1. Development agreement for apartment construction — Dispute over completion and termination — Application under Section 11, Arbitration and Conciliation Act, 1996 — Validity of arbitration clause. (Para 2 , 3 , 4 , 5 , 6 , 7 , 9 )
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2022 Supreme(SC) 894
SUPREME COURT OF INDIA
Surya Kant, Abhay S. Oka, JJ.
Babanrao Rajaram Pund - Appellant
Versus
M/s. Samarth Builders & Developers & Anr. - Respondents
Civil Appeal No. 6272 of 2022 [Arising Out Of Special Leave Petition (Civil) No.15989 OF 2021]
Decided On : 07-09-2022
Important Points
IMPORTANT POINT
Existence of a valid arbitration agreement is sine-qua-non for Court to exercise its powers to appoint Arbitrator/Arbitral Tribunal – Deficiency of words in agreement which otherwise fortifies intention of parties to arbitrate their disputes, cannot legitimise annulment of arbitration clause.
Existence of a valid arbitration agreement is sine-qua-non for Court to exercise its powers to appoint Arbitrator/Arbitral Tribunal – Deficiency of words in agreement which otherwise fortifies intention of parties to arbitrate their disputes, cannot legitimise annulment of arbitration clause.
Subject
Arbitration Law - Validity of Arbitration Agreement
Act Referred
Headnote
(A) Arbitration and Conciliation Act, 1996 – Sections 11 and 7 – Appointment of Arbitrator – Dispute arising from Development Agreement – Existence of a valid arbitration agreement under Section 7 of Act is sine-qua-non for Court to exercise its powers to appoint Arbitrator/Arbitral Tribunal under Section 11 of Act – Section 7 of Act does not mandate any particular form for arbitration clause – Deficiency of words in agreement which otherwise fortifies intention of parties to arbitrate their disputes, cannot legitimise annulment of arbitration clause – Intention of parties was surely to refer disputes to arbitration – In absence of specific exclusion of any of attributes of arbitration agreement, respondents’ plea of non-existence of a valid arbitration clause, is seemingly an afterthought – High Court fell in error in holding that Appellant’s application under Section 11 was not maintainable for want of valid arbitration clause – In absence of specific exclusion of any of attributes of arbitration agreement, Respondents’ plea of non-existence of valid arbitration clause, is afterthought. (Paras 13, 15, 23 and 25)
(B) Civil Procedure Code, 1908 – Section 89 – Arbitration and Conciliation Act, 1996 – Section 11 – Alternate Dispute Resolution – UNCITRAL Model Law on International Commercial Arbitration, 1985 from which the Arbitration and Conciliation Act, 1996 originated, envisages minimal supervisory role by courts – It is bounden duty of parties to abide by terms of contract as they are sacrosanct in nature, in addition to agreement itself being a statement of commitment made by them at the time of signing contract – Parties entered into contract after knowing full import of arbitration clause and they cannot be permitted to deviate therefrom – It is imperative upon Courts to give greater emphasis to substance of clause, predicated upon evident intent and objectives of parties to choose a specific form of dispute resolution to manage conflicts between them. (Paras 26, 27 and 28)
Facts of the case:
Bone of contention in the instant proceedings is whether Clause 18 of the Development Agreement dated 29.05.2014 possesses necessary ingredients to constitute a legal and valid arbitration agreement? The genesis of the dispute lies in the aforesaid agreement executed between the parties for construction of an apartment.
Findings of Court:
Clause 18 of Development Agreement is held to be a valid arbitration clause. Consequently, the impugned judgment and order dated 07.07.2021 passed by the High Court of Judicature of Bombay at Aurangabad is set aside.
Result : Civil Appeal allowed.
Legal Category Hierarchy
Advocates appeared:
For the Appellant(s) Mr. Sudhanshu S. Choudhari, Adv. Mr. Mahesh Prakash Shinde, Mr. Vatsalya Vigya, AOR
For the Appellant(s) Mr. Sudhanshu S. Choudhari, Adv. Mr. Mahesh Prakash Shinde, Mr. Vatsalya Vigya, AOR
Table of Contents
2. Whether an arbitration clause is invalid for lacking express wording that the parties agree to be bound by the arbitral tribunal's decision. (Para 8 , 11 , 12 )
3. The court emphasized a pragmatic approach over a pedantic one, finding that mandatory language and reference to the 1996 Act manifest a clear intention to arbitrate. (Para 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 )
4. A valid arbitration agreement requires a clear intention to refer disputes to arbitration; absence of specific phrases like final and binding does not invalidate the agreement. (Para 15 , 23 , 24 , 25 , 28 )
5. Appeal allowed — Arbitration clause held valid — High Court order set aside — Sole Arbitrator appointed to resolve disputes. (Para 29 , 30 , 31 )
6. Does an arbitration agreement need to follow a specific format to be valid under the Arbitration and Conciliation Act, 1996?
No, Section 7 of the Act does not mandate any particular form. The primary requirement is to ascertain whether the parties agreed that disputes regarding the subject matter should be referred to arbitration. (Para 14 , 15 )
7. Is the absence of the phrase final and binding fatal to the validity of an arbitration clause?
No. If the clause luminously discloses the intention and obligation of the parties to refer disputes to arbitration, it remains valid even if the words final and binding are not expressly incorporated. (Para 23 , 24 )
8. How should courts interpret seemingly unworkable or deficient arbitration clauses?
Courts must adopt a pragmatic and common-sense approach rather than a pedantic or legalistic one. They should make the clause workable within permissible legal limits to give effect to the parties' intention to arbitrate. (Para 25 )
9. What are the essential attributes of a valid arbitration agreement?
Key attributes include the contemplation that the tribunal's decision will be binding, jurisdiction derived from consent or statute, determination of substantive rights in an impartial manner, and an intention for the agreement to be enforceable in law. (Para 16 )
JUDGMENT :
Surya Kant, J.
1. Leave granted.
2. The bone of contention in the instant proceedings is whether Clause 18 of the Development Agreement dated 29.05.2014 possesses the necessary ingredients to constitute a legal and valid arbitration agreement? The genesis of the dispute lies in the aforesaid agreement executed between the parties for construction of an apartment complex called “Amay Apartments”. The construction was to be carried out by Respondent No.1 partnership firm on the land owned by the Appellant. Respondent No. 2 is the partner of Respondent No. 1 partnership firm.
Factual Background:
3. The Appellant owns and possesses the land bearing Plot Nos. 13 & 14, measuring 4000 sq. ft situated in Village Deolai, District Aurangabad, Maharashtra. Appellant harbored a desire to develop the said property through the construction of residential and commercial complexes. Respondent No.1 is a developer engaged in the business of construction and development of residential and commercial buildings. When it came to know that the Appellant wished to develop his property, the First Respondent approached the Appellant and offered to develop the site. The Appellant and Respondent No. 1, thus, entered into a ‘Development Agreement’ and pursuant thereto the Appellant also executed a General Power of Attorney (GPA), in favour of Respondent No. 1.
4. The Agreement stipulated that the First Respondent shall construct “Amay Apartments” within a period of 15 months which was extendable, incumbent on payment of a penalty amount. Respondent No. 1 agreed to hand over the constructed area to the extent of 45% to the Appellant on or before the completion of the period of 15 months, and to retain the remaining 55% of the developed portion. The Parties also entered into a Deed of Declaration under Section 2 of the Maharashtra Apartment Ownership Act, 1970 which was registered on 20.10.2015 for the purposes of retaining the facilities, amenities, common spaces, and to specify the portions of the developed property. Respondent No. 1, however, failed to complete the development works within the stipulated time of 15 months. The Appellant served Respondents with a Legal Notice on 11.07.2016, 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. In addition to this, the Appellant issued a publication in the newspaper dated 11.07.2016 informing the general public that he had terminated the Agreement as well as the GPA. Respondents in their reply to the Legal Notice controverted the contents of the Notice. This gave rise to disputes and differences between the parties.
5. It is pertinent to mention at this juncture that Clause 18 of the Development Agreement, purported to be an ‘arbitration clause’, reads as follows:
“18. All the disputes or differences arising between the parties hereto as to the interpretation of this Agreement or any covenants or conditions thereof or as to the rights, duties, or liabilities of any part hereunder or as to any act, matter, or thing arising out of or relating to or under this Agreement (even though the Agreement may have been terminated), the same shall be referred to arbitration of a Sole Arbitrator mutually appointed, failing which, two Arbitrators, one to be appointed by each party to dispute or difference and these two Arbitrators will appoint a third Arbitrator and the Arbitration shall be governed by the Arbitration and Conciliation Act, 1996 or any reenactment thereof.”
6. The Appellant in the interregnum, sought an injunction under section 9 of the Arbitration and Conciliation Act, 1996 (the Act) in M.A..R.J.I No. 285 of 2016 and the District Court at Aurangabad vide order dated 30.09.2016, restrained Respondent No. 1 from selling any tenements on the developed property till further orders.
7. Thereafter, the Appellant invoked the arbitration clause in the Development Agreement on 07.11.2016 an
