An Award Or Nullity Order Not Challenged Before A Higher Forum Becomes Final And Binding: Supreme Court

A Supreme Court Bench consisting of Justice MR Shah and Justice BV Nagarathna has ruled that an award or a nullity order has to be challenged before the appropriate forum/higher forum, failing which, the same becomes final and binding.

"It is observed that at no point of time the respondent – contractor had challenged the award passed by the Arbitrator– Housing Commissioner and as observed and held hereinabove even no court has set aside the award declared by the Arbitrator – Housing Commissioner dated 07.11.2008 and the same has attained finality," the Bench held.

Therefore, it added, "the same is binding between the parties. Hence, the subsequent fresh reference petition before the learned Arbitral Tribunal under the 1983 Act for the very same claims which were raised before the Arbitrator – Housing Commissioner would not be maintainable at all."

In this case of MP Housing and Infrastructure Development Board and Others Vs. KP Dwivedi the Bench considered the question, "whether, in view of the award declared by the Housing Commissioner, M.P. Housing Board, who was appointed as an arbitrator pursuant to the order passed by the High Court in Writ Petition No.9131 of 2008, was it open for the respondent – contractor thereafter to file a reference before M.P. Arbitration Tribunal with respect to the very claim/claims which were the subject matter of arbitration before the Arbitrator – Housing Commissioner."

Advocate Bharat Singh represented the Appellants while Senior Counsel Kavin Gulati appeared for the Respondent.

Facts of the Case

In this case, by an order dated August 20, 2008, passed with the consent of parties, the High Court had appointed Housing Commissioner of MP Housing Board as the Arbitrator in response to a petition filed by the Respondent against the Appellant in view of the dispute that arose between them in respect to the performance of a contract.

The Respondent filed the claim before the Arbitrator but did not appear before it. The Arbitrator passed an award on November 7, 2008 dismissing the claim. Instead of challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996, the Respondent filed a Reference Petition before the Madhya Pradesh Arbitration Tribunal under Section 7 of the Madhya Pradesh Madhyastham Adhikaran, Vindhyachal, Bhopal (the 1983 Act) making the very claims which were made before the High Court as well as made before the Arbitrator – Housing Commissioner. The Reference Petition didn't mention the proceedings before the High Court and Arbitrator – Housing Commissioner.

On February 27, 2017, the Tribunal dismissed the Reference Petition by holding that it was not maintainable in view of the earlier order passed by the High Court directing the adjudication of the dispute by the Arbitrator – Housing Commissioner. The High Court dismissed the Review Petition filed by the Respondent challenging its order issued in 2008.

Then the Respondent filed a Revision Application challenging the order by the Arbitral Tribunal before the High Court. The High Court set aside the order issued in 2017 and directed the Tribunal to decide the reference on merit. This was challenged before the Supreme Court.

Submissions by the parties

The Appellants submitted that the Respondent did not challenge the award declared by the Arbitrator-Housing Commissioner under Section 34 of the Arbitration Act, 1996. Hence it attained finality. Instead of availing such remedy under Section 34, the fresh claim petition before the Arbitral Tribunal constituted under the 1983 Act is not maintainable. The order passed by the High Court referring the dispute between the parties to the Arbitrator ­ Housing Commissioner was a consent order and the same was as per the relevant arbitration clause in the agreement between the parties. The Review Petition was filed by the Respondent with malafide intention, after a gap of 9 years. A Fresh Reference petition by Respondent is also not maintainable in view of the principle of Issue Estoppel.

On the other side, the Respondent submitted that the 1983 Act is a Special Act providing for statutory and compulsory arbitration under the said Act for disputes pertaining to 'works contract'. Section 7 of the Act provides that either party to a 'works contract' shall irrespective of the fact whether the agreement contains an arbitration clause or not, refer in writing the dispute to the Tribunal.

it was submitted by the Respondent that as per Section 7B of the 1983 Act, no dispute can be referred to the Arbitration Tribunal unless the dispute is first referred for decision of the final authority under the scope of the term 'works contract'. The Special Act of 1983 shall prevail over the Arbitration Act, 1996. Clause-29 of the Agreement contemplates two-stage adjudication by the first by the Deputy Commissioner and second by the Additional Commissioner.

It was further submitted that the Reference was made to the Arbitration Tribunal after the ex-parte award passed by the Housing Commissioner and it was in consonance with Sections 7 and 7B of the 1983 Act read with Clause 29 of the Contract. Assuming that even if the order of the Housing Commissioner dated 07.11.2008 is considered to be under the Arbitration Act, 1996, the same would be non-est as any arbitration relating to 'works contract' in M.P. could only be under the 1983 Act.

Supreme Court's Analysis

The Bench rejected the contentions by holding that the Respondent itself invoked the Arbitration clause, the appointment of Arbitrator- Housing Commissioner was consent order, Respondent submitted the claim before the Arbitrator, the order passed by the Arbitrator attained finality after the Review Petition filed by the Respondent was rejected and that the claims before the Arbitrator – Housing Commissioner and Arbitral Tribunal are the same without any change. The Court found that the Respondent suppressed the facts about the order of the High Court and appointment of Arbitrator – Housing Commissioner before the Arbitral Tribunal. The fact that after the order passed by the High Court, the Respondent participated in the proceedings before the Arbitrator – Housing Commissioner by submitting a claim is binding on the Respondent on the ground of 'issue estoppel'.

The Bench observed that the order declared by the Arbitrator – Housing Commissioner was not challenged by the Respondent. So long as the said award is not challenged before the higher forum the same is binding between the parties.

"Even the award or a nullity order has to be challenged before the appropriate forum/higher forum. In the present case it cannot be said that there was a total lack of jurisdiction of the Arbitrator – Housing Commissioner in passing the award as it was the High Court who passed the order with consent referring to the dispute between the parties for the adjudication to the Arbitrator – Housing Commissioner. Therefore, unless and until it was challenged by the contractor before the higher forum, the respondent – contractor cannot be permitted to ignore and/or to avoid the award passed by the Arbitrator – Housing Commissioner dated 07.11.2008," the Bench observed.

The Court observed that as per Section 19 of the 1983 Act, Revision Application to the High Court shall be maintainable only against the award passed by the Arbitral Tribunal. However, the Tribunal rejected the reference and no award was passed.

"Therefore, prima facie it appears that as such the order passed by the Arbitral Tribunal rejecting the reference petition was not maintainable as by order dated 27.02.2017, no award was passed by the Tribunal. However, as no such objection was raised before the High Court and no submission has been made by the parties, we rest the matter there," the Bench observed.

The Bench further observed that the award passed by the Arbitrator – Housing Commissioner still stands and is binding on the parties. Hence, there cannot be subsequent fresh proceedings with the same claims.

"It is required to be noted that while passing the impugned judgment and order, the High Court has not set aside the award passed by the Arbitrator – Housing Commissioner dated 07.11.2008. Therefore, technically speaking the award passed by the Arbitrator – Housing Commissioner dated 07.11.2008 stands even today. It is binding between the parties," the Bench stated.

The Bench further noted that the Respondent did not object to the jurisdiction of the Arbitrator – Housing Commissioner at the appropriate state and therefore the award can't be annulled.

The Bench allowed the appeals and quashed the order passed by the High Court.

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