Arbitral Tribunal Cannot Resume Without Fresh Consent Or Notice Under Section 21: Bombay High Court Dismisses Appeals Against Setting Aside of Development Agreement Award

Sending Back Records to Arbitrator Does Not Mean Remand":  Division Bench of the Bombay High Court comprising Chief Justice Alok Aradhe and Justice Sandeep V. Marne delivered a detailed and significant judgment in Arbitration Appeal, arising from a protracted dispute over enforcement of a development-related Memorandum of Understanding (MoU) signed in 1994.

The Court upheld the decision of the learned Single Judge who had earlier set aside an arbitral award that directed specific performance of the MoU. The appeals, filed by the appellants Harkisandas Tulsidas Pabari and Manish Harkisandas Pabari, were dismissed after the Court found multiple jurisdictional and legal defects in the arbitral process and the award itself.

The Court made it unequivocally clear: “The learned Arbitrator had no jurisdiction to recommence arbitration proceedings after the award was set aside, absent fresh consent or notice under Section 21.”

"Setting Aside An Award Does Not Mean Arbitrator Can Resume" — Mandate Must Be Freshly Invoked

The core legal issue revolved around the jurisdiction of the Arbitrator, Mr. R.C. Sampat, who had resumed proceedings after a prior award dated 1 April 1998 was set aside by the High Court in an earlier petition. That award had been quashed on procedural grounds due to failure to give the Respondents sufficient opportunity to present their case.

Despite this, the appellants unilaterally wrote to the same arbitrator, who then resumed proceedings and passed a second award on 21 September 2005 — again in favour of the appellants, granting specific performance of the MoU.

The High Court, however, found this procedure fundamentally flawed.

“Remittance of record does not imply that the same arbitrator had jurisdiction to restart the process. Parties had to move afresh and follow procedure under Section 21,” the Bench held, relying heavily on its prior order dated 28 September 1998.

The Court underscored that Section 21 of the Arbitration and Conciliation Act, 1996 — which mandates that arbitration proceedings commence only upon receipt of notice by the respondent — had not been complied with.

Even assuming substantial compliance would suffice, the Court clarified:

“The letter issued by the appellants to the arbitrator cannot, by any stretch, be treated as notice to the respondents under Section 21.”

Thus, the entire arbitral proceeding stood vitiated.

MoU Not a Concluded Contract — Specific Performance Not Feasible

Beyond jurisdictional defects, the High Court also found serious flaws in the substantive reasoning of the arbitrator’s award. The 1994 MoU was the central document under which the appellants had sought specific performance, alleging that they were entitled to develop the property and possess the land.

However, the Court held that the MoU did not amount to a concluded contract, for two key reasons:

1. The MoU left open whether the structure would be demolished or new floors added — a vital ambiguity in a development agreement.

2. The consent of tenants, which was a pre-condition for redevelopment, had not been obtained, and the MoU placed no enforceable obligation on the appellants to do so.

“Specific performance cannot be granted where execution depends upon uncertain future consent of tenants. The contract, if not concluded, cannot be enforced,” the Court held, affirming the findings of the Single Judge.

It also pointed out that the Arbitrator had ignored key contractual clauses (Clauses 3 and 5) and proceeded as if the MoU was a final sale deed.

“The Arbitrator essentially rewrote the contract, overlooking critical terms. Such a flawed approach renders the award perverse and unsustainable under Section 34,” the Bench observed.

Perversity in Arbitral Award Justifies Judicial Intervention

In response to the appellants’ argument that the Single Judge had acted like an appellate court and exceeded powers under Section 34, the Division Bench decisively disagreed.

Citing the binding limits of both Section 34 (challenge to award) and Section 37 (appeals against such challenge), the Court noted:

“Exclusion of vital clauses by the arbitrator, and assumption of non-existent rights under the MoU, justified the Single Judge's intervention. There is no element of appellate overreach.”

The Court also clarified that even difficulties in performance — like absence of tenant consent — may be fatal when specific performance is sought.

“It is not open to courts to speculate on hypothetical performance or waive material preconditions. The MoU, as it stood, was not executable.”

Arbitrator’s Award Held Invalid on Both Procedural and Substantive Grounds

Ultimately, the Division Bench held: “The order passed by the learned Single Judge is unexceptionable. The Arbitrator had no jurisdiction to resume proceedings, and the MoU was not enforceable.”

Accordingly, the Appeals were dismissed, and the impugned award dated 21 September 2005 stood nullified.

Key Takeaways from the Judgment:

• Arbitration cannot be resumed by the same tribunal after an award is set aside unless fresh consent or notice is issued under Section 21.

• Sending back records does not mean remand; parties must “move afresh”.

• A MoU lacking certainty or dependent on third-party consents (e.g. tenants) cannot be specifically enforced.

• Courts under Section 34/37 can intervene when the award is perverse or ignores vital evidence.

Date of Decision: 22 July 2025