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Arbitration can only be challenged before the courts once the award is passed : Supreme Court

Higher Courts cannot use their inherent power under Article 227 of the Constitution to interject the arbitral proceedings before the award is given except in rare and exceptional cases. The Supreme Court bench consisting of J. N V Ramana, J. Surya Kant and J. Hrishikesh Roy, explained upon the principle of unbreakability and jurisdictional conflict of an already appointed arbitrator in the matter of Bhaven Construction through Authorised Signatory Premjibhai K. Shah v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. & Anr. [Civil Appeal No. 14665 of 2015].

The Respondent entered into a contract with the Appellant to manufacture and supply bricks. The said contract had an arbitration clause. As some dispute arose regarding the payment in furtherance of the manufacturing and supplying of bricks, the appellant issued a notice seeking appointment of a sole arbitrator in accordance with Clause 38 of the contract. The respondent replied and did not agree to the appellant’s request on two main grounds – 1. That the disputes between the parties were to be adjudicated in accordance with the Gujarat Public Works Contracts Disputes Arbitration Tribunal Act, 1992 and 2. That the arbitration was time barred and neither of the parties were entitled to claim if the arbitrator had not been appointed within 30 days after the defect liability period. Regardless, the appellants appointed a sole arbitrator who rejected the application of the respondent holding that he had the jurisdiction to adjudicate the dispute.

Aggrieved, the respondent preferred a Special Civil Application under Articles 226 and 227 of the Constitution before the High Court which was further dismissed on the grounds that “the only remedy available to the petitioner is to wait till the award is passed by the learned Sole Arbitrator and to challenge the same under Section 34 of the Act…”. Aggrieved again, the respondents preferred a Letters Patent Appeal in Special Leave Application which was allowed by the HC holding that “the appellant denied that in view of Clause-38, wherein it is provided that, ‘provision of Indian Arbitration Act, 1940 and any statutory modification thereof will be applicable’, the respondent cannot appoint a sole arbitrator and thereafter cannot contend that now that the Arbitrator is already appointed and he (the arbitrator) has already exercised power under the provisions of the Arbitration and Conciliation Act, 1996, the petitioner has to wait till the arbitration award is passed, to challenge the same under Section 34 and Section 37 of the 1996 Act”.

Hence, the present appeal was filed before the Supreme Court by the appellants who argued that the Division bench of HC had erred in interfering with the previous order and the fact that the final award had been passed by the arbitrator and was now challenged  by the respondent showed that the respondent was attempting to bypass the framework laid down. The respondent argued that since the Gujarat Act was enacted, the respondents could invoke writ jurisdiction of the HC at any time to set aside the arbitration which was a nullity as it was in conflict with the State enactment. The SC found that the HC had erred in utilising its discretionary power under Article 226 and 227 and thus, allowed the appeal further allowing the respondent to raise an legally permissible objections regarding the jurisdictional question in the pending Section 34 proceedings. The SC, relying on M/s Deep Industries Limited v. Oil and Natural Gas Corporation Limited [(2019) SCC Online SC 1602], also added that “It must be noted that Section 16 of the Arbitration Act, necessarily mandates that the issue of jurisdiction must be dealt first by the tribunal, before the Court examines the same under Section 34. Respondent No. 1 is therefore not left remediless, and has statutorily been provided a chance of appeal”.

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