Supreme Court of India: Whether, In Statutory Arbitration, The Arbitrator Has The Jurisdiction To Grant Interim Relief In Terms Of Section 17 Of The Arbitration Act

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In State of Gujarat v. Amber Builders Civ. Appeal no. 8307 of 2019 decided on 8 January 2020, the Supreme Court addressed the issue of whether, in a statutory arbitration under the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (‘Gujarat Act’) the Arbitral Tribunal has jurisdiction to make interim orders in terms of Section 17 of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) .

It is noteworthy that the Gujarat Act was enacted with a view to compulsorily refer all disputes arising out of “works contract” entered into by the State Government or the Public Sector Undertakings with any other person for those works defined as “works contract” in terms of Section 2(k) of the Gujarat Act to the Arbitral Tribunal constituted under Section 3 of the Gujarat Act.

In this case, a dispute arose out of a construction contract between the Employer (State entity) and the Contractor. In one of the contracts between the parties, the Contractor was required to remove defects from the roads which have occurred due to rains. The Contractor had allegedly not carried out the road repair work in accordance with the contract and therefore, the Employer issued a notice to the Contractor threatening that it will withhold the payments from the security deposits of the Contractor made under other contracts.

Against this notice, the Contractor filed a writ in the High Court which was decided in favour of the Contractor inter alia holding that without quantification or crystallization of the amount sought to be recovered, the employer or the contractor cannot unilaterally recover the said amounts from the ongoing contract work of the same contractor in connection with another contract (relying on Supreme Court case of State of Karnataka vs. Shree Rameshwara Rice Mills, Thirthahalli (1987) 2 SCC 160). The decision of the High Court was challenged in Supreme Court in this case.

Before the Supreme Court, the Employer contended that the proper remedy available to the Contractor is to approach the Arbitral Tribunal constituted under the Gujarat Act and not the High Court. Per contra the Contractor contended that such Arbitral Tribunal has no jurisdiction to grant such relief and that if the Gujarat Act does not empower the Tribunal to grant injunction, it cannot take recourse to the Code of Civil Procedure, 1908 for grant of interim relief.

The Supreme Court placed reliance on Sections 2(2) & (4) of the Arbitration Act. Section 2(2) states that Part I of the Arbitration Act, which under Section 17 empowers the Arbitral Tribunal to grant interim measures, would apply to all Arbitrations which take place in India. Section 2(4) makes it absolutely clear that other than Section 40(1), 41 and 43, Part I of the Arbitration Act shall apply to all arbitrations even if they are carried out under any other enactment as if the arbitrations were pursuant to an arbitration agreement except insofar as the provisions of Part I are inconsistent with the other enactment or any rules made thereunder.

After analysing the provisions of the Gujarat Act, the Court noticed that Section 8(3) of the Gujarat Act clearly provides that where the Arbitral Tribunal admits a reference under sub-section (2) of Section 8, it will make an award or an interim award giving its reasons thereof. This Section recognizes the power of the Tribunal to make interim awards. In view thereof, the Court concluded that as far as the grant of interim relief is concerned, there is no inconsistency in the Gujarat Act and the Arbitration Act since power of the Tribunal to grant interim relief is provide under Section 8(3) of the Gujarat Act and Section 17 of the Arbitration Act compliments these powers.

Thus, in Court’s view, the appropriate remedy for the Contractor was to approach the Arbitral Tribunal constituted under the Gujarat Act since that would have jurisdiction to decide whether the notice issued by the Employer was a legal notice and whether the Employer was, in fact, entitled to recover any amount from the Contractor. Further, the Court noticed that it would also be within the jurisdiction of the Tribunal to decide whether the Contractor has made out a prima facie case for grant of interim relief. Thus, the Supreme Court set aside the order of the High Court granting the liberty to the Contractor to approach the Arbitral Tribunal constituted under the Gujarat Act.

On a separate aspect, the Contractor had also relied on Gangotri Enterprises Limited vs. Union of India and Others (2016) 11 SCC 720 to submit that till the demand of the Government is crystallised or adjudicated upon, the Government cannot withhold the money of the contractor. The Court noticed that this judgment was primarily based on the judgment of a two Judges’ Bench of Supreme Court in  Union of India vs. Raman Iron Foundry (1974) 2 SCC 231 wherein the Supreme Court held that the Government had no right to appropriate the amount claimed without getting it first adjudicated. However, the judgment in Raman Iron Foundry, was specifically overruled on this issue by a three Judge Bench of Supreme Court in the case of H.M. Kamaluddin Ansari & Co. vs. Union of India (1983) 4 SCC 417 and therefore, the Court held that judgment rendered in Gangotri Enterprises Limited is per incuriam.

Comments

The test, thus, formulated by the Supreme Court in this case is that in statutory arbitrations triggered under special enactments (such as Gujarat Act), the Arbitral Tribunal may grant interim relief under Section 17 of the Arbitration Act only if there is no inconsistency between such special enactment and the Arbitration Act as far as the grant of interim relief is concerned.

Disclaimer: The views expressed on this post are mine and do not reflect the views of the organisation(s) I am engaged with

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