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

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

In Part I, this article discusses to what extent the remedy of a writ is available to parties in arbitration and what principles have been evolved over time by Indian courts to determine the maintainability of writs in such cases. Part II of this article analyses various situations where petitioners have initiated writ proceedings, and also discusses the Courts’ approach in allowing writs in such cases. This part also contemplates circumstances under which a writ will be the only remedy available to the party and where Courts should not hesitate to exercise their power under Articles 226/227.

Appointment of Arbitrator

As per Section 11 of the Arbitration and Conciliation Act (“the Act”) (prior to the Amendment Act of 2019), if parties failed to choose an arbitrator, the same could be done by the Supreme Court, High Court or an institution designated by such Court. Section 11(7) of the Act states that such decision shall be final and is not subject to appeal.

In S.B.P. and Company v. Patel Engineering Limited and Others ( “SBP case”) a petition under Article 226 was filed challenging the order of the Chief Justice of the High Court where appointment of the arbitrator was refused. The Apex Court found that writ proceedings will not lie against the decision of a court under Section 11 and one can only appeal against such order under Article 136 of the Constitution. The Court, upholding the object of minimal judicial intervention observed that parties may challenge the appointment before the arbitrator under Section 16 of the Act or they may wait for the final award which can then be challenged under Section 34 of the Act.

On the other hand, when a writ petition was filed under Article 227 against an order under Section 11 by a civil judge who is a designate of the Chief Justice of the High Court, the Apex Court distinguished the case at hand from the SBP case and held that the order of a Chief Justice of a High Court or any designate judge of that High Court under Section 11, is not amenable to writ jurisdiction. However, this same observation does not apply to the subordinate court which is functioning as a designate of the High Court. In the absence of any provision to appeal against such order, it is open to challenge under Article 227 of Constitution.

The abovementioned judgements clarify the scope of writ jurisdiction when it comes to the orders passed under Section 11 of the Act. Further, in the recent case of Pravin Electricals Pvt. Ltd. v. Galaxy Infra, Apex Court declared that refusal to refer the parties to arbitration under Section 11(6) read with Section 11(7), is not appealable. In light of such holding, the parties aggrieved by the order of refusal under Section 11 may choose the path of writ jurisdiction as their only available resort.

Additionally, it is essential to note that the Arbitration and Conciliation Amendment Act, 2019 now entrusts the responsibility of appointment of arbitrator on “designated arbitral institutions”. Once this amendment is notified, the major question Courts might face is what recourse is available against the decision of appointment of an arbitrator by an arbitral institution? Whether such decision can be challenged via a writ proceeding? The Amendment Act of 2019 notably omitted Section 11(7) which specifically granted finality to the orders under Section 11 and thus, made such orders amenable to appeal. In the absence of any particular provision in the statue to challenge such orders, writ proceedings might prove a readily available remedy to the parties to challenge the decision of arbitral institution.

Orders Pertaining to Jurisdiction of Arbitration Tribunal

Section 16 of the Act encompasses the principle of “Kompetenz- Kompetenz” and empowers the arbitration tribunal to hear applications challenging its jurisdiction. If the tribunal rejects the challenge, the arbitration proceedings will advance and the final award can then be challenged under Section 34 on the ground of lack of jurisdiction of the tribunal. If the tribunal accepts the petition under Section 16, an appeal can be filed before the court as under Section 37. Courts do not encourage parties to initiate writ proceedings against the order of tribunal under Section 16 of the Act as alternative grievance redressal mechanism is laid down in the Act.

The Gujarat High Court in GTPL Hathway Ltd. v. Strategic Markering Pvt. Ltd, reiterated the position that an arbitration order passed under Section 16 is not amenable to writ jurisdiction as the Act demands limited judicial intervention and also lays down an alternative efficacious remedy available under Section 34 of the Act.

In the previously discussed Bhaven Construction case and Emta Coal case, a Section 16 order of the tribunal was challenged under writ proceedings which were dismissed by the Apex Court on the ground that the arbitrator had inherent jurisdiction to hear such applications and parties were not remediless under the Act. Therefore, it can be inferred that Courts do not prefer to entertain writ petitions against Section 16 orders, considering the available remedies within the Act.

Termination of Proceedings and Mandate of Arbitration Tribunal

Section 25(a) and Section 32 of the Act confer power on the arbitration tribunal to terminate arbitration proceedings falling under the circumstances mentioned in these sections. The question which often comes before the court is: what recourse is available to parties against orders of an arbitration tribunal terminating the proceedings? In the absence of any statutory provision to challenge the termination order, is the remedy of a writ available to the parties? Courts around the country have contrasting opinions on this issue.

In M/s S.K and Associates v. Indian Farmer and Fertilizer (hereinafter referred to as “S.K Associates case”), an application under Section 11(6) to appoint another arbitrator was filed before the Allahabad High Court as the Arbitration tribunal passed an order of termination of proceedings under Section 32(2)(c) of the Act. The High Court found that where the arbitrator has not withdrawn from office but terminated the entire proceedings, it is not open to the court to appoint a new arbitrator under Section 11(6). It further observed that where the order terminating the proceedings does not result in an award, the aggrieved party has an option to avail the remedy under Article 226 to challenge such order.

The Apex Court in Lalitkumar v. Sanghavi (hereinafter referred to as “Lalitkumar case”) while dealing with the question of the forum available to parties to challenge termination order under Section 32(2) took a different view from S.K. Associates case. The Supreme Court, on a cumulative reading of Sections 32 and 14 held that termination of proceedings leads to termination of mandate under Section 14. Therefore, any challenge against the order of termination of proceedings under Section 32 shall lie before the “court” as mentioned in Section 14(2). Hence, as per the law settled by Apex Court, if a party is aggrieved by an order passed under Section 32, the remedy is available within the act and there is no need for invocation of extraordinary writ jurisdiction.

While in the Lalitkumar case, the termination was under Section 32, the finding may not hold good when the termination order is passed under Section 25(a) on the failure of claimant to submit its statement of claim.

The question regarding the recourse available to the party aggrieved by the arbitration tribunal’s termination order under Section 25(a) arose before the Bombay High Court in Anuptech Equipments Private Ltd. v. Ganpati Co-op Housing Society Ltd. It was held that in this case where there is no remedy available under the Act to challenge the termination of arbitration proceedings, the court can exercise its extraordinary jurisdiction under Article 226. This view was supported by the Patna High Court in Senbo Engineering Limited v. State of Bihar And. Ors., where the arbitration proceedings were terminated under Section 25(a). However, the court also added that the arbitration tribunal has the authority to recall its order passed under section 25(a).

The Apex Court in Srei Infrastructure Finance v. Tuff Drilling Private Limited., highlighted the difference between the termination of proceedings under Section 25(a) and Section 32(2) and held that unlike under Section 32(2), the arbitration tribunal has the authority to recall its order passed under section 25(a) on showing sufficient cause. The court remained silent on the issue if such order under Section 25(a) is amenable to writ jurisdiction. However, it can be inferred that as an alternative remedy in form of an application for recall is present, courts will be hesitant to exercise writ jurisdiction.

The question which still remains unanswered is what will be the course of action if the such application for recalling the order under section 25(a) is rejected. Will the aggrieved party be without any remedy? In this case, invoking writ jurisdiction seems to be a viable option as no other recourse exist under the act.

Challenging Final Award

Section 34 of the Act states that the recourse available to the party to challenge the final award is “only” by filing an application under the provision. It is settled by various cases that as the remedy to challenge the award is contemplated in the Act, resorting to writ proceedings to appeal against such award shall not be allowed.

However, in cases where there is violation of natural justice, the alternative efficacious remedy cannot restrict extraordinary writ jurisdiction. In Heirs of legal of Sidhrajsinhji Pragrajsinhji and Ors. v. Bengal Cynosure Development Pvt. Ltd., the petitioner filed proceedings under Article 226 in Gujarat High Court seeking for the writ of certiorari against the final award of the arbitrator on the ground that arbitration proceedings were biased since the beginning and the arbitrator was interested in subject matter of the case. The High Court held that where the bias and interest of the arbitrator is writ large, the court can exercise power under Article 226 even in the presence of alternative remedy under the Act.

In the above case, bias of the arbitrator could have been a fair ground to challenge the award under Section 34 of the Act. However, the High Court exercised its writ jurisdiction to overturn the award defying the object of the act of minimal interference and ignoring the efficacious remedy provided in the Act. This case upholds the principle that there is no impediment for the court to exercise its constitutional powers under Article 226 when there has been a gross violation of natural justice even if a separate redressal mechanism is available in the statute.

It shall be observed that the remedies available under the Act do not act as a blanket ban on writ petition, however, courts mostly do not entertain writ proceedings when alternative efficacious remedies are available. The power to exercise writ jurisdiction is discretionary and can be exercised when reasonable factors prevail such as violation of fundamental right or rules of natural justice.

Involvement of State Instrumentalities

When the arbitration agreement is between a private party and state instrumentality, courts do not hesitate to exercise their extraordinary jurisdiction in such cases if there is a violation of public law duty or constitutional mandate under Article 14 of the Constitution.

In Unitech Ltd. and Ors. v. Telangana State Industrial Infrastructure Corporation and Ors., writ proceedings were initiated against the state instrumentality despite presence of an arbitration clause in the agreement. The Apex Court observed that alternative remedy of arbitration will not bar writ jurisdiction when the public authority involved has acted unfairly and unreasonably, violating the mandate of Constitution under Article 14.

Earlier, the Apex Court in the case of Union of India v. Tantia Construction Pvt. Ltd., allowed a writ petition against a government body even when there was an arbitration agreement present between the parties. The Court observed that where there is injustice violating the rule of law and constitutional provisions, the High Court has to strike down such injustice by exercising its powers under Article 226 and the alternative remedy of arbitration is no bar.

It is not an established rule that when a state authority is involved writ petition is maintainable defying the arbitration process. However, the courts have to decide on a case-to-case basis, if the public law remedy should be invoked.

Conclusion

The jurisprudence with respect to maintainability of writ petitions in arbitration cases is still evolving in India. As the power of exercising writ jurisdiction emanates from the Constitution, it cannot be hindered or taken away by any parliamentary statute. However, in the presence of a self-contained code of arbitration which itself discourages judicial intervention, courts have been very circumspect in allowing the writ petitions on limited grounds such as patent lack of inherent jurisdiction, cases of exceptional rarity, gross violation of natural justice, violation of Article 14, party being remediless etc. Keeping in mind the object and purpose of the Act, the courts should decide on the facts of each case if parties have any efficacious remedy within the borders of the Act or if writ proceedings are the only viable remedy left. The courts should also try to avoid inordinate delays due to unwarranted interference in the arbitration process, so as to sustain a pro-arbitration regime in the country.