In, Babanrao Rajaram Pund vs M/s. Samarth Builders & Developers & Anr., SC held that, arbitration clause need not be penned down in any specific form. The High Court was thus not justified in holding that Clause 18 of the Development Agreement did not meet the essential criteria of a valid arbitration clause.
Facts
The Appellant & Respondent No. 1, entered into a ‘Development Agreement’ for the development of appellant property. The agreement stipulated that respondent shall construct the apartment within a period of 15 months. However respondent dialed to complete the development work within stipulated time. The appellant served respondent with legal notice. At this juncture Clause 18 of the arbitration agreement purported to be an ‘arbitration clause’. Thereafter appellant invoked the arbitration clause and issue notice to respondent for referral of the dispute to Mr Shyan Rajale as sole arbitrator. Though the notice was duly served, the Respondents failed to respond to it. This led the Appellant to file an application under section 11 of the Act before the High Court. The High Court came to conclusion that clause 18 lacks essential ingredients of a valid agreement. It does not mandate the decision of the arbitrator as final.
Aggrieved by the same, appellant filed the present appeal before SC raising question , whether Clause 18 of the Development Agreement dated 29.05.2014 possessesthe necessary ingredients to constitute a legal and valid arbitration agreement?
Contention Made
Appellant: 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.
Further, the clause clearly mentions that “all the disputes or differences arising between the parties” are to be referred to arbitration of a Sole Arbitrator mutually appointed, failing which the dispute shall be referred to a tribunal consisting of three arbitrators.
Court Observation
The Division Bench of Supreme Court of India while dealing with question of whether Clause 18 constitutes a valid arbitration clause for the purpose of invoking powers under Section 11 of the Act?, observed that;
Firstly, apart from the fact that Clause 18 of the Development Agreement uses the terms “Arbitration” and “Arbitrator(s)”, it has clearly enunciated the mandatory nature of reference to arbitration by using the term “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”.
Secondly, the method of appointing the third arbitrator has also been clearly mentioned
Finally, even the governing law was chosen by the parties to be “the Arbitration and Conciliation Act, 1996 or any reenactment thereof.”
Court Judgment
SC held 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.
Further Sc held that, We find that 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.
Case: Babanrao Rajaram Pund vs M/s. Samarth Builders & Developers & Anr.
Citation: CIVIL APPEAL NO. ____ OF 2022 [ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.15989 OF 2021]
Bench: Justice Surya Kant & Justice Abhay S. Oka
Decided: 7th September 2022.
Read Judgment @Latestlaws.com
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