2019 (11) TMI 1632 - SC - Indian Laws

Supreme Court Upholds Arbitrator's Jurisdiction in Blacklisting Dispute

The Supreme Court emphasized minimal judicial interference in arbitration matters, setting aside the High Court's judgment. It affirmed the Arbitrator's ... Jurisdiction of High Court under Article 227 of the Constitution of India for the matters that are decided under the Arbitration and Conciliation Act, 1996 - HELD THAT:- 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 that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction. If the Arbitration Act, 1940 was held to be a self-contained code, on matters pertaining to arbitration, the Arbitration and Conciliation Act, 1996, which consolidates, amends and designs the law relating to arbitration to bring it, as much as possible, in harmony with the UNCITRAL Model must be held only to be more so. Once it is held that the Arbitration Act is a self-contained code and exhaustive, then it must also be held, using the lulcid expression of Tulzapurkar,J., that it carries with it “a negative import that only ‘such acts as are mentioned in the Act are permissible to be done and acts or things not mentioned therein are not permissible to be done” - The legislative policy is that no revision lies if an alternative remedy of appeal is available. Further, even when a revision does lie, it lies only against a final disposal of the entire matter and not against interlocutory orders. The High Court does not seem to have adverted to the limitation imposed on its power under Section 115 of the Code. Merely because the High Court would have felt inclined, had it dealt with the matter initially, to come to a different conclusion on the question of continuing stay of the reference proceedings pending decision of the appeal, could hardly justify interference on revision under Section 115 of the Code when there was no illegality or material irregularity committed by the learned Additional District Judge in his manner of dealing with this question. Appeal allowed - decided in favor of appellant. Issues Involved:1. High Court’s exercise of jurisdiction under Article 227 of the Constitution in matters decided under the Arbitration and Conciliation Act, 1996.2. The validity of the termination of the contract and subsequent blacklisting by ONGC.3. The scope of arbitration notice and the arbitrator’s jurisdiction.4. The applicability of Section 17 interim measures and their judicial review.5. The statutory policy of the Arbitration Act regarding judicial intervention and appeals.Detailed Analysis:1. High Court’s Exercise of Jurisdiction under Article 227:The Supreme Court examined the High Court's jurisdiction under Article 227 in the context of the Arbitration and Conciliation Act, 1996. The Court emphasized that while Article 227 remains untouched by Section 5 of the Act, which limits judicial intervention, High Courts should exercise this power sparingly. It was noted that the statutory policy of the Act aims for speedy resolution of disputes, and frequent interference under Article 227 could derail the arbitral process. The Court cited precedents, including SBP & Co. vs. Patel Engineering Ltd., emphasizing that judicial intervention should be minimal and restricted to cases of patent lack of jurisdiction.2. Validity of Termination and Blacklisting by ONGC:The dispute arose from ONGC's termination of a contract with the appellant for allegedly supplying second-hand equipment and subsequent blacklisting. The appellant challenged both the termination and blacklisting through arbitration. The Arbitrator allowed amendments to the claim to include the blacklisting issue, which was contested by ONGC. The Supreme Court highlighted that the Arbitrator had jurisdiction to decide on the blacklisting as it was related to the contract's termination, thus falling within the arbitration notice's scope.3. Scope of Arbitration Notice and Arbitrator’s Jurisdiction:The Court addressed the contention that the arbitration notice was limited to the contract's termination and did not cover the blacklisting issue. The Arbitrator dismissed ONGC's Section 16 application, ruling that the notice encompassed the blacklisting. The Supreme Court supported this view, stating that the blacklisting was a consequence of the termination and thus within the Arbitrator's purview. The Court criticized the High Court for inverting the statutory scheme by re-examining issues already decided by the Arbitrator under Section 16.4. Applicability of Section 17 Interim Measures:The Arbitrator's interim order under Section 17 stayed the blacklisting, conditional on the appellant's success in the final arbitration. This was upheld by the City Civil Court and subsequently challenged under Article 227. The High Court set aside the interim order, arguing that damages could compensate the appellant, thus no injunction was warranted. The Supreme Court disagreed, stating that the Arbitrator's decision was within jurisdiction and any error in applying the Specific Relief Act principles did not constitute a jurisdictional error.5. Statutory Policy of the Arbitration Act:The Supreme Court reiterated the Arbitration Act's policy of minimizing judicial intervention and ensuring speedy dispute resolution. It highlighted Section 5's non-obstante clause and Section 37's limited appeal provisions, emphasizing that allowing Article 227 petitions against orders under Section 37 would undermine the Act's objectives. The Court referred to Fuerst Day Lawson Limited vs. Jindal Exports Limited, affirming that the Arbitration Act is a self-contained code, and judicial intervention should be limited to ensure timely resolution of arbitral proceedings.Conclusion:The Supreme Court set aside the High Court's judgment, reiterating the need for minimal judicial interference in arbitration matters to uphold the statutory policy of the Arbitration and Conciliation Act, 1996. The appeal was allowed, and the arbitral proceedings were directed to be expedited.