Holding

The appointment of the arbitrator, the reference of the disputes, and the award are void ab initio because arbitration under the 1940 Act requires the consent of both parties.

Summary

Dharma Prathishthanam entered into a construction contract with Madhok Construction Pvt. Ltd. that contained an arbitration clause referring disputes to arbitration under the Arbitration Act, 1940. When a dispute arose, the respondent unilaterally appointed Shri Swami Dayal as sole arbitrator, gave notice, and the arbitrator rendered an award in favour of the respondent without the appellant’s participation. The appellant challenged the award, but the High Court dismissed the objection on limitation grounds. On appeal, the Supreme Court held that the respondent’s unilateral appointment and reference were contrary to the Act because arbitration requires the consent of both parties; consequently the appointment, reference and award were void ab initio. The Court set aside the award and did not remand the matter, allowing the appeal.

Issues considered

Whether a unilateral appointment of an arbitrator and reference of disputes without the other party's consent is permissible under the Arbitration Act, 1940.
Whether an award rendered by an arbitrator appointed unilaterally is void ab initio.
Whether the limitation period bars an objection to an award that is a nullity.
Whether the court may set aside an award suo motu when the appointment or reference is invalid.
Whether the appellant is entitled to a remand for a merits hearing.

Legislation cited

Arbitration Act, 1940s. 14, s. 17, s. 2, s. 20, s. 3, s. 30, s. 8, s. 9
Limitation Act, 1963s. 119(b)

Subjects

ArbitrationAppointment of arbitratorUnilateral referenceAward validityVoid ab initioLimitation periodSection 30ConsentPrivate adjudication

Judgment

A DHARMA PRA THISHTHANAM
I
v. r
M/S. MADHOK CONSTRUCTION PVT. LTD.

NOVEMBER 2, 2004

B [R.C. LAHOTI, CJ., G.P. MATHUR AND P.P. NAOLEKAR, JJ.]

Arbitration Act, 1940; Ss. 2, 3, 8, 9, 14, 17, 20 and 30:

Appointment of an Arbitrator-Requirements of-Award-Validity of-
C Held: Arbitration refers to private adjudication of disputes referred to
Arbitrator/Arbitrators chosen by parties consensually-Jn case, one party
does not give consent for appointment of an Arbitrator proposed by the other
party, the other party could seek the appointment from the Court--Since the
respondent did not follow the correct procedure and methodology by
p appointing the arbitrator and referring the disputes unilaterally, Award void
ab initio-Limitation Act, 1963; Article l 19(b).

Appointment of Arbitrator and reference of dispute by one of the parties
unilaterally-Effect of-Held: Illegal, since one party cannot usurp the
jurisdiction of the Court and proceed to act unilaterally.
E
Appellant, a charitable institution, engaged in a works contract with
respondent, a builder, for construction of a building. There was an arbitration
clause in the agreement whereby settlement of disputes shall be through
arbitration as per provisions of the Indian Arbitration Act. There arose a
dispute between the parties. The respondent appointed an Arbitrator and gave
F a notice to other party and later referred the dispute for arbitration. Appellant
did not participate in the arbitration proceedings.The Arbitrator gave an
award with interest in favour of the respondent Respondent filed an application
for making the Award rule of the Court Objections filed by the appellant have
been dismissed by the Court on the ground of limitation. Aggrieved, appellant
G unsuccessfully filed appeal before the Single Judge of the Division Bench of
the High Court. Hence the present appeal.

It was contended by the appellant that since there was delay in making
available the copy of the award, delay in filing objections ought to have been
condoned by excluding such period while c;:lculating the period of limitation;
I-I 866
OHARMA PRATHISHTHANAM v. MADHOK CONSTRUCTION PVT. LTD. 867

and that the case may be remanded to Single Judge ofth,e High Court for A
decision on merit.

Allowing the appeal, the Court

HELD: 1.1. Since this Court is satisfied that the Award given by the
Arbitrator is a nullity, the proceedings stand terminated fully and finally at B
this stage itself. (871-CI

1.2. The Law of Arbitration does not make the arbitration an adjudication
by a statutory body but it only aids in implementation of the arbitration contract
between the parties which remains a private adjudication by a forum
consensually chosen by the parties and made on a consensual reference. C
(871-F)

1.3. The procedure followed and the methodology adopted by the
respondent is wholly unknown to law and the appointment of the sole
Arbitrator, the reference of disputes to such Arbitrator and the ex parte
proceedings and Award given by the Arbitrator are all void ab initio and hence D
nullity, liable to be ignored. In case of arbitration without the intervention of
the Court, the parties must rigorously stick to the agreement entered into
between them. If the arbitration clause names an Arbitrator as the one already
agreed upon, the appointment of an Arbitrator poses no difficulty. If the
arbitration clause does not name an Arbitrator but provides for the manner E
in which the Arbitrator is to be chosen and appointed, then the parties are
bound to act accordingly. If the parties do not agree then arises the
complication which has to be resolved by reference to the provisions of the
Act (873-F, G, H; 874-A)

1.4. One party cannot usurp the jurisdiction of the Court and proceed F
to act unilaterally. A unilateral appointment and a unilateral reference-both
will be illegal It may make a difference if in respect of a unilateral appointment .
and reference the other party submits to the jurisdiction of the Arbitrator
and waives its rights which it has under the agreement, then the Arbitrator
may proceed with the reference and the party submitting to his jurisdiction G
and participating in the proceedings before him may later on be precluded
and estopped from raising any objection in that regard. (874-A-B)

Waverly Jute Mills Co. ltd. v. Raymond and Co. (India) Pvt. ltd., (19631
3 SCR 203 and Khardah Company Ltd. v. Raymond and Co. (India) Private
ltd., AIR (1962) SC 1810, followed. H
868 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A Thawardas Pherumal and Anr. v. Union of India, (1955) 2 SCR 48;
Union ofIndia v. A.L. Rallia Ram, (1964) 3 SCR 164; Union ofindiav. Prafulla
Kumar Sanyal, [1979) 3 SCC 631; Banwari Lal Kotiya v. P.C. Aggarwal,
(1985) 3 SCC 255 and The Union ofIndia v. Shri Om Prakash, [1976) 4 SCC
32, relied on.

B. Mis. Teamco Private Ltd v. T.M S. Mani, AIR (1967) Cal. 168; Mis.
National Small Industries Corpn. Ltd. v. Mis. National Metal Craft, Delhi and
Ors., AIR (1981) Del. 189; Om Prakash v. Union of India, AIR (1963) All.
242; Union ofIndia v. Mangaldas N. Varma, Bombay, AIR (1958) Mad. 296
and Niranjan Swain v. State ofOrissa and Ors,. AIR (1980) Ori.142; Chhabba
C Lal v. Kallu Lal and Ors., AIR (1946) P.C. 72; Union ofIndia v. Mis. Ajit Mehta
and Associates, Pune and Ors., AIR (1990) Born. 45 and Union of India v.
South Eastern Railway, AIR (1992) M.P. 47, approved.

Arbitration by Russell, 20th Edition, p. /04 and Law of Arbitration and
Conciliation-Practice and Pro~edure by S.K. Chawla, Second Edition, 2004,
b referred to.

2.1. In the instant case, it is found that far from submitting to the
jurisdiction of the Arbitrator and conceding to the appointment of and
reference to the Arbitrator, the appellant did raise an objection to the invalidity
of the entire proceedings beginning from the appointment till the giving of
E the Award though the objection was belated. In ordinary course, this Court
would have, after setting aside the impugned judgments of the High Court,
remanded the matter back for hearing and decision afresh by the Single Judge
of the High Court. However, on the admitted and undisputed facts, the impugned
Award is a nullity and hence set aside. [880-E-H)

F 2.2. The impugned Award given by the Arbitrator along with the
appointment of the Arbitrator and reference made to him are all set aside as
void ab initio and nullity. The respondent shall be at" liberty to seek
enforcement of his claim, if any, by having recourse to such remedy as may
be available to him under law and therein pray for condonation of delay by
G seeking exclusion oftime lost in the present proceedings. [881-A-BI

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7140 of2004.

From the Judgment and Order dated 16.1.2003 of the Delhi High Court
in F.A.O.No. 287 of 1995.
H
DHARMA PRATHISHTHANAM v. MADHOK CONSTRUCTION PVT.LTD. [LAHOTI, CJ.] 869

Manoj Swarup, Ms. Lalita Kohli, Anubhav Kumar and Ms. Prachi Bajpai, A
for Mis. Manoj Swarup and Co. for the Appellant.

K.B. Sinha, Ms. Kawaljit Kochar, D. Jha and Ms. Kusum Chaudhary,
with him for the Respondents.

The Judgment of the Court was delivered by B
R.C. LAHOTI, CJ. Leave granted.

The appellant-Dharma Prathishthanam is a charitable institution. The
respondent is a builder engaged in construction activity. In the year 1985, the
appellant proposed to have a building constructed for which purpose it C
entered into a works contract with the respondent for the construction as per
the drawings and specifications given by the appellant. We are not concerned
with the correctness or otherwise of the allegations and counter allegations
made by the parties which relate to the question who committed breach of
the agreement. Suffice it for our purpose to say that disputes arose between
the parties. Clause 35 of the agreement which is the arbitration clause reads D
as under:-

"Settlement of disputes shall be through arbitration as per the Indian
Arbitration Act."

Obviously and admittedly the reference was to the Arbitration Act, E
1940.

On 12th June, 1989 the respondent appointed one Shri Swami Dayal as
the Sole Arbitrator. It appears that the respondent gave a notice to the
appellant of such appointment having been made by the respondent but the F
appellant failed to respond. The respondent made a reference of disputes to
the Arbitrator and the Arbitrator Shri Swami Dayal entered upon the reference.
The record of the proceedings of the Arbitrator have neither been produced
before the High court nor are they available before us. However, it is not
disputed that the appellant did not participate in the proceedings before the
Arbitrator. On 14th April, 1990 the Sole Arbitrator gave an award of Rs. G
14,42, 130. 78p. with interest at the rate of 12 per cent per annum from I 4th
April, 1990 till realization in favour of the respondent against the appellant.
The respondent filed an application in the Court under Sections 14 and 17 of
the Act for making the Award a Rule of the Court. The notice under Section
14(2) of the Act was published in the Statesman, a daily English newspaper H
870 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A in its edition dated 6th December, 1991. The notice reads as under:-

"Notice to:

Dharma Prathishthanam A, 214, New Friends Colony, New Delhi
65.
B Whereas Shri Swami Dayal the Arbitrator has filed the award
dated 14.4.90 delivered by the said Arbitrator with Arbitration
proceedings in Court in disputes inter se you respondent and
petitioner for being made a rule of the Court. You are hereby called
upon to file objections, if any, in accordance with law to the said
c award within 30 days of the Service of this notice.

And petitioner has filed an application I.A. No. 8446/90 under
Section 17 of the Arbitration Act, 1940 on 20.9.91.

AND

D Whereas it has been shown to the satisfaction of the Court it is
not possible to serve you in the ordinary way, therefore, this notice
is given by advertisement directing you to make appearance in Court
on 20.2.92 at 11 a.m.

Take notice that in default of your appearance on the day before
E mentioned, the suit and I.A. will be heard and determined in your
absence.

Dated this 18th day of November, 1991."

The appellant appeared in the Court on the appointed date i.e. 20th
F February, 1992. According·to the appellant it gathered only on that date a
copy of the Award dated 14th April, 1990. From 14th March, 1992 to 20th
March, 1992 the Court was closed. On 21st March, 1992 the appellant filed
objections to the Award. The objections have been dismissed without any
adjudication on merits and only on the ground that the objection petition was
filed beyond a period of 30 days from 6th February, 1991 i.e. the date of
G publication of notice in the Statesman. Having lost before the learned Single
Judge of the High Court of Delhi (Original Side) as also in intra-court appeal
preferred before the Division Bench, the aggrieved appellant has filed this
appeal by special leave.

H Though the initial submission of the learned counsel for the appellant
DHARMA PRA THISHTHANAM v. MADHOK CONSTRUCTION PVT.LTD. [LAHOTI, CJ.] 871

has been that in the facts and circumstances of the case, the delay in filing A
the objection pt!tition ought to have been condoned and the objection petition
ought to have been held to have been filed within the period of limitation
calculated from the date on which copy of the award was made available to
the appellant without which the appellant could not have exercised its right
to file objections and, therefore, subject to this Court feeling satisfied of the
maintainability of the objection petition and its availability for consideration B
on merits, this Court may remand the objection petition for hearing and
decision by the learned Single Judge on merits. However, we do not think that
this exercise is at all called for, as we are satisfied that tlte Award given by
the arbitrator is a nullity and hence the proceedings must stand terminated
fully and finally at this stage itself. We proceed to record our reasons for C
taking this view.

An arbitrator or an Arbitral Tribunal under the Scheme of the 1940 Act
is not statutory. It is a forum chosen by the consent of the parties as an
alternate to resolution of disputes by the ordinary forum of law courts. The
essence of arbitration without assistance or intervention of the Court is D
settlement of the dispute by a Tribunal of the own choosing of the parties.
Further, this was not a case where the arbitration clause authorized one of the
parties to appoint an arbitrator without the consent of the other. Two things
are, therefore, of essence in cases like the present one: firstly, the choice of
the Tribunal or the arbitrator; and secondly, the reference of the dispute to E
the arbitrator. Both should be based on consent given either at the time of
choosing the Arbitrator and making reference or else at the time of entering
into the contract between the parties in anticipation of an oc.'.asion for
settlement of disputes arising in future. The Law of Arbitration does not make
the arbitration an adjudication by a statutory body but it only aids in
implementation of the arbitration contract between the parties which remains F
a private adjudication by a forum consensually chosen by the parties and
made on a consensual reference.

Arbitration Act, 1940 consolidates and amends the law relating to
arbitration. According to Clause (a) of Section 2 of the Act, "Arbitration
agreement" means a written agreement to submit present or future differences G
to arbitration, whether an arbitrator is named therein or not. Under Section 3,
"arbitration agreement, unless a different intention is expressed therein, shall
be deemed to include the provisions set out in the First Schedule insofar as
they are applicable to the reference. The First Schedule consists of 8 paragraphs
incorporating implied conditions of arbitration agreements. Para 1 of the First H
872 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A Schedule which only is relevant for our purpose provides "Unless otherwise
expressly provided, the reference shall be to a sole arbitrator". The manner
and method of choosing the sole arbitrator and making the reference to him
is not provided. That is found to be dealt with in Sections 8, 9 and 20 of the
Act.

B The relevant parts of the provisions relevant in the context of a general
clause merely providing for arbitration as in the present case, are extracted
and reproduced herein:-

"Section 8 Power of Court to appoint arbitrator or umpire-{ I) In any
of the following cases, -
c
(a) where an arbitration agreement provides that the reference shall
be to one or more arbitrators to be appointed by consent of the
parties, and all the parties do not, after differences have arisen;,
concur in the appointment or appointments; or

D (b) xxx xxx xxx
(c) XXX xxx xxx
any party may serve the other parties or the arbitrators, as the case
may be, with a written notice to concur in the appointment or
E appointments or in supplying the vacancy.

[2] If the appointment is not made within fifteen clear days after the
service of the said notice, the Court may, on the application of the
party who gave the notice and after giving the other parties an
opportunity of being heard, appoint an arbitrator or arbitrators or
F umpire, as the case may be, who shall have like power to act in the
reference and to make an award as if he or they had been appointed
by consent of all parties."

Section 9 is irrelevant for our purpose as its applicability is attracted to a case
where an arbitration agreement provides for a reference to two arbitrators, one
G to be appointed by each party and procedure to be followed in such cases
which is not a situation provided in by the agreement with which we are
dealing.

Sections 8 and 9 are' placed in Chapter II of the Act Section 20 finds
place in Chapter III. According to Section 20-
H
DHARMA PRATHISHTHANAM v. MADHOK CONSTRUCTION PVT. LTD. [LAHOTI, CJ.] 873

Application to file in Court arbitration agreement - A
(I) Where any persons have entered into an arbitration agreement
before the institution of any suit with respect to the subject-matter of
the agreement or any part of it, and where a difference has arisen to
which the agreement applies, they or any of them, instead of
proceeding under Chapter II, may apply to a Court having jurisdiction B
in the matter to which the agreement relates, that the agreement be
filed in court."

After noticing all the parties and affording them an opportunity of being
heard, under sub-sections (4) and (5) -
c
"(4) where no sufficient cause is shown, the Court shall order the
agreement to be filed, and shall make an order of reference to the
arbitrator appointed by the parties, whether in the agreement or
otherwise, or, where the parties cannot agree upon an arbitrator, to an
arbitrator appointed by the Court.
D
(5) Thereafter, the arbitration shall proceed in accordance with, and
shall be governed by, the other provisions of this Act so far as they
can be made applicable."

In the background of the abovesaid prov1s1ons, the question which
arises for consideration is whether, in the light of a general provision as in E
clause 35, the respondent could have unilaterally appointed an arbitrator
without the consent of the appellant and could have made a reference t<' such
arbitrator again without the reference of disputes having been consented to
by the appellant.

On a plain reading of the several provisions referred to hereinabove, we F
are clearly of the opinion that the procedure followed and the methodology
adopted by the respondent is wholly unknown to law and the appointment
of the sole arbitrator Shri Swami Dayal, the reference of disputes to such
arbitrator and the ex parte proceedings and award given by the arbitrat~r are
all void ab initio and hence nullity, liable to be ignored. In case of arbitration G
without the intervention of the Court, the parties must rigorously stick to the
agreement entered into between the two. If the arbitration clause names an
arbitrator as the one already agreed upon, the appointment of an arbitrator
poses no difficulty. If the arbitration clause does not name an arbitrator but
provides for the manner in which the arbitrator is to be chosen and appointed,
H
874 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A then the parties are bound to act accordingly. If the parties do not agree then
arises the complication which has to be resolved by reference to the provisions
of the Act. One party cannot usurp the jurisdiction of the Court and proceed
to act unilaterally. A unilateral appointment and a unilateral reference both will
be illegal. It may make a difference if in respect of a unilateral appointment
and reference the other party submits to the jurisdiction of the arbitrator and
B waives its rights which it has under the agreement, then the arbitrator may
proceed with the reference ancJ the party submitting to his jurisdiction and
participating in the proceedings before him may later on be precluded and
estopped from raising any objection in that regard. According to Russell
(Arbitration, 20th Edition, p. 104)
c "An Arbitrator is neither more nor less than a private judge of a
private court (called an arbitral tribunal) who gives a private judgment
(called an award). He is a judge in that a dispute is submitted to
him; ........ ". "He is private in so far as (I) he is chosen and paid by
the disputants (2) he does not sit in public (3) he acts in accordance
D with privately chosen procedure so far as that is not repugnant to
public policy (4) so far as the law allows he is set up to the exclusion
of the State Courts (5) his authority and powers are only whatsoever
he is given by the disputants' agreement (6) the effectiveness of his
powers derives wholly from the private law of ontract and accordingly
the nature and exercise of these powers must not be contrary to the
E proper law of the contract or the public policy of England, bearing in
mind that the paramount public policy is that freedom of contract is
not lightly to be interfered with."

A reference to a few decided cases would ,be apposite.·

F In Thawardas Pherumal and Anr. v. Union of India, [ 1955] 2 SCR 48,
a question arose in the context that no specific question of law was referred
to, either by agreement or by compulsion, for decision of the Arbitrator and
yet the same was decided howsoever assuming it to be within his jurisdiction
and essentially for him to decide the same incidentally. It was held that
G "A reference requires the assent of both sides. If one side is not
prepared to submit a given matter to arbitration when there is an
agreement between them that it should be referred, then recourse must
be had to the court under Section 20 of the Act and the recalcitrant
party can then be ;compelled to submit the matter under sub-section
H (4). In the absence of either, agreement by both sides about the terms
DHARMA PRATHISHTHANAM v. MADHOK CONSTRUCTION PVT. LTD. [LAHOTI, CJ.] 875

of reference, or an order of the Court under section 20(4) compelling A
a reference, the arbitrator is not vested with the necessary exclusive
jurisdiction."

A Constitution Bench held in Waverly Jute Mills Co. Ltd. v. Raymond
and Co. (India) Pvt. Ltd., [1963] 3 SCR 203 that
B
"An agreement for arbitration is the very foundation on which the
jurisdiction of the arbitrators to act rests, and where that is not in
existence, at the time when they enter on their duties, the proceedings
must be held to be wholly without jurisdiction. And this defect is not
cured by the appearance of the parties in those proceedings, even if C
that is without protest, because it is well settled that consent cannot
confer jurisdiction."

Again a Three-Judges Bench held in Union of India v. A.l. Rallia Ram,
[ 1964] 3 SCR 164 that it is from the tenns of the arbitration agreement that the
arbitrator derives his authority to arbitrate and in absence thereof the D
proceedings of the arbitrator would be unauthorized.

In Union of India v. Praful/a Kumar Sanyal, [1979] 3 SCC 631, this
Court observed that an order of reference can be either to an arbitrator
appointed by the parties whether in the agreement or otherwise or where the
parties cannot agree upon an arbitrator, to an arbitrator appointed by the E
Court. If no such arbitrator had been appointed and where the parties cannot
agree upon an arbitrator, the Court may proceed to appoint an arbitrator itself.
Clearly one party cannot force his choice of arbitrator upon the other party
to which the latter does not consent. The only solution in such a case is to
seek an appointment from the Court.
F
In Banwari Lal Kotiya v. P.C. Aggarwal, [1985] 3 SCC 255, the question
of validity of a reference came up for the consideration of the Court in the
context of the issue-whether an arbitrator could enter upon a reference
which was not consensual. The Court explained the law laid down by this
Court in Thawardas Peruma/'s case (supra) that though the reference to G
arbitrator has to be accompanied by consent of the parties but such consent
is not necessarily required to be expressed at the time of making the reference
if it is already provided by the agreement or is sanctioned by statutory rules,
regulations or bye-laws. The Court held that the expression "arbitration
agreement" is wider as it combines within itself two concepts-{a) a bare
agreement between the parties that disputes arising between them should be H
876 SUPREME COURT REPORTS [2004] SUPP. 5 S.C.R.

A decided or resolved through arbitration and (b) an actual reference of a
particular dispute or disputes for adjudication to a named arbitrator or
arbitrators. When the arbitration agreement is of the former type, namely, a
bare agreement, a separate reference to arbitration with fresh assent of both
the parties will be necessary and in the absence of such consensual reference
B resorting to Section 20 of the Arbitration Act will be essential.

The Constitution Bench in Khardah Company Ltd. v. Raymond and Co.
(India) Private Ltd., AIR (1962) SC 1810 decided the issue from the view
point of jurisdictional competence and held that what confers jurisdiction on
the arbitrators to hear and decide a dispute is an arbitration agreement and
C where there is no such agreement there is an initial want of jurisdiction which
cannot be cured even by acquiescence. It is clearly spelled out from the law
laid down by the Constitution Bench that the arbitrators shall derive their
jurisdiction from the agreement and consent.

Thus, there is -ample judicial opinion available for the proposition that
D the reference to a sole arbitrator as contemplated by para I of the First
Schedule has to be a consensual reference and not an unilateral reference by
one party alone to which the other party does not consent.

We are also inclined to make a reference to a few decisions by High
Courts.
E
In India Hosiery Works v. Bharat Woollen Mills Ltd., AIR (1953) Cal.
488, the Division Bench of the Calcutta High Court observed

"an arbitration agreement neither specifying the number of arbitrators,
nor specifying the mode of appointment, is perfectly effective and
F valid and the incidents of such an agreement are that it is to take
effect as an agreement for reference to a sole arbitrator, to be appointed
by consent of the parties or, where the parties do not concur in
making an appointment, to be appointed by the Court, except where
the operation of Rule I of the First Schedule is excluded.
G xx xx xx xx
xx xx xx xx
Where, therefore, the agreement does not assign the right of
appointment distributively to different parties in respect of different
H " the agreement that the appoin1.!!JJ!nl of
arbitrators, it is inherent in
DHARMA PRATHISHTHANAM "· MADHOK CONSTRUCTION PVT. LTD. [LAHOTI, CJ.] 877
the arbitrator or of each of the several arbitrators must be by the A
consent of all parties. There may be an express provision to such
effect, but even in the absence of aRy express provision, such a
provision must be taken to be necessarily implied. It is for that reason
that where the agreement does not specify the number of arbitrators,
nor specifies the mode of appointment, the Court first takes the
agreement as providing for reference to a single arbitrator by reason B
of the provisions of Rule 1 of Schedule I, then takes the mode of
appointment intended necessarily to be appointed by consent of the
parties and next, if it finds that the parties cannot concur in the
appointment of an arbitrator, it appoints from itself" [emphasis
supplied] C
The view was reiterated by another Division Bench of the same High
Court in Mis. Teamco Private Ltd v. TM.S. Mani AIR (1967) Cal. 168.

Mis National Small Industries Corpn. Ltd v. Mis. National Metal
Craft, Delhi and Ors., AIR (1981) Del. 189 is very close to the case at hand. D
An arbitration clause-longish one, in substance provided that on question,
dispute or difference arising between the parties to the agreement, "either of
the parties may give to the other notice in writing of such question dispute
or difference and the same shall be referred to arbitration". One of the parties
served a notice on the other appointing one 'K' .as arbitrator to adjudicate
upon the dispute. The notice ended by saying "you are hereby called upon E
to agree to the said reference in accordance with the arbitration agreement for
the settlement of the said disputes." 'K' then commenced the arbitration
proceedings. Following the Division Bench decision of the Calcutta High
Court, the learned Single Judge of Delhi High Court held

"If the agreement merely provides, as here, that the dispute shall be F
referred to arbitration, the reference shall be made to a single arbitrator.
If the agreement does not provide for the number of arbitrators and
the mode of their appointment, it will be assumed to be one for
reference to a single arbitrator by reason of para I of the First Schedule,
and the mode of appointment taken necessarily to be consent of G
parties, and if the parties do not concur in the appointment, as is
the case here, the court will make the appointment".

[emphasis supplied)

Appointment of 'K' as arbitrator was held to be invalid because it was H
878 SUPREME COURT REPORTS [2004) SUPP. 5 S.C.R.

A unilateral and was made without any application to the Court either under
Section 8 or Section 20 of the Act.

A Division Bench of the High Court of Allahabad held in Om Prakash
v. Union of India, AIR (1963) All. 242 that a reference to arbitrator out of
Court must be by both the parties together and cannot be by one party
B alone; failing the consent, the parties or either of them must approach the
Court by making an application in writing.

Consent, of course, is of the very essence of arbitration said a Division
Bench of Madras High Court in The Union of India v. Mangaldas N. Varma,
C Bombay, AIR (1958) Mad. 296.

Failure to give consent or to appoint an Arbitrator in response to a
notice for appointment of an Arbitrator given by the other party provides
justification to the other party for taking action under sub-section (2) of
Section 8 of the Act and then it is the Court which assumes jurisdiction to
D appoint an Arbitrator as held by High Court of Orissa in Niranjan Swain v.
State ofOrissa and Ors., AIR (1980) Ori. 142.

The view of the law taken by the several High Courts as above appeals
to us and we find ourselves in agreement therewith.

E In the event of the appointment of an arbitrator and reference of disputes
to him being void ab initio ·as totally incompetent or invalid the award shall
be void and liable to be set aside de hors the provisions of Section 30 of the
Act, in any appropriate proceedings when sought to be enforced or acted
upon. This conclusion flows not only from the decided cases referred to
hereinabove but also from several other cases which we proceed to notice.
F
In Chhabba Lal v. Kallu Lal and Ors., AIR (1946) P.C. 72 their Lordships
have held that an award on a reference pre-supposes a valid reference. Ifthere
is no valid reference, the purported award is a nullity.

On this point, there is near unanimity of opinion as amongst the High
G Courts of the country as well. Illustratively, we may refer to a few cases. In
Union of India v. Mis. Ajit Mehta and Associates, Pune and Ors., AIR (1990)
Born. 45 (para 34), the Division Bench held that the Court has suo motu power
to set aside an award on ground other than those covered by Section 30 such
as an award made by arbitrators who can never have been appointed under
H Section 8, as such an award would undoubtedly be ab initio void and nonest.
DHARMA PRATHISHTHANAM v. MADHOK CONSTRUCTION PVT.LTD. [LAHOTI, CJ.] 879

In Union of India v. South Eastern Railway, AIR (1992) M.P. 47 and Rajendra A
Dayalv. Govind, (1970) MPLJ 322, both Division Bench decisions, the High
Court of Madhya Pradesh has held that in certain situations the Court may
set aside an Award even without there being an application under Section 30
or even if the petition under Section 30 has not been filed within the period
of limitation if the Court finds that the award is void or directs a party to do
an act which is prohibited by law or is without jurisdiction or patently illegal. B
We need not multiply the number of authorities on this point as an exhaustive
and illuminating conspectus of judicial opinion is found to be contained in
Law of Arbitration and Conciliation - Prac~ice and Procedure by S.K. Chawla
(Second Edition, 2004 at pp. 181-184) under the caption "Whether the Court
has suo motu power to set aside an Arbitral Award - " and the answer given C
in the discussion thereunder is in the affinnative.

Though it has been held in The Union of India v. Shri Om Prakash,
[1976] 4 SCC 32 that an objection on the ground of invalidity of a reference
is not specifically covered by clauses (a), {b) and (c) of Section 30, yet it is
included in the residuary expression "or as otherwise invalid" and could have D
been set. aside on such an application being made. However, the above
decision cannot be treated as an authority to hold that an award which is void
ab initio and hence a nullity consequent upon an invalid appointment and
an invalid reference in clear breach of the provisions contained in Sections
8, 9 and 20 of the Act, can still be held to be valid if not objected to through E
an objection preferred under Section 30 of the Act within the prescribed
period of limitation.

Three types of situations may emerge between the parties and then
before the Court. Firstly, an arbitration agreement, under examination from the
point of view of its enforceability, may be one which expresses the parties' F
intention to have their disputes settled by arbitration by using clear and
unambiguous language then the parties and the Court have no other choice
but to treat the contract as binding and enforce it. Or, there may be an
agreement suffering from such vagueness or uncertainty as is not capable of
being construed at all by culling out the intention of the parties with certainty,
even by reference to the provisions of the Arbitration Act, then it shall have G
to be held that there was no agreement between the parties in the eye of law
and the question of appointing an arbitrator or making a reference or disputes
by reference to Sections 8, 9 and 20 shall not arise.

Secondly, there may be an arbitrator or arbitrators named, or the authority H
880 SUPREME COURT REPORTS (2004] SUPP. 5 S.C.R.
.__
A may be named who shall appoint an arbitrator, then the parties have already
been ad idem on the real identity of the arbitrator as appointed by them
before hand; the consent is already spelled out and binds the parties and the
Court. All that may remain to be done in the event of an occasion arising for
the purpose, is to have the agreement filed in the Court and se.~k an order
of reference to the arbitrator appointed by the parties.
B
Thirdly, if the arbitrator is not named and the authority who would
appoint the a~bitrator is also not specified, the appointment and reference

-·-
shall be to a sole arbitrator unless a different intention is expressly spelt out.
The appointment and reference - both shall be by the consent of the parties.
Where the parties do .not agree, the Court steps i.n and assumes jurisdiction
c to make an appointment, also to make a reference, subject to the jurisdiction
of the Court being invoked in that regard. We hasten to add that mere inaction
by a party called upon by the other one to act does not lead to an inference
as to implied consent or acquiescence being drawn. The appellant not
responding to respondent's proposal for joining in the appointment of a sole
D arbitrator named by him could not be construed as consent and the only
option open to the respondent was to have invoked the jurisdiction of Court
for appointment of an arbitrator and an order of reference of disputes to him.
It is the Court which only could have compelled the appellant to join in the
proceedings.

E In the present case, we find that far from submitting to the jurisdiction "'
of the Arbitrator and conceding to the appointment of and reference to the
Arbitrator-Shri Swami Dayal, the appellant did raise an objection to the
invalidity of the entire proceedings beginning from the appointment till the
giving of the Award though the objection was belated. In ordinary course,
F we would have after setting aside the impugned judgments of the High Court
remanded the matter back for hearing and decision afresh by the learned
Single Judge of the High Court so as to record a finding if the award is a
nullity and if so then set aside the same without regard to the fact that the
objection petition under Section 30 of the Act filed by the appellant was
beyond the period oflimitation prescribed by Article l l 9(b) of the Limitation
G Act, 1963. However, in the facts and circumstances of the case, we consider
such a course to follow as a futile exercise resulting in needless waste of
public time. On the admitted and undisputed facts, we are satisfied, as already
indicated hereinabove, that the impugned Award is a nullity and hence liable
to be set aside and that is what we declare and also do hereby, obviating the
H need for remand. ..
DHARMA PRAIBISIITHANAM v. MADHOK CONSTRUCTION PVT.LTD. [LAHOTI, CJ.] 881
. For the foregoing reasons, the appeal is allowed. The impugned Award A
given by the Arbitrator alongwith the appointment of the Arbitrator and
reference made to him are all set aside as void ab initio and nullity. The
respondent shall be at liberty to seek enforcement of his claim, if any, by
having recourse to such remedy as may be available to him under law and
therein pray for condonation of delay by seeking exclusion of time lost in the
present proceedings. No order as to the costs. B
S.K.S. Appeal allowed.

.,,.