The Arbitrator Lacked Inherent Jurisdiction Due To The Absence Of An Arbitration Agreement Therefore The Entire Proceedings Were A Nullity (Coram Non Judice) And The Resulting Award Was Non-Est: SC
In the matter of M/s Bharat Udyog Ltd. v. Ambernath Municipal Council Through Commissioner & Anr. [Special Leave Petition (C) No. 1127 of 2017], the Supreme Court upheld the judgment of High Court of Judicature at Bombay allowing the appeal filed by the Respondent no. 1, Ambernath Municipal Council (hereinafter ‘Municipal Council’) and quashing and setting aside the award as well as the judgment of the Civil Court, making the award a rule of the Court and dismissing the objections of the Municipal Council, in exercise of jurisdiction under Section 39 of the Arbitration Act, 1940. The Court has ruled that in the absence of an arbitration agreement or an informed consent of the Municipal Council for resolution of the dispute through arbitration, a mere participation of Municipal Council to a unilaterally invoked arbitration proceedings would not operate as an estoppel to bar it from raising the legality of the arbitral award being non-est in law.
The dispute arose from an octroi collection contract between the petitioner and petitioner sought a reduction in the minimum reserve price, a demand rejected by the Municipal Council. The dispute resolution mechanism in the contract provided for reference to the Collector and appeals to the Divisional Commissioner and State Government. The petitioner first filed a writ petition which was subsequently withdrawn and the petitioner approached the State Government praying to appoint an arbitrator to resolve the dispute. The State Government, though unconnected with the said contract, responded favourably and appointed Commissioner, Konkan Division, as an Arbitrator to arbitrate the said dispute. Arbitrator so appointed was required to submit an arbitration report to the State Government within one month. It was also provided that the arbitration be conducted in accordance with the provisions of the Arbitration Act, 1940.
The arbitrator had called upon the Respondent-Council to submit a reply and the award was delivered in favour of the Appellant, reducing the minimum reserve price for the proposed contractual work. The petitioner thereon proceeded to file a Miscellaneous Application under Section 14 read with Section 17 of the 1940 Act, seeking that the award be made a rule of the Court.
The Respondent-Municipal Council, which was under a State-appointed Administrator at the time, submitted a reply defending the reserve price but did not consent to arbitration. Upon receiving notice of the petitioner’s application to make the award a rule of court, the Municipal Council filed objections challenging jurisdiction in addition to writing a letter to the Minister, Urban Development Department, inter alia, complaining that the Government Resolution appointing the learned Arbitrator was unilaterally issued. It was pointed out that there was no provision under the contract under which the State Government could appoint an Arbitrator to resolve the dispute between the parties. The Municipal Council also approached the Collector, requesting that the appointment of the Arbitrator be cancelled.
he learned Judge allowed the Miscellaneous Application and directed that a decree be drawn up in terms of the arbitral award. The civil court decision was challenged before the High Court, which had set aside the Civil Court’s decision, and held that “the dispute resolution clause in the contract did not constitute a valid “arbitration agreement” under the law, but rather provided for a departmental dispute-resolution mechanism.”
The High Court found that the State Government lacked jurisdiction to “foist” arbitration on a concluded contract and that the petitioner was estopped from challenging the tender price after voluntarily participating in and winning the bid.
Aggrieved by the High Court’s decision, the private contractor moved to the Supreme Court.
Affirming the impugned finding, the Supreme Court found that since there existed no arbitration agreement between the parties, thus the resulting award was non-est in law.
The Court rejected the Appellant’s argument that a participation of the Respondent to the arbitration proceedings signified its consent to be bound by the outcome. Instead, the Court said that mere “participation does not confer Jurisdiction”.
“There is no estoppel against the Municipal Council for the reason that it had initially participated in the arbitral proceedings. This is for the reason that they were forced into arbitration without consent and contract. At the same time, they challenged the award on jurisdictional grounds before the Civil Court as well as the High Court.”, the court said.
“Since the Arbitrator lacked inherent jurisdiction due to the absence of an arbitration agreement, the entire proceedings were a nullity (coram non judice) and the resulting award was non-est.”, the court observed.
