Supreme Court

Bhaven Construction vs. Exe Engineer Sardar Sarovar

MANU/SC/0008/2021

06.01.2021

Contract

Arbitral process could be interfered under Article 226/227 of the Constitution by the High Court only in exceptional circumstances

In facts of present case, on 13th February, 1991, Respondent No. 1 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.

The Appellant appointed Respondent No. 2 to act as a sole arbitrator for adjudication of the disputes. Respondent No. 1 preferred an application under Section 16 of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”) disputing the jurisdiction of the sole arbitrator. The sole arbitrator rejected the application of the Respondent No. 1 and held that, the sole arbitrator had jurisdiction to adjudicate the dispute.

Aggrieved by the order of the sole arbitrator, Respondent No. 1 preferred Special Civil Application under Articles 226 and 227 of the Constitution of India, 1950 before the High Court which was dismissed by the Single Judge. Aggrieved by the order of the Single Judge, Respondent No. 1 preferred Letters Patent Appeal. The High Court by the impugned order allowed the appeal. The question which needs to be answered is whether the arbitral process could be interfered under Article 226/227 of the Constitution.

The Arbitration Act is a code in itself. The Arbitration Act itself gives various procedures and forums to challenge the appointment of an arbitrator. The framework clearly portrays an intention to address most of the issues within the ambit of the Act itself, without there being scope for any extra statutory mechanism to provide just and fair solutions.

Any party can enter into an arbitration agreement for resolving any disputes capable of being arbitrable. Parties, while entering into such agreements, need to fulfill the basic ingredients provided under Section 7 of the Arbitration Act. Arbitration being a creature of contract, gives a flexible framework for the parties to agree for their own procedure with minimalistic stipulations under the Arbitration Act. If parties fail to refer a matter to arbitration or to appoint an arbitrator in accordance with the procedure agreed by them, then a party can take recourse for court assistance under Section 8 or 11 of the Arbitration Act.

In the instant case, Respondent No. 1 has not been able to show exceptional circumstance or ‘bad faith’ on the part of the Appellant, to invoke the remedy under Article 227 of the Constitution. No doubt the ambit of Article 227 is broad and pervasive, however, the High Court should not have used its inherent power to interject the arbitral process at this stage. Subsequent to the impugned order of the sole arbitrator, a final award was rendered by him on merits, which is challenged by the Respondent No. 1 in a separate Section 34 application, which is pending.

Viewed from a different perspective, the arbitral process is strictly conditioned upon time limitation and modeled on the ‘principle of unbreakability’. Respondent No. 1 did not take legal recourse against the appointment of the sole arbitrator, and rather submitted themselves before the tribunal to adjudicate on the jurisdiction issue as well as on the merits. In this situation, the Respondent No. 1 has to endure the natural consequences of submitting themselves to the jurisdiction of the sole arbitrator, which can be challenged, through an application under Section 34 of Arbitration Act. Respondent No. 1 has not been able to show any exceptional circumstance, which mandates the exercise of jurisdiction under Articles 226 and 227 of the Constitution.

The Division Bench further opined that, the contract between the parties was in the nature of a works contract as it held that the manufacturing of bricks, as required under the contract, was only an ancillary obligation while the primary obligation on the Appellant was to supply the bricks. The Division Bench therefore held that the Gujarat Act holds the field, and not the Arbitration Act. It is a settled law that, the interpretation of contracts in such cases shall generally not be done in the writ jurisdiction. Further, the mere fact that the Gujarat Act might apply may not be sufficient for the writ courts to entertain the plea of Respondent No. 1 to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act.

The High Court erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution herein. Thus, the appeal is allowed and the impugned Order of the High Court is set aside. Respondent No. 1 herein is at liberty to raise any legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings.

Tags : Arbitral process Discretionary power Jurisdiction

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