Supervisory Jurisdiction of the High Court and its Application in the Arbitral Process

*Gautam Mohanty & ** Abhay Raj

I. Introduction

The Constitution of India 1949 (“Constitution”), in its Article 227, postulates a specific legislative intent of the High Court – the intention of serving as a supervisory power over courts and tribunals throughout the territories in relation to its jurisdiction. In furtherance of this, the goal is for the High Court to maintain strict judicial and administrative control over the administration of justice, ultimately promoting the justice system’s orderly and efficient functioning.

To that purpose, however, the Indian Arbitration and Conciliation Act, 1996 (“Act, 1996”) does not provide a cogent clarification to the question of what is the scope of jurisdiction of High Courts under Article 227 is in terms of their competence to intervene with the arbitral tribunal’s order. With that, the specific question that warrants consideration is whether an arbitral tribunal, being a creature of the contract, qualifies as a ‘tribunal’ under Article 227 of the Constitution. This conundrum arises precisely because of three reasons. First, the connotation of a ‘tribunal’ under Article 227 covers only an ‘administrative body’ established for the purpose of discharging quasi-judicial duties, per Articles 323-A and 323-B of the Constitution. Second, Section 5 of the Act, 1996 provides for no intervention of the judiciary in the arbitral process and maintenance of the principle of ‘minimal judicial intervention’. Third, Section 5 of the Act, 1996 contains a non-obstante clause, establishing the precedence of the Act, 1996 over any other law in force in India.

There have been, however, efforts in Indian jurisprudence to bring an arbitral tribunal under the ambit of the ‘tribunal’ as mentioned under Article 227 of the Constitution. In SREI Infrastructure Finance Limited v. Tuff Drilling Private Limited, the Court observed that arbitral tribunals fall within the ambit of ‘tribunal’ because first, it functions under the purview of a defined Act, thereby exercising quasi-judicial power; second, it is for resolving the disputes (lis) between the parties; and third, since Article 227 is a constitutional provision, the non-obstante clause in Section 5 does not have any bearing on it. Thus, the fundamental question of whether an arbitral tribunal can be considered a ‘tribunal’ for the purposes of the Constitution’s Article 227 has been answered affirmatively to a great extent.

Despite this, Indian courts have delivered divergent conclusions vis-à-vis the supervisory jurisdiction of the High Court under Article 227 over an arbitral tribunal’s order. Notably, in a recent judgement delivered in the case of Virtual Perception Opc. Pvt. Ltd. v. Panasonic India. Pvt. Ltd., the Single Judge Bench of Hon’ble High Court of Delhi, observed that a petition filed under Article 227 of the Constitution could not be allowed against an arbitral tribunal’s order. Herein, the High Court rejected a challenge made by the Claimant to the findings of an application filed under Section 16(3) of the Act, 1996 contending that the Tribunal had exceeded its jurisdiction by violating the legal provisions. Notably, the High Court in the context of supervisory jurisdiction of Courts against orders of arbitral tribunals, observed that “[…] even in case of an order passed by an arbitral tribunal under Section 16 of the Act, the constitutional jurisdiction of this Court under Article 227 of the Constitution is not barred. However, its scope is extremely limited.”

In another case, the Division Bench of the Hon’ble High Court of Delhi, in the case of Future Retail Ltd. v. Amazon.com NV Investment Holdings LLC and Ors., observed that a petition filed under Article 277 could be allowed against an arbitral tribunal’s order. Herein, the High Court’s Division Bench stayed the arbitration proceedings before the Singapore International Arbitration Centre (“SIAC”) Tribunal in alleged violation of Section 18 of the Act, 1996. Pertinently, the stay of proceedings was granted pursuant to an appeal from the Order of a single judge of the High Court of Delhi who had categorically observed that Article 227 of the Constitution could not be invoked to challenge the case management orders passed by an arbitral tribunal.

In the above backdrop, the present post highlights the scope and supervisory jurisdiction of High Court under Article 227 of the Constitution over the arbitral tribunal’s Order. As such, the authors in Part II expand upon Article 227 of the Constitution and its interaction with the Indian arbitration regime. The article will then highlight the relevant jurisprudence concerning the above and trace its evolution in the last few years. In Part III, the authors discuss the tests formulated by Courts for subjecting the tribunal’s order to the jurisdiction of Article 227 in order to largely preserve the sanctity of the arbitral process. Consequently, Part IV will attempt to deep dive into the above-mentioned cases of Virtual Perception and Future-Amazon to decipher the reasoning of the Courts and whether the Courts could have relied on the sanctity tests as postulated in landmark cases of Bhaven Constructions and Deep Industries. Concluding remarks are finally provided in Part V.

II. The intersection of Article 227 and Arbitration

Article 227 has often been used as a getaway in cases where a party is aggrieved by an arbitral tribunal’s order. Despite the best efforts of judges and drafters, the tribunal’s Orders have been frequently subjected to court intervention. However, the intersection of arbitration and Article 227 of the Constitution has often been viewed with a critical eye, primarily to boost arbitration’s motto of ‘minimal judicial intervention’, which is well-established under the Indian jurisprudence too.

As such, the usage of Article 227 requires the satisfaction of ‘grave injustice’ or ‘failure of justice’ by the Court or Tribunal. The threshold requirements for the invocation of Article 227 were laid down in the case of Surya Dev Rai v. Ram Chander Rai & Ors., wherein it was held that Article 227 can be invoked a) in cases where the Court or Tribunal has neglected to exercise a jurisdiction which it does have, ultimately causing injustice; b) in cases where the Court or Tribunal has assumed authority/jurisdiction which it does not have; or c) in cases where the jurisdiction while being available is exercised in a way that oversteps the limitations of jurisdiction.

Further, in specific reference to the arbitral tribunal and its Order, the Hon’ble Supreme Court in the case of Surender Kumar Singhal v. Arun Kumar Bhalotia, summarized the applicable principles concerning Article 227 vis-à-vis challenge to arbitral orders as below:

(I) “An arbitral tribunal is a tribunal against which a petition under Article 227 would be maintainable;

(ii) The non-obstante clause in Section 5 of the Act does not apply in respect of exercise of powers under Article 227 which is a Constitutional provision;

(iii) For interference under Article 227, there have to be ‘exceptional circumstances’;

(iv) Though interference is permissible, unless and until the order is so perverse that it is patently lacking in inherent jurisdiction, the writ court would not interfere;

(v) Interference is permissible only if the order is completely perverse i.e., that the perversity must stare in the face;

(vi) High Courts ought to discourage litigation that necessarily interferes with the arbitral process;

(vii) Excessive judicial interference in the arbitral process is not encouraged;

(viii) It is prudent not to exercise jurisdiction under Article 227;

(ix) The power should be exercised in ‘exceptional rarity’ or if there is ‘bad faith’ is shown;

(x) The efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided (emphasis supplied).”

Moreover, the landmark judgement delivered by the seven judge bench of Hon’ble Supreme Court of India in SBP and Company v. Patel Engineering Limited and Anr., merits a much greater discussion between Article 227 and its interference with arbitral tribunals and their Orders. The Apex Court observed that since Arbitral Tribunal is a creation of a contract the exercise of jurisdiction by the Court over every arbitral order is impressible. The seven-judge bench in 2005 as such observed:

“…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 Constitution of India. Such an intervention by the High Courts is not permissible.

45. 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 of the Constitution of India or under Article 226 of the Constitution of India 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.”

46. We, therefore, sum up our conclusions as follows:

[…]

(vi) Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.

However, subsequent judgements of the Supreme Court (as mentioned in Part III) extended the scope of the ‘advisory jurisdiction of High Courts’ over arbitral tribunals under exceptional circumstances (this will be discussed below in greater length). In the author’s opinion, this extension of scope has provided the possibility of direct intervention with arbitral tribunal orders by the High Courts and as such, undermines the principle of ‘minimal judicial intervention’ in arbitration. While academically, the decisions made in SREI Infrastructure, Emta Coal, and Bhaven Construction were not considered by the 7-judge bench decision in SBP, they are evidently per incuriam, even though the cases have not been overruled in the eyes of the law. As such, it is important for the authors to consider the cases mentioned as good law.

III. The Test for Sanctity of Arbitral Process

The Indian Supreme Court (for instance in Bhaven Constructions and Deep Industries), after analysing the issues with the usage of Article 227 in the arbitral process and to ultimately protect the sanctity of the arbitral process, has laid down certain tests. These tests, per se, serve as a high threshold for the maintainability of a petition under Article 227 before the High Court. As such, it was time and again held through these tests that the supervisory jurisdiction cannot be utilized for overturning the factual and legal findings of the case and cannot merely operate as a court of appeal (emphasis supplied).

3.1. The Bhaven Construction Test- The Exception Rarity Test

In its 2021 judgement, Bhaven Construction v. Executive Engineer Sardar Sarovar Narmada Nigam Ltd. and Anr., the Hon’ble Supreme Court of India was required to examine the question as to whether the arbitral process could be interfered with under Article 226 and Article 227 of the Constitution and if yes, under what circumstances? The Court observed that the usage of Article 227 for allowing judicial interference with the arbitral tribunal’s order can only be made in ‘exceptional rarity’. This was primarily based on the fact that on the one hand, the Indian Constitution’s Article 227 forms a part of the basic structure, and on the other hand, the arbitral tribunal is shielded from the High Court’s interference due to the principle of minimal judicial intervention. The High Court held that its interference could only be justified if the party is rendered ‘remediless’ under the Act, 1996, or the parties have acted in ‘bad faith’ in the arbitration proceedings. However, on its facts, Bhaven Construction ultimately held that Article 227 could not be used to interfere with the arbitral tribunal’s order deciding on a challenge to its jurisdiction. Notably, the Court in the above case held as below:

“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.

[…] 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.”

3.2. The Deep Industries Test - The Inherent Jurisdiction Test

In its 2020 judgement of M/s Deep Industries Ltd. v. Oil and Natural Gas Corporation and Anr., the Hon’ble Supreme Court laid down the test of ‘inherent jurisdiction’ for determining the applicability of Article 227 in a challenge to an arbitral order passed by a Tribunal. The Supreme Court observed that High Courts must exercise caution when interfering with tribunal’s orders and should limit their interference to orders that patently lack inherent jurisdiction. Pertinently, the Apex Court in the above case, observed as below mentioned:

“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 here in above so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction.”

However, in the instant case, the Court did not elaborate upon what it termed “patently lacking in inherent jurisdiction.” Thereafter, in Punjab State Power Ltd. v. Emta Coal Ltd., the Supreme Court clarified the test’s interpretation and meaning of the term “patent lack in inherent jurisdiction” and held that “a foray to the writ Court from a section 16 application…can only be if the order passed is so perverse that the only possible conclusion is that there is a patent lack in inherent jurisdiction. A patent lack of inherent jurisdiction requires no argument whatsoever - it must be the perversity of the order that must stare one in the face.”

IV. Analysis of Virtual Perception and Future-Amazon Dispute

The present part of the article discusses the recent case of Virtual Perception and Future-Amazon, to highlight the understanding of the Court’s in cases of supervisory jurisdiction under Article 227. This is based on the fact that on the one hand, the Hon’ble High Court of Delhi in Virtual Perception observed that the usage of Article 227 in every arbitral order “…would open the doors of the Court under Article 227 of the Constitution against virtually any procedural order of the Tribunal”. On the other hand, the Hon’ble High Court of Delhi in Amazon-Future case stayed the arbitration proceedings and allowed intervention by the High Court to the arbitral order. Thus, it is important to analyse the recent judicial precedents to understand the extent of supervisory jurisdiction of the High Courts over arbitral tribunal’s order.

4.1. Virtual Perception Opc. Pvt. Ltd. v. Panasonic India Pvt. Ltd.

In its recent judgement of Virtual Perception, the Delhi High Court has deliberated upon whether a petition can be filed under Article 227 in cases of a plea against an arbitral order. Herein, the plea was twofold: (1) that the arbitral tribunal exceeded its jurisdiction (as per Section 16(3) of Act, 1996) and (2) that it violated certain applicable legal provisions. Accordingly, the Court divided the relevant issue as ascertaining the scope of supervisory jurisdiction of the High Court against orders of an arbitral tribunal.

The above-mentioned case makes it abundantly clear that an arbitral tribunal’s order is not barred from being challenged under Article 227 in the High Court, and even the High Court is not precluded from exercising its jurisdiction in such cases. However, the scope of the challenge in itself is highly restricted. The case placed reliance on the Deep Industries test and SBP & Company case to arrive at its aforesaid conclusion. The High Court further observed that Courts would be exceedingly restricted in exercising their discretion to interfere with the orders passed under Section 37 of the Act. Consequently, the High Court in light of the legislative policy of the Act, 1996 stated that the intervention of Courts would be confined to decisions which are ‘patent lacking in inherent jurisdiction’. A manifest/patent lack of jurisdiction of arbitral tribunals would only exist if the perversity in the challenged decision “stares one in its face”. Additionally, the Court also observed that the procedure for conducting arbitration proceedings is within the jurisdictional domain of the arbitral tribunal and if a tribunal acts within its jurisdiction, the correctness of that order cannot be inspected under Article 227 of the Constitution.

In the end, to limit the Court’s intervention the High Court held that mere contentions that the Order (a) betrays the legal provisions; or (b) is an attempt of abuse of power; or (c) does not meet parties’ interest – does not constitute an exception to challenge the Order under Article 227 of the Constitution. Any other interpretation, in Court’s understanding “…would open the doors of the Court under Article 227 of the Constitution against virtually any procedural order of the Tribunal”.

4.2. Future Retail Ltd. v. Amazon.com NV Investment Holdings LLC and Ors.

As the present post focuses on Article 227, it is to be noted that the following analysis will only focus on the judgment delivered by the Division Bench of the High Court that allowed the petition under Article 227 and stayed the proceedings before SIAC.

The facts of the case are straightforward with the Future Group filing a petition before the Delhi High Court’s single-judge Bench under Article 227 challenging the SIAC tribunal’s procedural ruling. This procedural ruling was based on the Future Group’s application for termination of SIAC’s proceedings before the arbitral tribunal. The request for termination was based on the Competition Commission of India’s Order of 17th December 2021, which cancelled the statutory approval awarded for the transaction between Amazon and Future Group. Notably, vide the procedural order the SIAC tribunal had declined Future’s Group request for an early hearing of an application for termination of the SIAC arbitration and had decided to continue with the pre-scheduled hearings in the matter and recording of expert testimony. Furthermore, the ‘application for hearing of termination of the SIAC proceedings’, were kept at a later date and did not dismiss the application filed by the Future Group.

Aggrieved by the same, the Future Group filed a petition under Article 227 before the Delhi High Court requesting the Court to declare that since the arbitration agreement in itself is null and void, the arbitration proceedings before the SIAC tribunal were a nullity and therefore void too. However, the Single Judge dismissed the petition and did not allow a stay on the SIAC’s proceedings, observing that it did not have jurisdiction in such procedural matters of the arbitral tribunal. Importantly, the Single Judge of the Delhi High Court while declining to grant the relief as prayed for by Claimant held that (a) the Court cannot interfere with the case management orders of arbitral tribunals and (b) the factual matrix of the case did not merit intervention of the court, since none of the grounds inter alia, “exceptional circumstances”, “patently lacking in inherent jurisdiction” for interference were satisfied.

Subsequently, the Future Group appealed to the High Court’s Division Bench, seeking total termination of SIAC’s arbitration proceedings. The Division Bench, while impugning the order of the Single Bench, ordered an interim stay on the SIAC’s arbitration proceedings, thereby overturning the order of the Single Judge of the Delhi High Court. However, it must be noted that the Division Bench did not discuss the maintainability of the petition filed by Future Group under Article 227.

The Supreme Court, on appeal, held that the SIAC’s arbitration proceedings were indeed valid, and the High Court’s Division Bench did not have jurisdiction to hear the petition to terminate the arbitration proceedings instituted by Amazon.

This case has brought the supervisory jurisdiction of the High Court again into question. As such, it is important to clarify whether the supervisory jurisdiction under Article 227 should be limited to only post-arbitration-related proceedings or whether the High Court can sit as a court of appeal in all arbitration-related matters. Thus, the inherent question is – whether the understanding and reasoning of the Division Bench in regard to putting a stay to the arbitration proceedings per Article 227 is correct.

To answer and expand upon the same, it is first interesting to observe how the Division Bench did not consider the maintainability issue and merely proceeded with staying the SIAC’s proceedings. It classified the issue as one relating to jurisdictional objection rather than one concerning the procedural ruling of the arbitral tribunal. The Division Bench held that “the Arbitral Tribunal should have taken up the application filed under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996, seeking termination of the arbitration proceedings, on priority and before recording evidence.” The Division Bench discussed whether the arbitration proceedings had a legal effect in India or were in essence, a nullity.

In author’s view, the Indian Supreme Court’s landmark judgements have made it aptly clear that the High Court cannot directly interfere with the orders passed by the arbitral tribunals. The 2002 case of SBP and Company, reasoned that the High Court does not have any supervisory jurisdiction over the arbitral tribunal and its order, and as such, any subsequent judgement departing and contradicting the seven-judge bench judgement shall be considered per incuriam. It has been rightly argued elsewhere that “[w]hile the Act gives legal recognition and support to an arbitral tribunal and its exercise of powers, it does not confer upon the arbitral tribunal the state’s power of justice dispensation, nor does it transfer the civil courts’ jurisdiction. The arbitral tribunal remains a private tribunal and its constitution is dependent upon the arbitration agreement between the parties.”

Further, if we even take into consideration the above-mentioned tests, the petition did not have maintainability before the Hon’ble High Court. The Deep Industries test clearly stipulates that there should be a “patent lack of inherent jurisdiction”, which was not the case in the present scenario. Further, since the present scenario merely included a procedural concern, it cannot be brought under the domain of “exceptional rarity” that would make the case admissible in the High Court under Article 227. Moreover, the interference would also be in violation of the Bhaven Construction test since none of the parties/arbitrator(s) have acted in ‘bad faith’, and have not been rendered remediless. As such, it can be observed that the reasoning of the arbitral tribunal in regard to the maintainability issue and extending its supervisory jurisdiction per Article 227 is flawed.

Conclusion

In light of the above, it is clear that if there is an intersection between Article 227 and Act, 1996, the Indian High Courts have no supervisory jurisdiction. Perhaps strangely, the Division Bench in the Amazon case ordered a stay to arbitral proceedings at SIAC – on the surface, at least – the Division Bench did not have the jurisdiction to hold the petition maintainable under Article 227. The authors provided two different examples, including Virtual Perception, wherein the High Court after analyzing the tests, held that they did not have jurisdiction to allow the petition. On the other hand, the present post also discussed the Amazon-Future case to depict the errant reasoning of the Division Bench, and the non-usage of the landmark tests, thereby highlighting the structural scarcity of understanding of the intersection.

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*Gautam Mohanty is currently a doctoral student at Kozminski University, Warsaw, Poland. He is also an advocate enrolled at the bar in India and an Assistant Professor (on leave) at Jindal Global Law School India (JGLS) and an arbitration consultant with Arbitrator Justice Deepak Verma, Former Judge of Supreme Court of India. He can be reached at gautam.mohanty1414@gmail.com.

**Abhay Raj is a 3rd Year Student of Jindal Global Law School (a constituent of O.P. Jindal Global University).