2021 (1) TMI 177 - SC - Indian Laws

Jurisdiction of sole Arbitrator to adjudicate the preliminary issue of jurisdiction - whether the arbitral process could be interfered under Article 226/227 of the Constitution, and under what circumstance? - Section 34 of the Arbitration Act - HELD THAT - The Arbitration Act is a code in itself. This phrase is not merely perfunctory, but has definite legal consequences. One such consequence is spelled out under Section 5 of the Arbitration Act, which reads as under 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. The non-obstante clause is provided to uphold the intention of the legislature as provided in the Preamble to adopt UNCITRAL Model Law and Rules, to reduce excessive judicial interference which is not contemplated under the Arbitration Act - 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. In any case, the hierarchy in legal framework, mandates that a legislative enactment cannot curtail a Constitutional right. It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the procedure established under the enactment. This power needs to be exercised in exceptional rarity, wherein one party is left remediless under the statute or a clear bad faith shown by one of the parties. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient - In the instant case, Respondent No. 1 has not been able to show 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. It is brought to our notice that subsequent to the impugned order of the sole arbitrator, a final award was rendered by him on merits, which is challenged by the Respondent No. 1 in a separate Section 34 application, which is pending. Respondent No. 1 did not take legal recourse against the appointment of the sole arbitrator, and rather submitted themselves before the tribunal to adjudicate on the jurisdiction issue as well as on the merits. In this situation, the Respondent No. 1 has to endure the natural consequences of submitting themselves to the jurisdiction of the sole arbitrator, which can be challenged, through an application under Section 34. It may be noted that in the present case, the award has already been passed during the pendency of this appeal, and the Respondent No. 1 has already preferred a challenge under Section 34 to the same. Respondent No. 1 has not been able to show any exceptional circumstance, which mandates the exercise of jurisdiction under Articles 226 and 227 of the Constitution. The Gujarat Act was enacted in 1992 with the object to provide for the constitution of a tribunal to arbitrate disputes particularly arising from works contract to which the State Government or a public undertaking is a party. A works contract is defined under Section 2(k) of the Gujarat Act. The definition includes within itself a contract for supply of goods relating to the execution of any of the works specified under the section. However, a plain reading of the contract between the parties indicates that it was for both manufacturing as well as supply of bricks. Importantly, a contract for manufacture simpliciter is not a works contract under the definition provided under Section 2(k) - It is a settled law that the interpretation of contracts in such cases shall generally not be done in the writ jurisdiction. Further, the mere fact that the Gujarat Act might apply may not be sufficient for the writ courts to entertain the plea of Respondent No. 1 to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act. The High Court erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution herein - appeal is allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Jurisdiction of the sole arbitrator under the Arbitration and Conciliation Act, 1996.
2. Applicability of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992.
3. Interference by the High Court under Articles 226 and 227 of the Constitution.
4. Procedure for challenging the arbitration process.

Detailed Analysis:

1. Jurisdiction of the Sole Arbitrator:
The case revolves around a contract dated 13.02.1991, which included an arbitration clause (Clause 38). The Appellant sought arbitration due to a payment dispute, appointing a sole arbitrator as per the contract. The Respondent No. 1 challenged the arbitrator's jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The sole arbitrator rejected this challenge, affirming his jurisdiction.

2. Applicability of the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992:
Respondent No. 1 contended that the Gujarat Act superseded the Arbitration Act for disputes arising from works contracts involving the State. The High Court's Division Bench supported this view, asserting that the contract was a "works contract," thus falling under the Gujarat Act. However, the Supreme Court noted that the contract involved both manufacturing and supply of bricks, which complicates its classification as a works contract under Section 2(k) of the Gujarat Act. The interpretation of such contracts generally requires evidence and should not be handled under writ jurisdiction.

3. Interference by the High Court under Articles 226 and 227 of the Constitution:
The Supreme Court emphasized that the Arbitration Act is a self-contained code, limiting judicial intervention as per Section 5. The High Court should exercise its discretion under Articles 226 and 227 sparingly, particularly when statutory remedies are available. The Supreme Court cited precedents, including Nivedita Sharma v. Cellular Operators Association of India and Deep Industries Limited v. Oil and Natural Gas Corporation Limited, underscoring that judicial interference should be restricted to exceptional cases of "bad faith" or where a party is left remediless.

4. Procedure for Challenging the Arbitration Process:
The Supreme Court highlighted that the Arbitration Act provides a comprehensive framework for challenging arbitration proceedings. Section 16 allows the arbitrator to rule on his jurisdiction, and any challenge to this decision must await the final award, which can then be contested under Section 34. The Court reiterated that Respondent No. 1 should have followed this statutory process instead of seeking writ intervention.

Conclusion:
The Supreme Court concluded that the High Court erred in using its discretionary power under Articles 226 and 227 to interfere with the arbitration process. The appeal was allowed, and the High Court's order was set aside. Respondent No. 1 was advised to raise any jurisdictional objections in the pending Section 34 proceedings. The judgment underscores the importance of adhering to the procedural framework established by the Arbitration Act and limits judicial intervention to maintain the efficiency and finality of the arbitration process.