Court's Exercise Of Writ Jurisdiction In Arbitration Proceedings: The Ongoing Saga (Part-I)

This is authored by Khyati Mehrotra of ILS Law College, Pune.

Introduction

Article 226 of the Constitution of India (“Article 226”) provides for the extraordinary jurisdiction of High Courts to issue writs to any government, authority or person. Additionally, Article 227 of the Constitution of India (“Article 227”) ensures supervisory power over all the courts and tribunals within the High Court’s jurisdiction. Though the scope of these articles is different, in litigation practice this difference is almost obliterated as lawyers often tend to label writ petitions as “Article 226/227”. The writ jurisdiction of High Courts is very wide and is often invoked by the petitioners when their fundamental rights or legal rights are violated.

Arbitration is a private dispute resolution process which is administered by an independent arbitrator. In India, the arbitration process is governed by the Arbitration and Conciliation Act, 1996 (“the Act”) which provides for the recourse of challenging the arbitrator’s order/award on certain grounds. The scheme of this Act focuses on minimum judicial intervention in the arbitration process. However, parties often tend to invoke the extraordinary jurisdiction of a High Court under Article 226/227 in relation to arbitration proceedings, which often leads the court to consider a pertinent question, i.e. whether writ proceedings are maintainable against the orders of an arbitration tribunal? The dilemma lies in analyzing the scope of writ jurisdiction to interfere in the arbitration proceedings which already has a full-fledged law regulating it. This article in its Part I analyses the legal position and whether writs can be issued against an arbitration tribunal, and further discusses the guiding principles to entertain writs in such cases which have been laid down by Courts over time. The second part (Part II) of this article explores various judicial pronouncements and summarizes various circumstances where writ proceedings would or would not be maintainable.

Writs Can Be Issued Against the Arbitration Tribunal

As per the language of Article 226, the writ jurisdiction of a High Court can be invoked against any “authority” or “person”. In Rohtas Industries Ltd. v. Rohtas Industries Staff Union, the Apex Court held that the wide powers of a High Court under Article 226 can affect even a private individual and can be available for enforcing fundamental or legal right even when an alternative remedy is available.

Further, in Andi Mukta Trust and Ors. v. V.R. Rudani And Ors, the Supreme Court reaffirmed that “authority” under Article 226 should not be confined to statutory and other instrumentalities of state, but should extend to any body or person performing a public duty.

The arbitration tribunal adjudicates upon the disputes of parties in accordance with substantive law and public policy. As per the Act, the arbitration award is final and binding and can be enforced as a “decree” of the court. Thus, it can be said that the arbitration tribunal is discharging a public duty and can be considered “authority” or “person” under Article 226. This was affirmed by the Gujarat High Court in Saurashtra Chemicals Limited v. Hon’ble Mr. Justice K. , where it was observed that an arbitration tribunal performs judicial function and thus, a writ is maintainable against it. Overtime, the Apex Court, in various cases as discussed further in this article, has recognized the power of High Courts to entertain writs against arbitration tribunals in certain circumstances.

Presence of Alternative Remedy

The Supreme Court in State of U.P. and Ors. v. M/s Indian Hume Pipe Co. Ltd., held that there is no rule that the writ petition must not be entertained in the presence of an alternative remedy. It is the discretion of the High Court which should not be interfered with unless unreasonably exercised. However, in Nivedita Sharma v. Cellular Operators Association of India, the Apex Court observed that though the power under Article 226 cannot be curtailed by any parliamentary statue, it is settled over time that in the presence of an alternative statutory forum for grievance redressal, the writ should not be entertained.

Section 5 of the Act provides for limited interference of courts in the arbitration process. Though High Court’s constitutional power under Article 226 and 227 will remain unaffected by Section 5, it should be exercised with extreme caution keeping in mind the principle of restricted judicial intervention and presence of self-contained statutory code for grievance redressal.

Considering the alternative efficacious remedies present in the Act, the seven judge bench of the Apex Court in S.B.P. and Co. v. Patel Engineering Ltd. & Ors., affirmed the dismissal of the writ petition and observed that if extraordinary jurisdiction of High Courts is frequently invoked against every order made by the arbitration tribunal, it will defeat the very object of the act, i.e. minimum judicial intervention.

Presence of an alternative efficacious remedy plays an important role in deciding the fate of the writ proceedings. For instance, some orders passed by the arbitration tribunal can be appealed as per the provisions of Section 37 of the Act on the grounds mentioned therein. If an appeal does not lie under Section 37, one may wait for the final award and challenge it under Section 34 of the Act. When recourse is provided under the Act and parties have a choice to opt for it, the courts would not entertain writs unless the facts call for it, as discussed further in this post.

It is also to be noted that as established by the Apex Court in Dr. Smt. Kuntesh Gupta v. Management of Hindu Kanya, if the authority against whom writ proceedings are initiated is acting without jurisdiction, presence of an alternative remedy should not restrict the High Court in exercising its writ jurisdiction.

Principles Laid Down By Courts With Respect To Maintainability Of Writs In Arbitration Proceedings

The principles for the issue of writs are well established by the courts of law. The Supreme Court in Harbanslal Sahnia & Anr. v. Indian Oil Corpn. Ltd. & Ors., relying on its previous decision of Whirlpool Corpn. v. Registrar of Trade Marks, held that High Courts can issue writs where there is violation of fundamental rights, natural justice or the order challenged is without jurisdiction or ultra vires the statute.

When it comes to interfering with the arbitration process, courts are extra cautious and have laid down limited grounds to entertain writ proceedings. In M/s Deep Industries Limited v. Oil and Natural Gas Corporation Limited (“Deep Industries”) an appeal filed under Section 37 of the Act challenging a Section 17 order of the tribunal, was dismissed by the court and this dismissal was challenged under Article 227 before the High Court. On the issue of maintainability of this petition under Article 227, the Apex Court held that if orders passed in appeal under Section 37 are allowed to be challenged under Article 226/227, the arbitration will never come to fruition and will be dragged for may years defeating the object of the process. It further held that High Courts would be extremely cautious in interfering with the arbitration process and shall interfere only with orders which are patently lacking in inherent jurisdiction.

The Apex Court in Punjab State Power Corporation v. Emta Coal Limited ( “Emta Coal case”), while dealing with the question of invoking Article 227 against an arbitration tribunal’s order under Section 16 of the Act, further clarified the test of “patent lack of inherent jurisdiction”, as laid down in Deep Industries The Court held that the writ court can only dismiss the arbitrator’s order if it is so “perverse” on its face that the only conclusion that can be drawn is that the order is patently lacking in inherent jurisdiction.

The meaning of “patent lack of inherent jurisdiction” with respect to an arbitration tribunal was discussed in Tarapore & Co. v. State of M.P, where the Apex Court held that if the authority lacks jurisdiction or the particular subject matter is not amenable to the authority decision at all, it would amount to patent lack of jurisdiction and it can not be conferred by consent of parties.

If the arbitrator has the authority to pass an order and is not expressly prohibited under the contract, that order could not be challenged under Article 226/227 as it would not be patently lacking in inherent jurisdiction. As the tribunal has powers under Section 16 and Section 17 to pass order on its jurisdiction and interim orders respectively, it would not be appropriate to invoke writ jurisdiction against those orders as those are passed under jurisdiction granted by the Act.

In a recent case, Bhaven Construction v. Executive Engineering Sardar Sarovar Narmada Nigam Ltd. & Anr. (“Bhaven Construction case”), the issue was about the maintainability of a petition under article 226/227 against a Section 16 order of the tribunal,. The Supreme Court laid down another important guiding principle to be followed by courts hearing such issues. The Court held that the power under Article 226/227 should be exercised with respect to arbitration proceedings only in cases of “exceptional rarity”. Explaining this principle, the Court substantiated that “exceptional rarity” entails the situation where one party is left remediless under the Act or where either of the parties show “bad faith” during the arbitration process. In this particular case, the writ petition was dismissed as neither circumstance could be seen in the facts of the case.

Conclusion

As the grounds of “lack of inherent jurisdiction” and “exceptional rarity” cannot be squarely defined with reference to all probable circumstances comprising those grounds, litigants may try to bring their cases under these grounds and invoke writ jurisdiction. For example, the invalidity of arbitration agreement, illegal composition of tribunal, non-arbitrability of dispute etc. can be claimed as a reason for patent lack of jurisdiction. Courts have to give limited interpretation to such grounds and invoke writ jurisdiction only in cases where denial of a writ can cause prejudice to the petitioner’s rights and leave the petitioner remediless. The grounds laid down by courts till now are not exhaustive; courts have to decide on a case-to-case basis if circumstances call for exercising writ jurisdiction under Article 226/227 and if such exercise of power would prejudice the arbitration process.

In the second part of this article (here), the legal standing of courts with respect to maintainability of writs in various situations and against different orders of arbitration tribunals is discussed in detail.