SC: Referring Parties to Arbitration has Serious Civil Consequences

March 12, 2018

Case name: Kerala State Electricity Board and Anr. v. Kurien E. Kathilal

Date of Judgement: March 09, 2018

In the instant case, the Supreme Court has held that if no arbitration agreement exists between the parties then without a joint memo or a joint application of the parties, the  parties cannot be referred to arbitration. Under Such circumstances, the procedural mechanism as enumerated under Section 89 Code of Civil Procedure is to be duly adhered to.

In the case, the Appellant State Electricity Board had entered into an agreement  with respondent contractor for construction of a composite dam  in connection with Banasura Sagar Scheme. Later in view of revised minimum wages of labours, the respondent contractor claimed labour escalation charges. However, the Government of Kerala referred the matter to the industrial tribunal for adjudication of the dispute with regard to the said claim of workmen. While the adjudication with reference to the concerned issue was pending, the Appellant terminated the contract with the contractor. When the case came before the High Court, the  Court with reference to the amount payable for additional work done by the Respondent contractor with the consent of the counsel for the parties,  referred the matter to arbitration to resolve the dispute relating to items which they could not amicably resolve.

In view of the aforesaid facts, the issue for consideration by 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?

  • In the aforesaid context, the Supreme Court noted that the Jurisdictional pre-condition for reference to arbitration under Section 7 of the Arbitration and Conciliation Act  is that the parties should seek a reference or submission to arbitration.
  • That so far as reference of a dispute to arbitration under Section 89 Code of Civil Procedure (settlement of dispute outside the Court), the same can be done only when parties agree for settlement of their dispute through arbitration in contradistinction to other methods of alternative dispute resolution mechanism stipulated in Section 89 Code of Civil Procedure. That for reference of the parties to arbitration, oral consent given by the counsel without a written memo of instructions does not fulfill the requirement under Section 89 Code of Civil Procedure.
  • That referring the parties to arbitration has serious consequences of taking them away from the stream of civil courts and subject them to the rigour of arbitration proceedings, 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.
  • That under Section 89 Code of Civil Procedure, referring the parties to arbitration could be made only when the parties agree for settlement of the dispute through arbitration by a joint application or a joint affidavit before the Court[1].
  • That 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 CPC and the Indian Evidence Act. Once the award is passed, the award shall be set aside only under limited grounds. Hence, referring the parties to arbitration has serious civil consequences procedurally and substantively.
  • That 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 entire case can be accessed here.

[1] Afcons Infrastructure Ltd. and Anr. v. Cherian Varkey Construction Co. (P) Ltd. and Ors. (2010) 8 SCC 24

 

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- Shilpi Sharan is the Editor at Vakilno1.com - an Advocate with extensive knowledge in myriad fields of Law. She has a flair of writing and has legal publications in national and international law magazines to her credit. She focuses on legal research and aims at raising public awareness of laws in India.