Invocation Of Writ Jurisdiction Against An Order Of Arbitral Tribunal Is Not Normally Permissible: Telangana High Court

The Bench, consisting of Chief Justice Satish Chandra Sharma and Justice A. Rajasheker Reddy, held that a party cannot seek the High Court under Article 226 of the Constitution to traverse into the merits of the claims raised by the claimant in the arbitral proceedings.

The respondent Krishnapatnam Railway Company Limited entered into a Concession Agreement with the petitioner Ministry of Railways to complete a project. After some disputes arose between the parties, the Arbitration Clause was invoked.

During the pendency of the arbitral proceedings, the petitioner Ministry of Railways filed an application under Section 16 of the A&C Act challenging the jurisdiction of the Arbitral Tribunal to entertain and commence the arbitration proceedings. The said application was rejected by the Arbitral Tribunal.

The respondent also filed an application before the Arbitral Tribunal for discovery and production of certain documents by the petitioner. The Arbitral Tribunal passed an order allowing the application of the respondent and directed the petitioner to produce the specified documents.

The petitioner filed a writ petition before the Telangana High Court challenging the order passed by the Arbitral Tribunal in the application filed under Section 16 and the order directing the petitioner to produce the specified documents.

The petitioner Ministry of Railways submitted before the High Court that the Arbitral Tribunal had overstepped its jurisdiction by permitting adjudication of issues that were applicable to all Special Purpose Vehicles (SPVs) concerned and that the disputes initiated by the respondent involved rights-in-rem, which cannot be subjected to private dispute resolution by way of Arbitration. Therefore, the petitioner contended that the Arbitral Tribunal lacked inherent jurisdiction.

The petitioner contended that the claims raised by the respondent fell outside the scope of the Concession Agreement entered into between the parties, and the claims of the respondent, if allowed, would override the Policy Circulars issued by the Ministry of Railways and lead to a rise in the claims made by other SPVs.

The petitioner thus submitted that the respondent was challenging the Policy Circulars issued by the petitioner in the guise of a contractual dispute, and since the disputes involved rights-in-rem, therefore, the same could not be adjudicated through Arbitration.

The petitioner averred that the documents which were required to be produced by the petitioner were privileged documents and that there would be a serious breach of confidentiality if they were permitted to be produced.

The respondent Krishnapatnam Railway Company contended that no appeal has been provided under the A&C Act against an order dismissing an application filed under Section 16 of the A&C Act or against an interlocutory order directing production of documents. Therefore, the respondent submitted that the petitioner could only challenge the final award passed by the Arbitral Tribunal.

The High Court ruled that in order to maintain a writ under Article 226 of the Constitution of India against an interlocutory order passed by the Arbitral Tribunal, such an order must meet the standard of exceptional rarity.

The High Court observed that the Arbitral Tribunal had noted that the objection of the petitioner that the claims raised by the respondent were outside the scope of the Concession Agreement, went into the merits of the dispute.

The Court held that by filing an application under Section 16 of the A&C Act for challenging the jurisdiction of the Arbitral Tribunal, the petitioner wanted the Tribunal to examine the correspondence between the parties at the threshold and decide the dispute.

The Court added that it was within the Arbitral Tribunal's jurisdiction to determine whether the claims raised by the respondent were within the scope of the Concession Agreement or outside it.

The Court ruled that the petitioner cannot seek the High Court under Article 226 of the Constitution to traverse into the merits of the claims raised by the respondent in the arbitral proceedings, especially when the Arbitral Tribunal has seized the matter and the petitioner has also made counter claims before the Arbitral Tribunal.

The Court noted that no appeal is provided by the A&C Act against an order passed in an application filed under Section 16 of the A&C Act. The Court held that a writ petition against an order passed by the Arbitral Tribunal in an application filed under Section 16 can only lie if the perversity of the order stares one in the face.

"A foray to the writ Court from Section 16 application being dismissed by the Arbitrator can only be if the order passed is so perverse, that the only possible conclusion is that there is a patent lack in inherent jurisdiction and it must be the perversity of the order that must stare one in the face."

The Court added that all civil and commercial disputes arising out of a contract are capable of being decided through arbitration, unless they are specifically excluded. The Court ruled that a dispute would fall within the category of 'rights in rem' only if the action brought before the Arbitral Tribunal is against the world at large and not against a specific individual.

The Court held that even if the Circulars issued by the Ministry of Railways have a universal application to all SPVs and are in the nature of policy decisions, the issue whether the claims raised by the respondent are covered under the Agreement entered into by the parties or not has to be decided in accordance with the Arbitration Clause incorporated in the said Agreement.

The Court added that the petitioner cannot seek a roving enquiry into a matter under the guise of challenging an order of the Arbitral Tribunal on the ground of perversity. The Court held that the High Court cannot sit in appeal over the order of the Arbitral Tribunal, and in exercise of the power of judicial review it only examines the decision-making process of the Arbitral Tribunal and not the decision itself.

The Court rejected the contention made by the Ministry of Railways that the claims raised by the respondent also concerns the other SPVs and, therefore, it is a dispute in-rem.

The Court held that the claims raised by the respondent cannot be considered as disputes in-rem, as contended by the petitioner, since if the interpretation of the petitioner were to be accepted, it would imply that any decision taken by the Ministry of Railways cannot be adjudicated by arbitration, even if it was with respect to the contractual rights of the parties.

The Court ruled that the petitioner had failed to show how the specified documents directed to be produced by the Arbitral Tribunal were related to the affairs of the State and how its production would be against public interest. The Court added that the petitioner could not claim class privilege merely because the documents were internal files. The Court thus ruled that the provisions of Section 123 of the Indian Evidence Act, 1872 were not attracted.

The Court thus held that the challenges raised by the petitioner went to the merits of the claim made by the respondent before the Arbitral Tribunal and not to the jurisdiction of the Arbitral Tribunal. The Court thus dismissed the petitioner's writ petition.

Case Title: Union of India, Rep. by Ministry of Railways versus Krishnapatnam Railway Company Limited

Dated: 22.02.2022 (Telangana High Court)

Citation: 2022 LiveLaw (Tel) 29

Counsel for the Petitioner: Ms. Madhavi Divan, Addl. Solicitor General for Union of India, Ministry of Railways

Counsel for the Respondent: Mr. Avinash Desai

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