“Statutory Remedy to Be Pursued Before Approaching Courts Under Article 226 or 227 for Challenging Arbitral Award: Supreme Court”

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Excerpt:

This case concerns the question of whether the arbitral process could be interfered with under Article 226 or 227 of the Constitution and what circumstances. 

Brief Facts of the Case: 

On 13.02.1991, Respondent No.1 – Executive Engineer Sardar Sarovar Nigam Ltd. entered into a contract with the Appellant – Bhaven Construction through Premjibhai K. Shah to manufacture and supply bricks. The contract contained an arbitration clause. The dispute arose between them regarding the payment, the Appellant issued a notice dated 13.11.1998, seeking the appointment of a sole arbitrator. 

Respondent No.1 in his reply dated 23.11.1998 and 04.01.1999 did not agree to the Appellant’s request because the disputes between the parties were to be adjudicated by the Gujarat Public works Contracts Disputes Arbitration Tribunal Act,1992 and that the arbitration was time-barred as per Clause 38 of the agreement. 

Further, Appellant appointed Respondent No.1 to act as a sole arbitrator. Respondent No.1 preferred an Application under Section 16 of the Arbitration and Conciliation Act,1996 (the Arbitration Act) disputing the jurisdiction of the sole arbitrator. However, the sole arbitrator rejected the application upholding its jurisdiction to adjudicate the dispute. 

The Respondent, thus, appealed to the High Court of Gujarat, where the Single Judge Bench dismissed the appeal, then the Letter Patent Appeal was filed by the Respondent, and the appeal was allowed by the High Court. Thus, the Appellant filed this appeal before this Court. 

Appellant’s Argument: 

The High Court erred in interfering with the Order of Single Judge under Article 226 and 227 of the Constitution. The final award passed by the sole arbitrator and was now challenged under Section 34 of the Arbitration Act, clearly shows the attempt of Respondent No.1 to bypass the framework laid down under the Arbitration Act. 

Section 16(2) of the Arbitration Act mandates that the sole arbitrator had the jurisdiction to adjudicate the preliminary issue of jurisdiction, which can only be challenged under Section 34 of the Arbitration Act. However, the High Court in its decision mentioned that the jurisdiction of the sole arbitrator can be challenged under Sections 34 and 37 of the Arbitration Act.

Respondent’s Argument: 

With the enactment of the Gujarat Act, the Arbitration Act was substituted concerning the disputes arising out of works contract. It was, further, contended that under Article 226 and 227 of the Constitution, it was always open for Respondent No.1 to invoke writ jurisdiction of the High Court to set aside an arbitration which was a nullity as it conflicted with the state enactment. 

Observation by the Court: 

The Arbitration is a code in itself. This statement is substantiated by the non-obstante clause under Section 5 of the Arbitration Act. This clause is provided to uphold the intention of the legislature as provided in the Preamble to adopt UNCITRAL Model Law and Rules, to reduce judicial interference which is not contemplated under the Arbitration Act. 

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

Respondent No.1 chose to impugn the Order passed by the arbitrator under Section 16(2) of the Arbitration Act through the petition under Article 226 or 227 of the Indian Constitution. in the ordinary course, the Arbitration Act provides for a mechanism of challenge under Section 34. 

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 following sub-section (2) and sub-section (3)”. The use term ‘only’ used in the provision serves two purposes of making the enactment a complete code and lay down procedures. 

The hierarchy of the legal framework mandates that a legislative enactment cannot curtail a constitutional right. However, in the case of Nivedita Sharma v. Cellular Operators Association of India (2011), it was held that it is settled that when the statutory forum is created by law for redressal of grievances, the writ petition should not be entertained ignoring the statutory dispensation.

It is prudent for the judge to not exercise discretion to allow judicial interference beyond the procedure established under an enactment. This power should be exercised only in exceptional rarity or a clear ‘bad faith’ shown by one of the parties. In the case of M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited (2019), it was observed that Article 227 of the Constitution is left untouched by the non-obstante clause of Section 5 of the Act. The petitions can be filed under Article 227 against judgments allowing the first appeal under Sec. 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same. 

The arbitral process is strictly conditioned upon time limitation and modelled on the ‘principle of unbreakability’. This was observed in the case P. Radha Bai v. P. Ashok Kumar (2019), where, “unbreakability” of time-limit and true to “certain and expediency” of the arbitral award, any grounds for setting aside the award that emerges after the three-month time-limit has expired cannot be raised. 

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 eliminated. 

The mere fact that the Gujarat Act might apply, was not sufficient for the writ Courts to entertain the plea of Respondent No.1 to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act. 

Section 16 of the Arbitration Act mandates the issue of jurisdiction must be dealt with first by the tribunal before the Court examines the same under Section 34. Respondent No.1 was therefore not left remediless and was statutorily provided with the chance of appeal. 

The Decision of the Court: 

The appeal was allowed, and the impugned Order of the High Court was set aside. Respondent No.1 was at liberty to raise any legally permissible objections regarding the question of jurisdiction in the pending Section 34 proceedings. 

Click here to view the judgment.


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