Lindsay International Private ... vs Ifgl Refractories Limited
2022 Latest Caselaw 1855 Cal/2

                        IN THE HIGH COURT AT CALCUTTA
                       Ordinary Original Civil Jurisdiction
                                ORIGINAL SIDE

Present :-
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA.

                                A.P. 625 of 2019
                                       and
                                A.P. 627 of 2019
                      Lindsay International Private Limited
                                       Vs
                            IFGL Refractories Limited

For the Petitioner                           :   Mr.   Sakya Sen, Sr. Adv.
                                                 Mr.   Sukrit Mukherjee, Adv.
                                                 Mr.   Shaunak Mitra, Adv.
                                                 Mr.   S.R. Kakrania, Adv.
                                                 Mr.   Tanuj Kakrania, Adv.
             [
                                                 Mr.   Karanjeet Sharma, Adv.

For the Respondent                           :   Mr. Anindya Kr. Mitra, Sr. Adv.
                                                 Mr. Soumabho Ghose, Adv.
                                                 Mr. Arunabha Deb, Adv.
                                                 Mr. Ayush Jain, Adv.
                                                 Ms. Arti Bhattacharya, Adv.

Last Heard on                                :   14.06.2022.


Delivered on                                 :   08.07.2022.



Moushumi Bhattacharya, J.

1. The petitioner, Lindsay International, seeks setting aside of an order dated

24th August, 2019 by which the petitioner's applications under section 16 of The

Arbitration and Conciliation Act, 1996, were dismissed. Lindsay names the order

as an 'Award'/'Interim Award' and has hence filed the present applications under

section 34 of the Act for setting it aside.

2. Section 16 empowers the arbitral tribunal to rule on its own jurisdiction

including on an objection with regard to the existence or validity of the

arbitration agreement.

3. The respondent IFGL Refractories takes a preliminary point of

maintainability that the impugned order is not an award and is hence not

amenable to the recourse provided under section 34 of the 1996 Act.

4. The first question which is required to be decided is whether the impugned

order dated 24th August, 2019 - described as a "Partial Award" - qualifies as an

award falling within the parameters of the Act. The petitioner claims the

impugned order to be an interim arbitral award within the meaning of section

31(6) of the Act. The respondent contends otherwise; namely that the impugned

decision is not an interim award and hence the present application under section

34 of the Act, for setting aside the impugned decision, is not maintainable.

The question of Maintainability

5. According to Mr. Sakya Sen, learned counsel appearing for the petitioner

Lindsay, it is the pith and substance of the award rather than the nomenclature

which determines the nature and character of the award. Counsel relies on

several decisions to submit that any order passed by an arbitral tribunal in an

application under section 16 would qualify as an award if it decides on the merits

of the dispute. Counsel submits that the learned Arbitrator, while considering the

scope of existence of the arbitration agreement between the parties made a

categorical finding that there has been no novation of the earlier contract

between the parties by virtue of the subsequent Memorandum of Understanding

(MOU). It is submitted that by reason of such finding, the Counter-Claim of the

petitioner would become infructuous since the stand of the petitioner before the

Arbitrator was that the arbitration agreement between the parties was novated by

the subsequent MOU.

6. Mr. Anindya Mitra, learned senior counsel appearing for the respondent

IFGL, opposes the relief prayed for by Lindsay and submits that to be categorised

as an award, the decision has to determine a claim which has been referred to in

the arbitration on merits. According to counsel, the impugned order was passed

by the Arbitrator under section 16 of the Act and only decides the jurisdictional

issue of whether the Arbitrator can entertain any claim referred for adjudication

on the merits of the claim. Counsel submits that IFGL did not make any claim on

the alleged novation/supersession of the agreement by the subsequent MOU.

The controversy − as made out by the petitioner Lindsay

7. Lindsay's case is that the Arbitrator could not have decided on the

novation/supersession issue since this amounted to a decision on the merits of

the case. In referring to merits, Lindsay urges that in rejecting the argument of

the arbitration agreement being superseded by the MOU, the Arbitrator has given

a finding on one of the primary disputes between the parties. To put it simply,

Lindsay's case is that the arbitration agreement was novated while IFGL contends

that the arbitration agreement remained intact; IFGL referred the dispute to

arbitration on the strength of the arbitration agreement. The other contention of

Lindsay is that in rejecting the contention of novation, the Arbitrator prejudged

the issue nos. 5 & 6 framed in the arbitration proceedings. Issue nos. 5 & 6 dealt

with whether the termination of the MOU by the claimant IFGL was justified and

whether the respondent Lindsay committed any breach of the MOU.

8. Is Lindsay correct in saying this?

The answer of the Court is as follows:

i) Issue Nos. 5 & 6 were framed by the Arbitrator on 21st December, 2019,

that is after the impugned decision dated 24th August, 2019. Hence, the

contention that in coming to the impugned finding that the MOU did not

supersede the arbitration agreement, the Arbitrator decided on two of the

issues framed, is without basis. It may also be presumed that since the

impugned decision preceded framing of the issues, the petitioner Lindsay

was fully aware of the impugned order at the time when it agreed to

framing of issue nos. 5 & 6.

ii) The application of Lindsay was made under section 16 of the Act

questioning the jurisdiction of the Arbitral Tribunal and was not an

application inviting the Arbitrator to make an interim award under section

31(6) of the Act. Lindsay invited the Arbitrator to decide on the novation

aspect in the section 16 application. This would be clear from paragraph 20

of the application where it has been averred that the MOU superseded the

12 purchase orders and that the MOU did not contain an arbitration

clause.

iii) Hence, the issue of the arbitration agreement being novated by the

subsequent MOU was raised by Lindsay as a jurisdictional issue to be

decided in the section 16 application. It can therefore be concluded that the

Arbitrator was called upon to decide on the novation aspect as a question

of jurisdiction and not as an issue on the merits of the dispute.

iv) The contention of Lindsay that the Arbitrator breached the divide between

the jurisdiction issue simpliciter and a fundamental aspect of the dispute

would be belied from a careful reading of the controversial part of the

impugned decision, an extract of which is given below.

"Let me now consider the other part of the submission of Mr. Bhattacharyya that even if there was an arbitration agreement between the parties, such agreement stood novated and/or superseded by the subsequent MOU executed by the parties." [Mr. Bhattacharyya represented Lindsay]

The Arbitrator then proceeds to deal with the aspect of novation and

section 62 of The Indian Contract Act, 1872 and comes to the following finding:

"......... considering both the contract and MOU, there is hardly any scope to hold that the MOU has extinguished the previous contract."

and

"As such it cannot be held that the earlier contract stood extinguished by subsequent MOU."

9. The above extract further makes it clear that it was only on Lindsay's

persuasion that the Arbitrator entered into the controversy and decided the point

of novation. Notwithstanding the argument made on behalf of the parties before

this court, it would be evident that the question whether the arbitration

agreement was novated by the subsequent MOU would in any event be a crucial -

and unavoidable - factor for deciding the jurisdiction of the Arbitrator to continue

with the arbitral proceedings. If for instance, the Arbitrator had accepted the fact

of novation, the arbitration agreement would have ceased to exist and the

substratum of the arbitration proceedings would have been obliterated. Thus, in

any view of the matter, it cannot be held that the Arbitrator transgressed into the

arena of the dispute between the parties. It may also be noted that the objection

taken of the Arbitrator deciding the claim on merits does not form part of the

pleadings before this Court.

Whether the order under challenge is a Partial Award

10. The expression "Partial Award" does not find place in the 1996 Act. Section

2(1)(c) defines "arbitral award" to include an interim award. Section 31(6)

empowers the arbitral tribunal to make an interim arbitral award at any time

during the arbitral proceedings on any matter with respect to which a final

arbitral award may be made. Read together, an interim award is a sub-set of the

super-set arbitral award and one which is given in aid of the final arbitral award.

In other words, the interim award must snugly fit into and within the contours of

the final award and form a part thereof. This also means that an interim award

must be an adjudication in respect of the dispute which the parties to the

arbitration have brought before the tribunal in the form of a statement of claim

and defence/counter-claim (refer section 23). Although the nomenclature of the

impugned decision is a "Partial Award", the said expression may be interchanged

with an interim award as defined under the Act for present application.

11. The question is whether the impugned decision satisfies the trappings of an

interim arbitral award under section 2(1)(c) and 31(6) of the Act.

The impugned decision reads as follows.

"PARTIAL AWARD DISPOSING OF PRELIMINARY OBJECTION RAISED BY THE RESPONDENT AS TO COMPETENCE OF THE TRIBUNAL TO ARBITRATE IN THIS REFERENCE DUE TO LACK OF ITS JURISDICTION,...."

12. It is hence clear that the impugned decision was rendered on an

application by Lindsay on a preliminary objection on the competence of the

tribunal to rule on its jurisdiction; in essence an application under section 16 of

the Act. Section 16 empowers an arbitral tribunal to decide on an objection taken

by a party to resist the arbitration as to the existence or validity of the arbitration

agreement. Section 16(5) mandates the arbitral tribunal to decide on the issue of

jurisdiction or whether it is exceeding the scope of its authority before the

tribunal continues with the arbitral proceedings. It also provides that the arbitral

tribunal can continue with the arbitral proceedings and make an arbitral award if

it rejects the objection to jurisdiction or to the existence or validity of the

arbitration agreement. It is therefore clear that an order passed under section

16(5) is an order on jurisdiction simpliciter, that is, whether the Arbitrator can

entertain any claim referred to him for adjudicating on the merits of the claim. In

essence, an order under section 16(5) must precede an order on the merits of a

claim.

13. The application of Lindsay has to be contextually seen to understand

whether the impugned order reflects the limited scope of a decision under section

16(5). The application of Lindsay was made on 30th April, 2019 under section 16

with the object of challenging the jurisdiction of the Tribunal in adjudicating the

dispute between the parties. The prayers in the application repeat the object,

namely, that the arbitral tribunal does not have jurisdiction to entertain any

alleged dispute arising out of the purchase orders and accordingly to rule that

the tribunal does not have jurisdiction to entertain the dispute (prayer (b)).

The impugned decision rejected Lindsay's application by holding that

"the tribunal does not find any merit in the respondent's said application under section 16 of the Arbitration and Conciliation Act, 1996 and as such the same is rejected".

The impugned decision does not state, in any part thereof, that it has

considered or adjudicated on the merits of the dispute contained in the pleadings

before the Tribunal as on that date, namely the Statement of Claim of IFGL. It is

relevant to state that the Statement of Claim was the only pleading before the

Tribunal on 24th August, 2019 since Lindsay had not filed any statement of

defence till then.

14. Further, the Statement of Claim filed by IFGL was essentially 2-fold; (a)

payment received by Lindsay from Arcelor Mittal as price of goods and (b) default

award for the amount of Sales Tax payable/paid by IFGL to the Sales Tax

Authority. Thus, to be a decision on merits, namely an interim award, the

impugned decision must have considered and adjudicated on either of the claims

in the Statement of Claim of IFGL.

15. Significantly, none of the claims of IFGL deals with the issue of novation or

supersession of the arbitration agreement. It is but natural that IFGL, the

claimant before the arbitral tribunal, would not urge such an issue for

consideration since it was relying on the arbitration clause in the agreement

executed between the parties. The case of novation could only have been that of

Lindsay who was resisting the arbitration and called upon the Arbitrator to

decide on its jurisdiction to enter into the reference. In any event, the decision

could only have been confined to the Statement of Claim filed by IFGL since

Lindsay's Counter-Claim was not before the Arbitrator at the relevant point of

time.

Conclusion

16. An interim award, by definition, is a stopover en-route to the destination to

final adjudication of the dispute. An interim award is a part-pronouncement on

the merits of the dispute as urged by and considered by the arbitral tribunal. The

parties are hence already on the road to the final award and well past the rough

(and tumble of the) terrain of the jurisdictional toll-gates. Being firmly ensconced

within the outer periphery of the final award (as 2(1)(c) suggests), an interim

award is a decision on the merits of the dispute and not a decision on the

jurisdiction of the tribunal. The interim award must take within its fold the claim

and the counter-claim or set-off of the claimant and the respondent respectively

and contain a decision on the same.

17. As a further pointer to the legislative intent of fortifying the jurisdiction-

merit divide between a section 16 and a section 31/31(6), the avenues of

challenge provided under the Act are also distinct. While a refusal to exercise

jurisdiction is an appealable order under section 37, an award/interim award has

to climb two levels through the section 34 step before it can be challenged under

section 37.

18. Therefore, the impugned decision rejecting the petitioner's application

under section 16 is an order on jurisdiction bereft of the depth and detail of a

part-adjudication on the merits of the claim. The alleged breach of the wall

separating the jurisdiction and the merits is not a transgression into a prohibited

arena, it is purely a decision on a question posed by the objector itself (Lindsay) -

that the arbitration agreement ceased to exist after the MOU was executed by the

parties.

The case law on the jurisdictional aspect

19. The kompetenz principle or the issue of jurisdiction ingrained in section 16

essentially refers to the triumvirate of a) whether the arbitration clause exists; b)

whether the Arbitral Tribunal is properly constituted; and c) whether the

arbitration is in accordance with the arbitration agreement: ref. IFFCO vs Bhadra

Products; (2018) 2 SCC 534. What this means is that the Arbitral Tribunal can

also rule that no arbitration agreement exists or the arbitration agreement is not

valid or even that the arbitration agreement does not confer jurisdiction on the

Tribunal to adjudicate upon the particular claim by a party before it. An issue of

jurisdiction must inevitably relate to the authority of the Arbitrator to hear and

decide a case and include objections to the competence of the Arbitrator to hear

the dispute. Objections such as absence of consent or a dispute falling outside

the scope of the arbitration agreement would also form part of the jurisdictional

issues.

20. The factors which would contribute to the trappings of an interim award,

as defined under sections 2(1)(c) and 31(6) of the 1996 Act, would acquire a

measure of clarity from the decisions shown to the Court. In Harinarayan G.

Bajaj vs. Sharedeal Financial Consultants Pvt. Ltd.; AIR 2003 Bom 296, a Single

Bench of the Bombay High Court held that issues pertaining to jurisdiction will

be the subject matter of an order under section 16 of the Act. A Single Bench of

the Delhi High Court also came to the same conclusion in Union of India vs. East

Coast Boat Builders & Engineers Ltd.; (1998) 2 Arb LR 702, namely, that an order

on the point of jurisdiction of the arbitral tribunal would not be an interim award.

In Nirma Ltd. vs. Lurgi Energie Und Entsorgung GMBH, Germany; AIR 2003 Guj

145, a Division Bench of the Gujarat High Court held that a decision on the

jurisdictional aspect was an "order" and not an "award".

21. In M.S. Commercial vs. Calicut Engineering Works Ltd.; (2004) 10 SCC 656,

the Supreme Court opined that once the Arbitrator had taken a decision that

there was an arbitration agreement, the Arbitrator was bound to continue with

the arbitration proceedings and make an arbitral award under section 16(5) of

the Act. A similar question was considered by this Court in A.P. 33 of 2021

between the same parties in an application for setting aside of a decision dated

15th October, 2020, claimed to be an interim award by the applicant Lindsay

(refer Lindsay International Private Limited vs. IFGL Refractories Limited; 2021

SCC OnLine Cal 1979). The question before the Court was whether the order

refusing introduction of a new claim by way of amendment to the counter-

statement was an interim award. The Court rejected the contentions of the

applicant and found that the impugned order was not an interim award as

defined under the relevant provisions of the Act.

22. The decisions cited on behalf of the petitioner proceed on the basis that the

arbitrability of a claim or counter-claim cannot be decided in a section 16

application. In National Thermal Power Corpn. Ltd. vs. Siemens Atkeingesellschaft;

(2007) 4 SCC 451, the arbitral tribunal of the International Chambers of

Commerce made a partial award deciding on the merits of the counter-claim of

NTPC on the ground that those claims had been settled by the parties in a

meeting. The NTPC preferred an appeal from the partial award under section 37

of the Act. The Supreme Court held that the appeal was not maintainable since

the arbitral tribunal had made an award. In Indian Farmers Fertilizer Cooperative

Limited vs. Bhadra Products; (2018) 2 SCC 534, the arbitral tribunal decided

whether the claims made in the arbitration were barred by limitation. In Bharat

Sanchar Nigam Limited vs. Nortel Networks India Private Limited; (2021) 5 SCC

738, the Supreme Court reiterated that issues with respect to existence and

validity of the arbitration agreement are recorded as jurisdictional issues. Hence,

a matter in issue in the arbitration was decided by the order under challenge.

Since it has already been held that the Arbitrator in the present case did not

decide on any claim made by IFGL, these decisions do not assist the petitioner

Lindsay.

The question of Estoppel, Approbation and Reprobation

23. The impugned decision makes it clear that the Arbitrator was persuaded by

the petitioner to decide the jurisdictional issue first as a preliminary issue before

entering into the merits of the reference. The preliminary issue was whether the

arbitration agreement stood novated by the subsequent MOU. On the other hand,

the argument of the petitioner before this Court is that the Arbitrator should not

have decided the issue of novation. Hence, the stand taken by the petitioner

before the Arbitrator is contrary to the stand taken by it before this Court. Having

invited the Arbitrator to decide the question of novation as a preliminary issue,

the petitioner cannot now take a position which is inconsistent with what it had

urged before the Arbitral Tribunal.

24. In Mumbai International Airport Private Limited vs. Golden Chariot Airport;

(2010) 10 SCC 422 the Supreme Court explained the common law doctrine

prohibiting approbation and reprobation as a facet of the law of estoppel and

linked the same to the doctrine of election as discussed in Scarf v. Jardine; (1881-

85) All ER Rep 651(HL) among other cases. A similar deprecatory note was

sounded by a 3-Judge Bench of the Supreme Court in Suzuki Parasrampuria

Suitings Private Limited vs. Official Liquidator of Mahendra Petrochemicals Limited;

(2018)10 SCC 707 where it was held that a litigant can take different stands at

different times but cannot take contradictory stands in the same case. Although

both the decisions were given in the facts particular to those cases, the principle

posited is that a litigant cannot shift its stand for taking advantage of court

processes at different stages of the same proceeding.

25. By reason of the above discussion, this Court is of the considered view that

the impugned decision dated 24th August, 2019 does not qualify to be nor does it

have the trappings of an interim award under section 2(1)(c) or section 31(6) of

the 1996 Act. Hence, the impugned order cannot be challenged under section 34

of the Act. Since the issue of maintainability of the present application has been

decided against the petitioner, the question of the said decision being set aside

under section 34 of the Act does not arise.

26. AP 625 of 2019 and AP 627 of 2019 are accordingly dismissed without any

order as to costs.

Urgent Photostat certified copies of this judgment, if applied for, be

supplied to the respective parties upon fulfillment of requisite formalities.

(Moushumi Bhattacharya, J)