Bhaven Construction Case: Expounding the Tussle between Constitutional Right and Arbitral Process

[Prince Todi is a 4th year student at Hidayatullah National Law University, Raipur]

India’s tryst with arbitration has been a long tale of legislative amendments and remedial judicial decisions. Various steps have been taken, time and again, to make India a friendly jurisdiction and achieve conformity with the international norms. Accordingly, the principles of party autonomy, minimal court intervention and speedy resolution have largely been adopted and constitute today, the foundation pillars of the arbitration regime in India.

In consonance with the aforementioned trend, the Supreme Court in Bhaven Construction v Executive Engineer Sardar Sarovar Narmada Nigam Ltd.  (decided 6 January 2021) affirmed the statutory policy behind arbitration, and held that the inherent powers of the High Court under Articles 226 and 227 of the Constitution of India should be exercised only in exceptional rarity, wherein one party is left remediless under the statute or a clear ‘bad faith’ is shown by one of the parties. In this article, the author seeks to discuss the various facets of this case and provide an analysis of the implications that follow.

Background

The parties to the dispute entered into a contract to manufacture and supply bricks. During the subsistence of the agreement, disputes arose concerning payment of monies and consequently, Bhaven Construction (“BC”) issued the notice of arbitration to Sardar Sarovar (“SS”), seeking constitution of the arbitral tribunal. In response, SS contested the notice, mainly on two grounds i.e. (a) the disputes between the parties were to be adjudicated as per the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 and (b) the arbitration was time-barred as clause 38 mandated the appointment of an arbitrator within 30 days of the defect.

Following this, BC unilaterally appointed a sole arbitrator whose jurisdiction was unsuccessfully challenged before the arbitral tribunal. As a corollary, SS filed a writ petition before the Gujarat High Court under Article 226 of the Indian Constitution which was subsequently dismissed. SS preferred a Letters Patent Appeal which was allowed by the High Court holding that since the contract was a works contract and parties lacked consensus on the disputes resolution forum, it would be unfair to permit the continuance of arbitration proceedings.

BC filed a special leave petition before the Supreme Court contending that the arbitral award was already under a challenge under section 34 of the Arbitration & Conciliation Act, 1996 (“Act”), and Executive Engineer’s (“EE”) invocation of the Court’s inherent powers was nothing but an attempt to bypass the framework of the Act. On the other hand, SS argued that it was always open to invoke the writ jurisdiction of the High Court to set aside an arbitration which was a nullity as it conflicted with the State enactment.

Decision of the Court

In its decision, the Court allowed the appeal and set aside what it found to be the High Court’s unwarranted interference in the arbitral process. While deciding that the sole arbitrator was appointed in absolute compliance with clause 38, the Court took cognizance of the fact that SS, at first instance, did not take any legal recourse against the appointment and rather chose to submit before the tribunal to adjudicate the issue on jurisdiction. At this juncture, the Court held that the Act vide section 16 conferred sufficient authority on the arbitral tribunal to decide jurisdictional issues.

Further, referring to Deep Industries Limited v. ONGC Ltd, the Court held that on the dismissal of a section 16 application, no appeal is provided and any challenge must await the passing of a final award at which stage it may be raised under section 34 of the Act. Against this backdrop, the Court concluded that since EE had sufficient remedies in the form of sections 16 and 34, it cannot be permitted to invoke the remedy provided under Article 226/227 of the Indian Constitution.

In reaching the aforesaid finding, the Court addressed an important question that whether the arbitral process could be interfered under Article 226/227 of the Constitution. It deliberated upon the basic foundations of the Act and its interplay with the constitutional rights, thereby making significant observations which are discussed below:

Statutory framework of the Arbitration Act

At first, the Court affirmed that the Act lays down an exhaustive framework, encompassing detailed guidelines and procedures for a stream of legal issues ranging from the validity of arbitration agreement to the enforcement of the arbitral award, and thus leaves no scope for any extra-statutory mechanism to provide just and fair solutions.

Further, the Court, by placing reliance on the non-obstante clause provided under section 5 of the Act, construed the legislative intent and reiterated that the Act runs on the fundamental principles enshrined in the UNCITRAL Model Law and as such, upholding party autonomy and preventing excessive judicial interference lies at the heart of the arbitration landscape in India. The Court noted the phraseology used under section 34 of the Act to conclude that the use of the term “only” under the provision postulates that the arbitration act is a complete code in itself.

Interplay of Arbitration Act and Judicial Interference under Article 226/227 of Constitution

It is a settled proposition that a legislative enactment cannot curtail a constitutional right meaning that the procedural framework provided by the parliamentary act cannot abridge the Court’s inherent powers, as conferred by the Constitution. However, applying this principle in its entirety defeats the very objective of arbitration and promotes greater judicial interference. In this regard, the case of Nivedita Sharma vs Cellular Operators Association of India assumes significance wherein it was held that where a statute provides for a mechanism for redressal of grievances, a writ petition should not be entertained in complete ignorance of the statutory dispensation.

Taking cue from the aforementioned decision, the Court observed that judicial interference ought not to be permitted beyond the procedure established under the enactment and held that such a high threshold was paramount in terms of the legislative intention to make arbitration fair and speedy.

Further, the Court while relying on Deep Industries delved into the interplay of section 5 of the Act and Article 227 of the Constitution of India. Notably, the Court affirmed that Article 227 is a constitutional provision which remains untouched by the non-obstante clause of section 5, however, it cautiously remarked that if petitions under Article 226/227 were allowed to be filed, the entire arbitral process would be derailed and would not come to fruition for many years.

Principle of Unbreakability

Lastly, the Court contemplated the application of the principle of unbreakability in an arbitration setting on the premise that arbitral processes operate within strict timelines. The Court noted the recent decision of P. Radha Bai vs P. Ashok Kumar, which held that unbreakability of time-limit and certainty and expediency of arbitral awards are hallmarks of an efficient arbitration system and as a consequence, any interference beyond the limits stipulated in the act is impermissible.

The Supreme Court imported the aforesaid principle in the instant case and observed that if the courts are allowed to interfere with the arbitral process beyond the ambit of the enactment, then the efficiency of the process will be diminished. 

Analysis and Concluding Remarks

The decision exemplifies a step in the right direction as it attempts to drift away from the harmful interventionist attitude of the Indian Courts, and leads the way for a policy which is at par with the international norms. Perhaps, the most significant outcome of the decision is that it would prevent unscrupulous parties from filing frivolous writ petitions, thereby preventing unwarranted judicial inroads into the arbitration landscape of India. Besides, the Court’s acknowledgement of the ramifications, which may arise from excessive judicial interference adds yet another feather in their cap, as it strikes the right balance between parties’ choice to avoid conventional litigation and the need of judicial scrutiny.

Further, it is imperative to note that the Court also recognized the infallibility of the Act, thereby reposing absolute trust and faith in the arbitral process. This, coupled with the Court’s emphasis on strict adherence to the timelines and procedures of the Act, would act as a deterrent for parties who launch collateral proceedings before the arbitral tribunal and the courts, with the evil motive of creating obstructions in the enforcement of the arbitral award.

Therefore, it can be safely concluded that the decision tick marks all the requisites and is a landmark step towards bringing reformative measures to the arbitration regime in India.

Prince Todi

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