This case is one of the few instances where a High Court exercised it's jurisdiction under Article 226 of the Constitution to interfere with an arbitrator's order. In this article we will analyze the Supreme Court Of India's interpretation of this issue.
The respondent entered into a contract with the appellant to manufacture and supply bricks. Due to some disputes that emerged between the parties, the appellant invoked the arbitration clause in their agreement and sought the appointment of a sole arbitrator. By way of an application under Section 16 of the Arbitration and Conciliation Act, 1996 the first respondent objected to the appellant's request for an arbitrator's appointment. The first respondent argued that the dispute was not amenable to the Arbitration Act and that the arbitration was time-barred.
Regardless of the objections raised by the first respondent, the sole arbitrator was appointed. The arbitrator rejected the first respondent's application under Section 16 of the Arbitration Act by upholding the arbitral tribunal's jurisdiction to adjudicate the instant dispute.
Aggrieved by the sole arbitrator's order, the first respondent preferred a writ petition before the High Court of Gujarat under Article 226 of the Constitution. The Single Judge dismissed the writ petition. Aggrieved by the Single Judge's decision, the first respondent preferred a writ appeal which was allowed by the Division Bench. Subsequently, the appellant challenged the decision of the Division Bench of the High Court in the present proceedings. The appellant contended that the Division Bench of the High Court erred in interfering with the Single Judge's order. The fact that the first respondent also challenged the final award under Section 34 of the Arbitration Act showed that the first respondent was trying to bypass the framework laid in the enactment. Hence the present case was filed.
Issue
Whether the process of arbitration can be interrupted by Articles 226 and 227 of the Indian Constitution and in what circumstances will such a situation arise?
Contentions
The counsel for Bhaven Construction argued that the division bench of the Gujarat High Court had erred in allowing the letters patent appeal by the Respondent and interfering with the order of the Single Judge Bench. Further, the counsel representing the Applicant pointed out that the Respondent has already challenged the arbitral award passed by the single arbitrator under Section 34 of the Arbitration Act and that clearly shows the attempt by them to bypass the procedural framework laid down under the Arbitration Act. The counsel further pointed out that the single arbitrator has jurisdiction under Section 16(2) to pass an order on the jurisdiction of the arbitral tribunal and the same can only be challenged under Section 34 of the Arbitration Act.
On the other hand, the counsel for the Respondent contended that as the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, had come into force all the disputes related to the 'works contracts' have to be adjudicated in accordance with the provisions of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 and the applicability of the Arbitration Act will not come into the picture. It was further contended by the counsel for the Respondent that it was always open to a party to invoke writ jurisdiction under Articles 226 and 227 of the Constitution to set aside an arbitration which was a nullity as it conflicted with an enactment of the State.
Held
The Supreme Court bench comprising of Justice Hrishikesh Roy, Justice Surya Kant and the then Chief Justice of India Justice N.V Ramana stated that the Arbitration Act is a code in itself having definite legal consequences. One such consequence is embodied in the non-obstante clause in Section 5 of the said Act which is to reduce excessive judicial interference. The language in Section 5of the Act expressly states that no judicial authority shall intervene in the arbitral process except where the law provides for it.
In the present matter, the full bench of the Supreme Court held that the appellant had acted following the procedure laid down under the Agreement to appoint the sole arbitrator.
The first respondent then challenged the sole arbitrator's jurisdiction in terms of Section 16(2) of the Arbitration Act. through a petition under Article 226 of the Constitution of India. It was observed that in the usual course, the Arbitration Act provides for a mechanism of the challenge under Section 34 Hon'ble Justice N.V Ramana was of opinion that the use of the term "only" under Section 34 served the twin purposes of making the Arbitration Act a complete code and laying down the procedure for challenging arbitral awards.
The bench while passing the Judgment cited the case ofNivedita Sharma v. Cellular Operators Association of Indiain which it was noted that the hierarchy of India's legal framework mandates that a legislative enactment cannot curtail a constitutional right. However, it was also held that when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation. the Supreme Court further held that it is prudent for a Judge not to exercise discretion to allow judicial interference beyond the procedure established under the Arbitration Act.
The powers under Articles 226 and 227 of the Constitution need to be exercised in exceptional rarity, where one party is left remediless under the statute or an evident 'bad faith' shown by one of the other parties.
The Supreme Court placed reliance upon the decision inDeep Industries Ltd. v. Oil and Natural Gas Corporation Ltd. to hold that the High Court should be extremely circumspect in interfering with the arbitral process. The writ jurisdiction would be invoked only in exceptional circumstances which leave the aggrieved party without a statutory remedy. It was further held that Section 16 of the Arbitration Act sets a mandate that the issue of jurisdiction must be dealt with first by the tribunal in recognition of the kompetenz-kompetenz principle. Once the Section 16 application is dismissed, the arbitral tribunal's jurisdiction can be challenged only after the final award is passed under Section 34 of the Arbitration Act.
In view of the above reasoning, the Supreme Court opined that the High Court erred in utilizing its discretionary power available under Article 226 and 227 of the Constitution.
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