The Delhi High Court, presided over by Justice Prathiba M. Singh, recently ruled that the court cannot exercise jurisdiction under Article 226 of the Indian Constitution to decide on matters of jurisdictional competence unless the arbitral tribunal is a statutory tribunal created by a statute. The court referred to a Supreme Court decision, stating that orders issued by an arbitral tribunal during arbitration cannot be challenged under Article 226 or 227 of the Constitution. The High Court's intervention in such cases is not permissible.
This view has been reiterated by the Supreme Court in previous cases, emphasizing that the power of High Courts to issue directions or writs under Article 226 is a constitutional right that cannot be curtailed by parliamentary legislation. The court further noted that a statutory forum for redressal of grievances should be utilized instead of filing writ petitions unless there is no effective alternative remedy available or a party has been left remediless under the statute.
Brief Facts of the Case:
The case originated from an application filed by IDFC Bank under Section 16 of the Arbitration and Conciliation Act, 1996, before an Arbitral Tribunal. The tribunal dismissed the application, prompting IDFC Bank to file a writ petition before the Delhi High Court as the order of the Arbitral Tribunal was not appealable under Section 37 of the Act.
Contentions of the Petitioner (IDFC Bank):
IDFC Bank contended that the Arbitral Tribunal lacked jurisdiction to adjudicate the dispute. The bank argued that the amount recoverable from Hitachi constituted a 'debt' as defined under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act). Consequently, they claimed that the dispute fell within the exclusive jurisdiction of the Debt Recovery Tribunal (DRT). IDFC Bank also asserted that their agreement with Hitachi qualified as a 'banking business' under the Banking Regulation Act, 1949.
Contentions of the Respondent (Hitachi):
Hitachi, the respondent, countered IDFC Bank's claim by asserting that the disputes were arbitrable. They argued that IDFC Bank should await the final award and challenge it under Section 34 of the Arbitration Act. Hitachi contended that the nature of their agreement with IDFC Bank did not fall within the purview of the RDB Act, and therefore, the jurisdiction of the Arbitral Tribunal was valid.
Observations by the Court:
The Delhi High Court meticulously scrutinized the contentions raised by both parties, along with the relevant legal provisions. The court made several key observations. Firstly, it noted that objections regarding jurisdiction, including the existence or validity of the arbitration agreement, should be raised at the earliest stage of the proceedings. However, in this case, the petitioner sought to justify the delay in raising the jurisdictional plea based on the change in legal position following the ‘Vidya Drolia and Others vs. Durga Trading Corporation’ [(2021) 1 Supreme Court Cases (Civ) 549:2020].
“28. On the strength of the submission that the amount recoverable by the Petitioner from the Respondent is a debt, it is urged that the Petitioner would be entitled to approach the Debt Recovery Tribunal. Vidya Drolia(supra) is categorical in holding that the disputes would not be arbitrable as the DRT has jurisdiction.
29. While there can be no doubt that in a case where the Court finds clearly that the dispute is liable to be adjudicated by the Debt Recovery Tribunal (‘DRT’), the same would be non-arbitrable, it cannot be said that such clarity exists in the present case.”
The court further observed that the petitioner's argument hinged on the claim that the amount recoverable constituted a 'debt' under the RDB Act, thereby falling within the exclusive jurisdiction of the DRT. Additionally, IDFC Bank contended that their agreement with Hitachi qualified as a 'banking business' under the Banking Regulation Act, 1949. The court acknowledged the petitioner's contention but emphasized that as long as IDFC Bank operated within the provisions of the Banking Regulations Act, 1949, they could invoke the jurisdiction of the DRT against Hitachi.
“So long as the Petitioner is functioning within the provisions of the Banking Regulations Act,1949 it can invoke the jurisdiction of the Debt Recovery Tribunal against the Respondent. The contention of the Respondent that its claim against the Bank cannot be entertained, is refuted on the ground that in the Debt Recovery Tribunal, the Respondent can file a counterclaim.”
After a thorough examination, the court held that the present writ petition filed by IDFC Bank was not maintainable under Article 226 of the Constitution of India. The court underscored that the determination of jurisdiction and arbitrability lies within the purview of the Arbitral Tribunal. It cited previous Supreme Court judgments discouraging interference with arbitral proceedings through writ jurisdiction unless exceptional circumstances exist.
“Relegating the parties to the DRT at this stage would put the clock back completely leading to delays in adjudication. The remedy of arbitration was the chosen remedy by the parties and in the arbitral proceedings trial has already commenced. Thus, the present case does not constitute `exceptional circumstances’ that warrant interference under Art. 226 of the Constitution of India.”
The decision of the Court:
The court dismissed the writ petition, allowing the arbitral proceedings to continue, and granted the parties the liberty to avail themselves of their remedies under the law.
Case Name: IDFC First Bank Limited vs Hitachi MGRM Net Limited
Coram: Hon’ble Mrs. Justice Prathiba M. Singh
Case No.: W.P.(C) 8573/2021
Advocates of the Petitioners: Mr. Parag P. Tripathi, Senior Advocate, Mr. Dhruv Malik, Ms. Sharmistha Ghosh, Ms. Palak Nenwani, Ms. Aditi Sinha and Ms. Mishika Bajpai, Advocates
Advocates of the Respondent: Mr. Ashish Bhagat, Mr. Ritik Malik, Mr. Akhil Suri, Mr. Udit Thakran, and Mr. Jitu Khare, Advocates.
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