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M/s. Landmark Housing Projects Pvt. Ltd., Rep. by its Managing Director, T. Udayakumar, T.Nagar v/s Savithri Naidu & Others

    O.S.A. No. SR. 90890 of 2020
    Decided On, 17 February 2021
    At, High Court of Judicature at Madras
    For the Appellant: C. Aryama Sundaram, S.C., C.K. Chandrasekar, Advocate. For the Respondents: Nithyesh Natraj, Advocate.

Judgment Text
(Prayer: Appeal filed under Clause XV of the Letters Patent read with Section 37 of the Arbitration and Conciliation Act, against the order dated 02.12.2020 made in O.P.No.546 of 2020.)

Sanjib Banerjee, Chief Justice.

1. A limited question is involved in this matter pertaining to the maintainability of the appeal.

2. By the order impugned, certain grounds taken to challenge a arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 have been disregarded and notice has been issued on limited grounds rather than the full gamut of the challenge to the award as designed by the appellant herein. The undisputed position is that the order impugned did not have the effect of rejecting the challenge to the award, either wholly or in part.

3. Section 37 of the Act provides for the orders under the Act from which appeals may be carried. Section 37(1)(c) reads thus:

"setting aside or refusing to set aside an arbitral award under Section 34".

4. Thus, it is the setting aside or refusing to set aside an arbitral award on which hinges the right to prefer an appeal from the relevant order.

5. An arbitral award may be made under different heads. It is possible that the grounds furnished in the award in support of certain heads find favour with the Arbitration Court while receiving a petition under Section 34 of the Act and, even at such initial stage, the Court does not permit other heads to be challenged in view of the completeness of the award in such regard or the absence of any ground to detract therefrom. It is akin to a situation where the Arbitration Court may stay the operation of a part of the award, conditionally or unconditionally, and not stay the operation of another part of the order. In such a scenario, where the arbitral award comprises several heads and the challenge to certain heads are not entertained or irreversibly repelled, there would be a refusal to set aside such heads in the award and, as such, a right of appeal will immediately accrue to the award-debtor. However, the matter is completely different when divers grounds are carried to challenge an award and some of such grounds are not entertained and the scope of the challenge is restricted to certain grounds. In such a scenario, there is no refusal to set aside the award, so as to say, in terms of Section 37 of the Act; but only a refusal to entertain certain grounds. The two scenarios are completely different. In one case, a part of the award attains finality upon the challenge thereto being rejected which immediately triggers off the right to appeal under Section 37 of the Act. In the second case, no decision is made as to the validity of the award, but only certain grounds urged to question the correctness of the award are negated. In the second case, it will be open to the award-debtor to resurrect the grounds negated at the initial stage in course of an appeal in the event the award-debtor is aggrieved by the final order passed in the proceedings under Section 34 of the award.

6. The test appears to be whether any part of the arbitral award becomes enforceable. If, as a result of the Court repelling a challenge to a part of the award even at the initial stage, such part of the award becomes enforceable, the award-debtor is entitled to prefer an appeal therefrom as the order of the Arbitration Court amounts to refusing to set aside such part of the award and immediately gives rise to a right of appeal in such regard.

7. The matter may be seen from another perspective. It is equally possible that immediately upon receipt of a challenge to an award, the Arbitral Court discovers a part of the award to be demurrable and sets it aside. Such act and the resultant order in such regard permits an appeal to be carried therefrom by the award-holder on the ground that such part of the award has been set aside. Indeed, in either case, when a part of the award is set aside or a part of the award is conclusively refused to be set aside, the right to prefer an appeal will accrue immediately and the clock of limitation would start to run in respect of such part of the award. As a consequence, the party aggrieved may not be permitted to await the final outcome of the proceedings under Section 34 of the Act to challenge the entirety of the order. It is quite akin to a situation where a decree for a particular amount may be passed at an early stage of the suit and the balance claim deferred for assessment at the trial; or even when a partial award is made. It is the conclusivity of the order that is the key.

8. Ideally, the grounds challenging an arbitral award should not be confined to certain aspects and other counts of challenge excluded at the initial stage, unless the grounds excluded are scandalous or ex facie impermissible and are directed to be struck out, just as completely unnecessary and scandalous pleadings may be in a civil suit. Such a course of action should ordinarily not be followed since the Court allows limited time at such initial stage and the object of the exercise is to discover whether an utterly frivolous challenge has been carried to stall the implementation of the award. It is quite possible that when a protracted hearing takes place at a later stage, some of the grounds earlier negated may appear to be reasonable, but would have already been excluded.

9. The appellant has relied on a Full Bench judgment of the Delhi High Court reported at 193 (2012) DLT 15 (National Highway Authority of India v. Oriental Structure Engineers Ltd) to justify the institution of the present appeal. In that case, the reference before the Full Bench was whether a limited notice could be issued on a petition under Section 34 of the Arbitration Act, in the sense that the challenge would be confined to certain grounds and other grounds canvassed stand disallowed. The Bench held, at paragraph 11 of the report, that there is no limitation in Section 34 of the Act which "disempowers" the Court while entertaining a petition under Section 34 of the Act to issue a notice limited to some of the grounds made out to challenge the award. However, as to whether an appeal could be preferred upon such limited notice being issued, the Court held as follows:

"14. This brings us to the third question, which is, whether there is any bar to more than one appeal being maintained by an aggrieved party. Here again we find that there is no bar. An expression "an appeal" would only mean that at a given point of time, when 'a' cause of action arises, the court would entertain an appeal, therefore, logically where the court refuses to issue notice qua certain grounds, an aggrieved party would be well within its right to prefer an appeal under the provisions of Section 37. The fact that an aggrieved party would have to, perhaps, prefer a second appeal in the event that the court may come to a conclusion, upon hearing an opposing party, that there is no merit even in respect of the grounds vis-a-vis which notice was issued, cannot come in the way of our holding that the court is not empowered to issue a limited notice. There is in the 1996 Act no such limitation. There is as a matter of fact complete autonomy given to the party to prefer an appeal as soon as the provision of Section 37 of the 1996 Act get triggered under sub-section (1)(b) of Section 37 of the Act. It is another matter that if a party prefers an appeal against a court order issuing limited notice and while the appeal is pending, the award get successfully set aside on the grounds on which limited notice was issued, would result in the appeal becoming infructuous. The appellate court could in such a situation either pass such an order or, call upon the opposing party to disclose whether it wishes to prefer an appeal against a decision of the original court, whereby the award gets set aside, albeit on limited grounds. There are thus several possibilities that may arise in a given case. The party filing a petition under Section 34 of the 1996 Act could as well wait till the entire proceedings come to an end and then make a decision as to whether it needs to file an appeal. Quite logically if the award is set aside, on one or more grounds, the petitioner would have no cause to carry the matter in appeal. Before the appellate court, however, it may have to, in a given situation, as articulated above, argue those grounds, which did not pass muster with the original court when notice in the first instance was issued by that court."

10. The opinion expressed that notice may be issued on limited grounds upon certain other grounds being rejected, is unexceptionable. Indeed, sometimes scandalous grounds are raised which ought to be directed to be struck out so that the real issues may be gone into. However, the second part of the decision in the reported judgment, insofar as it holds that an appeal may be carried under Section 37 of the Act against an order directing limited notice, in the sense that some of the grounds are disregarded and only limited grounds are identified to be considered at a later stage, does not appeal. A distinction has to be made between several heads of claim on which an award is passed and the grounds for challenging an award. Just as it is possible to pass a partial award which also attains finality upon it being pronounced, since such aspect of the matter is conclusively decided on, it is possible to reject challenges to parts of the award and continue with the challenges to the other parts of the award. When the challenge to certain parts of the award is rejected, such parts of the award become enforceable, unless appealed against and stayed. That is the scheme of the Act of 1996 and the effect of Section 36(1) thereof. However, when certain grounds are not accepted and completely rejected, but the award or parts thereof are permitted to be challenged on other grounds, there is no finality to such order since the challenge still remains, but the challenge is abridged in the sense that certain grounds are reserved for consideration and the other grounds are rejected.

11. Qualitatively, reliefs granted or heads of claim awarded or parts of award, on the one hand, and the grounds of challenge thereof, on the other, are completely distinct. The “cause of action” that the Full Bench refers to has, necessarily, to be a cause of action to institute the appeal. While there is no doubt that several appeals may arise out of a solitary petition filed to set aside an award under Section 34 of the Act, such causes of action would accrue to a party aggrieved if a part of the award were to be conclusively set aside or conclusively refused to be set aside, in the sense that such aspect of the matter is incapable of being revisited at a later stage at such level. That is the cause which would give rise to a right of appeal, as the challenge to such part of the award is extinguished by the order sought to be appealed against or the award to such extent stands set aside. As aforesaid, it is only the setting aside or the refusal to set aside the award or any part thereof that makes the order appellable.

12. When some of the grounds to challenge an award or a part thereof are disallowed from being urged at the later stage of the proceedings under Section 34 of the Act, it does not affect the award or any part thereof, whether finally or otherwise. All that an order discarding certain grounds challenging the arbitral award does is to restrict the scope of the challenge without altogether annulling the challenge. When a part of an award is conclusively refused to be set aside, the challenge to such part is irretrievably annulled at that level. Likewise, when a part of an award is set aside at the outset, such part cannot be restored at the later stage of the proceedings. It is the finality and the completion of the act of setting aside or endorsing a part of the award without further recourse to it at that level that gives the right to appeal therefrom under Section 37 of the Act. Even if ten grounds of challenge are initially urged and nine grounds are repelled at the receiving stage and only one allowed to be canvassed later, the challenge is not conclusively decided on. As a consequence, no appeal may be carried from such order restricting the grounds of challenge as long as the challenge is not completely negated.

13. There is another good reason for making the distinction. If the challenge on the one ground which is permitted to be retained succeeds, the award-debtor would still have succeeded and it will not be open to the award-debtor to prefer an appeal. However, if the only ground permitted to be taken to challenge the award is repelled, all the grounds that had been disallowed at the initial stage may be urged in course of the resultant appeal. Further, even if the solitary ground allowed to be retained to challenge an arbitral award succeeds, it will still be open to the award-debtor to urge the other grounds in course of the award-holder's appeal without the award-debtor being entitled to carry an independent appeal.

14. There is a similar situation that the Act of 1996 throws up elsewhere; though in such case the provision expressly suspends the right to an immediate challenge. Section 16 of the Act permits an objection as to the jurisdiction of the arbitral tribunal to be raised before such tribunal. However, upon the objection being repelled, the objector has to await the final outcome of the arbitral reference and, if the award goes against the objector, the grounds of objection may be urged in addition to challenging the award on merits in proceedings under Section 34 of the Act.

15. In the light of the above discussion, we respectfully disagree with the second part of the Full Bench judgment rendered by the Delhi High Court insofar as it recognises a right of appeal against an order rejecting some of the grounds of challenge to an arbitral award and confining the challenge to some limited grounds. Section 37 of the Act stands on its own. It does not permit any appeal from an order passed under Section 34 of the Act unless such order sets aside or refuses to set aside an award. Just as an award can be passed at various stages and partial awards are also deemed to be awards within the meaning of the definition of an award under the Act, parts of orders under Se

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ction 34 which confer finality pertaining to heads of claim or parts of award, whether set aside or refused to be set aside, are appellable, as the challenge has been conclusively decided to such extent. It is a completely different kettle of fish when it comes to grounds being limited, since the challenge remains alive but certain legs on which the challenge was fashioned may have been truncated without any conclusive pronouncement on the challenge. 16. The appeal is, therefore, found to be premature. In the event the would-be appellant herein is aggrieved by the final order passed upon the challenge being assessed, it will be open to the appellant to urge the grounds that have been disregarded by the order impugned. Equally, it will be open to the would-be appellant to urge such grounds in support of the order setting aside the award in the respondents' resultant appeal. 17. A minor matter is pointed out on behalf of the respondents that the appeal herein has been filed under Clause 15 of the Letters Patent. It is elementary that when an Act like the Act of 1996 is a complete Code unto itself, since it is both a consolidating and amending Act, the authority to prefer an appeal must be found in the Code itself and cannot be discovered elsewhere. Accordingly, in view of Section 37 of the Act of 1996, particularly the words in parenthesis used therein, no appeal would be maintainable in respect of arbitration matters under Clause 15 of the Letters Patent. OSA No.SR90890 of 2020 is dismissed on the ground of maintainability. There will be no order as to costs.