Arbitration Law - specifically exempted issues from arbitration - not arbitrable; no presumption that the parties had agreed to refer the issue to the Arbitrator

M/s Harsha Constructions vs UOI CA 534 of 2007 d/d 5 Sep 2014

http://judis.nic.in/supremecourt/imgst.aspx?filename=41883

Question of Law :

Whether the Arbitrator could have decided the issues which were not arbitrable?

Presumption :

"when the law specifically makes a provision with regard to formation of a contract in a particular manner, there cannot be any presumption with regard to a contract if the contract is not entered into by the mode prescribed under the Act." [see para 20]

Facts :

Contract of arbitration between parties - certain disputes are expressly “excepted” under Clause 39 of the Contract. Arbitrator decided such issues holding that the same were not “excepted matters” but arbitrable, though the contractor had objected to arbitrability of the disputes which were not referable to the Arbitrator as per Clause 39 of the Contract. Being aggrieved by the Award, Union of India had preferred an appeal before the Chief Judge, City Civil Court, Hyderabad under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) and the said appeal was allowed, whereby the Award was set aside.

Decision :

20. Arbitration arises from a contract and unless there is a specific written contract, a contract with regard to arbitration cannot be presumed. Section 7(3) of the Act clearly specifies that the contract with regard to arbitration must be in writing. Thus, so far as the disputes which have been referred to in Clause 39 of the contract are concerned, it was not open to the Arbitrator to arbitrate upon the said disputes as there was a specific clause whereby the said disputes had been “excepted”. Moreover, when the law specifically makes a provision with regard to formation of a contract in a particular manner, there cannot be any presumption with regard to a contract if the contract is not entered into by the mode prescribed under the Act.

21. If a non-arbitrable dispute is referred to an Arbitrator and even if an issue is framed by the Arbitrator in relation to such a dispute, in our opinion, there cannot be a presumption or a conclusion to the effect that the parties had agreed to refer the issue to the Arbitrator. In the instant case, the respondent authorities had raised an objection relating to the arbitrability of the aforestated issue before the Arbitrator and yet the Arbitrator had rendered his decision on the said “excepted” dispute. In our opinion, the Arbitrator could not have decided the said “excepted” dispute.

22. We, therefore, hold that it was not open to the Arbitrator to decide the issues which were not arbitrable and the award, so far as it relates to disputes regarding non-arbitrable disputes is concerned, is bad in law and is hereby quashed. 

Note : There appears to be topographic error in the order posted on the web. Who disputed arbitrability of issues following under clause 39 - contractor or UOI?