The Supreme Court in a recent decision in M/s Indian Farmers Fertilizer Co-operative Limited v M/s Bhadra Products [] has held that an award passed by an arbitrator, even on a limited issue of limitation is an interim award and therefore amenable to challenge under §34 of the Arbitration and Conciliation Act, 1996 (Act). The Court also ruled that the question of limitation does not affect an arbitrator's own jurisdiction and was not covered under the ambit of §16 of the Act, which deals with an arbitral tribunal's competence to decide questions of its own jurisdiction.
Disputes arose between M/s Farmers Fertilizer Co-operative Limited (Farmers Co-operative) and M/s Bhadra Products (Bhadra) pertaining to non-payment of monies. Bhadra invoked the arbitration clause and a sole arbitrator was appointed. The arbitrator decided to adjudicate on the issue of limitation first and it was ruled that the claims of Bhadra were not time-barred.
Farmers Co-operative challenged, in a petition under §34, the ruling on limitation by styling it as 'First Partial Award'. The District Judge dismissed the §34 petition on the grounds that the ruling was not an interim award. The Order of the District Court was appealed before the High Court, which also reiterated the reasoning of the District Judge and consequently dismissed the appeal.
Farmers Co-operative filed a Special Leave Petition challenging the decision of the High Court.
Proceedings before the Supreme Court:
The questions before the Supreme Court were – (a) whether a ruling on limitation is an interim award and therefore amenable to challenge under §34 and (b) whether the question of limitation would affect the jurisdiction of the arbitral tribunal under §16 of the Act.
The contention raised by Farmers Co-operative was that the ruling on limitation was an interim award. This position was buttressed by the argument that the question of limitation is one of the issues raised by the parties and a ruling on such a question by the tribunal finally decides the issue between the parties. The interim award is therefore amenable to challenge under §34.
Bhadra contented that the question of limitation is a ruling on jurisdiction which goes to the root of the matter and consequently, the challenge under §34 would have to be postponed until all issues had been decided by the arbitrator. It was further argued that a ruling on limitation would merely be an order under §16 of the Act and the scheme of appeal provided under §37 would have to be followed.
The Supreme Court noted that 'interim award' had not been defined under the Act, however, §2(c) which defines 'arbitral award' includes interim awards. Further by interpreting other provisions of the Act, particularly §31(6), it was concluded that the Act allows for making of one or more interim awards prior to a final award. The Court then ruled that as long as the award finally decides an issue between the parties, it was an interim award binding on the parties.
The Supreme Court, noted that the ruling made by the arbitrator in the instant case finally decided the issue of limitation between the parties and therefore the interim award could be challenged under §34 of the Act.
The argument that the question of limitation was one of jurisdiction and covered within the ambit of §16 of the Act, was rejected by the Supreme Court. It ruled that jurisdiction under §16 of the Act, refers to questions of validity of an arbitration agreement, constitution of the arbitral tribunal and whether the subject matter of dispute is covered under the arbitration clause. Essentially, only questions surrounding an arbitral tribunal's own jurisdiction were covered. It was accordingly 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 §16 of the Act.
The Supreme Court in its judgment has recognised that interim awards could potentially delay arbitration proceedings, as pending a challenge to an interim award, arbitration proceedings could be stayed by a Court. It has accordingly urged the legislature to consider amending §34 of the Act to consolidate all interim awards together with the final award so that a single challenge under §34 against all awards is permitted. This suggestion will help avoid piece meal challenge of awards and ensure that arbitrations are not delayed on account of a pending challenge to an interim award.
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 Civil Appeals No 824 of 2018
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