M/s Bharat Udyog ltd. ( Formerly known as M/s Jai Hind Contractors Pvt. Ltd.) vs. Ambernath Municipal Council & Anr., the Hon’ble Supreme Court of India has held that mere participation in arbitral proceedings does not stop a party from challenging the inherent lack of jurisdiction of the arbitral tribunal in the absence of a valid arbitration agreement.
The dispute arose from an octroi collection contract executed between the Petitioner and Respondent , Ambernath Municipal Council.
Upon disputes arising between the parties, instead of invoking the dispute resolution mechanism stipulated in the contract, the Petitioner approached the State government directly and accordingly the State Government purported to appoint an arbitrator unilaterally.
Pursuant thereto, arbitral proceedings were conducted and an award was passed in favour of the appellant. The respondent Municipal Council participated in the proceedings and filed its reply, however, it did not consent to arbitration.
Subsequently, the respondent challenged the arbitral award on the ground that there existed no arbitration agreement between the parties and that the arbitrator lacked jurisdiction. Ld. Civil court directed the drawing up of a decree in terms of the award. Aggrieved thereby, the respondent approached the Hon’ble Bombay High Court.
The Hon’ble High Court held that the dispute resolution clause did not constitute a valid arbitration agreement and that the arbitral proceedings were without jurisdiction. The arbitral award was accordingly set aside.
Aggrieved thereby, the appellant approached the Hon’ble Supreme Court of India.
The Hon’ble Supreme Court of India examined the issue and observed as follows:
In the absence of a valid arbitration agreement, the arbitral tribunal lacks inherent jurisdiction to adjudicate disputes.
Mere participation in arbitral proceedings does not confer jurisdiction upon the arbitrator.
There can be no estoppel against a party in challenging proceedings which are a nullity in law.
An arbitral award passed without jurisdiction is a nullity in law and unenforceable.
Consent of parties is a foundational requirement for a valid arbitration agreement and cannot be inferred solely from participation.
The Hon’ble Court further observed that where Ld Arbitral tribunal lacks inherent jurisdiction, the entire proceedings are rendered a nullity.
Accordingly, the Hon’ble Supreme Court of India dismissed the appeal and affirmed the judgment of the Hon’ble High Court setting aside the arbitral award.
The judgment reiterates that in the absence of a valid arbitration agreement, arbitral proceedings are without jurisdiction and mere participation does not preclude a party from raising such a challenge.
