LEGAL ISSUE: Whether a High Court can pass an order on a post-award application under Section 9 of the Arbitration and Conciliation Act, 1996 before the expiry of the limitation period for challenging the award under Section 34 of the same Act.
CASE TYPE: Arbitration Law
Case Name: NHPC Limited vs. M/S Patel Engineering Limited
Judgment Date: 30 November 2018
Date of the Judgment: 30 November 2018
Citation: 2018 INSC 1057
Judges: Dr. Dhananjaya Y. Chandrachud, J. and M.R. Shah, J.
Can a court order the release of funds based on an arbitral award before the time limit to challenge that award has even passed? This was the core question before the Supreme Court in this case. The Supreme Court addressed the issue of whether a High Court could direct the release of funds based on an arbitral award before the expiry of the limitation period for challenging the award. The Supreme Court bench comprised of Justice Dr. Dhananjaya Y. Chandrachud and Justice M.R. Shah.
Case Background
The case involves a dispute between NHPC Limited (the appellant) and M/S Patel Engineering Limited (the respondent). The dispute was resolved through arbitration, and an arbitral award was made on 22 April 2016. Following the award, applications under Section 33 of the Arbitration and Conciliation Act, 1996 were disposed of on 04 June 2016.
Subsequently, on 13 June 2016, M/S Patel Engineering Limited filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking the release of the amount covered by the arbitral award. The High Court, on 22 August 2016, allowed this application, directing NHPC Limited to release the awarded amount with interest, subject to M/S Patel Engineering Limited providing a bank guarantee for the same amount for one year.
NHPC Limited appealed this order, arguing that the High Court’s order was passed before the expiry of the limitation period for challenging the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, which they calculated would expire on 03 September 2016.
Timeline
| Date | Event |
|---|---|
| 22 April 2016 | Arbitral award made. |
| 04 June 2016 | Applications under Section 33 of the Arbitration and Conciliation Act, 1996 disposed of. |
| 13 June 2016 | M/S Patel Engineering Limited filed an application under Section 9 of the Arbitration and Conciliation Act, 1996. |
| 22 August 2016 | High Court allowed the Section 9 application. |
| 18 September 2016 | Notice issued by Supreme Court and stay granted on High Court order. |
| 29 November 2018 | Arbitral award set aside by Additional District Judge, Gurugram. |
| 30 November 2018 | Supreme Court sets aside the High Court order. |
Course of Proceedings
The High Court of Punjab and Haryana at Chandigarh allowed the post-award application under Section 9 of the Arbitration and Conciliation Act, 1996, directing the release of funds based on the arbitral award. NHPC Limited appealed this order to the Supreme Court, arguing that the High Court should not have entertained the Section 9 application before the expiry of the limitation period for challenging the award under Section 34 of the Act.
The Supreme Court noted that during the proceedings, the arbitral award had been set aside by the Additional District Judge-cum-Presiding Judge, Special Commercial Court, Gurugram. This development rendered the High Court’s order unsustainable.
Legal Framework
The case primarily revolves around the interpretation and application of the following sections of the Arbitration and Conciliation Act, 1996:
- Section 9: This section deals with interim measures that can be ordered by a court before, during, or after arbitral proceedings, but before the enforcement of the arbitral award under Section 36 of the same act. It allows a party to apply to the court for measures such as the preservation of goods, securing the amount in dispute, or granting an interim injunction.
- Section 33: This section allows a party to request the arbitral tribunal to correct any errors in the award, interpret a specific point or part of the award, or make an additional award for any claims presented in the arbitral proceedings but not addressed in the award.
- Section 34: This section provides the grounds on which an arbitral award can be challenged before a court. It also specifies the time limit within which such an application to set aside the award must be made.
Arguments
The appellant, NHPC Limited, argued that the High Court’s order under Section 9 of the Arbitration and Conciliation Act, 1996 was premature. They contended that the application was filed within the limitation period for challenging the arbitral award under Section 34 of the same Act, and that the High Court should not have entertained it.
The appellant submitted that the High Court’s order was beyond the scope of Section 9 of the Act, especially since the period for challenging the award was still open.
The respondent, M/S Patel Engineering Limited, had sought the release of funds based on the arbitral award, arguing that they were entitled to the amount awarded by the arbitral tribunal.
| Appellant (NHPC Limited) | Respondent (M/S Patel Engineering Limited) |
|---|---|
|
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in the judgment. However, the core issue before the court was:
- Whether the High Court was justified in passing an order under Section 9 of the Arbitration and Conciliation Act, 1996, directing the release of the awarded amount before the expiry of the limitation period for challenging the arbitral award under Section 34 of the same Act.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the High Court was justified in passing an order under Section 9 before the expiry of the limitation period for challenging the award under Section 34. | The Supreme Court set aside the High Court’s order. | The arbitral award, which was the basis of the High Court’s order, had been set aside by the Additional District Judge, Gurugram. |
Authorities
The Supreme Court did not specifically cite any cases or books in this judgment. However, the following legal provisions were considered:
- Section 9 of the Arbitration and Conciliation Act, 1996: This section deals with interim measures that can be ordered by a court.
- Section 33 of the Arbitration and Conciliation Act, 1996: This section allows for correction and interpretation of arbitral awards.
- Section 34 of the Arbitration and Conciliation Act, 1996: This section provides the grounds for challenging an arbitral award.
| Authority | How Considered |
|---|---|
| Section 9, Arbitration and Conciliation Act, 1996 | The Court examined its scope in relation to post-award applications. |
| Section 33, Arbitration and Conciliation Act, 1996 | The Court noted that applications under this section were disposed of. |
| Section 34, Arbitration and Conciliation Act, 1996 | The Court considered the limitation period for challenging the award. |
Judgment
The Supreme Court set aside the High Court’s order dated 22 August 2016.
| Submission by Parties | How Treated by the Court |
|---|---|
| Appellant’s submission that the High Court’s order under Section 9 was premature. | The Court did not express an opinion on this submission due to the subsequent setting aside of the arbitral award. |
| Respondent’s claim for release of funds based on the arbitral award. | The Court’s decision rendered this claim unsustainable as the arbitral award was set aside. |
The Supreme Court did not discuss any authorities in the judgment.
What weighed in the mind of the Court?
The primary factor that weighed in the mind of the Court was the fact that the arbitral award had been set aside by the Additional District Judge-cum-Presiding Judge, Special Commercial Court, Gurugram. This development made the High Court’s order unsustainable as the basis for the order no longer existed. The court did not express any opinion on the merits of the High Court’s order or the arguments made by the appellant regarding the scope of Section 9.
| Reason | Percentage |
|---|---|
| Setting aside of the arbitral award by the Additional District Judge, Gurugram | 100% |
| Category | Percentage |
|---|---|
| Fact | 100% |
| Law | 0% |
The Supreme Court did not delve into the legal arguments regarding the interpretation of Section 9, but focused solely on the fact that the foundation of the High Court’s order (the arbitral award) had been removed.
The court noted that the present judgment should not be construed as an expression of opinion on the correctness of the order passed by the High Court. The rights and contentions of the parties in regard to the challenge to the arbitral award were kept open to be urged in accordance with the law.
The Supreme Court stated, “Since the arbitral award has been set aside, the basis on which the impugned order was passed by the High Curt ceases to survive.”
The Supreme Court further clarified, “Before concluding, it would be necessary for this Court to observe that the present judgment should not be construed as an expression of opinion by the Court on the correctness of the order passed by the High Court, particularly, in view of the submission which has been urged in the present proceedings that even on the date on which the order was passed by the High Court, it had acted in excess of its jurisdiction.”
The Supreme Court concluded, “All the rights and contentions of the parties in regard to the challenge to the arbitral award are kept open to be urged in accordance with law.”
Key Takeaways
- The Supreme Court set aside the High Court’s order, primarily because the underlying arbitral award had been set aside by another court.
- The judgment underscores the importance of the validity of the arbitral award for any interim orders passed by the court.
- The Supreme Court did not express an opinion on the High Court’s jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996, when the limitation period for challenging the award under Section 34 is still running.
- The rights and contentions of the parties regarding the challenge to the arbitral award are kept open to be urged in accordance with the law.
Directions
The Supreme Court did not issue any specific directions other than setting aside the High Court’s order.
Specific Amendments Analysis
There was no discussion about any specific amendments in the judgment.
Development of Law
The ratio decidendi of this case is that an order passed under Section 9 of the Arbitration and Conciliation Act, 1996 based on an arbitral award ceases to have effect if the underlying arbitral award is set aside. The Supreme Court did not make any changes to the existing positions of law.
Conclusion
The Supreme Court set aside the High Court’s order, primarily because the underlying arbitral award had been set aside. The Court did not express any opinion on the merits of the High Court’s order or the arguments made by the appellant regarding the scope of Section 9 of the Arbitration and Conciliation Act, 1996. The rights and contentions of the parties in regard to the challenge to the arbitral award were kept open to be urged in accordance with the law.