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Ergo Update

03-Mar-2020

Recently, the Supreme Court in the case of Deep Industries Limited v Oil and Natural Gas Corporation Limited and Anr (Civil Appeal 9106 of 2019 decided on 28 November 2019) has clarified the issue of maintainability of writ petitions against orders passed by the relevant jurisdictional court under Section 37 of the Arbitration and Conciliation Act 1996 (Act).

Section 37 of the Act provides for appeals against orders passed by a Court under Sections 8 (under specific circumstances), 9 and 34 of the Act and by an arbitral tribunal under Section 16 (under specific circumstances) and section 17 of the Act.

The Supreme Court has laid down that only those orders can be challenged by a writ petition under Article 227 of the Constitution where the interference of the High Court is necessary, as the orders passed patently lack inherent jurisdiction.

FACTS

A contract was awarded to Deep Industries Limited (Appellant) by Oil and Natural Gas Corporation Limited (Respondent) for supply of mobile air compressors for a period or five years. The contract was terminated by the Respondent due to issues with the mobile air compressor equipment. After the contract was terminated, the vendor code of the Appellant was blocked and show cause notice was issued seeking blacklisting of the Appellant. 

The Appellant issued notice invoking arbitration and thereafter arbitration proceedings commenced. The Appellant filed its statement of claim before the arbitral tribunal. The Appellant filed an application for interim reliefs under Section 17 before the arbitral tribunal. Within 2 weeks of filing the statement of claim, the Appellant was blacklisted by the Respondent. The Appellant thereafter moved an application for amending the statement of claim and the interim application under section 17, thereby challenging the blacklisting as well. The amendments were allowed by the arbitral tribunal 

The Respondent moved an application under Section 16 of the Act challenging the jurisdiction of the arbitral tribunal to decide the issue of blacklisting alongwith the issue of termination. Dismissing the application, the arbitral tribunal held that the notice invoking arbitration, itself was not confined to the issue of termination but also involved the issue of blacklisting. Further, according to the arbitral tribunal, the issue of blacklisting was relatable to the terms of the contract and that therefore the validity of the blacklisting could be decided by the arbitral tribunal. The Section 17 application was decided in favour of the Appellant and the order of blacklisting was stayed by the arbitral tribunal. 

Against this order of the arbitral tribunal, the Respondent filed an appeal under Section 37 of the Act. The appeal filed by the Respondent was rejected by the Court. The Respondent thereafter filed a writ petition before the High Court under Article 227 of the Constitution of India. The Appellant raised objections to the maintainability of the writ petition on the basis that no jurisdictional issue was raised by the Respondent

The High Court however without deciding the preliminary issue regarding maintainability of the writ petition, held that the issue of banning i.e. blacklisting was outside the scope of the contract. Further the High Court was also of the view that the notice invoking arbitration was only regarding termination of the contract and not regarding blacklisting of the Appellant. The High Court held that no stay on blacklisting could be granted by the arbitral tribunal while deciding the Section 17 application filed by the Appellant as the Appellant could be later compensated by damages

It was argued by the Appellant that since the Act is a self-contained code and no further appeal is provided for against an order passed under Section 37, the writ petition would not be maintainable under Article 227 of the Constitution. On the other hand, the Respondent argued that this was a case where the Arbitral Tribunal patently lacked jurisdiction to consider the issue of blacklisting and in such circumstances, the writ jurisdiction under Article 227 could be invoked. It was further argued on behalf of the Respondent that even otherwise, as damages could be granted subsequently, no interim relief should have been granted under Section 17 of the Act. 

JUDGMENT

The Supreme Court was of the view that the Act being a self- contained code, envisages speedy disposal of all matters covered by it, therefore, if petitions under Article 226 / 227 of the Constitution are entertained against the orders passed in appeals under Section 37, the entire arbitral process would be derailed. The Supreme Court was however of the view that though petitions can be filed under Article 227 against orders passed in appeal under Section 37 of the Act, the High Court should be extremely circumspect in interfering with the same.

Another aspect which was considered by the Supreme Court was that the Respondent had already filed an application under Section 16 before the arbitral tribunal and the same was rejected by the arbitral tribunal. The High Court in the exercise of jurisdiction under Article 227, had gone into the same matter while it was being considered by the arbitral tribunal, which was incorrect. The Supreme Court also drew a distinction between the concept of ‘serious dispute as to jurisdiction’ and that of ‘inherent lack of jurisdiction’ of the arbitral tribunal while considering the interim application under Section 17.

The Supreme Court concluded that since Article 227 is a constitutional provision, it will not be hit by the non obstante clause contained in Section 5 of the Act. Whilst petitions under Article 227 would be maintainable against order granting or rejecting reliefs under Section 37, only those orders should be interfered with which are patently lacking in inherent jurisdiction.  

COMMENT

The judgment clarifies the scope of writ jurisdiction when pertaining to arbitration matters. The judgment weighs in favour of the Act being a self- contained code. While keeping an opportunity to approach the court under its writ jurisdiction open, it limits the scope, to matters where there is a patent lack of jurisdiction.

-      Raj Panchmatia (Partner), Peshwan Jehangir (Partner), Jaideep Singh Khattar (Principal Associate) and Priyanka Desai (Senior Associate)

For any queries please contact: editors@khaitanco.com

Raj Panchmatia (partners) , Peshwan Jehangir (partners)

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