India: Discretionary Powers Under Article 226 Of The Constitution Are Not To Be Invoked To Interfere In The Arbitral Process Under The Arbitration Act Under Ordinary Circumstances: Supreme Court Of India

In the recent judgment of Bhaven Construction through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd and Another¹, the Hon'ble Supreme Court discussed the interplay between Section 5 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) and Article 226 of the Constitution of India (Constitution). In the present case, the question before the Hon'ble Supreme Court was whether the arbitral process could be interfered with under Article 226 and 227 of the Constitution and under what circumstances such interference may be required. In this article, we attempt to briefly examine the position of law that emerges from this decision of the Hon'ble Supreme Court.

Brief Facts

The first respondent entered into a contract with the appellant to manufacture and supply bricks. As some disputes emerged amongst the parties, the appellant invoked the arbitration clause and sought the appointment of the sole arbitrator. By way of an application under Section 16 of the Arbitration Act, the first respondent objected to the appellant's request for the appointment of an arbitrator. The first respondent argued that the dispute was not amenable to the Arbitration Act and that the arbitration was time-barred. Regardless of the objections raised by the first respondent, the sole arbitrator was appointed. The arbitrator rejected the first respondent's application under Section 16 of the Arbitration Act by upholding the arbitral tribunal's jurisdiction to adjudicate upon the instant dispute.

Aggrieved by the order of the sole arbitrator, the first respondent preferred a writ petition before the High Court of Gujarat (High Court) under Article 226 of the Constitution. The Single Judge dismissed the writ petition. Aggrieved by the Single Judge's decision, the first respondent preferred a writ appeal which was allowed by the Division Bench.

Subsequently, the appellant challenged the decision of the Division Bench of the High Court in the present proceedings. The appellant contended that the Division Bench of the High Court erred in interfering with the Single Judge's order. The fact that the first respondent also challenged the final award under Section 34 of the Arbitration Act showed that the first respondent was trying to bypass the framework laid in the enactment. Hence, the present case.

Findings of the Court

At the outset, the Hon'ble Supreme Court stated that the Arbitration Act is a code in itself having definite legal consequences. One such consequence is embodied in the non-obstante clause in Section 5 of the Arbitration Act aimed at reducing excessive judicial interference. The language in Section 5 expressly states that no judicial authority shall intervene in the arbitral process except where the law provides for it.

In the present matter, the Hon'ble Supreme Court held that the appellant had acted in accordance with the procedure laid down under the agreement to appoint the sole arbitrator. The first respondent then challenged the jurisdiction of the sole arbitrator in terms of Section 16(2) of the Arbitration Act. Thereafter, the first respondent challenged the order passed by the arbitrator under Section 16(2) of the Arbitration Act through a petition under Article 226 of the Constitution of India. It was observed that in the usual course, the Arbitration Act provides for a mechanism of the challenge under Section 34. The Hon'ble Supreme Court opined that the use of the term "only" under Section 34 served the twin purposes of making the Arbitration Act a complete code and laying down the procedure for challenging arbitral awards.

The Hon'ble Supreme Court noted in Nivedita Sharma v. Cellular Operators Association of India² that the hierarchy of India's legal framework mandates that a legislative enactment cannot curtail a constitutional right. However, it was also held that when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation. Therefore, the Hon'ble Supreme Court held that it is prudent for a Judge not to exercise discretion to allow judicial interference beyond the procedure established under the Arbitration Act. The powers under Article 226 and 227 of the Constitution need to be exercised in exceptional rarity, where one party is left remediless under the statute or an evident 'bad faith' shown by one of the other parties.

The Hon'ble Supreme Court placed reliance upon the decision in Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd.³ to hold that the High Court would be extremely circumspect in interfering with the arbitral process. The writ jurisdiction would be invoked only in exceptional circumstances which leave the aggrieved party without a statutory remedy. The Hon'ble Supreme Court further held that Section 16 of the Arbitration Act sets a mandate that the issue of jurisdiction must be dealt with first by the tribunal in recognition of the Kompetenz-Kompetenz principle. Once the Section 16 application is dismissed, the jurisdiction of the arbitral tribunal can be challenged only after the final award is passed under Section 34 of the Arbitration Act. In view of the above reasoning, the Hon'ble Supreme Court opined that the High Court erred in utilizing its discretionary power available under Article 226 and 227 of the Constitution.

Conclusion

The judgment paves the right way by highlighting the need to reduce judicial interference in the arbitral process that is not contemplated under the Arbitration Act. The Hon'ble Supreme Court has rightly pointed out that if the courts interfered with the arbitral process beyond the ambit of the Arbitration Act, the efficiency of the arbitration would be diminished. The judgment in the present case sets casts a duty on the parties arbitrating under the Arbitration Act to abide by the statutory mechanism to the greatest extent. We are certain that this judgment will inspire confidence amongst all the stakeholders in the strength of India's arbitral regime and promote India as an arbitration-friendly jurisdiction.

The authors wish to acknowledge the research assistance rendered by Harshvardhan Korada, a student of the Amity Law School, Delhi.

Footnotes

1. Bhaven Construction through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd and Another 2021 SCC OnLine SC 8.

2. Nivedita Sharma v. Cellular Operators Association of India (2011) 14 SCC 337.

3. Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd. 2019 SCC OnLine SC 1602.

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