot be confused or mixed up with the proceedings of executability or enforcement of final arbitral award under section 36 of the said Act.

The provision of section 36 operates after an arbitral award becomes executable or enforceable and the period of limitation prescribed under section 34 expires to challenge an arbitral award. Thus, the test of executability or enforceability of an arbitral award under section 36 cannot be artificially invoked to bring the challenge to an Interim/Partial Final Award within the period of limitation prescribed under sub-section (3) of section 34 of the Arbitration Act on the ground that it has now become executable or enforceable. Merely because the Interim/Partial Final Award is found to be declaratory in nature, without making it executable, would not mean that it cannot assume the character of an arbitral award under section 2(1)(c) of the Arbitration Act so as to attract bar of limitation under sub-section (3) of section 34 of the said Act.

Interim/ Partial Final Award and Applicable Limitation period to Challenge it

Thus, if in the facts of a case, it is held that the Interim/Partial Final Award had subsumed within the expression “arbitral award” under section 2(1)(c) of the Arbitration Act, the bar of limitation contained in sub-section (3) of section 34 of the said Act will be attracted and the challenge to it will have to be rejected on the ground it is barred by law of limitation. In other words, the date of such an Interim/Partial Final Award will be taken as a reference date to compute the period of limitation for assailing such an award as provided under Section 34(3) of the Arbitration Act i.e. 3 Months plus 30 days.

Comments

Thus, the law as crystalized by the Bombay High Court can be summarised as under:-

(1)        It is not that every order, decision or adjudication at an interim stage of the arbitral proceedings; whether called as “partial final award” or an “interim award”, that would assume the character of an “arbitral award” under section 2(1)(c) of the Arbitration Act so as to attract the bar of limitation prescribed under sub-section (3) of section 34 of the said Act.

(2)        The question as to whether the interim award or partial final award; by whatever name it is called, subsumes within the expression an “arbitral award” under section 2(1)(c) of the Arbitration Act, is essentially a question of fact to be decided in the facts and circumstances of each case.

(3)   The predominant tests to treat an “interim award” or “partial final award” as an “arbitral award” under section 2(1)(c) of the Arbitration Act would be three-fold :

  • that it satisfies the tests of the form and contents of an award under sub-sections (1), (2) and (3) of section 31 of the Arbitration Act;
  • it is in relation to “any matter” with respect to which a final arbitral award can be made; as specified under sub-section (6) of section 31 of the said Act; and
  • the nature, extent and intendment of such order, decision or adjudication.

(4)   If an Interim/Partial Final Award subsumes a final award then the date of such Interim/Partial Final Award will be taken as a reference date to compute the period of limitation for the purposes of filing an application for setting aside such an award as provided under Section 34(3) of the Arbitration Act.

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

[1] Satwant Singh Sodhi v/s. State of Punjab [(1999) 3 SCC 487 at [11]

[2] Harinarayan v. Shardeal FC Pvt Ltd [2003(2) Mh.L.J. 592

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s