State Cannot Appoint Arbitrator Under Maharashtra Municipal Councils Act Without Arbitration Agreement: Supreme Court
The Supreme Court on Tuesday dismissed a special leave petition filed by Bharat Udyog Ltd, holding that the State Government had no authority under Section 143-A(3) of the Maharashtra Municipal Councils, Nagar Panchayats and Industrial Townships Act, 1965, which deals with issuance of policy directions regarding the levy and collection of octroi, to appoint an arbitrator between a Municipal Council and its agent.
The court held that the government's exercise of such power could not be equated with arbitration under law in the absence of a valid arbitration agreement between the parties
A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe observed:
“State Government has no authority under Section 143-A(3) of the Maharashtra Municipal Councils, Nagar Panchayats and Industrial Townships Act, 1965 to appoint an arbitrator for the agent and the Municipal Council. The exercise of such power by the government cannot be equated to Section 4 of the Arbitration Act, 1940, for there is no such agreement.”
The dispute relates to an octroi collection contract awarded on March 30, 1994 by Ambernath Municipal Council to Bharat Udyog for the period April 1, 1994 to March 31, 1995. After commencement of the contract, the contractor sought reduction of the reserve price and approached the State Government when its request was rejected.
Acting on the request, the State government issued a resolution on November 14, 1994 appointing an arbitrator, who later passed an award granting relief to the contractor. The award was made rule of court on September 22, 2000.
The Municipal Council challenged the award, and the Bombay High Court on August 4, 2016 set it aside, holding that there was no arbitration agreement and that the State government lacked jurisdiction to impose arbitration.
In appeal, the Supreme Court affirmed this view, holding that in the absence of an arbitration agreement and mutual consent, arbitration could not be imposed by the State.
While clarifying that mere participation in arbitral proceedings does not create jurisdiction and that there can be no estoppel against the Municipal Council on this ground, the court said:
“There is no estoppel against the Municipal Council for the reason that it had initially participated in the arbitral proceedings. This is for the reason that they were forced into arbitration without consent and contract.”
Accordingly, the court found no merit in the special leave petition and upheld the High Court's decision.