Bhaven Construction through Authorised Signatory Premjibhai K. Shah vs Executive Engineer Sardar Sarovar Narmada Nigam Ltd.& Anr.

Arbitration and Conciliation Act, 1996 – Framework of the Act – Non-obstante clause in s.5 of the Act – Interpretation and effect – Held: The Act is a code in itself – The non-obstante clause in s.5 of the Act 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 which is not contemplated under the Act – The framework clearly portrays an intention to address most of the issues within the ambit of the Act itself, without there being scope for any extra statutory mechanism to provide just and fair solutions.

Allowing the appeal, the Court

HELD : 1.1. The Arbitration and Conciliation Act, 1996 is a code in itself. The non-obstante clause in Section 5 of the Arbitration Act 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 which is not contemplated under the Arbitration Act. The Arbitration Act itself gives various procedures and forums to challenge the appointment of an arbitrator. The framework clearly portrays an intention to address most of the issues within the ambit of the Act itself, without there being scope for any extra statutory mechanism to provide just and fair solutions. Any party can enter into an arbitration agreement for resolving any disputes capable of being arbitrable. Parties, while entering into such agreements, need to fulfill the basic ingredients provided under Section 7 of the Arbitration Act. Arbitration being a creature of contract, gives a flexible framework for the parties to agree for their own procedure with minimalistic stipulations under the Arbitration Act. If parties fail to refer a matter to arbitration or to appoint an arbitrator in accordance with the procedure agreed by them, then a party can take recourse for court assistance under Section 8 or 11 of the Arbitration Act. [Paras 11, 12, 13 and 14] [10-D-H; 11-A-B]

2.1. The Appellant acted in accordance with the procedure laid down under the agreement to unilaterally appoint a sole arbitrator, without Respondent No.1 mounting a judicial challenge at that stage. Respondent No. 1 then appeared before the sole EXEC. ENGR. SARDAR SAROVAR NARMADA NIGAM LTD.

arbitrator and challenged the jurisdiction of the sole arbitrator, in terms of Section 16(2) of the Arbitration Act. Thereafter, Respondent No.1 chose to impugn the order passed by the arbitrator under Section 16(2) of the Arbitration Act through a petition under Article 226/227 of the Indian Constitution. In the usual course, the Arbitration Act provides for a mechanism of challenge under Section 34. The opening phase of Section 34 reads as ‘Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3)’. The use of term ‘only’ as occurring under the provision serves two purposes of making the enactment a complete code and lay down the procedure. [Paras 15, 16][11-B-E]

2.2. Though the hierarchy in our legal framework, mandates that a legislative enactment cannot curtail a Constitutional right, however, it is one thing to say that in exercise of the power vested in it under Article 226 of the Constitution, the High Court can entertain a writ petition against any order passed by or action taken by the State and/or its agency/ instrumentality or any public authority or order passed by a quasi-judicial body/authority, and it is an altogether different thing to say that each and every petition filed under Article 226 of the Constitution must be entertained by the High Court as a matter of course ignoring the fact that the aggrieved person has an effective alternative remedy. Rather, it is settled law that when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation. It is therefore, prudent for a Judge to not exercise discretion to allow judicial interference beyond the 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 the parties. This high standard set by this Court is in terms of the legislative intention to make the arbitration fair and efficient. [Para 17][11-E-H; 12-A-D]

2.3. In the instant case, Respondent No.1 has not been able to show exceptional circumstance or ‘bad faith’ on the part of the Appellant, to invoke the remedy under Article 227 of the Constitution. No doubt the ambit of Article 227 is broad and pervasive, however, the High Court should not have used its inherent power to interject the arbitral process at a stage when subsequent to the impugned order of the 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. [Para 19][13-B-D]

3.1. Viewed from a different perspective, the arbitral process is strictly conditioned upon time limitation and modeled on the ‘principle of unbreakability.’ According to this “unbreakability” of time-limit and true to the “certainty and expediency” of the arbitral awards, any grounds for setting aside the award that emerge after the three month time-limit has expired cannot be raised. 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. The 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 Respondent No. 1 remediless. However, a plain reading of the arbitration agreement points to the fact that the Appellant had actually acted in accordance with the procedure laid down without any mala fides. [Paras 20, 21][13-D-H; 14-A-E]

3.2. Respondent No.1 did not take legal recourse against the appointment of the sole arbitrator, and rather submitted themselves before the tribunal to adjudicate on the jurisdiction issue as well as on the merits. In this situation, Respondent No.

1 has to endure the natural consequences of submitting themselves to the jurisdiction of the sole arbitrator, which can be challenged, through an application under Section 34. In the present case, the award has already been passed during the pendency of this appeal, and Respondent No. 1 has already preferred a challenge under Section 34 to the same. Respondent No. 1 has not been able to show any exceptional circumstance, which mandates the exercise of jurisdiction under Articles 226 and 227 of the Constitution. [Para 22][14-E-G] EXEC. ENGR. SARDAR SAROVAR NARMADA NIGAM LTD.

4.1. The Division Bench of the High Court further opined that the contract between the parties was in the nature of a works contract as it held that the manufacturing of bricks, as required under the contract, was only an ancillary obligation while the primary obligation on the Appellant was to supply the bricks. The Division Bench therefore held that the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 holds the field, and not the Arbitration Act. [Para 23][14-G-H; 15-A-B]

4.2. The Gujarat Act was enacted in 1992 with the object to provide for the constitution of a tribunal to arbitrate disputes particularly arising from works contract to which the State Government or a public undertaking is a party. A works contract is defined under Section 2(k) of the Gujarat Act. The definition includes within itself a contract for supply of goods relating to the execution of any of the works specified under the section. However, a plain reading of the contract between the parties indicates that it was for both manufacturing as well as supply of bricks. Importantly, a contract for manufacture simpliciter is not a works contract under the definition provided under Section 2(k). The pertinent question therefore is whether the present contract, which is composite in nature, falls within the ambit of a works contract under Section 2(k) of the Gujarat Act. This is a question that requires contractual interpretation, and is a matter of evidence, especially when both parties have taken contradictory stands regarding this issue. It is a settled law that the interpretation of contracts in such cases shall generally not be done in the writ jurisdiction. Further, the mere fact that the Gujarat Act might apply may not be sufficient for the writ courts to entertain the plea of Respondent No. 1 to challenge the ruling of the arbitrator under Section 16 of the Arbitration Act. [Para 24] [15-A-E]

5. Section 16 of the Arbitration Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the Court examines the same under Section 34. Respondent No. 1 is therefore not left remediless, and has statutorily been provided a chance of appeal. The drill of Section

16 of the Act is that where a Section 16 application is dismissed, no appeal is provided and the challenge to the Section 16 application being dismissed must await the passing of a final award at which stage it may be raised under Section 34. The High Court therefore erred in utilizing its discretionary power available under Articles 226 and 227 of the Constitution. The impugned Order of the High Court is set aside. However, Respondent No. 1 is at liberty to raise any legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings. [Paras 25, 26][15-E-H; 16-A-C]

Nivedita Sharma v. Cellular Operators Association of India (2011) 14 SCC 337 ; M/s.Deep Industries Limited v. Oil and Natural Gas Corporation Limited (2019) SCC Online SC 1602 ; P. Radha Bai v. P. Ashok Kumar (2019) 13 SCC 445 : [2018] 12 SCR 143 – relied on.