J&K and Ladakh HC | Interim Award v/s Interim Order; HC clarifies prerequisites of S. 31 (6) and S. 17 (1)(ii)(e) of the Arbitration and Conciliation Act, 1996

Jammu and Kashmir and Ladakh High Court

Jammu & Kashmir and Ladakh High Court: Sanjay Dhar, J., clarified the difference between Interim Award and Interim Order. The Bench stated,

“While passing an order under Section 17 (1)(ii)(e) of the Act of 1996, an arbitral Tribunal would be justified in considering the prima facie case, the balance of convenience and similar other factors at the time of passing such an order, while making an interim award under Section 31 (6) of the Act, the arbitral Tribunal has to be satisfied that there is an admission or acknowledgment of liability on the part of the party against which the award is proposed to be made.”

Background

The respondent-firm, being a supplier of defence equipments to the Indian Army and Para Military Forces, was given a contract for supply of 6250 pairs of Boot Anti Mine Infantry (hereinafter referred to as ‘BAMI’). As per clause Part IV i.e Special conditions of supply order of the Tender Agreement, the appellant had to make the payment to the respondent-firm instantly. It was alleged by the respondent-firm that no such payment had been made to it.

The respondent-firm claimed to have taken credit limit from the Axis Bank for the aforesaid supply and because of the delay in the payment, it had suffered a grave financial hardship and  was in urgent need of Rs.5,50,00,000/- against the outstanding payment of Rs.,16,80,00,000/- as interim relief so that the Bank would not declare it as NPA.

Allegations against the Respondent-firm

It was submitted by the government that delay in processing the bills had occurred due to non submission of correct documents by the respondent-firm. It was further submitted that certain complaints were received by the petitioner with regard to the shoes supplied by the respondent firm to the effect that several mine blast incidents had taken place, due to which the wearers of the shoes had lost limbs/suffered amputation. Accordingly, the petitioner had issued a defect report to the respondent-firm highlighting failure of the BAMI. Therefore, the government argued that any financial hardship suffered by the respondent-firm was due to its own misconduct as it had supplied substandard quality of BAMI which never met the General Staff Qualitative Requirements leading to amputations/loss of limbs in mine blast incidents and, therefore, the respondent-firm was not entitled to any interim relief.

Decision of the Arbitrator

Noticing that respondent-firm had supplied 6250 pairs of BAMI to the government and the BAMI successfully qualified the blast test and field trials of the Technical Evaluation done by the TEC constituted by the government and that the BAMI supplied by the respondent-firm were also inspected physically by the Inspection and Acceptance Board constituted by the petitioner, the Arbitrator had held that the respondent-firm was entitled to interim award amounting to Rs.5,50,00,000/- under the provisions of Section 31(6) of the Arbitration and Conciliation Act, 1996.

Observation and Analysis

Pursuing the impugned interim award, the Bench stated that though the Arbitrator had taken into consideration the factors, like prima facie case, the balance of convenience and irreparable loss, but the Tribunal had not given any finding as to whether there was any admission of claim on the part of the government. The Bench held that without there being a finding on this aspect of the matter, it was not open to the Arbitrator to pass an interim award in favour of the respondent-firm simply because it was reeling under the burden of loan and interest accruing thereon. Hence, the Bench held that the Arbitrator was not deciding an application under Section 17 (1)(ii)(e) of the Act, 1996, but it was deciding an application under section 31 (6) of the said Act and, it had landed itself into an error by applying the parameters necessary for passing an order under Section 17 (1)(ii)(e).

Interim Order vs Interim Award

Opining that an interim award cannot be equated to an interim order that can be passed by an arbitral Tribunal under Section 17 (1)(ii)(e) of the Act of 1996, the Bench stated,

“There is a clear distinction between the powers of an arbitral Tribunal to pass orders by way of an interim measures in terms of Section 17 (1)(ii)(e) of the Act of 1996 and an interim award in terms of Section 31 (6) of the said Act.”

While passing an order under Section 17 (1)(ii)(e) of the Act of 1996, an arbitral Tribunal would be justified in considering the prima facie case, the balance of convenience and similar other factors at the time of passing such an order, while making an interim award under Section 31 (6) of the Act, the arbitral Tribunal has to be satisfied that there is an admission or acknowledgment of liability on the part of the party against which the award is proposed to be made and such an admission should be clear, unambiguous and definite and should not require any evidence to prove at the stage of the trial.

Verdict

In the backdrop of above, it was held that the Arbitrator had, while passing the impugned interim award, committed a patent illegality appearing on the face of it and, thus, the same deserved to be quashed and set aside.

Accordingly, the impugned interim award passed by the Arbitrator was quashed and the application of respondent-firm for grant of interim award was remanded back to the Arbitrator with a direction to consider the same afresh on merits. [Union of India v. Gee Kay Engineering Industries, 2021 SCC OnLine J&K 678, decided on 16-09-2021]


Kamini Sharma, Editorial Assistant has reported this brief.


Appearance by:

For the Union of India: Vishal Sharma ASGI

For the Respondent-firm: M/S Guneet Choudhary & Ashwani Khajuria Advocates

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