What Qualifies as an Interim Award? Guest Post

[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!]

REVISITING SATWANT SINGH SODHI v. STATE OF PUNJAB & ORS.: AN INHERENT CONTRADICTION IN THE UNDERSTADING ACCORDED TO AN “INTERIM AWARD”.

-          Sameer Sharma and Rajat Sharma[1] 

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.

 A.    The nature of and consequences ensuing from an “interim award”.

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.

 B.     The elements of “Finality” and “Conclusiveness” attached to an “Interim Award”.

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.

 C.    The Arbitral Tribunal becomes functus officio in relation to the “Interim Award”.

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. 

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[1] Fifth-year students at National Law University, Jodhpur, India.

[2] Satwant Singh Sodhi v. State of Punjab and Ors, MANU/SC/0212/1999.  

[3] Id., para 6.

[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

[5] Aero Club v. Solar Creations Pvt. Ltd., 2020 SCC OnLine Bom 472.

[6] McDermott International Inc. v. Burn Standard Co. Ltd. & Ors., (2006) 11 SCC 181.

[7] Id., para 68.

[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”.

[9] Satish Kumar & Ors. v. Surinder Kumar & Ors., (1969) 2 SCR 244.

[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”.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[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.

[18] Id.

[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.

[20] Id.

[21] Indian Farmers Fertilizer Cooperative Limited v. Bhadra Products, (2018) 2 SCC 534.

[22] ONGC Petro Additions Limited v. Tecnimont S.P.A. & Anr., O.M.P. (Comm) 196/2019, judgement on 01.07.2019.

[23] Id.

[24] Aero Club v. Solar Creations Pvt. Ltd., 2020 SCC OnLine Bom 472.

[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.

[26] Satwant Singh Sodhi, para 7.

[27] U.P. Power Corporation Ltd., Lucknow v. Universal Insulators of Ceramics Ltd., Rae Bareli, (2006) 3 All LJ 10 (DB).

[28] Thirumalai Chemicals Ltd. v. Union of India, (2011) 6 SCC 739.