Supreme Court of India: Whether The Arbitral Process Could Be Interfered Under Original And Supervisory Jurisdiction Of High Courts For Arbitration Under Special Enactments?

In India, arbitration is a prescribed mode of dispute resolution under certain special enactments concerning public works contract. One such State legislation is the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992. In this post, I will analyze the scope of High Court’s interference while exercising its original and supervisory jurisdiction in arbitration process under one such special enactment.

Doctrine of Competence-Competence and Appeal Against Positive Jurisdiction Ruling of the Arbitral Tribunal

Under Section 16 of the Arbitration & Conciliation Act, 1996 (A&C Act/Act), the arbitral tribunal is empowered to rule on its own jurisdiction. In case, the tribunal decides that it does not have jurisdiction, then such decision is subject to an appeal under Section 37(2)(a) of the A&C Act. However, in case, the tribunal decides that it has jurisdiction (‘Positive Jurisdiction Ruling’) then such decision is not subject to an immediate appeal to the Court and the aggrieved party will have to go through the rigors of the entire arbitral process till the stage of rendering of award for challenging the Positive Jurisdiction Ruling. Once the award is passed by the tribunal, only then can the aggrieved party challenge the award inter alia on the ground of lack of jurisdiction of the tribunal.

Albeit this mechanism is significantly different from the procedure enshrined under Article 16 of the UNCITRAL Model Law[1], the Indian legislators backs this mechanism on the basis that it is in line with minimal court intervention in the arbitration process approach and further it also filters out any unmeritorious challenges to the jurisdiction of the arbitral tribunal at the threshold.

Thus, it is clear that under the A&C Act, an order of the arbitral tribunal holding that it has jurisdiction to decide the lis between the parties is not appealable under Section 37 of the Act which is the only appeal provision qua domestic arbitration under the Act. Then the question arises as to whether such Positive Jurisdiction Ruling can be challenged under original and supervisory jurisdiction of High Courts?

Original & Supervisory Jurisdiction of High Courts

To provide a brief background on original and supervisory jurisdiction of the High Courts in India, Article 226 of the Constitution of India, 1950 (Indian Constitution) empowers the High Courts to issue certain writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights. The writ may be issued for the enforcement of fundamental rights of for “any other purpose”. It is not confined to fundamental rights but extends to all cases where the breach of a right is alleged.[2]

Such writs as are referred to in Article 226 are intended to enable the High Court to issue them in grave cases where the subordinate tribunals or bodies or officers act wholly without jurisdiction, or in excess of it, or in violation of the principles of natural justice, or refuse to exercise a jurisdiction vested in them, or there is an error apparent on the face of the record, and such act, omission, error or excess has resulted in manifest injustice. That being said, it is noteworthy that however extensive the jurisdiction under Article 226 may be, it is not so wide or large as to enable the High Court to convert itself into a court of appeal and examine for itself the correctness of the decision impugned and decide what is the proper view to be taken or the order to be made.[3]

Article 227 of the Indian Constitution confers on every High Court a power of superintendence over all Courts and Tribunals throughout the territory, in relation to which it exercises jurisdiction, excepting any Court or Tribunal constituted by or under any law relating to the armed forces. The supervisory power under Article 227 of the Constitution is exercised with restraint to ensure that inferior Courts or tribunals act within the bounds of their authority. The jurisdiction is exercised to remedy grave cases of injustice or a failure of justice such as when (i) The Court or Tribunal has assumed jurisdiction which it did not possess; (ii) The Court or Tribunal has declined or failed to exercise jurisdiction which is conferred upon it which has occasioned a failure of justice; (iii) The Court or Tribunal has exercised its jurisdiction so as to over step the limits of its jurisdiction; and (iv) There is a patent perversity or breach of the principles of natural justice.[4]

The distinction between Articles 226 and 227 of the Indian Constitution is that while proceedings under Article 226 are in the exercise of the original jurisdiction of the High Court, proceedings under Article 227 of the Indian Constitution are not original but are supervisory.[5]

In view thereof, the question arises as to whether a Positive Jurisdiction Ruling of the Arbitral Tribunal which is otherwise not appealable under Section 37 of the A&C can be appealed against under Article 226/227 of the Indian Constitution? This issue was recently decided by a Three Judge Bench of the Supreme Court of India in Bhaven Construction vs Exe Engineer Sardar Sarovar decided on 6 January 2021.

Positive Jurisdiction Ruling of the Arbitral Tribunal and Article 226/227 of the Indian Constitution

While deciding the issue in negative the Supreme Court made following pertinent observations:

A&C is a code in itself and the non-obstante under Section 5 of the Act upholds the intention of the legislature as provided in the Preamble of the Act to adopt UNCITRAL Model Law and Rules and to reduce excessive judicial interference which is not contemplated under the A&C Act.

The Act itself gives various procedures and forums to challenge the appointment of an arbitrator. The framework clearly portrays an intention to address most of the issues within the ambit of the Act itself, without there being scope for any extra statutory mechanism to provide just and fair solutions.

In the usual course, under Section 34, the A&C Act provides for a mechanism for challenging the award passed by the Tribunal. The opening phrase of Section 34 reads as ‘Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3)’. The use of term ‘only’ as occurring under the provision serves two purposes of making the enactment a complete code and lay down the procedure.

In any case, the hierarchy in the Indian legal framework, mandates that a legislative enactment cannot curtail a Constitutional right. There cannot be any dispute that the power of the High Courts to issue directions, orders or writs including writs in the nature of habeas corpus, certiorari, mandamus, quo warranto and prohibition under Article 226 of the Indian Constitution is a basic feature of the Constitution and cannot be curtailed by parliamentary legislation.[6]

However, it is one thing to say that in exercise of the power vested in it under Article 226 , the High Court can entertain a writ petition against any order passed by or action taken by the State and/or its agency/ instrumentality or any public authority or order passed by a quasi-judicial body/authority, and it is an altogether different thing to say that each and every petition filed under Article 226 of the Indian Constitution must be entertained by the High Court as a matter of course ignoring the fact that the aggrieved person has an effective alternative remedy.[7]

It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment .This power needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear ‘bad faith’ shown by one of the parties. This high standard set by the Supreme Court is in terms of the legislative intention to make the arbitration fair and efficient.

Section 37 grants a constricted right of first appeal against certain judgments and orders and no others. Further, the statutory mandate also provides for one bite at the cherry, and interdicts a second appeal being filed under Section 37(2) of the A&C Act. This being the case, there is no doubt whatsoever that if petitions were to be filed under Articles 226/227 of the Constitution against orders passed in appeals under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years.[8]

At the same time, one cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante clause of Section 5 of the Act. In these circumstances, what is important to note is that though petitions can be filed under Article 227 against judgments allowing or dismissing first appeals under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated under the A&C Act that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.[9]

Viewed from a different perspective, the arbitral process is strictly conditioned upon time limitation and modeled on the ‘principle of unbreakability’. If the Courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished.

Arbitration under the Gujarat Act and the Jurisdiction of Indian High Courts under Articles 226 & 227 of the Indian Constitution

In Bhaven Construction, a private contractor (Bhaven) entered into a public work contract with State entity (Sardar Sarovar Narmada Nigam Ltd, SSNNL). The supply contract contained an arbitration clause which inter alia provided that arbitration between the parties is to be conducted in accordance with the provision of the Arbitration Act, 1940 (the erstwhile Act which was later superseded by the A&C Act) and any statutory modification thereof. Subsequently, the State of Gujarat had passed the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (‘Gujarat Arbitration Act’).

Certain disputes arose between the parties and Bhaven appointed a sole arbitrator for adjudication of the disputes. SSNNL challenged the jurisdiction of the arbitrator under Section 16 of the A&C which was rejected by the Arbitrator holding it has jurisdiction to decide the issue between the parties. This Positive Jurisdiction Ruling of the arbitrator which we have seen is not appealable under Section 37 of the A&C Act, was challenged by SSNNL before the Single Judge Bench of the Gujarat High Court under Article 226 & 227 of the Indian Constitution invoking its writ jurisdiction. The Single judge dismissed the appeal inter alia holding that a petition under Articles 226 and 227 against the Positive Jurisdiction Ruling is not maintainable and/or the same is not required to entertained and the only remedy available to SSNNL is to wait till the award is passed by the Arbitrator and to challenge the same under Section 34 of the A&C Act.

The decision of the Single Judge was reversed by the Division Bench of the Gujarat High Court in exercise of its writ jurisdiction under Articles 226 and 227 of the Indian Constitution. The decision of the Division Bench was appealed before the Supreme Court of India in Bhaven Construction.

Before the Supreme Court, SSNNL inter alia contended that since the Gujarat Act is a State enactment it is open for it to invoke the writ jurisdiction of the High Courts under Articles 226 and 227 of the Constitution. The Supreme Court, while ruling in favour of Bhaven and considering the nature of Articles 226/227 of the Indian Constitution, noticed that SSNNL failed to show exceptional circumstance or ‘bad faith’ on the part of the Bhaven, to invoke the remedy under Article 227. The Court further observed that no doubt the ambit of Article 227 is broad and pervasive, however, the High Court should not have used its inherent power to interject the arbitral process at this stage.

Further, in the facts of the case, SSNNL did not take legal recourse against the appointment of the sole arbitrator, and rather submitted themselves before the tribunal to adjudicate on the jurisdiction issue as well as on the merits. In this situation, the SSNNL has to endure the natural consequences of submitting themselves to the jurisdiction of the arbitrator, which can be challenged, through an application under Section 34 of A&C Act.

The Court also highlighted that the issue as to whether the contract between the parties is a works contract for the purposes of Gujarat Act or not is question of contractual interpretation which shall generally not be done in the writ jurisdiction. Further, mere fact that the Gujarat Act might apply (and not the A&C Act) may not be sufficient for the writ courts to entertain the plea of SSNNL to challenge the Positive Jurisdiction Ruling of the arbitrator under Section 16 of the A&C Act.

Since Section 16 of the A&C Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the Court examines the same under Section 34, SSNNL, is therefore not left remediless, and has statutorily been provided a chance of appeal. In view thereof, the Court held that the High Court erred in utilizing its discretionary power available under Articles 226 and 227 of the Indian Constitution in the present case.


Footnotes

[1] Article 16(3) inter alia provides if the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal..

[2] State of Orissa v. Madangopal, (1952) SCR 28: AIR 1952 SC 12. Of course, there must be violation of a right; Calcutta Gas Co. v. State of West Bengal, AIR 1962 SC 1044: 1962 Supp (3) SCR I.

[3] Veerappa Pillai vs Raman & Raman Ltd. And Others, 1952 AIR 192, 1952 SCR 583

[4] Advani Oerlikon vs. Machindre Govind, AIR 2011 Bom. 1984

[5] Ibid

[6] L. Chandra Kumar v. Union of India, (1997) 3 SCC 261

[7] Nivedita Sharma v. Cellular Operators Association of India, (2011) 14 SCC 337,

[8] M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited, (2019) SCC Online SC 1602

[9] Ibid

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

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