As per case facts, a tender notice specified in-house dispute resolution and explicitly stated 'No Arbitration is allowed.' Despite this, during a Section 9 application seeking an interim injunction, an ...
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 11822 OF 2018
(ARISING OUT OF SPECIAL LEAVE PETITION (C) NO. 10415 OF 2018)
MUNICIPAL CORPORATION OF GREATER
MUMBAI & ANR. … Appellant(s)
Versus
PRATIBHA INDUSTRIES LTD. & ORS. … Respondent(s)
J U D G M E N T
R. F. Nariman, J.
1)Leave granted.
2)The present appeal raises questions relatable to the High Court’s
power of recall of its orders.
3)By a Tender Notice dated 19.09.2008, supply, installation and
maintenance of water meters of various sizes were called for. The Tender
Notice contained Clause 22, which reads as under:-
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“22. Jurisdiction of Courts:
In case of any claim, dispute or difference arising in
respect of the contract, the cause of action thereof
shall be deemed to have arisen in Mumbai and all
legal proceedings in respect of any such claim,
dispute or difference shall be instituted in a
competent court in the city of Mumbai only.
If any dispute, difference or claim is raised by either
party relating to any matter arising out of the
contract, the aggrieved party may refer such dispute
within a period of 7 (seven) days to the concerned
Deputy Municipal Commissioner (DMC) of Municipal
Corporation of Greater Mumbai, who shall constitute
a committee comprising of 3 (three) MCGM Officers
i.e., concerned DMC or Director (ES & P), Chief
Engineer other than the Engineer of contract &
concerned C.A. the committee shall give decision in
writing within 60 (sixty) days.
Appeal from the order of the Committee may be
referred to Municipal Commissioner (M.C.) of
Municipal Corporation of Greater Mumbai within 7
(seven) days. Thereafter, M.C. shall constitute the
committee comprising of 3 (three) DMC including
DMC in charge of finance Department. The decision
given by this Committee shall be final and binding
upon the parties/bidders.”
4) However, when the Tender Notice was accepted and an agreement
between the parties was entered into, Clause 13 of the General Conditions
of Contract was applied. This clause stated as follows:-
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“Disputes and Arbitration:
13.1 No Arbitration is allowed.
13.2 In case of disputes or difference of opinion
arising between the Hydraulic Engineer and the
bidder, the bidder can refer the matter to the
Municipal Commissioner of Greater Mumbai with an
advance copy to the Hydraulic Engineer and the
decision of Commissioner will be final in such case.”
5) An application under Section 9 of the Arbitration and Conciliation Act,
1996 (in short ‘the Act’) was filed by the respondent before the High Court
of Bombay, asking for an interim injunction restraining the encashment of
the first and third bank guarantees that were given by the respondent in
pursuance of the Tender, amounting to a sum of Rs. 16,23,400/- (Rupees
Sixteen Lakhs, Twenty Three Thousand and Four Hundred only) and Rs.
6,23,00,000/- (Rupees Six Crores, Twenty Three Lakhs only) respectively.
On 23.06.2017, this petition was allowed and the injunction that was prayed
for was granted. On the next date of hearing, i.e., on 27.06.2017, Justice K.
R. Shriram recorded what transpired as follows:-
“1. Mr. Makhija, counsel for Petitioners, on
instructions states that Petitioners are ready and
willing to go for arbitration and suggest that Mr.
Justice V.M. Kanade (retired) be appointed as the
Sole Arbitrator. Mr. Bharucha, senior counsel for
Respondent (MCGM), on instructions from Mr.
Agashe, Assistant Engineer (Meter Work Shop) City-
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representative of Respondent, who is present in
court, states that Respondents have no objection to
the suggestion made by Mr. Makhija and Mr. Justice
V.M. Kanade (retired) be appointed as the Sole
Arbitrator.
2. In view of the above, Mr. Justice V. M. Kanade
(retired) is appointed as the Sole Arbitrator to decide
on all issues between parties arising out of or in
connection with or with reference to the Tender
dated 19.09.2008 along with Corrigendum issued by
Respondent No. 1 for supply installation and
maintenance of AMR water meters of various sizes
in the City area of Mumbai consisting of wards A, B,
C, D, E, F/North, F/South, G/North and G/South (the
Project)…”
6)A Notice of Motion was filed by the appellant before us on 03.07.2017
to recall the aforesaid order appointing Justice V.M. Kanade (retired) as a
Sole Arbitrator. It was clearly stated therein that:-
“I say that the concerned officer Shri A.M. Agashe-
Asst. Engineer (Meter Workshop) (City), who was
present in the Court was not aware that contract has
no arbitration clause which is as follows:-
“17. Disputes and Arbitration:
13.1 No Arbitration is allowed.
13.2 In case of disputes or difference of
opinion arising between the Hydraulic
Engineer and the bidder, the bidder can refer
the matter to the Municipal Commissioner of
Greater Mumbai with an advance copy to the
Hydraulic Engineer and the decision of
Commissioner will be final in such case.”
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I say that Shri A.M. Agashe-Asst. Engineer (Meter
Workshop) (City) is not empowered to take decision
regarding appointment of the Arbitrator in the above
Petition.”
7)By an order dated 12.09.2017, the learned single Judge referred to
the recall application and the affidavit of the Commissioner, and also
referred to Clause 13 of the General Conditions of Contract and Clause 22
of the Tender Notice and observed that they were not arbitration clauses at
all, but in-house proceedings, which could be taken at the behest of the
aggrieved party. This being so, the learned single Judge recalled the order
appointing Justice V.M. Kanade (retired) as a sole Arbitrator. An appeal was
filed under Section 37 of the Act by the respondent herein, which
succeeded before the Division Bench. According to the Division Bench,
since Section 5 of the Act mandated that there would be no judicial
intervention as provided for in Part I of the Act and since there is no
provision in Part I for any court to review its own order, the review petition
filed was not maintainable. The impugned order would, therefore, have to
be set aside. The appeal filed by the respondent under Section 37 was
allowed.
8) Shri Ranjit Kumar, leaned senior counsel for the appellant, has
argued before us that it is obvious that on a perusal of Clause 13 and
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Clause 22, no arbitration is provided for and that these are only in-house
procedures. He went on to state that it is always inherent in a High Court,
being a court of record, to recall its own orders, and has cited certain
judgments together with the High Court (Original Side) Rules. According to
him, the appeal under Section 37 itself was not maintainable and for all
these reasons, the impugned order should be set aside.
9)On the other hand, Shri Shekhar Naphade, learned senior counsel
argued on behalf of the respondent, stating that the Arbitration Act is a self-
contained Code, and, this being so, it is not possible to look outside the four
corners of the Act to find a review power. This may apply even to Article 215
of the Constitution of India. He argued that Clause 13 and Clause 22 are
clearly arbitration clauses inasmuch as a dispute has to be referred for
decision to a Committee and thereafter to an Appellate Committee, after
which, the decision rendered by the Appellate Committee is final and
binding. According to Shri Naphade, the correct course could only have
been to apply to Justice V.M. Kanade (retired) under Section 16 of the Act
on whether an arbitration clause does or does not exist. He added that
since the Code of Civil Procedure (in short ‘the Code’) will not apply,
therefore, there is no question of inherent power contained in Section 151
of the Code applying either.
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10)The clauses which Shri Naphade has referred to as arbitration
clauses cannot, prima facie, be regarded as such. Sub-clause 13.1 clearly
states, “No Arbitration is allowed”. Sub-clause 13.2 cannot then be read as
an arbitration clause. Also, on the assumption that Clause 22 would be the
applicable clause, it is clear that the said clause has a marginal note which
reads: Jurisdiction of Courts. The first paragraph of Clause 22 specifically
deals with competent courts in the city of Mumbai only having exclusive
jurisdiction in respect of claims, disputes etc. arising in respect of the
contract. The second paragraph and the third paragraph, according to Shri
Naphade, would amount to an arbitration clause as the Committee
mentioned therein is to give a decision, which is appealed again before
another Committee which gives a decision which shall be final and binding
upon both the parties. We are of the view that Clause 22 deals with
disputes that may arise under the agreement which can either be dealt with
by an in-house procedure or by courts, as the case may be. By no stretch of
imagination could this in-house procedure be stated to be an agreement to
arbitrate between the parties. In any case, what is important on the facts of
this case, is that neither of these clauses has been invoked. The Court’s
order dated 27.06.2017, clearly shows that Justice Kanade was appointed
as Sole Arbitrator thanks to Mr. Agashe, Assistant Engineer, having no
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objection to the same. As has been stated in the recall application and the
affidavit of the Commissioner, Mr. Agashe was not empowered to take any
decision regarding appointment of an Arbitrator. This being the undisputed
position before the Court, it is clear that an oral agreement between the
parties de hors Clause 13 and Clause 22 could not have been arrived at.
We must also remind ourselves that this agreement was arrived at during
the course of hearing of a Section 9 petition. In the present case, nobody
has applied under Section 11 to appoint an Arbitrator in accordance with
either Clause 13 or Clause 22.
11)Insofar as the High Courts’ jurisdiction to recall its own order is
concerned, High Courts are courts of record, set up under Article 215 of the
Constitution of India. Article 215 of the Constitution of India reads as under:-
“Article 215. High Courts to be courts of record.—
Every High Court shall be a court of record and shall
have all the powers of such a court including the
power to punish for contempt of itself.”
It is clear that these constitutional courts, being courts of record, the
jurisdiction to recall their own orders is inherent by virtue of the fact that
they are superior courts of record. This has been recognized in several of
our judgments.
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12)In National Sewing Thread Co. Ltd. v. James Chadwick & Bros.
Ltd., 1953 SCR 1028, this Court has held as under:-
“……The Trade Marks Act does not provide or lay
down any procedure for the future conduct or career
of that appeal in the High Court, indeed Section
77 of the Act provides that the High Court can if it
likes make rules in the matter. Obviously after the
appeal had reached the High Court it has to be
determined according to the rules of practice and
procedure of that Court and in accordance with the
provisions of the charter under which that Court is
constituted and which confers on it power in respect
to the method and manner of exercising that
jurisdiction. The rule is well settled that when a
statute directs that an appeal shall lie to a Court
already established, then that appeal must be
regulated by the practice and procedure of that
Court. This rule was very succinctly stated by
Viscount Haldane L.C. in National Telephone Co.
Ltd. v. Postmaster-General, [1913] A.C. 546 in these
terms:-
“When a question is stated to be referred to an
established Court without more, it, in my
opinion, imports that the ordinary incidents of
the procedure of that Court are to attach, and
also that any general right of appeal from its
decision likewise attaches.”
The same view was expressed by their Lordships of
the Privy Council in R.M.A.R.A. Adaikappa Chettiar
v. Ra. Chandrasekhara Thevar, (1947) 74 I.A. 264,
wherein it was said:-
“Where a legal right is in dispute and the
ordinary Courts of the country are seized of
such dispute the Courts are governed by the
9
ordinary rules of procedure, applicable thereto
and an appeal lies if authorised by such rules,
notwithstanding that the legal right claimed
arises under a special statute which does not,
in terms confer a right of appeal.”
Again in Secretary of State for India v. Chellikani
Rama Rao, (1916) I.L.R. 39 Mad. 617, when dealing
with the case under the Madras Forest Act their
Lordships observed as follows:-
“It was contended on behalf of the appellant
that all further proceedings in Courts in India
or by way of appeal were incompetent, these
being excluded by the terms of the statute just
quoted. In their Lordships’ opinion this
objection is not well-founded. Their view is that
when proceedings of this character reach the
District Court, that Court is appealed to as one
of the ordinary Courts of the country, with
regard to whose procedure, orders, and
decrees the ordinary rules of the Civil
Procedure Code apply.”
Though the facts of the cases laying down the
above rule were not exactly similar to the facts of the
present case, the principle enunciated therein is one
of general application and has an apposite
application to the facts and circumstances of the
present case. Section 76 of the Trade Marks Act
confers a right of appeal to the High Court and says
nothing more about it. That being so, the High Court
being seized as such of the appellate jurisdiction
conferred by section 76 it has to exercise that
jurisdiction in the same manner as it exercises its
other appellate jurisdiction and when such
jurisdiction is exercised by a single Judge, his
judgment becomes subject to appeal under Clause
15 of the Letters Patent there being nothing to the
contrary in the Trade Marks Act.”
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13)To similar effect is our judgment in Shivdev Singh & Ors. v. State of
Punjab and Others, AIR 1963 SC 1909, wherein this Court has stated as
under:
“10. … It is sufficient to say that there is nothing in
Article 226 of the Constitution to preclude a High
Court from exercising the power of review which
inheres in every Court of plenary jurisdiction to
prevent miscarriage of justice or to correct grave
and palpable errors committed by it…”
14)Also, in M.M. Thomas v. State of Kerala and Another, (2000) 1 SCC
666, this Court has held as follows:-
“14. The High Court as a court of record, as
envisaged in Article 215 of the Constitution, must
have inherent powers to correct the records. A court
of record envelops all such powers whose acts and
proceedings are to be enrolled in a perpetual
memorial and testimony. A court of record is
undoubtedly a superior court which is itself
competent to determine the scope of its jurisdiction.
The High Court, as a court of record, has a duty to
itself to keep all its records correctly and in
accordance with law. Hence, if any apparent error is
noticed by the High Court in respect of any orders
passed by it the High Court has not only power, but
a duty to correct it. The High Court’s power in that
regard is plenary. In Naresh Shridhar Mirajkar &
Ors. v. State of Maharashtra, AIR 1967 SC 1 : [1966]
3 SCR 744, a nine-Judge Bench of this Court has
recognised the aforesaid superior status of the High
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Court as a court of plenary jurisdiction being a court
of record.”
15)Insofar as Shri Naphade’s arguments that the Act is a self-contained
Code, Section 5 of which interdicts a review or recall application, suffice it to
state that having held that there is no arbitration agreement pursuant to the
order dated 27.06.2017, the Act will not apply.
16)This being the case, the impugned judgment of the Division Bench of
the High Court is set aside. Shri Naphade urges us to continue the order
dated 23.06.2017 for a period of four weeks from today so that he may
approach the appropriate forum. We continue the said order for a period of
four weeks from today. The appeal is disposed of accordingly.
………………………….J.
(R.F. NARIMAN)
………………………….J.
(M.R. SHAH)
New Delhi,
Dated: December 4, 2018.
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In a significant ruling concerning the High Court's power of recall and the interpretation of arbitration agreements under the Arbitration and Conciliation Act, 1996, the Supreme Court of India delivered a crucial judgment in Municipal Corporation of Greater Mumbai & Anr. vs. Pratibha Industries Ltd. & Ors. This case, along with several other landmark rulings, is meticulously detailed and accessible on CaseOn, providing legal professionals and students with in-depth analysis and the latest updates.
This appeal arose from a dispute over a tender for water meters. The key issue revolved around whether an arbitration agreement existed between the parties and, consequently, if the Bombay High Court had the inherent power to recall its own order appointing an arbitrator. The Supreme Court delved into the contract clauses, the authority of the parties' representatives, and the foundational powers of a High Court as a court of record.
The central question before the Supreme Court was two-fold: First, whether the contract between the parties actually contained a valid arbitration agreement. Second, if no such agreement existed, could the High Court legitimately recall its earlier order appointing a sole arbitrator, especially when the Arbitration and Conciliation Act, 1996, is considered a self-contained code?
The Supreme Court reaffirmed that High Courts, by virtue of Article 215 of the Constitution of India, are courts of record. This status inherently grants them the power to correct their own records and recall orders to prevent a miscarriage of justice or rectify palpable errors. This inherent power is not superseded by the Arbitration and Conciliation Act, 1996, when the very basis of applying the Act (i.e., the existence of an arbitration agreement) is absent.
The Court meticulously examined Clause 13 and Clause 22 of the contract documents. Clause 13.1 explicitly stated, "No Arbitration is allowed." Clause 13.2 outlined an internal dispute resolution mechanism involving the Municipal Commissioner. Similarly, Clause 22, titled "Jurisdiction of Courts," also detailed an in-house procedure followed by exclusive jurisdiction of Mumbai courts. The Supreme Court unequivocally held that these clauses, by no stretch of imagination, constituted an arbitration agreement between the parties. They merely provided for internal dispute resolution processes or judicial recourse in civil courts.
The initial appointment of Justice V.M. Kanade as sole arbitrator by the High Court was based on an oral statement made by Mr. A.M. Agashe, an Assistant Engineer from MCGM, indicating the parties' willingness to arbitrate. However, the appellant (MCGM) later clarified through a recall application and Commissioner's affidavit that Mr. Agashe was not empowered to make such a decision or agree to arbitration on behalf of the Municipal Corporation. The Supreme Court found this undisputed, concluding that no valid oral agreement to arbitrate, independent of the contract clauses, could have been arrived at.
The Division Bench of the High Court had erred by overturning the Single Judge's recall order, arguing that the Arbitration Act, being a self-contained code, precluded review or recall under Section 5. The Supreme Court clarified that the Arbitration Act applies only when an arbitration agreement exists. Since the Court found no such agreement, either in the contract clauses or through a valid oral agreement, the Arbitration Act, 1996, including its limitations on judicial intervention, simply did not apply to this situation. Therefore, the High Court's inherent power as a court of record under Article 215 remained unfettered to correct a manifest error—the appointment of an arbitrator where no agreement to arbitrate existed. For legal professionals and students seeking a quick grasp of these nuanced legal arguments, CaseOn.in's 2-minute audio briefs provide an excellent and efficient way to analyze such specific rulings, condensing complex judgments into easily digestible summaries.
The Supreme Court set aside the Division Bench's judgment, upholding the Single Judge's decision to recall the order appointing the sole arbitrator. It reiterated that High Courts, as courts of record, possess inherent powers to correct their own errors and ensure justice, especially when the fundamental premise of a previous order (like the existence of an arbitration agreement) is found to be absent. The Court also extended the interim injunction for four weeks to allow the respondent to pursue appropriate legal remedies.
This judgment is critical for several reasons: It emphatically clarifies the scope of a High Court's inherent power of recall under Article 215, distinguishing it from review powers under other statutes. It provides crucial guidance on interpreting arbitration clauses, highlighting that mere internal dispute resolution mechanisms do not automatically constitute an arbitration agreement. Furthermore, it serves as a reminder of the importance of ensuring proper authorization when making significant legal commitments, such as agreeing to arbitration. For legal practitioners, understanding these distinctions is vital for drafting contracts, initiating dispute resolution, and challenging erroneous court orders. For students, it offers a foundational understanding of constitutional powers, contract interpretation, and the limits of special statutes like the Arbitration Act.
Disclaimer: All information provided in this article is for informational purposes only and does not constitute legal advice. Readers are encouraged to consult with a qualified legal professional for advice on specific legal issues.
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