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Arbitration & Commercial LawSupreme Court of India

Municipal Corporation of Greater Mumbai v. Pratibha Industries Limited

Civil Appeal · 2018 INSC 1151Decided 4 Dec 2018
Civil Appeal No. 11822 of 2018
Justice Rohinton Fali Nariman · Justice M.R. Shah

Background

A tender dispute over water-meter supply contracts between the Mumbai Municipal Corporation and a contractor led to bank-guarantee encashment proceedings before the Bombay High Court. During a hearing, a junior municipal engineer (without authority) agreed to the appointment of a retired judge as sole arbitrator, even though the contract's own clauses stated "No Arbitration is allowed." The Corporation sought to recall that order, which a single judge allowed, but a Division Bench reversed, holding the Arbitration Act did not permit a court to review its own order.

Decision Breakdown

The Supreme Court held that the contract clauses in question were not arbitration clauses at all, but in-house dispute-resolution procedures with court jurisdiction retained, and that the arbitrator's appointment was never validly agreed to since the municipal officer who consented had no authority to do so. It further held that since there was no valid arbitration agreement, the Arbitration Act's bar on judicial review of its own proceedings (Section 5) did not apply, and that High Courts, being constitutional courts of record under Article 215, have an inherent power to recall and correct their own orders to prevent a miscarriage of justice. The Division Bench's order was therefore set aside, restoring the single judge's recall order, with a short continuation of the earlier interim injunction to let the respondent pursue the correct forum.

Lesson Learnt

A person without actual authority to settle or agree to arbitration on an organisation's behalf cannot bind it merely by consenting in court, and higher courts retain an inherent power to recall their own mistaken orders even in matters otherwise governed by a specialised statute like the Arbitration Act.

Municipal Corporation of Greater Mumbai v. Pratibha Industries Limited – Legal Case Shots | LegalAware