INTRODUCTION:
An interim award, frequently referred to interchangeably as a partial award, constitutes a legally binding instrument issued by an arbitral tribunal during the course of ongoing arbitration proceedings. Its defining characteristic lies in its capacity to definitively resolve specific issues or claims, even as other disputes between the parties may remain pending for future adjudication.
Section 31(6) of the Arbitration and Conciliation Act, 1996 (referred to as "the Act" hereafter) confers broad and discretionary power upon the arbitral tribunal to issue an interim arbitral award on "any matter" for which it could render a final arbitral award. The term "matter" has been interpreted expansively by the judiciary to encompass any point of dispute between parties that necessitates resolution by the tribunal. This wide scope allows tribunals considerable flexibility in addressing and resolving discrete aspects of a larger dispute. The present Article shall delve into the 'final' nature of these interim awards and scope of interference in an 'interim award' when the 'final award' is passed.
CONCLUSIVE NATURE OF INTERIM AWARDS:
An interim award is characterized as a "final award on the matters covered thereby, but made at an interim stage".1 This means that for the specific issues adjudicated and resolved, the interim award carries the full legal weight and finality of a complete arbitral award, making it binding on the parties.
Despite the "interim" designation, these awards are legally binding and definitive on the specific issues they address, functioning as final determinations for those particular matters. Consequently, the arbitral tribunal becomes functus officio, meaning its authority ceases, over the issues conclusively resolved, although it retains jurisdiction over any remaining, unresolved disputes. Interim awards are distinct from preliminary decrees and mere procedural orders, possessing the full characteristics of an arbitral award, including immediate challengeability under Section 34 of the Act, and inherent executability.
An interim award can be passed in the following cases:
(a) to an issue affecting the whole claim, or
(b) to a part only of the claims or cross-claims submitted to it for decision.2
The arbitral tribunal may issue an interim award under Section 31(6) of the Act only when the party's alleged admission or acknowledgement of liability before the tribunal is unambiguous, clear, and definitive and does not require any supporting evidence at the trial stage. The arbitral tribunal cannot use its discretion under Order XII Rule 6 of the Code of Civil Procedure, 1908, to make any interim award if the opposite party raises significant, contentious issues regarding the claim made by the claimant that call for comprehensive evidence at the trial stage.3
Differentiation from interim 'relief':
Powers of the Arbitral Tribunal underSection 17 (1)(ii)(e) of the Act and Section 31 (6) of the Act are clearly separate from one another, while the former authorizes the Arbitrator to issue interim orders; the latter grants the authority to issue an interim Award. When making an interim award, the arbitral tribunal must be convinced that, in its opinion, there is an admission or acknowledgment of liability on the part of the party. Similarly, when making an order under Section 17 (1)(ii)(e) of the Act, the arbitral tribunal must consider the following factors, namely the balance of convenience, prima facie case and other factors relevant at the time of passing the interim order.
At the stage of passing an 'interim award' however, such an admission should be explicit, clear, and definitive and should not need to be supported by any evidence. According to Section 31(6) of the Act, the arbitral tribunal cannot decide on contentious issues brought up by any party during the arbitral procedures when issuing an interim award.4 Therefore, the criteria needed to issue an order under Section 17 (1)(ii)(e) of the Act of 1996 are very different from those needed to issue an interim award under Section 31 (6) of the Act.
PRECEDENTIAL POSITION ON FINALITY OF AN INTERIM AWARD
The Supreme Court has consistently affirmed that if an interim award is intended to finally determine the rights of the parties on a specific claim or issue, it will indeed possess the force of a complete award and will remain effective and binding even after the final award for other matters is delivered. This functional finality, irrespective of the "interim" tag, is a cornerstone of the legal position.
In McDermott International Inc. v. Burn Standard Co. Ltd.5 (referred to as "McDermott" hereafter) the Hon'ble Supreme Court clarified that while the Arbitration Act uses the terms "interim award" or "final award" and does not explicitly use "partial award," the latter term is often used interchangeably in practice. The Court unequivocally held that the use of "partial award" does not alter the fundamental character of the award, and that such an award "is final in all respects with regard to disputes referred to the arbitrator which are subject-matters of such award".
In another landmark judgement, IFFCO Ltd. v. Bhadra Products6, reinforcing the principles established in McDermott, this Supreme Court case reiterated the wide scope granted to arbitral tribunals under Section 31(6) of the Act. It confirmed that an interim award, such as one disposing of an issue of limitation finally, is indeed an "interim award" within the meaning of Section 2(1)(c) of the Act and is, therefore, subject to challenge under Section 34.
The critical test for determining an interim award's conclusive character is whether it definitively resolves a dispute or a part of it, rather than merely its label or the stage at which it is issued. McDermott explicitly states that using "partial award" instead of "interim award" "does not change the nature and character of an award". This position is further supported by Satwant Singh Sodhi v. State of Punjab7, which states that the finality of an interim award "will depend upon the form of the award" – specifically, if it is "intended to finally determine the rights of the parties it will have the force of a complete award". This consistent judicial emphasis on the substance and effect of the award over its mere designation signifies a deliberate legal approach.
SCOPE OF INTERFERENCE IN AN INTERIM AWARD:
When any issue is governed and decided by an Interim award, and the final Award or a subsequent award coincides with the issues governed in the former, a peculiar position may arise with respect to the prevalence of such Interim Award. In Satwant Singh Sodhi v. State of Punjab8, the issue of what occurs when an interim award is made and a subsequent final award is made on a matter covered by the interim award was taken into account. To briefly state the facts of this case, herein the arbitrator granted an interim award in that matter, allocating Rs. 7.45 lakhs to item No. 1 of the claim. A final award was subsequently made, awarding Rs. 3.75 lakhs for all claims, including the one under item No. 1. Although the Trial Court held that the Tribunal had made both awards in accordance with court rules, it decided that, with regard to item No. 1, the final award was combined into the first award. This position was later reversed by the Hon'ble High Court, and affirmed by the hon'ble Supreme Court thereafter noting the following observation-
"The question whether an interim award is final to the extent it goes or has effect till the final award is delivered will depend upon the form of the award. If the interim award is intended to have effect only so long as the final award is not delivered it will have the force of the interim award and it will cease to have effect
after the final award is made. If, on the other hand, the interim award is intended to finally determine the rights of the parties it will have the force of a complete award and will have effect even after the final award is delivered."
In Numero Uno International Ltd. v. Prasar Bharti 9(referred to as "Numero Uno" hereafter)the hon'ble Delhi High Court answered the question as to whether an interim award can be interfered with in case any counter claim stands pending, it was held that since, making of a counter claim is akin to institution of an independent claim. Given the legal form and character of a counterclaim, the arbitrator retains the authority to make an interim award in the original suit or claim, provided that the award is otherwise warranted. Importantly, the content upon which an interim award is based may be used to determine its legality rather than the areas of disagreement that may still require a party-to-party adjudication. However, it would not be acceptable to interfere with an interim award just because the defendant has counterclaimed or because there are still unresolved issues in areas of dispute unrelated to the one covered by the interim award.
It was further noted that, the arbitrator can later make such an adjustment and direct payment of the amount to one or the other party, as the case may be, if the defendant were to succeed in his claim at the end of the arbitral proceedings, either fully or partially, and if any amount is ultimately held payable to one or the other party after the amounts found payable to the plaintiff have been adjusted. 10
In case of an interim award, the form of the award determines whether such interim award is final or if it is final only until the final award is passed. An interim award will have the same legal force as a full award and remain in effect long after the final award is rendered if it is meant to ultimately establish the parties' rights.11
Moreso, post issuance of an interim award, pertaining solely to the subject matter of the award, the arbitrator's authority to determine the claim eases to exist. After passing the interim award, the arbitrator becomes functus officio with respect to the portion of the claim or counterclaim that has already been decided by an interim award.12
However, as per the view held by Delhi High Court in Numero Uno13 and re-iterated in GTL Infrastucture Ltd. v. GTL Ltd.,14 the making of the interim award in no way prevents the arbitrator from making adjustments of the amount in the final award and doing complete justice between the parties.
CONCLUSION:
An interim award thus furthers the interest of parties in cases of an admitted liability. The making of the interim award ensures payment of an amount which is an admitted position payable to it. It has rightly been observed in Numero Uno that- "There is no reason why the payment of what is admittedly due should await the determination of other disputes which may take years before they are finally resolved."15 In the view of the Authors, this position held by the Hon'ble Delhi High Court is a sound interpretation of law pertaining to the issue of interference in an interim award and thus, a similar observation is due from the Hon'ble Supreme Court in case an issue regarding interference in an Interim Award arises.
Footnotes
1. IFFCO Ltd. v. Bhadra Products, (2018) 2 SCC 534.
2. Gammon India Ltd. v. Sankaranarayana Construction (Bangalore) Pvt. Ltd., 2009 SCC OnLine Mad 2261.
3. Sphere International vs. Ecopack India Paper Cup Pvt. Ltd., 2020 (1) R.A.J. 90.
4. Union of India Vs. M/s Gee Kay Engineering Industries 2021 SCC OnLine J&K 678.
5. (2006) 11 SCC 181.
6. Supra at 1.
7. 1999 (3) SCC 487.
8. Ibid.
9. 2008 SCC OnLine Del 175.
10. Ibid at Para 8.
11. Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd. 2002 SCC OnLine Bom 1186.
12. Aero Club v. Solar Creations Pvt. Ltd., 2020 SCC OnLine Bom 472.
13. Ibid at 9.
14. 2020 SCC OnLine Del 2156.
15. Ibid at 9.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
