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Supreme Court and High Courts can adjudicate despite existence of an arbitration clause if the relief involves upholding constitutional rights
Practical Law Legal Update 8-505-9717 (Approx. 3 pages)
Supreme Court and High Courts can adjudicate despite existence of an arbitration clause if the relief involves upholding constitutional rights
| Published on 05 May 2011 • India |
H. Jayesh (Founding Partner) and Priyanka Gandhi (Associate), Juris Corp
In a recent decision, the Supreme Court of India held that an arbitration clause in an agreement would not, under certain circumstances, eliminate the power of the high courts or the Supreme Court to decide disputes between the parties.
Background
Section 5 of the Arbitration and Conciliation Act 1996 restricts judicial intervention in arbitration proceedings except where provided in the Act.
Article 226 of the Constitution of India gives a high court the power to issue to any person or authority, including any government, within its jurisdiction, any direction, order, or writ in exercise of its writ jurisdiction.
Facts
East Central Railway (the petitioner and a division of the Government of India) invited a tender for the construction of a rail over-bridge (bridge) and the contract was awarded to Tantia Construction Private Limited (the respondent). Later some additional work had to be done in order to complete the construction of the bridge. The petitioner requested the respondent to undertake the additional work as part of the original contract but the respondent refused. Given the refusal by the respondent a fresh tender was floated by the petitioner for the additional work. There was little response to this subsequent tender.
In the mean time, the respondent agreed to undertake the reduced quantity of the additional work because of the long standing relationship between the respondent and the petitioner. However, the petitioner asked the respondent to carry out both the original work and the additional work at the price agreed for the original work. A dispute arose between the parties in the relation to the scope of the additional work. Following the dispute the respondent filed a writ petition in the High Court of Patna, Bihar (Patna High Court) and a judgment was given in its favour.
The judgment of the Single Judge of the Patna High Court was upheld by the Division Bench of the Patna High Court. Against this order of the Division Bench, the petitioner filed a Special Leave Petition in the Supreme Court of India.
One of the petitioner's main arguments was that there was an arbitration clause in the contract and therefore any dispute or difference that arose between the parties should be resolved by arbitration and any kind of judicial intervention was barred under the Act.
Decision
The Supreme Court of India upheld the decision of the Patna High Court. In doing so, it relied upon its own decisions in Harbanslal Sahnia v Indian Oil Corporation (2003) 2 SCC 107 and Modern Steel Industries v State of U. P. and others (2001) 10 SCC 491. It also stated that "the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities."
Comment
While this decision may appear to undermine arbitration, it has to be seen from the perspective of constitutional rights. The Constitution of India vests certain rights in Indian citizens and some of them even in non-natural persons. It also mandates and requires the Supreme Court of India and the High Courts to exercise powers in a manner to uphold the Constitution of India. The reiteration by this judgment of the well established position, that the High Courts or the Supreme Court of India may exercise their "discretionary" powers if it is felt that a grave injustice is occurring, has to be seen against this backdrop.