Supreme Court Clarifies Intervention in Arbitration: Bhaven Construction vs. Sardar Sarovar Narmada Nigam Ltd. (2021)

Date of the Judgment: January 06, 2021
Citation: (2021) INSC 1
Judges: N.V. Ramana, J., Surya Kant, J., Hrishikesh Roy, J.
Can a High Court intervene in an ongoing arbitration process? The Supreme Court of India addressed this critical question in a recent judgment, clarifying the extent to which High Courts can exercise their writ jurisdiction under Articles 226 and 227 of the Constitution of India in matters related to arbitration. The core issue revolved around whether a High Court can interfere with an arbitral process when the Arbitration and Conciliation Act, 1996 provides a specific mechanism for challenging an arbitrator’s decision. The three-judge bench, comprising Justices N.V. Ramana, Surya Kant, and Hrishikesh Roy, delivered the judgment.

Case Background

On February 13, 1991, Bhaven Construction (Appellant) entered into a contract with the Executive Engineer, Sardar Sarovar Narmada Nigam Ltd. (Respondent No. 1) for the manufacturing and supply of bricks. The contract included an arbitration clause (Clause 38) for dispute resolution. A dispute arose regarding payments, leading the Appellant to issue a notice on November 13, 1998, seeking the appointment of a sole arbitrator.

Respondent No. 1 objected to this request on November 23, 1998, and January 4, 1999, citing two reasons: first, that the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (“the Gujarat Act”) should apply, and second, that the claim was time-barred as per Clause 38 of the contract. Despite these objections, the Appellant appointed Respondent No. 2 as the sole arbitrator. Respondent No. 1 then challenged the arbitrator’s jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996 (“the Arbitration Act”), which was rejected by the arbitrator on October 20, 2001.

Timeline

Course of Proceedings

Respondent No. 1 challenged the sole arbitrator’s order before the High Court of Gujarat under Articles 226 and 227 of the Constitution of India. A Single Judge of the High Court dismissed the petition, stating that the challenge should be made under Section 34 of the Arbitration Act after the award was passed. However, a Division Bench of the High Court allowed Respondent No. 1’s appeal, holding that the contract was a “works contract” and that the Gujarat Act applied, not the Arbitration Act. The High Court also stated that the Respondent No. 1 had raised the issue of the correct forum at the earliest opportunity.

Legal Framework

The Supreme Court examined the following legal provisions:

• Section 5 of the Arbitration and Conciliation Act, 1996: This section states that “Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” This provision emphasizes minimal judicial interference in arbitration matters.
• Section 16 of the Arbitration and Conciliation Act, 1996: This section allows the arbitral tribunal to rule on its own jurisdiction.
• Section 34 of the Arbitration and Conciliation Act, 1996: This section provides the mechanism to challenge an arbitral award. The opening phase of Section 34 reads as ‘Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3)’.
• Article 226 and 227 of the Constitution of India: These articles grant High Courts the power of judicial review, including the power to issue writs.
• Section 2(k) of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992: This section defines a “works contract” as a contract for the execution of works, including the supply of goods related to such works.

Arguments

Appellant’s Arguments:

• The Appellant argued that the Division Bench of the High Court erred in interfering with the Single Judge’s order under Articles 226 and 227 of the Constitution.
• The Appellant contended that the Arbitration Act is a self-contained code, and the High Court should not have interfered with the arbitral process.
• The Appellant submitted that Section 16(2) of the Arbitration Act mandates that the sole arbitrator had the jurisdiction to adjudicate the preliminary issue of jurisdiction, which can only be challenged under Section 34 of the Arbitration Act.
• The Appellant highlighted that the Respondent No. 1 was attempting to bypass the framework laid down under the Arbitration Act.

Respondent’s Arguments:

• The Respondent argued that the Gujarat Act substituted the Arbitration Act for disputes arising out of works contracts.
• The Respondent contended that under Articles 226 and 227 of the Constitution, it was open for the Respondent to invoke the writ jurisdiction of the High Court to set aside an arbitration that was a nullity due to conflict with the State enactment.
• The Respondent argued that the contract was a “works contract” and therefore the Gujarat Act applied.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the arbitral process could be interfered with under Article 226/227 of the Constitution, and under what circumstances?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court cited Konkan Railway Corporation Limited v. Mehul Construction Company, (2000) 7 SCC 201* and SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618*, which were relied upon by the Single Judge of the High Court, to reiterate that the challenge to the arbitrator’s jurisdiction should be made under Section 34 of the Arbitration Act.
• The Supreme Court referred to Nivedita Sharma v. Cellular Operators Association of India, (2011) 14 SCC 337* to emphasize that while the High Courts have the power to issue writs under Article 226, this power should not be used when an effective alternative remedy is available.
• The Supreme Court relied on M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited, (2019) SCC Online SC 1602*, to highlight that interference under Article 227 should be limited to cases where there is a patent lack of inherent jurisdiction.
• The Supreme Court referred to P. Radha Bai v. P. Ashok Kumar, (2019) 13 SCC 445*, to underscore the principle of “unbreakability” of the time limit under Section 34(3) of the Arbitration Act.
• The Supreme Court also cited International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions, 2nd Edn., by Dr. Peter Binder to explain the principle of “unbreakability” of time limits in arbitration.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the integrity and efficiency of the arbitration process. The Court emphasized that the Arbitration Act is a self-contained code designed to minimize judicial interference. The Court was also concerned about the potential for delays and disruptions if High Courts were to frequently intervene in ongoing arbitral proceedings. The court noted that the Respondent had submitted themselves to the jurisdiction of the sole arbitrator and hence should endure the consequences of the same which can be challenged under Section 34 of the Arbitration Act. The Court also highlighted that the contract between the parties was composite in nature and not a pure works contract and therefore the Gujarat Act would not be applicable.

Fact:Law Ratio

Logical Reasoning:

The court considered alternative interpretations but rejected them. The court considered the argument that the Gujarat Act should apply but rejected this argument by holding that the contract was not a pure works contract. The court also considered the argument that the High Court can interfere under Article 226/227 but rejected this argument by holding that the High Court should be extremely circumspect in interfering with the arbitral process.

The Supreme Court held that the High Court should not have interfered with the arbitral process under Articles 226 and 227 of the Constitution. The Court stated that such interference should be limited to cases where there is a patent lack of inherent jurisdiction or exceptional circumstances. The Court also held that the Respondent should have challenged the arbitrator’s decision under Section 34 of the Arbitration Act.

The reasons for the decision are:

• The Arbitration Act is a self-contained code designed to minimize judicial interference.
• Section 16 of the Arbitration Act allows the arbitral tribunal to rule on its own jurisdiction.
• Section 34 of the Arbitration Act provides the mechanism to challenge an arbitral award.
• The High Court should be extremely circumspect in interfering with the arbitral process under Articles 226 and 227 of the Constitution.
• The contract between the parties was composite in nature and not a pure works contract.

“Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

“Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).”

“The drill of Section 16 of the Act is that where a Section 16 application is dismissed, no appeal is provided and the challenge to the Section 16 application being dismissed must await the passing of a final award at which stage it may be raised under Section 34.”

There were no minority opinions in this case.

The Court’s reasoning was based on the principle of minimal judicial interference in arbitration matters. The Court interpreted the relevant provisions of the Arbitration Act and the Constitution to conclude that the High Court should not have interfered with the arbitral process at the stage it did. The Court emphasized the importance of allowing the arbitral process to run its course, with challenges to awards being made under Section 34 of the Arbitration Act.

The decision has significant implications for future cases. It reinforces the principle that High Courts should be extremely circumspect in interfering with ongoing arbitral proceedings. It also clarifies that the remedy for challenging an arbitrator’s decision on jurisdiction lies under Section 34 of the Arbitration Act, not through writ petitions under Articles 226 and 227 of the Constitution.

The judgment does not introduce any new doctrines or legal principles but rather reinforces the existing principles of minimal judicial interference in arbitration and the importance of adhering to the statutory framework provided by the Arbitration Act.

Key Takeaways

• High Courts should be extremely cautious when considering interfering with ongoing arbitration processes under Articles 226 and 227 of the Constitution.
• The Arbitration and Conciliation Act, 1996 is a self-contained code that provides its own mechanisms for challenging arbitral awards.
• Challenges to an arbitrator’s jurisdiction should be made under Section 34 of the Arbitration Act after the final award is passed.
• The principle of minimal judicial interference in arbitration should be upheld to ensure the efficiency of the arbitral process.
• The time limits provided under the Arbitration Act should be strictly adhered to.

Directions

The Supreme Court set aside the order of the High Court and clarified that the Respondent No. 1 is at liberty to raise any legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings.

Development of Law

The ratio decidendi of the case is that High Courts should be extremely circumspect in interfering with the arbitral process under Articles 226 and 227 of the Constitution, and that challenges to an arbitrator’s jurisdiction should be made under Section 34 of the Arbitration Act. This judgment reinforces the existing position of law regarding minimal judicial interference in arbitration matters.

Conclusion

The Supreme Court’s judgment in Bhaven Construction vs. Sardar Sarovar Narmada Nigam Ltd. clarifies the limited scope for High Court intervention in ongoing arbitration proceedings. The Court emphasized that the Arbitration Act provides a comprehensive framework for resolving disputes, and High Courts should not interfere with this process unless there is a clear lack of inherent jurisdiction or exceptional circumstances. This decision reinforces the principle of minimal judicial interference in arbitration and ensures that the arbitral process remains efficient and effective.