Can an interim arbitral award deciding an issue of limitation be set aside by the Court?

The bench of Justice R. F. Nariman and Justice Navin Sinha, vide their judgement dated 23.01.2018 in the matter of M/s Indian Farmers Fertilizer Co-operative Limited v M/s Bhadra Products, thrown light on two questions, (a) whether an award delivered by an Arbitrator, which decides the issue of limitation, can be said to be an interim award, and (b) whether such interim award can then be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”)?

The Apex Court has held that an award on a limited issue of limitation is an interim award and therefore amenable to challenge under Section 34 of the Arbitration and Conciliation Act, 1996.

M/s Bhadra Products submitted its bid to a tender enquiry floated by M/s Indian Farmers Fertilizers Co-operative Limited for the supply of defoamers. A letter of intent was issued to M/s Bhadra Products for the supply of 800 metric tonnes of defoamers. M/s Bhadra Products supplied to promised goods to M/s Indian Farmers Fertilizers Co-operative Limited, but allegedly M/s Indian Farmers Fertilizers Co-operative Limited failed to make payments against the same and thereafter M/s Bhadra Products invoked the arbitration clause and a Sole Arbitrator was appointed. The Sole Arbitrator decided to adjudicate on the issue of limitation first and it ruled that the claims of M/s Bhadra Products were not time-barred.

Subsequently M/s Indian Farmers Fertilizers Co-operative Limited challenged the interim award under Section 34 of the Act. The District Judge dismissed the Section 34 petition on the grounds that the ruling was not an interim award. The ruling of the District Court was appealed before the Hon’ble High Court, which upheld the reasoning of the District Judge and consequently dismissed the appeal.

M/s Indian Farmers Fertilizers Co-operative Limited once again challenged the judgment of the Hon’ble High Court before the Hon’ble Supreme Court where the judgment of the Hon’ble High Court was overturned.

The Supreme Court has answered two issues being 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 Act?

M/s Indian Farmers Fertilizers Co-operative Limited contended that the ruling of the Sole Arbitrator on the issue of limitation was an interim award as it finally decided the issues between the parties. Since the nature of the award was that of a final award the same could be challenged under Section 34 of the Act.

Whereas M/s Bhadra Products contended that the decision on the limitation does not finally decide the issues between the parties and merely decides the question of jurisdiction, hence until a final award is passed on all the issues, the interim ruling on limitation cannot be treated as an interim award and hence the same cannot be challenged under Section 34 of the Act.

After the conclusions of the parties arguments, the Supreme Court has noted that the Act does not define ‘intemin award’ but an interpretation of Section 31(6) of the Act provides that an arbitral tribunal could pass one or more interim awards prior to a final award. It further held that that as long as the award finally decides an issue between the parties, it was an interim award that was binding on the parties. On the basis of these observations the Court held that the ruling of the Sole Arbitrator decided an issue, in finality, between the parties hence the ruling of the Sole Arbitrator was an interim award. Further the Supreme Court has also held that an award on the question of limitation does not relate to the arbitral tribunal’s own jurisdiction and therefore cannot follow the drill of Section 16 of the Act.

The Supreme Court has further recognized that interim awards can delay the arbitral proceedings and lead to an increased cost of arbitration and hence has urged the legislature to amend Section 34 of the act to the effect that the Section shall consolidate all the interim awards with the final award so as to save time and cost.

Published by Pushkar Taimni

Pushkar Taimni is a lawyer based in India. He can be contacted at taimnico@gmail.com.

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