Arbitral tribunals possess the authority to resolve procedural disputes and their interim orders do not constitute arbitral awards under Section 34 without final adjudication.

JUDGEMENT :

Somasekhar Sundaresan, J.

Context and Factual Background:

1. This Petition is purported to have been filed under Section 34 of the Arbitration and Conciliation Act, 1996 (“the Act”). The Petition challenges an order dated May 10, 2024 (“Impugned Order”) passed by the Learned Arbitral Tribunal in disposal of an Application filed by the Petitioner invoking Section 31(6) read with Section 32(2)(c) of the Act, essentially repelling the contentions of the Petitioner that the very conduct of the arbitration proceedings is untenable.

2. The arbitral proceedings relate to a Business Transfer Agreement dated September 3, 2018 (“Agreement”) executed between the Petitioner, Master Drilling India Private Limited (“Master Drilling”) and the Respondent, Sarel Drill & Engineering Equipment India Private Limited (“Sarel Drill”). In terms of the Agreement, the business and assets of Sarel Drill were sold to Master Drilling. According to Sarel Drill, the Agreement lapsed owing to conditions precedent not being met due to breach attributable to Master Drilling, which has resulted in wrongful loss being caused to Sarel Drill. Therefore, the arbitral proceedings relate to claims by Sarel Drill for Master Drilling to effect payment of damages, return of machinery and rental payments.

3. Master Drilling took a stand that the very invocation and pursuit of arbitral proceedings was untenable on account of Sarel Drill lacking a validly constituted Board of Directors when arbitration was invoked and when an application under Section 11 of the Act was filed. According to Master Drilling, without at least two directors on its Board of Directors, Sarel Drill was incapable of taking any decision to initiate and pursue the underlying arbitration proceedings.

4. The Learned Arbitral Tribunal dismissed Master Drilling’s contentions in this regard taking a prima facie view that the Master Drilling’s contentions could well be considered later in the course of the arbitral proceedings. The Learned Arbitral Tribunal took the view that the arbitral proceedings ought not to be brought to an end outright. This view of the Learned Arbitral Tribunal is sought to be treated as an interim award to access the jurisdiction of this Court under Section 34 of the Act.

5. The challenge by Master Drilling is based on the premise that the absence of at least two Directors on the Board of Directors at the threshold of initiation of arbitration constitutes a foundational defect that renders Sarel Drill incapable of taking any corporate decision whatsoever. Master Drilling would contend that this is an incurable infirmity rather than a procedural defect. It is Master Drilling’s case that Sarel Drill was incapable of taking any corporate decision whatsoever and this incapacity would preclude the ability to take any decision to commence arbitration.

6. Therefore, according to Master Drilling, the commencement of arbitration was “non est” – non existent in the eyes of law. The decision is incapable of subsequent ratification by a validly constituted Board of Directors that becomes available. In a nutshell, the contention is that an action that was incapable of being validly undertaken in the first place cannot even be ratified.

7. Against the aforesaid backdrop, a few relevant facts would be noteworthy :

(a) Sarel Drill was originally incorpora