Supreme Court Holds No Arbitration Agreement Exists Without Mutual Consent; Unilateral Appointment of Arbitrator Renders Award Void

Held: The Supreme Court held that in the absence of a valid arbitration agreement founded on mutual consent, arbitration proceedings are without jurisdiction and any award passed therein is a nullity, and further that unilateral appointment of an arbitrator by the State without contractual or statutory authority is impermissible.

Summary: The case arose from a dispute relating to an octroi collection contract awarded by the Ambernath Municipal Council, where the petitioner, after participating in the tender and executing the contract, sought reduction of the reserve price and, upon rejection, approached the State Government for appointment of an arbitrator. The State Government unilaterally appointed an arbitrator, who proceeded to pass an award reducing the reserve price. The Civil Court upheld the award, but the High Court set it aside on the ground that no valid arbitration agreement existed. Before the Supreme Court, the petitioner argued waiver and acquiescence on account of participation by the Municipal Council, while the respondent contended lack of jurisdiction. The Court examined the contractual clauses, particularly Clause 22, and held that it only provided for departmental dispute resolution through administrative hierarchy and not arbitration. It further analysed Section 143-A(3) of the Maharashtra Municipal Councils Act and held that the State Government had no authority to impose arbitration. The Court emphasised that arbitration requires consensus ad idem, which was absent, and that jurisdiction cannot be conferred by participation or estoppel.

Decision: The Supreme Court dismissed the Special Leave Petition, upheld the High Court’s judgment setting aside the arbitral award, and held that the entire arbitration proceedings were void ab initio for lack of jurisdiction; it further held that parties shall bear their own costs and disposed of the matter accordingly.