The Delhi High Court has reiterated that the writ petition remedy under Articles 226 and 227 of the Constitution of India is only available against orders passed by an Arbitral Tribunal in exceptional circumstances, and in cases where there is bad faith or perversity.

Facts

IDFC and Hitachi entered into a Strategic Partnership Agreement and Business Development Agreement. Disputes arose between them. The agreements were terminated and IDFC invoked arbitration.

During the subsistence of the arbitration proceedings, the Supreme Court delivered its decision in Vidya Drolia & Ors v Durga Trading Corporation1 holding that disputes governed by the Recovery of Debts and Bankruptcy Act 1993 were not arbitrable.

Relying on Vidya Drolia, IDFC made an application to the Tribunal under §16 of the Arbitration and Conciliation Act 1996 seeking the termination of the Tribunal's mandate. IDFC contended that the amount recoverable from Hitachi was a "debt" under the Recovery of Debts and Bankruptcy Act 1993 and the Debt Recovery Tribunal had exclusive jurisdiction. IDFC's application was dismissed by the Tribunal.

The Arbitration Act does not provide for an appeal mechanism in cases where an application under §16 is rejected. Accordingly, IDFC sought to challenge the Tribunal's order by invoking the writ jurisdiction of the Delhi High Court.

Decision

The High Court dismissed the Writ Petition and said:

  1. The intention of the Arbitration Act is not to permit an appellate remedy if the Tribunal holds that it has jurisdiction to proceed with the reference. The challenge to the §16 application being dismissed must await the passing of a final award, at which stage it may be challenged under §34 of the Arbitration Act.
  2. When applications under §16 are dismissed, Courts must be extremely circumspect in entertaining challenges against the order passed by an Arbitral Tribunal.
  3. The Court could not conclusively decide that the Tribunal lacked jurisdiction. The agreements between the parties were not traditional banking agreements and the issue of whether the amount due constituted a "debt" and whether the nature of services could be categorised as "banking services" would require greater consideration through evidence.

Conclusion

The decision of the Delhi High Court reaffirms the principle of non-interference by the Courts in arbitration proceedings. The Courts have set a high standard for exercising their extraordinary powers under their writ jurisdiction against orders of a Tribunal and have held that the power needs to be exercised in rare cases, where one party is left remediless.

Footnote

1. (2021) 2 SCC 1

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