Mere Participation in Arbitration Does Not Confer Jurisdiction Without Arbitration Agreement : Supreme Court
In MS Bharat Udyog Ltd v. Ambernath Municipal Council through Commissioner & Anr., the Supreme Court held that in the absence of a valid arbitration agreement, mere participation in unilaterally invoked arbitral proceedings does not create estoppel or bar a party from challenging the arbitral award as non-est in law. A Bench of Justices P.S. Narasimha and Alok Aradhe upheld the Bombay High Court’s ruling declaring the award a nullity, holding that the arbitrator lacked inherent jurisdiction and that participation alone cannot confer jurisdiction.
The dispute arose from an octroi collection contract between MS Bharat Udyog Ltd and Ambernath Municipal Council for the period from April 1, 1994 to March 31, 1995. After commencement of work, the contractor sought reduction of the minimum reserve price, which the Municipal Council rejected. Instead of following the contractual dispute-resolution mechanism providing for reference to the Collector and appeals to the Divisional Commissioner and State Government, the contractor approached the State Government directly. The State Government then purportedly appointed the Commissioner, Konkan Division, as arbitrator under Section of the Maharashtra Municipal Councils Act, 1965.
The arbitrator proceeded with the matter and passed an award in favour of the contractor, reducing the minimum reserve price. Although the Municipal Council filed a reply, it never consented to arbitration. When the contractor sought to make the award a rule of court, the Council objected to jurisdiction. The High Court set aside the civil court’s decision to draw up a decree, holding that the clause in the contract was only a departmental dispute-resolution mechanism and not a valid arbitration agreement under arbitration law.
Affirming that view, the Supreme Court held that there was no estoppel against the Municipal Council merely because it had initially participated in the proceedings, especially when it had consistently challenged the arbitrator’s jurisdiction before the civil court and the High Court. The Court observed that, in the absence of an arbitration agreement, the proceedings were coram non judice, the award was non-est, and the entire arbitration was void. The appeal was accordingly dismissed.