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Dharma Prathishthanam v. M/S. Madhok Construction Pvt. Ltd

“Arbitration agreement” means a written agreement to submit present or future differences to arbitration”

Case name:Dharma Prathishthanam v. M/S. Madhok Construction Pvt. Ltd
Case number/Citation:Civil Appeal No. 7140 Of 2004 In F.A.O. No. 287 Of 1995
Court:Supreme Court of India
Bench:HON’BLE CHIEF JUSTICE MR. R.C. LAHOTI HON’BLE MR. JUSTICE G.P. MATHUR HON’BLE MR. JUSTICE P.P. NAOLEKAR
Decided on:November 02, 2004
Relevant Act/Sections:Section 8 of Arb and Conciliation Act, 1940
  • BRIEF FACTS AND PROCEDURAL HISTORY:
  • In the year 1985, the appellant proposed to have a building constructed for which purpose it entered into a works contract with the respondent for the construction as per the drawings and specifications given by the appellant. Disputes arose between the parties. Clause 35 of the agreement which is the arbitration clause read as under:-

“Settlement of disputes shall be through arbitration as per the Indian Arbitration Act.”

Obviously and admittedly the reference was to the Arbitration Act, 1940.

  • On 12th June, 1989 the respondent appointed one Shri Swami Dayal as the Sole Arbitrator. The respondent gave a notice to the appellant of such appointment having been made by the respondent but the appellant failed to respond. The respondent made a reference of dispute to the Arbitrator and the Arbitrator Shri Swami Dayal entered upon the reference. The record of the proceedings of the Arbitrator had neither been produced before the High court nor before this court. However, it is not disputed that the appellant did not participate in the proceedings before the Arbitrator.
  • On 14th April, 1990 the Sole Arbitrator gave an award of Rs.14,42,130.78p. with interest at the rate of 12 per cent per annum from 14th April, 1990 till realization in favour of the respondent against the appellant. The respondent filed an application in the Court under Sections 14 and 17 of the Act for making the Award a Rule of the Court. The notice under Section 14(2) of the Act was published in the Statesman, a daily English newspaper in its edition dated 6th December, 1991.
  • The appellant appeared in the Court on the appointed date i.e. 20th February, 1992. According to the appellant it gathered only on that date of copy of the Award dated 14th April, 1990. From 14th March, 1992 to 20th March, 1992 the Court was closed. On 21st March, 1992 the appellant filed objections to the Award.
  • The objections were dismissed without any adjudication on merits and only on the ground that the objection petition was filed beyond a period of 30 days from 6th February, 1991 i.e. the date of publication of notice in the Statesman. Having lost before the learned Single Judge of the High Court of Delhi (Original Side) as also in intra-court appeal preferred before the Division Bench, the aggrieved appellant filed this appeal by special leave.
  • ISSUE BEFORE THE COURT:
  • Whether in the light of a general provision as in clause 35, the respondent could have unilaterally appointed an arbitrator without the consent of the appellant and could have made a reference to such arbitrator again without the reference of disputes having been consented to by the appellant.
  • RATIO OF THE COURT
  • According to this court, three types of situations may emerge between the parties and then before the Court. Firstly, an arbitration agreement, under examination from the point of view of its enforceability, may be one which expresses the parties ‘ intention to have their disputes settled by arbitration by using clear and unambiguous language then the parties and the Court have no other choice but to treat the contract as binding and enforce it.
  • Or, there may be an agreement suffering from such vagueness or uncertainty as it not capable of being construed at all by culling out the intention of the parties with certainty, even by reference to the provisions of the Arbitration Act, then it shall have to be held that there was no agreement between the parties in the eye of law and the question of appointing an arbitrator or making a reference or disputes by reference to Sections 8, 9 and 20 shall not arise.
  • Secondly, there may be an arbitrator or arbitrators named, or the authority may be named who shall appoint an arbitrator, then the parties have already been ad idem on the real identity of the arbitrator as appointed by them before hand; the consent is already spelled out and binds the parties and the Court. All that may remain to be done in the event of an occasion arising for the purpose, is to have the agreement filed in the Court and seek an order of reference to the arbitrator appointed by the parties.
  • Thirdly, if the arbitrator is not named and the authority who would appoint the arbitrator is also not specified, the appointment and reference shall be to a sole arbitrator unless a different intention is expressly spelt out. The appointment and reference – both shall be by the consent of the parties. Where the parties do not agree, the Court steps in and assumes jurisdiction to make an appointment, also to make a reference, subject to the jurisdiction of the Court being invoked in that regard.
  • This court added that mere inaction by a party called upon by the other one to act does not lead to an inference as to implied consent or acquiescence being drawn. The appellant not responding to respondent’s proposal for joining in the appointment of a sole arbitrator named by him could not be construed as consent and the only option open to the respondent was to have invoked the jurisdiction of Court for appointment of an arbitrator and an order of reference of disputes to him. It is the Court which only could have compelled the appellant to join in the proceedings.
  • The court held that far from submitting to the jurisdiction of the Arbitrator and conceding to the appointment of and reference to the Arbitrator-Shri Swami Dayal, the appellant did raise an objection to the invalidity of the entire proceedings beginning from the appointment till the giving of the Award though the objection was belated.
  • In the facts and circumstances of the case, this court considered that referring the matter again to the learned Single Judge of the High Court so as to record a finding if the award is a nullity would be a futile exercise resulting in needless waste of public time. On the admitted and undisputed facts, this court held that the impugned Award is a nullity and hence liable to be set aside and that is what we declare and also do hereby, obviating the need for remand.

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  • DECISION HELD BY COURT:
  • The appeal was allowed.
  • The impugned Award given by the Arbitrator along with the unilateral appointment of the Arbitrator and reference made to him were all set aside as void ab initio and nullity.

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