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2014 DIGILAW 407 (CAL)

J. P. Glass Industries v. Pramode Kumar Nathani

2014-04-30

SANJIB BANERJEE

body2014
JUDGMENT : Sanjib Banerjee, J. The respondents have not been called upon. 2. The petitioners, somewhat bemused by an arbitration agreement being sprung on them and their contention as to the existence of the arbitration agreement being curtly rejected without oral evidence by the arbitrator, appear to be driven to desperation to suggest that a matter finally decided in course of the arbitration that cannot be revisited by the arbitrator would amount to an interim award and, as such, capable of being immediately challenged under Section 34 of the Arbitration and Conciliation Act, 1996. 3. Only the essential facts are necessary to be noticed. The petitioners claim that it was only upon receiving a letter issued by the so-called appointing authority that the petitioners discovered that the respondents had sought to assert that the petitioners had entered into an arbitration agreement with the respondents for the purpose of adjudication of the disputes between the parties in connection with their commercial transactions. Upon the petitioners attending the initial sittings before the arbitrator, the petitioners were favoured with copies of two letters, which, the respondents claimed, had been exchanged between the parties, as proof of the existence of the arbitration agreement. In the first of the letters, the respondents appear to have noted various terms and conditions including an arbitration clause. In the reply thereto, the petitioners appear to have agreed to the terms and conditions. 4. By way of an application under Section 16(2) of the 1996 Act, the petitioners questioned the jurisdiction of the arbitrator on the ground that there was no arbitration agreement between the parties. The relevant application categorically stated in its seventh paragraph that the letter attributed to the petitioners, as having been issued in response to the respondents assertion of certain terms and conditions, had neither been issued by the petitioners nor did it bear the signature of any representative of the petitioners. Such objection of the petitioners was taken up by the arbitrator and rejected rather summarily. It is not necessary to go into the grounds cited for the rejection. 5. The petitioners refer to Section 2(1)(c) of the 1996 Act which defines an arbitral award to include an interim award. Such objection of the petitioners was taken up by the arbitrator and rejected rather summarily. It is not necessary to go into the grounds cited for the rejection. 5. The petitioners refer to Section 2(1)(c) of the 1996 Act which defines an arbitral award to include an interim award. The petitioners say that since Section 34 permits any arbitral award to be challenged and an interim award is to be regarded as an arbitral award by dint of the definition in the statute, the decision rendered by the arbitrator on the petitioners objection under Section 16(2) of the Act is capable of immediate challenge. 6. In support of such contention, the petitioners refer to a judgment reported at (2006) 11 SCC 181 for the recognition therein at paragraph 51 thereof that the rejection of an objection under Section 16 of the 1996 Act is capable of being challenged under Section 34 thereof. The legal proposition is unexceptionable, the only point is the timing of the challenge. It would appear, particularly, in view of Section 16(5) of the 1996 Act, that an immediate challenge to an order rejecting an objection under Section 16(2) of the Act is impermissible and the intending challenger has to await the outcome of the arbitral proceedings or, at the very least, await an interim award in the real sense to be made before a challenge can be lodged. 7. A judgment reported in (1999) 3 SCC 487 has been placed for the law as enunciated at paragraph 6 thereof. The judgment was rendered under the 1940 Act and the main issue was whether the particular order challenged before Court could be deemed to be an interim award under the relevant statute. A third judgment has been brought, reported at AIR 2003 Bom. 2006, where, again, the question arose as to whether an order passed by the arbitral tribunal was an order on procedure or was a substantive order that could be regarded as an interim award and a challenge in such regard entertained under Section 34 of the Act. 8. It must first be recognised that the 1996 Act is a departure from the 1940 Act and an interpretation, generally, of the 1996 Act on the basis of the 1940 Act may not be reliable. 8. It must first be recognised that the 1996 Act is a departure from the 1940 Act and an interpretation, generally, of the 1996 Act on the basis of the 1940 Act may not be reliable. There were several provisions in the 1940 Act that provided for a stricter supervision or extent of superintendence by the Court over arbitral proceedings, which have been omitted by the successor statute. Indeed, there was nothing akin to Section 5 of the 1996 Act in the 1940 statute; and, on the contrary, there is no equivalent of Section 35 of the 1940 Act in the 1996 statute. The challenge to an arbitral award under the 1996 Act is on more limited counts than what could be accommodated under the omnibus ground of the arbitrator misconducting himself or the proceedings under the 1940 Act. 9. Section 5 of the 1996 Act mandates that judicial intervention in matters pertaining to arbitration would be so much as is warranted by the statute. The general authority of the Court as was previously understood in arbitration law was that the Court had such authority as the Court had not been denuded of by the statute. Such power has been abridged by the 1996 Act and the Court now has only so much authority as is conferred on it by the statute. In the very philosophy of the 1996 Act being substantially different from the 1940 Act, it must first be assessed whether an order of the tribunal of the kind that has been sought to be assailed herein is capable of being entertained for such purpose. 10. Unlike the 1940 Act where the arbitrator did not have authority to adjudicate upon his jurisdiction and where a suit questioning the authority of the arbitrator amounted to a veritable stay of the reference till the conclusion of the suit, there are several provisions in the 1996 Act which indicate otherwise. For instance, notwithstanding the pendency of a suit covering the subject-matter of an arbitration agreement, Section 8 of the 1996 Act contemplates an arbitral reference on the same matter being initiated and concluded despite the pendency of the suit. Sections 13 and 16 of the 1996 Act permit an arbitrator to adjudicate upon an issue of impartiality or bias or even the lack of inherent jurisdiction. Under the 1940 Act, it was only the Court which could decide such matters. 11. Sections 13 and 16 of the 1996 Act permit an arbitrator to adjudicate upon an issue of impartiality or bias or even the lack of inherent jurisdiction. Under the 1940 Act, it was only the Court which could decide such matters. 11. In a reference initiated without the intervention of the Court, an objection as to the jurisdiction of the arbitrator has to be taken at the earliest in accordance with Section 16(2) of the Act. Similarly, upon it appearing to a party to an arbitral reference that the arbitrator was exceeding the scope of his authority under the arbitration agreement, it is possible to carry an objection under Section 16(3) of the Act. In either case, the arbitrator is required to pronounce on the objection. However, Section 16(5) of the Act permits the reference to be proceeded with on merits notwithstanding the objection on either count being rejected and Section 16(6) permits the objector to renew the challenge on the ground which had been overruled by the arbitrator in course of the challenge to the arbitral award. The word "such" in sub-section (6) leaves no room for any other interpretation. 12. The order sought to be assailed in the present case does not appear to be an interim award. An interim award is the final pronouncement on any aspect of the claim or counter-claim that cannot be revisited by the arbitrator and conclusively deals with the rights of the parties in such regard. It is possible that to adjudicate the claims or to ascertain whether a party is entitled to a particular relief, several matters have to be adjudicated upon and issues may arise that may only have an indirect nexus with the reliefs claimed. It does not follow, however, that every issue finally decided would give rise to an interim award that is capable of being immediately challenged under Section 34 of the Act. Like a building, the award could have building blocks for it to be finally founded thereon, but each building block or a decision thereon may not amount to a pronouncement of an interim award that is capable of immediate challenge. 13. The overwhelming objective of the 1996 Act appears to be that the process of arbitration should be expedited and the Court should be non-interfering in such regard. 13. The overwhelming objective of the 1996 Act appears to be that the process of arbitration should be expedited and the Court should be non-interfering in such regard. Given the general ethos of such statute, Section 16(5) of the Act has to be given its due meaning and merely because an issue is decided, it would not imply that such decision can be treated as an interim award and, by the legal fiction of Section 2(1)(c) thereof, immediately challenged under Section 34 of the Act. 14. The order of the arbitral tribunal sought to be challenged herein does not amount to an interim award. The order has merely decided on the objection that was raised by the petitioners. Since sub-sections (5) and (6) of Section 16 of the Act contemplate the challenge to a failed objection being carried only upon an award being passed, it follows that a decision on the objection cannot be regarded as an award or an interim award. Accordingly, the petition is found to be incompetent and is not entertained. 15. AP No. 656 of 2014 is dismissed without going into the merits of the order sought to be impugned. 16. Since the business of the Court is otherwise light today because of the voting in the general elections in the nearby districts, no order is made as to costs. 17. Certified website copies of this order, if applied for, be urgently supplied to the parties subject to compliance with all requisite formalities.