[In this interesting guest post, Mr. Sameer Sharma and Mr. Rajat Sharma criticise the decision of a Supreme Court rendered more than two decades back relating to Interim awards. Both Mr. Sameer Sharma and Mr. Rajat Sharma are final year students at NLU Jodhpur. Happy reading!]
A. The
nature of and consequences ensuing from an “interim award”.
B. The
elements of “Finality” and “Conclusiveness” attached to an “Interim Award”.
C. The
Arbitral Tribunal becomes functus officio in relation to the “Interim
Award”.
REVISITING SATWANT SINGH SODHI v.
STATE OF PUNJAB & ORS.: AN INHERENT CONTRADICTION IN THE UNDERSTADING ACCORDED
TO AN “INTERIM AWARD”.
In Satwant Singh Sodhi v. State of
Punjab and Ors. (“Satwant Singh Sodhi”),[2]
the Supreme Court (“SC”) addressed as to what would be the effect,
purport and validity of an interim arbitral award after a final arbitral award is
rendered in an arbitral proceeding. As a matter of context, it would be
sufficient to note that the arbitrator in the facts of the said case had
rendered an interim award dated 26.11.1992 relating to a particular issue (addressed
as Item No. 1 in the said proceeding) in favour of the Appellant (rank of
parties as before the SC). In relation to such issue, the arbitrator had
awarded a sum of Rs. 7.45 lacs with interest at 18% compounded yearly from 01.02.1981
to 15.03.1992. Subsequent to the rendering of this interim award, the
arbitrator rendered a second award dated 28.01.1994, by which Rs. 3.75 lacs
with an interest of 12% per annuum with effect from 01.02.1981 to 15.03.1992
was awarded. It is important to bear in mind that this second award was
regarding the subject-matter which was inclusive of the first award.
With this being the factual composition, the
issue before the SC was as to what would govern the field – whether it would be
the first of the two awards or would it be the second award. The SC’s observations
on this issue are required to be noted, which are as follows: -[3]
“6.
The question whether interim award is final to the extent it goes or has effect
till the final award is delivered will depend upon the form of the award. If
the interim award is intended to have effect only so long as the final award is
not delivered it will have the force of the interim award and it will cease to
have effect after the final award is made. If, on the other hand, the interim
award is intended to finally determine the rights of the parties it will have
the force of a complete award and will have affect even after the final award
is delivered. The terms of the award dated November 26, 1992 do not indicate
that the same is of interim nature.”
Therefore,
the SC ruled that the real effect and purport of an interim award would depend
on the contents and wording of the interim award itself. Whether an interim
award would be an independent award, being absolute and completely final in its
determination of the rights and liabilities of parties, would be a question to
be answered by perusing the award itself. As a corollary, it could also be the
case that an interim award would be operative and effective only until the
final award is rendered. Both the said eventualities would be the result of the
wording of the interim award in question. On the facts of the case, the SC
ruled that the interim award was absolute and final in nature regarding the
issue it dealt with, owing to which it continued to have effect despite the passage
of the final award.
A
look at the prevailing jurisprudence and case-law reveals that the dictum in Satwant
Singh Sodhi has become a qualitative main-stay in assessing as to what
decisions qualify as interim awards.[4].
This is notwithstanding the fact that the said judgement was rendered under the
Arbitration Act, 1940. The latest instance of validation of and deference to
the dictum in Satwant Singh Sodhi appears in the Bombay High Court
decision in Aero Club v. Solar Creations Pvt. Ltd.[5].
However, despite such continued judicial deference to and reliance upon Satwant
Singh Sodhi, the authors opine that the dictum contained in the said
decision is fundamentally contradictory to the notion of an interim award. Hence,
the purpose of this write-up is to demonstrate as to how a judgement rendered
in 1999, which has become the locus classicus on the temporal
effectiveness of an interim award, is intrinsically antithetical to the concept
of such award. This inherent contradiction stems from three reasons, which are
explained hereinbelow.
Section
2(1)(c) of the Arbitration and Conciliation Act, 1996 (“A&C Act”),
defines an “arbitral award” to “include an interim award”. Unlike the
Arbitration Act, 1940, the A&C Act in its definitional provision equates an
interim award to an arbitral award. Further, if reference is made to Section
31(6) of the A&C Act, it may be seen that an arbitral tribunal may make “an
interim award on any matter with respect to which it may make a final arbitral
award”. Thus, the nature of issues and matters upon which an
interim award may be made is the same as those on which a final award may be
made. Textually, the scope and purport of an interim award is sought to be
brought on par with that of a final award. In fact, this parity between an
interim award and a final award may be discerned by referring to the SC’s
decision in McDermott International Inc. v. Burn Standard Co. Ltd.
& Ors.[6] The
SC in the said decision states as follows: “An interim award in terms of
the said provision is not one in respect of which a final award can be made,
but it may be a final award on the matters covered thereby, but made at an
interim stage”.[7]
Therefore, it would not be incorrect to state that an interim award has the
same effects and consequences that a final award would have.[8]
In relation to such effects, the SC in Satish Kumar & Ors. v. Surinder
Kumar & Ors.[9]
relied on an unreported decision of the same Court in Uttam Singh Dugal
& Co. v. Union of India,[10]
to state that an award inherently possesses certain legal value and identity.[11]
The Court stated that all claims between parties which are the subject-matter
of a reference to arbitration, merge in the award which is rendered.[12]
The effect of this is such that rights and liabilities of parties in respect of
such claims can be determined only on the basis of such award.[13]
No action may be started on the original claims which were the subject-matter
of such arbitration.[14]
Such award may be relied upon in a subsequent litigation between the parties
relating to the same subject-matter.[15]
Thus, an arbitral award possesses certain preclusive effects. If an “arbitral
award” were to possess these effects, it stands to reason that an “interim
award” would also possess the said effects. However, the notion of an interim
award and the idea of transient finality attached to such award, as propounded
in Satwant Singh Sodhi, appear to denude the legal identity and
significance of such award. The preclusive and res judicata effects of
an interim award are rendered illusory and toothless, depending solely on the
whim of the arbitrator and the wording of the interim award. By stating that an
interim award may be superseded by a later (final) award, due importance and
recognition has not been accorded to the notion of an interim award. Such
proposition of law is emblematic of a “form-over-substance” approach. This
legal position relating to interim awards is such that it breeds uncertainty
and lacks predictability. An illustration may be provided in this regard –
suppose an interim award were to be rendered, the wording of which is such that
the said award would be effective till the rendering of the final award.
The party aggrieved of such award would be in two minds whether to have such
award set-aside or to wait till the final award to discover the fate of the
interim award. If the aggrieved party were to bite the bullet and prefer an
application to set-aside the interim award, the very efficacy and validity of
such setting-aside proceeding could come into question later on when the final
award were to materially alter the interim award. Additionally, because of the
aforesaid exposition in Satwant Singh Sodhi, there has been unnecessary
litigation regarding the scope and validity of an interim award when a final
award purporting to affect such interim award is rendered.[16]
This fosters uncertainty.
In
fact, by characterising an interim award in the way the SC has done in Satwant
Singh Sodhi, the parity between such award and a final award as sought to
be established under the A&C Act, is rendered futile.
While
the foregoing analysis pertains to the critique of Satwant Singh Sodhi in
relation to the A&C Act, the authors contend that the said dictum is
violative of the notion of an interim award even under the Arbitration Act,
1940. As has been noted earlier, the definitional provision in the Arbitration
Act, 1940 [Section 2(b)], merely defines an “award” to “mean an arbitral
award”. This is unlike Section 2(1)(c) of the A&C Act, which defines an
“arbitral award” to “include an interim award”. Furthermore, the
Arbitration Act, 1940, lacks a provision akin to Section 31(6) of the A&C
Act, which states that an arbitral tribunal may make “an interim award on
any matter with respect to which it may make a final arbitral award”.
Therefore, considering the absence of relevant provisions in the
Arbitration Act, 1940, to adequately recognise and equate an interim award with
a final award, it could be argued that the rationale in Satwant Singh Sodhi is
tenable and warranted. To put it differently, it could be argued that there was
enough legislative legroom for the SC in the said case to conceptualise the
effects of an interim award in the way that it did; that because there was a
lack of concrete legislative recognition of an interim award under the 1940 Act,
the SC could bestow the element of transient finality to an interim award.
However, that would be a legally incorrect assessment of the legislative
framework under the Arbitration Act, 1940. Even though the Arbitration Act,
1940, might be devoid of provisions such as Sections 31(6) and 2(1)(c) of the
A&C Act, Section 27 of the 1940 Act adequately makes up for such absence.[17]
Section 27 of the 1940 Act is entitled, “Power of arbitrators to make an
interim award”. Section 27(1) provides arbitrators with the
power to make an interim award. More crucially, however, Section 27(2) states
that, “All references in this Act to an award shall include references to
an interim award made under sub-section (1)”. Thus, there was
sufficient legislative recognition given to an interim award under the 1940
Act.[18]
The said Act, in fact, went a step further and established parity between an
interim award and a final award as well. Therefore, due to reasons as are
applicable under the A&C Act, the dictum in Satwant Singh Sodhi cannot
co-exist even under the 1940 Act.
It is now settled law that an interim award is a decision or
a determination which conclusively and finally settles an issue or a matter
with respect to which the parties were at dispute.[19]
While different judgements characterise an interim award differently,[20]
in essence, such award may be described to be as follows: -
(i)
It is a decision or a determination by an arbitral tribunal;
(ii)
rendered in accordance with the form and content
requirements under Section 31 of the A&C Act;
(iii)
which “conclusively” and “finally” decides or disposes of;
(iv)
any issue(s) or matter(s) at which parties to the
arbitration are at dispute, or which is/are the subject-matter of adjudication
between the parties (for example, claims and counterclaims).
Thus,
decisions dealing, inter alia, with claims and counterclaims raised by
parties forming the fulcrum of the subject-matter of an arbitration, with the
issue of whether a claim is time-barred,[21]
with questions of liability and damages, typically qualify as interim awards.
Decisions on questions relating to the jurisdiction of the arbitral tribunal do
not qualify as interim awards as they are covered under Section 16 of the Act.
Further, orders having a bearing on the procedure of an arbitration, or even
procedural orders purporting to determine certain valuable rights of parties,
albeit final, do not qualify as interim awards.[22]
For example, an order either accepting or rejecting a party’s request to place
on record additional documents does not amount to an interim award.[23]
From
the above delineated characteristics, it can be seen that the “finality” and
the “conclusiveness” of a decision form two important elements of an interim
award. Given the significance attached to these two components, it is difficult
to reconcile the same with the transient notion of an interim award, as
contained in Satwant Singh Sodhi. If a decision is such that it finally
and conclusively determines certain issues forming the subject-matter of an
arbitration, how is it that by mere playful wording of the arbitrators such
decision would lose its essence of finality and conclusiveness? The issue as to
whether a decision amounts to an interim award is, though by its nature fact-based,[24]
a binary enquiry – either it is, or it is not an interim award. It would be of
grave contradiction and bewilderment to state that a decision is an interim
award, but would be final, conclusive and possess preclusive effects only until
a final award is passed. If such were to be the case, then such decision should
never qualify to be an “award” in the first place – its ephemeral nature is
such that it must rather qualify to be an order.
However,
despite such inherent contradictions, the dictum in Satwant Singh Sodhi continues
to form part of the jurisprudence relating to the qualitative constituents of
an interim award. The authors opine that such contradiction is in no way
reconcilable with the ethos and nature of what truly constitutes an interim
award. Therefore, in their respectful submission, the authors opine that the
decision of the SC in Satwant Singh Sodhi requires a thorough relook and
a serious reconsideration.
As
stated in the previous part of this write-up, a decision to qualify as an
interim award must necessarily comprise certain requisite characteristics. One
such characteristic feature which is closely related to the “finality” and
“conclusiveness” of interim awards is the fact that upon the rendering of such
award, the arbitral tribunal becomes functus officio in relation to such
award.[25]
In fact, the SC in Satwant Singh Sodhi also states that, “once an
award has been given by the arbitrator he becomes functus officio”.[26]
The effect of the application of this doctrine is such that once an “award”
has been rendered, the arbitrator cannot revisit and reconsider his/her
findings and determinations under such award.[27]
The utility of this doctrine can be seen in the fact that it ensures that the
determination of rights and liabilities between parties is given finality and
is respected. If such determinations were to remain inherently temporary, then
parties’ interests would be jeopardised owing to uncertainty and lack of
clarity. Furthermore, the aforesaid doctrine ensures that rules and laws
relating to limitation are applied and followed in a certain and systematic
manner.
However,
despite the recognition of the doctrine of functus officio within the
conception of an interim award, the dictum enunciated in Satwant Singh Sodhi
still persists. It is perplexing to comprehend as to how the doctrine of functus
officio can co-exist with the transient nature of an interim award as laid
down in Satwant Singh Sodhi. The ramifications ensuing from the said
doctrine are by no means trivial. They are substantive in nature as they
pertain to rights and liabilities of parties,[28]
and they fundamentally affect the remit of an arbitrator’s functions and
responsibilities. That being the case, the dictum in Satwant Singh Sodhi is
such that it renders the effects flowing out of an interim award completely
malleable. Therefore, the authors are of the view that once an arbitrator
renders an interim award, he/she must be precluded from revisiting the
determinations and decisions which are the subject-matter of such award. Unless
this were to be the understanding accorded to an interim award, the very
existence of the notion of such award under the A&C Act would be defeated.
In
light of the foregoing, the authors argue that the law laid down in Satwant
Singh Sodhi is fundamentally antithetical to the concept of an “interim
award”, both under the 1940 and 1996 arbitration legislations. Owing to this,
the said judgement must be either judicially or legislatively overruled.
[4] Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products,
(2018) 2 SCC 534; Aero
Club v. Solar Creations Pvt. Ltd., 2020 SCC OnLine Bom 472; NTPC v. Siemens Atiengesellschaft, MANU/DE/0765/2005;
RK Industries v. Maximus International General Trading LLC, Dubai,
MANU/RH/1064/2018; Surjit Singh & Ors. v. Tarlok Singh & Ors.,
MANU/PH/0674/2013; Damani Construction Company v. State
of Arunachal Pradesh and Ors., MANU/GH/0670/2005; he Union of India v. Best
Cast Construction Pvt. Ltd., MANU/KA/2940/2014; Harinarayan G. Bajaj v.
Sharedeal Financial Consultants Pvt. Ltd. & Ors., MANU/MH/0864/2002; Gammon
India Ltd. v. Sankaranarayana Construction (Bangalore) Pvt. Ltd.,
MANU/TN/3737/2009
[8] The
Delhi High Court in NTPC v. Siemens Atiengesellschaft [MANU/DE/0765/2005],
stated that, “there is no comprehensive definition of ‘award’ in the Act,
except that contained in Section 2 despite consequences of great importance
resulting from an arbitral award”.
[10] Uttam
Singh Dugal & Co. v. Union of India, Civil Appeal
No. 162 of 1962, judgement delivered on 11.10.1962.
[11] Satish
Kumar & Ors. v. Surinder Kumar & Ors., (1969) 2
SCR 244, para 9. The
Court stated that – “…an award has some legal force and is not a mere wastepaper”.
[16] See for instance Damani Construction Company v. State of
Arunachal Pradesh and Ors., MANU/GH/0670/2005; The Union of India v. Best Cast
Construction Pvt. Ltd., MANU/KA/2940/2014, para 19 – “Though point No. 1 has
been answered in the affirmative i.e. in favour of revision petitioner, point
No. 2 becoming academic, same is also answered since it is found that said
issue is coming up before trial courts quite often”.
[17] Gammon India Ltd. v. Sankaranarayana Construction (Bangalore) Pvt.
Ltd., MANU/TN/3737/2009, para 15.
[19] Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products,
(2018) 2 SCC 534; ONGC Petro Additions Limited v. Tecnimont S.P.A. & Anr.,
O.M.P. (Comm) 196/2019, judgement on 01.07.2019; McDermott International Inc. v.
Burn Standard Co. Ltd. & Ors., (2006) 11 SCC 181; Aero Club v. Solar
Creations Pvt. Ltd.,
2020 SCC OnLine Bom 472; NTPC v. Siemens Atiengesellschaft, MANU/DE/0765/2005;
J.P. Glass Industries v. Pramode Kumar Nathani, MANU/WB/0856/2014; Karam Chand
Thapar and Bros (CS) Ltd. v. National Hydroelectric Power Corp. and Ors.,
MANU/DE/2685/2009; The Union of India v. Best Cast
Construction Pvt. Ltd., MANU/KA/2940/2014; Tamil Nadu Water Supply and Drainage
Board v. Aban Constructions & Ors., MANU/TN/0914/2001; Liberty Shoes
Limited v. Harish Kumar Gupta & Ors., MANU/PH/1043/2006; Harinarayan G.
Bajaj v. Sharedeal Financial Consultants Pvt. Ltd. & Ors.,
MANU/MH/0864/2002.
[22] ONGC Petro Additions Limited v. Tecnimont S.P.A. & Anr., O.M.P.
(Comm) 196/2019, judgement on 01.07.2019.
[25] NTPC
v. Siemens Atiengesellschaft, MANU/DE/0765/2005; Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd.
& Ors., MANU/MH/0864/2002; Aero Club v. Solar Creations Pvt. Ltd., 2020 SCC OnLine Bom 472.
[27] U.P. Power Corporation Ltd., Lucknow v. Universal Insulators of
Ceramics Ltd., Rae Bareli, (2006) 3 All LJ 10 (DB).
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