A Division bench of the Supreme Court of India (Court) consisting of the Hon’ble Justices R F Nariman and Navin Sinha recently held that a ruling on limitation by an arbitrator would be an interim award and could be challenged separately and independently under Section 34 of the Act.
Indian Farmers Fertilizers Co-operative Limited (Appellant) had issued a tender to Bhadra Products (Respondent) for the supply of defoamers. Certain disputes had arisen in view of which the Respondent invoked arbitration.
After issues were framed, the Arbitrator decided to take up the issue of limitation first and held in in favour of the Claimant therein (the Respondent before the Supreme Court) stating that the claims had not become time barred.
A petition under Section 34 was then filed before the District Judge, Jagatsinghpur, by the Appellant (the Respondent in the arbitration) challenging the aforesaid ruling and styling it the “First Partial Award”. The District Judge dismissed the petition on the ground that the said award could not be an interim award and hence, the District Court lacked the jurisdiction to proceed further. The subsequent appeal to the Orissa High Court was also dismissed on similar grounds.
The Appellant thereafter chose to challenge the same before the Supreme Court.
Contentions of the Parties
The Appellant argued that the ruling on limitation was an “interim award” inasmuch as it was finally decided by the said ruling and would therefore be amenable to challenge. The Appellant relied on National Thermal Power Corporation Limited vs Siemens Aktiengesellschaft in support of the contention.
The Respondent placed reliance on Section 16 and 37 of the Act and argued that a ruling on the point of limitation is a ruling on “jurisdiction” and any finding thereon goes to the root of the case. This being the case, the drill of Section 16 has to be followed, according to which, as the plea of limitation has been rejected by the learned Arbitrator, the arbitral proceedings would have to continue further and the challenge would have to be postponed only after all the other issues have been decided. The Respondents also argued that the scheme of Section 37(2)(a) of the Act makes it clear that appeals lie only from an order under Section 16 accepting the plea but not rejecting it.
Hence, it was argued that the award was not an interim award, but merely an order passed under Section 16 of the Act.
The Court framed two issues for consideration:
- Whether an award on the issue of limitation can first be said to be an interim award?
- Whether a decision on a point of limitation would go to jurisdiction and, therefore, be covered by Section 16 of the Act.
Noticing the wide wording of Section 31(6) of the Act, the Court observed that the jurisdiction to make an interim award is left to the arbitral tribunal and that it extends to “any matter” with respect to which it may make a final arbitral award. The Court then relied on Section 32(1) to observe that there could be one or more interim awards prior to a final award which would ultimately decide all remaining issues.
Further, the Court relied on Satwant Singh Sodhi v State of Punjab and McDermott International Inc v Burn Standard Co Ltd to rule that an interim award or partial award is a final award on matters covered therein made at an intermediate stage of the arbitral proceedings. In view of the same, the Court held that since the Arbitrator in the present matter had disposed of one matter between the parties i.e. the issue of limitation finally, the award dated 23 July 2015 is an “interim award” within the meaning of Section 2(1)(c) of the Act.
With regard to the Respondent’s contention that the ruling on limitation would be a ruling on the jurisdiction of the arbitral tribunal, thereby bringing it under the ambit of Section 16 and not amenable to challenge under Section 34 of the Act prior to passing of the final award, the Court held that Section 16 of the Act lays down the Kompetenz-kompetenz principle, viz. that an arbitral tribunal may rule on its own jurisdiction.
Referring to the English Arbitration Act of 1996 (Sections 30 and 31), the Court concluded that the Kompetenz- Kompetenz principle also followed therein makes it clear that “jurisdiction” mentioned in Section 16 deals with the arbitral tribunal’s jurisdiction in the narrow sense and has reference to three things, i.e., (1) the existence of a valid arbitration agreement (2) whether the arbitral tribunal is properly constituted and (3) that the matters submitted to arbitration are in accordance with the arbitration agreement.
While determining the meaning of “jurisdiction” used in Section 16 of the Act, the Court elaborated on numerous judgements and the principles therein, relying in particular on Ittavira Mathai vs Varkey Varkey, where a distinction had been made between an erroneous decision on limitation, being an error of law which is within the jurisdiction of the court, and a decision where the court acts without jurisdiction. In this case it was argued that a decree obtained was a nullity as the suit was barred by time. In that case, the Court had stated that a court having jurisdiction over the subject matter of the suit and over the parties thereto, though bound to decide right, may decide wrong; and that even though it decided wrong it would not be doing something which it had no jurisdiction to do. The Court in the present case stated that it was in this sense that the term “jurisdiction” had been used in Section 16.
In view of the above reasoning, the Court concluded 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) and of waiting for the arbitration to conclude and the final award to be passed, need not be followed. The appeal was thus allowed and the impugned judgment set aside.
However, the Court urged the Parliament to consider amending Section 34 so as to consolidate all interim awards together with the final arbitral award, so that one challenge under Section 34 can be made after the delivery of the final award.
By way of this decision, the Supreme Court has ruled that a preliminary ruling on limitation is an interim award and is hence subject to independent challenge under Section 34 of the Act. Since this may cause undue delays in the culmination of arbitral proceedings with every ruling on limitation being subject to a separate challenge, as the Supreme Court has itself noted, Parliament may consider amending Section 34 of the Act so as to ensure that a challenge is possible only at the stage of a final award.