Kiran Raj

The Delhi High Court has held that orders passed by an Arbitrator during arbitration proceedings, which conclusively determine substantive rights of the parties, qualify as interim awards under Section 31(6) of the Arbitration and Conciliation Act, 1996 (A&C Act). Such orders, the Court ruled, are amenable to challenge under Section 34 of the Act.

The case arose out of a contractual dispute between Aptec Advanced Protective Technologies AG, a Swiss company, and the Union of India. The contract, executed on July 1, 1999, was for the supply of specialized mountaineering boots to the Indian Defence Forces. Aptec delivered the goods in five consignments and received 90% of the invoice payments. However, the Union of India withheld the remaining 10%, alleging defects in the boots.

Subsequently, the Union invoked the warranty guarantees, leading to the encashment of bank guarantees provided by Aptec. The company protested this encashment and invoked arbitration, with the Supreme Court appointing a Sole Arbitrator on August 29, 2006, to adjudicate the disputes.

During arbitration, Aptec filed four applications under Order XI Rules 12 and 14 of the Code of Civil Procedure, 1908, seeking the discovery of documents critical to its defense. The Arbitrator dismissed the applications on November 18, 2010, stating that the requested documents were unavailable, irrelevant, or privileged.

Challenging the decision, Aptec filed a petition under Section 34 of the A&C Act, claiming that the Arbitrator's order constituted an interim award as it conclusively decided issues of substance. The Single Judge dismissed the petition, observing that the Arbitrator’s decision was procedural and did not resolve any substantive rights of the parties. Aggrieved by this, Aptec filed an appeal under Section 37 of the A&C Act.

Senior Advocate Ashish Dholakia, representing Aptec, argued that the Arbitrator’s decision on the document discovery applications conclusively determined issues of substance, thereby qualifying as an interim award. He contended that the Single Judge erred in relying solely on the Arbitrator’s self-certification in concluding that the decision was procedural and not a substantive award.

Dholakia further argued that the documents sought were pivotal to the arbitration’s outcome and that denying access to them caused prejudice to Aptec.

Senior Counsel Vikram Jetly, appearing for the Union of India, submitted that the Arbitrator had clearly stated in the impugned order that the observations were preliminary and pertained solely to the document discovery applications. He argued that the decision was procedural and did not adjudicate any substantive rights.

Jetly stated that procedural decisions, even if detailed, do not constitute interim awards under the A&C Act.

The Division Bench, comprising Justice Navin Chawla and Justice Shalinder Kaur, examined the scope of interim awards under Section 31(6) of the A&C Act.

The Court stated that an interim award must conclusively determine substantive rights of the parties that could form part of the final award. It observed: "The term ‘interim award’ under Section 31(6) encompasses any issue capable of being decided in a final award. Procedural decisions that do not resolve disputes or determine substantive rights cannot be categorized as interim awards.”

Referring to IFFCO Ltd. v. Bhadra Products (2018), the Court observed that arbitration can have one or more interim awards before the final award, provided they conclusively settle specific issues.

The court found that the Single Judge had erred in concluding that the Arbitrator’s decision was not an award. The Court observed that findings resolving substantive issues, such as the incompatibility of equipment, qualify as interim awards. The Court recorded: "We hold that the decision dated 18.11.2010, insofar as it decided the issue as to whether the Crampons supplied by M/s JAMDPAL & Co. were incompatible with the boots supplied by the appellant, is an ‘Arbitral Award’ and, therefore, amenable to a challenge under Section 34 of the A&C Act."

The Bench, however, stated that it had not evaluated the merits of the appellant’s challenge to the Arbitrator’s findings and noted: "Our decision should not be read as in any manner opining on the merit or demerit of the challenge of the appellant to the decision dated 18.11.2010 of the learned Sole Arbitrator."

The Court set aside the Single Judge’s decision dated August 20, 2024, and restored the appellant’s Section 34 petition for adjudication on its merits. It directed: "OMP (COMM) 216/2020 titled APTEC Advanced Protective Technologies AG v. Union of India is restored to be adjudicated on merit by the learned Single Judge of this Court."

To expedite the proceedings, the Bench directed the parties to appear before the Single Judge on February 3, 2025, for further directions. The Court added: "We request the learned Single Judge to expedite the adjudication of the same on merits."

Additionally, the Court stated that its observations were limited to the appeal and would not bind or influence the Single Judge’s decision on the merits of the Section 34 challenge.

The Court disposed of the appeal and pending applications.

The appellant, Aptec, was represented by Senior Advocate Ashish Dholakia, with advocates Akash Panwar, Subhoday Banerjee, Ananya Narain, and Rohan Chawla. The Union of India was represented by Senior Advocate Vikram Jetly, assisted by advocates Shreya Jetly and Gaurav Bhatia.

Case Title: Aptec Advanced Protective Technologies AG v. Union of India
Case Number: FAO(OS) (COMM) 227/2024
Bench: Justice Navin Chawla and Justice Shalinder Kaur

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