Writ Courts May Stay Arbitration under Exceptional Circumstances Where "Bad Faith" Frustrates Primary Remedies.

The Respondent filed for arbitration seeking specific performance of an Agreement to Sell regarding certain properties

During a Section 9 proceeding, the High Court restrained the Appellant from creating third-party interests

Despite this, the Appellant sold 15 flats, leading the Respondent to file a Contempt Petition (Cont. Cas.(C) No.1744/2024), where the court found the Appellant prima facie guilty

The Arbitral Tribunal refused to stay its own proceedings pending the contempt outcome

The Respondent challenged this refusal via a Writ Petition. The Single Judge allowed the petition, directing that arbitration await the outcome of the contempt proceedings

The Appellant filed this intra-court appeal challenging that stay

1. Whether the Arbitration Proceedings ought to be stayed during the pendency of the Contempt Petition involving the same subject matter

2. Whether the High Court has the jurisdiction under Article 226/227 to intervene in ongoing arbitration in circumstances of "exceptional rarity"

The Court primarily applied the standards for judicial intervention in arbitration as laid down in Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., which restricts interference to "exceptional rarity" where a party is left remediless or there is "clear bad faith"

It relied on Deep Industries Ltd. v. ONGC regarding the non-obstante clause of Section 5 of the Arbitration and Conciliation Act, 1996, noting that Article 227 remains an untouched constitutional power for patent lack of jurisdiction or exceptional cases

Furthermore, the court applied Balwantbhai Somabhai Bhandari v. Hiralal Somabhai Contractor, which empowers a contempt court to declare transactions in breach of injunctions as void to maintain the majesty of law

The Court reasoned that while Section 5 of the Act generally bars judicial intervention, the present case meets the "exceptional rarity" threshold because the Appellant’s conduct in selling protected flats constituted "clear bad faith"

The court noted that because the Respondent seeks specific performance, the outcome of the Contempt Petition is a prerequisite; if the contempt court declares the third-party sales void (per Balwantbhai), the relief of specific performance remains viable. Conversely, forcing the arbitration to proceed would compel the Respondent to claim damages, effectively rewarding the Appellant for its disobedience

The court rejected the Appellant’s argument that Section 9 was obtained by fraud, holding that a contemnor cannot bypass the consequences of a subsisting order by attacking its merits in a collateral proceeding

The Division Bench dismissed the appeal and upheld the Impugned Judgment

The intervention did not derail the process but rather ensured the proceedings were not conducted while the subject matter was being altered through contumacious conduct