In a remarkable judgment, the Bombay High Court has held that Arbitral Tribunals like Courts are legally bound to resolve disputes in accordance with the public policy of the law.
The Court observed that Arbitral Tribunals do not lack the inherent jurisdiction in considering a claim for specific performance of the MOUs. They have the jurisdiction to entertain, try, and adjudicate upon such claims arising out of not in action in rem.
A Division Bench of Justice R.D Dhanuka and Justice V.G Bisht was hearing a writ petition challenging the order passed by an Arbitrator wherein the Application filed by the petitioner under Section 16 of Arbitration and Conciliation Act, 1996 was dismissed. [Tirupati Shopping Centre Premises Co-Op. Society Limited v. Shabayesha Construction Company Private Limited].
The respondent, a construction company, had entered into sale agreements to form a society within the timeline as prescribed in the Maharashtra Ownership Flats (Regulations of the Promotion of Construction, Sale Management, and Transfer) Rules, 1964 [MOFA Rules]. The respondent also covenanted that they would execute a conveyance deed within four months of registration of the society.
When the respondent failed to execute a Deed of Conveyance even after 8 years despite taking full consideration from the flat purchasers, the petitioner filed an application before the Competent Authority under Section 11 of the Maharashtra Ownership Flats Act, 1963 for a unilateral Deemed Conveyance. The dispute was then referred to Arbitration under the Arbitration clause forming part of the Agreement entered between the parties.
Senior Advocate Dr. Veerendra Tulzapurkar appearing on behalf of the petitioner pointed that the Competent Authority had already decided the title in respect of the said property in favor of the petitioner.
He submitted that since the Competent Authority had already passed a quasi-judicial order granting deemed conveyance in favor of the petitioner society and has also issued a conveyance certificate, the Arbitral Tribunal cannot examine the validity or nullity of a quasi-judicial order passed under a statute. Such claim for specific performance, if any, can only be maintained before the Courts and not before the Arbitral Forum.
He further contended that a quasi-judicial authority would operate in rem and thus no arbitral proceedings as filed by the respondent were maintainable before the Arbitral Tribunal.
“The Arbitral Tribunal has assumed jurisdiction on a perverse finding that the MOFA does not confer any adjudicatory function of the Competent Authority. Since the Arbitral Tribunal has committed a fundamental and patent error in the impugned order, this writ petition filed by the petitioner under Article 226 read with Article 227 of the Constitution of India is thus maintainable. It is submitted that it was a case of lack of inherent jurisdiction of the Arbitral Tribunal in deciding a right in rem. This Court has thus ample power in such case to exercise powers under Article 226 or 227 of the Constitution of India1@@@”, Dr. Tulzapurkar submitted.
Advocate Sanjay Jain appearing for the respondent, on the other pointed out that the respondent has not challenged the impugned order passed by the Competent Authority but had prayed for a declaration that the agreement entered between the parties is valid, subsisting, and binding and prayed for specific performance of the said agreement.
He contended that the respondent had made it clear before the Arbitral Tribunal that the prayers sought by them were an action in personam and not an action in rem. The Arbitral Tribunal, therefore, has jurisdiction to entertain the claim and adjudicate in accordance with the law.
Dismissing the petitioner’s apprehensions that the respondent had filed arbitration proceedings to nullify the order passed by the Competent Authority as baseless and imaginary, the Court held that upon perusal of the statement of claims filed by the respondent, it is clear that the respondent had no such intentions and hence the Arbitral Tribunal was right in rejecting the said application filed by the petitioner under Section 16 of the Arbitration Act.
The Court held that the Arbitral Tribunal has jurisdiction to decide all the claims which can be decided by a Civil Court unless the same is specifically barred either expressly or by necessary implication.
“It is held that under Section 16 of the Arbitration Act, the Arbitral Tribunal is empowered to rule on its own jurisdiction, including ruling on any objections with respect to the existing or validity of the Arbitration Agreement. It is held that the arbitrators, like Courts, are legally bound to resolve the disputes in accordance with the public policy of the law”, the Court observed.
The Court further held that the order passed by the Competent Authority did not create a title in respect of such property conclusively in favor of the society (petitioner). Such an order of Deemed Conveyance is subject to the final adjudication of title in the appropriate Civil proceeding before a Civil Court or an Arbitral Tribunal.
“In our view, there was thus no question of any inherent lack of jurisdiction of the Arbitral Tribunal in considering a claim for specific performance of the MOU and various monetary claims including a claim for damages which was for enforcement of subordinate rights in the nature of an action in personam. The Arbitral Tribunal has jurisdiction thus to entertain, try and adjudicate upon such claims arising out of not in action in rem. In our view, such claims as made by the respondent could be adjudicated upon only by the Arbitral Tribunal in view of there being an Arbitration Agreement and not barred expressly or by necessary implication. There was thus no question of inherent lack of jurisdiction in the Arbitral Tribunal to decide those claims”, the Bench observed.
The Bench while dismissing the writ petition observed that the petition is a gross abuse of the process of law and has been filed with a view of delaying the outcome of the arbitral proceedings.
The Court also ordered the petitioner to pay Rs.50,000 cost to Maharashtra Legal Service Authority within two weeks.