India: The Award Passed On The Point Of Limitation Is An Interim Award

Last Updated: 19 February 2018
Article by Swati Sinha

In a recent judgment delivered on 23rd January 2018, in the matter of M/s Indian Farmers Fertilizer Co- Operative Limited vs. M/s Bhadra Products the Hon'ble supreme Court of India dealt with the ticklish issue of limitation and if an award passed on the basis of limitation would come under the purview of an "Interim Award" as defined under Section 2 (C) of the Arbitration and Conciliation Act 1996 "hereinafter referred to as the ACT ''and how an interim award passed can be challenged separately and independently under Section 34 of the Act.

The Interim Award is contemplated under Section 31(6) of the Act as:-

"The Arbitral Tribunal may, at any time during the Arbitral proceedings, make an interim award on any matter with respect to which it may make a final arbitral award"

THE FACTUAL MATRIX OF THE PRESENT CASE

The Appellant 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 6 th 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 favor 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.

PERTINENT ISSUES THAT EMERGED FOR CONSIDERATION IN THE PRESENT JUDGMENT

(a) Whether an award on the issue of limitation can first be said to be an interim award ;

(b) (b) Whether a decision on a point of limitation would go to jurisdiction and, therefore, be covered by Section 16 of the Act;

CONCLUSION

The Hon'ble Supreme Court of India held as under:-

" We are of the view that such an award, which does not relate to the arbitral tribunal's own jurisdiction under Section 16, does not have to follow the drill of Section 16(5) and (6) of the Act. Having said this, we are of the view that Parliament may consider amending Section 34 of the Act 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 arbitral award .Piecemeal challenges like piecemeal awards lead to unnecessary delay and additional expense."

It is therefore safely culled out form the judgment that while deciding the matter, the Hon'ble Supreme Court of India took a view that the issue of limitation is an independent matter that strikes at the very root of the ongoing arbitration between the parties that needs to be decided forthwith, hence it was held that the said award has colors of an interim award and the said award decided the issue of limitation with absolute finality and it therefore comes under the ambit of an "interim award" which can be challenged separately and independently under Section 34 of the Act . However a concern was raised on the additional expenses borne by the parties on the decision of issues in a piecemeal manner while passing of interim awards and the same needs to be consolidated under one umbrella of "Final Award".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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