Court’s Decision
The Bombay High Court dismissed the writ petition, holding that the challenge to an interlocutory order passed by an arbitral tribunal was not maintainable under Article 227 of the Constitution. The court reaffirmed that the Arbitration and Conciliation Act, 1996, provides a clear statutory framework for challenging arbitral decisions, and judicial intervention should be minimal. Since the final award could still be challenged under Section 34 of the Act, the court refused to entertain the writ petition, emphasizing that allowing such challenges would defeat the purpose of arbitration.
However, while dismissing the petition, the court suggested that arbitrators should consider ruling on objections to evidence at the time they are raised to prevent procedural prejudice to either party. It also extended the interim arrangement for eight weeks.
Facts of the Case
- The petitioner, a municipal council, was involved in an arbitration proceeding with the respondent, a construction company.
- During the arbitration, the arbitrator exhibited certain documents submitted by the respondent, but left the objections to their admissibility open for a decision at the final hearing.
- The petitioner challenged this decision before the High Court under Article 227, arguing that the arbitrator should have ruled on the objections immediately rather than deferring them.
- A key dispute concerned an audit report, which was marked as Exhibit-50 despite the original document not being produced and the author not being examined.
- The petitioner argued that marking the audit report as an exhibit without deciding on its authenticity and admissibility violated procedural fairness.
- The respondent contended that Section 19 of the Arbitration Act grants the arbitrator broad procedural discretion, including the authority to determine the admissibility of evidence at any stage of the proceedings.
- The arbitral tribunal had clarified that objections could be raised again at the final hearing and that all challenges to the final award would remain available under Section 34 of the Act.
Issues Before the Court
- Can an interlocutory order of an arbitral tribunal, specifically regarding the exhibition of documents, be challenged under Article 227 of the Constitution?
- Did the arbitrator err in exhibiting the documents without ruling on objections immediately?
- Does the Arbitration and Conciliation Act, 1996, restrict judicial intervention in arbitral proceedings?
Petitioner’s Arguments
The petitioner made the following key submissions:
- Violation of Procedural Fairness:
- The arbitrator should have decided on the objections immediately rather than deferring them to the final hearing.
- Marking a photocopy of an audit report as an exhibit without verifying its authenticity and without examining its author was procedurally incorrect and legally flawed.
- Judicial Review Under Article 227 is Permissible:
- The petitioner relied on the Supreme Court’s ruling in L. Chandra Kumar v. Union of India (1997) 3 SCC 261, which held that judicial review under Articles 226 and 227 is a basic feature of the Constitution.
- The petitioner argued that since arbitration involves a statutory framework, courts retain limited supervisory jurisdiction over arbitral proceedings.
- Objections Must be Decided Immediately:
- The petitioner cited the Full Bench ruling in Hemendra Rasiklal Ghia v. Subodh Mody (2008), which held that objections to the exhibition of documents must be decided immediately to prevent unfair procedural disadvantages.
- If a document is exhibited and used in cross-examination, the objecting party may lose the opportunity to challenge its admissibility later, leading to an unfair trial process.
- Other Precedents Allowing Judicial Review in Arbitration Matters:
- The petitioner referred to a Bombay High Court decision in Shri Guru Gobind Singhji Institute of Engineering and Technology v. Kay Vee Enterprises, which allowed limited judicial review of interlocutory arbitral orders under Article 227.
Respondent’s Arguments
The respondent countered the petitioner’s claims with the following arguments:
- Arbitrators Have Procedural Discretion Under Section 19 of the Arbitration Act:
- Section 19(1) states that an arbitral tribunal is not bound by the Code of Civil Procedure or the Indian Evidence Act.
- Section 19(3) grants the tribunal discretion to decide on the admissibility, relevance, materiality, and weight of evidence.
- Objections Can Still Be Raised at the Final Hearing:
- The decision to exhibit documents does not prevent the petitioner from challenging their admissibility during final arguments.
- The final award can be challenged under Section 34 if the petitioner still has objections.
- Judicial Precedents Limit the Scope of Article 227 in Arbitration Matters:
- The respondent relied on Bhaven Construction v. Executive Engineer Sarovar Narmada Nigam Ltd. (2022) 1 SCC 75, which held that:“Writ jurisdiction should not be used to interfere with arbitral tribunal decisions unless there is a violation of natural justice or jurisdictional excess.”
- The respondent cited SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618, where the Supreme Court ruled:“Once arbitration proceedings have commenced, courts should not entertain challenges to procedural orders under Article 227 unless there is a statutory right of appeal.”
- Allowing Writ Petitions Against Arbitrators Would Defeat the Purpose of Arbitration:
- The respondent warned that permitting judicial interference at an interlocutory stage would undermine the very purpose of arbitration – expedited dispute resolution with minimal court intervention.
Analysis of the Law
- The Arbitration and Conciliation Act, 1996, is designed to reduce court interference and grant arbitrators significant procedural autonomy.
- Section 5 of the Act states that judicial intervention is only permitted where expressly provided.
- Section 37 provides for appeals against certain arbitral orders, but not against procedural decisions like the exhibition of documents.
- Section 34 allows for challenges to the final award, which is where objections to evidence should be raised.
Judicial Precedents Emphasizing Limited Court Interference:
- Bhaven Construction v. Executive Engineer Sarovar Narmada Nigam Ltd. (2022) – Courts should not intervene in interlocutory arbitration matters.
- SBP & Co. v. Patel Engineering Ltd. (2005) – Parties must wait until the final award before seeking judicial review.
- Inox Leisure Ltd. v. Indo Pacific Project Ltd. (2024) – Writ petitions challenging arbitral decisions should be discouraged.
Court’s Reasoning
- The court agreed with the respondent that the Arbitration Act grants arbitrators broad procedural discretion.
- Marking a document as an exhibit does not determine its admissibility, and objections can still be argued at the final hearing.
- Allowing Article 227 petitions at the interlocutory stage would clog the courts with premature challenges and defeat the purpose of arbitration.
- The final award could be challenged under Section 34, making judicial intervention at this stage unnecessary.
However, the court acknowledged the concerns raised in Hemendra Rasiklal Ghia and suggested that arbitrators should consider ruling on objections immediately to avoid prejudice.
Conclusion
- The writ petition was dismissed as not maintainable under Article 227.
- The interim arrangement was extended for eight weeks.
- The court suggested that arbitrators should ideally decide objections to evidence at the time they are raised.
Implications of the Judgment
- Strengthens arbitration as an independent dispute resolution mechanism by limiting judicial interference.
- Confirms that interlocutory arbitral orders cannot be challenged under Article 227 unless there is a statutory right of appeal.
- Encourages arbitrators to rule on objections immediately to prevent procedural disadvantages.
- Clarifies that parties should wait until the final award before seeking judicial review under Section 34.
This ruling reinforces the pro-arbitration stance of Indian courts and discourages premature legal challenges to arbitral proceedings.