Supreme Court clarifies execution of arbitration award for land price fixation: Rajasthan Udyog vs. Hindustan Engineering (2020) INSC 257

Date of the Judgment: 24 April 2020

Citation: (2020) INSC 257

Judges: Uday Umesh Lalit, J., Vineet Saran, J. (authored the judgment)

Can an arbitration award that only fixes the price of land be used to force the sale of that land? The Supreme Court of India recently addressed this critical question, clarifying the limits of arbitration awards in the context of land sales. This case revolves around a decades-long dispute concerning land acquisition and an agreement for sale, ultimately focusing on whether an award determining land compensation can be enforced as a sale agreement.

Case Background

The case involves a land dispute spanning over four decades. The appellant, Firm Rajasthan Udyog, owned approximately 249.60 bighas (around 100 acres) of land purchased in 1966. In 1973, the State of Rajasthan issued a notification to acquire the land for the benefit of the respondent, Hindustan Engineering & Industries Ltd. This acquisition was challenged by the appellant in the Rajasthan High Court, which initially dismissed the challenge in 1974.

However, on appeal, the Rajasthan High Court quashed the acquisition proceedings in 1976. This decision was challenged by the respondent and the State of Rajasthan in the Supreme Court, but these appeals were dismissed in 1994. During the pendency of these appeals, an agreement was reached in 1978, where the appellant would retain 104 bighas and sell the remaining 145 bighas to the respondent, with the price to be determined through arbitration.

An agreement was formalized in 1979 and superseded by another agreement in 1980. The price of the land was determined by a sole arbitrator in 1985, fixing the compensation at Rs. 12,18,700. The respondent accepted this award, but the appellant raised objections, which were initially allowed but later set aside by the High Court in 1993, affirming the award.

Timeline

Legal Framework

The case primarily revolves around the interpretation of the Arbitration Act, 1940, and the enforceability of arbitration awards. The core issue is whether an award that determines the price of land can be interpreted to mean that the sale of the land is also directed by the award.

The relevant legal provisions include:

• Section 17 of the Arbitration Act, 1940: This section deals with the court’s power to pronounce judgment according to the award, making it a decree of the court. The court has to see if the award is in accordance with the reference made to the arbitrator.
• Order XXIII Rule 1 of the Code of Civil Procedure (CPC): This rule deals with the withdrawal of suits and the implications of such withdrawal on future claims.
• Section 23 of the Indian Contract Act, 1872: This section deals with what considerations and objects are lawful and what are not.

Arguments

Appellant’s Arguments:

• The appellant argued that the executing court exceeded its jurisdiction by directing the execution of a sale deed based on an arbitration award that only determined the price of the land. The arbitration was solely for price fixation, not for creating any right, title, or interest in the land.
• The agreement between the parties provided an option to the respondent to purchase the land at the fixed price within 45 days. Until the respondent exercised this option, no concluded contract existed.
• The executing court could not go beyond the scope of the award and consider the agreement between the parties, especially when a suit for specific performance of that agreement had been withdrawn.
• The agreement and the award were not registered, making them unenforceable under the Registration Act.
• The price fixed by the arbitrator was unreasonable, as it was based on the market value in 1978, not the current value.
• The appellant was willing to compensate the respondent for litigation costs and expenses.

Respondent’s Arguments:

• The respondent argued that the agreement between the parties was to sell the land at a price to be fixed by the arbitrator. Once the price was fixed, the execution of the sale deed was justified.
• The appellants never challenged the validity of the agreement under Section 23 of the Indian Contract Act, 1872.
• The executing court has wide powers to interpret the award, the agreement, and the pleadings.
• The withdrawal of the suit for specific performance was a matter of abundant caution, as the execution petition was already pending.
• The price fixed by the arbitrator could not be re-agitated based on current market value.
• The respondent also offered to pay Rs. 60 lakhs to the appellant to settle the dispute.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether an arbitration award, which determined the compensation amount for land to be paid under an agreement for sale, can be directed to be executed as a suit for specific performance of the agreement, when the reference to the arbitrator was only for the fixation of the price of the land, and the arbitration award was also only with regard to the same.

Treatment of the Issue by the Court

Authorities

The Court considered the following cases and legal provisions:

Judgment

The Supreme Court held that the arbitration award, which only determined the price of the land, could not be executed as a decree for the sale of the land. The Court emphasized that the reference to the arbitrator was solely for price fixation, and the award did not create any right, title, or interest in the land.

The Court noted that the agreement between the parties provided an option to the respondent to purchase the land at the fixed price. Until the respondent exercised this option, no concluded contract existed. Furthermore, the respondent had filed a suit for specific performance of the agreement, which was later unconditionally withdrawn, thereby abandoning the claim for execution of the sale deed.

The Court also pointed out that the executing court could not go beyond the scope of the award. The award was merely declaratory of the price of the land and did not mandate the transfer of land. The Court observed that the respondent was attempting to achieve the execution of the sale deed indirectly through the execution of the award, which was not permissible.

How each authority was viewed by the Court?

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that an executing court cannot go beyond the scope of the decree or award it is executing. The Court emphasized that the arbitration award was limited to fixing the price of the land and did not create any obligation to sell the land. The Court also considered the fact that the respondent had withdrawn its suit for specific performance, which meant abandoning its claim for the execution of the sale deed.

The Court’s reasoning was heavily based on legal principles, with a lesser emphasis on the factual aspects of the case.

The Court considered the argument that substantial justice had been done by directing the execution of the sale deed, but it held that in civil cases, the courts must follow the law strictly. The Court also noted that the respondent had not paid any earnest money or deposited the sale amount.

The Court also considered the non-registration of the agreement and award, though it did not base its decision solely on this ground.

The Court quoted from the judgment:

“…the Arbitrator was to declare the price of land/compensation to be paid for the land by the respondent to the appellant, and nothing more.”

“…the Award was merely for the declaration of the price of the land, which would be subject to the agreement and it was not necessary for the respondent to get the sale deed executed at the price so determined by the Arbitrator.”

“…the specific performance could only be of the Agreement dated 01.02.1980 and not of the Award dated 09.06.1985.”

Key Takeaways

• An arbitration award that only determines the price of land cannot be executed as a decree for the sale of that land.
• The scope of an arbitration award is limited to the reference made to the arbitrator.
• An executing court cannot go beyond the scope of the decree or award it is executing.
• Withdrawal of a suit for specific performance of an agreement means abandoning the claim for execution of that agreement.
• Parties need to ensure that agreements and awards that create rights in immovable property are registered.

Directions

The Supreme Court directed that:

• The amount of Rs. 50,00,000 deposited by the appellant, along with the interest accrued, shall be paid to the respondent.
• The appellant shall pay an additional sum of Rs. 10,00,000 to the respondent within six weeks towards litigation costs and other expenses.

Development of Law

The ratio decidendi of this case is that an arbitration award that only fixes the price of land cannot be enforced as a decree for the sale of that land. This clarifies the limitations of arbitration awards and the powers of executing courts. It reinforces the principle that an executing court cannot go beyond the scope of the award or decree it is executing. This judgment also highlights the importance of ensuring that agreements and awards are registered, especially when they involve rights in immovable property.

Conclusion

The Supreme Court allowed the appeal, setting aside the Rajasthan High Court’s judgment. The Court clarified that an arbitration award that only determines the price of land cannot be used to force the sale of that land. The Court also directed the appellant to pay the respondent a total of Rs. 60,00,000 (including the deposited amount and additional costs) to settle the dispute. This judgment emphasizes the importance of adhering to legal procedures and not exceeding the scope of arbitration awards.