By Tanvi Rahim and Samriddhi Chatterjee
Arbitration offers remedy within its framework itself, in case of issues arising out of the matter in question. It, therefore, usually doesn’t require interference from judiciary as the mechanisms provided therein are self-sufficient. As a rule, the principle of minimum judicial interference is followed in arbitration. This case comment on "Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. & Anr." explores the said principle and related aspects to throw light on the existing legal framework surrounding it. It also provides a discussion on four main points of law - kompetenz-kompetenz, unilateral appointment of sole arbitrator, minimum judicial intervention, and limitation period - that require judicial attention and elucidation.
Factual Matrix
Executive Engineer Sardar Sarovar Narmada Nigam Limited (hereinafter “Respondent No. 1”) had entered into a contract with Bhaven Construction (hereinafter the “Appellant”) on February 13, 1991 (hereinafter the “Contract”) to produce and supply bricks. The Contract covered an arbitration clause that, amongst other things, provided for appointing a sole arbitrator. Over time, disagreements emerged between the parties concerning bills for the manufacture and delivery of bricks. As a result, the Appellant invoked the arbitration clause as provided in Clause 38 of the Contract to request the appointment of a sole arbitrator vide a notice dated November 13, 1998. Respondent No. 1 opposed the Appellant's request in replies dated November 23, 1998 and January 4, 1999 on two major grounds:
The disputes between the parties were to be resolved in accordance with the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (“Gujarat Act”) or any other subsequent amendment or statutory modifications (Arbitration and Conciliation Act, 1996); and
The arbitration proceeding was time barred, as clause 38 stipulated that neither party would be entitled to claim if the arbitrator had not yet been appointed before the expiration of the statute.
However, the Appellant appointed Respondent No. 2 as the sole arbitrator to settle the parties' disagreements. Respondent No. 1 subsequently filed an application under Section 16 of the 1996 Act, contesting the sole arbitrator's jurisdiction. The sole arbitrator dismissed the Application (“Arbitrator's Order”) in an order dated October 20, 2001.
Proceedings before the Single Judge Bench
Respondent No. 1 filed an application under Articles 226 and 227 of the Constitution before a single judge of the Gujarat High Court challenging the Sole Arbitrator's Order. The application was refused on the grounds of maintainability.
Proceedings before the Division Bench
Thereafter, Respondent No. 1 filed a letters patent appeal before a division bench of the Gujarat High Court, challenging the Single Judge's Order. The learned Division Bench allowed the appeal vide an order dated September 17, 2012, stating that the Contract was a "works contract" and as there was no consensus between the parties, the issue needed consideration. It held that because Respondent No. 1 (then the appellant) had challenged the ‘forum' in which the dispute was being adjudicated at the earliest opportunity. the Appellant (then the respondent) cannot be allowed to argue that he wanted to wait till the award of the sole arbitrator was passed in the matter for challenging it under sections 34 and 37 of the 1996 Act.
Special Leave Petition before the Supreme Court
Aggrieved by the decision of the Division Bench of the Gujarat High Court, the Appellant moved the Supreme Court under Article 136 of the Constitution. The reasoning and the judgment are discussed in the next segment. The main issue before the Hon’ble Supreme Court was whether the writ jurisdiction of High Courts can be invoked under Articles 226 and 227 for setting aside an arbitration award, the same being a nullity due to it being in conflict with the state enactment and more importantly upholding the principle of minimum judicial intervention in arbitration matters.
Reasoning of the Court
Scope of Section 5 read with Section 34 of the Act
1. The Arbitration Act is a complete code in itself and the non-obstante clause in Section 5 of the Act conveys the intention of the Legislature to adopt the UNCITRAL Model Law and Rules, to minimise judicial intervention beyond the scope of the Act.
2. Arbitration provides a flexible mechanism for parties to set up their own dispute resolution procedure and also lays down the process and forum to challenge the appointment of an arbitrator. It is evident that matters arising out of the Arbitration are to be settled within the scope of the Act itself without warranting much judicial interference. The Apex referred to f Section 34 of the Act to clarify that there are limited grounds on which the courts can interfere with the arbitration procedure or set aside the award so rendered.
3. The writ jurisdiction of the High Court is a basic feature of the Constitution and cannot be curtailed by statutory enactments.[1] However, the High Court need not entertain each and every petition before it if it is clear that the petitioner has an effective alternative remedy available.[2] The only exception is when the aggrieved party is left remediless under the statute or a clear “bad faith” is evident. Therefore, when a statutory remedy is provided, writ petitions need not be admitted in contravention of the statutory dispensation.
4. The Court had an opportunity to examine the relationship between Section 5 of the Act and Article 227 of the Constitution.[3] It held that the non-obstante clause in Section 5 prevented any unwarranted interference by the Judiciary except as required by the Act itself. Such an intervention is permitted under Section 37 of the Act where “right of first appeal” is provided for in certain cases. It is not permitted to approach the writ jurisdiction of the High Court against the order passed in appeal under Section 37. At the same time, Article 227 is a constitutional provision and cannot be obstructed by the wordings of Section 5 of the Act. The power of judicial interference can be exercised only in a circumstance where there is “exceptional rarity”, i.e. when a party is rendered remediless under the Statute or where there is ‘bad faith’ on behalf of one of the parties, Although challenge to dismissal of appeal under Section 37 is not prohibited, the Court must exercise due caution in permitting such petitions which warrant the Court’s attention.
Doctrine of Unbreakability
5. Alternatively; one of the basic tenets of arbitration includes the ‘principle of unbreakability’[4] found under Section 34 (3) of the Act.[5] An application for setting aside an award can only be made within three months from the date a party received the award. This time stipulation can be extended only if it is an application for correction or interpretation of the award under Article 33 of the Model Rules. This has, however, been extensively criticised as delaying tactic. Therefore, the need was felt to maintain a strict three-month time limit to fortify the rule of “unbreakability.”
6. In the present matter; the High Court erred in overlooking the limitation imposed by the Act and holding that the Appellant had proceeded with the unilateral appointment of the sole arbitrator. On the contrary, the Appellant had proceeded as per the mandate of the contract. Moreover, even after the appointment of the sole arbitrator, the Respondent No.1 did not mount a challenge against this appointment and submitted to such arbitrator’s jurisdiction. In such a case, the Respondent No.1 has to bear the consequences of its action and there is nothing on record to justify, in the nature of bad faith, the invocation of Articles 226 and 227 of the Constitution.
Application of the Gujarat Act
7. Under Section 2 (k) of the Gujarat Act a “works contract” has been defined and included contract for supply of goods relating to the execution of any of the works specified under the Section. However, upon the perusal of the Contract, it becomes evident that contract was for manufacture of bricks and not for their supply.
8. As per the Division Bench, since the contract was for manufacturing bricks, it would be classified as a “works contract”. Therefore, the applicable law would be the Gujarat Act and not the Arbitration Act. However, this is a matter that requires contract interpretation and other evidence as well. Interpretation of contract does not fall within the ambit of writ jurisdiction and the correct remedy for the Respondent No.1 would be a challenge under Section 16 of the 1996 Act.
Judgement
The High Court erred in utilising the discretionary powers under Article 226 and 227 the Constitution.
The appeal was allowed and the impugned order of the Division Bench of Gujarat High Court was set aside.
Analysis
On the one hand, the Judgment reinforces prevailing precedents on certain points. On the other, it has added to the ambiguity on other points. At this juncture, therefore, an analysis of the Judgment would be crucial to understand the principles of arbitration that the Hon’ble Court has touched upon; either directly or indirectly. The judgment brings out four major points for analysis: (a) kompetenz-kompetenz (b) unilateral appointment of sole arbitrator (c) judicial interference and (d) limitation period.
Kompetenz-Kompetenz
Section 16, which is based on UNCITRAL Model Law, embodies the doctrine of kompetenz-kompetenz. Under this doctrine, the Tribunal is empowered to rule on its jurisdiction, it may even rule upon the existence or validity of the Arbitration Agreement.
Section 11 of the Act was amended in 2015 to re-establish the principle of kompetenz-kompetenz based on the recommendations of the 246th Law Commission Report.[6] The intervention of the Court, under Section 11, is limited only to the existence of the arbitration agreement.[7] Other preliminary matters are left to the discretion of the arbitrator under Section 16 of the Act.
The Apex Court had the opportunity to analyse the principle of kompetenz-kompetenz in Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited.[8]The purpose of incorporating this doctrine in the statute is to ensure party autonomy and to limit the unwarranted judicial interference. Once the Tribunal is constituted, all matters are to be decided by the Tribunal itself. This not includes any ruling on its jurisdiction, but also, issues pertaining to limitation.[9] When the arbitration agreement is not disputed, the jurisdictional issues shall be decided by the Tribunal under Section 16 of the Act, not by the High Court under Section 11 of the Act.
However, this doctrine is subject to two exceptions; (a) when the arbitration agreement is tainted by fraud or deception; and (b) when the arbitration agreement is invalid or non-existent.[10] In such cases, of invalidity of arbitration agreement and arbitrability of dispute is in question, the Arbitral Tribunal lacks the authority to rule on these disputes and therefore, such circumstances warrant intervention by the courts under Section 11 of the Act.
In Bhaven Construction, the sole arbitrator was correct in deciding his jurisdiction as per the doctrine of kompetenz-kompetenz. There is absolutely no scope of ambiguity.
Unilateral Appointment of Sole Arbitrator
The unilateral appointment of a sole arbitrator was examined in Perkins Eastman case.[11]Balancing party autonomy and principles of natural justice, the Court held that one of the parties to the dispute cannot unilaterally appoint an arbitrator even if this power has been stipulated has been in the contract. This decision was the further upheld in Proddatur Cable TV case.[12]The consequence shall be that arbitral tribunals shall, henceforth, be appointed by mutual consent of parties involved. The award passed by such sole arbitrator/tribunal shall also be deemed to be fair and unbiased; strengthening the faith of the parties in the arbitration procedure and preventing protracted litigation before the Courts.
In Bhaven Construction, faced with the inaction on part of the Respondent in taking forward the arbitral procedure, the Appellant had no option other than to go ahead with the unilateral appointment of the sole arbitrator as per the mandate of Clause-38 of the Contract. Hence, the appointment in this case cannot be termed as “unilateral”.
Judicial Interference in Arbitration
The general norm is that of judicial non-interference. Judicial intervention can be either under the mechanism provided under the Act, or through any other means. Limited scope of interference is provided in Section 9 and 34 of the Act. The Supreme Court has time and again said that Courts can neither re-appreciate the evidence already considered by arbitrators[13] nor can they examine another alternative view than that of the arbitrator even if such an alternate view exists.[14] For the Court to interfere, it is necessary for the party to show that the award suffers from an error of law or there has been a misconduct on part of the arbitrator which has vitiated the proceedings and the award.[15] The primary reason for this norm of minimal judicial interference is that parties usually opt for arbitration due to the inconveniences of litigation, and therefore they choose to exclude Courts. So, if there is a problem with arbitration process, it should be resolved as much as possible, by the means provided by it and not through Courts. So far as judicial intervention through writ jurisdiction under article 226 and 227 of the Constitution is concerned, judicial interference is not allowed during the arbitral proceedings.[16] In one instance, however,[17] the Delhi High Court, entertained the writ petition saying that the Court is not bound by the argument of alternate remedy and it lies on the discretion of the Court. Courts interfere under the writ jurisdiction only when public law is involved.[18]
In Bhaven Construction, the Court could have deliberated on the principle of judicial interference in arbitration a bit more decisively given the history of the matter and lucidly lay down the conditions where it is allowed and where it isn’t.
Limitation Period for Challenging Appointment
Vigilantibus non dormientibus jura subveniunt, meaning the law supports those who are vigilant, not those who are sleeping is the main reason for having the provision of limitation period. The Limitation Act, 1963 is also applicable on the arbitral proceedings.[19] The Supreme Court is to appoint an arbitrator if there is a failure to appoint an arbitrator and the time limit for the same is 3 years as per Article 137 of the Limitation Act, 1963.[20] However, jurisdiction issues, especially with respect to arbitration tribunals cannot be raised at a later stage.[21] To further complicate matters, on this point too, there has been a more recent yet contrary opinion by the Supreme Court[22], with both the judgments being given by a division bench. It can be argued that the former position of law still operates as long as it is not overruled by a larger bench. Nevertheless, the position of law requires further clarity by the Apex Court.
In Bhaven Construction, the Court could should have taken note of these two contrasting precedents and elucidate on the subject, clarifying the position of law. Given that both the decisions were given by a bench of the same quorum, there is a pressing need for the Supreme Court to constitute a higher bench for adjudicating on the issue and uphold any one of the precedents and explicitly overrule the other.
Author’s View
Keeping in mind the jurisprudence evolved so far with respect to judicial interference and other factors, the judgment of the Court, in our opinion is correct. The Court has correctly upheld the principle of minimum interference and the existence of alternate remedy. As rightly remarked by Hon’ble Justice Ramana, the Act is a code in itself and provides for all the remedies and mechanisms within it under various sections and therefore it is not ideal to read it with other statutes or provisions of law so as to fill the gaps within the Act, if any.
However, recently, in U.P. Power Transmission Corpn. Ltd. v. CG Power and Industrial Solutions Ltd,[23]the Supreme Court held that existence of an arbitration clause as a form of alternate remedy wouldn’t bar the writ jurisdiction of High Courts under articles 226 and 227 of the Constitution. This is true especially for the cases where there is prima facie evidence of injustice.[24] Since the writ jurisdiction of High Courts is much wider and, on this subject, discretionary, High Courts are to exercise utmost caution before entertaining such a matter.[25]
Moreover, challenge to the appointment of arbitrators cannot happen after the award is passed but has to happen before the adjudication begins, before submitting to the jurisdiction of the arbitrator. Grounds for challenging the jurisdiction are anyway limited but in order to do so, it is imperative to do it at the first instance and not after the termination of proceedings or in accordance with section 16 (2) of the Act. The judgment is another precedent which has contributed to setting up an arbitration friendly regime in the country.
The only critique that the Authors would like to present is regarding the taciturnity of the judgment. On the face of the facts presented, the judgment delivered seems to be apt. However, the reader is not presented with the facts pertaining to grounds on which the challenge to appointment was made or why did the Respondent deny that there was arbitrable matter in the first instance. In the absence of such facts, it becomes difficult to evaluate the correctness of the judgment in a holistic manner. The judgment, nevertheless, is in line with Article 5 of the UNCITRAL Model law and practice prevailing in countries like Singapore[26] and France[27].
References: [1] L Chandra Kumar v Union of India (1997) 3 SCC 261 [2] Nivedita Sharma v Cellular Operator Association of India (2011) 14 SCC 337 [3] Deep Industries Limited v Oil and Natural Gas Corporation Limited 2019 SCC OnLine SC 1602 [4] Dr. Peter Binder, International Commercial and Mediation in UNCITRAL Model Law Jurisdiction (2nd edn, Kluwer Law International 2019) [5] P. Radha Bai v P. Ashok Kumar (2019) 13 SCC 445 [6] Law Commission, Amendments to the Arbitration and Conciliation Act 1996 (Law Comm No 246, 2014) [7] Duro Felguera S.A. v Gangavaram Port Ltd. (2017) 9 SCC 729 [8] Uttarakhand Purv Sainik Kalyan Nigam Limited v Northern Coal Field Limited (2020) 2 SCC 455 [9] M/s. Indian Farmers Fertilizers Co-operative Ltd. v Bhadra Products (2018) 2 SCC 534 [10] PSA Mumbai Investments PTE Ltd. v Board of Trustees of Jawaharlal Nehru Port Trust & Anr. (2018) 10 SCC 525; Dresser Rand S.A. v Bindal Agro Chem Ltd. (2006) 1 SCC 751 [11] Perkins Eastman Architects DPC & Anr. v HSCC (India) Ltd 2019 SCC OnLine SC 1517 [12] Proddatur Cable TV Digi Services v Siti Cable Network Limited 2020 SCC OnLine Del 350 [13]Associates Builders v DDA (2015) 3 SCC 49; see also National Highways Authority of India v M. Hakeem 2021 SCC OnLine SC 473 [14]Arosan Enterprises v Union of India (1999) 9 SCC 449 [15]Oswal Woollen Mills Ltd. v Oswal Agro Mills Ltd. (2018) 16 SCC 219 [16]GTPL Hathway Ltd. v Strategic Marketing Pvt. Ltd. [R/Special Civil Application No. 4524 of 2019 decided on April 20, 2020]; see also Deep Industries Limited v Oil and Natural Gas Corporation Limited and Another (2019) SCC OnLine SC 1602 [17]Ashish Gupta v IBP Co. Ltd. AIR 2006 Delhi 57 [18]ABL International Ltd. and Anr v Export Credit Guarantee Corporation of India Ltd and Ors [19]Arbitration and Conciliation Act 1996 s. 43 [20]Bharat Sanchar Nigam Limited v Nortel Networks India Private Limited (2021) 5 SCC 738 [21]Narayan Prasad Lohia v Nikunj Kumar Lohia & Ors (2002) 3 SCC 572 [22]M/s. Lion Engineering Consultants v State of Madhya Pradesh & Ors. (2018) 16 SCC 758 [23] U.P. Power Transmission Corpn. Ltd. v CG Power and Industrial Solutions Ltd 2021 SCC OnLine SC 383 [24] Union of India & Ors. v Tantia Construction Pvt. Ltd. (2011) 5 SCC 697 [25] Harbanslal Sahnia v Indian Oil Corpn. Ltd (2003) 2 SCC 107 [26] BLC & Ors. v BLB & Anr. [2014] SGCA 40 [27] Pwc v. Lefebvre French Court de Cassation, civ 1, 30 September 2020, No. 18-19.241.