Bharat Udyog Ltd. vs Ambernath Municipal Council - Arbitration Dispute

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M/S. Bharat Udyog Ltd. (Formerly Known ... vs Ambernath Municipal Council Through ... on 24 March, 2026

Author: Pamidighantam Sri Narasimha

Bench: Pamidighantam Sri Narasimha

2026 INSC 288 REPORTABLE

                          IN THE SUPREME COURT OF INDIA
                           CIVIL APPELLATE JURISDICTION

               SPECIAL LEAVE PETITION (C) NO. 1127 OF 2017

    M/S BHARAT UDYOG LTD.
    (FORMERLY KNOWN AS M/S JAI HIND
    CONTRACTORS PVT. LTD.)                                                   ...PETITIONER(S)

                                              VERSUS

    AMBERNATH MUNICIPAL COUNCIL
    THROUGH COMMISSIONER & ANR.                                            …RESPONDENT(S)

                                         JUDGMENT 1.      This special leave petition arises out of the final judgment and

    order 1 passed by the High Court of Judicature at Bombay in exercise of

    jurisdiction under [Section 39](https://indiankanoon.org/doc/685723/) of the Arbitration Act, 1940. By the said

    order, the High Court allowed the appeal filed by the respondent no. 1,

    Ambernath Municipal Council (hereinafter ‘Municipal Council’) and

    quashed and set aside the award as well as the judgment of the Civil

    Court 2, making the award a rule of the Court and dismissing the

    objections of the Municipal Council. For the reasons to follow, we have

    held that there is neither an arbitration agreement between the parties

    1 First Appeal No. 94 of 2001 dated August 4, 2016.

2 Judgement of the Joint Civil Judge, Senior Division, Kalyan, dated September 22, 2000, in Misc.

    Application No. 196/1996.

Page 1 of 16 nor an informed consent of the Municipal Council for resolution of the

dispute through arbitration. We have therefore upheld the decision of

the High Court and dismissed the special leave petition.

1. Facts relevant to the present special leave petition are that the

Municipal Council is constituted under the provisions of the [Maharashtra

Municipal Councils, Nagar Panchayats and Industrial Townships Act,

1965](https://indiankanoon.org/doc/50093558/). In March 1994, while exercising powers conferred under Section

143-A of the 1965 Act, the Municipal Council issued a tender for the

collection of octroi for a period of one year, beginning on 1 April 1994

and ending on 31 March 1995. The tender notification provided for a

reserve price with the term that any offer lower than Rs. 6,74,00,000/-

may not be considered and would be rejected. The other tender

conditions were of earnest money of Rs. 1,00,000/- in the form of call

deposit and a security deposit in the form of bank guarantee of a

nationalized or scheduled bank for Rs. 1,07,92,000/-.

1. The petitioner participated in the tender along with other bidders

and was declared successful, having submitted its bid for an amount of

Rs. 6,75,00,000/-. The Municipal Council accepted the petitioner’s bid

and entered into an agreement with the petitioner, dated 30 March 1994,

for the said octroi collection contract.

1. The petitioner, after execution of the agreement, commenced the

work with effect from 1 April 1994. However, on 2 May 1994 petitioner Page 2 of 16 addressed a letter to the Chief Officer of the Municipal Council

requesting that the amount of Rs. 6,74,00,000/- fixed as a minimum

reserve price/ bid amount be reduced by Rs. 40,78,517/- on the ground

that the same was contrary to the norms to determine the minimum

reserve price. This representation of the petitioner was rejected by the

Chief Officer of the Municipal Council in his letter dated 27 May 1994,

informing that the minimum reserve price for the said tender was fixed

as per the guidelines issued by the Government of Maharashtra.

1. Being aggrieved by this decision, the petitioner approached the

High Court in Writ Petition No. 3598 of 1994. However, the petitioner

later sought leave to withdraw the Petition, with liberty to adopt

appropriate proceedings. By an order dated 26 September 1994, the

High Court disposed of the writ petition as withdrawn to enable the

petitioner to adopt appropriate proceedings.

1. After withdrawing the writ petition, the petitioner approached the

Urban Development Department of the Government of Maharashtra by

its letter dated 5 October 1994, purportedly on the basis of the leave

granted by the High Court to avail alternative remedy, requesting the

State Government to appoint an arbitrator to resolve the dispute as

raised by petitioner under its letter dated 2 May 1994 to reduce the

minimum reserve price from Rs. 6,74,00,000/- to Rs. 6,33,71,483/-. Page 3 of 16

1. The State Government, though unconnected with the said

contract, responded favourably and by a Government Resolution dated

14 November 1994 issued under the signature of the Joint Secretary in

the Urban Development Department appointed Commissioner, Konkan

Division, as an Arbitrator to arbitrate the said dispute. This Government

Resolution records that the same was issued by the State Government

in pursuance of the powers conferred under Section 143-A(3) of the said

Act and that the same was issued as a special case. Another significant

aspect is that the Arbitrator so appointed was required to submit an

arbitration report to the State Government within one month. It was also

provided that the arbitration be conducted in accordance with the

provisions of the Arbitration Act, 1940.

1. At the relevant time, the Municipal Council was functioning under

an “Administrator” appointed by the State Government. After the

appointment of the learned Arbitrator, immediately on 3 December 1994,

an intimation came to be issued to the Municipal Council, calling upon

to attend a hearing fixed by the Arbitrator on 9 December 1994. It was

recorded that a reply be filed by 9 December 1994 and a hearing would

be held before the Arbitrator on 14 December 1994 at 2.30 p.m. The

Administrator of the Municipal Council submitted a reply vide his letter

dated 8 December 1994, indicating the statutory and regulatory

processes followed for granting the contract in favour of the petitioner. Page 4 of 16 The reply also indicated that the procedure contemplated was strictly

followed, and, as such, there is no avenue to reduce the minimum

reserve price. It was also stated that, having participated in the process

by submitting its bid at Rs. 6,75,00,000/-, which was Rs. 1 lakh above

the minimum reserve price of Rs. 6,74,00,000/-, it was not possible for

the petitioner to dispute the same after the contract is executed. It was

also stated that the reserve price was fixed in accordance with the

Government of Maharashtra's guidelines.

1. The learned Arbitrator delivered his award on 26 December 1994

by holding that the minimum reserve price of Rs. 6,74,00,000/- as fixed

by the Municipal Council was not correct and that the minimum reserve

price ought to have been Rs. 6,20,89,843/-. In this view of the matter,

the arbitrator declared the minimum reserve price as Rs. 6,20,89,843/-.

The petitioner thereon proceeded to file a Miscellaneous Application No.

292 of 1995 before the Court of Civil Judge Senior Division, Thane,

under Section 14 read with Section 17 of the 1940 Act, seeking that the

award be made a rule of the Court.

1. Apparently, the Municipal Council woke up to the unilateral

decision appointing the arbitrator on 14.11.1994 and then the arbitrator

proceeded to deliver his award on 26.12.1994 within forty two days, and

on 10 April 1995 addressed a letter to the Minister, Urban Development

Department, inter alia, complaining that the Government Resolution Page 5 of 16 dated 14 November 1994 appointing the learned Arbitrator was

unilaterally issued. It was pointed out that there was no provision under

the contract under which the State Government could appoint an

Arbitrator to resolve the dispute between the parties. The Municipal

Council also approached the Collector, requesting that the appointment

of the Arbitrator be cancelled.

1. The Municipal Council, having received service of the

Miscellaneous Application on 31 March 1995 filed by the petitioner,

appeared before the learned Civil Judge by filing objections to the

Miscellaneous Application. Accordingly, a prayer was made that the

application of the petitioner for a decree in terms of the award be

dismissed. The relevant portion of the objections raised by the Municipal

Council is as follows:

“1. The Respondent No. 1 states that the Respondent No. 2 viz.
Revenue Commissioner has passed this Award on 26.12.1994 in
the above proceedings. The Revenue Commissioner, Konkan
Division Shri G.D. Pingulkar has passed the said Award. This
Respondent has already filed its say and objection to the main
Petition under Section 30 and 33 of the Arbitration Act, 1940 in
the month of April, 1995 itself. This Respondent repeats and
reiterates that they rely on the said objections as raised under Section 30 and 33 of Arbitration Act, 1940. The Petitioners are
disentitled from getting and/or seeking any relief in this Petition
either for the alleged decree in terms of Award or any other
reliefs. lnfact the so called Award dated 26.12.1994 delivered by
the Respondent No. 2 is nonest and is null and void and is
unenforceable in law in any manner whatsoever, and on this
count itself the said Award is liable to be ignored and discarded.

1. The Respondent No. 1 states that the State of Maharashtra had no jurisdiction of any nature whatsoever under any of the provisions of Arbitration Act and/or in any other clauses of contract under which such an arbitrator could have been Page 6 of 16 appointed by the State of Maharashtra in relation to the alleged dispute between the Petitioners and the Respondent No. 1 in relation to the Octroi contract for the period from 01.04.1994 to 31.03.1995.”
2. The learned Civil Judge noted the submission of the Municipal

Council that arbitration was impermissible, but did not return a finding

on the said issues and proceeded to hold that the objection was barred

by limitation. The learned Judge vide the judgment and order dated 22

September 2000, allowed the Miscellaneous Application and directed

that a decree be drawn up in terms of the arbitral award.

1. The Municipal Council challenged the said order, and vide the

order impugned before us, the High Court of Bombay has reversed this

decision and set aside the award. The High Court held that the dispute-

resolution clause in the contract did not constitute a valid “arbitration

agreement” under the law, but rather provided for a departmental

dispute-resolution mechanism. The Court found that the State

Government lacked jurisdiction to “foist” arbitration on a concluded

contract and that the petitioner was estopped from challenging the

tender price after voluntarily participating in and winning the bid. The

Court characterised the process as a “back door method” to tinker with

public tender conditions. In this view of the matter, the High Court

proceeded to allow the appeal under Section 39.

1. Aggrieved by the said decision of the High Court, the present

petition has been preferred before us. We heard Mr. P. B. Suresh, Page 7 of 16 learned senior counsel for the petitioner and Mr. Vinay Navare, learned

senior counsel for the respondent no. 1, at length.

1. Mr. P.B. Suresh, learned senior counsel appearing for the

petitioner would submit that the present case is a case of waiver and

acquiescence and as the Municipal Council actively participated in the

arbitral proceedings without any demur, cannot raise jurisdictional

questions. In support of his submission, he relied on the decision of this

Court in [N Chellappan v. Secretary, Kerala State Electricity Board and

Anr.3](https://indiankanoon.org/doc/317172/) and Inder Sain Mittal v. Housing Board, Haryana and Ors.4. He

has brought to our notice the express consent of the Municipal Council

to abide by the decision taken and also the outcome of the arbitral

proceedings. He has also submitted that the Municipal Council has

admitted to the existence of the arbitration clause. Apart from issues

relating to estoppel, Mr. Suresh has submitted that the objections to the

award were barred by limitation. He would conclude by submitting that

the intention of the parties to refer the dispute to arbitration is evident,

and therefore, even if the contract does not use the expression

“arbitration”, the court should not have interfered with the arbitral award

that came into existence.

3 (1975) 1 SCC 289.

4 (2002) 3 SCC 175.

Page 8 of 16

1. Mr. Vinay Navare, learned senior counsel appearing for the

Municipal Council, on the other hand, supported the reasoning in the

judgment and order passed by the High Court and reiterated the

submission that there exists no arbitration agreement between the

parties and that the Municipal Council has raised jurisdictional questions

challenging the award at the appropriate stage.

1. We have given our anxious consideration, particularly in view of

the fact that the award has already been delivered and the same was

upheld by the Civil Court. It is in this context that the exercise of

jurisdiction of the High Court in appeals under Section 39 of the

Arbitration Act, 1940 requires close scrutiny.

1. At the outset, we note that the parties to the contract are the

petitioner and the Municipal Council. The Municipal Council is a

statutory authority, a body corporate with perpetual seal and succession.

It takes its own decision for the matters with respect to which it has

power, jurisdiction and functions to perform. As it is argued that the

intervention of the government to superimpose arbitration between the

Municipal Council and agent under the octroi policy can be sourced to

Section 143A, we will commence with examining the said provision,

extracted below for ready reference:

“143A. Farming of Octroi or appointment of Agent for collection
thereof:
Page 9 of 16
(1) Notwithstanding anything contained in this Act, it shall be for
a Council to lease by public auction the collection of octroi for any
period not exceeding one year at a time or to appoint an agent
for the collection thereof.

(2) Where the collection of octroi has been so leased, or where
an agent is so appointed, any person employed by the lessee or
the agent shall, subject to the conditions of the lease, or as the
case may be, the agreement of agency, exercise the powers and
perform the duties conferred and imposed on the officers and
employees of the Council authorized to collect octroi under this
Act or the rules:

Provided that, no property seized under the provisions of sub
sections (1) and (2) of Section 141 may be sold, except under the
order of the Chief Officer.

(3) Subject to the directions, if any, issued from time to time, by
the State Government, by any general or special order in this
behalf, the Council shall regulate the collection of octroi either
through such lessee or agent in such manner and procedure as
it may deem fit having regard to the provisions of the Act.”

(emphasis supplied)
19. Relying on above referred sub-section (3) of Section 143A, it is

argued that the government can issue directions to the Municipal

Council. The said submission must be rejected at the outset for the

reason that the general or special order that the State Government may

issue under the sub-section relates to regulating the collection of octroi

and the procedure that it may adopt. The power to collect octroi and to

prescribe the method and manner of such collection is within the

province of the Municipal Council. All that Section 143A(3) prescribes is

that the State Government can issue policy directions with respect to the

manner and procedure by which the power is to be exercised. Under no

circumstances can such a power be extended to appoint an arbitrator Page 10 of 16 unilaterally, notwithstanding the statutory or contractual relationship that

may exist between the Municipal Council and its agent.

1. In view of the above, we have no hesitation in affirming the

following findings arrived at by the Division Bench of the High Court.

“22…. Moreover, as noted above the Government Resolution
specifies that the same has been issued in pursuance of the
power under Section 143-A(3) (supra) of the Municipal Council
Act and that the arbitrator is being appointed as a special case.
On a perusal of the said provision as we have noted above, we
do not find that any such power is vested in the State Government
under subsection(3) of Section143-A, to foist arbitration on
parties who are governed by a concluded contract between them.
What is significant is that in this entire process of appointing an
arbitrator it is solely at the instance of Respondent No.1, there is
not a slightest role played by the Appellant. There is nothing on
record to show that the Government had taken concurrence of
the Appellant or to stretch it little further, that a particular clause
in the agreement / contract between the Appellant and the
Respondents permitted the Government to make an appointment
of an arbitrator. Thus, the basic requirement of an arbitration
agreement namely of mutuality and/or the parties being adidem
for reference of the disputes to arbitration is completely absent…”

1. It is also argued that there is, in fact, an arbitration agreement

between the parties as is provided in clause 22 of the Contract. Clause

22 is as follows:

“Clause 22: Disputes: In case of any dispute, the same shall be
referred to the Collector and his decision shall be final and
binding on the Agent and the Council. Appeal against the
decision of the Collector in case of any dispute shall lie first before
the Divisional Commissioner and finally before the Government
in Urban Development Department….”

1. Yet again, a simple, plain reading of clause 22 would reveal that

the parties have not agreed upon resolving the existing disputes

between them through arbitration. All that it provides is that a dispute

shall be referred to the Collector and his decision shall be final and Page 11 of 16 binding on the parties. Further, the clause enables the parties to file an

appeal against the decision of the collector to the Deputy Commissioner

and thereafter to the Urban Development Department. In fact, clause 22

leaves no space for resolution of disputes through an alternative dispute

resolution methodology. This is for the reason that octroi is an important

source of income, and the power to impose and collect octroi is integral

to the jurisdiction and functioning of Municipal bodies under Part IXA of

the Constitution. It is for this reason that the power to resolve disputes

is kept within the fold of the governmental hierarchy. In this case, access

to justice of an agent of the government in a contract for collection of

octroi could be through judicial review, civil or statutory remedies if any.

1. Dealing with this very aspect, the High Court returned the following

findings;
“23. Despite the above legal position, Respondent No.1
would contend that as the Appellant participated in the
proceedings before the learned Arbitrator the award is valid and
cannot be set aside. We do not agree. In our opinion considering
the facts and circumstances of the case and more particularly
clause 22, it was wholly impermissible for Respondent No.1 to
approach the State Government directly and make a unilateral
request to make an appointment of an arbitrator. In taking all
these steps, Respondent No.2 (Arbitrator) was not oblivious of
the fact that the Appellant-Municipal Council was working under
the Administrator appointed by the Government of Maharashtra
and that certainly the Administrator was the officer subordinate
firstly to the State Government as also to the Revenue
Commissioner, Konkan Division who came to be appointed as
Arbitrator. Interestingly the facts relating to the conduct of the
arbitration proceedings are writ large. The learned Arbitrator
called upon the Appellant to submit a reply by 9 December 1994
and to appear before the learned Arbitrator on 14 December 1994
at 2.30 p.m. Accordingly, on 14 December 1994 the learned
Arbitrator heard the parties and closed the matter for an award to Page 12 of 16 be passed and soon thereafter on 26 December 1994 delivered
his award holding that the minimum reserve price was required
to be fixed at Rs. 6,20,89,843/- which was surprisingly lesser than
the demand of Respondent No. 1 which was Rs. 6,33,21,483/-
(i.e. Rs. 6,74,50,000 minus Rs. 40,78,517/0). Admittedly, it was
the administrator who represented on behalf of the Appellant and
justified the fixation of the minimum reserve price of Rs.
6,74,50,000/-. This was the nature of participation of the
administrator as the record reveals. We thus cannot agree with
the submission as made on behalf of Respondent No.1 that the
Administrator having purportedly participated, there is estoppel
against the Appellant to challenge the validity of the arbitration
agreement and the jurisdiction of the arbitrator to pass the award
(…)”

1. Apart from the fact that clause 22 does not constitute any

arbitration agreement, the circumstances in which clause 22 was taken

as an excuse for resorting the matter for arbitration, leading to the award

is commented upon by the High Court in the following terms:

“22. Furthermore, it is not a case that the Respondent had
invoked Clause 22 and/or as Clause 22 would require, the
Collector was not called upon to enter resolution of the dispute.
The facts are quite different. As noted above in view of the letter
of Chief Officer of the Appellant dated 27 May 1994 refusing to
change the reserved price, Respondent No.1 had approached
this Court in Writ Petition No.3598 of 1994, which was permitted
to be withdrawn with a liberty to adopt appropriate proceedings,
by filing a suit or by resorting to arbitration. Considering the High
Court's order to mean that it has permitted arbitration,
Respondent No.1 approached the State Government by its letter
dated 5 October 1994 with a request to appoint an arbitrator to
resolve the dispute as regards the minimum reserve price to be
lowered from Rs.6,74,00,000/- to Rs.6,33,71,483/-. Favourably
responding to this representation of Respondent No.1, the
Government in its Urban Development Department issued a
Government Resolution dated 14 November 1994 under the
signature of the Joint Secretary in the Urban Development
Department appointing the Commissioner, Konkan Division, as
an Arbitrator to arbitrate the said dispute.…..We have therefore
no hesitation to observe that neither any of the clauses of the
agreement much less clause 20 and 22 as referred above
constitute an arbitration agreement nor the State Government
had any jurisdiction to appoint an arbitrator in terms of the
agreement entered between the parties. In the absence of an
arbitration agreement, the learned Arbitrator had no jurisdiction Page 13 of 16 to enter the arbitration and conduct the arbitration proceedings in
question.”
25. We are in agreement with the findings of the High Court as regards

the interpretation of clause 22, as well as the unsatisfactory

circumstances in which the Municipal Council was compelled to

participate in the arbitral proceedings. The High Court also considered

the decision relied on by the petitioner for the reason that there is no

acquiescence or estoppel in the facts and circumstances of the case.

1. In view of the above analysis, we are of the opinion that the High

Court has arrived at the right conclusion on the basis of law and fact.

While reiterating the decision of the High Court, we are of the opinion

that there is no merit in the special leave petition for the following

reasons:

a) Absence of a Valid Arbitration Agreement: There is no written

agreement between the parties to submit differences to arbitration as

required by Section 2(a) of the Arbitration Act, 1940. Specifically,

Clause 20 relates to the position that the parties are to maintain

pending the disposal of a dispute resolution. In other words, clause

20 prescribes a measure that the parties would maintain pending

resolution. However, that by itself cannot be an arbitration clause. On

the other hand, Clause 22 is certainly not an arbitration agreement.
b) Lack of Jurisdiction for Appointment: State Government has no

  authority under Section 143-A(3) of the Maharashtra Municipal Page 14 of 16 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.

c) Absence of Mutuality: The requirement of consensus ad idem for

creation of an arbitration agreement as contemplated under [Section

2(a)](https://indiankanoon.org/doc/1430346/) of the Arbitration Act, 1940, was absent.

d) Void Proceedings and Nullity of Award: Since the Arbitrator lacked

inherent jurisdiction due to the absence of an arbitration agreement,

the entire proceedings were a nullity (coram non judice) and the

resulting award was non-est.

e) Participation does not confer Jurisdiction: 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. At the same time, they

challenged the award on jurisdictional grounds before the Civil Court

as well as the High Court.

f) Propriety of Arbitral Proceedings: We are in agreement with the

conclusions of the High Court that the arbitral proceedings were

perfunctory and started and concluded in a short period. Suffice to say

that the circumstances relating to the making of the award indicated

in the judgment of the High Court do not warrant interference. In any Page 15 of 16 event, once the award is set aside on the ground of jurisdiction, this

  issue is not relevant.

1. For the reasons stated above, there is no error in the judgment and

order passed by the High Court in First Appeal No. 94 of 2001 dated

August 4, 2016. There is no merit in the special leave petition. The special

leave petition stands dismissed. The parties shall bear their own costs.

………………………………....J.
[PAMIDIGHANTAM SRI NARASIMHA]

                                       ………………………………....J.
                                             [ALOK ARADHE]

NEW DELHI;

MARCH 24, 2026.

Page 16 of 16