Interlocutory order rendered by the arbitrator, dismissing the claim amendment request; Not contestable under Section 227: Delhi High Court

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The Delhi High Court reiterated that all interlocutory orders made by the arbitral tribunal are not subject to challenge under Sections 226 and 227 of the Constitution of India.

Single Bench of Justice C. Hari Shankar held that there was no legal or other prohibition under the Arbitration and Conciliation Act 1996 (A&C Act), including under the proviso of Section 34(2A) of the A&C Act, against increasing the interlocutory order issued by the arbitrator denying the motion to amend the statement of claims, as a ground for challenging the final award. Thus, the Court held that the said interlocutory order was not challengeable under Article 227.

The Court observed that it was difficult to envision a situation in which an order would be challengeable under section 227 but not challengeable under section 34 of the A&C Act, given subject to the prohibition contained in the proviso of Article 34 (2A).

Claimant/Claimant – VRS Natarajan, filed its Statement of Claims before the Arbitral Tribunal, alleging that Respondent – OYO Hotels and Homes Pvt. Ltd., has violated the merchant agreement between the parties.

During the course of the arbitral proceedings, the claimant filed an application under Ordinance VI Rule 17 of the Code of Civil Procedure, 1908 (CCP) before the Arbitral Tribunal, to amend its memorial. In his request, the claimant asserted that certain annexes were not filed by mistake with the statement of claims and that, therefore, in order to remedy the inherent defects, it was necessary to modify the statement of claims filed by the applicant.

The arbitrator dismissed the claim filed by the petitioner, against which the petitioner filed a petition under Section 227 of the Constitution of India in the Delhi High Court.

Section 34(2A) of the A&C Act provides that an arbitral award arising from arbitrations other than international commercial arbitrations may also be set aside by the Court, if the Court finds that the award is vitiated by manifest illegality appearing on the face of the reward. The proviso of Article 34(2A) provides that an award cannot be set aside merely on the ground of misapplication of the law or by reassessment of evidence.

The High Court noted that in view of the law enacted by the Supreme Court in SBP & Co. v. Patel Engineering Ltd. (2005)all interlocutory orders made by the arbitral tribunal are not subject to challenge under Sections 226 and 227 of the Constitution of India.

The High Court observed that in SBP & Co. (2005), the Supreme Court had held that since orders and awards made by the arbitral tribunal were subject to challenge under sections 34 and 37(2) of the A&C Act, therefore any order or award made by the arbitral tribunal which does not did not fall within the scope of Section 34 or Section 37(2) of the A&C Act, was not directly challengeable in the High Court.

Furthermore, the High Court, referring to the decision of the Supreme Court in Bhaven Construction v Executive Engineer, Sardar Sarovar Narmada Nigam Limited (2021), reiterated that Sections 226 and 227 of the Constitution of India would be binding on orders made during the arbitral proceedings only in two cases, which are- firstly, when bad faith on the part of the Arbitral Tribunal is invoked by a party; secondly, when the challenge, if it were not authorized by articles 226 and 227, would deprive the litigant of recourse.

Noting that the Claimant had challenged the Arbitrator’s order denying his Request to Amend the Statement of Claims, the Court held that there was no statutory or statutory impediment to said order made by the arbitrator as a ground for challenging the final decision. award, which may therefore be rendered by the Arbitral Tribunal.

Claimant VRS Natarajan argued before the High Court that in view of Section 34(2A) of the A&C Act, said order made by the arbitrator was not available as a ground to challenge the final award made by the court arbitral tribunal and, therefore, the petition under Section 227 against the said order was admissible in the High Court.

Refuting the claims raised by the petitioner, the High Court held that Section 34(2A) of the A&C Act did not exclude the grounds raised by the petitioner as grounds for challenging the final decision.

The Court noted that the proviso of Section 34(2A) of the A&C Act prohibits the setting aside of an arbitral award on the basis of an erroneous assessment of the law or a reassessment of the evidence. Holding that grounds for misjudging the law or re-weighing the evidence are nothing but legal prohibitions, the Court held that the said legal prohibitions also apply to Section 227 of the Constitution of India. The High Court added that under Section 227 of the Constitution, the Court cannot interfere with an order made by the lower court for misappraisal of evidence or for misapplying or misappraising the law except in cases where error leads to evil.

“The proviso in section 34(2)(a) of the 1996 Act prohibits the setting aside of an arbitral award on the ground of a misappraisal of the law or a reappraisal of the evidence. It is simply statutory prohibitions on the grounds that an arbitral award could be set aside under section 34 of the 1996 Act. These prohibitions apply, equally if not with greater force, to section 227 of the Constitution of India on the ground that the order made by the lower judicial authority is wrong on account of misapprehension of the evidence or that he misjudges or applies the law unless the error extrapolates to perversity”.

The bench further found that it was difficult to envision a situation in which an order would be subject to challenge under section 227, but would not be challengeable under section 34 of the A&C Act. , in view of the prohibition contained in the proviso of section 34 (2A) of the A&C Act.

Thus, the Court ruled that since the interlocutory order issued by the Arbitral Tribunal was challenged by the applicant on the grounds available to him against the final award, the challenge against the said interlocutory order under Article 227 does not was therefore inadmissible.

Therefore, the Court dismissed the motion.

Case Title: VRS Natarajan v OYO Hotels and Homes Pvt. ltd.

Dated: 31.08.2022 (Delhi High Court)

Counsel for the Applicant: Mr. Shashank Shekhar, Lawyer

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, lawyers.

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