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The Supreme Court today held that an award passed by an arbitrator on the aspect of limitation is an interim award and hence an arbitral award which can be challenged independently under Section 34 of the Arbitration and Conciliation Act, 1996 (Act).
A Bench of Justices Rohinton Fali Nariman and Navin Sinha, which delivered the judgment, also urged the Parliament to amend Section 34 of the Arbitration Act so as to avoid piecemeal challenge of arbitral awards.
The brief facts of the case are as follows. A dispute between Indian Farmers Fertilizers Co-operative Limited (appellant) and Bhadra Products (respondent) was referred to arbitrator. The arbitrator, Justice Deepak Verma, first took up the issue of limitation and ruled that the claim had not become time-barred.
The appellant challenged the same under Section 34 but the same was dismissed by the District court on the ground that the aforesaid award by the arbitrator 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.
The appeal to the High Court of Orissa was dismissed with the High Court reiterating the reasoning of the District Judge. This led to the appeal in Supreme Court.
The two basic questions considered by the Supreme Court were: whether an award on the issue of limitation can be said to be an interim award and, second, as to whether a decision on a point of limitation would go to jurisdiction and, therefore, be covered by Section 16 of the Act.
Attorney General KK Venugopal, appearing for the appellant, argued that the award made by the arbitrator relating to limitation is an interim award under the Act and would, therefore, be amenable to challenge under Section 34 of the Act. He buttressed his stand by referring to a number of judgments, including the judgment of National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft [(2007) 4 SCC 451]. He also referred to various judgments on what constitutes an interim award and argued that the point of limitation being one of the issues raised by the parties, was finally decided by the aforesaid award and would, therefore, be amenable to challenge.
Senior Advocate Ajit Kumar Sinha appearing on behalf of the respondent, also placed reliance on various sections of the Act, in particular Sections 16 and 37. It was his contention that a ruling on the point of limitation is a ruling on “jurisdiction” of the arbitrator and any finding thereon goes to the root of the case. This being the case, the drill of Section 16(5) 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.
According to him, 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. Further, it was his contention that the impugned award cannot be said to be an interim award, but was merely an order passed under Section 16 of the Act.
The Court addressed the issue of whether the ruling on limitation would be a ruling on the jurisdiction of the arbitral tribunal. The Court proceeded to answer the same by placing reliance on various judgments, particularly, National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft and Ittavira Mathai v. Varkey Varkey.
It held that an award on limitation is not an award relating to jurisdiction of the tribunal under Section 16 and therefore, the drill under Section 16(5) of having to wait for the conclusion of the arbitral proceedings before institution of Section 34 challenge need not be followed. It, therefore, ruled that the award can be challenged independently and proceeded to set aside the judgment of the High Court.
“In our view, therefore, it is clear that the award dated 23rd July, 2015 is an interim award, which being an arbitral award, can be challenged separately and independently under Section 34 of the Act. We are of the view that such 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.”
Interestingly, the Court also urged the Parliament to consider amending Section 34 of the Act so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34 can be made after delivery of the final arbitral award.
“…we are of the view that Parliament may consider amending Section 34 of the Act so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34 can be made 31 after delivery of the final arbitral award. Piecemeal challenges like piecemeal awards lead to unnecessary delay and additional expense.”
Read the judgment below.