India: Presence Of An Arbitration Agreement In A Dispute Involving The State Would Not Absolutely Oust Writ Jurisdiction Under Article 226: Supreme Court Of India

In a recent case titled UNITECH Limited & Ors. v. Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors.,¹ the Hon'ble Supreme Court of India had the arduous task of deciding whether the presence of an arbitration clause would absolutely bar the remedy to invoke writ jurisdiction under Article 226 of the Constitution of India (Constitution) when one of the parties is a state instrumentality. This decision strikes a balance between the right to invoke the plenary powers of a writ court with the principle of party autonomy in the arbitral process. This article briefly examines how the Hon'ble Supreme Court undertook a well-balanced analysis to arrive at this judgment.

Brief Facts

The Andhra Pradesh Industrial Infrastructure Corporation Ltd. (APIIC) invited bids to develop, design and construct an integrated township project (Project). APIIC accepted the bid of UNITECH Limited (Unitech). Accordingly, Unitech was required to pay a total of INR 165 crores (comprising of INR 20 crores as earnest money, INR 140 crores as Project's land cost and INR 5 crores towards the Project's development expenses).

In terms of the bid, the APIIC was supposed to allot Unitech the land upon which the Project would have been constructed (Project Land). A litigation concerning the Project Land was pending. The parties agreed in the Letter of Award (LoA) that the Project Land's allotment would be contingent upon the outcome of the pending litigation. After multiple rounds of litigation, the matter concerning the Project Land was finally settled by the Hon'ble Supreme Court, holding that the Government of Andhra Pradesh did not have title to the Project Land.

Consequently, Unitech filed a writ petition² under Article 226 of the Constitution seeking refund of INR 165 crores together with interest from the successor of APIIC, i.e., Telangana State Industrial Infrastructure Corporation (TSIIC). The Single Judge of the High Court of Telangana allowed Unitech's writ petition. The State of Telangana and TSIIC preferred a writ appeal against the decision of the Single Judge. A Division Bench of the High Court of Telangana in the writ appeal decided that Unitech was entitled to INR 165 crores with interest from the date it claimed the money from the respondents in October 2015 instead of the dates of payment of instalments beginning from September 2007. Unitech and the two respondents eventually knocked the doors of the Hon'ble Supreme Court in the instant matter, and filed their respective appeals under Article 136 of the Constitution.

Findings of the Court

The Hon'ble Supreme Court observed that recourse to the jurisdiction under Article 226 of the Constitution is not excluded altogether in a contractual matter. The Hon'ble Supreme Court referred to its judgment in ABL International Ltd. v. Export Credit Guarantee Corporation of India.³ In ABL International, reliance was placed upon the long line of precedents⁴ that held that writs under Article 226 are maintainable for asserting contractual rights against the state, or its instrumentalities, as defined under Article 12 of the Constitution.

The Hon'ble Supreme Court then referred to three-Judge Bench decisions in State of U.P. v. Sudhir Kumar⁵ and Popatrao Vynkatrao Patil v. State of Maharashtra⁶ where the exposition in ABL International was adopted.

The Hon'ble Supreme Court pointed out that the decision in ABL International, leaves a cautionary note that where the plenary powers under Article 226 are sought to be invoked, they must be used with circumspection when the contract has provided other remedies. Nevertheless, as a statement of principle, the jurisdiction under Article 226 is not excluded merely because a matter is contractual in nature.

II. On whether the presence of an arbitration clause within a contract between a state instrumentality and a private party would bar the remedies under the writ jurisdiction of Article 226?

The Hon'ble Supreme Court held that the presence of an arbitration clause within a contract between a state instrumentality and a private entity could not act as an absolute bar to availing remedies under Article 226 of the Constitution. It was observed that where a state instrumentality violates its constitutional mandate under Article 14 to act fairly and reasonably, relief under the plenary powers of Article 226 of the Constitution would be available.⁷ The writ jurisdiction under Article 226 was held to be a valuable constitutional safeguard against an arbitrary exercise of state power or misuse of authority. Thus, the Hon'ble Supreme Court held that "the presence of an arbitration clause does not oust the jurisdiction under Article 226 in all cases, though it still needs to be decided on a case-to-case basis whether recourse to a public law remedy can justifiably be invoked." To determine whether the invocation of writ jurisdiction is justified or not, the court must undoubtedly eschew the disputed set of facts that would demand a further perusal of evidence in a trial.

In view of the observations made by the Hon'ble Supreme Court, the appeals stood disposed of whereby Unitech was held to be entitled to a refund of INR 165 crores together with interest commencing from the respective dates of payment, computed in accordance with the provisions of the Development Agreement except for compounding.

Comments

The present case is a classic example of the interplay between the public policy and the arbitration regime of India. On one end, it is vital to recognize a litigant's right to invoke writ jurisdiction under Article 226 against the state or its instrumentalities, which violate the constitutional mandate to act reasonably under Article 14 of the Constitution. On the other end, it is also essential to preserve the norm of limited interference from the courts in the arbitral process. In the instant matter, the Hon'ble Supreme Court has been successful in achieving both the goals mentioned above.

The Hon'ble Supreme Court has very carefully opined in the instant case that the plenary power under Article 226 must be used with circumspection where the litigant can avail other remedies. The Hon'ble Supreme Court further clarified that it has to be decided on a case-to-case basis whether the recourse to a public law remedy can be justifiably invoked. In a recent decision of the Hon'ble Supreme Court in Bhaven Construction through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd and Another⁸, it was held that the High Court would not invoke its writ jurisdiction to interject with the arbitral process, barring rare circumstances. Therefore, in our opinion, unless a justifiable ground is provided for invoking writ jurisdiction, the courts would choose to not interfere with the arbitral process or the dispute resolution mechanism elected by parties to a dispute. Hence, the judgment has rightfully performed a balancing act by holding that the presence of an arbitration clause within a contract between a state instrumentality and a private party shall not absolutely bar the aggrieved party from seeking recourse under Article 226 of the Constitution.

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

Footnotes

1. UNITECH Limited & Ors. v. Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors. 2021 SCC OnLine SC 99.

2. Writ Petition (Civil) No. 29722 of 2017.

3. ABL International Ltd. v. Export Credit Guarantee Corporation of India (2004) 3 SCC 553.

4. K.N. Guruswamy v. State of Mysore AIR 1954 SC 592; Gujarat State Financial Corporation. v. Lotus Hotels (P) Ltd (1983) 3 SCC 379; Gunwant Kaur v. Municipal Committee, Bhatinda (1969) 3 SCC 769. 

5. State of UP v. Sudhir Kumar 2020 SCCOnLine SC 847.

6. Popatrao Vynkatrao Patil v. State of Maharashtra Civil Appeal 1600 of 2000 (Supreme Court of India).

7. ABL International Ltd. v. Export Credit Guarantee Corporation of India (2004) 3 SCC 553.

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

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