| The Appellant executed three main agreements
for sale of flats and also three other separate Agreements (hereinafter
called the Interior Design Agreements) with the Respondents.
Later, disputes and differences arose between them in respect
of these agreements. The Respondents issued a notice to the
Appellant for referring their disputes for arbitration to one
out of three retried Judges suggested by them. As the Appellant
failed to reply agreeing for arbitration, the Respondents moved
the Court for interim protection before filing a regular petition
under Section 11 of the Act of 1996 for appointment of an Arbitrator.
A retired Chief Justice of Bombay High Court was appointed as
Sole Arbitrator to adjudicate the dispute. The Respondents filed
their claim before the Arbitrator but the Appellants took several
adjournments. The Arbitrator took up the matter for evidence
and thereafter passed the award granting relief of specific
performance in respect of the three main Agreements and also
in respect of the three Interior Design Agreements.
The Appellant challenged the three awards under Section 34
of the Act of 1996 by filing three applications which were
dismissed by a single Judge and later by a Division Bench
of the Bombay High Court. It is against these Judgements the
present appeals have been field.
The Appellant contended that reference to arbitration was
based on the three main agreements and therefore the Arbitrator
could not have decided the disputes regarding the other three
Interior Design Agreements; the arbitration clauses in the
main agreements could not supersede the separate arbitration
clauses under the Interior Design Agreements which provided
for named Arbitrators; an Arbitrator could not grant specific
performance of an agreement and hence Section 34 (2) (b) (i)
of the Act of 1996 was attracted; the Respondents committed
default in payment of the agreed amounts in respect of the
three main agreements and therefore termination of the contract
was valid and the Respondents should be directed to pay interest
on the balance amount at a rate of 21% .
The Respondents contended that under the arbitration clause
in the main agreement, it was permissible to refer to the
arbitrator not only disputes and differences under the main
agreement but also in respect of “connected matters”;
the Appellant never raised any objection relating to jurisdiction
under Section 16 of the Act of 1996 that the Arbitrator could
not decide the dispute concerning the Interior Design Agreements
and that objection was not raised even before the learned
Single Judge of the Bombay High Court; for the first time
the objection was raised before the Division Bench of the
Bombay High Court; these objections could not be raised after
the passing of the award; an Arbitrator could grant specific
performance of an agreement of sale; it was prayed that the
appeals be dismissed.
The Supreme Court observed that the Appellants filed their
written statement but no objection was raised that the disputes
and differences contained in the three Interior Design Agreements
were not intended to be referred to the arbitrator or that
the same could not be decided by the Arbitrator appointed
under the main agreements. The Appellants counsel had cross-examined
the Respondents’ witnesses upto a stage and even then
no such objection as to scope of reference was raised. The
Arbitrator referred in his award to the sole contention of
the Appellant before him was that the Interior Design Agreements,
were void inasmuch as no amount was paid at the time of the
agreements, though Rs10 lakhs each was agreed to be paid.
No dispute as to the power of the Arbitrator to deal with
the disputes under the Interior Design Agreements was raised,
which meant that the Appellant accepted that the disputes
under the Interior Design Agreements were also covered by
the reference. In the objections to the award filed in the
Court under Section 34 of the Act of 1996 no such point was
raised except a general ground that entire proceedings of
arbitration were illegal, bad in law and that the award was
liable to be set aside. Even before the Single Judge the above
mentioned objections were not raised by the Appellant. For
the first time, the point relating to the scope of reference
was raised before the Division Bench and the same was rejected.
The Supreme Court observed that it agreed with the Respondent’s
contention that if the parties before the arbitrator had any
objection to the Arbitrator’s jurisdiction the same
should have been raised before the Arbitrator as provided
in Sub-Sections (2) and (3) of Section 16 of the Act of 1996.
Sub-Section (5) of Section 16 requires the Arbitral Tribunal
to decide on the plea referred to in Sub-Section (2) or (3)
at that stage itself and if the pleas are rejected by the
Arbitral Tribunal, it will continue with the arbitral proceedings
and make the arbitral award. The party aggrieved by such an
arbitral award may make an application to set aside the arbitral
award under Section 34 of the Act of 1996.
The learned Judges observed that clause 39 of the main agreement
permits reference to arbitration not only of issues arising
under the main agreement but also those disputes or differences
which are “connected” with the disputes under
the main agreement. There were several items in Schedule E
of the main agreement which overlapped with items in schedule
A of the Interior Design Agreement. The date of main agreement
and Interior Design Agreement is the same and clause 3 of
the Interior Design Agreement states specifically that “the
work of the said renovation, designing and installation shall
commence from the execution thereof” which means that
the execution of the Interior Design Agreement and the main
agreement is to be simultaneous.
If there is a situation where there are no disputes arising
from the main agreement but there are disputes arising from
the Interior Design Agreement, only then the arbitration
clause 5 of the Interior Design Agreement comes into play.
Whereas, in the present case, there are disputes in respect
of the main agreement as well as the Interior Design Agreement.
Hence, under clause 39 of the main agreement arbitration can
take place to cover the disputes of the main agreement as
well as the Interior Design Agreement.
On the point, whether disputes relating to specific performance
of a contract can be referred to arbitration, the Supreme
Court observed that the right to specific performance deals
with contractual rights and it is certainly open to the parties
to agree - with a view
to shorten litigation in regular courts – to refer the
issues relating to specific performance to arbitration. There
is no prohibition in the Specific Relief Act, 1963 that issues
relating to specific performance of contract relating to immovable
property cannot be referred to arbitration. Nor is there such
a prohibition in the Act of 1996. The factual points in the
present case do not fall under Section 34 (2) (b) of the Act
of 1996, i.e.
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