Examining The Ambiguities Surrounding Finality Of Interim Awards

An arbitral award as defined under Section 2(1)(c) of the Act, also includes an ‘interim award’. The Act empowers an arbitrator to pass an interim award under Section 31(6) of the Act, on any issue with respect to which it holds the power to ultimately pass a final award. An interim award can be passed by the arbitrator at any stage of the proceeding, provided that the award conclusively decides upon the specific issue(s) between the parties. Similar to the final award, an interim award can be challenged under Section 34 of the Act and enforced under Section 36 of the Act. However, despite the Act defining interim award as an award, the courts have quite often subjected an interim award to the final award and have been hesitant in giving finality to it. The Indian regime on the issue of interim awards is full of uncertainties, due to the limited and divergent judicial decisions. This article will deal with this uncertainty regarding interim award, strive to understand the reason behind the uncertainty and provide a plausible solution for the same.

Understanding the uncertain Judicial Trends

In no ambiguous terms, Section 2(1)(c) of the Act provides that an award includes an interim award. It connotes that an interim award is nothing but the final award in respect of some of the issues, only that it is passed at an earlier date considering the exigencies. The position is amply clear that to qualify as an award, interim or final, it must be complete, certain and not leave any dispute to be decided subsequently. Further, there is a presumption in the favour of an award being valid, final, and conclusively settling the issues it deals with. Hence, it is an implied duty of the tribunal to pass an award which deals with all the claims, counter-claims and substantively answer the question pertaining to the heart of the dispute.^[1]

However, the Indian courts have taken an ambiguous approach with respect to the finality attached with an interim award. The Supreme Court as well as the High Courts have failed to lay down a specific position on the binding impact of an interim award, which in turn gives rise to various uncertainties.

In Satwant Singh Sodhi v. State of Punjab, while dealing with the Arbitration Act, 1940, the Supreme Court stated that whether an interim award is intended to have effect only so long as the final award is not delivered, and will cease to have effect after the final award is made or on the other hand the interim award is intended to finally determine the rights of the parties and will have force of complete award, will depend upon the nature of the award. Further, while discussing the validity of partial/interim awards, the Supreme Court in McDermott International v. Burn Standard Co. construed Sections 2(c) and 31(6) of the Act to hold that an interim award ‘may be’ a final award on matters covered by it but is passed at an interim stage of the arbitral proceedings. Similarly, in a fairly recent ruling in IFFCO Ltd. v. M/s Bhadra Products, the Supreme Court endorsed the aforementioned reasoning in Satwant Singh Sodhi and McDermott, thereby missing another opportunity to clarify the ambiguity surrounding the finality of interim awards. The Supreme Court has not recognised that being an ‘award’, it is implied that an interim award would be final in nature, but has created ambiguity by stating that it might be subject to the final award based on its form.

Moreover, the approach taken by some High Courts while interpreting interim awards is even one step ahead in augmenting the uncertainty. The Bombay High Court in the case of Aero Club v. Solar Creations, while deciding upon the question of whether an interim award can be subjected to the bar of limitation as is provided under Section 34(3) of the Act, held that the finality of an interim award depends upon the intent and form of the award. More importantly, it held that an interim award has to ‘assume the status’ of an arbitral award as per Section 2(1)(c) of the Act in order to attract the bar of limitation as is provided under Section 34(3) of the Act. Accordingly, a three-fold test was laid down to determine whether an interim award can be considered an ‘arbitral award’. First, if it satisfies the form and content of an arbitral award as is given in Sections 31(1), 31(2) and 31(3) of the Act; second, if it satisfies the condition provided under Section 31(6) of the Act, i.e., it is in relation to a matter with respect to which a final award can be made; and third, whether the interim award can be considered an arbitral award, will depend on its extent, nature and intendment. Therefore, the court first applied the said three-fold test to conclude that the interim award in question qualified as an arbitral award and then proceeded upon the question of limitation.

The aforesaid decision not only questioned the finality of an interim award but also questioned whether an interim award is an arbitral award to begin with, despite the fact that Section 2(1)(c) of the Act clearly provides that an arbitral award includes an interim award. If the very question as to whether an interim award is an award will depend on facts of each case, every time a party makes an application for its enforcement, setting aside, etc, the court would first go on to determine whether the interim award is an award or not. Thereby hampering the very purpose behind introducing the concept of interim award. For example, considering the exigency the arbitral tribunal conclusively determines a certain issue however the party in whose favour the award is made would not be able to reap its benefits till the time all the other disputes are determined and finally resolved which may take years.

In our understanding the primary cause of the ambiguity arises from the fact that arbitral tribunals as well as the courts have not considered an interim award to be an award or have misunderstood interim award for an interim relief. In various matters the arbitral tribunals have passed an interim award even when the order was not conclusively determined, without realizing that an interim award should be final and cannot be altered at a later instance through final award. The courts have also defaulted in not clarifying that interim award passed by an arbitral tribunal ought to be final and if the situation is such that it does not warrant a conclusive award or if substantive issues cannot be conclusively decided, then the tribunal could consider giving the required relief by way of an interim measure.

Attaching finality to interim awards: Differentiating from interim relief

The tribunals and courts ought to acknowledge the fact that the Act has included interim award under the definition of an award for a specific reason. The adjudicating authority should recognise that if the situation is such that the issue can be conclusively decided, then only they should resort to an interim award. There can be no award which is not final or conclusive. If however, the situation does not demand a conclusive determination of liability, they can resort to other alternatives, like passing an interim relief. The tribunal should be cognizant of the difference between an interim relief under Section 17 and interim award under Section 31(6).

In this regard, a Jammu and Kashmir High Court Judgement provides much needed clarity by distinguishing between interim relief and interim award. The court stated that while an interim relief can be allowed considering the prima facie case and balance of convenience, however for making an award under Section 31(6) of the Act, there should be a clear opinion with respect to the admission of liability against one of the parties. Such opinion should be clear and unambiguous and cannot be relooked at a later stage. A disputed question cannot be settled by way of interim award, without conclusively settling the issue.

Our argument that an interim award cannot be altered at a later stage is strengthened by a recent ruling of the England High Court in EGF v. HVF, wherein it was categorically stated that the arbitral tribunal should refrain from giving interim relief by way of a partial/interim award. It said that an interim relief is temporary and to be settled at the time of final adjudication, however an award, interim or final settles the dispute between parties and cannot be revisited again and any adjudication of the claims settled by way of a partial award would be barred by res judicata. The court made it clear that the tribunal cannot pass a partial award, and then subject it to the final award, as it can very well resort to interim relief for providing any temporary relief. However, if an award is passed at any stage of the matter, it has to be final and conclusive.

The courts should not attach any particular meaning to the word ‘interim’ while construing an interim award, as it does in no stretch of imagination connote a temporary relief pending adjudication of the final dispute. The fate of an interim award is the same as a final award, it is just for the sake of convenience of parties the concept of interim award has been introduced in order to conclusively settle certain urgent disputes which would otherwise take several years. The relationship between the final award and interim award is simply that the latter comes earlier in time considering the exigencies, and in no way can the final award amend or alter the interim award which is enforceable under Section 36 of the Act. Hence, in order to allow the parties to reap timely benefit of interim award, there is a need to bring certainty to the issue of interim award; and now is the right time for it since an Expert Committee has been constituted to evaluate the working of the Act. It would require collaborative efforts of the judiciary and the legislature to bring about greater clarity in the India arbitration regime, thereby making India a preferred arbitration destination.

Views are personal.