Punjab State Power Corporation Limited Vs Arbitration Tribunal and Others (Supreme Court of India)
Summary: The Punjab and Haryana High Court examined whether Punjab State Power Corporation Limited (PSPCL) could invoke Articles 226 and 227 of the Constitution of India to challenge an Arbitral Tribunal’s order dated 08.01.2017 rejecting its objection to jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996. The principal controversy concerned the maintainability of constitutional proceedings against an interlocutory arbitral determination and whether the statutory remedies under Sections 34 and 37 required the aggrieved party to await the final award. The High Court also examined whether a challenge instituted after prolonged participation in arbitration could be entertained when the proceedings had reached the stage of final arguments.
The dispute arose from tenders invited by the erstwhile Punjab State Electricity Board in February/March 1999 for coal mining operations to be undertaken through a joint venture. EMTA Coal Limited emerged as the highest bidder, and a Joint Venture Agreement dated 21.03.2001 resulted in the formation of PANEM Coal Mines Limited for the development and extraction of coal from the Pachwara (Central) Coal Block. The extracted coal was intended for PSPCL’s thermal power stations. A subsequent Coal Purchase Agreement dated 30.08.2006 regulated coal supply arrangements between the electricity utility and PANEM. The contractual arrangements contained arbitration clauses. Following disputes regarding unpaid dues, EMTA invoked arbitration, and a three-member Arbitral Tribunal was constituted by agreement between the concerned parties.
Before the Tribunal, PSPCL filed its written statement and counterclaim and challenged the Tribunal’s jurisdiction under Section 16. The Tribunal rejected the jurisdictional objection on 08.01.2017 and continued with the arbitral proceedings. Both parties subsequently led evidence, and EMTA completed its final arguments. When the matter was awaiting final submissions on behalf of PSPCL, the corporation filed a writ petition in May 2019 seeking to quash the jurisdictional ruling. An interim stay of arbitration proceedings was initially granted on 14.05.2019. EMTA challenged the maintainability of the petition and also sought vacation of the interim stay, contending that PSPCL was attempting to interrupt arbitration at an advanced stage after participating in the proceedings for more than two years following the disputed order.
EMTA argued that Sections 16(5) and 16(6) prescribed the consequences of rejection of a jurisdictional plea. Once the Arbitral Tribunal rejected an objection questioning its jurisdiction or authority, it was statutorily required to continue the proceedings and make an award. The dissatisfied party could thereafter seek setting aside of the award under Section 34 of the Arbitration and Conciliation Act, 1996. EMTA also relied upon Section 5, which embodies the legislative policy of minimum judicial intervention, and Section 37, which permits immediate appeals against specified arbitral orders, including decisions accepting jurisdictional objections. PSPCL maintained that constitutional supervisory jurisdiction formed part of the basic structure of the Constitution and could not be excluded merely because an alternative statutory remedy was available.
The High Court examined the combined operation of Sections 5, 16, 34 and 37 of the 1996 Act. It observed that Section 16 authorises an Arbitral Tribunal to decide objections concerning its own jurisdiction, including the existence or validity of the arbitration agreement. When a jurisdictional objection is rejected, Section 16(5) requires the Tribunal to continue the proceedings and pass an award. Section 16(6) preserves the aggrieved party’s opportunity to challenge that award under Section 34. In contrast, where the Tribunal accepts a jurisdictional objection, Section 37(2)(a) provides an immediate statutory appeal. This distinction reflected Parliament’s intention to avoid unnecessary interruptions during arbitration while preserving judicial remedies at appropriate stages.
The High Court principally relied upon the Constitution Bench decision in SBP & Co. v. Patel Engineering Ltd., which disapproved routine challenges under Articles 226 and 227 against interlocutory orders of Arbitral Tribunals. The High Court explained that permitting constitutional petitions against every adverse jurisdictional determination would defeat the objectives of expeditious arbitration and minimal judicial interference. It also considered Sterling Industries v. Jayprakash Associates Ltd., International Coil Ltd. v. DLF Cyber City Developers Ltd., and Steel Authority of India Ltd. v. Indian Council of Arbitration, which supported adherence to the statutory arbitration framework.
The authorities cited by PSPCL were examined and distinguished. Associated Cement Companies Ltd. v. P.N. Sharma concerned the meaning of a Tribunal for the purposes of constitutional appellate jurisdiction rather than an interlocutory decision under the Arbitration and Conciliation Act. L. Chandra Kumar v. Union of India concerned judicial review of decisions of tribunals established under Articles 323-A and 323-B, and did not determine the statutory consequences of rejecting a Section 16 objection in arbitration. Punjab Agro Industries Corporation Ltd. v. Kewal Singh Dhillon involved a Section 11 appointment order for which no comparable statutory remedy was available. The decisions in Unik Accurate Pvt. Ltd. and M.L. Gupta and Associates did not establish an entitlement to interrupt the present arbitral proceedings.
The High Court additionally held that PSPCL’s petition suffered from substantial and unexplained delay. The jurisdictional ruling was issued on 08.01.2017, but PSPCL approached the High Court only on 13.05.2019, approximately two years and five months later. During the intervening period, it voluntarily participated in arbitration without protest, including the recording of evidence. The petition was filed only when final arguments had partly concluded. The Court found no satisfactory explanation for the delay, making the challenge liable to dismissal on that independent ground.
Accordingly, the Punjab and Haryana High Court dismissed the writ petition, holding that interference with the Tribunal’s rejection of the Section 16 objection was unwarranted under the statutory framework. The Court also held that the belated challenge could not be sustained. No costs were awarded. The decision affirms that an unsuccessful jurisdictional objection does not ordinarily permit an immediate writ challenge during pending arbitration and that the appropriate statutory remedy generally arises after the award under Section 34, subject to the specific appellate provisions of Section 37.
Cases Discussed
- SBP & Co. v. Patel Engineering Ltd. (Supreme Court; (2005) 8 SCC 618): The Constitution Bench ruling was the principal authority relied upon by the High Court. It established that arbitral proceedings should not ordinarily be interrupted by constitutional challenges against interlocutory orders, and that parties must pursue remedies under Sections 34 and 37 in accordance with the statutory scheme.
- Sterling Industries v. Jayprakash Associates Ltd. (Supreme Court; Civil Appeal Nos. 7117–7118 of 2017; decided on 10.07.2019): The Court relied upon this judgment to reinforce the principle that challenges to arbitral determinations must follow the remedies prescribed by the Arbitration and Conciliation Act, 1996, and cannot be circumvented through procedurally impermissible proceedings.
- International Coil Ltd. v. DLF Cyber City Developers Ltd. (Punjab & Haryana High Court; CR-735-2019; decided on 24.05.2019): The decision followed SBP & Co. and held that an Arbitral Tribunal’s interlocutory determination concerning its jurisdiction ordinarily cannot be challenged through Articles 226 and 227 before the final award.
- Steel Authority of India Ltd. v. Indian Council of Arbitration (Delhi High Court; 2013 SCC OnLine Del 4490): The Delhi High Court applied the principles in SBP & Co. and declined interference with a ruling under Section 16, recognising that the aggrieved party could challenge the eventual award through the statutory mechanism.
- Sandip Industries, Pondicherry v. Superpack, a Division of Bajaj Steel Industries Ltd. (Bombay High Court; 2008 SCC OnLine Bom 659): Cited on behalf of EMTA in support of its submissions opposing maintainability of the writ petition against the Arbitral Tribunal’s interlocutory decision.
- Associated Cement Companies Ltd. v. P.N. Sharma (Supreme Court; AIR 1965 SC 1595): PSPCL invoked the decision concerning the constitutional status of adjudicatory bodies. The High Court distinguished it because it did not concern the statutory framework for challenges to arbitral jurisdictional rulings under the 1996 Act.
- L. Chandra Kumar v. Union of India (Supreme Court; (1997) 3 SCC 261): PSPCL relied on this Constitution Bench judgment to contend that constitutional judicial review forms part of the basic structure. The High Court distinguished the decision because it concerned tribunals under Articles 323-A and 323-B rather than the statutory process governing arbitral orders under Section 16.
- Punjab Agro Industries Corporation Ltd. v. Kewal Singh Dhillon (Supreme Court; (2008) 10 SCC 128): The Court distinguished this authority because it concerned a Section 11 appointment order against which no comparable statutory remedy existed. PSPCL, by contrast, retained the remedy under Section 16(6) read with Section 34.
- Unik Accurate Pvt. Ltd. v. Sumedha Fiscal Services Ltd. (Calcutta High Court; 2000 SCC OnLine Cal 328): Cited by PSPCL in support of its claim concerning supervisory jurisdiction. The High Court found it unhelpful in view of the subsequent Constitution Bench ruling in SBP & Co.
- M.L. Gupta and Associates v. H.P. Housing & Urban Development Authority (Himachal Pradesh High Court; 2011 SCC OnLine HP 3746): Distinguished because it concerned directions for expeditious completion of arbitral proceedings rather than a challenge to an interlocutory jurisdictional ruling.
- Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. (Supreme Court; (2002) 2 SCC 388): Discussed through the reproduced Constitution Bench ruling in SBP & Co. The earlier interpretation concerning the nature of powers under Section 11 was overruled by the Constitution Bench.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The impugned judgment dated 10.12.2019 is grounded on the fact that the impugned order passed by the Arbitral Tribunal on 08.01.2017 was challenged only 2½ years late and the petitioner filed the writ petition at the last minute after the arguments had concluded before the Arbitral Tribunal. Based on this ground, the writ petition has been dismissed, filed under Article 227 directly against a section 16 application without following the drill of section 16 of the Arbitration Act.
Shri K. V. Vishwanathan, learned senior counsel appearing for the petitioner, has argued before us, based on our judgment in Deep Industries Ltd. v. Oil and Natural Gas Corporation Ltd. & Anr. (2019) SCC Online SC 1602, and paragraph 16 in particular, which is set out hereinbelow:
“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 provisions 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 herein above so that interference is restricted to orders that are passed which are patently lacking in inherent jurisdiction”
According to Shri Vishwanathan, one look at the Joint Venture Agreement and the arbitration clause therein would make it clear that the third party in this case had not been referred to at all, as a result of which there is a patent lack of inherent jurisdiction within the meaning of paragraph 16 of the Deep Industries Ltd. (supra). We are of the view that a foray to the writ Court from a section 16 application being dismissed by the Arbitrator 2
SLP (C) No. 8482/2020 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. Unfortunately, parties are using this expression which is in our judgment in Deep Industries Ltd., to go to the 227 Court in matters which do not suffer from a patent lack of inherent jurisdiction. This is one of them. Instead of dismissing the writ petition on the ground stated, the High Court would have done well to have referred to our judgment in Deep Industries Ltd. and dismiss the 227 petition on the ground that there is no such perversity in the order which leads to a patent lack of inherent jurisdiction. The High Court ought to have discouraged similar litigation by imposing heavy costs. The High Court did not choose to do either of these two things. In any case, now that Shri Vishwanathan has argued this matter and it is clear that this is not a case which falls under the extremely exceptional category, we dismiss this special leave petition with costs of Rs.50,000/- to be paid to the Supreme Court Legal Services Committee within two weeks.
Pending applications stand disposed of.
