India: Update: Notice Invoking Arbitration May Oust Writ Jurisdiction Of High Courts In Arbitrable Contractual Matters Against State Instrumentalities

Setting aside the order passed by the Hon'ble Gujarat High Court ("the Impugned Order"), the Supreme Court of India observed in its latest judgment dated 21^st March 2022 ("the Judgment") that "....invocation of Article 226 of the Constitution of India for a contractual matter of this nature, where there was an existing arbitration clause was not the appropriate remedy nor could the High Court have examined this and granted the nature of relief which has been done by the impugned order dated 30.09.2021....". The Hon'ble Supreme Court in the Judgment further observed that "....if the Respondent had invoked or invokes the process under the Arbitration Act, that is an aspect which can be examined by the Arbitral Tribunal to be constituted in accordance with the law.".

Brief Facts

Vandemataram Projects Private Limited ("the Respondent") was the successful bidder of a tender floated by the Gujarat Housing Board ("the Appellant"). However soon thereafter, the Appellant terminated the contract and forfeited the earnest money deposit, the security deposit and the performance guarantee received from the Respondent.

Pursuant to the arbitration clause in the contract, a notice invoking arbitration under Section 11 of the Arbitration and Conciliation Act, 1996 was thereupon issued by the Respondent. Further, the Respondent also filed a writ application under Article 226 and was granted a stay on the said termination and forfeiture by the Hon'ble Gujarat High Court. Ultimately, the Hon'ble High Court vide the Impugned Order directed refund of the amounts forfeited. Challenging the same, the present Appeal came to be filed before the Hon'ble Supreme Court by the Appellant.

Observation

The Judgment is in dissonance with a long line of precedents including the Hon'ble Supreme Court's recent decisions in UNITECH Limited & Ors. V. Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors. 2021 SCC OnLine SC 99 and Rapid Metrorail Gurgaon Limited V. Haryana Mass Rapid Transport Corporation Limited and Others which categorically affirm that writs under Article 226 are maintainable for asserting contractual rights against the state or its instrumentalities as defined under Article 12 of the Constitution of India, 1950.

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