- Apprentice Lawyer
- Legal Jobs
An arbitration agreement between the concerned parties is necessary in order to refer a dispute to arbitration. In its absence, the oral consent of counsel representing the parties is not sufficient for a court to refer the dispute to an arbitrator.
Pertinent observations to this effect were made in a judgment passed by the Supreme Court Bench of Justices Ranjan Gogoi and R Banumathi.
The main dispute concerned the dues payable by the Kerala State Electricity Board (KSEB) to a private contractor. Since its emergence in 1983, the dispute was dealt with by the Industrial Tribunal, the Kerala High Court and the Supreme Court at various stages.
In 2009, the Kerala High Court passed its verdict. However, the High Court also referred matters that were not amicably resolved by the parties to an arbitrator, Justice (Retd.) KA Nayar. This was done solely on the consent of the counsel for the parties. This verdict was eventually challenged by the KSEB before the Supreme Court.
The crucial question before the Supreme Court was whether the High Court was right in referring the parties to arbitration on the oral consent given by the counsel without written instruction from the party?
Answering this question in the negative, the Court observed that as per Section 7 of the Arbitration and Conciliation Act, the jurisdictional pre-condition for reference to arbitration is that the parties should seek a reference or submission to arbitration.
As far as civil disputes are concerned, Section 89 of the CPC mandates that a reference of a dispute to arbitration can only be done on agreement between the parties. In this regard, it was noted that oral consent given by the counsel without a written memo of instructions does not fulfil the requirement under Section 89.
Further, it was observed,
“…in the absence of arbitration agreement, the court can refer them to arbitration only with written consent of parties either by way of joint memo or joint application; more so, when government or statutory body like the appellant-Board is involved.“
This view also finds support in the cases of Afcons Infrastructure Ltd. and Anr. v Cherian Varkey Construction Co. (P) Ltd. and Ors. and Shailesh Dhairyawan v Mohan Balkrishna Lulla.
These pre-conditions assume significance in light of the serious consequences that follow when a dispute is taken away from the stream of civil courts. It was noted,
“Referring the parties to arbitration has serious civil consequences. Once the parties are referred to arbitration, the proceedings will be in accordance with the provisions of Arbitration and Conciliation Act and the matter will go outside the stream of the civil court.
Under Section 19 of Arbitration and Conciliation Act, the arbitral tribunal shall not be bound by the Code of Civil Procedure and the Indian Evidence Act. Once the award is passed, the award shall be set aside only under limited grounds.”
On these grounds, the Court found that the High Court had erred in referring the matter to an arbitrator sans written instructions acknowledging an agreement between the parties.
“When there was no arbitration agreement between the parties, without a joint memo or a joint application of the parties, the High Court ought not to have referred the parties to arbitration.”
The Supreme Court proceeded to set aside the Kerala High Court judgement as well as the arbitral award passed pursuant to its directions. The main dispute was disposed of by the Court on merits.
Read the judgment below.