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Babanrao Rajaram Pund vs. M/s Samarth Builders & Developers & Anr.

Civil Appeal · 2022 INSC 935Decided 7 Sept 2022
Civil Appeal No. 6272 of 2022
Surya Kant · Abhay S. Oka

Background

The appellant, a landowner in Aurangabad, Maharashtra, entered into a Development Agreement with a builder to construct an apartment complex called "Amay Apartments," under which the builder would get 55% of the constructed area and the owner 45%. The builder failed to complete construction within the agreed 15-month period (plus extension), so the owner terminated the agreement and invoked Clause 18 of the agreement, which he treated as an arbitration clause, seeking to refer the dispute to a sole arbitrator. When the builder did not respond, the owner approached the Bombay High Court (Aurangabad Bench) under Section 11 of the Arbitration Act to get an arbitrator appointed, but the High Court held that Clause 18 was not a valid arbitration clause because it did not expressly say the arbitrator's decision would be "final and binding," and dismissed the application.

Decision Breakdown

The Supreme Court held that Section 7 of the Arbitration and Conciliation Act does not require any specific form of words for a valid arbitration clause: what matters is whether the parties' agreement, taken as a whole, shows a genuine intention to be bound by the decision of a tribunal. Reviewing Clause 18, the Court found it used mandatory language ("shall be referred to arbitration"), specified a clear mechanism for appointing arbitrators, and named the governing law as the Arbitration and Conciliation Act, 1996, all pointing to a real intention to arbitrate, even without the literal words "final and binding." The Court set aside the High Court's judgment, held Clause 18 to be a valid arbitration agreement, and itself appointed a named former High Court judge as the sole arbitrator to resolve the dispute, leaving the merits of the underlying dispute to be decided by the arbitrator.

Lesson Learnt

Courts read arbitration clauses in contracts pragmatically and by substance, not by rigid, technical wording: an agreement need not use the exact phrase "final and binding" to be a valid, enforceable arbitration clause, as long as the parties' overall intention to arbitrate is clear.

Official source (sci.gov.in)View Judgment (PDF)

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