“Clipping of arbitral wings is against the basic ethos of the 1996 Act. Allowing free flight to arbitration is the very raison d’etre of the reforms that the UNCITRAL arbitral model sought to introduce. The 1996 Act, founded as it is on the UNCITRAL model, is pervaded by the same philosophy.”

– Justice C Hari Shankar

In a recent judgment of Future Coupons Private Limited & Ors v. Amazon.com NV Investment Holdings LLC & Anr, the Delhi High Court has upheld the guiding principle in arbitration of limited scope of judicial interference while specifically clarifying the scope of interference by a court under Article 227 of the Constitution of India, 1950.

Petitions were filed before the Delhi High Court under Article 227 challenging orders passed by an arbitral tribunal in an international commercial arbitration seated in New Delhi, governed under the Rules of the Singapore International Arbitration Centre (SIAC).

The two orders passed by the arbitral tribunal impugned in the said petitions pertained to: (1) dismissal of an application filed under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996 seeking termination of the arbitral proceedings; and (2) an order permitting a party to place on record an addendum to its statement of claim.

Recognizing the principle of unbreakability of arbitral proceeding

The Delhi High Court clarified that there is a very limited scope of challenge to interim orders in arbitral proceedings. The scope of challenge is to be found in Section 37(2) of the Arbitration Act, which only permits challenges against orders passed at the interlocutory stage in the arbitral proceedings, either where a plea under Section 16(2) or (3) of the Arbitration Act (accepting it has no jurisdiction) is allowed, or where a prayer for grant of interim measure under Section 17(1) is allowed or refused. While doing so, the High Court made it clear that in the first scenario, the appeal would lie under Section 37(2)(a), and in the second scenario, the appeal would lie under Section 37(2)(b).

Immunity booster for interim orders passed by arbitral tribunals

The Delhi High Court has explained the difference between an interim award and an interim order. It has held that any interim award of an arbitral tribunal is amenable to challenge under Section 34 of the Arbitration Act, ideally with objections to an award on the grounds under Section 34, without waiting for the final award to be passed or otherwise. However, challenges to interlocutory orders must be restricted to Section 37(2)(a) and (b) of the Arbitration Act and are limited to the grounds available in a challenge against an interim order. After noting the only instances in which a party can challenge an interim determination from an arbitral tribunal, the High Court held that interlocutory orders passed in arbitral proceedings are otherwise immune from challenge under the Arbitration Act.

The High Court placed reliance on a landmark judgment rendered by a seven-judge Bench of the Supreme Court of India in the case of SBP & Co v. Patel Engineering Ltd, which discouraged the practice of correcting just any order of an arbitral tribunal under the garb of powers prescribed under Articles 226 and 227 of the Constitution of India, and crystalized the limited scope of judicial intervention in arbitral proceedings. Further, reliance was placed on Bhaven Constructions v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd, which carved out another exception under which a court can exercise its powers under Article 227 i.e., where the order is assailed on the ground of want of good faith being where a litigant aggrieved by an interlocutory arbitral order is “remediless” but for Article 227.

The further exception carved out in the case of Bhaven Constructions was deciphered by the High Court so as to mean that the mere fact that there is no statutory provision under which (at that stage), the aggrieved litigant could not challenge the interim award of the arbitral tribunal, is not sufficient to regard the litigant as “remediless” against the said order. It was further clarified that a conjoint reading of SBP and Bhaven Constructions elucidates that if the challenge to the impugned order can be made on the ground of challenge to the final award which may come to be passed, that suffices as a remedy for the aggrieved litigant.

In this context, Justice Hari Shankar relied on the earlier decisions rendered by him which consistently followed the decisions of SBP and Bhaven Constructions being Easy Trip Planners Ltd. v. One97 Communications Ltd, Siddhast Intellectual Property Innovations (P) Ltd. v. Controller General of Patents, Designs and Trademarks and VRS Natarajan v. OYO Hotels & Homes, which held that interlocutory orders passed in arbitral proceedings, that do not result in termination of arbitral proceedings or bring them to an end, cannot be challenged under Article 227 of the Constitution.

Mirage of being “remediless” dispelled

The High Court, while dealing with the facts and circumstances of the subject matter at hand, carved out the difference between the eventualities of an order passed under Section 32(2) i.e. (a) when the arbitral tribunal allows an application under Section 32(2) of the Act terminating the arbitral proceedings; and (b) when the arbitral tribunal rejects an application under Section 32(2) of the Act, resulting in continuance of arbitral proceedings. In the case of an order being passed by an arbitral tribunal terminating the proceedings, it was held that the party may be left “remediless”. However, in a case that an arbitral tribunal rejected an application under Section 32(2) of the Act and directed for continuance of proceedings, the right to challenge the final award would subsist.

Accordingly, the Court held that the orders passed by the arbitral tribunal squarely being interlocutory orders i.e. (a) rejecting the petitioners’ application under Section 32(2)(c) of the Arbitration Act; and (b) order permitting a party to augment the reliefs originally sought by it in the statement of claim, could not have been challenged under Article 227.

The Court, while dismissing the petitions, held that in case the arbitral proceedings deserved to be terminated in law, it would always be open to the petitioners to urge the same (if the occasion arose) in a challenge to an award under Section 34 of the Arbitration Act.

The judgment rendered by the Delhi High Court upholds the guiding principles of arbitration and while doing so, ensures that the arbitral procedure is not scuttled by abuse of process. Such a decision also endorses the sanctity of an arbitral tribunal in conducting proceedings in the manner prescribed under the Arbitration Act, and the prescribed procedure of challenge under the Arbitration Act to be strictly followed.