India: Exercise Of Writ Jurisdiction During Arbitration Proceedings – Gujarat High Court Reaffirms Judicial Non-Interference Under The Arbitration And Conciliation Act, 1996

Introduction

In a significant decision¹, the Gujarat High Court ("High Court") held that an order passed by an arbitral tribunal during the pendency of arbitration proceedings cannot be challenged in a writ petition under Articles 226 and/or 227 of the Constitution of India, 1950 ("Constitution").

The present decision serves as an important and timely reaffirmation of the principle that simplicitor allegations of frauds are arbitrable under the Arbitration and Conciliation Act, 1996 ("Arbitration Act") and that the same does not vitiate the underlying arbitration agreement entered into between parties. This was enunciated by the Supreme Court of India ("Supreme Court") in A Ayyasamy v. Paramasivam & Ors², and thereafter clarified last year, in Rashid Raza v. Sadaf Akhtar³.

The present decision also reaffirms the principle of "kompetenz-kompetenz" under the Arbitration Act, viz., that an arbitral tribunal has the power to decide a challenge to the validity and enforceability of an underlying arbitration agreement, within the scope and ambit of Section 16 ('Competence of arbitral tribunal to rule on its jurisdiction') of the Arbitration Act.

Facts

Under a contract dated December 5, 2014 ("Contract"), GTPL Hathway Ltd. ("Petitioner") had agreed to outsource its customer call services to Strategic Markering Pvt. Ltd. ("Respondent") which would establish and operate the Petitioner's call centre.

During a routine inspection, the Petitioner discovered that the Respondent had allegedly manipulated its software and raised false and inflated invoices in connivance with two of the Petitioner's employees. The Petitioner accordingly filed a criminal complaint ("Complaint") against the Respondent on the grounds of fraud, cheating and digital tampering under the Indian Penal Code, 1860 and the Information and Technology Act, 2008.

As an alleged afterthought against the Petitioner's Complaint and in addition to an application for quashing the Complaint filed under Section 482 of the Code of Criminal Procedure Code, 1973, by its notice dated May 30, 2017, the Respondent invoked the arbitration clause under the Contract and sought a reference of the disputes to arbitration. Subsequently, a sole arbitrator came to be appointed by the High Court on an application made by the Respondent under Section 11 of the Arbitration Act.

During the arbitration proceedings, the Petitioner raised a preliminary objection that the disputes were not arbitrable in light of the criminal allegations of fraud and cheating raised by the Petitioner and the pending Complaint filed by it.

By an order dated February 14, 2019 ("Impugned Order"), the arbitral tribunal dismissed the Petitioner's challenge and held that the disputes were arbitrable since the same arose out of the accounts rendered between the parties and in pursuance of work done under the Contract.

Aggrieved by the order of the arbitral tribunal, the Petitioner filed a writ petition before the High Court.

Petitioner's arguments

In addition to reiterating the arguments made before the arbitral tribunal, the Petitioner primarily relied upon the judgment of the Supreme Court in A Ayyasamy⁴ and argued that, in view of the Impugned Order, the Petitioner would have to undergo the rigors of the entire arbitral proceedings even though the disputes were non-arbitrable in light of the allegations of fraud and cheating raised by the Petitioner. The Petitioner also contended that the arbitral tribunal had failed to consider the relevant documents and proceedings of the Complaint before passing the Impugned Order.

High Court's decision

The High Court relied upon the Supreme Court decisions in M/s. S.B.P. and Co. v. M/s. Patel Engineering Ltd. and Anr.⁵ and M/s. Deep Industries Limited v. Oil and Natural Gas Corporation⁶ and held that an order passed by an arbitral tribunal during the course of arbitral proceedings, could not be challenged or interfered with, in a writ petition filed under Articles 226 and/or 227 of the Constitution. The High Court also held that the non-obstante provision of Section 5 of the Arbitration Act itself provided for limited judicial intervention by courts, except for what was permissible under the Arbitration Act itself.

After considering the objects of the Arbitration Act read with the provisions thereof, the High Court observed that the Arbitration Act was a self-contained code and in view of an alternate efficacious remedy being available to the Petitioner under Seciton 34 of the Arbitration Act by challenging the final arbitral award passed by the tribunal, a writ petition under Articles 226 and/or 227 of the Constitution was not maintainable.

Accordingly, the High Court dismissed the writ petition filed by the Petitioner and allowed the parties to raise their contentions before the appropriate forum and at the appropriate time, in accordance with law.

Views

The decision serves as a useful reaffirmation of the principle of judicial non-interference enshrined under the statutory mandate of the Arbitration Act. The decision of the High Court also helps in reassuring the belief of India being an arbitration friendly jurisdiction.

Footnotes

1 GTPL Hathway Ltd. v. Strategic Markering Pvt. Ltd. [R/Special Civil Application No. 4524 of 2019 decided on April 20, 2020]

2 (2016) 10 SCC 386

3 Civil Appeal No. 7005 of 2019 decided on September 4, 2019

4 Supra

5 (2005) 8 SCC 618

6 2019 SCC OnLine SC 1602

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