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