Back
2021 Supreme(SC) 3
SUPREME COURT OF INDIA
N.V. RAMANA, SURYA KANT, HRISHIKESH ROY, JJ.
Bhaven Construction through Authorised Signatory Premjibhai K. Shah – Appellant
Versus
Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Another – Respondents
Civil Appeal No. 14665 of 2015
Decided On : 06-01-2021
For the Appellant(s) : Mr. Purvish Jitendra Malkan, AOR Ms. Dharita P. Malkan, Adv. Mr. Jitendra M. Malkan, Adv. Ms. Deepa Gorasia, Adv. Ms. Neha Ambashta, Adv. Ms. Bhavna Sarkar, Adv.
For the Respondent(s): Ms. Hemantika Wahi, AOR Ms. Jesal Wahi, Adv.
IMPORTANT POINT
(1) Arbitration Act is a code in itself. Arbitration Act itself gives various procedures and Fora to challenge appointment of Arbitrator.
(2) A legislative enactment cannot curtail a Constitutional right. If Courts are allowed to interfere with arbitral process beyond ambit of enactment, then efficiency of process will be diminished.
Headnote:
(A) Arbitration and Conciliation Act, 1996 – Sections 16 and 34 – Arbitration – Public Works Contract – Jurisdiction of sole Arbitrator to adjudicate dispute – Arbitration Act is a code in itself – Arbitration Act itself gives various procedures and Fora to challenge appointment of Arbitrator – Framework clearly portrays intention to address most of issues within ambit of Act itself, without there being scope for any extra statutory mechanism to provide just and fair solutions – Any party can enter into arbitration agreement for resolving any disputes capable of being arbitrable – Parties, while entering into such agreements, need to fulfill basic ingredients provided under Section 7 of Arbitration Act – Arbitration being a creature of contract, gives a flexible framework for parties to agree for their own procedure with minimalistic stipulations under Arbitration Act. (Paras 11, 12, 13 and 14)
(B) Arbitration and Conciliation Act, 1996 – Section 34 – Constitution of India – Articles 226 and 227 – Challenge to Arbitral Award – Appellant acted in accordance with procedure laid down under agreement to unilaterally appoint a sole Arbitrator, without Respondent No. 1 mounting a judicial challenge at that stage – Respondent No. 1 chose to impugn order passed by Arbitrator under Section 16(2) of Arbitration Act through a petition under Article 226/227 of Indian Constitution – In usual course, Arbitration Act provides for a mechanism of challenge under Section 34 – A legislative enactment cannot curtail a Constitutional right – It is prudent for a Judge to not exercise discretion to allow judicial interference beyond 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 parties – This high standard set by this Court is in terms of legislative intention to make arbitration fair and efficient – Respondent No. 1 has not been able to show exceptional circumstance or ‘bad faith’ on part of Appellant, to invoke remedy under Article 227 of Constitution – Ambit of Article 227 is broad and pervasive, however, High Court should not have used its inherent power to interject arbitral process at this stage – Subsequent to impugned order of sole Arbitrator, a final award was rendered by him on merits, which is challenged by Respondent No. 1 in a separate Section 34 application, which is pending – Arbitral process is strictly conditioned upon time limitation and modeled on ‘principle of unbreakability – If Courts are allowed to interfere with arbitral process beyond ambit of enactment, then efficiency of process will be diminished – Mere fact that Gujarat Act might apply may not be sufficient for writ courts to entertain plea of Respondent No. 1 to challenge ruling of Arbitrator under Section 16 of Arbitration Act – High Court erred in utilizing its discretionary power available under Articles 226 and 227 Constitution – Impugned Order of High Court set aside. [Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 – Section 2(k)] (Paras 15, 16, 17, 19, 20 and 26)
Facts of the Case:
Present Civil Appeal raises an important question of law concerning arbitration law in India and special enactments enacted by States concerning public works contract. Question which needs to be answered is whether the arbitral process could be interfered under Article 226/227 of Constitution, and under what circumstance?
Findings of Court:
High Court did not appreciate the limitations under Articles 226 and 227 of the Constitution and reasoned that the Appellant had undertaken to appoint an arbitrator unilaterally, thereby rendering the Respondent No. 1 remediless. However, a plain reading of the arbitration agreement points to the fact that the Appellant herein had actually acted in accordance with the procedure laid down without any mala fides.
Result : Appeal allowed.
JUDGMENT :
N.V. RAMANA, J.
1. This Civil Appeal raises an important question of law concerning arbitration law in India and special enactments enacted by States concerning public works contract.
2. A brief reference to facts in this case is necessary for the disposal of the case. On 13.02.1991, Respondent No. 1 entered into a contract with the Appellant to manufacture and supply bricks. The aforesaid contract had an arbitration clause. As some dispute arose regarding payment in furtherance of manufacturing and supplying of bricks, the Appellant issued a notice dated 13.11.1998, seeking appointment of sole arbitrator in terms of the agreement. Clause 38 of the agreement provide for arbitration as under:
Clause 38 - Arbitration
All disputes or differences in respect of which the decision has not been settled, shall be referred for arbitration to a sole arbitrator appointed as follows:
Within thirty days of receipt of notice from the Contractor of his intention to refer the dispute to arbitration the Chief Engineer shall send to the Contractor a list of three officers from the list of arbitrator appointment by the Government. The Contractor shall within fifteen days of receipt of this list select and communicate to the Chief Engineer the name of the person from the list who shall then be appointed as the sole arbitrator. If Contractor fails to communicate his selection of name, within the stipulated period, the Chief Engineer, shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within thirty days, as stipulated, the contractor shall send a similar list to the Chief Engineer within fifteen days. The Chief Engineer shall then select one officer form the list and appoint him as the sole arbitrator within fifteen days. If the Chief Engineer fails to do so the contractor shall communicate to the Chief Engineer the name of one Officer from the list, who shall then be the sole arbitrator.
The arbitration shall be conducted in accordance with the provision of the Indian Arbitration Act, 1940 or any statutory modification thereof. The decision of the sole arbitrator shall be final and binding on the parties thereto. The Arbitrator shall determine the amount of costs of arbitration to be awarded to either parties.
Performance under the contract shall continue during the arbitration proceedings and payments due to the contractor by the owner shall not be withheld, unless they are the subject matter of the arbitration proceedings.
All awards shall be in writing and in case of awards amounting to Rs. 1.00 lakh and above, such awards, shall state reasons for the amounts awards.
Neither party is entitled to bring a claim to arbitration if the Arbitrator has not been appointed before the expiration of thirty days after defect liability period.
(Emphasis supplied)
3. Respondent No. 1, by replies dated 23.11.1998 and 04.01.1999, did not agree to the Appellant’s request on two main grounds:
(a) That the arbitration was agreed to be conducted in accordance with the provision of the Indian Arbitration Act and any statutory modification thereof. Accordingly, the State of Gujarat had passed the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (hereinafter referred to as “the Gujarat Act”). Therefore, the disputes between the parties were to be adjudicated in accordance with the aforesaid statute.
(b) That the arbitration was time barred, as Clause 38 mandated that neither party was entitled to claim if the arbitrator has not been appointed before the expiration of thirty days after the defect liability period.
4. In any case, the Appellant appointed Respondent No. 2 to act as a sole arbitrator for adjudication of the disputes. Respondent No. 1 preferred an application under Section 16 of the Arbitration and Conciliation Act of 1996 (hereinafter referred to as “the Arbitration Act”) disputing the jurisdiction of the sole arbitrator. On 20.10.2001, the s
