Dodsal Private Limited v. Delhi Electric Supply Undertaking Of The Municipal Corporation Of Delhi, Supreme Court Of India, Judgment, Law, casemine.com

Factual and Procedural Background

The appellant obtained an arbitral award in its favour after a two-member arbitral panel—of which one arbitrator had been appointed by the respondent, Delhi Electric Supply Undertaking (DESU)—heard the dispute. After losing before the arbitrators, DESU challenged the award in the High Court, contending that the underlying contract (which contained the arbitration clause) was void because it violated Sections 201 and 203 of the Delhi Municipal Corporation Act and Bye-law 3(1)(a). Accepting this submission, the High Court held the contract—and therefore the arbitration agreement—void. The matter reached the Supreme Court in appeal. Confronted with DESU’s jurisdictional objection, the Supreme Court identified fundamental questions of law and, instead of deciding them itself, considered whether the case should be placed before a larger Bench.

Arguments of the Parties

Respondent's Arguments

The contract was void ab initio owing to statutory violations; consequently, the arbitration clause embedded in that contract was also void.

Because the arbitration agreement was non-existent, the arbitrators lacked jurisdiction; their award is therefore a nullity.

Participation in the arbitral proceedings cannot cure the defect, relying on the Constitution Bench decision in Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd., AIR 1963 SC 90, which states that consent cannot confer jurisdiction where none exists.

Appellant's Arguments

This information was not available in the provided opinion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd., AIR 1963 SC 90; (1963) 3 SCR 209	An arbitration agreement is the foundation of arbitral jurisdiction; absence of such agreement cannot be cured by consent or acquiescence.	Invoked by the respondent to argue that arbitral proceedings were void despite its own participation.
Ridge v. Baldwin, [1964] AC 40; (1963) 2 All ER 66	Discussion of whether ultra vires actions are void or merely voidable.	Cited to show that even acts traditionally labelled “void” may in certain contexts be treated as voidable.
Anisminic Ltd. v. Foreign Compensation Commission, [1969] 2 AC 147	Explores the concept of “degrees of nullity.”	Referred to in support of re-examining the rigid void/voidable dichotomy.
Krishan Lal v. State of J&K, (1994) 4 SCC 422	A mandatory statutory provision may be waived if intended for the benefit of a party, not for an overriding public purpose.	Cited in considering whether statutory requirements relied upon by the respondent were capable of waiver.

Precedent

Rule or Principle Cited For

Application by the Court

Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd., AIR 1963 SC 90; (1963) 3 SCR 209

An arbitration agreement is the foundation of arbitral jurisdiction; absence of such agreement cannot be cured by consent or acquiescence.

Invoked by the respondent to argue that arbitral proceedings were void despite its own participation.

Ridge v. Baldwin, [1964] AC 40; (1963) 2 All ER 66

Discussion of whether ultra vires actions are void or merely voidable.

Cited to show that even acts traditionally labelled “void” may in certain contexts be treated as voidable.

Anisminic Ltd. v. Foreign Compensation Commission, [1969] 2 AC 147

Explores the concept of “degrees of nullity.”

Referred to in support of re-examining the rigid void/voidable dichotomy.

Krishan Lal v. State of J&K, (1994) 4 SCC 422

A mandatory statutory provision may be waived if intended for the benefit of a party, not for an overriding public purpose.

Cited in considering whether statutory requirements relied upon by the respondent were capable of waiver.

Court's Reasoning and Analysis

The Supreme Court characterised DESU’s stance—questioning the arbitrators’ jurisdiction after itself appointing one arbitrator—as “highly inequitable,” yet recognised that the permissibility of such a challenge must be tested in law. It noted that the High Court had treated the contract as void for statutory infraction, thereby nullifying the arbitration clause.

To determine whether this conclusion was correct, the Court examined three inter-related strands of legal thought:

Void versus Voidable: Academic commentary and decisions such as Ridge v. Baldwin and Anisminic suggest that an ostensibly ultra vires act may be voidable rather than void, raising doubts about the automatic extinction of contractual and arbitral rights.

Waiver of Mandatory Provisions: Drawing on Krishan Lal and Section 4 (“Waiver of right to object”) of the Arbitration and Conciliation Ordinance, 1996, the Court observed that even mandatory provisions can sometimes be waived where they exist primarily for a party’s benefit.

Existence of a Stand-Alone Arbitration Agreement: DESU’s written appointment of an arbitrator could amount to an implied, separate arbitration agreement under Section 7(2) of the Ordinance, potentially salvaging arbitral jurisdiction despite defects in the main contract.

Because these issues intersect with, and may qualify, the ratio of the Constitution Bench decision in Waverly Jute Mills, the Court considered it inappropriate for a smaller bench to resolve them definitively.

Holding and Implications

HOLDING: The matter is referred to a Constitution Bench; the Registry is directed to place the papers before the Hon’ble Chief Justice of India for necessary orders.

Implications: The Court has not decided the merits of the dispute but has flagged significant questions on the nature of void contracts, waiver of statutory mandates, and autonomous arbitration agreements. Final resolution awaits consideration by a five-Judge Bench, leaving the parties’ rights and the award in abeyance and signalling potential clarification of arbitration law in India.

Dodsal Private Limited v. Delhi Electric Supply Undertaking Of The Municipal Corporation Of Delhi

Order

1. An absolutely inequitable stand taken by the respondent (Delhi Electric Supply Undertaking) has led us to examine some fundamental questions of law. We have opened with this observation inasmuch as the respondent has challenged the award of the arbitrators made in favour of the appellant on the ground that the contract, which contained arbitration agreement, is void, because of which there is no agreement to refer the dispute to arbitration; and so, the arbitrators had no jurisdiction to pass the impugned award. Such a stand flies on the face of the respondent inasmuch as of the two arbitrators, one, namely Shri K.L Vijh, had been appointed by the respondent itself. But as the award ultimately went in favour of the appellant, it raised the question of jurisdiction. We have no doubt in our mind that such a stand is inequitable, indeed highly inequitable. Question, however, is whether the law permits such a question to be raised.

2. The High Court accepted the contention that the contract was void inasmuch as Sections 201 and 203 of the Delhi Municipal Corporation Act read with bye-law 3(1)(a) were violated. Dr Singhvi, appearing for the respondent has urged that the contract being void, along with it fell the arbitration agreement contained in the contract, because of which the arbitrators had no jurisdiction to pass the award in question.

3. It is further submitted that in such a case appearance of the respondents in the proceeding, i.e, its acquiescence, would not alter the situation in view of what has been held by a Constitution Bench of this Court in Waverly Jute Mills Co. Ltd. v. Raymon and Co. (India) (P) Ltd. AIR 1963 SC 90, (1963) 3 SCR 209, in paragraph 21 of which it was stated that:

“… an agreement for arbitration is the very foundation on which the jurisdiction of the arbitrators to act rests, and where that is not in existence, at the time when they enter on their duties, the proceedings must be held to be wholly without jurisdiction. And this defect is not cured by the appearance of the parties in those proceedings, even if that is without protest, because it is well settled that consent cannot confer jurisdiction.”

4. The aforesaid stand brings to the fore the following fundamental questions of law:

(1) Whether the present was a case of contract being void or voidable?

(2) Whether a mandatory provision cannot at all be waived?

5. As we are proposing to refer the matter to a Constitution Bench, we may not dilate the questions, except stating that a perusal of Administrative Law by Wade and Forsyth (7th Edn. pp. 339 to 344) would show that in Ridge v. Baldwin 1964 AC 40, (1963) 2 All ER 66, (1963) 2 WLR 935 some of the dissenting Judges of the House of Lords suggested that even ultra vires action might be merely voidable. Reference has also been made to what was held in Anisminic Ltd. v. Foreign Compensation Commission (1969) 2 AC 147, (1969) 1 All ER 208, (1969) 2 WLR 163, which has dealt with the question whether there are degrees of nullity. As to the question of waiver of a mandatory provision, we may refer to a recent decision of this Court in Krishan Lal v. State Of J & K . (1994) 4 SCC 422, (1994) 27 ATC 590 in which this aspect has been dealt with in paras 16 to 25. It has been pointed out that even a mandatory provision can be waived, if the provision be intended for the benefit of the person concerned, as distinguished from one which serves “an important purpose” in which case there would be no waiver.

6. In this connection we may also refer to the provision contained in Section 4 of the Arbitration and Conciliation Ordinance, 1996, which is on the subject of “Waiver of right to object”. It has laid down that a party who knows (a) any provision of this part from which the parties may derogate, or (b) any requirement under the arbitration agreement, has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay shall be deemed to have waived his right to so object.

7. Another legal aspect is also involved in the present case. The same is whether an arbitration agreement can be read dehors what was contained in the contract. The respondent having itself appointed one of the arbitrators in writing, an examinable question arises whether this act cannot be said to constitute an implied agreement to refer the matter to arbitration. It may be pointed out that Section 7(2) of the aforesaid Ordinance recognises a separate agreement also.

8. Though the aforesaid questions were not examined in Waverly Jute Mills case AIR 1963 SC 90, (1963) 3 SCR 209 and it would have been open to us to decide the same ourselves, we do not propose to do so, lest it be thought that we are overreaching the decision by a larger Bench. Instead, we desire that a five-Judge Bench — Waverly AIR 1963 SC 90, (1963) 3 SCR 209 being a rendering by such a Bench — should decide whether in the context of the legal aspects mentioned by us above, it is open to a person like the respondent to raise the question of lack of jurisdiction of the arbitrator(s) and thereby deny the fruits (to the other side) of a long-fought and won battle, involving huge expenditure of time, money and energy, and thereby cause serious damage to equity also, which is an equally important facet to be borne in mind by the courts when seized with deciding a lis between parties.

9. Let the Registry lay the papers before the Hon'ble Chief Justice of India for doing the needful.

Civil Appeals Nos. 2372-2374 of 1987, decided on February 14, 1996

Dodsal Private Limited v. Delhi Electric Supply Undertaking Of The Municipal Corporation Of Delhi

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent's Arguments

Appellant's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Dodsal Private Limited v. Delhi Electric Supply Undertaking Of The Municipal Corporation Of Delhi

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