Bhaven Construction vs Exe Engineer Sardar Sarovar … on 6 January, 2021


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Supreme Court of India

Bhaven Construction vs Exe Engineer Sardar Sarovar … on 6 January, 2021

Author: N.V. Ramana

Bench: N.V. Ramana, Surya Kant, Aniruddha Bose

                                                                           REPORTABLE

                                  IN THE SUPREME COURT OF INDIA
                                   CIVIL APPELLATE JURISDICTION

                                  CIVIL APPEAL NO. 14665 OF 2015

          BHAVEN CONSTRUCTION THROUGH           … APPELLANT
          AUTHORISED SIGNATORY PREMJIBHAI K. SHAH



                                                 VERSUS

          EXECUTIVE ENGINEER SARDAR                               … RESPONDENTS
          SAROVAR NARMADA NIGAM LTD.& ANR.



                                           JUDGMENT

N.V. RAMANA, J.

1. This Civil Appeal raises an important question of law

concerning arbitration law in India and special enactments

enacted by States concerning public works contract.

2. A brief reference to facts in this case is necessary for the

disposal of the case. On 13.02.1991, Respondent No. 1 entered

into a contract with the Appellant to manufacture and supply

Signature Not Verified
bricks. The aforesaid contract had an arbitration clause. As
Digitally signed by
Vishal Anand

some dispute arose regarding payment in furtherance of
Date: 2021.01.06
15:59:16 IST
Reason:

manufacturing and supplying of bricks, the Appellant issued
1
a notice dated 13.11.1998, seeking appointment of sole

arbitrator in terms of the agreement. Clause 38 of the

agreement provide for arbitration as under:

Clause 38 – Arbitration

All disputes or differences in
respect of which the decision has not
been settled, shall be referred for
arbitration to a sole arbitrator appointed
as follows:

Within thirty days of receipt of
notice from the Contractor of his
intention to refer the dispute to
arbitration the Chief Engineer shall send
to the Contractor a list of three officers
from the list of arbitrator appointment
by the Government. The Contractor
shall within fifteen days of receipt of this
list select and communicate to the Chief
Engineer the name of the person from
the list who shall then be appointed as
the sole arbitrator. If Contractor fails to
communicate his selection of name,
within the stipulated period, the Chief
Engineer, shall without delay select one
officer from the list and appoint him as
the sole arbitrator. If the Chief Engineer
fails to send such a list within thirty
days, as stipulated, the contractor shall
send a similar list to the Chief Engineer
within fifteen days. The Chief Engineer
shall then select one officer form the list
2
and appoint him as the sole arbitrator
within fifteen days. If the Chief
Engineer fails to do so the contractor
shall communicate to the Chief
Engineer the name of one Officer
from the list, who shall then be the
sole arbitrator.

The arbitration shall be conducted
in accordance with the provision of the
Indian Arbitration Act, 1940 or any
statutory modification thereof. The
decision of the sole arbitrator shall be
final and binding on the parties thereto.
The Arbitrator shall determine the
amount of costs of arbitration to be
awarded to either parties.

Performance under the contract
shall continue during the arbitration
proceedings and payments due to the
contractor by the owner shall not be
withheld, unless they are the subject
matter of the arbitration proceedings.

All awards shall be in writing and in
case of awards amounting to Rs. 1.00
lakh and above, such awards, shall state
reasons for the amounts awards.

Neither party is entitled to bring a
claim to arbitration if the Arbitrator has
not been appointed before the expiration
of thirty days after defect liability period.

(emphasis supplied)

3

3. Respondent No. 1, by replies dated 23.11.1998 and

04.01.1999, did not agree to the Appellant’s request on two

main grounds:

a. That the arbitration was agreed to be conducted in
accordance with the provision of the Indian
Arbitration Act
and any statutory modification
thereof. Accordingly, the State of Gujarat had
passed the Gujarat Public Works Contracts
Disputes Arbitration Tribunal Act, 1992 (hereinafter
referred to as “the Gujarat Act”). Therefore, the
disputes between the parties were to be adjudicated
in accordance with the aforesaid statute.
b. That the arbitration was time barred, as Clause 38
mandated that neither party was entitled to claim if
the arbitrator has not been appointed before the
expiration of thirty days after the defect liability
period.

4. In any case, the Appellant appointed Respondent No. 2 to act

as a sole arbitrator for adjudication of the disputes.

Respondent No. 1 preferred an application under Section 16 of

the Arbitration and Conciliation Act of 1996 (hereinafter

referred to as “the Arbitration Act”) disputing the jurisdiction

of the sole arbitrator. On 20.10.2001, the sole arbitrator

rejected the application of the Respondent No. 1 and held that

the sole arbitrator had jurisdiction to adjudicate the dispute.

4

5. Aggrieved by the order of the sole arbitrator, Respondent No.

1 preferred Special Civil Application No. 400 of 2002, under

Articles 226 and 227 of the Constitution of India before the

High Court of Gujarat. The Single Judge, while dismissing the

Special Civil Application, held as under:

“……At this stage, the judgment of the Hon’ble
Supreme Court in the case of Konkan Railway
Corporation Limited v. Mehul Construction Company
,
(2000) 7 SCC 201 is also required to be considered
along with the judgment of the Hon’ble Supreme
Court in the case of SBP & Co. v. Patel Engineering
Ltd., (2005) 8 SCC 618. Considering the aforesaid
two judgments of the Hon’ble Supreme Court and
the order passed by the learned sole arbitrator
passed under Section 16(4) of the Act dismissing
the application submitted by the petitioner
challenging the jurisdiction of respondent no. 2 as
a sole arbitrator and challenging his appointment
as a sole arbitrator, it is to be held that the petition
under Articles 226 and 227 of the Constitution of
India against the said order is not maintainable
and/or the same is not required to entertained and
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…”

6. Aggrieved by the order of the Single Judge, Respondent No. 1

preferred Letters Patent Appeal No. 182 of 2006 in Special Civil
5
Application No. 400 of 2002. The High Court of Gujarat, by the

impugned order dated 17.09.2012, allowed the appeal and

observed the following:

“11. As discussed hereinabove, ‘the contract’ is a
“works Contract” and a dispute is raised by the
petitioner at the earliest available opportunity
about the ‘forum’ in which the dispute be
adjudicated. It was as early as on 23.11.1998, 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.”

7. Aggrieved, the Appellant filed this appeal by way of special

leave petition.

8. Counsel for the Appellant argued that the Division Bench of

the High Court erred in interfering with the order of the Single

Judge under Articles 226 and 227 of the Constitution. The fact

that the final award has been passed by the sole Arbitrator

and is now challenged under Section 34 of the Arbitration

6
Act clearly shows the attempt of Respondent No. 1 to bypass

the framework laid down under the Arbitration Act. He points

out that Section 16(2) of the Arbitration Act mandates that the

sole arbitrator had the jurisdiction to adjudicate the

preliminary issue of jurisdiction, which can only be challenged

under Section 34 of the Arbitration Act.

9. On the other hand, learned counsel for Respondent No. 1

contended that since the enactment of the Gujarat Act, the

Arbitration Act was substituted with respect to the disputes

arising out of the works contract. It was contended that under

Articles 226 and 227 of the Constitution, it was always open

for Respondent No. 1 to invoke the writ jurisdiction of the High

Court to set aside an arbitration which was a nullity as it was

in conflict with the State enactment.

10. Having heard both parties and perusing the material available

on record, the question which needs to be answered is whether

the arbitral process could be interfered under Article 226/227

of the Constitution, and under what circumstance?

11. We need to note that the Arbitration Act is a code in itself. This

phrase is not merely perfunctory, but has definite legal

7
consequences. One such consequence is spelled out under

Section 5 of the Arbitration Act, which reads as under

“Notwithstanding anything contained in any other law for the

time being in force, in matters governed by this Part, no judicial

authority shall intervene except where so provided in this Part.”

The non-obstante clause is provided to uphold the intention of

the legislature as provided in the Preamble to adopt UNCITRAL

Model Law and Rules, to reduce excessive judicial interference

which is not contemplated under the Arbitration Act.

12. The Arbitration Act itself gives various procedures and forums

to challenge the appointment of an arbitrator. The framework

clearly portrays an intention to address most of the issues

within the ambit of the Act itself, without there being scope for

any extra statutory mechanism to provide just and fair

solutions.

13. Any party can enter into an arbitration agreement for resolving

any disputes capable of being arbitrable. Parties, while

entering into such agreements, need to fulfill the basic

ingredients provided under Section 7 of the Arbitration Act.

Arbitration being a creature of contract, gives a flexible

8
framework for the parties to agree for their own procedure with

minimalistic stipulations under the Arbitration Act.

14. If parties fail to refer a matter to arbitration or to appoint an

arbitrator in accordance with the procedure agreed by them,

then a party can take recourse for court assistance under

Section 8 or 11 of the Arbitration Act.

15. In this context, we may state that the Appellant acted in

accordance with the procedure laid down under the agreement

to unilaterally appoint a sole arbitrator, without Respondent

No. 1 mounting a judicial challenge at that stage. Respondent

No. 1 then appeared before the sole arbitrator and challenged

the jurisdiction of the sole arbitrator, in terms of Section 16(2)

of the Arbitration Act.

16. Thereafter, Respondent No. 1 chose to impugn the order

passed by the arbitrator under Section 16(2) of the Arbitration

Act through a petition under Article 226/227 of the Indian

Constitution. In the usual course, the Arbitration Act provides

for a mechanism of challenge under Section 34. The opening

phase of Section 34 reads as ‘Recourse to a Court against an

arbitral award may be made only by an application for setting

9
aside such award in accordance with sub-section (2) and sub-

section (3)’. The use of term ‘only’ as occurring under the

provision serves two purposes of making the enactment a

complete code and lay down the procedure.

17. In any case, the hierarchy in our legal framework, mandates

that a legislative enactment cannot curtail a Constitutional

right. In Nivedita Sharma v. Cellular Operators

Association of India, (2011) 14 SCC 337, this Court referred

to several judgments and held:

“11. We have considered the respective
arguments/submissions. There cannot
be any dispute that the power of the High
Courts to issue directions, orders or writs
including writs in the nature of habeas
corpus, certiorari, mandamus, quo
warranto and prohibition under Article
226
of the Constitution is a basic feature
of the Constitution and cannot be
curtailed by parliamentary legislation – L.
Chandra Kumar v. Union of India
, (1997)
3 SCC 261. However, it is one thing to
say that in exercise of the power
vested in it under Article 226 of the
Constitution, the High Court can
entertain a writ petition against any
order passed by or action taken by the
State and/or its agency/
instrumentality or any public
authority or order passed by a quasi-

judicial body/authority, and it is an
10
altogether different thing to say that
each and every petition filed under
Article 226 of the Constitution must
be entertained by the High Court as a
matter of course ignoring the fact that
the aggrieved person has an effective
alternative remedy. Rather, it is settled
law that when a statutory forum is
created by law for redressal of
grievances, a writ petition should not be
entertained ignoring the statutory
dispensation.

(emphasis supplied)

It is therefore, prudent for a Judge to not exercise discretion

to allow judicial interference beyond the procedure established

under the enactment. This power needs to be exercised in

exceptional rarity, wherein one party is left remediless under

the statute or a clear ‘bad faith’ shown by one of the parties.

This high standard set by this Court is in terms of the

legislative intention to make the arbitration fair and efficient.

18. In this context we may observe M/s. Deep Industries Limited

v. Oil and Natural Gas Corporation Limited, (2019) SCC

Online SC 1602, wherein interplay of Section 5 of the

Arbitration Act and Article 227 of the Constitution was

analyzed as under:

11
“15. Most significant of all is the non-
obstante clause contained in Section 5
which states that notwithstanding
anything contained in any other law, in
matters that arise under Part I of the
Arbitration Act, no judicial authority
shall intervene except where so provided
in this Part. Section 37 grants a
constricted right of first appeal against
certain judgments and orders and no
others. Further, the statutory mandate
also provides for one bite at the cherry,
and interdicts a second appeal being
filed (See Section 37(2) of the Act)

16. This being the case, there is no
doubt whatsoever that if petitions were
to be filed under Articles 226/227 of the
Constitution against orders passed in
appeals under Section 37, the entire
arbitral process would be derailed and
would not come to fruition for many
years. At the same time, we cannot
forget that Article 227 is a constitutional
provision which remains untouched by
the non-obstante clause of Section 5 of
the Act. In these circumstances, what is
important to note is that though
petitions can be filed under Article 227
against judgments allowing or
dismissing first appeals under Section
37
of the Act, yet the High Court would
be extremely circumspect in
interfering with the same, taking into
account the statutory policy as
adumbrated by us herein above so
12
that interference is restricted to
orders that are passed which are
patently lacking in inherent
jurisdiction.”

19. In the instant case, Respondent No. 1 has not been able to

show exceptional circumstance or ‘bad faith’ on the part of the

Appellant, to invoke the remedy under Article 227 of the

Constitution. No doubt the ambit of Article 227 is broad and

pervasive, however, the High Court should not have used its

inherent power to interject the arbitral process at this stage. It

is brought to our notice that subsequent to the impugned

order of the sole arbitrator, a final award was rendered by him

on merits, which is challenged by the Respondent No. 1 in a

separate Section 34 application, which is pending.

20. Viewed from a different perspective, the arbitral process is

strictly conditioned upon time limitation and modeled on the

‘principle of unbreakability’. This Court in P. Radha Bai v. P.

Ashok Kumar, (2019) 13 SCC 445, observed:

36.3. Third, Section 34(3) reflects the
principle of unbreakability. Dr Peter
Binder in International Commercial

13
Arbitration and Conciliation
in UNCITRAL Model Law Jurisdictions,
2nd Edn., observed:

“An application for setting aside an
award can only be made during the
three months following the date on
which the party making the application
has received the award. Only if a party
has made a request for correction or
interpretation of the award under Article
33
does the time-limit of three months
begin after the tribunal has disposed of
the request. This exception from the
three-month time-limit was subject to
criticism in the working group due to
fears that it could be used as a delaying
tactics. However, although “an
unbreakable time-limit for applications
for setting aside” was sought as being
desirable for the sake of “certainty and
expediency” the prevailing view was that
the words ought to be retained “since
they presented the reasonable
consequence of Article 33”.

According to this “unbreakability” of
time-limit and true to the “certainty
and expediency” of the arbitral
awards, any grounds for setting aside
the award that emerge after the three-

month time-limit has expired cannot
be raised.

37. Extending Section 17 of the
Limitation Act would go contrary to the

14
principle of “unbreakability” enshrined
under Section 34(3) of the Arbitration
Act.

(emphasis supplied)

If the Courts are allowed to interfere with the arbitral process

beyond the ambit of the enactment, then the efficiency of the

process will be diminished.

21. The High Court did not appreciate the limitations under

Articles 226 and 227 of the Constitution and reasoned that the

Appellant had undertaken to appoint an arbitrator

unilaterally, thereby rendering the Respondent No. 1

remediless. However, a plain reading of the arbitration

agreement points to the fact that the Appellant herein had

actually acted in accordance with the procedure laid down

without any mala fides.

22. Respondent No. 1 did not take legal recourse against the

appointment of the sole arbitrator, and rather submitted

themselves before the tribunal to adjudicate on the

jurisdiction issue as well as on the merits. In this situation,

the Respondent No. 1 has to endure the natural consequences

of submitting themselves to the jurisdiction of the sole
15
arbitrator, which can be challenged, through an application

under Section 34. It may be noted that in the present case, the

award has already been passed during the pendency of this

appeal, and the Respondent No. 1 has already preferred a

challenge under Section 34 to the same. Respondent No. 1 has

not been able to show any exceptional circumstance, which

mandates the exercise of jurisdiction under Articles 226 and

227 of the Constitution.

23. The Division Bench further opined that the contract between

the parties was in the nature of a works contract as it held

that the manufacturing of bricks, as required under the

contract, was only an ancillary obligation while the primary

obligation on the Appellant was to supply the bricks. The

Division Bench therefore held that the Gujarat Act holds the

field, and not the Arbitration Act.

24. The Gujarat Act was enacted in 1992 with the object to provide

for the constitution of a tribunal to arbitrate disputes

particularly arising from works contract to which the State

Government or a public undertaking is a party. A works

contract is defined under Section 2(k) of the Gujarat Act. The

16
definition includes within itself a contract for supply of goods

relating to the execution of any of the works specified under

the section. However, a plain reading of the contract between

the parties indicates that it was for both manufacturing as well

as supply of bricks. Importantly, a contract for manufacture

simpliciter is not a works contract under the definition

provided under Section 2(k). The pertinent question therefore

is whether the present contract, which is composite in nature,

falls within the ambit of a works contract under Section 2(k)

of the Gujarat Act. This is a question that requires contractual

interpretation, and is a matter of evidence, especially when

both parties have taken contradictory stands regarding this

issue. It is a settled law that the interpretation of contracts in

such cases shall generally not be done in the writ jurisdiction.

Further, the mere fact that the Gujarat Act might apply may

not be sufficient for the writ courts to entertain the plea of

Respondent No. 1 to challenge the ruling of the arbitrator

under Section 16 of the Arbitration Act.

25. It must be noted that Section 16 of the Arbitration Act,

necessarily mandates that the issue of jurisdiction must be

17
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. In Deep Industries case (supra), this Court observed

as follows:

“22. One other feature of this case is of
some importance. As stated herein
above, on 09.05.2018, a Section 16
application had been dismissed by the
learned Arbitrator in which
substantially the same contention
which found favour with the High Court
was taken up. The drill of Section 16
of the Act is that where a Section 16
application is dismissed, no appeal is
provided and the challenge to the
Section 16 application being
dismissed must await the passing of a
final award at which stage it may be
raised under Section 34.”
(emphasis supplied)

26. In view of the above reasoning, we are of the considered

opinion that the High Court erred in utilizing its discretionary

power available under Articles 226 and 227 of the Constitution

herein. Thus, the appeal is allowed and the impugned Order

of the High Court is set aside. There shall be no order as to

costs. Before we part, we make it clear that Respondent No. 1

18
herein is at liberty to raise any legally permissible objections

regarding the jurisdictional question in the pending Section 34

proceedings.

…………………………………………J
(N.V. RAMANA)

…………………………………………J
(SURYA KANT)

…………………………………………J
(HRISHIKESH ROY)

NEW DELHI;

JANUARY 06, 2021.

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