Petition Under Article 227, Against The Interim Orders Of Arbitral Tribunal, Based On Violation Of Legal Provisions Can't Be Allowed: Delhi High Court

The Single Bench of Justice Prateek Jalan held that such an expansive reading would open the doors of the Court under Article 227 against virtually any procedural order of the Arbitral Tribunal, adding that Article 227 cannot be used to correct every order of an Arbitral Tribunal, even if it is found to be erroneous.

The petitioner Virtual Perception OPC Pvt Ltd (VPL) and the respondent Panasonic India Pvt Ltd entered into an agreement for provision of services by Panasonic to VPL. Thereafter, disputes arose between the parties which was referred to arbitration by the Delhi High Court. During the course of the arbitral proceedings, the Claimant Panasonic filed an affidavit of evidence of a witness. Thereafter, Panasonic sought to file the evidence of another witness before the Arbitral Tribunal. VPL objected to Panasonic's application. The Arbitral Tribunal allowed the application of Panasonic and substituted a new witness in place of the old.

VPL filed an application under Section 16 (3) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Arbitral Tribunal contending that the Tribunal had exceeded its jurisdiction by allowing substitution of a new witness, and sought recall of an order passed by the Arbitral Tribunal by which proceedings for Panasonic's evidence had been fixed. The Arbitral Tribunal passed an order rejecting VPL's application. VPL filed a petition under Article 227 of the Constitution of India against the order passed by the Arbitral Tribunal.

The Counsel for Panasonic submitted before the High Court that the petition filed by VPL was not maintainable since it did not reveal any of the narrow grounds upon which the order of an Arbitral Tribunal can be interfered with under Article 227 of the Constitution. The Counsel for VPL submitted that the witness who had been partially cross examined could not have been substituted by another witness on the ground that he had left the services of Panasonic and that the appropriate course for the Arbitral Tribunal or Panasonic should have been to apply to the Court under Section 27 of the A&C Act for assistance in taking evidence. The Counsel contended that the order of the Arbitral Tribunal was inconsistent with the statutory scheme. Also, the Counsel averred that a petition under Article 227 of the Constitution can be entertained against the orders of an Arbitral Tribunal since the supervisory jurisdiction of the High Court could be invoked to ensure that the Tribunal acts within its scope of authority. The Counsel added that the order passed by the Arbitral Tribunal was contrary to the applicable legal provisions which demonstrated that the proceedings were being carried on in bad faith, which is one of the grounds available to justify interference with an order of an arbitrator under Article 227 of the Constitution.

Article 16 of the Arbitration and Conciliation Act, 1996 deals with the competence of an arbitral tribunal to rule on its jurisdiction. Section 16(2) provides that a party may raise a plea that the arbitral tribunal does not have jurisdiction. Section 16(3) provides that a party may raise a plea that the arbitral tribunal is exceeding the scope of its authority, which shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. Section 16(5) provides that where the arbitral tribunal takes a decision rejecting the plea under Section 16(2) or Section 16(3), it shall continue with the arbitral proceedings and make an arbitral award.

The High Court ruled that even in case of an order passed by an arbitral tribunal under Section 16 of the A&C Act, the constitutional jurisdiction of the High Court under Article 227 of the Constitution is not barred, however its scope is extremely limited.

Noting that VPL is not remediless and that it can challenge the arbitral award under Section 34 of the A&C Act, the High Court ruled that VPL had failed to make out a case of patent lack of inherent jurisdiction against the Arbitral Tribunal.

The Court observed that the Supreme Court in the case of Punjab State Power Corporation Limited versus Emta Coal Limited (2021) had ruled that an order passed in an application under Section 16 of the A&C Act by the Arbitral Tribunal can be challenged under Article 227 of the Constitution only if the order passed is so perverse that the only possible conclusion is that there is a patent lack of inherent jurisdiction. The Supreme Court in Punjab State Power Corporation Limited (2021) had held that a patent lack of jurisdiction would arise only if the perversity in the order "stares one in the face".

The High Court ruled that the procedure of the Arbitral Tribunal was a matter within its own competence, and subject to compliance with the principles of natural justice as provided under Section 18 of the A&C Act, the Tribunal was not bound by the normal rules of procedure or evidence. The Court held that the Arbitral Tribunal had acted within its own jurisdiction, and the correctness of that decision was not open to scrutiny under Article 227 of the Constitution.

The Court rejected the contention of VPL that any decision of the Arbitral Tribunal which violated the applicable legal provisions represented a case of excess of authority and bad faith. The Court ruled that such an expansive reading would open the doors of the Court under Article 227 of the Constitution against virtually any procedural order of the Arbitral Tribunal. The Court added that Article 227 cannot be used to correct every order of an Arbitral Tribunal, even if it was found to be erroneous, but only to ensure that the Tribunal functions within the scope of the jurisdiction vested in it.

The Court rejected the contention of VPL that the judicial precedents enumerating the grounds of interference by the Court under Article 227 of the Constitution against an order passed under Section 16 of the A&C Act are inapplicable to cases falling under Section 16(3) of the Act. The Court ruled that the judgments of the Supreme Court and the High Court consider Section 16 of the A&C Act as a whole.

"I am also not impressed by Mr. Sharma's submission that the judgments cited above are inapplicable in cases which arose before the Tribunal under Section 16(3) of the Act. Sections 16(5) and 16(6), make no such distinction. Neither do the judgments of the Supreme Court or this Court, which expressly consider Section 16 as a whole. In fact, each of the reasons mentioned above applies equally to applications under Section 16(3) as to Section 16(2), which covers the basic jurisdiction of the Tribunal itself."

The Court therefore dismissed the petition filed by VPL and imposed costs on it.

Case Title: Virtual Perception Opc Pvt Ltd versus Panasonic India Pvt Ltd

Citation: 2022 LiveLaw (Del) 291

Dated: 22.02.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Viplav Sharma

Counsel for the Respondent: Mr. Kunal Kher

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