Introduction
On January 6, 2021, the Supreme Court of India (hereinafter, “SC” or “Court”) passed its order [1] in the case of Bhaven Construction v. Executive Engineer Sardar (hereinafter, “Bhaven Construction”) where it considered the jurisdiction of the High Courts under Articles 226 and 227 of the Constitution to interfere in arbitral proceedings. The judgement serves to limit the powers of the High Court under Articles 226 and 227 to rare and exceptional cases only. This decision comes as a welcome step to cement India’s place firmly as an arbitration-friendly jurisdiction, as it emphasizes the principles of “exceptional rarity” and “unbreakability”. These principles act in conjunction with each other to limit the interventionist power of courts in the arbitral process and reinforce its time bound nature.
The aim of this case commentary is to compare and contrast the ratio in the present case as against the 2019 SC ratio in M/s Deep Industries Limited v. Oil and Natural Gas Corporation Limited[2], (hereinafter, “Deep Industries”). The latter was the authority on the intersection of Article 227 with the arbitral process, to definitively observe how the judicial trend against interventionism is being cemented in the corpus of arbitral law in India. This case commentary argues that the SC expounds the ratio decidendi in Deep Industries and culls out a more coherent principle with respect to court intervention in arbitration.
Background
To compare and contrast the two cases, we must first delve into the primary questions that arise in both cases and the decision of the SC in response to these questions. For the purpose of brevity, only overlapping legal questions have been considered by the author.
Deep Industries is concerned with the question whether a High Court has the jurisdiction under Article 227 to decide matters under the Arbitration and Conciliation Act, 1996 (hereinafter, “Act” or “the Arbitration Act”). In the facts of this case, it is pertinent to note that a dispute had arisen from a contract, following which arbitration had been invoked. An order had been passed under Section 17 of the Act, which had led to a subsequent appeal under Section 37 which was dismissed, which led to a Special Civil Application being filed before the High Court of Gujarat under Article 227.[3]
In contrast, the question in Bhaven Construction is more specific to its peculiar facts. The primary legal question that arose in this case is whether a Letters Patent Appeal was maintainable before the High Court of Gujarat under Article 227?[4] While the legal question that arises here is the same as that of Deep Industries, in this instance, an order had been passed by the sole arbitrator under Section 16 and was challenged under Section 34, and a Section 34 order had not been passed when an appeal had been filed before the High Court. Additionally, there was also some contention about the nature of the contract and whether it was a “works contract” which attracted the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992.
Analysis
Since the legal questions in both cases are of a similar nature, the decisions also follow a similar line of reasoning. Both decisions are structured in the following manner: They consider the statutory policy that underlies the Arbitration Act and interpret Section 5, Section 34 and 37 to decide the cases. Both decisions are also concerned with balancing the Act as against the constitutional power granted to High Courts under Articles 226 and 227 of the Constitution.
To this end, the SC in Deep Industries decided that although Section 5 of the Arbitration Act contains a non-obstante clause, Article 227 is a constitutional provision which remains unaffected by such clause. However, the SC laid down that the power of the High Courts to exercise their power under Article 227 is limited and that such courts must be “extremely circumspect” when interfering with such matters. The interference must be restricted to such orders that are “patently lacking in inherent jurisdiction”. The courts must also consider the statutory policy that underlies the Arbitration Act particularly that which is evident from Section 5 of the Act.[5] With regards to outlining a principle, these two conditions are all that the Court lays down in Deep Industries. The Court instead is focused on balancing Article 227 against the arbitral process. For the same, it refers to the 2011 Nivedita Sharma judgement[6] and the 1996 Mafatlal Industries judgement[7] to illustrate how the SC has previously laid down that while constitutional remedies are available to parties, the object of the Act is to minimize judicial intervention. The Court then elaborates on what the statutory policy that underlies the Act actually is which is the “speedy disposal of arbitration cases” and to this end, the Act is a self-contained code dealing with arbitration. This was explained by the Court to mean that the Arbitration Act is exhaustive and that “only such acts as are mentioned in the Act are permissible to be done acts or things not mentioned therein are not permissible to be done.”[8]
In contrast, the Court in Bhaven Construction has focused less on the statutory policy that underlies the Arbitration Act and focused more on outlining situations where interference by High Courts is justified. On the nature of the Act, the Court reiterated how the Act has been envisaged to be self-contained. The Court takes great pains to point out that this phrase has legal consequences and is not meant to be perfunctory. One such legal consequence can be understood through the non-obstante clause of Section 5 which is indicative of legislative intent (as provided in the Preamble of the Act to adopt the UNCITRAL Model Law and rules) to curtail excessive judicial interference.[9] The self-contained nature of the Act can further be inferred from the scheme of the Act which portrays its intention to address most issues within the ambit of the Act of itself, under Sections 8, 11, 16, 17, 34 and 37.[10] The Court then moves on to the question of the clash between the constitutional power under Article 227 and framework in the legal hierarchy. While the SC here also makes reference to the Nivedita Sharma judgement, it goes further than Deep Industries did to cull out instances that are more specific and warrant judicial interference. The power to allow judicial interference 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.” The SC also makes reference to the grounds laid out in Deep Industries and it is evident from this reference and the following observations of the Court, that it is building on the ratio set out in the case. More specifically, it interprets the term “extremely circumspect” to mean “exceptional circumstance or bad faith” as these are conditions that must be fulfilled to invoke the remedy under Article 227. The Court also acknowledges that the ambit of Article 227 is “broad and pervasive” to give due deference to the constitutional provision and reinforce the idea of balancing such provisions against the Act.[11]
Finally, the SC in Bhaven Construction also elucidates the ‘principle of unbreakability.’ This principle did not find place in Deep Industries because as stated in the facts above, an appeal was preferred under Section 37, which the principle has been applied in reference to Section 34. The principle states that the arbitral process is based on a strictly modelled upon idea of time limitation, and such time limit as set out in Section 34 is “unbreakable” thus, interference by the Courts in the arbitral process, beyond the ambit of the Act, would accordingly diminish the efficiency of the process.[12]
Conclusion
Over the past decade, the apex court has made multiple moves to make India an arbitration friendly jurisdiction, this is premised in the dire need to establish institutional arbitration in India.[13] In the NN Global judgement[14 the SC held that arbitration agreements that are contained in unstamped, underlying agreements are enforceable. In the Centrotrade Minerals judgement[15] the SC held that the use of two-tier arbitration procedure for settlement of disputes is permissible under the Indian laws, provided that the parties agreed to it in the contract. Bhaven Construction adds to this corpus of arbitration friendly law and builds on the principles of minimum judicial interference and the time bound nature of arbitration, and emphasizes the self-sufficiency of the Arbitration Act to deal with matters.
Together, these decisions and those referenced in this commentary serve to form a dynamic body of law that is focused on speedy and effective dispute resolution.
[1] Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. & Anr.,[Civil Appeal No. 1466 of 2015]
[2] M/s Deep Industries Ltd. v Oil and Natural Gas Corporation Ltd and Anr.
[3] Id., [7]
[4] Bhaven Construction (n.1) [1]-[10]
[5] Deep Industries (n. 2) [12], [13]
[6] Nivedita Sharma v Cellular Operators Association of India and Ors, (2011) 14 SCC 337
[7] Mafatlal Industries Ltd. vs. Union of India, (1997) 5 SCC 536
[8] Deep Industries (n. 2) [17]
[9] Bhaven Construction (n. 1) [11].
[10] Id., [14]-[16].
[11] Id., [18], [19]
[12] Id., [20]
[13] High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, (2017) available at: https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf.
[14] NN Global Mercantile Pvt Ltd v Indo Unique Flame Ltd & Ors, [CIVIL APPEAL NOS. 3802 - 3803 / 2020]
[15] Centrotrade Minerals & Metal Incorporated. v. Hindustan Copper Limited, 2020 SCC OnLine SC 479
