Show Strong Reason for Not Raising Jurisdiction Plea Before Arbitral Tribunal: Supreme Court

A bench of Justices J B Pardiwala and R Mahadevan, while referring to the provisions of the Arbitration and Conciliation Act 1996 and M P Madhyastham Adhikaran Adhiniyam, 1983, held that where the arbitration proceedings have been concluded and an award has been passed, and if no objection to the jurisdiction in view of the applicability of MP Act was taken at the relevant stage then such an award cannot be annulled only on the ground of lack of jurisdiction.

"Any failure to raise the issue of applicability of the MP Act, 1983, before the arbitral tribunal is not a strong and good reason to permit raising such a plea in the proceedings under Section 34 of the Act, 1996," the bench said.

The court allowed an appeal by M/s Gayatri Projects Limited against the MP High Court's judgment of January 7, 2022, which dismissed the appeal and affirmed the order of December 20, 2019 passed by the Commercial Court and 19th Additional Sessions Judge, Bhopal, allowing application filed by the respondent, Madhya Pradesh Road Development Corporation Limited herein under Section 34 of the 1996 Act, 1996.

In the case, the court noted it is an admitted fact that at the time of constitution of the arbitral tribunal, the respondent never objected to the invocation of arbitration under the Act, 1996 and both the parties proceeded to nominate their respective coarbitrators.

The respondent never raised any objection to the arbitral tribunal’s lack of jurisdiction during the arbitration proceedings either in its statement of defence or by way of an application under Section 16 of the Act, 1996. Even when the award was challenged by the respondents, the initial petition filed by them under Section 34 of the Act, 1996 also did not contain any objection as regards the lack of jurisdiction of the arbitral tribunal, the court pointed out.

The ground of lack of jurisdiction was introduced by the respondents by way of an application for amending the grounds of its petition under Section 34 of the Act, 1996, i.e., after the award had been passed, the bench said.

Holding that the high court committed an egregious error in passing the impugned judgment, the court restored the proceedings in Arbitration Case to the court of Commercial Court and 19th Upper District Judge, Bhopal, for deciding all other issues on merit that may have been raised by the respondent in its petition under Section 34 of the Act, 1996.

The respondent suffered an award on July 08, 2011 passed by the Arbitral Tribunal. The said award was challenged by the respondent Corporation under Section 34 of the Act, 1996.

The appeal filed by the Corporation under Section 34 of the Act, 1996 came to be allowed on the ground that the tribunal had no jurisdiction to pass the award in view of the provisions of the M P Madhyastham Adhikaran Adhiniyam, 1983.

The order passed by the Commercial Court and 19th Additional Sessions Judge, Bhopal came to be challenged by way of appeal before the high court under Section 37 of the Act, 1996. The appeal came to be dismissed.

The appellant executed a “works contract” on December 12, 2005, with the respondent for “Rehabilitation and Strengthening of Khargone - Barwani Road (SH-26) Project Road No. 19” & “Rehabilitation and Strengthening of Khargone - Bistan Road (SH-31) Project Road No. 20” in the State of Madhya Pradesh.

The disputes arose between the parties from August 06, 2010, onwards in relation to the appellant’s right to be reimbursed additional cost incurred by it on account of introduction of subsequent legislation on increase in entry tax on High-Speed Diesel under Clause 70.8 of the Particular Conditions of Contract.

The appellant invoked arbitration under Clause 67.4 by its notice on August 06, 2010 and the tribunal stood constituted on September 24, 2010. The tribunal passed a unanimous award on July 08, 2011 in favour of the appellant for a sum of Rs 1,03,55,187.