Arbitral Order Rejecting Counterclaim for Non-Appearance Constitutes an Interim Award Amenable to Section 34 Challenge

The Petitioner (Eureka Forbes) was awarded a license by the Respondent (IRCTC) for Water Vending Machines.

Disputes arose over license fees, leading to arbitration.

During proceedings, the Petitioner filed a counterclaim.

On 31.07.2024, the Petitioner’s counsel failed to appear; however, the Respondent requested an adjournment to file a reply to the counterclaim.

On 21.08.2024, upon the Petitioner's continued absence, the Arbitrator passed "Impugned Order I," proceeding ex parte and summarily rejecting the Petitioner’s counterclaim.

The Petitioner’s application to recall this order was dismissed via "Impugned Order II," with the Arbitrator holding he was functus officio regarding the rejected counterclaim as it constituted an "interim award".

The Petitioner challenged both orders under Section 34 of the Arbitration and Conciliation Act, 1996 ("A&C Act").

1. Whether an order rejecting a counterclaim for non-appearance constitutes an "interim award" amenable to challenge under Section 34 of the A&C Act.

2. Whether an order proceeding ex parte against a party regarding the main claim is a procedural order or an interim award.

3. Whether the Arbitral Tribunal was justified in rejecting the counterclaim solely due to the Petitioner's non-appearance.

Section 2(1)(c) of the A&C Act, which includes "interim award" within the definition of an arbitral award.

Section 31(6), which empowers a tribunal to make an interim award on any matter it can finally decide.

The principle established in IFFCO Ltd. v. Bhadra Products that an interim award must conclusively determine a substantive issue.

Section 18 (equal treatment of parties) and Section 25 (default of a party).

Section 25(c) permits a tribunal to continue proceedings and make an award on available evidence if a party fails to appear, but does not mandate summary rejection of claims.

The Court applied a "triple test" to identify an interim award: (i) final adjudication of a substantive dispute, (ii) binding effect, and (iii) the tribunal becoming functus officio.

Regarding the ex parte direction on IRCTC’s claims, the Court held this was purely procedural because it did not finally decide the Respondent's rights and the Tribunal remained in seisin of the matter.

The rejection of the Petitioner’s counterclaim met all criteria of an interim award, as the Arbitrator himself admitted he lacked jurisdiction to recall it.

The Court found the rejection perverse and a violation of natural justice (Section 18), noting that on 31.07.2024, the adjournment was actually sought by the Respondent.

Under Section 25(c), the Tribunal should have decided the counterclaim on merits based on available records rather than summarily dismissing it; the rejection without considering the pleadings was deemed "patently illegal".

The Court declined to interfere with the direction to proceed ex parte regarding the Respondent’s claims, holding that such a direction is a procedural order and not a "award" challengeable under Section 34.