No Scope For An ‘Additional Adjudication’ Under Section 33 Of Arbitration & Conciliation Act: Karnataka High Court

The Karnataka High Court held that there is no scope for an ‘additional adjudication’ under Section 33 of the Arbitration and Conciliation Act, 1996 (A&C Act).

The Court held thus in a Commercial Appeal filed under Section 13(1)(a) of the Commercial Courts Act, 2015 (CCA) read with Section 37(1)(c) of A&C Act, challenging the Judgment of the Sessions Judge.

A Division Bench comprising Justice Anu Sivaraman and Justice K. Manmadha Rao observed, “We are of the opinion that the learned Arbitrator was in error in having passed an order in the nature of reopening the Arbitration on an application under Section 33(4) of the Act. The scope of Section 33 of the Act being limited to a correction of clerical or similar mistake or a re-computation or a consideration of a claim presented in the arbitral proceedings but omitted from the arbitral award, there is no scope for an "additional adjudication" under Section 33 of the Act.”

The Bench said that if interference in the Order of the Arbitrator is declined on the technical ground that the Order impugned before Section 34 Court is not an award, the result would be that the further process of arbitration would result, and thereafter, the award so passed would again have to be subjected to a challenge on the very same grounds that are now raised before the High Court as well as the Section 34 Court.

Senior Advocate Ananth Mandgi appeared for the Appellants while Senior Advocate Pramod Nair appeared for the Respondents.

Facts of the Case

The Appellant and Respondent were brothers and the Appellant No. 2 was their cousin. The Appellants and Respondent (three of them) had constituted a partnership firm under a Partnership Deed in 2003. However, in 2011, a dispute arose between them with respect to day-to-day management of the firm. Subsequently, the Respondent took a non-cooperative outlook with respect to the firm, by refusing to attend the day-to-day activities and by refusing to sign any cheques to clear the firm’s outstanding payments to vendors and suppliers. In 2013, the Respondent requested the firm’s bankers to freeze the firm’s accounts and having no other alternative, the Appellants completed the firm’s ongoing projects at their own personal costs and by borrowing funds from family, friends, vendors, etc. without getting any support from the Respondent. Although the firm’s duration was one at will of the partners, the Respondent did not issue any notice seeking dissolution of the partnership when the disputes arose.

Once the firm had completed all its residential projects and had repaid all its loans, the Respondent issued a notice asking for his share and thereafter, instituted arbitration proceedings against the Appellants as per the arbitration clause in the partnership deed. The Arbitral Tribunal passed an award holding that the firm shall stand dissolved. The Appellants challenged this before the City Civil Court but their plea was dismissed. They then preferred an Appeal before the High Court, which referred the case to the Arbitrator. The Respondent No. 2 was appointed as Sole Arbitrator, who directed the Appellants to pay Rs. 4,13,95,193/- to the Respondent and rejected all other claims of the Respondent. The Respondent filed an Application under Section 33(4) of A&C Act, which was allowed by the Arbitrator. Subsequently, the Trial Court dismissed the Appellants’ Application under Section 34 of A&C Act. Hence, they were before the High Court.

Reasoning

The High Court after hearing the arguments from both sides, noted, “It is clear from a reading of the provisions of the Act as well as the decisions of the Apex Court and the various High Courts considering the provisions of the said Act that the strict language limiting the nature and scope of the challenge to an arbitral award or the proceedings inarbitration are intended to see that arbitral proceedings do not become long drawn out proceedings as in the case of conventional litigations. The purpose of such strict provisions relating to challenge to arbitral awards and the strict interpretation given by Courts of law is to prevent unnecessary delays in the process of dispute resolution through Arbitration.”

The Court added that the arbitral award can be set aside only on the grounds as provided in sub-Section (2) and (2-A) of the Act and Section 37 also provides for an Appeal from an Order setting aside or refusing to set aside an arbitral award under Section 34.

“It is indeed true that the challenge against arbitral awards or orders passed by the arbitrator would lie only as provided under Section 34 or Section 37 of the Act as the case may be. The Apex Court has clearly held that a writ petition under Article 226 or Article 227 of the Constitution of India would be incompetent to intervene in matters arising for arbitration proceedings particularly when the orders of arbitral Tribunal are interim in nature”, it further Even if it is accepted that a Section 34 application would lie only as against an Arbitral Award, we find that the order of the Commercial Court refusing to interfere with the completely unwarranted exercise of power by the Arbitrator would lead to a situation where the appellant would be dragged into further Arbitral proceedings which is not warranted under the provisions of Section 33(4) of the Act. The claimant, who had not chosen to challenge the Arbitral Award in both the instances, cannot be now permitted to broaden the scope of the Arbitration or seek a further Arbitration in the guise of a petition under Section 33(4) of the Act", it further reiterated.

The Court was of the view that the legality or otherwise of the Order passed by the Arbitrator is capable of being considered independently as well and that an Appeal under Section 37 of the Act is also maintainable against an Order accepting a plea referred to in sub-Section (2) or (3) of Section 16 of the Act, that is, the acceptance of a plea that the Arbitral Tribunal does not have jurisdiction or is exceeding its jurisdiction.

“Even if it is accepted that a Section 34 application would lie only as against an Arbitral Award, we find that the order of the Commercial Court refusing to interfere with the completely unwarranted exercise of power by the Arbitrator would lead to a situation where the appellant would be dragged into further Arbitral proceedings which is not warranted under the provisions of Section 33(4) of the Act”, it also elucidated.

Conclusion

The Court remarked that the claimant, who had not chosen to challenge the arbitral award in both the instances, cannot be now permitted to broaden the scope of the arbitration or seek a further arbitration in the guise of a Petition under Section 33(4) of the Act.

“In the above circumstances, we are of the opinion that the order passed by the Arbitrator in the instant case amounts to an interim award and the validity of the said order deserves a consideration, if not in the Section 34 proceedings, at least before this Court in the Section 37 proceedings. … In the above view of the matter, we are of the opinion that the exercise of reopening of the Arbitration and calling for fresh claims, documents etc., by the Arbitrator is completely unwarranted. The Arbitrator can act at best only within the confines of the statute as warranted under Section 33(4) of the Act”, it concluded.

Accordingly, the High Court allowed the Appeal, set aside the impugned Judgment, and remanded the Application to Arbitrator for consideration strictly in accordance to Section 33(4) of the Act.

Cause Title- Nayeem Noor Mohamed & Anr. v. Nazim Noor Mohamed & Anr. (Case Number: COMMERCIAL APPEAL NO.302 OF 2024)

Appearance:

Appellants: Senior Advocate Ananth Mandgi and Advocate Amit A. Mandgi.

Respondents: Senior Advocate Pramod Nair, Advocates Padyumna L.N., and Sumit Chatterjee.

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