The Hon'ble Supreme Court of India recently had the difficult task of determining whether the existence of an arbitration clause would categorically preclude the remedy to invoke writ jurisdiction under Article 226 of the Constitution of India (Constitution) when one of the parties is a state instrumentality in the case UNITECH Limited & Ors. v. Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors. The idea of party autonomy in the arbitral process is balanced with the right to use the full authority of a writ court in this ruling.
In the instant case titled UNITECH Limited & Ors. v. Telangana State Industrial Infrastructure Corporation (TSIIC) & Ors. the issue raised before the Supreme Court of India were:
Whether the issuance of a writ under Article 226 would be barred by the inclusion of an arbitration clause in a contract between a governmental instrumentality and a private party?
With regard to this issue, according to the Honorable Supreme Court, the existence of an arbitration clause in a contract between a state instrumentality and a private business could not serve as a complete impediment to the exercise of remedies provided for by Article 226 of the Constitution. It was noted that remedies would be available under the plenary powers of Article 226 of the Constitution if a state instrumentality transgresses its constitutional duty under Article 14 to act fairly and reasonably. A vital constitutional safeguard against the arbitrary use of governmental power or abuse of authority was found to be the writ jurisdiction provided by Article 226.
The Court categorically stated that,
“Development Agreement, on the basis of which Unitech has sought to avail its contractual remedy has not been registered or assessed to stamp duty. Under Article 3.1 of the Development Agreement, the obligation of paying registration fees and stamp duty is on Unitech. It is well-settled law that the Stamp Act is a fiscal measure enacted to secure the revenue for the State, and not to arm the opponent with a weapon of technicality.20 Unitech’s claim to compensatory payment cannot be defeated on the sole ground of the payment of stamp duty. The Development Agreement shall have to be impounded and be presented to the Chief Controlling Revenue Authority in the State of Telangana for assessment of stamp duty and to the competent authority for registration. The assessment shall be completed within thirty days. The appropriate stamp duty and registration charges liable to be paid in terms of the determination shall be paid by TSIIC and be deducted from the refund due and payable to Unitech under the terms of this order.”
The current situation is a prime illustration of how India's arbitration system and public policy interact. On the one hand, it's critical to acknowledge a litigant's entitlement to use writ jurisdiction under Article 226 against the state or its agencies that transgress the Constitution's requirement that they act properly under Article 14. On the other hand, it is equally crucial to uphold the standard of the courts only sometimes interfering in arbitral proceedings. The Honorable Supreme Court has been successful in fulfilling both of the aforementioned objectives in the current case. The Hon'ble Supreme Court has very carefully ruled in the current instance that the plenary power under Article 226 must be used with caution when the party seeking relief is not present.