Arbitration clause has to be given effect even if it does not expressly state the decision of the arbitrator will be final and binding on the parties: Supreme Court
The Supreme Court ruled that the arbitration clause has to be given effect even if it does not expressly state the decision of the arbitrator will be final and binding on the parties.
Background
The Appellant owns and possesses the land in Village Deolai, District Aurangabad, Maharashtra. Appellant harbored a desire to develop the said property through the construction of residential and commercial complexes. The Respondent approached the Appellant and offered to develop the site. The Appellant and Respondent, thus, entered into a ‘Development Agreement’ and pursuant thereto the Appellant also executed a General Power of Attorney (GPA), in favour of Respondent.
The Agreement stipulated that the Respondent shall construct “Amay Apartments” within a period of 15 months which was extendable, incumbent on payment of a penalty amount.
Respondent, however, failed to complete the development works within the stipulated time of 15 months. The Appellant served Respondents with a Legal Notice, communicating his desire to terminate the Development Agreement and cancel the GPA as the period of 15 months along with the extendable period of 3 months had already lapsed.
Arguments
The counsel for the Appellant urged that Clause 18 crystallises the intention of the parties to refer disputes between them to arbitration and to be bound by the decision of the arbitrator.
The counsel submitted that the High Court had failed to read into the intention of the parties and erroneously drew an inference contrary to the spirit and object of Clause 18 of the agreement.
He contended that there is no alternative provided in the agreement other than the arbitration for the purpose of resolution of the disputes.
Decision
The division bench of Justice Surya Kant and Justice Abhay S. Oka stated that 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 Arbitration and Conciliation Act, 1996.
The bench noted that section 7 of the Act, does not mandate any particular form for the arbitration clause.
The court opined that the High Court fell in error in holding that the Appellant’s application under section 11 was not maintainable for want of a valid arbitration clause.
The court found that the 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.
“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” the court added.
The court held the Clause 18 of the Development Agreement, a valid arbitration clause.
Case title: Babanrao Rajaram Pund v/s M/s. Samarth Builders & Developers & Anr.
Citation: SPECIAL LEAVE PETITION (CIVIL) NO.15989 OF 2021
