The High Court's power under Article 226/227 to interfere with the arbitration process needs to be exercised in exceptional rarity: SC

Parties' Names

  • Appellant: Bhaven Construction Through Authorised Signatory Premjibhai K Shah
  • Respondents: Executive Engineer Sardar Sarovar Narmada Nigam Ltd. & Anr.

Key Take-Aways

  • This judgement set aside the of the Gujarat High Court where it had allowed a writ petition challenging the jurisdiction of an arbitrator.
  • This judgement dealt with the scope of Article 226/227 under arbitration.
  • The court held that only under rare cases when there is no remedy left, it is necessary for a party to file a writ petition in these cases.

INTRODUCTION

Article 226 confers the High Court to issue the writ and these are - Habeas Corpus, Mandamus, Prohibition, Quo warranto, Certiorari. Under this, the HC has the power to issue orders, directions, and writs to any individual or authority including the government for the enforcement of fundamental rights and other legal rights under its jurisdiction.

The scope of Article 226 was held to be much wider than that of Article 32 in the case of Bandhua Mukti Morcha v. Union of India. The striking differences between Article 32 and Article 226 are to be known that Article 32 is a fundamental right while Article 226 is a constitutional right, Article 32 can be suspended if an emergency has been declared while Article 226 remains valid even then, and since, Article 32 is a fundamental right, the same cannot be refused by the Supreme Court while Article 226 confers discretionary power to the High Court which means it is at the discretion of the High Court to issue a writ or not.

With the same power of enforcing fundamental rights, Article 226 has a much broader scope than Article 32 because it can also be used to enforce other legal rights conferred by the Constitution or any other statute.

BACKGROUND

A writ petition was filed in the Gujarat HC where it had allowed the petition challenging the jurisdiction of a sole arbitrator. The issue here was whether the court had the power to intervene and if so under what circumstances. The bench stated that the Arbitration Act is a code having a non-obstante clause in Section-5, which has been provided to further the intention of the legislature in adopting the UNCITRAL model law and rules, to reduce the excess of judicial interference in arbitration proceedings.

The court said that the framework of the Arbitration Act is clearly with the intention of addressing the issues within the ambit of the Act itself without any extra-statutory mechanism for resolution. It said that Parties who enter into arbitration have to fulfil the ingredients of Section 7 of the Act. If a party fails to put up the matter for arbitration or appoint the arbitrator according to the procedure that was agreed upon by them, then a party can take the route of Section 8 or 11 of the Act and approach the court for assistance.

The Act here referred to is the Arbitration and Conciliation Act, 1996 which regulates the framework provided for the process of arbitration.

Section 8 of this above Act states (mentioned in the case) -

8. Power to refer parties to arbitration where there is an arbitration agreement.—

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to the arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

Section 11 - Appointment of arbitrators.  -

(1) A person of any nationality may be an arbitrator unless otherwise agreed by the parties.

(2) Subject to subsection (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.

(4) If the appointment procedure in sub-section (3) applies and -

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties -

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.

(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to—

(a) any qualifications required of the arbitrator by the agreement of the parties; and

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

(9) In the case of appointment of a sole or third arbitrator in international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

(10) The Chief Justice may make such scheme 1 as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.

(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.

(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to ‘‘Chief Justice" in those sub-sections shall be construed as a reference to the ‘‘Chief Justice of India".

(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.

The court also the court held that though the scope of Article 227 is broad and pervasive, it was not right on the part of the HC to interject the arbitral process at this stage.

JUDGEMENT

The Supreme Court set aside the judgement of the Gujarat High Court where it had allowed a writ petition challenging the jurisdiction of an arbitrator. The Court held that it would be prudent for a judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment and that it needs to be exercised in exceptional rarity, wherein the party is left with no other remedy. The court set aside the High Court judgement and stated that as per the Act jurisdictional questions have to be first looked into by the tribunal before they can be brought to the court under Section 34. Therefore, Respondent No.1 was not remediless and had a chance given by the statute to appeal.

CONCLUSION

This judgement gave directions and stressed on the jurisdiction as well as the applicability of Article 226. It set the standards to decide the rarity of a case under which this provision can be utilised.

Article 32 remains the soul of the Constitution as it confers the fundamental right but Article 226 also remains one of the broader and most important provisions under the Constitution.

Click here to download the original copy of the judgment

 

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