In a significant ruling on the interplay between civil suits and arbitration proceedings, the Supreme Court has held that an arbitration award obtained during the pendency of a civil suit cannot be used to defeat a party’s claim unless the statutory requirements of the Arbitration Act, 1940 are followed. The Court restored a decades-old property dispute from Gwalior, setting aside the findings that had relied on an arbitration award to dismiss the plaintiffs’ claim.
Background of the Case
The dispute concerned a three-storey commercial-cum-residential property situated in Sarafa Bazar, Lashkar, Gwalior. The plaintiffs traced their title to a court auction purchase made by Haridas in 1964, with a sale certificate issued in 1973. According to the plaintiffs, portions of the property were later occupied by the defendants, leading to a civil suit filed in 1982 seeking possession and mesne profits.
During the pendency of that suit, the parties referred certain disputes to arbitration. An award dated September 15, 1983 directed, among other things, execution of a sale deed in favour of the defendants. Courts below later treated that award as having attained finality and dismissed the plaintiffs’ suit.
Court’s Observations
A bench of Justice J.K. Maheshwari and Justice Atul S. Chandurkar did examined whether the arbitration proceedings could legally operate while the civil suit concerning the same property was already pending. The Court found that both the civil suit and the arbitration proceedings related to the same property and dispute.
The Bench observed that once a suit is pending, parties seeking arbitration must follow Section 21 of the Arbitration Act, 1940 by obtaining an order of reference from the court. It stated:
“Any arbitral award passed without the leave of the Trial Court when a suit is already pending cannot be said to be made in compliance of the provisions of the 1940 Act.”
The Court further clarified that knowledge of the pending suit is not the decisive factor. What matters is the existence of the suit itself. It held that the statutory scheme makes the pendency of a suit the determining consideration for invoking Section 21.
On the issue of compromise, the Bench emphasized that an arbitration award obtained outside the framework of the Act could be treated as a settlement only if all interested parties consent after the award is made.
“The sine qua non of the post-award consent is completely missing,” the Court noted while recording that the plaintiffs had consistently opposed the award throughout the litigation.
Decision
The Supreme Court concluded that the arbitration award dated September 15, 1983 could not be used as a defence against the plaintiffs’ claim for possession and mesne profits. It held that both the Trial Court and the High Court committed a legal error in treating the award as final against the plaintiffs.
After examining the findings already recorded in favour of the plaintiffs regarding their title through court auction and symbolic possession, the Court held that once the effect of the arbitration award was removed, the plaintiffs’ suit deserved to be decreed.
Accordingly, the Supreme Court allowed the appeal, answered all issues in favour of the plaintiffs, and restored their claim to possession of the disputed property.
Case Details
Case Title: Ashok and Ors. v. Padam Chand and Ors.
Case Number: Civil Appeal No. of 2026 (Arising out of SLP (Civil) No. 18146 of 2025)
Judge: Justice J.K. Maheshwari and Justice Atul S. Chandurkar did
Decision Date: 29 May 2026
