Powers under Articles 226/ 227 should be used sparingly by High Courts when interfering with arbitral process: Supreme Court

Such power should be exercised only in exceptional rarity, wherein one party is left remediless under the statute or a clear ‘bad faith’ shown by one of the parties, the top court underscored.
Powers under Articles 226/ 227 should be used sparingly by High Courts when interfering with arbitral process: Supreme Court
NV RAMANA, SURYA KANT, HRISHIKESH ROY

Powers under Articles 226/227 should be used sparingly by High Courts when it comes to interfering with arbitral process, the Supreme Court ruled on Wednesday (Bhaven Construction v. Sardar Sarovar Narmada Nigam).

Such power should be exercised only in exceptional rarity, wherein one party is left remediless under the statute or a clear ‘bad faith’ shown by one of the parties, the top court underscored.

“It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient,” the Court said.

If the Courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished, it added.

The judgment was rendered by a Bench of Justices NV Ramana, Surya Kant and Hrishikesh Roy in an appeal against an order of the Gujarat High Court which had allowed a plea under Articles 226 and 227 and quashed the appointment of arbitrator by one of the parties to the case.

Appellant, Bhaven Construction had entered into a contract with the Respondent, Executive Engineer of Sardar Sarovar Narmada Nigam to manufacture and supply bricks. The contract had an arbitration clause.

When a dispute arose between the two, the appellant appointed a sole arbitrator to settle the same. The Respondent preferred an application under Section 16 of the Arbitration and Conciliation Act of 1996 disputing the jurisdiction of the arbitrator. The arbitrator dismissed the same whereupon the respondent preferred a special civil application under Articles 226 and 227 of the Constitution before the Gujarat High Court.

The single-judge dismissed the same and the respondent preferred a Letters Patent Appeal which was allowed by a Division Bench of the High Court.

In its order passed on September 2012, the Division set aside the appointment of sole arbitrator. Aggrieved by that order, the Appellant moved the Supreme Court.

The Court proceeded to set out the following issue for consideration:

“The question which needs to be answered is whether the arbitral process could be interfered under Article 226/227 of the Constitution, and under what circumstance?

At the outset, the Court noted that 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, the apex court observed.

But that said, the Court also acknowledged that the hierarchy in our legal framework, mandates that a legislative enactment cannot curtail a Constitutional right.

The Court, however, placed reliance on its 2014 judgment in Nivedita Sharma v. Cellular Operators Association of India and on the 2019 judgment in M/s. Deep Industries Limited v. Oil and Natural Gas Corporation Limited.

In Deep Industries, the Supreme Court had analysed the interplay between Section 5 of the Arbitration Act and Article 227 of the Constitution to hold that High Courts should be extremely circumspect while interfering under Article 227 against judgments allowing or dismissing first appeals.

In the instant case, the Court said that the Respondent was not successful in showing 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. If the Courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished,” the Court concluded.

It, therefore, set aside the High Court judgment but granted liberty to the Respondent to raise any legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings.

[Read Judgment]

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