Efficiency is diminished if courts are allowed to interfere with arbitral process beyond the ambit

Efficiency of process of law is diminished if courts are allowed to interfere with the arbitral process beyond the ambit of the enactment: SC

Bhaven Construction Vs. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Ors.

Civil Appeal No. 14665 of 2005

Decided on 6th January, 2021

A three judge bench consisting of Justice N.V. Ramana, Justice Surya Kant and Justice Hrishikesh Roy decided the case. The bench set aside the Order of the High Court stating that the High Court erred in utilizing its discretionary power available Under Articles 226 and 227 of the Constitution.

Respondent No. 1 (R1) entered into a contract with the Appellant to manufacture and supply bricks. The aforesaid contract had an arbitration clause. As some dispute arose regarding payment in furtherance of manufacturing and supplying of bricks, the Appellant issued a notice, seeking appointment of sole arbitrator in terms of the agreement under clause 38 of the agreement but R1 did not agreed to appoint a sole arbitrator.

The appellant appointed Respondent No. 2 (R2) as a sole arbitrator which was challenged by R1 under Section 16 of the Arbitration and Conciliation Act, 1996. The sole arbitrator rejected the application of the Respondent No. 1 and held that the sole arbitrator had jurisdiction to adjudicate the dispute.

R1 filed a writ petition under Article 226 and 227 of the Constitution of India in the High Court of Gujarat. The Single Judge Bench, dismissed the petition relying on the judgment in Konkan Railway Corporation Limited v. Mehul Construction Co. ((2000) 7 SCC 201) and SBP & Co. v. Patel Engineering Ltd. ((2005) 8 SCC 618).

Aggrieved by the order of the Single Judge, Respondent No. 1 preferred Letters Patent Appeal No. 182 of 2006 in Special Civil Application No. 400 of 2002. The High Court of Gujarat, by the impugned order dated 17.09.2012, allowed the appeal.

The appellant filed a Special Leave Petition in Supreme Court.

The counsel for the appellant stated that the R1 has tried to bypass the legal framework laid down under the Arbitration Act by challenging the final award passed by the sole arbitrator under Section 34 of the Arbitration Act.

The counsel for Respondent-1 contended that it was always open for R1 to invoke writ petition by way of Art. 226 and 227 of Constitution of India. He also contended that since the enactment of the Gujarat Act, the Arbitration Act was substituted with respect to the disputes arising out of the works contract.

The Hon’ble Court raised a substantial question of law in the following case:

Whether the arbitral process could be interfered Under Article 226/227 of the Constitution, and under what circumstance? (Para 10)

The court highlighted the importance of the Arbitration Act stating that it is a code in itself:

The court stated that the above phrase has definite legal consequences. The non-obsacle clause under Section 5 of the Arbitration Act is provided to uphold the intention of the legislature as provided in the Preamble to adopt UNCITRAL Model Law and Rules, to reduce excessive judicial interference which is not contemplated under the Arbitration Act. (Para 11)

Regarding the hierarchy in our legal framework which mandates that a legislative enactment cannot curtail a Constitutional right, the court highlighted the case of Nivedita Sharma vs. Cellular Operator Association of India ((2011) 14 SCC 337):

Though that High Court can entertain a writ petition under Article 226 against any order passed by the Central or State government or their authority, it is not mandatory that each and every petition shall be entertained. Rather, 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. (Para 17)

The court also relied on the judgement in the case of M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited:

This being the case, there is no doubt whatsoever that if petitions were to be filed Under Articles 226/227 of the Constitution against orders passed in appeals Under Section 37, the entire arbitral process would be derailed and would not come to fruition for many years. At the same time, we cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante Clause of Section 5 of the Act. (Para 18)

The ‘principle of unbreakability’ was mentioned in the judgement stating that the arbitral process is strictly conditioned upon time limitation. The court relied on the judgement of the case of P. Radha Bai v. P. Ashok Kumar, ((2019) 13 SCC 445) where it was observed that:

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 emerge after the three-month time-limit has expired cannot be raised. Extending Section 17 of the Limitation Act would go contrary to the principle of "unbreakability" enshrined Under Section 34(3) of the Arbitration Act. ( Para 36,37 of P. Radha Bai v. P. Ashok Kumar, (2019) 13 SCC 445)

Further, the court observed:

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 diminished. (Para 20)

The importance and power of Section 16 of Arbitration Act was given in this case relying on the Deep Industry Case:

It must be noted that Section 16 of the Arbitration Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the Court examines the same Under Section 34. (Para 25)

The Appeal was allowed.

View/download judgement: Bhaven Construction Vs. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Ors.

Nishant Aryaman