Interlocutory Order Passed By The Arbitrator, Rejecting Application For Amendment Of Claims; Not Challengeable Under Article 227: Delhi High Court

The Single Bench of Justice C. Hari Shankar held that there is no statutory or other legal bar under the Arbitration and Conciliation Act, 1996 (A&C Act), including under the proviso to Section 34 (2A) of the A&C Act, against raising the interlocutory order passed by the Arbitrator rejecting the application for amendment of Statement of Claims, as a ground for challenging the final award. Thus, the Court ruled that the said interlocutory order was not challengeable under Article 227.

The Court observed that it was difficult to envisage a situation in which an order would be amenable to challenge under Article 227, but would not be challengeable under Section 34 of the A&C Act, in view of the bar contained in the proviso to Section 34(2A).

The petitioner/claimant - VRS Natarajan, filed its Statement of Claims before the Arbitral Tribunal, alleging that the respondent- OYO Hotels and Homes Pvt. Ltd., breached the Merchant Agreement executed between the parties.

During the course of the arbitral proceedings, the petitioner filed an application under Order VI Rule 17 of the Code of Civil Procedure, 1908 (CPC) before the Arbitral Tribunal, to amend his Statement of Claims. In its application, the petitioner averred that some annexures were erroneously not filed with the Statement of Claims and hence, in order to cure the inherent defects, it was necessary to amend the Statement of Claims filed by the petitioner.

The Arbitrator rejected the application filed by the petitioner, against which the petitioner filed a petition under Article 227 of the Constitution of India before the Delhi High Court.

Section 34(2A) of the A&C Act provides that an arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award. The proviso to Section 34 (2A) provides that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

The High Court noted that in view of the law laid down by the Supreme Court in SBP & Co. versus Patel Engineering Ltd. (2005), all interlocutory orders passed by the Arbitral Tribunal are not amenable to challenge under Articles 226 and 227 of the Constitution of India.

The High Court observed that in SBP & Co. (2005), the Apex Court had held that since the orders and awards passed by the Arbitral Tribunal were statutorily amenable to challenge under Section 34 and 37 (2) of the A&C Act, hence, any order or award passed by the Arbitral Tribunal which did not fall within the scope of Section 34 or Section 37(2) of the A&C Act, was not directly challengeable before the High Court.

Further, the High Court, referring to the decision of the Supreme Court in Bhaven Construction versus Executive Engineer, Sardar Sarovar Narmada Nigam Limited (2021), reiterated that Articles 226 and 227 of the Constitution of India would be available against the orders passed during the arbitral proceedings only in two contingencies, which are- firstly, where bad faith on the part of the Arbitral Tribunal is pleaded by a party; secondly, where the challenge, if not permitted under Articles 226 and 227, would render the litigant remediless.

Noting that the petitioner had challenged the order passed by the Arbitrator rejecting its application for amendment of Statement of Claims, the Court held that there is no statutory or other legal bar against raising the said order passed by the Arbitrator as a ground to challenge the final award, which may be consequently passed by the Arbitral Tribunal.

The petitioner VRS Natarajan contended before the High Court that in view of Section 34(2A) of the A&C Act, the said order passed by the Arbitrator was not available as a ground to challenge the final award passed by the Arbitral Tribunal and hence, the petition under Article 227 against the said order was maintainable before the High Court.

Refuting the contentions raised by the petitioner, the High Court held that Section 34(2A) of the A&C Act did not bar the grounds raised by the petitioner as grounds to challenge the final award.

The Court noted that the proviso to Section 34(2A) of the A&C Act bars setting aside an arbitral award on the ground of an erroneous appreciation of the law or by re-appreciation of evidence. Holding that the grounds of erroneous appreciation of law or re-appreciation of evidence are merely statutory interdicts, the Court ruled that the said statutory interdicts also apply to Article 227 of the Constitution of India. The High Court added that under Article 227 of the Constitution, the Court cannot interfere with an order passed by the lower court on the ground of erroneous appreciation of evidence or on the ground of erroneous application or appreciation of the law, except in cases where the error leads to perversity.

"The proviso to Section 34(2)(a) of the 1996 Act proscribes setting aside of an arbitral award on the ground of erroneous appreciation of the law or re-appreciation of evidence. These are merely statutory interdicts on the grounds on which an arbitral award could be set aside under Section 34 of the 1996 Act. These interdicts apply, equally, if not with greater force, to Article 227 of the Constitution of India. The Article 227 Court is not permitted, in law, to interfere on the ground that the order passed by the hierarchically lower judicial authority is bad on the ground of erroneous appreciation of evidence or that it erroneously appreciates or applies the law, save and except where the error extrapolates to perversity."

The Bench further held that it was difficult to envisage a situation in which an order would be amenable to challenge under Article 227, but would not be challengeable under Section 34 of the A&C Act, in view of the bar contained in the proviso to Section 34(2A) of the A&C Act.

Thus, the Court ruled that since the interlocutory order passed by the Arbitral Tribunal was challenged by the petitioner on the grounds which would be available to him against the final award, hence the challenge against the said interlocutory order under Article 227 was not maintainable.

Hence, the Court dismissed the petition.

Case Title: VRS Natarajan versus OYO Hotels and Homes Pvt. Ltd.

Citation: 2022 LiveLaw (Del) 852

Dated: 31.08.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Shashank Shekhar, Advocate

Counsel for the Respondent: Mr. Sanjoy Ghose, Sr. Advocate with Mr. Tarun Ballav Panda, Ms. Shalini S. Prasad, Mr. Satish Padhi, Ms. Meher Tandon, Mr. Gaurav Sharma, Ms. Dhriti Mehta, Ms. Urvi Mohan, Mr. Rishabh Jetley and Mr. Naman Jain, Advocates.

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