Arbitration Act Vs. MP Madhyastham Adhikaran Adhiniyam

Introduction 

In the realm of dispute resolution, arbitration stands as a significant mechanism for settling conflicts outside the traditional court system. The Arbitration Act¹, India provides a comprehensive framework for this process. However, questions regarding the jurisdiction of arbitral tribunals can arise, leading to legal challenges. 

Recently, a division bench of the Supreme Court comprising Justices JB Pardiwala and R Mahadevan has delivered a crucial judgment in M/S Gayatri Project Limited Versus Madhya Pradesh Road Development Corporation Limited² clarifying the circumstances under which an arbitral award can be challenged on jurisdictional grounds, particularly when the objection was not raised during the arbitration proceedings. The Court firmly held that an arbitral award under the Arbitration Act cannot be annulled solely due to a lack of jurisdiction if the objecting party failed to raise this issue before the arbitral tribunal itself at the relevant time, particularly under Section 16 of the Act. 

The crux of the issue before the Court was whether an arbitral award passed under the 1996 Act could be set aside solely on the basis that the dispute should have been adjudicated under a specific state law – the MP Act³– when the objecting party had participated in the arbitration without raising any jurisdictional concerns at the appropriate stage. This article will delve into the precedents and jurisprudence upon which this significant judgment rests, exploring the delicate balance between upholding the sanctity of arbitral awards and ensuring adherence to statutory jurisdictional requirements.

Having dissected the factual backdrop, the Supreme Court framed two pivotal questions. First, could an arbitral award under the 1996 Act be invalidated solely for lacking jurisdiction if no such objection was raised before the tribunal, especially when the MP Act was the purported governing law? Second, was the Court’s prior ruling in LG Choudhary (II) flawed for allegedly overlooking the Lion Engineering precedent, implying a potential conflict in their views on when jurisdictional objections can be raised?

To answer these, the Court embarked on an analysis of the MP Act, 1983, beginning with the State of M.P. v. Anshuman Shukla⁴. What did this case reveal? It established the MP Act as a special law creating a distinct, compulsory arbitration forum for disputes involving the state or its undertakings, highlighting the unique structure and powers of the Madhya Pradesh Arbitration Tribunal, setting it apart from typical ad hoc tribunals and rendering the 1940 and 1996 Arbitration Acts inapplicable to arbitrations under it.

Next came VA Tech Escher Wyass Flovel Limited v. M.P. State Electricity Board & Anr⁵.(VA Tech), which, in a seemingly contrasting view, suggested a harmonious application of both the MP Act and the 1996 Act, arguing that the former merely mandated arbitration for certain work contracts, without overriding the latter for contracts containing arbitration clauses. However, the Court in the present case noted that VA Tech surprisingly failed to consider Anshuman Shukla.

Adding another layer of complexity was Ravikant Bansal v. M.P. Rural Road Development Authority⁶. This case distinguished VA Tech, holding that if an arbitration clause explicitly stipulated arbitration under the MP Act by its designated tribunal, then the 1996 Act would not apply. This introduced a crucial element of contractual intent.

Given these seemingly divergent opinions, the issue of the MP Act’s applicability vis-à-vis the 1996 Act landed before a larger bench in MP Rural Road Development Authority & Anr v. L.G.Chaudhary Engineers & Contractor⁷(L.G. Chaudhary(I)). What was the outcome? Justice Ganguly, relying on Anshuman Shukla, asserted the MP Act’s status as a special law providing for statutory arbitration, highlighting the inconsistencies between the two Acts in tribunal formation, powers, and procedures. Consequently, VA Tech Was deemed per incuriam for overlooking Anshuman Shukla and Section 2(4) of the 1996 Act, which preserves the application of other enactments unless inconsistent. Justice Ganguly also found no implied repeal of the MP Act by the 1996 Act. However, Justice Misra offered a dissenting view, arguing that if a dispute under a work contract didn’t fall within the specific definition of “works contract” under the MP Act, it could be subject to arbitration under the 1996 Act.

This divergence in L.G. Chaudhary (I) necessitated a reference to a three-judge bench, culminating in M.P. Road Development Authority & Anr v. L.G. Chaudhary Engineers & Contractors⁸ (L.G. Chaudhary (II)). What did this larger bench conclude? It sided with Justice Ganguly’s view in L.G. Chaudhary (I), holding that disputes covered under the MP Act must mandatorily be referred to the MP State Arbitration Tribunal, rendering the 1996 Act inapplicable in such cases. The bench clarified that the definition of “dispute” under the MP Act encompassed issues arising from termination, repudiation, or cancellation, a point the dissent in L.G. Chaudhary (I) had seemingly missed. Consequently, VA Tech remained per incuriam.

Having navigated this intricate web of precedents, the Supreme Court in the present case, relying significantly on the principles established in these judgments, particularly the binding nature of the MP Act for specific disputes and the importance of raising jurisdictional objections at the appropriate stage under the 1996 Act, proceeded to address the questions that it had framed.

So, the pivotal question arose: can an arbitral award under the 1996 Act be struck down solely for lack of jurisdiction if the applicability of the MP Act, 1983, wasn’t even brought up before the arbitral tribunal?

The Supreme Court, in addressing this, didn’t just reiterate the L.G. Chaudhary (II) ruling. It illuminated how courts should handle ongoing cases and awards already issued under the 1996 Act when the MP Act, 1983, might have been the appropriate law. Interestingly, L.G. Chaudhary (II) itself, while dealing with the reference from L.G. Chaudhary (I), provided clarity on this. 

In cases where arbitration under the 1996 Act was challenged pre-award, but the defense had been filed without raising a jurisdictional objection, the court held that such a plea couldn’t be raised later under Section 16(2), and the award wouldn’t be annulled solely on that basis. Similarly, for awards already passed without a Section 16(2) objection, L.G. Chaudhary (II) restored them, emphasizing that annulment wouldn’t be solely on jurisdictional grounds, while still allowing other challenges under Section 34. In a unique instance involving pending execution proceedings, the Court, considering the protracted litigation, directed the award to be treated as under the MP Act, 1983, and transferred the execution to the Madhya Pradesh High Court.

This naturally leads to the next crucial question: Was there a conflict between L.G. Chaudhary (II) and the earlier Lion Engineering Consultants v. State of Madhya Pradesh⁹ judgment regarding when jurisdictional objections could be raised?

Lion Engineering had addressed this very issue. In that case, the State sought to amend its pleadings in Section 34 proceedings to raise a jurisdictional objection based on the MP Act, 1983, even though it hadn’t done so before the arbitral tribunal. The Court in Lion Engineering held that legal pleas arising from undisputed facts could be raised in Section 34 proceedings, even if not under Section 16, without needing to amend pleadings. It even disagreed with the view in MSP Infrastructure Ltd. v. M.P. Road Development Corpn. Ltd¹⁰. stating that “public policy of India” under Section 34 included violations of state laws. Thus, Lion Engineering seemed to suggest that a jurisdictional plea could be raised for the first time under Section 34, irrespective of Section 16(2).

The respondent in the present case argued this very conflict. However, the Supreme Court wasn’t convinced. Why? 

Firstly, the Court reasoned that L.G. Chaudhary (II)’s silence on Lion Engineering didn’t automatically make it per incuriam. The very fact that L.G. Chaudhary (II) clarified that an award wouldn’t be annulled only on jurisdictional grounds indicating an awareness of the Lion Engineering stance, effectively carving out an exception. 

Secondly, the Court pointed out that Lion Engineering primarily dealt with the procedural question of whether an amendment was needed to raise a jurisdictional plea under Section 34, not the substantive question of whether an award could be annulled solely on that ground if the plea wasn’t raised earlier. 

Thirdly, the Court noted that Lion Engineering’s ratio, allowing a first-time jurisdictional plea under Section 34, was limited to purely legal questions based on undisputed facts and didn’t address whether such a plea automatically led to annulment, especially if the jurisdictional defect wasn’t fundamental. 

In contrast, L.G. Chaudhary (II) specifically tackled the annulment issue in the context of the MP Act, stating that awards wouldn’t be annulled solely on jurisdictional grounds if the objection wasn’t timely. Therefore, the Court concluded there was no direct conflict.

What emerged was that L.G. Chaudhary (II) created an exception to the general rule in Lion Engineering. While a legal plea of lack of jurisdiction could indeed be raised for the first time under Section 34, concerning the MP Act, 1983, particularly given the past legal uncertainties surrounding its applicability, if the plea wasn’t raised before the arbitral tribunal and an award was passed, that award wouldn’t be annulled solely on that jurisdictional ground.

This exception was further reinforced in cases like JMC Projects, which reiterated that after an award, all objections except the plea of lack of jurisdiction and the applicability of the MP Act, 1983 (if not raised earlier), could be raised under Section 34. Similarly, Sweta Construction, dealing with a similar Chhattisgarh state law, followed L.G. Chaudhary (II), stating that awards wouldn’t be annulled only on jurisdictional grounds if the objection wasn’t raised at the relevant stage. Sweta Construction also addressed the perceived conflict between L.G. Chaudhary (II) and Lion Engineering, highlighting that Lion Engineering dealt with amendment of pleadings and that the respondent’s conduct in participating in the 1996 Act arbitration could even amount to a waiver of their right to invoke the state law.

Finally, in Modern Builders v. State of Madhya Pradesh & Anr.The Court, while acknowledging a delayed jurisdictional objection, refused to set aside the award solely on the grounds of the MP Act’s applicability, especially since the appellant had initially approached the MP Tribunal but was directed to the 1996 Act arbitration. The Court even invoked Article 142 to ensure complete justice.

Thus, the consistent thread running through these judgments is that while jurisdictional objections are significant, failing to raise them at the appropriate stage before the arbitral tribunal, particularly concerning the MP Act, 1983, carries consequences when it comes to challenging the award under Section 34. Annulment solely on this belatedly raised ground is generally not permissible.

The Supreme Court then directly addressed the question of whether a plea of lack of jurisdiction could be raised for the first time under Section 34 of the 1996 Act if no such objection was taken before the arbitral tribunal. To answer this, the Court delved into the interplay between Sections 16 and 34 of the Act.

Drawing upon Union of India v. Pam Development (P) Ltd., the Court highlighted that failing to raise a jurisdictional plea before the arbitral tribunal could be deemed a waiver under Section 4 read with Section 16, thus precluding it from being raised for the first time under Section 34. Pam Development emphasized that since the appellant had participated in the arbitration without objection, the jurisdictional plea was considered waived.

Similarly, in Gas Authority of India Ltd. v. Keti Construction (I) Ltd., the Court held that a party raising a jurisdictional challenge under Section 34 after not doing so before the tribunal needed to provide a strong reason for this omission. A parallel view was expressed in the recent AC Chokshi Share Broker (P) Ltd. v. Jatin Pratap Desai, where the Court reiterated that not raising a jurisdictional issue under Section 16 leads to a deemed waiver under Section 4, preventing its later invocation under Sections 34 or 37.

The Court then pinpointed the respondent’s misinterpretation of Lion Engineering, arguing that it selectively focused on the observation allowing a jurisdictional plea under Section 34 even without a Section 16 objection, while ignoring the established jurisprudence on waiver. The Court clarified that Lion Engineering’s statement couldn’t be isolated from the settled legal position established by cases like Pam Development. Pam Development didn’t bar a Section 34 jurisdictional plea due to Section 16(2) itself, but because the failure to raise it earlier constituted a waiver. The key difference between Pam Development and Lion Engineering lay in whether this failure amounted to a waiver, an issue Lion Engineering didn’t explicitly address.

Crucially, the Court noted that Lion Engineering itself, in paragraph 9, left it open for the Section 34 court to determine whether such a plea could be allowed, considering factors like whether it was purely a legal question and if there was any waiver. Gas Authority of India further refined this by stating that a waiver could be avoided if a strong and good reason existed for not raising the plea earlier.

It was in this context that the Court revisited L.G. Chaudhary (II). The observation in paragraph 17 of that judgment – that an award wouldn’t be annulled only on jurisdictional grounds if no objection was raised earlier – became significant. The present Supreme Court interpreted this to mean that a failure to raise the applicability of the MP Act, 1983, before the arbitral tribunal was not a strong and good reason (as per Gas Authority of India) to permit raising it for the first time under Section 34.

Therefore, the Court concluded that while Lion Engineering affirmed the possibility of raising a jurisdictional plea under Section 34 for the first time, this was subject to the principle of waiver established in Pam Development. Furthermore, Gas Authority of India added the caveat of needing a strong reason for the delay. And, as explicitly stated in L.G. Chaudhary (II), failing to raise the MP Act’s applicability before the tribunal didn’t constitute such a strong reason.

In its final analysis, the Supreme Court reiterated that although Lion Engineering allowed a first-time jurisdictional plea under Section 34 as a legal question, it was still subject to waiver as per Pam Development. Gas Authority of India further conditioned this on a strong reason for the delay. L.G. Chaudhary (II) then clarified that failing to raise the MP Act’s applicability earlier wasn’t a sufficient reason. Thus, L.G. Chaudhary (II) carved out a specific exception for the MP Act context.

Applying these principles to the present case, the Supreme Court highlighted that the respondent had never objected to the 1996 Act arbitration initially, even nominating co-arbitrators. At the time, VA Tech held the field. The respondent never raised a jurisdictional objection during the arbitration or in its initial Section 34 petition, only doing so after L.G. Chaudhary (II). Consequently, the Court found the case squarely covered by L.G. Chaudhary (II), concluding that the High Court erred in annulling the award solely on jurisdictional grounds when no objection was raised at the relevant stage. The Supreme Court thus set aside the High Court’s judgment and restored the Section 34 proceedings to the Commercial Court to decide the remaining issues on merit.

Citations 

1. M/S Gayatri Project Limited Versus Madhya Pradesh Road Development Corporation Limited Special Leave Petition (C) No. 9740 of 2022
2. State of M.P. v. Anshuman Shukla (2008) 7 SCC 487
3. VA Tech Escher Wyass Flovel Limited v. M.P. State Electricity Board & Anr.(2011) 13 SCC 261
4. Ravikant Bansal v. M.P. Rural Road Development Authority (2012) 3 SCC 513
5. MP Rural Road Development Authority & Anr v. L.G.Chaudhary Engineers & Contractor (2012) 3 SCC 495
6. M.P. Road Development Authority & Anr v. L.G. Chaudhary Engineers & Contractors(2018) 10 SCC 826
7. Lion Engineering Consultants v. State of Madhya Pradesh(2018) 16 SCC 758
8. MSP Infrastructure Ltd. v. M.P. Road Development Corpn. Ltd.(2015) 13 SCC 713
9. Modern Builders v. State of Madhya Pradesh & Anr. reported in (2024) 10 SCC 63
10. Union of India v. Pam Development (P) Ltd.reported in (2014) 11 SCC 366
11. Gas Authority of India Ltd. v. Keti Construction (I) Ltd. reported in (2007)
12. AC Chokshi Share Broker (P) Ltd. v. Jatin Pratap Desai reported in (2025) SCC OnLine SC 281

Expositor(s): Adv. Anuja Pandit