The authors, Vaditya Kavya and Jagyansh Kumar, are students at National Law Institute University, Bhopal.
Featured Artwork: Socio Legal Corp
“Judicial review is an integral part of our constitutional system and without it, our fundamental rights would be reduced to a mere rope of sand.” Justice Patanjali Sastri’s statement in State of Madras v. V.G. Row laid the foundation for the Basic Structure Doctrine, later affirmed in Kesavananda Bharati v. State of Kerala. Over time, the scope of the basic structure doctrine has been expanded liberally, where recently, the right to approach High Courts under Article 226 has been interpreted as part of the basic structure. In Tamil Nadu Cements Corporation Ltd. v. Micro and Small Enterprises Facilitation Council (“MSEFC”) (“Tamil Nadu Cements Case”), the Supreme Court reaffirmed that access to High Courts cannot be ousted by arbitration mechanisms. This ruling has reignited the debate on whether arbitration laws restrict judicial review or serve as an indispensable constitutional safeguard. In this blog, the authors analyse the aforementioned judgement, highlighting the evolving scope of basic structure doctrine and examining the role of writ jurisdiction in arbitration matters. The blog attempts to answer how the basic structure doctrine continues to ensure judicial access amidst evolving statutory frameworks.
The Supreme Court’s Ruling in Tamil Nadu Cements: Analysis
The Supreme Court’s decision in Tamil Nadu Cements case raises key questions about writ jurisdiction under Article 226 in arbitration. The primary issue before the Court was whether a party could directly challenge an MSEFC order under Article 226 or if it was strictly required to follow the statutory appeal process under Section 34 of the Arbitration and Conciliation Act, 1996 (“A&C Act”). Section 18 of The Micro, Small and Medium Enterprises Development Act, 2006 (“MSMD Act”) creates an obligation upon the MSEFC to act as both a conciliator and an arbitrator for disputes involving micro and small enterprises. While this statutory framework intends to provide an efficient dispute resolution mechanism, it also introduces Section 19, which requires a 75% pre-deposit of the awarded amount before an appeal can be heard. Although the provision aims to deter frivolous litigation, it raises serious concerns about access to justice, particularly for businesses facing substantial financial liabilities. The Supreme Court reiterated that judicial review under Article 226 is a fundamental safeguard under the basic structure doctrine and cannot be completely eliminated by statutory provisions. While arbitration laws aim to minimize judicial intervention, the Court maintained that writ jurisdiction remains available in exceptional cases, such as when an order is passed without jurisdiction, violates fundamental rights, or breaches principles of natural justice.
The Supreme Court also addressed conflicting judicial precedents. In Jharkhand Urja Vikas Nigam Ltd., it allowed writ petitions against MSEFC orders when they exceeded their jurisdiction or violated fundamental rights. However, a contrary was established in the subsequent matter of Gujarat State Civil Supplies Corporation Ltd., where the Court took a narrow approach, holding that statutory arbitration should not be easily circumvented by invoking Article 226. The Supreme Court acknowledged this inconsistency and referred the matter to a five-judge bench. Additionally, it questioned whether the pre-deposit requirement under Section 19 of MSMED Act disproportionately restricts access to judicial remedies. While intended to filter out baseless challenges, it creates a financial barrier that may deter genuine claims. The judgment highlights the Court’s intent to strike a balance between the efficiency of arbitration and the constitutional right to judicial review.
Evolution of Judicial Review as a Basic Structure Principle
The principle of judicial review is a core element of the India’s basic structure doctrine, ensuring that laws and executive actions remain within constitutional limits. The Supreme Court has consistently reinforced the non-negotiable nature of judicial review. In L. Chandra Kumar v. Union of India, the Court held that judicial review under Articles 226 and 227 is part of the Constitution’s basic structure, meaning it cannot be diluted even by legislative action. This ruling established that tribunals and quasi-judicial bodies remain subject to High Court supervision.
The Tamil Nadu Cements case is relevant because it challenges the extent to which statutory arbitration under the MSMED Act can restrict constitutional courts from reviewing arbitral award, presenting a fundamental question: Can Parliament, through legislation, limit or exclude judicial review under Article 226?
The Supreme Court has struck down past attempts to shield statutory bodies from judicial scrutiny. For instance, in Rojer Mathew v. South Indian Bank Ltd. the Supreme Court invalidated provisions that attempted to restrict High Court jurisdiction over tribunal decisions. The outcome of Tamil Nadu Cements case will have a significant impact on India’s legal framework. If the five-judge bench upholds the maintainability of writ petitions in arbitration cases, it will reinforce Article 226’s status as a fundamental safeguard, preventing arbitration from becoming an instrument to evade judicial oversight.
Conflict of Arbitration and Writ Petition Jurisdiction: When can High Courts intervene?
Section 5 of the A&C Act explicitly provides that no judicial authority shall intervene except where so provided in the Act. The provision serves to indicate the intention to minimise judicial interference in arbitration matters. In Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., it was held that the A & C Act is itself a self-contained code, therefore, it is reasonable to restrict judicial oversight in arbitration matters. If executed otherwise, it will defeat the very characteristics persons prefer going to arbitration, a swift and cost-effective alternative to traditional litigation. The “Exceptional Rarity Test”, laid down in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., further clarified that writ jurisdiction should be exercised only when there is a patent lack of jurisdiction, bad faith, or a violation of fundamental principles of justice. The same was upheld by the Supreme Court in SBP & Co. v. Patel Engg. where the court said that allowing writ petitions against arbitral tribunal orders would defeat the objective of arbitration. Later, in Deep Industries Ltd. v. ONGC, the Court observed that High Courts must be extremely cautious in interfering with arbitration proceedings under Articles 226 or 227 and should do so only when an order is patently lacking in jurisdiction. However, courts have acknowledged that the existence of an arbitration clause does not bar High Court writ jurisdiction entirely. In Union of India v. Tantia Construction Pvt. Ltd., the Supreme Court reaffirmed that writ jurisdiction under Article 226 remains available despite an arbitration agreement, though its exercise should be exceptional and not routine.
Referring here to Section 18 of the MSMED Act which mandates that disputes involving MSMEs must be referred to the MSEFC, which can act as a conciliator and, if conciliation fails, as an arbitrator. This provision overrides any pre-existing arbitration agreement between the parties. In State Trading Corporation of India Ltd. v. MSEFC, the Delhi High Court upheld that the requirement of pre-deposit under Section 19 of the MSMED Act cannot be bypassed by invoking writ jurisdiction. Therefore, it is safe to conclude that courts have time and again reinforced the legislature’s intent to safeguard MSMEs.
This leads to a pertinent question: Does this MSMED Act violate the basic structure? To answer this question, courts have generally upheld its validity, ruling that parties still have recourse to Section 34 of the A&C Act to challenge an award. In Punjab State Power Corporation Ltd. v. EMTA Coal Ltd., the Supreme Court held that judicial interference in arbitration is permitted only when the order is patently lacking in jurisdiction. The Tamil Nadu Cements case reaffirms that judicial review under Article 226 remains available in exceptional cases, ensuring that statutory arbitration mechanisms do not override constitutional principles.
Conclusion
From the above discussion, the authors have accentuated that although the arbitration laws seek to limit scope of judicial intervention, it has been adjudged throughout several matters that statutory frameworks cannot entirely oust High Court’s jurisdiction, particularly involving cases of jurisdictional overreach, fundamental rights violations, or breaches of natural justice. The discussion reveals dual observation, i.e., preserving arbitration is pertinent along with ensuring access to constitutional remedies. The way forward lies in a nuanced approach which means that High Courts must exercise restraint in arbitration-related writ petitions, adhering to the “exceptional rarity” standard, while also ensuring that procedural barriers do not undermine judicial access. If the five-judge bench upholds the maintainability of writ petitions in exceptional cases, it will reinforce Article 226 as a fundamental safeguard, ensuring that arbitration remains a mechanism for alternative dispute resolution rather than a means to circumvent constitutional scrutiny.
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