SUPREME COURT REITERATES PRINCIPLES OF EXERCISE OF WRIT JURISDICTION IN CASE OF ARBITRABLE DISPUTES

The #SupremeCourt has in a recent case of Bhaven Construction Vs Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Anr passed a Judgment dated 06-01-2021 and reiterated the principles of exercise of #writ #jurisdiction by #HighCourt in a case where the #dispute has to be resolved by #arbitration.

In this case, the Appellant and the Respondent No. 1 had entered into an Agreement dated 13-02-1991 regarding manufacture and supply of bricks. One of the terms of the Agreement was that in case of any dispute arising out of the Agreement, it would be settled by a sole arbitrator and that the arbitration would be conducted according to the Indian Arbitration Act, 1940 or any statutory modification thereof.

Thereafter, owing to certain disputes, the Appellant invoked Arbitration Clause and appointed the Respondent No. 2 as the Sole Arbitrator. But the Respondent No. 1 filed an Application under Section 16 of the Arbitration and Conciliation Act 1996 (the Act) before the Arbitrator and challenged the jurisdiction of the Arbitrator on the ground that the Arbitrator was appointed after expiry of 30 days period as fixed in the Agreement and that the arbitration was to be governed by the Indian Arbitration Act as amended by the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (the Gujarat Act). But the Arbitrator rejected the Respondent No. 1’s Application and upheld its jurisdiction to adjudicate the dispute.

Aggrieved, the Respondent No. 1 filed a Special Civil Application under Article 226 and 227 of the Constitution of India 1950 (the #Constitution) before the High Court of Gujarat. But the Single Bench of the High Court dismissed the said Civil Application and held that the Respondent No. 1 can challenge the jurisdiction of the Arbitrator under Section 34 of the Act, after the arbitral award is passed.

Aggrieved, the Respondent No. 1 filed a Letters Patent Appeal before the High Court of Gujarat, which was allowed by the Division Bench of the High Court, vide Order dated 17-09-2012.

Thus, aggrieved, the Appellant filed a Special Leave Petition before the Supreme Court against the Impugned Order of the High Court of Gujarat dated 17-09-2012.

Issue: Whether arbitral process could be interfered under Article 226 (Power of High Courts to issue certain writs)/Article 227 (Power of superintendence over all courts by the High Court) of the Constitution, and under what circumstances?

The Apex Court herein made the following observations:

1- That the issue about applicability of Arbitration Act or Gujarat Act does not fall within the scope of writ jurisdiction. Any such issue of jurisdiction, interpretation of contracts, etc can be done by arbitral tribunal and later, by High Court in Section 34 proceedings.

2- That Section 34 of the Act provides that Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). The term ‘only’ denotes that the intention of the Legislature was to make the enactment a complete code and lay down the procedure in the enactment itself. However, the Supreme Court in various cases has held that a legislative enactment cannot curtail a person’s Constitutional right.

3- Further, the Apex Court held that High Courts may exercise the inherent power under Article 226/227 of the Constitution in an exceptional rarity and after taking into account the statutory policy. For instance, where the Court feels that one of the parties has been left remediless under the statute or ‘bad faith’ is shown on the part of the other party, in such cases, the High Court may exercise its discretion to allow judicial interference into the matter. This is because if the courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished.

4- In this case, the Respondent No. 1 has not been able to prove any exceptional circumstance or bad faith on the part of the Appellant in order to invoke remedy under Article 226/227 of the Constitution.

5- Further, the Respondent No. 1 has already filed a Section 34 Petition before the High Court of Gujarat thereby challenging the Final Award, which is pending. Thus, the High Court should not have exercised its inherent powers to interfere with the arbitration proceedings at this stage.

6- That initially the Respondent No. 1 did not take legal recourse against appointment of Arbitrator and rather, submitted before the Sole Arbitrator to adjudicate the issues of jurisdiction, etc. Therefore, the Respondent No. 1 has only one remedy left, that is to challenge the Final Award under Section 34 of the Act. It has been noted that the Respondent No. 1 has indeed challenged the Final Award in Section 34 proceedings before the High Court, which is pending.

Therefore, as the Respondent No. 1 could not establish any exceptional circumstance requiring mandatory exercise of jurisdiction under Article 226/227 of the Constitution, the Supreme Court held that the High Court erred in exercising its jurisdiction under Article 226/227 of the Constitution. As a result, the Apex Court allowed the Appeal and set aside the Impugned Order of the High Court of Gujarat dated 17-09-2012.

Harini Daliparthy

Senior Legal Associate

The Indian Lawyer