India: Revisiting The Scope Of High Court's Jurisdiction Under Article 226 & 227 Of The Constitution Of India In Arbitration Matters

Introduction

In the scheme of the Indian Constitution, the power accorded to the High Courts of the State(s) as a subject-matter has attracted a great amount of academic intrigue within the legal sphere in India. Apart from the original jurisdiction engraved under Article 225 of the Constitution, the High Courts have been conferred with an 'Extraordinary' writ jurisdiction under Article 226 and 'Supervisory' jurisdiction under Article 227. Article 226 of the Constitution of India accords an extensive writ jurisdiction to the High Court to not only protect the fundamental rights guaranteed under the Constitution, but also to enforce a legal right. The High Courts have also been accorded supervisory jurisdiction under Article 227 which confers them with power of superintendence over all courts and tribunals throughout the territory in relation to which it exercises jurisdiction. This jurisdiction is not confined only to administrative superintendence but also extends to judicial superintendence over all subordinate courts within its jurisdiction.¹

Various judicial pronouncements of the Hon'ble Supreme Court of India have interpreted the constitutional scheme vis-à-vis Articles 226 & 227 to be such that this power is to be exercised sparingly and only in exceptional circumstances. Such decisions are pivotal to set the course of law towards fortifying the pro-arbitration regime in India.

Judicial intervention in Arbitration

Section 5 of the Arbitration and Conciliation Act, 1996² ("the Act"), states that, "Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part (Part I of the Act), no judicial authority shall intervene except where so provided in this Part." Thus, the Act provides that no court shall interfere in the arbitration process except where it is so provided by the Act itself. This is a measure to uphold the minimal judicial intervention principle in arbitration. However, this non-obstante clause does not supersede the powers conferred upon High Courts under Article 226 and 227.

The Supreme Court in SREI Infrastructure Finance Ltd. v. Tuff Drilling Pvt. Ltd.³ (SREI Case) has held that arbitral tribunal will fall within the meaning of 'Tribunal' under Article 227 because: a) it decides lis between the parties, b) its functioning is regulated by the Act, and c) it is bound by the principles of natural justice. Bearing this rationale in mind, the Apex Court indicated that Arbitral Tribunal is amenable to the jurisdiction of the High Court under Article 227.

As the extent of High Courts' power to intervene with the arbitral process was recognized by the Supreme Court it became imperative to delineate the scope of this power so as to ascertain the extent to which the High Court can exercise its jurisdiction in arbitration matters.

When the Jurisdiction of High Court can be invoked in Arbitration?

Patent lack of Jurisdiction Test

The Supreme Court delved into examining the scope of the power held by the High Court to intervene in the arbitral proceedings in the case of Deep Industries Ltd. v. Oil and Natural Gas⁴ ("Deep Industries"). In this case, an interim Order passed by the arbitral tribunal was challenged before the Civil Court and the challenge was subsequently rejected. As a result, a petition was moved under Article 227 before the Gujarat High Court, which was admitted, and the judgement was passed on merits. Subsequently, the Supreme Court was approached by way of a Special Leave Petition wherein it observed that Article 227 is untouched by the non-obstante provision i.e., Section 5 of the Act. It further enunciated that High Court should be extremely circumspect in interfering with the orders passed by an arbitral tribunal and any such interference should be restricted to orders which are patently lacking in inherent jurisdiction.

This principle established by the Apex Court was upheld subsequently in Punjab State Power Corporation Ltd v. EMTA Coal Ltd⁵, wherein the Supreme Court declared that for there to be a patent lack of inherent jurisdiction; the perversity of the order must be such that it stares one in the face.

Exceptional Rarity Test

In Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam⁶ ("Bhaven Construction"), the Supreme Court was considering an important question of law concerning arbitration and other special statutes enacted by the States concerning public works contract.

In this case, an Order of the Gujarat High Court passed under Article 227 was challenged on the ground that the arbitrator was acting without jurisdiction. The dispute arose out of a contract for manufacture and supply which contained an arbitration clause stipulating that in the event of a dispute, the reference will be made to a sole arbitrator. The arbitration clause further provided for appointment of a sole arbitrator unilaterally in case one of the parties' failed to comply with the appointment procedure. Following the appointment of a sole arbitrator, an application under Section 16 of the Act was preferred challenging the jurisdiction of the sole arbitrator. The application was rejected by the arbitrator, and it was held that the sole arbitrator had the jurisdiction to adjudicate the dispute. Aggrieved by this Order, a special civil application was preferred before the Gujarat High Court under Article 226 and 227.

At the first instance, the petition was dismissed by a single judge bench of the High Court stating that a petition under Article 226 and 227 is not maintainable against such Order and the only remedy available is to wait till the award is passed by the learned sole arbitrator and to challenge the same under Section 34 of the Act. Thereafter, a challenge against the Order of the single judge bench was made before a division bench through a Letters Patent Appeal wherein the appeal was allowed.

The decision of the division bench was then challenged before the Supreme Court wherein the Court was apprised of the fact that the final award has been passed by the sole arbitrator and it has been challenged under Section 34 of the Act. Furthermore, it was demonstrated before the Court that by invoking the jurisdiction of the High Court, an attempt is being made to bypass the statutory framework of the Act which clearly mandates that arbitrator has the jurisdiction to adjudicate the preliminary issue of jurisdiction, that can only be challenged under Section 34 of the Act.

The Apex Court, while addressing the issue, first observed that the Arbitration Act per se is a code, entailing definite legal consequences comprising of a set procedural framework. While acknowledging that the hierarchy in Indian legal framework mandates that a legislative enactment cannot curtail a Constitutional right, the Court relied on the dictum in Nivedita Sharma v. Cellular Operators Association of India⁷ and enunciated that such a discretion to allow judicial interference should not be exercised beyond the procedure established under the enactment. This power needs to be exercised in exceptional rarity, in circumstance where a party is deprived of any remedy under the statute or upon portrayal of a clear 'bad faith' by one of the parties. The Order of the division bench of the High Court was set aside and it was emphasized that this standard is being set in terms of the legislative intention to make the arbitration fair and efficient.

In Navayuga Engineering Co. v. Bangalore Metro Rail Corp. Ltd⁸ ("Navayuga Engineering"), the Supreme Court recognized the tests discussed in Deep Industries and Bhaven Construction. In this case, an arbitral award was made in favor of the Appellant. A sum of Rs. 122.76 Crores amounting to Rs. 56.23 Crores principal and Rs. 66.53 Crores on various heads was ordered to be paid. The Respondent filed a petition to set aside the award and the execution of the award was stayed on deposit of 60% of the sum of the award and security being given for the balance. Both parties filed writ petitions against the said Order before the High Court of Karnataka. While the petition filed by the Appellant was dismissed, the one filed by the Respondent was allowed wherein a deposit of 50% of the principal amount was ordered. Upon Appeal, the Supreme Court set aside the High Court's Order and vehemently reiterated the principle laid down in Deep Industries enunciating that the jurisdiction of the High Court under Article 226 and 227 is to be exercised with extreme circumspection while interfering with orders passed under the Act, as it is a settled position in law that such interference is only feasible in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction.

In 2021, the Supreme Court in UNITECH Ltd. v. Telangana State Industrial Infrastructure Corp.⁹ ("UNITECH Ltd.") was dealing with a bundle of three appeals arising out of a judgement of a division bench of the Telangana High Court. This case pertains to a contractual dispute between a private party and a state instrumentality, wherein the private entity moved the High Court under Article 226 and a single judge of the High Court held that the state instrumentality is liable to refund an amount paid in relation to the contract together with interest and damages. This Order was further upheld by the division bench of the Court.

When the matter came before the Apex Court for consideration, one of the major contentions of the State Government and the state instrumentality was that the High Court has erred in entertaining a writ petition under Article 226 in a purely contractual dispute which also contains an arbitration agreement. The Supreme Court illuminating on the scope of exercise of jurisdiction under Article 226 enunciated that the extraordinary jurisdiction cannot be ousted only on the ground that the dispute arises out of a contractual arrangement. It was recognized that the presence of an arbitration clause does oust the jurisdiction under Article 226 in all cases. Further, the Court observed that it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked and held that a State and its instrumentalities are not exempt from its duty to act fairly, merely because in their business dealings they have entered the realm of contract.

In Uttar Pradesh Power Transmission Corp. Ltd. v. CG Power and Industrial Solutions Ltd.¹⁰ ("UPTCL"), the Supreme Court reconsidered the aspect of the extent of High Courts' extraordinary writ jurisdiction in contractual disputes by reaffirming that the existence of an arbitration clause does not debar the Court from exercising its writ jurisdiction in an appropriate case. In the present matter, the Allahabad High Court had allowed a writ petition filed by CG Power and Industrial Solutions Ltd., challenging the directions issued by the Executive Engineer of UPPTCL to remit Labor Cess. Although the existence of arbitration clause was not made as a ground for the appeal, the Supreme Court reestablished that availability of an alternative remedy does not prohibit the High Court from entertaining a writ petition. Such a petition may be entertained particularly:

i. Where the writ petition seeks enforcement of a fundamental right.

ii. Where there is failure of principles of natural justice.

iii. Where the impugned orders or proceedings are wholly without jurisdiction.

iv. The vires of an Act is under challenge.

Conclusion

The interplay between arbitration law and other subject-matters of law are often under the spotlight. The constitutional framework provides an extraordinary writ jurisdiction to the High Court's ensuring that an express constitutional remedy is available for the enforcement of both fundamental and legal rights. In the course of development, it has been established through various judicial pronouncements of the Supreme Court that this extraordinary remedy should be availed under extraordinary circumstances only. However, the remedy is often used in a non-conducive manner through which litigants try to escape the prescribed limitations provided in a particular statute. The Arbitration and Conciliation Act, 1996¹¹, a statute based on the sanctimonious principle of minimum judicial intervention, is no exception to that.

Footnotes

1 Babhutmal v. Laxmibai, AIR 1975 SC 1297.

2 Act No. 26 of 1996.

3 (2018) 11 SCC 470.

4 (2020) 15 SCC 706.

5 2020 SCC Online SC 1165.

6 2021 SCC Online SC 8.

7 (2011) 14 SCC 337.

8 2021 SCC Online SC 269.

9 2021 SCC Online SC 99.

10 2021 SCC Online SC 383.

11 Act No. 26 of 1996.

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