/2022 INSC 0779/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. ____ OF 2022
[ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.15989 OF 2021]
Babanrao Rajaram Pund                                            …. Appellant
VERSUS
M/s. Samarth Builders & Developers & Anr.                 ... Respondents
JUDGMENT
Surya Kant, J.
1. Leave granted.
2. The   bone   of   contention   in   the   instant   proceedings   is   whether
Clause 18 of the Development Agreement dated 29.05.2014 possesses
the   necessary   ingredients   to   constitute   a   legal   and   valid   arbitration
agreement? The genesis of the dispute lies in the aforesaid agreement
executed   between   the   parties   for   construction   of   an   apartment
complex   called   “Amay   Apartments”.   The   construction   was   to   be
Page  1  of  16

carried   out   by   Respondent   No.1   partnership   firm   on   the   land   owned
by the Appellant. Respondent No. 2 is the partner of Respondent No. 1
partnership firm. 
Factual Background:
3. The Appellant owns and possesses the land bearing Plot Nos. 13
&   14,   measuring   4000   sq.   ft   situated   in   Village   Deolai,   District
Aurangabad, Maharashtra. Appellant harbored a desire to develop the
said property through the construction of residential and commercial
complexes. Respondent No.1 is a developer engaged in the business of
construction   and   development   of   residential   and   commercial
buildings. When it came to know that the Appellant wished to develop
his   property,   the   First   Respondent   approached   the   Appellant   and
offered to develop the site. The Appellant and Respondent No. 1, thus,
entered   into   a   ‘Development   Agreement’   and   pursuant   thereto   the
Appellant also executed a General Power of Attorney  (GPA), in favour
of Respondent No. 1. 
4. The   Agreement   stipulated   that   the   First   Respondent   shall
construct “Amay Apartments” within a period of 15 months which was
extendable, incumbent on payment of a penalty amount. Respondent
No. 1 agreed to hand over the constructed area to the extent of 45% to
the Appellant on or before the completion of the period of 15 months,
and to retain the remaining 55% of the developed portion. The Parties
also   entered   into   a   Deed   of   Declaration   under   Section   2   of   the
Maharashtra Apartment Ownership Act,1970 which was registered on
Page  2  of  16

20.10.2015   for   the   purposes   of   retaining   the   facilities,   amenities,
common spaces, and to specify the portions of the developed property.
Respondent No. 1, however, failed to complete the development works
within   the   stipulated   time   of   15   months.   The   Appellant   served
Respondents   with   a   Legal   Notice   on   11.07.2016,   communicating   his
desire   to   terminate   the   Development   Agreement   and   cancel   the   GPA
as   the   period   of   15   months   along   with   the   extendable   period   of   3
months had already lapsed. In addition to this, the Appellant issued a
publication in the newspaper dated 11.07.2016 informing the general
public   that   he   had   terminated   the   Agreement   as   well   as   the   GPA.
Respondents   in   their   reply   to   the   Legal   Notice   controverted   the
contents   of   the   Notice.   This   gave   rise   to   disputes   and   differences
between the parties. 
5. It is pertinent to mention at this juncture that Clause 18 of the
Development Agreement, purported to be an ‘arbitration clause’, reads
as follows: 
“ 18.   All   the   disputes   or   differences   arising   between
the   parties   hereto   as   to   the   interpretation   of   this
Agreement or any covenants or conditions thereof or
as   to   the   rights,   duties,   or   liabilities   of   any   part
hereunder or as to any  act, matter, or thing arising
out   of   or   relating   to   or   under   this   Agreement   (even
though   the   Agreement   may   have   been   terminated),
the   same   shall   be   referred   to   arbitration   of   a   Sole
Arbitrator   mutually   appointed,   failing   which,   two
Arbitrators,   one   to   be   appointed   by   each   party   to
dispute   or   difference   and   these   two   Arbitrators   will
appoint   a third   Arbitrator and  the  Arbitration   shall
Page  3  of  16

be governed by the Arbitration and Conciliation Act,
1996 or any re­enactment thereof. ”
6. The   Appellant   in   the   interregnum,   sought   an   injunction   under
section   9   of   the   Arbitration   and   Conciliation   Act,   1996   (the   Act)   in
M.A..R.J.I No. 285 of 2016 and the District Court at Aurangabad vide
order dated 30.09.2016, restrained Respondent No. 1 from selling any
tenements on the developed property till further orders. 
7. Thereafter,   the   Appellant   invoked   the   arbitration   clause   in   the
Development   Agreement   on   07.11.2016   and   issued   a   notice   to   this
effect   to   the   Respondents   regarding   referral   of   the   dispute   to   Mr.
Shyam   Rajale   as   the   sole   arbitrator.   Though   the   notice   was   duly
served, the Respondents failed to respond to it. This led the Appellant
to   file   an   application   under   section   11   of   the   Act   before   the   High
Court. 
8. It   was   contended   on   behalf   of   the   Respondents   before   the   High
Court that the contract lacked the express wording necessary for it to
be   considered   a   valid   and   binding   agreement   to   refer   the   disputes   to
arbitration. Specifically, the absence of the term, “the parties agreeing
in   writing   to   be   bound   by   the   decision   of   an   arbitral   tribunal”,   was
highlighted   by   Respondent   No.   1   to   contend   that   Clause   18   of   the
Development   Agreement   was   not   enforceable.   To   buttress   this   plea,
reliance   was   placed   on   the   decisions   of   this   Court   in   Bihar   State
Mineral  Development   Corporation   and   Anr.   v.   Encon   Builders   (I)
Page  4  of  16

(P)   Ltd. 1
,   and   Karnataka   Power   Transmission   Corporation   Ltd.
and Anr. v. Deepak Cables (India) Ltd. 2
, wherein it was held that in
case   of   exclusion   of   attributes   of   an   arbitration   agreement   from   a
dispute   resolution   clause,   it   would   not   amount   to   a   valid   arbitration
agreement.   Respondents   further   urged   that   it   was   crucial   that   “the
parties should have agreed that the decision of the private tribunal in
respect of the disputes will be binding on them.” 
9. Although   the   High   Court   vide   the   impugned   judgment   dated
07.07.2021,   acknowledged   the   existence   of   Clause   18   in   the
Agreement   that   provides   for   disputes   to   be   referred   to   arbitration,   it
accepted the contentions of Respondents and came to the conclusion
that   Clause   18   indeed   lacks   certain   essential   ingredients   of   a   valid
arbitration agreement, as it does not mandate that the decision of the
arbitrator   will   be   final  and   binding  on  the   parties.   Consequently,   the
High   Court   dismissed   the   application   as   not   maintainable.   The
aggrieved Appellant is now before this Court. 
10. Notice was issued to the Respondents on 20.10.2021 and as per
the   office   report   dated   18.08.2022,   they   have   been   duly   served   but
have   not   entered   appearance.   We   accordingly   proceeded   to   hear   the
matter  ex parte  on 22.08.2022. 
1   (2003) 7 SCC 418.
2  (2014) 11 SCC 148.
Page  5  of  16

Submissions: 
11. Learned counsel for the Appellant vehemently urged that Clause
18   crystallises   the   intention   of   the   parties   to   refer   disputes   between
them to arbitration and to be bound by the decision of the arbitrator.
The   High   Court   failed   to   read   into   the   intention   of   the   parties   and
erroneously   drew   an   inference   contrary   to   the   spirit   and   object   of
Clause 18.  According to him, the clause clearly mentions that “all the
disputes or differences arising between the parties” are to be referred
to   arbitration   of   a   Sole   Arbitrator   mutually   appointed,   failing   which
the   dispute   shall   be   referred   to   a   tribunal   consisting   of   three
arbitrators.   Moreover,   there   is   no   alternative   provided   in   the
agreement  other   than   the  arbitration   for  the   purpose   of   resolution  of
the   disputes.   Even   the   governing   law   of   the   arbitration   had   been
agreed   upon   by   the   parties   as   the   Arbitration   and   Conciliation   Act,
1996,   manifesting   their   animus   to   be   bound   by   the   decision   of   the
arbitrator. There are also no specific exclusions of any attributes of an
arbitration   agreement   in   Clause   18   as   envisaged   by   this   Court   in
Deepak   Cables   which,   in   turn,   relied   upon   Jagdish   Chander   v.
Ramesh Chander & Ors. 3
. 
12. Finally, it was submitted that this Court has time and again held
that   an   arbitration   clause   need   not   be   penned   down   in   any   specific
form. The High Court was thus not justified in holding that Clause 18
3   (2007) 5 SCC 719. 
Page  6  of  16

of the Development Agreement did not meet the essential criteria of a
valid arbitration clause. 
Analysis
13. It   is   a   settled   proposition   of   law   that   the   existence   of   a   valid
arbitration agreement under Section 7 of the Act is   sine­qua­non  for a
court to exercise its powers to appoint an arbitrator/arbitral tribunal
under   Section   11   of   the   Act.   The   short   question   that   falls   for   our
consideration   is   whether   Clause   18   constitutes   a   valid   arbitration
clause   for   the   purpose   of   invoking   powers   under   Section   11   of   the
Act? 
14. Section   2   (1)(b)   of   the   Act,   defines   “arbitration   agreement”   to
mean   an   agreement   referred   to   in   section   7,   which   inter­alia   lays
down the following characteristics of an Arbitration Agreement:
“7.  Arbitration agreement — 
(1)   In   this   Part,   “arbitration   agreement”   means   an
agreement   by   the   parties   to   submit   to   arbitration   all   or
certain   disputes   which   have   arisen   or   which   may   arise
between   them   in   respect   of   a   defined   legal   relationship,
whether contractual or not. 
(2)   An   arbitration   agreement   may   be   in   the   form   of   an
arbitration clause in a contract or in the form of a separate
agreement. 
(3) An arbitration agreement shall be in writing. 
(4) An arbitration agreement is in writing if it is contained
in— 
(a) a document signed by the parties; 
(b)   an   exchange   of   letters,   telex,   telegrams,   or
other   means   of   telecommunication   [including
communication   through   electronic   means]   which
provide a record of the agreement; or
(c)   an   exchange   of   statements   of   claim   and
defence   in  which   the   existence   of   the   agreement
Page  7  of  16

is   alleged   by   one   party   and   not   denied   by   the
other. 
(5)   The   reference   in   a   contract   to   a   document
containing   an   arbitration   clause   constitutes   an
arbitration agreement if the contract is in writing and
the   reference   is   such   as   to   make   that   arbitration
clause part of the contract.”
15. It   may   be   seen   that   section   7   of   the   Act   does   not   mandate   any
particular  form for the arbitration clause. This proposition was settled
by   this   Court   way   back   in   Rukmanibai   Gupta   v.   Collector,
Jabalpur   and   Ors. 4
,   while   viewing   erstwhile   section   2(a)   of   the
Arbitration   Act,   1940   which   contained   the   definition   of   “arbitration
agreement”. It was held that:  
“6.  ……Arbitration   agreement  is  not   required   to  be  in  any
particular   form.   What   is   required   to   be   ascertained   is
whether   the   parties   have   agreed   that   if   disputes   arise
between them  in respect  of the subject­ matter of contract
such dispute shall be referred to arbitration, then such an
arrangement   would   spell   out   an   arbitration   agreement.   A
passage   from   R USSELL   ON   A RBITRATION ,   19th   Edn.,   p.   59,
may be referred to with advantage:
If  it  appears   from  the  terms  of  the  agreement
by   which   a   matter   is   submitted   to   a   person’s
decision   that   the   intention   of   the   parties   was
that he should hold an inquiry in the nature of a
judicial inquiry and hear the respective cases of
the parties and decide upon evidence laid before
him, then the case is one of an arbitration.”
16. This very principle was reiterated in   K.K.Modi v. K.N.Modi and
Ors. 5
  which   also   dealt   with   section   2(a)   of   the   1940   Act.   While
4  (1980) 4 SCC 556.
5  (1998) 3 SCC 573. 
Page  8  of  16

attempting   to   decide   whether   the   arbitration   clause   embodied   in   a
Memorandum of Understanding was a valid arbitration clause or not,
this   Court   laid   down   the   essential   attributes   of   an   arbitration
agreement in following terms:
“17.   Among   the   attributes   which   must   be   present   for   an
agreement   to   be   considered   as   an   arbitration   agreement
are:
(1)   The   arbitration   agreement   must
contemplate   that   the   decision   of   the   tribunal
will be binding on the parties to the agreement,
(2)  that  the  jurisdiction of  the  tribunal  to  decide
the rights of parties must derive either from the
consent   of   the   parties   or   from   an   order   of   the
court or from a statute, the terms of which make
it clear that the process is to be an arbitration,
(3)   the   agreement   must   contemplate   that
substantive   rights  of  parties   will   be   determined
by the agreed tribunal,
(4)  that   the   tribunal  will   determine  the  rights  of
the   parties   in   an   impartial   and   judicial   manner
with   the   tribunal   owing   an   equal   obligation   of
fairness towards both sides,
(5)   that   the   agreement   of   the   parties   to   refer
their   disputes   to   the   decision   of   the   tribunal
must   be   intended   to   be   enforceable   in   law   and
lastly,
(6)   the   agreement   must   contemplate   that   the
tribunal   will   make   a   decision   upon   a   dispute
which is already formulated at the time when a
reference is made to the tribunal.
18. The  other factors  which are  relevant  include, whether
the agreement  contemplates  that the tribunal will receive
evidence   from  both  sides  and  hear  their  contentions   or at
least give  the  parties an opportunity to  put  them forward;
whether   the   wording   of   the   agreement   is   consistent   or
inconsistent   with   the   view   that   the   process   was   intended
Page  9  of  16

to   be   an   arbitration,   and   whether   the   agreement   requires
the tribunal to decide the dispute according to law.”
[Emphasis applied]
17. In   the   afore­cited   case,   the   dispute   resolution   clause   stipulated
that   the   disputes   were   to   be   referred   to   the   Chairman,   IFCI   or   his
nominee. This Court came to the conclusion that the clause in dispute
did not constitute a valid arbitration covenant as it could not be said
with   clarity   that   the   parties   contemplated   the   disputes   to   be
arbitrated. 
18. Encon Builders  ( supra ) placed reliance on  K.K. Modi’s  case and
further   condensed   the   essential   features   of   an   arbitration   agreement
into four elements i.e.:
“13.   The   essential   elements   of   an   arbitration
agreement are as follows: 
(1) There must be a present or a future difference in
connection with some contemplated affair.
(2)   There   must   be   the   intention   of   the   parties   to
settle such difference by a private tribunal.
(3) The parties must agree in writing to be bound by
the decision of such tribunal.
(4) The parties must be ad idem.”
19. It is important to appreciate the nature of the arbitration clause
in  Encon Builders’  case, which   was to the following effect:
  “In case of any dispute arising out  of  the agreement, the
matter   shall   be   referred   to   the   Managing   Director,   Bihar
State   Mineral   Development   Corporation   Limited,   Ranchi,
whose decision shall be final and binding.” 
Page  10  of  16

20. The   above­reproduced   clause   was   held   to   be   invalid   primarily
due to the fact that the Managing Director, who was chosen to be the
adjudicator­cum­arbitrator   of   the   dispute(s)   arising   between   the
parties, was likely to be biased as he had an interest in the outcome of
the   case.   The   principle   that   one   cannot   be   a   judge   of   his   own   cause
was   thus   aptly   applied   to   invalidate   the   subject   clause.   It   was
evidently not a case of an arbitral clause lacking essential ingredients
of   an   arbitration   agreement.   In   our   opinion,   this   case   renders   no
assistance to the Respondents.  
21.     In   Jagdish   Chander   (supra),   again   a   two­Judge   bench   of   this
Court dealt with a peculiar arbitration clause, stipulating that: 
“(16) If during the continuance of the partnership or at any
time   afterwards   any   dispute   touching   the   partnership
arises   between   the   partners,   the   same   shall   be   mutually
decided by the partners or shall be referred for arbitration
if the parties so determine .” 
[Emphasis applied]
Reference   to   the   arbitration   under   the   above   reproduced   clause
was   contingent   on   the   determination   by   the   parties,   as   their   explicit
intention   to   arbitrate   was   conspicuously   missing.   This   Court,
therefore,   held   that   the   arbitration   clause   was   invalid   as   the   parties
had   shown   mere   desire   or   hope   to   have   the   disputes   settled   by
arbitration.   While interpreting  Section  7 of the 1996 Act and placing
Page  11  of  16

reliance   on   K.K.Modi   ( supra )   as   well   as   Encon   Builders   ( supra ),   it
was further held that:­ 
“8.(i)….Where   there   is   merely   a   possibility   of   the   parties
agreeing   to   arbitration   in   future,   as   contrasted   from   an
obligation to refer disputes to arbitration, there is no valid
and binding arbitration agreement…….
(iii) Where the clause provides that in the event of disputes
arising between the parties, the disputes shall be referred
to arbitration, it is an arbitration agreement.” 
22. Adverting to the case in hand, it may  be seen that the contents
and   the   nature   of   Clause   18   are   substantially   different   from   the
dispute   resolution   pacts   in   K.K.Modi ,   Jagdish   Chander,   or   Encon
Builders   ( supra ). We say  so for three  reasons.   Firstly , apart from the
fact   that   Clause   18   of   the   Development   Agreement   uses   the   terms
“Arbitration”   and   “Arbitrator(s)”,   it   has   clearly   enunciated   the
mandatory nature of reference to arbitration by using the term “ shall
be   referred   to   arbitration   of   a   Sole   Arbitrator   mutually   appointed,
failing   which,   two   Arbitrators,   one   to   be   appointed   by   each   party   to
dispute   or   difference”.   Secondly ,   the   method   of   appointing   the   third
arbitrator   has   also   been   clearly   mentioned   wherein   the   two   selected
Arbitrators   are   to   appoint   a   third   arbitrator.   Finally ,   even   the
governing   law   was   chosen   by   the   parties   to   be   “the   Arbitration   and
Conciliation   Act,   1996   or   any   re­enactment   thereof.”   These   three
recitals,   strongly   point   towards   an   unambiguous   intention   of   the
Page  12  of  16

parties at the time of formation of the contract to refer their dispute(s)
to arbitration. 
23. We are, therefore, of the firm opinion that the High Court fell in
error in holding that the Appellant’s application under section 11 was
not   maintainable   for   want   of   a   valid   arbitration   clause.   We   find   that
Clause   18   luminously   discloses   the   intention   and   obligation   of   the
parties   to   be   bound   by   the   decision   of   the   tribunal,   even   though   the
words   “final   and   binding”   are   not   expressly   incorporated   therein.   It
can be gleaned from other parts of the arbitration agreement that the
intention of the parties was surely to refer the disputes to arbitration.
In   the   absence   of   specific   exclusion   of   any   of   the   attributes   of   an
arbitration   agreement,   the   Respondents’   plea   of   non­   existence   of   a
valid arbitration clause, is seemingly an afterthought. 
24. Even if we were to assume that the subject­clause lacks certain
essential   characteristics   of   arbitration   like  “final   and  binding”   nature
of   the   award,   the   parties   have   evinced   clear   intention   to   refer   the
dispute   to   arbitration   and   abide   by   the   decision   of   the   tribunal.   The
party autonomy to this effect, therefore, deserves to be protected.
25. The   deficiency   of   words   in   agreement   which   otherwise   fortifies
the   intention   of   the   parties   to   arbitrate   their   disputes,   cannot
legitimise the annulment of arbitration clause. A three­Judge Bench of
this Court in   Enercon (India)  Ltd.  and Ors.  v. Enercon  Gmbh and
Page  13  of  16

Anr. 6
  dealt   with   an   arbitration   clause   that   did   not   provide   for   a
method   of   electing   the   third   arbitrator.   The   court   held   that   “the
omission is so obvious that the court can legitimately supply the
missing  line.”   The  line  “the  two  arbitrators  appointed  by  the  parties
shall   appoint   the   third   arbitrator”   was   read   into   the   clause   so   as   to
give effect to it. It was further held that: 
“88.   In   our   opinion,   the   courts   have   to   adopt   a   pragmatic
approach   and   not   a   pedantic   or   technical   approach   while
interpreting   or   construing   an   arbitration   agreement   or
arbitration clause. Therefore, when faced with a seemingly
unworkable arbitration clause, it would be the duty of the
court   to   make   the   same   workable   within   the   permissible
limits   of   the   law,   without   stretching   it   beyond   the
boundaries of recognition. In other words, a common sense
approach   has   to  be  adopted   to  give   effect   to  the  intention
of the  parties to arbitrate. In such a case, the court  ought
to   adopt   the   attitude   of   a   reasonable   business   person,
having business common sense as well as being equipped
with   the   knowledge   that   may   be   peculiar   to   the   business
venture. The arbitration clause cannot be construed with a
purely   legalistic   mindset,   as   if   one   is   construing   a
provision in a statute….”
26. The   UNCITRAL   Model   Law   on   International   Commercial
Arbitration,   1985   from   which   the   Arbitration   and   Conciliation   Act,
1996 originated, envisages minimal  supervisory role by courts. When
section   7   or   any   other   provisions   of   the   Act   do   not   stipulate   any
particular   form   or   requirements,   it   would   not   be   appropriate   for   a
court to gratuitously add impediments and desist from upholding the
validity of an arbitration agreement. 
6   (2014) 5 SCC 1.
Page  14  of  16

27. There is no gainsaying that it is the bounden duty of the parties
to abide by the terms of the contract as they are sacrosanct in nature,
in   addition   to,   the   agreement   itself   being   a   statement   of   commitment
made by them at the time of signing the contract. The parties entered
into the contract after knowing the full import of the arbitration clause
and they cannot be permitted to deviate therefrom. 
28. It is thus imperative upon the courts to give greater emphasis to
the   substance   of   the   clause,   predicated   upon   the   evident   intent   and
objectives of the parties to choose a specific form of dispute resolution
to   manage   conflicts   between   them.   The   intention   of   the   parties   that
flows from the substance of the Agreement to resolve their dispute by
arbitration are to be given due weightage. It is crystal clear to us that
Clause   18,   in   this   case,   contemplates   a   binding   reference   to
arbitration   between   the   parties   and   it   ought   to   have   been   given   full
effect by the High Court.
Conclusion: 
29. In light of the above discussion, the Civil Appeal stands allowed.
Clause   18   of   the   Development   Agreement   is   held   to   be   a   valid
arbitration   clause.   Consequently,   the   impugned   judgment   and   order
dated 07.07.2021 passed by the High Court of Judicature of Bombay
at Aurangabad is set aside. 
Page  15  of  16

30. Since   the   Appellant   has   already   invoked   the   arbitration   clause,
without any further ado, this Court appoints Mr. Justice P.V. Hardas
(Contact   number:   +91­9834933135),   former   Judge   of   the   Bombay
High   Court,   as   the   Sole   Arbitrator   to   resolve   all   disputes/differences
between   the  parties.     The  learned  Arbitrator  shall   be  entitled  to  a  fee
as per  the Fourth Schedule of the Act, as amended from time to time.
The     Registry   is   directed   to   send   a   copy   of   this   order   to   the   learned
Sole Arbitrator. 
31. The issues on merits that may be raised by the parties are kept
open and shall be determined by the learned Arbitrator in accordance
with law. 
………….……………..J.
(SURYA KANT)
………….……………..J.
(ABHAY S. OKA)
NEW DELHI:
SEPTEMBER 07, 2022
Page  16  of  16