Judgement Briefs

Alternative Dispute Resolution

Deep Industries Ltd. v. ONGC

(2020) 15 SCC 706

Citation
(2020) 15 SCC 706
Court
Supreme Court of India
Date
28 November 2019
Bench
R.F. Nariman, S. Ravindra Bhat and V. Ramasubramanian, JJ.

Facts

  • ONGC awarded Deep Industries a contract involving supply and operation of a mobile air-compressor unit for a fixed period.
  • ONGC later alleged that the equipment supplied was second-hand and did not satisfy the contractual requirements.
  • ONGC:
  • terminated the contract;
  • blocked Deep Industries’ vendor code; and
  • initiated blacklisting action.
  • Deep Industries invoked arbitration.
  • A retired judge was appointed as sole arbitrator.
  • During arbitration, Deep Industries applied under Section 17 for interim protection against the termination and blacklisting consequences.
  • The tribunal passed an interim order.
  • ONGC challenged the order under Section 37.
  • After the Section 37 proceedings, the matter was taken before the Gujarat High Court under Articles 226 and 227 of the Constitution.
  • The High Court interfered with the arbitral interim order.
  • Deep Industries appealed to the Supreme Court, arguing that writ jurisdiction had been used as an impermissible second appeal.

Issue

  • Whether High Courts may exercise writ or supervisory jurisdiction over orders arising during arbitration.
  • Whether Article 227 can be used after the statutory Section 37 remedy has been exercised.
  • What level of restraint is required under Section 5 of the Arbitration Act.

Rule

  • The constitutional powers under Articles 226 and 227 cannot be completely excluded by legislation.
  • Nevertheless, where the Arbitration Act provides a complete remedial structure, High Courts must exercise those powers with extreme restraint.
  • Section 5 expresses a policy of minimum judicial intervention.
  • Section 37 deliberately provides appeals only against specified orders.
  • Writ jurisdiction cannot be used to create:
  • a second appeal;
  • an appeal against a non-appealable order; or
  • routine merits review during arbitration.
  • Intervention may be justified only where an order is patently without inherent jurisdiction or produces an exceptional failure of justice.

Application

  • ONGC had already used the statutory appellate remedy under Section 37.
  • It then sought further reconsideration through Article 227.
  • The Supreme Court held that this undermined the carefully limited appeal structure of the Arbitration Act.
  • Parliament intentionally restricted arbitral appeals so that parties could not repeatedly interrupt proceedings.
  • Permitting routine Article 227 challenges would mean that every:
  • Section 17 order;
  • procedural decision;
  • jurisdictional ruling; or
  • Section 37 judgment could generate another round of litigation.
  • The Court described the Section 37 appeal as the party’s statutory “bite at the cherry.”
  • A writ petition should not provide another bite merely because the High Court believed that a different factual or contractual interpretation was preferable.
  • The question was not whether the arbitral order was unquestionably correct.
  • It was whether the tribunal or appellate court had acted so completely outside its legal authority that constitutional correction was indispensable.
  • No such exceptional defect was established.
  • The tribunal was properly constituted and possessed power under Section 17 to grant interim measures.
  • The Section 37 court also possessed statutory appellate jurisdiction.
  • Any alleged error therefore occurred within jurisdiction.
  • Such an error could not justify transforming Article 227 into another arbitral appeal.
  • The Supreme Court also emphasised that arbitral efficiency depends upon allowing the tribunal to continue without repeated court supervision.
  • Courts may eventually examine the award under Section 34.
  • Until then, interlocutory interference must remain rare.
  • The decision does not eliminate constitutional jurisdiction.
  • It creates a high threshold directed at:
  • patent lack of jurisdiction;
  • manifest bad faith;
  • extreme perversity producing injustice; or
  • absence of any effective statutory remedy.
  • Bhaven Construction later reaffirmed and strengthened this restrictive approach.

Conclusion

  • The Supreme Court set aside the High Court’s intervention.
  • It held that Article 227 could not be used as a routine second appeal against an arbitral interim order and the resulting Section 37 decision.
  • High Courts must interfere only in exceptionally rare cases of patent jurisdictional failure.
  • Use this case for: writ jurisdiction survives in theory but cannot be used to bypass the limited appellate structure of the Arbitration Act.