Arbitration and Conciliation Act, 1996: s.11 – Arbitration Clause in agreement – Respondent No.1 is a developer engaged in the business of construction and development of buildings – Appellant and respondent No. 1 entered into a ‘Development Agreement’ and pursuant thereto appellant also executed a General Power of Attorney (GPA), in favour of Respondent No. 1 – Failure on part of respondent No. 1 to complete the development works within the stipulated time – Appellant served respondents with legal notice communicating his desire to terminate the Development Agreement and cancel the GPA as the stipulated period had already lapsed – This gave rise to disputes and differences between the parties – Appellant invoked arbitration clause in the ‘Development Agreement’ and issued a notice to the respondents regarding referral of the dispute to the sole arbitrator – Respondents failed to respond to it – Appellant filed application u/s.11 of the Act before the High Court – Respondents claimed that the contract lacked the express wording necessary for it to be considered a valid and binding agreement to refer the disputes to arbitration – High Court accepted the contention of respondents and dismissed application as not maintainable – Hence instant appeal – Held: High Court fell in error in holding that application u/s.11 was not maintainable for want of a valid arbitration clause – Clause 18 luminously disclosed the intention and obligation of the parties to be bound by the decision of the tribunal, even though the words “final and binding” were not expressly incorporated therein – The parties evinced clear intention to refer the dispute to arbitration and abide by the decision of the tribunal, therefore the party autonomy deserves to be protected – The deficiency of words in agreement which otherwise fortifies the intention of the parties to arbitrate their disputes, cannot legitimise the annulment of arbitration clause – Clause 18, contemplates a binding reference to arbitration between the parties and it ought to have been given full effect by the High Court – Maharashtra Apartment Ownership Act, 1970 – s.2. Allowing the appeal, the Court
HELD: 1. It is a settled proposition of law that the existence of a valid arbitration agreement under Section 7 of the Act is sine qua non for a court to exercise its powers to appoint an arbitrator/arbitral tribunal under Section 11 of the Act. [Para 13][157-D]
2. Clause 18 luminously discloses the intention and obligation of the parties to be bound by the decision of the tribunal, even though the words “final and binding” are not expressly incorporated therein. It can be gleaned from other parts of the arbitration agreement that the intention of the parties was surely to refer the disputes to arbitration. In the absence of specific exclusion of any of the attributes of an arbitration agreement, the Respondents’ plea of non- existence of a valid arbitration clause, is seemingly an afterthought. [Para 23][162-A-C]
3. Even if this Court were to assume that the subject-clause lacks certain essential characteristics of arbitration like “final and binding” nature of the award, the parties have evinced clear intention to refer the dispute to arbitration and abide by the decision of the tribunal. The party autonomy to this effect, therefore, deserves to be protected. The deficiency of words in agreement which otherwise fortifies the intention of the parties to arbitrate their disputes, cannot legitimise the annulment of arbitration clause. [Paras 24 & 25][162-C-D]
4. It is thus imperative upon the courts to give greater emphasis to the substance of the clause, predicated upon the evident intent and objectives of the parties to choose a specific form of dispute resolution to manage conflicts between them. The intention of the parties that flows from the substance of the Agreement to resolve their dispute by arbitration are to be given due weightage. It is crystal clear to this Court that Clause 18, in this case, contemplates a binding reference to arbitration between the parties and it ought to have been given full effect by the High Court. Clause 18 of the Development Agreement is held to be a valid arbitration clause. A former Judge of the Bombay High Court is appointed as the Sole Arbitrator to resolve all disputes/differences between the parties.[Paras 28-30][163-D-H]
Enercon (India) Ltd. and Ors. v. Enercon Gmbh and Anr. (2014) 5 SCC 1 : [2014] 2 SCR 855 – followed. Bihar State Mineral Development Corporation and Anr. v. Encon Builders (I) (P) Ltd. (2003) 7 SCC 418 : [2003]
2 Suppl. SCR 812; Jagdish Chander v. Ramesh Chander & Ors. (2007) 5 SCC 719 : [2007] 5 SCR 720; K. K. Modi v. K. N. Modi and Ors. (1998) 3 SCC 573 : [1998]
1 SCR 601 – distinguished.
Rukmanibai Gupta v. Collector, Jabalpur and Ors. (1980) 4 SCC 556 – relied on.
Karnataka Power Transmission Corporation Ltd. and Anr. v. Deepak Cables (India) Ltd. (2014) 11 SCC 148 : [2014] 4 SCR 771 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.