Arbitration: Existential Crisis?

By: Sanjeev K Kapoor, Partner, Khaitan and Co

Existence of Arbitration is not an absolute bar to exercise of Writ Jurisdiction by the Courts

The latest judgment of the Supreme Court in the case of Union of India and Ors vs Tantia Construction Pvt Ltd (2011 (4) SCALE 745) has rekindled the debate on interference in the arbitration process by courts and whether this is contrary to the whole purpose of the arbitration which is to minimize judicial interference in such process. In this case the presence of an alternate remedy of existence of an arbitration clause, was held not to constitute a bar on the High Court from entertaining the dispute in its writ jurisdiction, in light of the injustice apparent from the facts of the case.

The latest judgment raises some interesting questions as to whether the Indian courts have been successful in laying down well laid out tests on the basis of which courts would refrain from exercising their writ jurisdiction because of the presence of an arbitration clause in an agreement.  

Before examining the ratio of the judgment, one may briefly refer to the facts of this case. Sometime in early 2007, the East Central Railway, the Petitioner in the case and a public sector undertaking awarded a project for construction of a rail over bridge to the Respondent therein pursuant to which an agreement was entered between the parties. It is noteworthy that the agreement contained an arbitration clause. Subsequently, due to alteration in the layout and plan for construction, the Respondent was instructed by the Petitioner to execute additional work at the originally agreed contractual price instead of a revised appreciated price. Aggrieved by the stand of the Petitioner, and notwithstanding the arbitration clause present in the agreement, the Respondent filed a writ petition under Article 226 before the High Court praying that a writ of certiorari be issued quashing the order of the Petitioner pursuant to which it had rejected the Respondent's claim for additional costs and further praying that a writ of mandamus be issued directing the Petitioner to allow the Respondent to complete only the original work and not carry out any additional work.  Since the Respondent succeeded in the writ petition, the Petitioner appealed to the Supreme Court inter alia arguing amongst other grounds that the courts could not interfere in the dispute as there was an arbitration clause in the agreement. The Supreme Court rejected this contention and reasoned that it was not obligatory for the Courts to direct the parties to pursue the alternative remedy of arbitration when injustice was clear from the facts of the case.

This reasoning of the Supreme Court may be examined on the threshold of the settled law that a party cannot as a matter of rule approach the court, by invoking writ jurisdiction to claim breach of contract or by seeking a writ to enforce the terms of a contract, as the appropriate remedy would be to approach an arbitral tribunal in view of arbitration clause in the agreement, executed by the parties. 

The debate is not a new debate. In fact the Supreme Court in the case of Bisra Stone Lime Co vs Orissa State Electricity Board and Anr ([1976] 2 SCR 307), indicated that all questions of law, one of which may be interpretation of the agreement, need not necessarily be withdrawn from the arbitral tribunal only because the court has discretion under Article 226 of the Constitution and because the court may be better posted to decide such questions.

Also the Supreme Court, in the case of in Titagarh Paper Mills v. Orissa State Electricity Board (1975) 2 SCC 436, had held that, ordinarily, when a dispute between the parties requires adjudication of disputed question of facts where the parties are required to lead evidence both oral and documentary, the same must be determined by the forum chosen by the parties, and in such cases the Court may not entertain a writ petition. Applying this test, the Court held that all the contentions raised by the appellant therein, were covered by the arbitration agreement and hence there was no reason why the appellant should not pursue the remedy of arbitration which it has solemnly accepted under the agreement but instead invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution to determine questions which really form the subject matter of the arbitration agreement.

In the case of Sanjana M. Wig (Ms) v. Hindustan Petroleum Corporation Ltd (AIR 2005 SC 3454), considering a similar question, the Supreme Court laid down that notwithstanding an arbitration clause in the agreement, access to justice by way of public law remedy would not be denied when a lis involves public law character and when the forum chosen by the parties would not be in a position to grant appropriate relief. Further, it was held that writ petition would also be entertained when it involves a question arising out of public law functions on the part of one of the parties.

In another judgment of State of Himachal Pradesh and Ors. v. Gujarat Ambuja Cement Ltd. and Anr (AIR 2005 SC 3836) while defining the scope of invocation of writ jurisdiction the Supreme Court has stated that the power relating to alternative remedy has been considered to be a rule of self imposed limitation. It is essentially a rule of policy, convenience and discretion and never a rule of law. Despite the existence of an alternative remedy it is within the discretion of the High Court to grant relief under Article 226 of the Constitution. At the same time, it cannot be lost sight of that though the matter relating to an alternative remedy has nothing to do with the jurisdiction of the case, normally the High Court should not interfere if there is an adequate efficacious alternative remedy. If somebody approaches the High Court without availing the alternative remedy provided, the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extra-ordinary jurisdiction.

Coming to the latest judgment, the Court has justified entertaining a writ petition despite there being an arbitration clause on the ground that there was clear injustice warranting the exercise of discretion by the Court and allowing the writ petition under Article 226 of the Constitution of India despite existence of an arbitration clause.

Therefore on an analysis of above cited case law it can be stated that though the general rule appears to be that in cases of availability of an alternative forum, which may include resolution of disputes through arbitration process, the High Court will not generally exercise its writ jurisdiction under Article 226 of the Constitution of India, nevertheless the rule is not an inflexible rule and not an absolute bar on exercise of writ jurisdiction, however, one which is to be exercised with restraint in exceptional circumstances. It is also of importance to be mentioned here that the above stated line of judgments and the exceptions carved therein may not be of any help to private parties or individuals as generally the remedy of writ petition is only available against State or instrumentalities of State.

It is also noted from an analysis of case law that Courts have acted with restraint and laid down stringent tests and have been cautious in not interfering with the arbitration process unless some exceptional causes as laid down under the judgments are satisfied. The test under the latest judgment to invoke writ jurisdiction is when injustice is clear from the facts of the case and exercise of such jurisdiction is mandated to curb injustice and uphold the rule of law. This is an onerous test which is required to be satisfied by a party invoking writ jurisdiction of the court as opposed to existing remedy of the arbitration.

To sum up it may be said writ jurisdiction is an extraordinary jurisdiction which as per the laid down law can be invoked only in extraordinary circumstances.