While the existence of an arbitration clause does not prevent a high court from hearing a writ petition, every order passed by a tribunal cannot be challenged1
Introduction-
The Constitution of India has traditionally envisaged the Supreme Court and High courts to issue writs to protect and enforce of our fundamental and legal rights.
But with the advent of special legislations, such as the Arbitration and Conciliation Act, 1996, which is a self-contained code, the scope of issuance of writs in arbitral proceedings and agreements containing arbitration clauses has been limited by the constitutional courts through its judicial pronouncements to ensure that the arbitral stream continues to flow unsullied and undisturbed by any eddies that may impede its path.
Judicial Developments (Supreme Court)
In SBP & Co. v. Patel Engg. Ltd.2 a seven judge bench of the apex court disapproved judicial interference with arbitral process and disapproved the practice of high courts to entertain petitions under Article 226/227 of the Constitution challenging the order passed by an arbitral tribunal and held that the aggrieved party ought to approach the court by way of a petition under Section 34 or 37 of the Arbitration and Conciliation Act.
The rationale behind this was that Section 34, allowed the aggrieved party to ventilate its grievances against the award, including any in-between orders that might have been passed by the Arbitral Tribunal under Section 16, and indicated that once the arbitration begins at the Arbitral Tribunal, the parties have to wait until the award is pronounced, unless a right to sue accrues to the party under the provisions of Section 37 of Arbitration and Conciliation Act, 1996 at an even earlier stage.
The principles envisaged in SBP & Co. (supra) were crystalised further in Deep Industries Limited vs ONGC3 (November 28, 2019), wherein the Supreme Court held that petitions under Article 226/227 of the Constitution would derail the arbitral process.
The apex court further added that Article 226/227 being a constitutional provision, while remains untouched by the non-obstante clause of Section 5 of the Arbitration and Conciliation Act, directed high courts to be extremely circumspect and interfere in only in such orders that are patently lacking in inherent jurisdiction, even as it allowed petitions under Article 227 against the arbitral tribunals judgments, allowing or dismissing the first appeal under section 37.
The court also explained the concept of "drill of Section 16", wherein when a Section 16 application is dismissed, there won't be any provision for appeal and that any challenge to the same must await the passing of the final award, following which it must be raised under Section 34.
The raison d' etre behind Deep Industries was applied in Punjab State Power Corporation Limited vs Emta Coal Limited4 (September 18, 2020) & or and Navayuga Engineering Company vs Bangalore Metro Rail Corporation limited5 (March 5, 2021), where the Supreme Court added that to warrant interference under writ jurisdiction, a patent lack of inherent jurisdiction that renders the arbitral order perverse, must stare one in the face.
The Supreme court further illuminated the above principle in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd.6 (January 6, 2021) by reversing the decision of a division bench of Gujarat High Court, allowing writ petition under Article 226/227 against the orders of the arbitral tribunal passed under Section 16(2) and held that the term "only" in Section 34, which provides a mechanism of challenge serves two purposes; of making the enactment a complete code and laying down the procedure.
The court, while recognising that a legislative enactment cannot curtail a constitutional right, held that when statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring statutory dispensation7 and a judge should not exercise discretion to allow judicial interference beyond the procedure established under the enactment and this power should be exercised in exceptional rarity, wherein one party is left remediless under the statute or clear "bad faith" is shown by one of the parties.
The court also emphasised on the principle of "unbreakability" of the time limit under Section 34(3) and held that the certainty and expediency of the arbitral awards, wherein any grounds for setting aside the award that emerge after the three-month time limit has expired cannot be raised and that extending the same would diminish the efficiency of the arbitral tribunal process. Furthermore, the court held that interpretation of contracts shall not be done in writ jurisdiction.
But, in Unitech Limited & ors vs Telangana State Industrial Infrastructure Corporation 8 (February 2, 2021) the Supreme Court directed the respondent to refund Rs. 165 crore along with interest to Unitech even though there existed an arbitration clause in the agreement between the parties.
The court held that jurisdiction of high courts under Article 226 is a valuable constitutional safeguard against an arbitrary exercise of state or misuse of authority and enunciated that Article 226 cannot be ousted on grounds that the dispute pertains to contractual arena, as state and its instrumentalities are not exempt from the duty to act fairly just because their business dealings have entered into the realm of contract.
The court furthermore held that arbitration clause does oust jurisdiction of Article 226 in cases though, but it still needs to be decided from case to case as to whether recourse to public law remedy can justifiably be invoked. In the same judgement, the apex court was also mindful in not formulating a straitjacket formula in disposal of writ petitions where the state or its instrumentalities may act arbitrarily since it observed that it was essential to uphold the principle of judicial non-interference in matters where arbitration clauses exist.
The Supreme Court has carried forward the same principle in Uttar Pradesh Power Transmission Corporation Limited & Ors vs CG Power and Industrial Solutions Limited & Ors9 (May 5, 2021) and held that existence of an arbitration clause does not debar the court from hearing a writ petition, since availability of alternate remedy does not prohibit a high court from entertaining a writ petition. It was also held that monetary relief can also be granted in a writ petition.
CONDITIONS TO ENTERTAIN WRIT PETITION
The Supreme Court while allowing writ petitions also explained the conditions under which a high court may entertain a writ petition:
- where the writ petition seeks enforcement of a fundamental right,
- where there is failure of principle of natural justice,
- where the impugned. orders or proceedings are without jurisdiction and
- Vires of the Act are challenged.
However, the Supreme Court did observe that since writs under Article 226 are discretionary, high courts must usually refrain from entertaining writ petitions involving adjudication of disputed questions of facts that require the analysis of evidence of witnesses.
The High Courts across the country have interpreted the aforementioned principles of the Supreme Court of India in the following ways depending on the facts of each case:
In, Union of India Rep. by Ministry of Railways, Railway Board, New Delhi vs. Krishnapathnam Railway Company Limited10 (February 22,2022)- the High Court of Telangana, for instance, rejected a writ petition challenging an order passed by the arbitrator under Section 16 of the Act, wherein the petitioner contended that the issue at hand involves right-in- rem and the same cannot be adjudicated through private resolution by way of arbitration. The high court held that the petitioner, by writ petition under Article 226 cannot seek the court to traverse into the merits of the claims raised by the respondent in the arbitral proceedings and once the arbitration has commenced, the petitioner has to wait till the award is pronounced, unless, a right of appeal is available under Section 37 of the Act, even at an earlier stage. The court also added that, exercise of its judicial review is limited to decision making process and not the decision of the arbitral tribunal. Furthermore, enunciating the need and to upkeep the financial promises in contractual matters, observed that legislature does not provide for appeal remedy against the dismissal of interlocutory application filed under Section 16 and any venture to appraise the matter on merits will defeat the purpose, scheme, and object for which the Act is brought in.
The High Court of Odisha in State of Odisha vs. M/s Nayagarh Sugar Complex Ltd & ors 11(April 21,2022) rejected the writ petition of the petitioner against the order of the Arbitrators disposing of the application of the petitioner for deleting it as a party in arbitration reference. The HC followed the principles enunciated in Bhaven (supra) and held that the present writ petition does not reveal rarest of rare case requiring intervention by judicial review in a pending arbitration reference.
The High Court of Gujarat in Pahal Engineers v. The Gujarat Water Supply and Sewage Board12 (June 6, 2022) held that interference in arbitration proceedings at any stage is impermissible and unwarranted in view of the self-sufficiency of the arbitration act. The court held that the remedies available under the arbitration act are the ones which are required to be availed and exhausted by the parties rather than deviating to writ or any other jurisdiction. The court while rejecting the contention of the writ applicant that non-interference by the court under Article 226/227 would render the writ applicant remediless, directed the writ applicant to avail statutory remedy under the Act.
Recently, the High Court of Delhi, by allowing the writ petition in Union of India v. Indian Agro Marketing Co-Operative Ltd13 (May 2, 2022) has once again ensured that Bhaven(supra) is not to be purported as a straight- jacket formula for preventing writ petitions against the orders of arbitral tribunal. In the instant case, exercising jurisdiction under Section 25(a) of the arbitration act, the arbitrator had terminated the arbitral proceedings before her on grounds of default, on the part of the petitioner in filing its statement of claim despite repeated opportunities having been granted for the said purpose. The moot question before the court was how, in view of Bhaven Construction (supra) the petition would not lie under Article 227. The Court held that there is no alternate remedy provided for an order passed under Section of 25(a) of arbitration act, either under Section 34 or Section 36 whereas, in Bhaven Construction (supra) alternate remedy against an order passed under 16(5) of act was available to the petitioner under Section 34.
The High Court of Delhi in Easy Trip Planners Ltd. Vs One97 Communication Ltd. 14 (July 25, 2022) while dismissing the writ petition under Article 227 filed against the order of the three-member arbitral tribunal that passed an interlocutory order rejecting the application filed by the petitioner under Oder VII Rule 14 of the CPC,1908 to bring on record additional documents, clarified that Bhaven Constructions(supra), envisages the availability of a remedy under Article 226/227 in rare and exceptional cases, which are delimited into two exigencies a) where the order suffers from "bad faith" b) where, if the challenge is not permitted, the party would be rendered remediless. The court opined that Bhaven Construction (supra) prevents an arbitral tribunal litigant from being left rudderless in the arbitral ocean, but the same is not intended to provide a haven for launching a challenge through writ petitions against every interlocutory arbitral order. Even as per SBP(supra), the party is not remediless in ventilating its grievances against the interim orders passed by the arbitral tribunal and therefore, Bhaven Construction (supra) reinforces, in its own way SBP(supra), and rejected the contention of the petitioner that certain passages in Bhaven Construction (supra) militate against SBP(supra). It was observed that the remedy would lie against the interim or final award that the arbitral tribunal passes under section 34, until then, SBP (supra) requires the litigant to bide his time. Therefore, the availability of remedy was deferred to a later stage of proceedings.
Conclusion
The decision of the seven judge bench of the Supreme Court in L. Chandra Kumar versus Union of India and Others, 1997(3) SCC 261, holding that the jurisdiction of the high courts under Article 226/227 of the Constitution cannot be ousted is most definitely trite law, however, the scope of writ jurisdiction has been circumscribed qua special statutes such as the Arbitration and Conciliation Act.
However, as stated hereinabove, the consistent view of the Supreme Court and high courts is that every interlocutory order passed by an arbitral tribunal cannot be challenged by invoking the writ jurisdiction of a high court, more particularly, when the same can be assailed under the arbitration act. The aggrieved party is definitely not remediless and can raise specific grounds/objection under Section 34 of the Act, when the final Award has been pronounced.
Footnotes
1 2022 SCC online Del 2186
2 (2005) 8 SCC 618
3 (2020) 15 SCC 706
4 (2020) 17 SCC 93
5 2021 SCC Online SC 469
6 (2022) 1 SCC 75
7 (2011) 14 SCC 337
8 2021 SCC Online SC99
9 (2021) 6 SCC 15
10 2022 SCC Online TS 447
11 2022 SCC Online Ori 1187
12 R/Special Civil Application No. 8727/2019 (Gujarat High Court)
13 CM(M) 424/2021 & other connected matters (High Court of Delhi)
14 2022 SCC online Del 2186
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