Case Note & Summary
The dispute arose from an arbitration award rendered in favour of the appellant, Dodsal Private Limited, against the respondent, Delhi Electric Supply Undertaking of the Municipal Corporation. The respondent had appointed one of the two arbitrators, Shri K.L. Vijh, but after the award went against it, raised an objection that the underlying contract was void, and therefore the arbitration agreement contained therein was also void, depriving the arbitrators of jurisdiction. The High Court accepted this contention, holding that the contract was void due to violation of Sections 201 and 203 of the Delhi Municipal Corporation Act read with Bye-law 3(1)(a). The Supreme Court, while observing that the respondent's stand appeared inequitable, identified several fundamental questions of law that remained unsettled. The respondent argued, through Dr. Singhvi, that the contract being void, the arbitration agreement fell with it, and that acquiescence or appearance before the arbitrators could not cure the lack of jurisdiction, relying on the Constitution Bench decision in Waverley Jute Mills Co. Ltd. v. Raymon and Co. (India) Pvt. Ltd., which held that an arbitration agreement is the very foundation of the arbitrators' jurisdiction and consent cannot confer jurisdiction. The Court noted that Waverley Jute Mills did not examine the distinction between void and voidable contracts, the waiver of mandatory provisions, or the separability of arbitration agreements. It referred to Administrative Law by Wade and Forsyth and decisions in Ridae v. Baldwin and Anisminic Ltd. to highlight that even ultra vires action might be merely voidable. It also referred to Krishan Lal v. State of J & K, where it was held that even a mandatory provision can be waived if it is intended for the benefit of the concerned person, but not if it serves an important purpose. The Court further pointed out that Section 4 of the Arbitration and Conciliation Ordinance, 1996, provides for deemed waiver of a right to object if a party proceeds with arbitration without stating its objection without undue delay, and Section 7(2) of that Ordinance recognizes a separate arbitration agreement, which could support an implied agreement arising from the respondent's appointment of an arbitrator. In view of these questions and the fact that Waverley Jute Mills was a decision by a Constitution Bench, the Supreme Court did not decide the issues but instead referred the matter to a 5-Judge Constitution Bench to determine whether a party in the respondent's position could raise lack of jurisdiction after having appointed an arbitrator and participated in the proceedings, thereby denying the fruits of a long-fought arbitration. The Registry was directed to place the papers before the Hon'ble Chief Justice of India for constituting an appropriate bench.
Headnote
A) Arbitration - Jurisdiction of Arbitrator - Consent Cannot Confer Jurisdiction - Not mentioned - The respondent challenged the arbitration award by alleging that the contract containing the arbitration agreement was void, thereby ousting the arbitrators' jurisdiction; the Court noted that a Constitution Bench in Waverley Jute Mills held that absence of an arbitration agreement is not cured by appearance or acquiescence - Held, the matter required consideration by a larger bench because respondent itself appointed one arbitrator and then raised jurisdictional objection (Paras 1-3, 8). B) Contract Law - Void versus Voidable Contract - Violation of Statutory Provisions - Delhi Municipal Corporation Act, 1957, Sections 201 and 203 read with Bye-law 3(1)(a) - The High Court accepted the contention that the contract was void due to violation of these provisions; the Court referred to Administrative Law by Wade and Forsyth, Ridae v. Baldwin and Anisminic Ltd. to examine whether ultra vires action may be merely voidable rather than void - Held, the question whether the contract was void or voidable remained open and was referred to a 5-Judge Bench (Paras 2, 5). C) Waiver - Waiver of Mandatory Provisions - Mandatory Provision Can Be Waived if For Benefit of Person - Not mentioned - The Court referred to Krishan Lal v. State of J & K, which held that even a mandatory provision can be waived if intended for the benefit of the concerned person, but not if it serves an important purpose - Held, this principle needed examination in the context of the respondent's participation in arbitration despite alleging invalidity of the contract (Para 5). D) Arbitration - Arbitration Agreement - Separability and Implied Agreement - Arbitration and Conciliation Ordinance, 1996, Section 7(2) - The Court noted that the respondent had appointed one arbitrator in writing, which raised the question whether this constituted an implied agreement to refer disputes to arbitration independent of the main contract; Section 7(2) recognizes a separate agreement also - Held, the question whether an arbitration agreement can be read de hors the contract was referred to a larger bench (Para 7). E) Arbitration - Waiver of Right to Object - Deemed Waiver by Proceeding Without Objection - Arbitration and Conciliation Ordinance, 1996, Section 4 - Section 4 provides that a party who proceeds with arbitration without stating objection without undue delay shall be deemed to have waived the right to object; the Court highlighted this provision as relevant to respondent's conduct - Held, the effect of this provision on the jurisdictional challenge was included in the reference to the Constitution Bench (Para 6).
Issue of Consideration
Whether the contract was void or voidable due to alleged violation of Sections 201 and 203 of the Delhi Municipal Corporation Act read with Bye-law 3(1)(a); whether a mandatory provision cannot at all be waived; whether an arbitration agreement can be read de hors the main contract; whether appointment of an arbitrator by a party in writing constitutes an implied agreement to refer disputes to arbitration; whether a party who appointed an arbitrator and participated can later raise lack of jurisdiction
Final Decision
Supreme Court did not decide merits; referred matter to 5-Judge Constitution Bench to examine whether a party who appointed an arbitrator and participated can raise lack of jurisdiction after award, considering void/voidable, waiver, and separability; Registry directed to place papers before Chief Justice of India.
Law Points
- Arbitration agreement is the foundation of arbitrator's jurisdiction
- consent cannot confer jurisdiction
- mandatory provision can be waived if intended for the benefit of a party
- arbitration agreement may be separable from the main contract and implied from appointment of arbitrator
- Section 4 of Arbitration and Conciliation Ordinance
- 1996 deems waiver of objection
- Section 7(2) recognizes a separate agreement
