Partly allowed

Constituent Attorney v. the Managing Director

Karnataka HC3 Feb 2021WA/73/2021

Case brief

AI extract

What is this about?

In three connected writ appeals, the High Court of Karnataka set aside the single Judge's order dismissing an appeal against an order that allowed writ petitions quashing arbitration notices. The court held that invoking writ jurisdiction under Article 226 to challenge a constituted Arbitral Tribunal was impermissible when alternative remedies under the Arbitration and Conciliation Act were availa

What did the court decide?

The impugned orders allowing the writ petitions quashing the arbitration notices were set aside, holding the writ petitions not maintainable.

Constituent Attorney Vs the Managing Director — Arbitration | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA, BENGALURU

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DATED THIS THE 3^RD DAY OF FEBRUARY, 2021

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PRESENT

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THE HON’BLE MRS. JUSTICE B.V.NAGARATHNA

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AND

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THE HON’BLE MRS. JUSTICE M.G. UMA

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WRIT APPEAL No.73/2021 (GM-RES) C/W WRIT APPEAL No.76/2021 (GM-RES) C/W WRIT APPEAL No.87/2021 (GM-RES)

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IN WRIT APPEAL No.73/2021

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BETWEEN:

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CONSTITUENT ATTORNEY M/s. FERRO-CONCRETE CONSTRUCTION (INDIA) PVT., LTD., 5A, INDUSTRIAL AREA BHAGIRATHPURA INDORE - 452 003 MADHYA PRADESH. ... APPELLANT

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[BY SRI. UDAYA HOLLA, SENIOR COUNSEL FOR SRI. VIVEK HOLLA, ADVOCATE FOR M/s. HOLLA AND HOLLA, ADVOCATES (THROUGH V/C)]

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AND:

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THE MANAGING DIRECTOR CAUVERY NEERAVAI NIGAM LTD., SURFACE WATER DATA CENTER BUILDING 3RD AND 4TH FLOOR ANAND RAO CIRCLE BENGALURU - 560 009 NOW REPRESENTED BY GENERAL MANAGER.

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THE EXECUTIVE ENGINEER CAUVERY NEERAVARI NIGAM LTD., KRS DIVISION KRISHNARAJASAGARA - 571 607 DIST: MANDYA. ... RESPONDENTS

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(SRI. D.L.N. RAO, SENIOR COUNSEL FOR SRI. M.R.C. RAVI, ADVOCATE FOR R1 AND R2)

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THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED 22.12.2020 IN W.P.NO.11368/2020 PASSED IN THE SAID CASE AND GRANT SUCH OTHER AND FURTHER RELIEFS AS ARE JUST INCLUDING THE COST OF THIS APPEAL.

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IN WRIT APPEAL No.76/2021

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BETWEEN:

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CONSTITUENT ATTORNEY M/s. FERRO-CONCRETE CONSTRUCTION (INDIA) PVT., LTD., 5A, INDUSTRIAL AREA BHAGIRATHPURA INDORE - 452 003 MADHYA PRADESH. ... APPELLANT

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[BY SRI. UDAYA HOLLA, SENIOR COUNSEL FOR SRI. VIVEK HOLLA, ADVOCATE FOR M/s. HOLLA AND HOLLA, ADVOCATES (THROUGH V/C)]

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AND:

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THE MANAGING DIRECTOR KRISHNA BHAGYA JALA NIGAM LIMITED PWD OFFICE ANNEX BUILDING, III FLOOR K.R. CIRCLE BENGALURU - 560 001.

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THE EXECUTIVE ENGINEER KRISHNA BHAGYA JALA NIGAM LIMITED, DAM DIVISION, NARAYANPUR TQ. SHORAPUR DIST: YADGIR - 582 103. ... RESPONDENTS

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(SRI. D.L.N. RAO, SENIOR COUNSEL FOR SRI. M.R.C. RAVI, ADVOCATE FOR R1 AND R2)

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THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED 22.12.2020 IN W.P.NO.11435/2020 PASSED IN THE SAID CASE AND GRANT SUCH OTHER AND FURTHER RELIEFS AS ARE JUST INCLUDING THE COST OF THIS APPEAL.

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IN WRIT APPEAL No.87/2021

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BETWEEN:

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CONSTITUENT ATTORNEY M/s. FERRO-CONCRETE CONSTRUCTION (INDIA) PVT., LTD., 5A, INDUSTRIAL AREA BHAGIRATHPURA

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INDORE - 452 003 MADHYA PRADESH. ... APPELLANT

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[BY SRI. UDAYA HOLLA, SENIOR COUNSEL FOR SRI. VIVEK HOLLA, ADVOCATE FOR M/s. HOLLA AND HOLLA, ADVOCATES (THROUGH V/C)]

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AND:

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THE MANAGING DIRECTOR KARNATAKA NEERAVAI NIGAM LTD., COFFEE BOARD BUILDING, 4TH FLOOR DR. B.R. AMBEDKAR VEEDHI BENGALURU - 560 001 NOW REPRESENTED BY COMPANY SECRETARY.

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THE EXECUTIVE ENGINEER KARNATAKA NEERAVARI NIGAM LTD., BRLBC DIVISION BHADRAVATHI 527 201 DIST: SHIMOGA. ... RESPONDENTS

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(SRI. D.L.N. RAO, SENIOR COUNSEL FOR SRI. M.R.C. RAVI, ADVOCATE FOR R1 AND R2)

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THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED 22.12.2020 IN W.P.NO.11389/2020 PASSED IN THE SAID CASE AND GRANT SUCH OTHER AND FURTHER RELIEFS.

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THESE APPEALS COMING ON FOR PRELIMINARY HEARING THIS DAY, NAGARATHNA J., DELIVERED THE FOLLOWING:-

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COMMON JUDGMENT

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Though these appeals are listed for preliminary hearing, with the consent of learned senior counsel appearing for the appellant in all the three appeals and learned senior counsel appearing for the respondents, they are heard finally.

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These appeals assail the order of the learned single Judge, dated 22/12/2020, passed in W.P.No.11368/2020 connected with W.P.Nos.11389/2020 and 11435/2020. By the said common order, the writ petitions filed by the respondents herein have been allowed declaring that the Arbitral Tribunal is not constituted in accordance with law. Consequently, notices dated 01/09/2020 vide Annexure - "L" in W.P. No.11368/2020; Annexure - "H" in W.P.No.11389/2020 and Annexure - "J" in W.P.No.11435/2020 are quashed. Being aggrieved, the respondent in the writ petitions/appellant herein has preferred these appeals. Since these appeals arise out of the common order passed by the learned single Judge, they have been connected together and with the consent of learned senior counsel appearing for the respective parties, are disposed of by this common judgment.

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3. Respondent Nos.1 and 2 herein, being State

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owned companies, in the Irrigation Department had filed the writ petitions assailing the constitution of the Arbitral Tribunal in all these cases. Briefly stated the facts are that, the respondents/Cauvery Neeravari Nigam Limited had called for a tender for executing certain works of

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rehabilitation and improvement of Krishnarajasagara Dam. As the appellant herein was the lowest bidder, the work was allotted to the appellant in all the three appeals as per the agreements and supplementary agreements. It appears that the appellant herein completed the work and also accepted the final bills. The appellant herein, however, sent a legal notice invoking Clauses 24 and 25 of the Contract for appointment of an Arbitrator to resolve the disputes raised by them. It is the case of the appellant that the respondents herein did not respond to the same. Ultimately, as per Clause 5 of the special conditions of the contract, an arbitral contract was constituted comprising of Sri Ramadas, Sri M.L.Madhaiah who agreed in turn to appoint Justice L.Sreenivasa Reddy, former Judge of this Court as third Arbitrator. It is not in dispute that the Arbitral Tribunal issued the Preliminary Meeting notice (hearing No.1) on 01/09/2020 stating that the Preliminary Meeting would be held on 08/10/2020 at 11.00 a.m. at Bengaluru at a place to be mutually determined by the parties to the proceedings in order to devise a procedure and to work out modalities to conduct the arbitration proceedings and to deal with other incidental, ancillary matters. The said notices were questioned by the

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respondents herein in the aforesaid writ petitions. The writ petitions were contested by the appellants herein. Learned single Judge by the impugned order has allowed the writ petitions and quashed the notices dated 01/09/2020. Hence, these appeals.

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We have heard learned senior counsel, Sri Udaya Holla for the appellant and learned senior counsel, Sri D.L.N. Rao appearing for Sri M.R.C. Ravi, learned counsel for caveator/respondents and perused the material on record.

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The main crux of the arguments of the learned senior counsel for the appellant was that the learned single Judge ought not to have interfered in the writ petitions when an Arbitral Tribunal had been constituted in terms of Clause 5(a) of the special conditions of the contract between the parties when the disputes arose between the parties. Hence, the very constitution of the Arbitral Tribunal could not have been questioned by the respondents herein by filing a writ petition under Article 226 of the Constitution of India.

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Elaborating the said submission, learned senior counsel contended, if at all the respondents had any objection to the constitution of the Arbitral Tribunal, they could have always proceeded under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act" for the sake of brevity). Instead of resorting to the provisions under the Act (Section 16), they have invoked the extra-ordinary jurisdiction of this Court under Article 226 of the Constitution, which is impermissible in law.

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In this regard, learned senior counsel contended that the remedy by way of writ petition under Article 226 is not the proper remedy at all, in the face of an alternative remedy being available under the provisions of Section 16 of the Act. He therefore contended that the learned single Judge ought not to have entertained the writ petitions and instead, ought to have relegated the respondents herein to raise objection vis-a-vis the jurisdiction of the Arbitral Tribunal to proceed to arbitrate the dispute between the parties as per Section 16 of the Act. Learned senior counsel therefore contended that the impugned order may be set aside and appropriate directions may be issued in these appeals.

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8. Per contra, learned senior counsel, Sri D.L.N.

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Rao appearing for the respondents drew our attention to the fact that the very constitution of the Arbitral Tribunal was not warranted in the instant case as there is a separate procedure prescribed under which the dispute had to be taken up by the adjudicator and thereafter, by way of an arbitration. That the appellant herein by-passed the said procedure prescribed under the contract and straight away sought for constitution of an Arbitral Tribunal and the said Tribunal commenced its proceedings by issuance of notices dated 01/09/2020. Therefore, the respondents herein were constrained to file the writ petitions seeking appropriate reliefs and the learned single Judge was right in interfering in the matter and granting the relief to the respondents. The said order would not call for any interference in these appeals.

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Learned senior counsel appearing for the respondents submitted that the appellant herein ought not to have by-passed the procedure prescribed under the terms of the contract entered into between the parties and rushed towards the constitution of an Arbitral Tribunal for arbitration of the dispute between the parties. The

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constitution of the Tribunal itself is premature. Hence, the learned single Judge was justified in interfering in the matter.

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Having heard learned Senior Counsel and learned Counsel for the respective parties, at the outset, we find that the question that would arise is, as to, whether, the petitions under Article 226 of the Constitution were maintainable before this Court?

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It is not in dispute that the parties had agreed for arbitration of the disputes that arose between them and a specific clause regarding arbitration is also incorporated in the contract. Nevertheless, the contention of learned senior counsel for the respondents is that the attempt made by the appellant to seek constitution of the Arbitral Tribunal was premature and that the Arbitral Tribunal so constituted does not have any authority or jurisdiction to arbitrate the dispute between the parties and therefore, the remedy under Article 226 of the Constitution was invoked by the respondents herein.

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Before we proceed further, we would like to remind ourselves the dictum of the Hon'ble Supreme Court in the case of SBP & Co. vs. Patel Engineering Ltd.

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[(2005)8 SCC 618] , which is a judgment rendered by a Bench of seven Judges and in the majority judgment (6:1), it has been categorically stated at paragraph Nos.45 and 46 as under:

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"45. It is seen that some High Courts have proceeded on the basis that any order passed by an Arbitral Tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution of India. We see no warrant for such an approach. Section 37 makes certain orders of the Arbitral Tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating its grievances against the award including any in-between orders that might have been passed by the Arbitral Tribunal acting under Section 16 of the Act. The party aggrieved by any order of the Arbitral Tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The Arbitral Tribunal is, after all, a creature of a contract between the parties, the arbitration agreement, even though, if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the Arbitral Tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Article 226 or 227 of the

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Constitution. Such an intervention by the High Courts is not permissible.

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46. The object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 or under Article 226 of the Constitution against every order made by the Arbitral Tribunal. Therefore, it is necessary to indicate that once the arbitration has commenced in the Arbitral Tribunal, parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage."

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On a reading of the same, it is crystal clear that the Hon'ble Supreme Court has frowned upon the High Courts in entertaining the writ petition under Article 226 or 227 of the Constitution in the matter of arbitration proceedings. In fact, there is a direct reference to Section 16 of the Act, and it is stated that if there is any person who is aggrieved by an order passed under Section 16 of the Act, remedy is available under Section 37 of the Act and if no such remedy is available, then as per the scheme of the Act, the party has to wait till the award is passed by the Arbitral Tribunal. Therefore, once the arbitration has commenced, the parties are bound by the provisions of the Act and the

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same cannot be by-passed so as to invoke the extraordinary jurisdiction of the High Court under Article 226 or 227 of the Constitution.

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More recently, the Hon'ble Supreme Court, in its judgment in the case of Bhaven Construction through Authorised Signatory Premjibhai K.Shah vs. Executive Engineer, Sardar Sarovar Narmada Nigam

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Ltd. and another [2021 SCC Online SC 8], has observed that any dispute concerning the jurisdiction of the sole arbitrator would always be adjudicated upon under Section 16 of the Act and resort to Article 226 or 227 of the Constitution is not permissible. In fact, in paragraph No.23 of the said judgment, it has been categorically stated that the High Court must appreciate the limitation under Article 226 and 227 of the Constitution. In that case, after the award was passed by the Arbitral Tribunal, instead of filing an application under Section 34 to the Act, before the District Court, a writ petition was filed under Articles 226 and 227 of the Constitution, which was not appreciated by the Hon'ble Supreme Court. Further, it was also observed that under Section 16 of the Act, the issue of the jurisdiction must be

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dealt first by the Arbitral Tribunal, before the Court examines the same under Section 34 of the Act.

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In the circumstances, we are of the view that the learned single Judge ought not to have entertained the writ petitions on merits and thereafter allowed them. Therefore, the impugned order of the learned single Judge is set aside. The writ petitions are dismissed as not

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maintainable.

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However, liberty is reserved to the respondents herein to raise all contentions regarding jurisdiction of the Arbitral Tribunal before the Arbitral Tribunal itself in accordance with the provisions of the Act.

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It is needless to observe that if any such objections are raised by the respondents herein, the appellant herein would have an opportunity to resist the same and the Arbitral Tribunal would give its ruling on the said aspect of the matter in accordance with law.

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