Introduction
A recent judgment of a two-Judge Bench of the Supreme Court of India in U.P. Power Transmission Corpn. Ltd. v. CG Power and Industrial Solutions Ltd.[1] (UPPTCL) has yet again thrown up the divergent approaches followed by writ courts in India while dealing with disputes arising out of contracts having an arbitration clause.
As with all debates, this one has two sides. On the one hand, High Courts undoubtedly possess extraordinary powers to issue prerogative writs under Article 226 of the Constitution of India, subject to judicially crafted and self-imposed limitations, one of them, especially in the context of commercial matters, being the existence of an efficacious alternative remedy such as arbitration. On the other hand, it is universally acknowledged that existence of an alternative remedy cannot be an absolute bar to exercise of writ jurisdiction by High Courts.
Given this legal paradox, a practising lawyer must willy-nilly gaze into a crystal ball (figuratively, at least) and assess his/her chances of success in choosing to file a writ petition as against taking recourse to arbitration in such matters.
This article examines the principles laid down by constitutional courts which will help a practitioner make an informed assessment on the preferable course of action in such situations. Part A of this article discusses the judgment in UPPTCL and Part B examines judicial precedents on this subject.
The UPPTCL case
A certain framework agreement was entered into between UPPTCL (employer) and CG Power and Industrial Solutions Limited (contractor) for construction of 765/400 KV substations at Unnao, Uttar Pradesh. In the framework agreement, the scope of the construction work was divided into four contracts. The first contract was in the nature of a supply contract, while the other three contracts pertained to civil works. After the contractor completed the supply work as per the supply contract, it was found, on an audit objection, that UPPTCL had failed to deduct labour cess from the bills of the contractor, under the Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act). Consequently, a demand was raised by UPPTCL upon the contractor.
The contractor filed a writ petition in the Allahabad High Court and challenged the demand, stating that the first contract was a pure supply contract and would not attract levy of labour cess under the BOCW Act. The employer/UPPTCL did not raise the point of existence of an arbitration clause in the framework agreement before the High Court.
The High Court set aside the demand in exercise of its writ jurisdiction.
What the Supreme Court held
While affirming the judgment of the High Court on merits, the Supreme Court found that although there was an arbitration clause in the framework agreement, the employer did not raise an objection in that regard and the existence of an arbitration clause did not debar the High Court from entertaining the writ petition.
The Supreme Court further reiterated that availability of an alternative remedy, such as arbitration, would not prohibit the High Courts from entertaining a writ petition in an appropriate case. The Court referred, amongst others, to the judgments in Whirlpool Corpn. v. Registrar of Trade Marks[2] and Harbanslal Sahnia v. Indian Oil Corpn. Ltd.[3] and noted that, notwithstanding the availability of such an alternative remedy, a writ petition would nevertheless be maintainable under certain circumstances. The Supreme Court, however, struck a note of caution that since writ jurisdiction under Article 226 is discretionary in nature, courts should refrain from entertaining a writ petition which involves adjudication of disputed questions of fact and analysis of evidence of witnesses.
It appears that the Court’s attention was not drawn to the fact that over the years, the correctness of the decision in Harbanslal Sahnia[4] has been doubted in subsequent decisions, as discussed in Part B below.
The decisions in Whirlpool Corporation and Harbanslal Sahnia
In Whirlpool Corpn. v. Registrar of Trade Marks[5], the Bombay High Court dismissed a writ petition challenging a show cause notice for cancellation of the certificate of renewal for a trademark issued by the Registrar of Trade Marks. The issue for consideration was whether a writ could be maintained in view of existence of an alternative remedy before the Registrar under the Trade Marks Act, 1940. In this case, the dispute neither arose out of a contract nor was otherwise agreed by the parties as being referable to arbitration.
A two-Judge Bench of the Supreme Court held that the power of the High Courts to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution and therefore, the High Courts, having regard to the facts of the case, have the discretion to entertain or not to entertain a writ petition. The Supreme Court stated that the High Courts have imposed upon themselves certain restrictions, including existence of an effective and efficacious alternative remedy. The Supreme Court further went on to hold that presence of an alternative remedy would not operate as a bar in at least three contingencies, namely (i) where the writ petition is filed for enforcement of any of the fundamental rights; or (ii) where there is a violation of the principle of natural justice; or (iii) where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.
This judgment was followed by a two-Judge Bench of the Supreme Court in Harbanslal Sahnia v. Indian Oil Corpn. Ltd.[6] where the Supreme Court reiterated that the rule of exclusion of writ jurisdiction, in view of availability of alternative remedy, is a rule of discretion and not one of compulsion and the court may interfere if it comes to the conclusion that the case falls within one of the contingencies enunciated in Whirlpool Corpn.[7].
The dispute in Harbanslal Sahnia[8] pertained to termination of a petroleum dealership agreement by the respondent Corporation. Here, a writ petition filed by the aggrieved dealer challenging the termination action was dismissed by the High Court, having regard to the contractual relationship between the parties and existence of an arbitration clause in the dealership agreement. The Supreme Court, however, overruled the judgment of the High Court, after concluding that the termination was vitiated by non-compliance with certain government orders.
At this stage, it would be useful to look at certain decisions of the Supreme Court prior to the judgment in Harbanslal Sahnia[9].
In Titagarh Paper Mills Ltd. v. Orissa SEB[10], a three-Judge Bench of the Supreme Court upheld a Orissa High Court order dismissing a writ petition on the basis that the issue(s) in question pertained to disputes which were arbitrable under a contract. In this case, the levy of a coal surcharge on the consumers of the Electricity Board concerned was challenged before the High Court. The High Court dismissed the petition on a preliminary ground that a specific remedy of arbitration was available to the parties. The Supreme Court upheld the High Court’s order and relegated the parties to arbitration, after finding that the claims relating to levy of coal surcharge would be covered by the arbitration agreement.
The approach in Titagarh Paper Mills Ltd.[11] was followed in several later judgments of the Supreme Court, such as State of U.P. v. Bridge & Roof Co. (India) Ltd.[12], Kerala SEB v. Kurien E. Kalathil[13] and State of Gujarat v. Meghji Pethraj Shah Charitable Trust[14]. In these judgments, the Supreme Court opined that factual disputes or disputes arising out of contractual terms or disputes pertaining to termination of the contract, without adherence to principles of natural justice, cannot be entertained in a writ petition and the suitable forum for adjudication may be a civil court or arbitration.
Correctness of Harbanslal Sahnia doubted
Since the aforesaid prior judgments were not considered by the Supreme Court in Harbanslal Sahnia[15], its correctness was doubted in subsequent decisions of the Supreme Court. In Sanjana M. Wig v. Hindustan Petroleum Corpn. Ltd.[16] a two-Judge Bench of the Supreme Court noted that the Benches which decided Harbanslal Sahnia[17] and Whirlpool Corpn.[18] did not notice the prior decision in Titagarh Paper Mills Ltd.[19]. Nevertheless, the Court went on to hold that since the discretionary writ jurisdiction of the High Court will be determined on the facts and circumstances of each case, no hard and fast rule could be laid down. The Court held that a writ petition may be maintainable in situations where the impugned action is de hors the terms of the contract and also beyond the ambit and scope of the domestic forum created therefor; the Court qualified its finding by stating that such a case has to be indubitably pleaded.
Another two-Judge Bench of the Supreme Court opined in Ankur Filling Station v. Hindustan Petroleum Corpn. Ltd.[20] that the decision in Harbanslal Sahnia[21] requires reconsideration by a larger Bench. However, this issue was not considered in detail by the larger Bench in its final order[22], which focused on whether an arbitrator would have the power to order restoration of a licence. The three-Judge Bench went on to hold in the final order that there may not be an absolute bar for the arbitrator to order such restoration based on the facts and circumstances of the case and ultimately permitted the aggrieved party to invoke the arbitration clause. The Court stated that the larger question of law pertaining to powers of the arbitrator to grant appropriate relief could only be answered by a larger Bench of five Judges.
Conclusion
In view of the above situation, a writ could credibly be maintained in a contractual matter in the following alternative scenarios, despite existence of an arbitration clause:
(i) the lis involves a public law character[23] or requires a judicial determination in rem[24];
(ii) the alternate forum chosen by the parties would not be in a position to grant appropriate relief[25];
(iii) a statutory contract is in question[26] or the action of a State or its instrumentality is demonstrably arbitrary, unreasonable[27] or violative of the fundamental rights of a party;[28]
(iv) the matter does not relate only to the interpretation of a contract which is within the domain of an arbitrator[29].
An authoritative pronouncement by a larger Bench of the Supreme Court on this issue would provide much needed clarity to litigants and practising lawyers alike.
† Partner, Shardul Amarchand Mangaldas & Co.
†† Associate, Shardul Amarchand Mangaldas & Co.
††† Associate, Shardul Amarchand Mangaldas & Co.
[22] Ankur Filling Station v. Hindustan Petroleum Corpn., Civil Appeal Nos. 10855 of 2018 arising out of SLP (Civil) No. 11193 of 2009, order dated 31-10-2018 (SC).
[23] Civil Appeal Nos. 10855 of 2018 arising out of SLP (Civil) No. 11193 of 2009, order dated 31-10-2018 (SC).
[24] Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532.
[25] Sanjana M. Wig, (2005) 8 SCC 242.
[26] Meghji Pethraj Trust, (2000) 6 SCC 293.
[27]Sanjana M. Wig, (2005) 8 SCC 242.
[28] Whirlpool Corpn., (1998) 8 SCC 1; Harbanslal Sahnia, (2003) 2 SCC 107.
[29] Bisra Stone Lime Co. Ltd. v. Orissa SEB, (1976) 2 SCC 167.
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