Arbitration Agreements vis-à-vis The Writ Jurisdiction
The Arbitration and Conciliation Act, 1996 (‘The Act’) is a dedicated Act in India’s legal framework of recognizing alternative dispute resolution mechanisms and aims to minimize judicial intervention following the lines of UNCITRAL Model Law on Commercial Arbitration,1985. Arbitration tribunal is a significant institution in an arbitration process as it sets the procedure of the proceedings, passes an award/decree on the subject matter of dispute. However, the orders of the arbitral tribunal have been subjected to court interventions time and again through writ jurisdictions and one of the most sought procedures by the litigants is filing a petition under Article 226 of the Indian Constitution.
The article will analyze the provisions of the Arbitration Agreements vis-à-vis Writ Jurisdiction with a prime focus on the provisions of the Arbitration Act and the judgments of the Honourable Supreme Court and High Courts of India. While there is a well-established boundary of the court’s writ jurisdiction in an arbitration matter[i], the dichotomy between the writ jurisdiction and upholding the parties’ contractual obligation to arbitrate persists even today. It would focus on the recent judgments where the SC has propounded that the High Court under Article 226 must ordinarily refrain from entertaining disputes which is arbitrable in nature but also reiterated as obiter that if the case is of a public law nature or where a fundamental issue of public interest is entangled, then writ jurisdiction of courts cannot be fettered by an alternative remedy. The distinction between the jurisdiction of Article 226 and 227 stands almost obliterated in practice[ii], therefore the analysis done in the following article equally applies to petitions filed under Article 226.
The interplay of Arbitration Clause and Writ Jurisdiction:
The objective of the Act is to lessen the court intervention in disputes by increasing the efficiency of Arbitration tribunals. The non-obstante clause in Section 5 of the Act restricts the judicial intervention of the Court and clarifies that the judicial intervention is permitted when it is expressly provided in the Act.[iii] The Act also mandates that appeal can only be filed in the circumstances mentioned under Section 37 of the said Act. However, in the practical scenario litigants attempt to file an appeal in the court to derail the arbitration process if the same is not going in the favour of them which in turn results in a delay in declaring awards.
In the judgement of Ashish Gupta v IBP Co. Ltd.[iv], the Delhi High court clarified that the rule given in section 5 of the Act is discretionary and not obligatory.[v] The High Court despite an alternative remedy may invoke writ jurisdiction including but not limited to the cases where there is a failure of the principles of natural justice, enforcement of any of the inherent fundamental rights, jurisdiction issues in the proceedings or the order of the case. etc.[vi]
The court further emphasized that a writ court can exercise its extraordinary jurisdiction only when “illegality is writ large on the face of the record”[vii]. The prerogative writs can be issued to the exclusion of other available remedies can be issued only if the State as defined in Article 12 of the constitution violates Article 14 of the Constitution or any other legitimate reasons that make it necessary to exercise such plenary power of the High Court. Hence, the circumstances should be extraordinary to judicial intervention through writ jurisdiction.
Jurisdiction of Arbitration Tribunal vis-à-vis Writ Jurisdiction:
The Arbitration Tribunal being a forum constituted by the agreement of the parties comes under the purview of ‘Tribunal’ defined under Article 227 of the Constitution as the court held in the matter of SREI Infrastructure Finance Ltd. v. Tuff Drilling Pvt. Ltd.[viii] that arbitration tribunal shall come under the ambit of the tribunal because it decides lis between the parties, bounded by the principles of natural justice and the functioning of the same is regulated by the Act. Hence, the High Court has the power of superintendence over the arbitration tribunals as Article 227 gives the same power over all tribunals of the country.
It is interesting to note that the orders passed by the arbitration tribunal are amenable to the power given in Article 227. However, the Supreme Court has cautioned on allowing the High Courts the power of superintendence over the arbitral tribunals.[ix] Such caution, however, in line with the objectives of the Act, is susceptible to unfair practices which would lead to denial of justice. The Supreme Court, in furtherance of this, has formulated tests that would help to settle the problem.
The High Court in the case of Deep Industries v. Oil and Natural Gas Corporation dealing with the applications under Section 16 of the Act contradicted the arbitrator’s order dismissing the Section 16 application have gone into the depth of the dispute and thus exceeded its writ jurisdiction.[x] However, the Supreme court set aside the High Court’s judgment on the ground that the high court can correct only jurisdictional errors under Article 227 of the Constitution and also the Act does not provide an option for appealing against an order emanating from a Section 16 application, parties can only await the passing of the final award before appealing under Section 34 of the Act.[xi] Later on, in the case of Punjab State Power Corporation v. EMTA Coal Ltd.[xii] the supreme court opined that a writ court can exercise its extraordinary jurisdiction if a Section 16 application is dismissed by the arbitrator and the order passed is so perverse on the face of the record that “the only possible conclusion is that there is a patent lack in inherent jurisdiction”.[xiii]
It is interesting to note that it remains still unclear whether such an exception stands when there an alternative remedy exists under Section 34 of the Act, especially when the competent court has its authority recognized in the case of Ashish Gupta in a Section 8 application and the latter case of Section 16 application gives authority exclusively to the arbitral tribunal to first determine the application.
Scope of Writ Jurisdiction:
The courts have been passing a different set of judgments on a case-to-case basis regarding the scope of exercising writ jurisdiction where the State or State instrumentality is a party to the contract or arbitration proceedings.
In a very recent judgment of Rapid Metrorail Gurgaon Limited v. Haryana Mass Rapid Transport Corporation Limited and Ors.[xiv](Metrorail Gurgaon Limited ) the SC delves into the scope of the writ jurisdiction in the matter of an amalgamation of public interest and private contractual rights. In this particular case, there were two concession agreements awarded by Haryana Shehri Vikas Pradhikaran (HSVP) to Rapid Metro Gurgaon Ltd. (RMGL) and Rapid Metro Gurgaon South Ltd.(RMGSL) for the purposes of the development of metro rail links. Subsequently, both RMGL and RMGSL sought to terminate the concession agreement on the ground that the HSVP has committed material breaches and they have followed the compliances of disinvestment as per required in the concession agreement. Thereafter, HSVP also sent out their own termination notice to RMGL and RMGSL for breach of the concession agreement directing them to hand over the project to Haryana Mass Road Transport Corporation Ltd. (HMRTC). Meanwhile, HSVP and HMRTC approached the High Court under Article 226 of the Constitution against the notice of termination sent by RMGL and RMSGL. The High Court made directions for RMGL and RMSGL to continue operations of the metro rails for 30 days and within 30 days of the determination, 80% of the debt due would be transferred to the Escrow account as per the concession agreement. Subsequently, RMGL and RMSGL approached SC through special leave petition and the SC propounded that the High Court should not entertain the petition under Article 226 which are arbitrable in nature in the first place, but as in the above-mentioned case where a fundamental issue of public interest is entangled, the High Court would be justified in exercising its writ jurisdiction as, in such cases, non-interference by the High court could potentially cause a devastating hit to public interests. Hence, one can observe the exception of fundamental issue of public interest carved out in this particular judgement.
In another recent landmark judgement of Unitech Pvt. Ltd. and ors. v Telangana State Industrial Infrastructure Corporation (TSIIC) and ors.[xv] the Supreme Court stated that while an arbitration clause excludes the courts’ writ jurisdiction, the courts may still entertain on a case-to-case basis if “recourse to a public law remedy can justifiably be invoked”.[xvi].
While in the case of Union of India v. Tantia Construction Pvt. Ltd., despite the contract containing an arbitration clause, Tantia Construction Pvt. Ltd. filed a writ petition under Article 226 of the Constitution before the High Court. The Supreme Court while rejecting the appeal of the UOI against the High Court’s decision to allow the writ petition reasoned that “injustice, whenever and wherever it takes place, has to be struck down as an anathema to the rule of law and provisions of the constitution.”. Hence, one can observe that despite an alternative remedy of the arbitration being available, the writ courts can still exercise their jurisdiction to ensure rule of law.
However, in the practical scenario, it is also evident that the courts are reluctant to uphold the writ jurisdiction when the State or state instrumentalities are involved even though courts generally agree that the writ jurisdiction may be subject to a more efficacious alternative remedy.
Similarly, in the case of Ram Barai Singh & Co. v State of Bihar and Ors,[xvii] the Supreme Court has thrown light on the significance of raising timely objections to a writ petition’s maintainability before the court of law. In the particular case the Supreme Court has accepted the appellant’s argument, observing that even though the availability of an alternative remedy is a permissible ground to exclude writ jurisdiction, an arbitration clause cannot ipso facto oust the courts’ writ jurisdiction and stated that a judgment on merits cannot be set aside just for the sake that respondents had not objected to the Writ petition's maintainability before the High Court. It has opined that the writ court can apply its discretionary power for either accepting its jurisdiction or relegating to availing alternative remedy and also upheld the judgment of Patna High Court which has allowed the Petitioner’s appeal by setting aside the Single Judge’s order dismissing the writ petition on the sole ground that an arbitration agreement existed between the parties but the Petitioner failed to avail the agreement.
The Courts have often relied on the case of ABL International Ltd. and Anr. v Export Credit Guarantee Corporation of India Ltd. and Ors.[xviii] (“ABL”) to uphold the exercise of writ jurisdiction even if the arbitration clause exists in the agreement. The Court had opined in the above-mentioned case that a petition can be filed under Article 226 of the Constitution if a State violates Article 14 of the constitution and acts are performed in an arbitrary manner.”[xix]. However, in the said case the court has also held that “the courts will not permit recourse to any other remedy without invoking the remedy by way of arbitration if the parties had agreed to settle their dispute by the process of arbitration as stated in the agreement .”[xx]
Therefore, the relevance of the aforesaid cases in the current discussion may be limited to writ jurisdiction over contractual matters only in the case when a State or State instrumentality is involved.
Tests laid down by the Supreme Court:
The Apex Court has propounded few tests in its recent judgements of Deep Industries Ltd. v. Oil and Natural Gas[xxi] (‘Deep Industries’) and Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam[xxii] (‘Bhaven Construction’) to entertain the writ petition involving arbitration clause on some specific grounds. These tests are known as ‘Exception Rarity Test’ and ‘Patently Lacking in Inherent Jurisdiction Test’.
(i) Exception Reality Test-
The Supreme Court in the case of ‘Bhaven Construction’ formulated the ‘Exception Rarity Test’ wherein the respondent has challenged the order of Arbitrator in the Gujarat High Court under Article 227 on the ground that the arbitrator was acting without jurisdiction. In the particular case, the appellant and respondent no.1 had entered into a public works contract which included an arbitration agreement. The arbitrator had rejected a Section 16 application of the Act filed by Respondent no.1 which had challenged the arbitrator’s jurisdiction. Then Respondent no.1 challenged the order before the Single Judge Bench of the Gujarat High Court under Article 227 on the grounds of the lack of jurisdiction of the arbitrator. After the dismissal of the petition by the single judge bench, the appellant filed the petition before a division bench. Thereafter, the appellant challenged the division bench decision which has upheld the single judge’s bench decision before the Supreme Court. In January 2021, the Supreme Court adjudicated the said matter and propounded that the Act is a code in itself and violation of the same had legal consequences. The Court also opined that a writ petition should not be entertained ignoring the statutory dispensation when the statutory forum is created by law for redressal of grievances. Simultaneously, the Court also acknowledged the supremacy of constitutional provision under Article 227 but also cautioned that tribunal should be shielded from judicial intervention. The Court further formulated the ‘Exceptional Rarity Test’ and stated that the high court shall only entertain the petition if the party shows that it is ‘remediless’ or ‘bad faith’ shown on the part of the appellant to successfully invoke remedies under writ jurisdiction.[xxiii] It also held that the writ court should restrict themselves to these standards while entertaining the writ petition.
Hence, one can observe that test of exceptional circumstances or bad faith was introduced as a ground to expand the arena of writ jurisdiction in addition to three grounds permitted in the Ashish Gupta Case. The Courts should take care in declaring the exceptional circumstances to maintain the respect of the Legislative’s objective of minimum judicial intervention in arbitration matters.
(ii) ‘Patently Lacking in Inherent Jurisdiction Test’-
In the case of 'Deep Industries', the Supreme Court has recognized the conflict between Section 5 of the Act and the jurisdiction of appellate courts. In this particular case, the interim order of arbitral tribunal was challenged before the City Civil Court but got rejected. Consequently, a petition was filed before Gujarat High Court wherein it was admitted and judgement was passed on the merits of the case. Thereafter, the appeal was filed before the Supreme Court by the way of a special leave petition. The Court in the present case held that the High Courts should be circumspect in interfering with the orders of tribunals and should be restricted to the orders which are patently lacking in inherent jurisdiction test.
However, in this judgment, the court did not elaborate what would amount to lacking in inherent jurisdiction which was clarified further in the case of Punjab State Power v. Emta Coal Limited [xxiv], wherein the arbitrator’s order under Section 16 of the Act was challenged under Article 227 of the Constitution, and the court further stated that a patent lack of jurisdiction is when perversity is found on the face of it.
Thus, the court through these tests has tried to facilitate the balance between the Arbitration Act’s objective to minimize judicial intervention in arbitration matters and the High Court’s supervisory power derived from the Constitution.
The independence and minimal intervention in the orders of the Arbitral Tribunal shall play a significant role in deciding the fate of the Arbitration in India. In the name of writ jurisdiction, the courts should not interfere in the orders of the tribunal unless or until it can be proved that the failure to admit would lead to unpleasing consequences or denial of justice/rule of law to any of the parties. It is a widely accepted fact in various judgments that the Act is self-contained and exhaustive, thereby contains all the acts which are permissible under the statute. Even though the Courts have agreed that the availability of arbitration clause ousts the writ courts’ extraordinary jurisdiction, we continue to witness judicial views that assert that an arbitration agreement or an arbitration clause cannot ipso facto fetter their extraordinary jurisdiction.
It is interesting to note that while judicial intervention under writ jurisdiction is acknowledged to be used sparingly, the qualifying criteria for its application, though generally inclusive, continues to fluctuate from case to case which can be witnessed in few landmark judgments in the particular context. It may soon be imperative for the courts to clarify whether their determination of the tests is restricted to the facts of a particular case or can be adopted for multiple cases as a precedent. Even though these tests have settled the dispute between arbitration clause in an agreement and writ jurisdiction for the time being in a particular case, the time will only tell the effectiveness of these tests concerning the mindset of courts in dealing with the cases of the writ jurisdiction and intervention with the interim or final orders of an arbitral tribunal.
[i] Arts. 226-7, Constitution of India, 1950. [ii] Raj International v Tripura Jute Mills Ltd., CRP No. 91 of 2007. [iii] §5, Arbitration and Conciliation Act, 1996. [iv] Ashish Gupta v IBP Co. Ltd AIR 2006 Delhi 57. [v] Id. ¶7. [vi] Id. [vii] Id. ¶11. [viii] Srei Infrastructure Finance vs Tuff Drilling Private Limited, CIVIL APPEAL NO. 15036 OF 2017. [ix] SBP and Co. v. Patel Engineering, (2005) 8 SCC 618. [x] Id. ¶16. [xi] §34, Arbitration and Conciliation Act, 1996. [xii] Punjab State Power Corporation v. EMTA Coal Ltd. SLP (C) No. 8482/2020. [xiii] Id. ¶4. [xiv] Metrorail Gurgaon Limited v. Haryana Mass Rapid Transport Corporation Limited and Ors. Civil Appeals No 925-926 of 2021 arising out of Special Leave Petition (C) Nos. 1832-1833 of 2021. [xv] Unitech Pvt. Ltd. and Ors v Telangana State Industrial Infrastructure Corporation (TSIIC) and Ors. CA No. 317 of 2021. [xvi] Id. ¶33. [xvii] Ram Barai Singh & Co. v State of Bihar and Ors. CA No. 11465 of 2014. [xviii] ABL International Ltd. and Anr. v Export Credit Guarantee Corporation of India Ltd. and Ors. CA No. 5409 of 1998 [xix] Id. ¶10. [xx] Id. ¶14. [xxi] CA No. 9106 of 2019. [xxii] CA No. 14665 of 2015. [xxiii] Id. ¶¶19, 21. [xxiv] Punjab State Power Corporation v. EMTA Coal Ltd. SLP (C) No. 8482/2020.
Author: Utkarsh Sharma, Intern, S&D Legal Associates.