ABSENCE OF VALID ARBITRATION AGREEMENT

In M/s BHARAT UDYOG LTD. (FORMERLY KNOWN AS M/s JAI HIND CONTRACTORS PVT. LTD.) Versus AMBERNATH MUNICIPAL COUNCIL THROUGH COMMISSIONER & ANR. - 2026 (4) TMI 1651 - Supreme Court, the Municipal Council issued a tender for the collection of Octroi for the period one year from 01.04.1994 to 31.03.1995. The tender provided a reserve price at Rs.6,74,000/-. The tender provides that any tender quoting the reserve price will not be taken into consideration. The Earnest Money Deposit for the said tender is Rs.1 lakh. The security deposit in the form of a bank guarantee of a nationalized or scheduled bank for Rs.1,07,92,000/-.

The petitioner of the petition participated in the bid and offered Rs.6.75 lakhs which is more than the reserved price. The tender of the petitioner was accepted by the Council and an agreement was entered into with the petitioner for collection of octroi, on 30.03.1994. The petitioner started its work in collecting octroi. On 02.05.1994, the petitioner wrote a letter to the Municipal Council with the request to reduce the reserve price Rs.6,74,000/- by Rs.40.78 lakhs on the ground that the said price is determined contrary to the norms to determine the reserve price. The said request was rejected by the Council on the ground that the same has been fixed as per the guidelines issued by the Government.

The petitioner filed a writ petition before the High Court challenging the above said order but later withdrew the same with liberty to adopt appropriate proceedings. The High Court dismissed the writ petition as withdrawn on 26.09.2024. The petitioner wrote a letter on 05.10.1994 to the Urban Development Department requesting for the appointment of arbitrator to resolve the dispute on the reduction of reserve price. The State Government, though not a party to the agreement appointed the Commissioner, Konkan Division as arbitrator. The arbitrator was directed to conduct the arbitration proceedings under the provisions of the Arbitration Act, 1940 and to submit its award within one month from the date of appointment.

The arbitrator issued a notice on 03.12.1994 fixing the hearing date on 09.12.2024. It was also directed that the Council shall file its reply on that date itself. The Council filed its reply on 08.12.2024. In the reply it was contended that reduction in reserve price was not possible since the same has been fixed as per the norms fixed by the Government. The petitioner cannot dispute the reserve price once he accepted and quote Rs1 lakh more than the reserve price.

The arbitrator found that the reserve price is not correct and the same ought to have been Rs.6,20,89,843/-. The arbitrator gave the award declaring the reserve price as Rs.6,20,89,843/-. Then the petitioner filed an application before the Civil Court for making the award as a rule of the Court.

On 10.04.1995, the Municipal Council wrote a letter to the Minister, Urban Development alleging that the Government resolution appointing the arbitrator was unilaterally issued. There is no provision in the agreement for the appointment of arbitrator by the State Government. The Council also approached the Collector for the cancellation of the appointment of arbitrator.

The Municipal Council also filed a reply to the Civil Suit filed by the petitioner for making the award as a decree. The Municipal Council contended that the Petitioners are

disentitled from getting and/or seeking any relief in this Petition either for the alleged decree in terms of Award or any other reliefs. In fact, the so-called Award dated 26.12.1994 delivered by the Respondent No. 2 is non est and is null and void and is unenforceable in law in any manner whatsoever, and on this count itself the said Award is liable to be ignored and discarded. The Civil Court allowed the misc. application and directed that a decree may be drawn in terms of the arbitral award.

Against the said order, the Municipal Council approached the High Court. The Bombay High Court reversed the order of the Civil Court and set aside the impugned order. The dispute resolution clause in the contract did not constitute a valid arbitration agreement. 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.

Against the said order of High Court, the petitioner filed the present civil appeal before the Supreme Court. The petitioner submitted the following before the Supreme Court-

• The present case is a case of waiver and acquiescence and as the Municipal Council actively participated in the arbitral proceedings without any demur, cannot raise jurisdictional questions.
• The Municipal Council has admitted to the existence of the arbitration clause.
• The objections to the award were barred by limitation.
• The intention of the parties to refer the dispute to arbitration is evident, and therefore, even if the contract does not use the expression ‘arbitration’, the court should not have interfered with the arbitral award that came into existence.

On the other hand the Municipal Council supported the reasoning in the judgment and order passed by the High Court and reiterated the submission that there exists no arbitration agreement between the parties and that the Municipal Council has raised jurisdictional questions challenging the award at the appropriate stage.

The Supreme Court considered the submissions of the petitioner and the respondent. The Municipal Council argued that the intervention of the government to superimpose arbitration between the Municipal Council and agent under the octroi policy can be sourced to Section 143A. The Supreme Court analysed the provisions of Section 143A of the Act. The Supreme Court rejected the contentions of the Municipal Council that the government can issue directions to the Municipal Council.  Section 143A (3) prescribes that the State Government can issue policy directions with respect to the manner and procedure by which the power is to be exercised. Under no circumstances can such a power be extended to appoint an arbitrator unilaterally, notwithstanding the statutory or contractual relationship that may exist between the Municipal Council and its agent.

The Municipal Council further contended that there is an arbitration agreement between the parties as is provided in clause 22 of the Contract. The Supreme Court also analysed the said provision in the contract and found that the parties have not agreed upon resolving the existing disputes between them through arbitration. All that it provides is that a dispute shall be referred to the Collector and his decision shall be final and binding on the parties. Further, the clause enables the parties to file an appeal against the decision of the collector to the Deputy Commissioner and thereafter to the Urban Development Department. The said clause does not provide for arbitration. Therefore, the power to resolve disputes is kept within the fold of the governmental hierarchy.

The Supreme Court was in agreement the findings of the High Court. The Supreme Court was of the opinion that there is no merit in the special leave petition for the following reasons:

• Absence of a valid agreement – There is no written agreement between the parties to submit differences to arbitration as required by Section 2(a) of the Arbitration Act, 1940. Specifically, Clause 20 relates to the position that the parties are to maintain pending the disposal of a dispute resolution. Clause 22 is certainly not an arbitration agreement.
• Lack of Jurisdiction for Appointment - State Government has no authority under Section 143-A(3) of the Maharashtra Municipal Councils, Nagar Panchayats and Industrial Townships Act, 1965 to appoint an arbitrator for the agent and the Municipal Council. The exercise of such power by the government cannot be equated to Section 4 of the Arbitration Act, 1940, for there is no such agreement.
• Absence of Mutuality: The requirement of consensus ad idem for creation of an arbitration agreement as contemplated under Section 2(a) of the Arbitration Act, 1940, was absent.
• Void Proceedings and Nullity of Award: 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- st.
• 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.
• Propriety of Arbitral Proceedings: The Supreme Court is in agreement with the conclusions of the High Court that the arbitral proceedings were perfunctory and started and concluded in a short period. Suffice to say that the circumstances relating to the making of the award indicated in the judgment of the High Court do not warrant interference. In any event, once the award is set aside on the ground of jurisdiction, this issue is not relevant.

The Supreme Court held that there is no merit in the special leave petition and dismissed the same.