‘Existence’ Of Arbitration Agreement Is A Prerequisite For An Award To Be Enforceable In The Eyes Of Law: Supreme Court

The Appeal before the Apex Court arose from an order passed by a Division Bench of the Allahabad High Court in a First Appeal.

The 3-Judge Bench comprising Chief Justice Sanjiv Khanna, Justice Sanjay Kumar and Justice R. Mahadevan said, “An arbitration agreement is sine qua non for arbitration proceedings, as arbitration fundamentally relies on the principle of party autonomy; - the right of parties to choose arbitration as an alternative to court adjudication. In this sense, ‘existence’ of the arbitration agreement is a prerequisite for an award to be enforceable in the eyes of law.”

The Respondent no. 1-R.K. Pandey, was appointed as a Lab Assistant/ Technician in the T.B. Section of Dina Nath Parbati Bangla Infectious Disease Hospital located at Kanpur. In 1956, DNPBID Hospital was taken over by the Uttar Pradesh Government, to establish a new medical college at Kanpur. A transfer deed was executed wherein it was mentioned that the entire municipal staff of the hospital would stand transferred to the State Government service.

The Chief Medical Superintendent of the hospital, now a State Government hospital, informed the Respondent that he would be superannuating March 31,1997 and he was requested to contact the office so that the process could be initiated. The Peititoner had filed a Writ Petition claiming that he should retire at the age of 60 years instead of 58 years relying upon the service rules as applicable to the employees of the Municipal Board of Kanpur. His representation was subsequently rejected. The State had submitted that the Respondent had acquired the status of State Government service and had already completed service of 42 years of service.

It was during the pendency of the petition, that the steps for initiation of arbitration were taken by the Respondent by filing a suit for reference in terms of Section 11 of the A&C Act. However, the petition was later withdrawn without any decision on merits with the two sole arbitrators appointed by Respondent suo moto taking up the arbitration proceedings and pronouncing the two awards, the first for an amount of Rs.26,42,116 and the second for an amount of Rs.20,00,000 against the Appellants, the State of Uttar Pradesh and the Principal of GSVM Medical College, Kanpur. The objections filed by the appellants under Section 34 of the A&C Act were dismissed by the trial court on the ground that they were barred by limitation.The impugned judgment passed by the Division Bench dismissed the intra court appeal on the grounds that the objections themselves were barred by limitation and beyond the condonable period.

The Bench, at the outset, noted that it was necessary to prevent any attempt to enforce the so-called awards, which were null and void ab initio for several reasons. It was noticed that the so-called arbitration agreement was nowhere available on the records of either the Municipal Corporation or the State of Uttar Pradesh.“Respondent No. 1, R.K. Pandey, did not file the original agreement since he was not in possession of the same, nor is he a signatory and party to the arbitration agreement”,the Bench added

There was also no evidence available to show the existence of the arbitration agreement, except a piece of paper, which was not even a certified copy or an authenticated copy of the official records. The agreement postulated that each party i.e. the Municipal and Development Board, Kanpur, and the Governor of Uttar Pradesh, may nominate an arbitrator for adjudication by giving written notice to the other party. “How and from where RK Pandey, Respondent No. 1, got a copy of the agreement, and that too nearly 10 years after his retirement and filing of a writ petition remains unknown”, it said.

Noting that it was not the case of the Respondent that the Municipal and Development Board, Kanpur, or the Governor of Uttar Pradesh had invoked the arbitration clause, the Bench said, “The unilateral appointment of the arbitrator by Respondent No. 1, R.K. Pandey is, therefore, contrary to the arbitration clause as propounded by him.”

Another intriguing aspect was the delay in relying on the arbitration agreement and initiating arbitration proceedings. “We have made our observations in the context of Section 47 of the Code of Civil Procedure, 1908, which even at the stage of execution, permits a party to object to the decree, both on the grounds of fraud, as well as lack of subject matter jurisdiction”, the Bench said.

As per the Bench, the arbitration proceedings were a mere sham and a fraud played by the Respondent by self-appointing/nominating arbitrators, who passed ex-parte and invalid awards.

The Bench held that the Respondent was not a signatory to the purported arbitration agreement. Moreover, the parties thereto, DNPBID Hospital and the Governor of Uttar Pradesh, did not endorse any such agreement. “From the cumulative facts and reasons elucidated above, this is a clear case of lack of subject matter jurisdiction”, the Bench said.

Allowing the appeal, the Bench set aside the two ex parte Awards. Dismissing the execution proceedings, the Bench held that the appellants would be entitled to costs of the entire proceedings.

Cause Title: State of Uttar Pradesh and Another v. R.K. Pandey & Another (Neutral Citation: 2025 INSC 48)

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