UNION OF INDIA versus PRINCE MUFFAKAM JAH AND ORS.

Citation: [1994] SUPP. 4 S.C.R. 592 · Decided: 20-10-1994 · Supreme Court of India · Bench: M.N. VENKATACHALIAH, S. MOHAN, A.S. ANAND

Judgment (excerpt)

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UNION OF INDIA 
v. 
PRINCE MUFFAKAM JAH AND ORS. 
OCTOBER 20, 1994 
[M.N. VENKATACHALIAH, C.J., S. MOHAN 
AND DR. A.S. ANAND, JJ.] 
Arbitration Act, 1941)-Sections 15, 16 and 17-Private arbitration--
Binding effect of-Pa1ties and the arbitrator bound by the agreement-Agree-
C ment to refer dispute relating to purchase of jewelleiy-Agreement provided 
for approval of the award by the Court-Award challenged in the Court by 
the partie,--Jleld, award does not become effective till adjudication by the 
Court. 
Two Jewellery Trusts created by the Nizam of Hyderabad held 173 
D items of j$'ellery belonging to the Nizam. In 1972, the Trusts offered the 
Prime Mi!lister of India to sell the entire jewellery belonging to the Trusts. 
The jewell~ry, however, could not be sold due to an injunction of civil court 
operating ;igainst the Trusts. The litigation ultimately reached this court. 
While the matter was pending before this court, the Central Government 
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decided to acquired the items of jewellery as art treasures under sections 
19 and 20 of the Antiquites and Art. Treasures Act, 1972. Pursuant to the 
said decision, the Antiquities, and Art Treasures Rules was suitably 
amended to provide for constitution of a Committee to examine the items 
of jewellery to be declared as art treasures. This decision of the Central 
Government as well as the vires and validity of the Antiqnities and Art 
Treasures Act, 1972 was challenged by the respondent by way of a writ 
petition nnder Article 32 of the Constitution of India. 
While the aforesaid writ petition was pending, the parties entered 
into a compromise and agreed to have their disputes resolved through 
G arhitratio11. Under clause 7 of the compromise agreement, the arbitrator 
was to report bis Award to this conrt for appropriate orders and for 
adjudication of any dispntes relating to the Award. This Court disposed 
of the writ petition in terms of the arbitration agreement. 
Tb~ Umpire made bis award mi ·21.7.1991. The Central Government 
H was given, the first option to purchase the items of Jewellery and the price 
592 
U.0.1. v. MUFFAKAMJAH 
593 
for all 173 items of jewellery was fixed at Rs. 225,37,33,959.80. The Central A 
Government was directed to pay the price within 8 weeks from the date of 
award failing which it was open to the trusts to sell all items of jewellery. 
Option was also given to the Central Government to make purchase of 
selected items from the 173 items of jewellery at mutually agree price. In 
case no mutual understanding could be reached, the matter was to be B 
resolved through arbitration. 
The Award was challenged in this court by both the appellant as well 
as the Trusts by way of interlocutory applications. These applications were 
ultimately not pressed. While the applications challenging the Award were 
pending for disposal, the Central Government represented that it was C 
ready to purchase all 173 items subject to reduction of price to Rs. 
180,37,33,959.00 as the price mentioned in the Award erroneously included 
Rs. 45 crores. The central Government offered to pay the price in six annual 
instalments of Rs. 30 crores each. The Trusts admitted that Rs. 45 crore 
had been erroneously included but contended that having failed to pur-
chase the jewellery within 8 weeks from the date of the Award, the Central D 
Government had lost its right to purchase the jewellery. The trusts also 
objected to the proposal of the Government to pay the purchase price in 
instalments. 
Making the Award rule of the Court with certain modifications, this 
Court 
HELD : 1. The essence of a private arbitration is to honour the 
decision of the chosen nominee of the parties and to abide by their decision. 
Unless an arbitration award is questioned on the grounds available nnder 
the Arbitration Act, 1940, the arbitration award must be complied with and 
honoured by the parties to the award. The power of the arbitrator to bind 
the parties by its Award derives it authority from the consent of the parties 
themselves and not from any external source. Therefor, where the ar-
bitrators have been appointed as a result of agreement between the parties 
and have rendered a determination, it is generally speaking binding on the 
parties. (608-F-G] 
Commercial Arbitration by Sir Michael J. Mustill and Stwart C. Boyd, 
2nd Edn. P.42 relied upon. 
2. The agreement to refer the dispute to the arbitrators being the 
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· foundation on which the arbitrati

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