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HIGH COURTS TO BE EXTREMELY CIRCUMSPECT IN INTERFERING WITH ORDERS PASSED UNDER ARBITRATION ACT- SC

June 25, 2021

By Shilpi Sharan and Manmeet Singh Marwah

The Hon’ble Supreme Court of India in a recent case has reiterated that interference of High Courts under Articles 226 and 227 of the Constitution of India shall be extremely circumspect when passing order under the Arbitration and Conciliation Act, 1996.

Navayuga Engineering Company Vs. Bangalore Metro Rail Corporation Limited (Civil Appeal No. 1098-1099/2021)

In this noteworthy judgment, the Apex Court has held that the High Court’s interference in deposit order should be in cases of exceptional rarity or when there is any patent lack of inherent jurisdiction while repeatedly referring to the Arbitration and Conciliation Act, 1996, and in particular to Section 5[1] of the Arbitration and Conciliation Act, 1996. The Apex Court while pronouncing its order in the case made reference to law laid down in the case of Deep Industries Ltd. Vs. ONGC & Anr.[2], wherein it had opined that the High Court under Article 226[3] and 227[4] should be extremely circumspect in interfering with orders passed under the Arbitration and Conciliation Act, 1996, and High Court should exercise it only in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction.

Relevant Law under the Arbitration Act

It is pertinent to mention here that after an Arbitration Tribunal passes an award, the party is whose favor the award is passed approaches the Court of appropriate jurisdiction for execution of the same and the other party might file an application for setting aside the award under Section 34 of the Arbitration and Conciliation Act, 1996 along with Application for stay of the Arbitral award before the Court of appropriate jurisdiction. As a prerequisite to stay the operation of the Arbitral award, and in order to safeguard the rights of the party in whose favour the award is passed, the Court might direct the contesting party to deposit a certain percentage of the amount awarded.

Any party aggrieved by the said order of deposit may assail the remedy available through the filing of writ petition under Article 226/227 of the Constitution of India before the Concerned High Court having jurisdiction and seek appropriate directions.

BRIEF FACTS OF THE CASE

In the present case, an Arbitral Award dated August 16, 2018 was made in favour of the Appellant allowing ten out of sixteen claims which amounted to Rs. 175.32 Crores. The principal amount was Rs. 56.23 Crores and amount under various heads was Rs. 66.53 Crores, amounting to an total of Award of Rs. 122.76 Crores. A Petition under Section 34[5] of Arbitration and Conciliation Act, 1996 was filed by the Respondent for setting aside the arbitral award and was pending before the learned Additional City Civil and Sessions Judge at Bengaluru. On December 21, 2019, the execution of the said Award was stayed on deposit of 60% of the total amount of Rs. 122.76 Crores and security was issued for the balance amount. The said order was challenged by both the parties through Writ Petitions. The High Court allowed the Writ Petition filed by the Respondent ordering a deposit of 50% of the principal amount of Rs. 56.23 Crores. The Writ Petition filed by the Appellant was dismissed by the High Court. Aggrieved by the order of the High Court, the Appellant approached the Supreme Court.

Court’s Order

The Hon’ble Supreme Court referring while to the law as laid down in the case of Deep Industries Ltd. Vs. ONGC & Anr.[6] set aside the impugned order of the Karnataka High Court and restored the order of learned Additional City Civil and Sessions Judge.

What did the Court say in Deep Industries Case?

  • That if petitions were to be filed under Articles 226/227 of the Constitution of India against orders passed in appeals under Section 37[7] of the Arbitration and Conciliation Act, 1996, the entire arbitral process between the parties would be derailed and would not come to fruition for many years.
  • That Article 227 of the Constitution of India is a constitutional provision which remains untouched by the non-obstante clause of Section 5 of the Arbitration and Conciliation Act, 1996.
  • That though petitions could be filed under Article 227 of the Constitution of India against orders allowing/dismissing first appeals under Section 37 of the Arbitration and Conciliation Act, 1996, nevertheless the High Court should be extremely circumspect in interfering with the same.

That the interference by High Courts shall be restricted to orders which patently lack in inherent jurisdiction.

CONCLUSION

The Hon’ble Supreme Court has thus made it crystal clear through its recent judgement that the High Courts under Article 226 and 227 should be extremely circumspect in interfering with orders passed under the Arbitration and Conciliation Act, 1996 while referring to Section 5 of the Arbitration and Conciliation Act, 1996 in particular and the Arbitration and Conciliation Act, 1996 in general. The Apex Court reiterated that such interference by the High Court should be done only in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction.

[1] Section 5 of the Arbitration and Conciliation Act, 1996. Extent of judicial intervention.—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.

[2] (2020) 15 SCC 706

[3] Article 226 of the Constitution of India. Power of High Courts to issue certain writs

(1) Notwithstanding anything in Article 32 every High Court shall have powers, throughout the territories in relation to which it exercise jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibitions, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose

(2) The power conferred by clause (1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories

(3) Where any party against whom an interim order, whether by way of injunction or stay or in any other manner, is made on, or in any proceedings relating to, a petition under clause (1), without

(a) furnishing to such party copies of such petition and all documents in support of the plea for such interim order; and

(b) giving such party an opportunity of being heard, makes an application to the High Court for the vacation of such order and furnishes a copy of such application to the party in whose favour such order has been made or the counsel of such party, the High Court shall dispose of the application within a period of two weeks from the date on which it is received or from the date on which the copy of such application is so furnished, whichever is later, or where the High Court is closed on the last day of that period, before the expiry of the next day afterwards on which the High Court is open; and if the application is not so disposed of, the interim order shall, on the expiry of that period, or, as the case may be, the expiry of the aid next day, stand vacated

(4) The power conferred on a High Court by this article shall not be in derogation of the power conferred on the Supreme court by clause (2) of Article 32

[4] Article 227 of Constitution of India. Power of superintendence over all courts by the High Court

(1) Every High Court shall have superintendence over all courts and tribunals throughout the territories interrelation to which it exercises jurisdiction

(2) Without prejudice to the generality of the foregoing provisions, the High Court may

(a) call for returns from such courts;

(b) make and issue general rules and prescribe forms for regulating the practice and proceedings of such courts; and

(c) prescribe forms in which books, entries and accounts shall be kept by the officers of any such courts

(3) The High Court may also settle tables of fees to be allowed to the sheriff and all clerks and officers of such courts and to attorneys, advocates and pleaders practising therein: Provided that any rules made, forms prescribed or tables settled under clause (2) or clause (3) shall not be inconsistent with the provision of any law for the time being in force, and shall require the previous approval of the Governor

(4) Nothing in this article shall be deemed to confer on a High Court powers of superintendence over any court or tribunal constituted by or under any law relating to the Armed Forces

[5] Section 34 of the Arbitration and Conciliation Act, 1996. Application for setting aside arbitral award. —

(1) 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).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation. —Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

[6] (Civil Appeal No. 9106 OF 2019)

[7] Section 37 of the Arbitration and Conciliation Act, 1996. Appealable orders.—

(1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:—

(a) granting or refusing to grant any measure under section 9;

(b) setting aside or refusing to set aside an arbitral award under section 34.

(2) An appeal shall also lie to a Court from an order granting of the arbitral tribunal.—

(a) accepting the plea referred in sub-section (2) or sub-section (3) of section 16; or

(b) granting or refusing to grant an interim measure under section 17.

(3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.

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