[Abhijeet Shrivastava is a second year B.A., LL.B. (Hons.) student and Anujay Shrivastava a B.A., LL.B. (Hons.) candidate, both at Jindal Global Law School, Sonipat. The authors are grateful to Dr. V. Niranjan for his valuable inputs]
Recently, a division bench of the Supreme Court in State of Gujarat v. Amber Builders (8 January 2020) has clarified that the Gujarat Public Works Contract Disputes Arbitration Tribunal can grant an interim injunction under its powers to grant interim relief. The Tribunal was constituted under section 3 of the Gujarat Public Works Contract Disputes Arbitration Tribunal Act, 1992 to specifically arbitrate on disputes between a person and the State of Gujarat or any public sector undertaking concerning “works contract” (which have been defined under section 2(1)(k) of the Gujarat Act).
The primary question of law before the Court was whether the Tribunal has jurisdiction to grant interim relief in terms of section 17 of the Arbitration and Conciliation Act, 1996. Sub-clause (d) of section 17(1)(ii) of the 1996 Act provides that an interim relief can be in the form of an interim injunction, as was sought in this dispute. While the 2019 Amendment has recently amended section 17(1) of the 1996 Act, it is pertinent to point out that it has not altered the forms of interim measures that can be sought under clauses (i) or (ii) to section 17(1). Another question that arose before the Court was whether the State of Gujarat could withhold the money payable to the contractor, if its demand is un-crystallized or the quantification of the amount that the State can withhold has not been adjudicated upon by a court. While the foregoing question has also been dealt with in this post, it is not our primary focus as we intend to evaluate the Amber Builders decision with regard to the jurisdiction of the Tribunal to grant an interim injunction.
Amber Builders is a contractor that was awarded a contract by the State of Gujarat for strengthening a section of a national highway. It is undisputed that the contract was in the nature of a works contract. Eventually, a dispute arose between the two parties concerning the duty of the Amber Builders to remove defects from some damage to the road. The State of Gujarat by a notice called upon Amber Builders to pay a sum for not carrying out the road repair work in accordance with the contract. The State of Gujarat had further threatened to withhold the payments from the security deposits and bills of other pending works.
This notice was challenged by Amber Builders by filing a writ petition before the Gujarat High Court. It raised the ground that the State of Gujarat was not competent to withhold the amount payable to Amber Builders under other contracts or recover the amount from payments made under other contracts until the liability of Amber Builders was determined. Moreover, Amber Builders contended that such an amount has to be determined and quantified by the court. On the other hand, the State of Gujarat placed reliance on the contract and contended that since the work of Amber Builders was defective, it had got the work done from another person at the risk of Amber Builders.
Gujarat High Court’s Decision
The High Court in Amber Builders v. State of Gujarat (2016) gave judgment in favour of Amber Builders, holding that without quantification or crystallization of the amount sought to be recovered, the employer or the contractor cannot unilaterally recover the said amounts from the ongoing contract work of the same contractor in connection with another contract. It further held that the State of Gujarat could not recover the amounts sought to be recovered from the payments due and payable to Amber Builders in other contracts.
The High Court’s judgment was challenged by the State of Gujarat before the Supreme Court on the procedural ground that the High Court lacked jurisdiction to hear the dispute, since the dispute had to be compulsorily referred to the Tribunal and the Tribunal was empowered to grant interim relief in the form of an interim injunction.
Supreme Court’s Holdings
The Supreme Court referred to Part I of the 1996 Act (Section 2 to Section 43). In particular, it focused on Section 2(2) which states that Part I would apply to all arbitrations that take place in India and Section 2(4) which adds that Part I (excluding Sections 40(1), 41 and 43) shall apply to all arbitrations, even if they are carried pursuant to any other enactment. Moreover, under Section 2(4), the application extending to arbitrations pursuant to other enactments shall occur as if the arbitrations were pursuant to an arbitration agreement, except insofar as the provisions in Part I of the 1996 Act are inconsistent with the other enactment or any rules made thereunder. Therefore, the court confirmed that unless there is any departure from Part I of the 1996 Act in the special enactment (in which case the special enactment would prevail), the statutory arbitrations would also be governed by Part I.
The Court noted that the Gujarat State Legislature’s intention was that all disputes relating to works contracts between the State Government and the persons executing the works would have to be compulsorily referred to the Tribunal. It is to be noted that section 8(1) of the Gujarat Act states that all disputes pertaining to a works contract shall be referred to the Tribunal (whether or not there is an arbitration clause in an agreement). Unlike Part I of the 1996 Act which is a general law for governing any arbitrable dispute as per Indian law in respect of domestic arbitrations, section 8(1) mandates arbitration only for disputes pertaining to a works contract entered into between State of Gujarat and any other parties, even when an arbitration agreement is absent. This would indicate that in respect of disputes concerning works contract made between State of Gujarat and another party, Part I of the 1996 Act (insofar as it is consistent with the Gujarat Act) shall apply, even in absence of an arbitration agreement. The Tribunal shall have to follow the 1996 Act, as long as it is consistent with the Gujarat Act.
Moreover, section 8(3) clearly provides that where the Tribunal admits a reference of a dispute pursuant to section 8(2), it is empowered to make an award or an interim award giving its reasons thereof. The Court also took cognizance of the fact that the Tribunal in an earlier decision (dated November 24, 2005) had held that an interim award under the Gujarat Act could not be in the nature of an injunction, such as the one sought before the Court in this matter. This Tribunal decision is not expressly mentioned in either the Supreme Court or the High Court decisions.
Referring to the Gujarat Act, it noted that section 12 of the Gujarat Act vests revisional powers in the High Court of Gujarat (including suo motu powers), where an award or any interim award can be challenged on the grounds set out therein. Moreover, the Court noted that section 21 of the Gujarat Act expressly makes the 1996 Act inapplicable to any dispute arising from a works contract where there is a conflict between the provisions of the Gujarat Act and the 1996 Act.Accordingly, it noted that section 13 of the Gujarat Act specifically bars the jurisdiction of civil courts. This would mean that powers vested in a civil court under the 1996 Act would be in-exercisable insofar as awards made under the Gujarat Act are concerned. Consequently, the power to set aside or modify an award would be vested in the High Court under section 12 of the Gujarat Act.
Additionally, section 21 of the Gujarat Act provides that all arbitration proceedings in relation to such disputes (before an arbitrator, umpire, court or authority) shall stand transferred to the Tribunal. Consequently, the appropriate remedy for the contractor was to approach the Tribunal and not the Gujarat High Court. As a result, the Tribunal would have jurisdiction to decide whether the notice issued by the State of Gujarat was a legal notice and whether the State of Gujarat was, in fact, entitled to recover any amount from the contractor. Further, the Tribunal would indeed have jurisdiction to decide whether Amber Builders has made out a prima facie case for the grant of an interim relief. However, the Court stated that it would not go into the merits of the case, as the Tribunal would have jurisdiction to adjudicate the dispute. The Court granted liberty to Amber Builders to approach the Tribunal for appropriate relief on merits.
Finally, the Court reiterated that on a conjoint reading of the Gujarat Act and the 1996 Act, the Tribunal can exercise all the powers vested in an arbitral tribunal in terms of section 17 of the 1996 Act, which would also include the grant of an injunction pursuant to section 17(1)(ii)(d).
As discussed at the beginning of this post, the Supreme Court in Amber Builders had to also decide on the correctness of High Court’s ruling on the state’s power to withhold the money payable to the contractor (when the state’s demand as per the contract is un-crystallized or where the amount that the state could withhold has not been quantified by the court). As noted above in this post while discussing the High Court decision, the Court gave its ruling in favour of Amber Builders. The ruling of the High Court on this point has been overruled on appeal by the Supreme Court by placing reliance upon the earlier Full Bench decision of the Supreme Court in H.M. Kamaluddin Ansari v. Union of India (1983). To add context, the decision in Kamaluddin Ansari had overruled the earlier division bench decision in Union of India v. Raman Iron Foundry (1974). The ratio in the overruled Raman Iron Foundry decision was relied upon by the Supreme Court in another division bench decision in Gangotri Enterprises Ltd. v. Union of India (2016) to form its judgment without any reference to the Kamaluddin Ansari decision. The decision in Gangotri Enterprises was therefore per incuriam. The High Court had thus incorrectly placed reliance on Gangotri Enterprises on this separate aspect and its decision was set aside.
The Amber Builders decision is a progressive judgment and clarifies the earlier ambiguity on whether a statutory arbitral tribunal such as the Tribunal in the present dispute was empowered to grant interim awards in form of interim injunctions in terms of the 1996 Act. The Court took express cognizance of the fact that the Tribunal’s decision in 2005, by which it held that it has no power to grant interim injunction, had led to any challenge by the parties with regard to communication or orders made by the State of Gujarat to always be placed before the High Court. Notably, there was no express statutory bar on the Tribunal which curtailed it from granting interim injunctions. Therefore, this undoubtedly led to unnecessary litigation, when the Tribunal itself was competent to grant interim injunctions.
This decision takes forward the Gujarat State Legislature’s intent to resolve disputes related to works contract by the constitution of a special arbitral tribunal which would provide for a speedy resolution in place of ordinary civil courts. Consequently, it can be seen as an arbitration friendly decision that allows parties to seek relief from the Tribunal itself rather than directly approach the High Court through a writ petition. It also allows both the parties a chance to appeal the interim award in the form of an interim injunction made by the Tribunal before the High Court, which provides for a three-stage forum to resolve a commercial dispute, much like domestic arbitrations under the 1996 Act. Hence, the Tribunal decision which would have otherwise required an amendment by the State Legislature to be prospectively overruled was exhaustively resolved by the Supreme Court.
Needless to add that by declaring the earlier Division Bench decision in Gangotri Enterprises decision as per incuriam and setting aside the High Court decision, the Court has also clarified the separate aspect on the state’s power to withhold payment that was dealt by the High Court as being incorrect.
– Abhijeet Shrivastava & Anujay Shrivastava