1994 Arbitration Reference, 2021 Award, Becomes Rule Of The Court Under Arbitration Act, 1940 In 2022

The Delhi High Court had made the arbitration reference way back in 1994, but the arbitral proceedings took an inordinately long time to complete with the constitution of the Arbitral Tribunal being changed a number of times and finally the award was passed in the year 2021. And finally, the Single Bench of Justice Vibhu Bakhru has made the arbitral award the rule of the Court as per the requirement of Arbitration Act, 1940.

The Northern Railways invited a tender for execution of work in 1992. The petitioner Mahavir Prasad Gupta submitted its bid pursuant to the tender notice. The petitioner's bid was accepted by a Letter of Acceptance and the contract for executing the work was awarded to it. Thereafter, the work was completed by the petitioner within the stipulated period, however Northern Railways failed to clear the entire dues of the petitioner. The petitioner invoked the arbitration agreement and sought reference of the dispute to arbitration. Thereafter, the petitioner filed an application under Section 20 of the Arbitration Act, 1940 seeking reference of the dispute to arbitration and for appointment of an Arbitrator which was allowed by the High Court.

The Arbitral Tribunal awarded a sum to the petitioner against its claim of short payment along with interest on the awarded amount till the date of Award. The petitioner filed a petition under Sections 14 and 17 of the Arbitration Act, 1940 before the Delhi High Court praying that the Arbitrator be directed to file the original award and that a judgment be rendered in terms of the Award under Section 17 of the Arbitration Act.

After the Delhi High Court had directed the Arbitrator to file the Award, the Respondent Union of India filed an interim application seeking dismissal of the petition and raised objections to the Award rendered by the Arbitral Tribunal.

The Counsel for the Respondent Union of India submitted before the Delhi High Court that the Court did not have the jurisdiction to entertain the petition as the value of the dispute as well as the awarded claims were below the threshold of pecuniary jurisdiction of the Court. The Counsel for the petitioner submitted that the provisions of the Arbitration Act, 1940 were materially different from the provisions of the Arbitration and Conciliation Act, 1996, and that by virtue of Section 31(4) of the Arbitration Act, 1940 the Court would have the jurisdiction to entertain the petition.

Section 31 (4) of the Arbitration Act, 1940 provides that where in any reference any application under the Act has been made in a Court competent to entertain it, that Court alone shall have jurisdiction over the arbitration proceedings, and all subsequent applications arising out of that reference and the arbitration proceedings shall be made in that Court and in no other Court.

The High Court ruled that Section 31(4) of the Arbitration Act contains a non obstante provision and expressly provides that notwithstanding anything contained in the Arbitration Act, where any application has been made under the Act before a competent court, the said court alone would have the jurisdiction in respect of the arbitration proceedings and all subsequent applications arising out of the reference.

The Court noted that the petitioner had previously filed an application under Section 20 of the Arbitration Act seeking reference of the dispute to Arbitration which was allowed by the High Court.

The Court observed that Section 20 (4) of the Arbitration Act expressly provides that the court shall make an order of reference to the arbitrator appointed by the parties or to an arbitrator appointed by the Court. Thus, the Court ruled that the scope of Section 20 of the Arbitration Act is not limited to appointment of an Arbitrator alone but also extends to making a reference of dispute to arbitration.

Therefore, the Court ruled that the order made by the High Court referring the dispute to arbitration could not be interpreted as an order merely appointing an Arbitrator, and that such an order was an 'order in reference' as contemplated under Section 31(4) of the Arbitration Act.

The High Court held that since the Court had jurisdiction to entertain petitioner's application under Section 20 of the Arbitration Act seeking reference of dispute to Arbitration, hence the Court would have the jurisdiction to entertain the petition in view of Section 31(4) of the Arbitration Act.

The High Court ruled that there is a difference in the scheme of the Arbitration Act, 1940 and the Arbitration and Conciliation Act, 1996 (A&C Act), and the scope of appointment of Arbitrator by the Court under the two Acts is materially different. The Court held that although Section 42 of the A&C Act is pari materia to Section 31(4) of the Arbitration Act, 1940, an order under Section 11 of the A&C Act for appointment of an arbitrator would not attract the provisions of Section 42 of the A&C Act. The Court added that the scope of examination under Section 11 of the A&C Act is restricted to the existence of an Arbitration Agreement.

"There is a difference in the Scheme of the Arbitration Act and the A&C Act. Although Section 42 of the A&C Act is pari materia to Section 31(4) of the Arbitration Act, the scope of appointment of an Arbitrator by a Court is materially different. Under Section 11 of the A&C Act, the scope of examination is restricted to the existence of an Arbitration Agreement. This Court does not make an order of reference as contemplated under Section 20(4) of the Arbitration Act. Clearly, an order under Section 11 of the A&C Act would not attract the provisions of Section 42 of the A&C Act as held by the Supreme Court in State of West Bengal & Ors. v. Associated Contractors (supra)."

The High Court thus allowed the petition of the petitioner and made the arbitral award the rule of the Court.

Case Title: Mahavir Prasad Gupta versus Union of India & Anr.

Citation: 2022 LiveLaw (Del) 280

Dated: 23.02.2022 (Delhi High Court)

Counsel for the Petitioner: Mr Vivekanand, Advocate

Counsel for the Respondent: Mr Ashok Singh, Advocate

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