Use of powers under Articles 226/ 227 by High Courts to interfere in the arbitral proceeding is bad in law: Supreme Court

Bhaven Construction v. Sardar Sarovar Narmada Nigam

Civil Appeal No. 14665 Of 2015 decided on 6^th January, 2021

Bench: N.V.Ramana, Surya Kant & Hrishikesh Roy, JJ.

Facts: 

Bhaven Construction entered into a contract with the Executive Engineer of Sardar Sarovar Narmada Nigam (Respondent) to manufacture and supply bricks. The agreement between the two parties had an arbitration clause in case of any dispute.

A payment dispute arose between the two parties, and the Appellant referred the matter by appointing a sole arbitrator. The Respondent preferred an application under Section 16 of the Arbitration and Conciliation Act of 1996 and challenging the sole arbitrator’s jurisdiction. The sole-arbitrator dismissed the Respondent’s application under Section 16, and then the Respondent preferred a special civil application under Articles 226 and 227 of the Constitution before the Gujarat High Court.

The matter was presided by a single-judge who dismissed the same, and the Appellant preferred a Letters Patent Appeal which was allowed by a Division Bench of the High Court.

The Division Bench in its order passed on September 2012, set aside the appointment of a sole arbitrator. The Respondent moved the Supreme Court aggrieved by order of the Division Bench of the Gujarat High Court.

Issue: Whether the arbitral process could be interfered under Article 226/227 of the Constitution, and under what circumstance?

Held:

The Supreme Court held that the High Court should not have used its inherent power to interject the arbitral process at this stage. If the Courts are allowed to interfere with the arbitral operation beyond the enactment’s ambit, then the efficiency of the process will be diminished. The Supreme Court held that the Arbitration Act lays down procedures and forums to challenge an arbitrator’s appointment. The legislative framework 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, the apex court observed.

It explained that any party could enter into an arbitration agreement for resolving any disputes capable of being arbitrable. While entering into such contracts, parties need to fulfil the essentialingredients provided under Section 7 of the Arbitration Act.

Arbitration, being a contract creature, gives the parties a flexible framework to agree for their procedure with minimalistic stipulations under the Arbitration Act.

Suppose parties fail to refer a matter to arbitration or appoint an arbitrator according to the procedure agreed by them. In that case, a party can take recourse for court assistance under Section 8 or 11 of the Arbitration Act.

However, the Court acknowledged that our legal framework’s hierarchy mandates that a legislative enactment cannot be in curtailment of a Constitutional right.

The Court referred its 2014 judgment in Nivedita Sharma v. Cellular Operators Association of India where it was held that it is one thing to say that in the exercise of the power vested in it under Article 226 of the Constitution. It was laid that the High Court can entertain a writ petition against any order passed by or action taken by the State and its agency/ instrumentality or any public authority or order given by a quasi-judicial body/authority. It is an altogether different thing to say that the High Court must entertain every petition filed under Article 226 of the Constitution as a matter of course ignoring the fact that the aggrieved person has an adequate alternative remedy. The Nivedita Sharma case law categorically stated that it is settled law that when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.

In M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited, the Supreme Court analysed the interplay between Section 5 of the Arbitration Act and Article 227 of the Constitution to hold that HCs should be extremely circumspect while interfering under Article 227 against judgments allowing or dismissing first appeals.

Therefore, it set aside the High Court judgment but granted liberty to the Respondent to raise any legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings. It also mentioned the ‘principle of unbreakability’ as discussed by the Court in P. Radha Bai v. P. Ashok Kumar, (2019) 13 SCC 445. In the case, the Court observed that Section 34(3) reflects the principle of unbreakability. According to this “unbreakability” of time-limit and true to the “certainty and expediency” of the arbitral awards, any grounds for setting aside the award that emerges after the three- month time-limit has expired cannot be raised.

The Court concluded that the High Court did not appreciate the limitations under Articles 226 and 227 of the Constitution and reasoned that the Appellant had undertaken to appoint an arbitrator unilaterally, thereby rendering the Respondent remediless. However, a direct reading of the arbitration agreement points out that the Appellant herein had acted following the procedure laid down without any mala fides. It also laid that Respondent No. 1 did not take legal recourse against the appointment of the sole arbitrator. Instead, it submitted themselves before the tribunal to adjudicate on the jurisdiction issue and the merits. In this situation, the Respondent has to endure the natural consequences of submitting themselves to the sole arbitrator’s jurisdiction, which can be challenged through an application under Section 34.