Writ Petitions On The Ground Of 'Exceptional Circumstances' Against Order Passed By The Arbitral Tribunal Not Maintainable: Bombay High Court

The Bench, consisting of Justices G.S. Patel and Madhav J. Jamdar, held that it is impermissible for the Court to exercise jurisdiction under Article 226 of the Constitution even on questions with respect to the jurisdictional competence of an Arbitral Tribunal, except in cases where the arbitral tribunal is a statutory tribunal created by a statute.

The petitioners Tagus Engineering Pvt Ltd and IDFC First Bank Ltd filed an application under Section 16 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Arbitral Tribunal challenging its jurisdiction, which was rejected by the Tribunal. Thereafter, the petitioners filed a Writ Petition under Article 226 of the Constitution before the Bombay High Court seeking a writ of mandamus against the respondents.

The Counsel for the petitioner IDFC First Bank Ltd contended before the High Court that there were exceptional circumstances involved in the case requiring judicial interference. The Counsel submitted that the arbitral proceedings were contrary to the law laid down by the Supreme Court in the case of Vidya Drolia & Ors versus Durga Trading Corporation(2020). The Counsel added that the Supreme Court in the case of Vidya Drolia (2020) had forbidden recourse to arbitration where one of the parties had remedies under the SARFAESI Act, RDDBI Act and under the DRT law.

The High Court observed that a Writ of Mandamus was sought against the respondents, who were private financial entities, and neither of them were 'State' within the meaning of Article 12. Therefore, the Court ruled that they were not susceptible to the writ jurisdiction of the Court.

The Court held that it is wholly impermissible for the Court to exercise jurisdiction under Article 226 of the Constitution of India even on questions of jurisdictional competence of an Arbitral Tribunal, except in cases where the arbitral tribunal is a statutory tribunal created by a statute.

The High Court observed that the Supreme Court in the case of SBP & Co. versus Patel Engineering Ltd (2005) had disapproved the stand adopted by some of High Courts that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution. The Supreme Court had ruled that the object of dismissing judicial intervention while the matter was in process of being arbitrated, would be defeated if the High Court could be approached under Article 226 or Article 227 of the Constitution against every order passed by the Arbitral Tribunal. Therefore, the Supreme Court had held that once the arbitration had commenced, the parties have to wait until the award is pronounced unless, a right of appeal is available to them under Section 37 of the A&C Act.

The High Court noted that the Supreme Court in the case of Bhaven Construction versus Executive Engineer, Sardar Sarovar Narmada Nigam Ltd (2021) had ruled that a judge should not exercise discretion allowing judicial interference in the arbitral proceedings beyond the procedure established under the A&C Act. The Supreme Court had ruled that only in cases where bad faith is shown by the parties or where a party was left remediless could the Court allow judicial interreference.

Against the contention raised by the Counsel for the petitioner IDFC First Bank Ltd, the High Court held that there was no "exceptional circumstance" involved in the case. The Court added that the intent and purpose of Arbitration & Conciliation Act, 1996 is to limit the scope for judicial interference and to provide a quick mechanism for dispute resolution, extending through enforcement.

The Court held that the remedy of the petitioner against the orders passed under Section 16 of the A&C Act by the Arbitral Tribunal rejecting the challenge to its jurisdiction, lies elsewhere. The Court ruled that the petitioners, aggrieved by the orders passed under Section 16 of the A&C Act, cannot file Writ Petitions claiming 'exceptional circumstances'.

"What the argument overlooks is that the intent and purpose of arbitration law, and our Arbitration & Conciliation Act, 1996 is to limit the scope for judicial interference, and to provide a quick mechanism for dispute resolution, extending through enforcement. The Arbitration Act specifically recognizes the possibility of jurisdictional challenges and bars, and has an in-built mechanism to address those, inter alia under Section 16 of that Act. There is no doubt that in both cases the Petitioners have filed applications questioning jurisdiction under Section 16 of the Arbitration Act. They may not like the outcome of those applications. But their remedies against those Section 16 orders lie elsewhere and not in mounting Writ Petitions claiming 'exceptional circumstances' ".

The High Court thus rejected the petitions filed by the petitioners.

Case Title: Tagus Engineering Private Limited & Ors versus Reserve Bank of India & Anr (WRIT PETITION NO. 3957 OF 2021)

Dated: 21.02.2022 (Bombay High Court)

Counsel for the Petitioner: Mr Paritosh Jaiswal, with Prashant Phople and Ariha Karhed.

Counsel for the Respondent: Mr Sharan Jagtiani, Senior Advocate, with Aditya Mehta, Siddharth Joshi, Sushmita Gandhi, Anamika Singh, Bhargav Kosuru and Aayu Saxena.

AND

Case Title: IDFC First Bank Limited versus Bell Invest India Limited & Anr (WRIT PETITION NO. 7348 OF 2021)

Citation: 2022 LiveLaw (Bom) 127

Dated: 21.02.2022 (Bombay High Court)

Counsel for the Petitioner: Mr Mustafa Doctor, Senior Advocate, with Smriti Jha

Counsel for the Respondent: Mr Rohan Agarwal

Click Here To Read/Download Order