Party Fails To Challenge Arbitral Award U/s 34 A&C Cannot Approach High Court Under Article 226: Delhi High Court Dismisses Writ Petition

The Delhi High Court single bench of Justice Subramonium Prasad held that Article 226 of the Constitution of India is an extraordinary remedy and cannot be invoked where a party has failed to invoke other remedies available to it under law. It held that if a party fails to challenge the arbitration award under Section 34 of the Arbitration and Conciliation Act, 1996, cannot approach the High Court by filing a Writ Petition under Article 226 of the Constitution of India.

Brief Facts:

The Petitioner initiated a bidding process for the construction of a Barrage on River Adwa in District Mirzapur, Uttar Pradesh. Respondent No.1 successfully bid for the contract and was awarded the tender. An agreement between the Petitioner and Respondent No.1 was executed, stipulating completion of the work within 18 months from the order of commencement. The order of commencement was communicated on 01.08.2006. The construction timeline was extended several times, with the final completion on 15.09.2017.

Respondent No.1 invoiced the Petitioner for Rs.19,39,57,014.80/-, a sum which was disputed by the Petitioner. Subsequently, Respondent No.1 sought conciliation with MSME Facilitation Council, which failed and leading to arbitration. The arbitrator passed the award in Jan 2023. Feeling aggrieved, the Petitioner approached the Delhi High Court (“High Court”) and filed a writ petition to quash the proceedings initiated by Facilitation Council.

The Petitioner, asserting that the contract fell outside the scope of the Micro, Small, and Medium Enterprises Development (MSMED) Act, contended that the proceedings, including arbitration, should be set aside. The Petitioner argued that the MSMED Act covers only contracts related to goods or services, and excludes works contracts.

In response, Respondent No.1 argued that the Petitioner was aware of the proceedings, having received the statement of claim and the award. Highlighting the Petitioner's delay in challenging the reference to the Arbitral Tribunal under the MSMED Act and missing the deadline to challenge the award, Respondent No.1 counsel contended that approaching the court through a Writ Petition under Article 226 of the Constitution would be an attempt to circumvent the Arbitration Act.

Observations by the High Court:

The High Court noted that the Arbitral Tribunal proceedings were initiated on 16.08.2022, with repeated reminders sent to the Petitioner urging its participation. However, the Petitioner consistently refused to engage in the proceedings. Despite being aware of the ongoing arbitration, the Petitioner did not challenge the award within the prescribed time under the Arbitration Act, opting instead to approach the court through a Writ Petition under Article 226 of the Constitution of India.

The High Court emphasized that Article 226 is an extraordinary remedy and cannot be invoked when other remedies available under the law have not been pursued. It acknowledged the objectives of the MSMED Act, which was designed to alleviate the regulatory burden on such enterprises. It noted that once a matter is referred to arbitration and an award is passed, it can be challenged under Section 34 of the Arbitration Act or Section 19 of the MSMED Act.

The High Court observed that the Petitioner, being the State, falls within the definition of State under Article 12 of the Constitution. Despite being aware of the dispute and the arbitration proceedings, the State remained inactive and chose not to participate. After the award was passed, it noted that the State failed to challenge it under Section 34 of the Arbitration Act, raising the same grounds presented in the Writ Petition. It held that, having failed to invoke the procedures available under the Arbitration Act, it is not open for the State to approach the court through Article 226 of the Constitution of India.

Consequently, the writ petition was dismissed.

Case Title: The Executive Engineer & Ors Vs M/S Bholasingh Jaiprakash Construction Ltd & Anr.

Citation: 2024 LiveLaw (Del) 244

Case Number: W.P.(C) 14378/2023 & & CM APPL. 56974/2023.

Advocate for the Petitioner: Mr. Kavin Gulati, Sr. Advocate with Mr. Rajeev Kumar Dubey, Mr. Ruchir Ranjan and Mr. Kamlendra Mishra, Advocates.

Advocate for the Respondent: Mr. Sudhir Nandrajog, Senior Advocate Mr. Avishkar Singhvi, Mr. Naved Ahmed, Mr. Vivek Kumar Singh and Mr. Deokinandan Sharma, Advocates for R-2.

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