1. Dispute over payment for supplies — Arbitrator delivers award deciding issue of limitation — Challenge to said award under Section 34, Arbitration and Conciliation Act, 1996. (Para 3 )
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2018 Supreme(SC) 51
SUPREME COURT OF INDIA
R.F. Nariman, Navin Sinha, JJ.
M/s Indian Farmers Fertilizer Co-Operative Limited – Appellant
Versus
M/s Bhadra Products – Respondent
Civil Appeal No. 824 of 2018 (Arising Out of SLP (C) No.19771 of 2017)
Decided On : 23-01-2018
Advocates Appeared:
For the Appellant :- Alok Kumar, Baij Nath Patel, Ms. Sweta, Ms. Romila, Balaji Srinivasan, Advs.
For the Respondent:- Ms. Upasana Nath, Ashwarya Sinha, Advs.
For the Appellant :- Alok Kumar, Baij Nath Patel, Ms. Sweta, Ms. Romila, Balaji Srinivasan, Advs.
For the Respondent:- Ms. Upasana Nath, Ashwarya Sinha, Advs.
IMPORTANT POINTS
Decision on point of limitation being an interim award subsumed within expression ‘arbitral award’ could be challenged u/s 34.
Arbitral decision on point of limitation would not go to jurisdiction, hence Section 16 will not be attracted.
Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 2(1)(c) and 34 – Arbitrator disposing of issue of limitation between the parties finally – An interim award u/s 2(1)(c) being subsumed within expression ‘arbitral award’ – Held, could be challenged u/s 34. (Para 16, 29)
(1999) 3 SCC 487; (2006) 11 SCC 181 – Relied upon
[1992] 1 Lloyd's Rep. 169 – Referred
(b) Arbitration and Conciliation Act, 1996 – Section 16 – Jurisdiction – Depends to certain extent on the context – Error of law and jurisdiction – Lack or excess of jurisdiction – Arbitral decision on point of limitation would not go to jurisdiction – Section 16 not attracted. (Para 21, 22,
(2007) 4 SCC 451; (1969) 2 AC 147; (1972) 2 SCC 427; (1974) 3 SCC 415; (2004) 3 SCC 48; (2015) 6 SCC 412 – Relied upon
Facts of the case:
An interesting question arises as to 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 Arbitration and Conciliation Act, 1996.
The appellant issued a tender enquiry to 19 parties, including the respondent, for supply of Defoamers. Letter of Intent dated 2nd November, 2006 was issued to the respondent for supply of 800 Metric Tonnes of Defoamers to be used for production but they could not achieve the targeted production by the end of 1st November, 2007, the stipulated period.
On 6th June, 2011, the respondent issued a legal notice demanding payment of Rs. 6,35,74,245/- on 27th September, 2012.
Since disputes arose between the parties, on 1st October, 2014 the respondent invoked arbitration, and on 25th January, 2015, Justice Deepak Verma, a retired Judge of the Supreme Court, was appointed as the sole arbitrator. On 3rd March, 2015, issues were framed. On 23rd July, 2015, the learned Arbitrator thought it fit to take up the issue of limitation first and this issue was decided in favour of the claimant stating that their claims had not become time barred.
A petition filed under Section 34 of the Act challenged the aforesaid award, styling it as the 'First Partial Award'. On 8th October, 2015, the District Judge dismissed the Section 34 Petition stating 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. The appeal to the High Court of Orissa was dismissed.
Finding of the Court:
Impugned judgment is not sustainable.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether an award on limitation constitutes an interim award challengeable under Section 34 or a jurisdictional ruling under Section 16 requiring postponement of challenge. (Para 4 , 5 )
3. Analysis of Section 31(6) and Section 16 — Distinction between narrow jurisdictional competence and errors of law regarding limitation — Interim awards finally determine specific issues. (Para 8 , 9 , 10 , 14 , 15 , 17 , 19 , 20 , 22 , 23 )
4. An award finally deciding a specific issue at an intermediate stage is an interim award under Section 2(1)(c), amenable to challenge under Section 34. (Para 16 , 29 )
5. Appeal allowed — Impugned judgment set aside — Section 34 proceedings remanded for decision. (Para 30 )
6. What constitutes an interim award under the Arbitration and Conciliation Act, 1996?
An interim award is a final determination of a specific issue or matter between parties made at an intermediate stage of proceedings, as contemplated under Section 2(1)(c) and Section 31(6). (Para 8 , 9 , 10 , 15 , 16 )
7. Does a decision on the issue of limitation constitute a ruling on the tribunal's jurisdiction under Section 16?
No. Jurisdiction under Section 16 refers to the competence to embark on an inquiry, such as the existence or validity of the arbitration agreement. A decision on limitation is an adjudication on the merits or law, not a jurisdictional ruling. (Para 17 , 19 , 20 , 22 , 23 )
8. Can an interim award be challenged independently under Section 34 of the Act?
Yes. Because an interim award is included within the definition of an arbitral award under Section 2(1)(c), it can be challenged separately and independently under Section 34. (Para 15 , 16 , 29 )
JUDGMENT
R.F. Nariman, J.
Leave granted.
2. An interesting question arises as to 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 Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act"). The brief facts necessary to dispose of the present appeal are as follows.
3. The appellant before us issued a tender enquiry to 19 parties, including the respondent, for supply of Defoamers. The respondent submitted its bid, pursuant to which a Letter of Intent dated 2nd November, 2006 was issued to the respondent for supply of 800 Metric Tonnes of Defoamers to be used for production of 3,08,880 Metric Tonnes of P2O5. By 11th April, 2007, the respondent had supplied 800 Metric Tonnes of Defoamers, however, they could not achieve the targeted production by the end of 1st November, 2007, which was the validity of the supply period. After considerable delay, on 6th June, 2011, the respondent issued a legal notice demanding payment of Rs. 6,35,74,245/- on 27th September, 2012. The appellant made it clear that there was nothing due and payable to the respondent. Since disputes arose between the parties, on 1st October, 2014 the respondent invoked arbitration, and on 25th January, 2015, Justice Deepak Verma, a retired Judge of the Supreme Court, was appointed as the sole arbitrator. On 3rd March, 2015, issues were framed. On 23rd July, 2015, the learned Arbitrator thought it fit to take up the issue of limitation first, inasmuch as the counsel appearing for both the parties submitted that this issue could be decided on the basis of documentary evidence alone. This issue was then decided in favour of the claimant stating that their claims had not become time barred. A petition filed under Section 34 of the Act challenged the aforesaid award, styling it as the 'First Partial Award'. On 8th October, 2015, the District Judge, Jagatsinghpur, dismissed the Section 34 Petition stating 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. The appeal to the High Court of Orissa was dismissed by the impugned order dated 30th June, 2017, reiterating the reasoning of the learned District Judge.
4. Appearing on behalf of the appellant, Mr. K.K. Venugopal, learned Attorney General, has argued before us that the award made on 23rd July, 2015 is an interim award under the Act and would, therefore, be amenable to challenge under Section 34 of the Act as such. He referred us to various provisions of the Act and buttressed his stand with reference to a number of judgments, including, in particular, the judgment of National Thermal Power Corpn. Ltd. v. Siemens Atkeingesellschaft, (2007) 4 SCC 451. He also referred us to various judgments on what constitutes an interim award and argued that, according to him, 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.
5. Shri Ajit Kumar Sinha, learned senior advocate appearing on behalf of the respondent, also placed reliance on various sections of the Act, in particular Sections 16 and 37 thereof. According to the learned senior advocate, 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, 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 the learned senior advocate, 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. Also, accord
