Supreme Court: The 3-judge bench of Surya Kant, N.V. Ramana* and Hrishikesh Roy, JJ., addressed an important question of law regarding arbitration law in India and special State enactments concerning public works contract.
Setting aside the impugned order of High Court of Judicature at Gujrat the Court opined that the High Court has erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution.
The High Court did not appreciate the limitations under Articles 226 and 227 of the Constitution.
On 13-02-1991, the respondent had 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
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.
The appellant appointed a sole arbitrator to which an application was preferred by the respondent under Section 16 of the Act, disputing the jurisdiction of the sole arbitrator which was rejected by the arbitrator holding that the sole arbitrator had jurisdiction to adjudicate the dispute. Consequently, the respondent filed an application under Articles 226/227 before the High Court challenging appointment of the sole arbitrator on the grounds that according to Clause 38 of the agreement, the disputes between the parties were to be adjudicated in accordance with Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 (“Gujrat Act”) and also that the arbitration was time-barred, as the arbitrator had not been appointed before the expiration of thirty days after the defect liability period.
The High Court held that ‘the contract’ between parties was a “works contract” and the same shall be governed by the Gujrat Act, hence, the appointment of sole arbitrator was erroneous.
Observations and Decision
Observing that 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 the Court, the Court expressed 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 Court cited Deep Industries Limited v. Oil and Natural Gas Corporation Limited, (2019) SCC Online SC 1602, wherein interplay of Section 5 of the Arbitration Act and Article 227 of the Constitution was analyzed as under:
“we cannot forget that Article 227 is a constitutional provision which remains untouched by the non-obstante clause of Section 5 of the Act. What is important to note is that though petitions can be filed under Article 227 against judgments allowing or dismissing first appeals under Section 37 of the Act, yet the High Court would be extremely circumspect in interfering with the same, taking into account the statutory policy as adumbrated by us herein above so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.”
Noticing that the contract between parties was for both manufacturing as well as supply of bricks and, a contract for manufacture simpliciter is not a works contract under the definition provided under Section 2(k) of Gujrat Act, the Court expressed that, mere fact that the Gujarat Act might apply may not be sufficient for the writ Courts to entertain the plea of the respondent to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act.
The Court opined that the High Court had erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution. The respondent did not take legal recourse against the appointment of the sole arbitrator, and rather submitted itself before the tribunal to adjudicate on the jurisdiction issue as well as on the merits the Court held that, the respondent has to endure the natural consequences of submitting itself to the jurisdiction of the sole arbitrator, which can only be challenged, through an application under Section 34.
In view of the above, the impugned judgment of the High Court was set aside. [Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., 2021 SCC OnLine SC 8, decided on 06-01-2021]
*Justice N.V. Ramana has penned this judgment