M/S MSP INFRASTRUCTURE LTD. Vs M.P.ROAD DEVL.CORP. LTD.
Bench: J. CHELAMESWAR,S.A. BOBDE
Case number: C.A. No.-010778-010778 / 2014
Diary number: 16519 / 2010
Advocates: KUNAL VERMA Vs
ASHIESH KUMAR
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.10778 OF 2014 [Arising out of SLP (Civil) No. 16539 of 2010]
M/S MSP INFRASTRUCTURE LTD. .. APPELLANT(S)
VERSUS
M.P. ROAD DEVL. CORP. LTD. .. RESPONDENT(S)
JUDGMENT
S. A. BOBDE, J.
Leave granted.
2. The question that has arisen in this appeal is : whether
a party to an arbitration proceeding may be permitted to raise
objections under Section 34 of the Arbitration and Conciliation
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Act, 1996 (for short “the Arbitration Act, 1996”), with regard to
the jurisdiction of the Arbitral Tribunal (for short “the Tribunal”)
after the stage of submission of the written statement.
3. M/s M.S.P. Infrastructure (Appellant) and the M.P.
Road Development Corporation (Respondent) entered into a
contract on 04-04-2002 for the development and upgradation of
the Raisen-Rahatgarh road (a stretch of about 100 Kms.) in the
State of Madhya Pradesh.
4. Upon a dispute arising between the parties in
respect of the work carried out by the Appellant, the
Respondent Corporation terminated the said contract and
encashed the bank-guarantee. Thereafter, the Appellant filed a
Civil-Suit being C.S. No. 63 of 2003 before the Calcutta High
Court challenging the termination of the Agreement as well as
the encashment.
5. The Calcutta High Court disposed of the suit on 22-
05-2003 by recording “Terms of Settlement” between the
parties, whereby it was decreed that the dispute would be
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referred to arbitration in terms of the contract dated 04-04-
2002 within a period of 30 days, under the provisions of the
Arbitration Act, 1996.
6. The Tribunal made an award on 27-11-2006. By the
said award, the Tribunal partly allowed the claims of the
Appellant and accordingly awarded a sum of approximately Rs.
6.90 crores as well as the release of Fixed Deposit Receipts
which had been deposited as security with the Respondent.
7. Aggrieved by the award dated 27-11-2006, the
Respondent filed a petition on 09-01-2007 for setting aside the
award under Section 34 of the Arbitration Act, 1996. The
Respondent assailed the award as being in contravention of
clause (b) of sub-section (2) of Section 34 of the Arbitration Act,
1996.
8. Subsequently, on 28-02-2009 the Respondent
moved an application to amend the original petition under
Section 34 to add additional grounds of objection. The
Additional District & Sessions Judge, Bhopal (Madhya
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Pradesh) vide order dated 26-08-2009 rejected the said
amendment application. The learned Additional District &
Sessions Judge observed that it was absolutely unjust and
unfair to file such objections after two years of the filing of
the petition under Section 34 of the Arbitration Act, 1996.
Aggrieved, the Respondent preferred a Petition under Article
227 before the High Court of Madhya Pradesh at Jabalpur. The
Madhya Pradesh High Court without going into the tenability
of the amendment application at the stage at which it was
moved, i.e., beyond the time permitted by Section 16 of the
Arbitration Act, 1996, simply allowed the amendment by
observing that they are not deciding the merits of the case
and that they were simply considering the amendment
application.
9. On 18-02-2010, the High Court allowed the
Respondent’s petition and set aside the order of the District
Court, thus allowing the amendment application.
10. Aggrieved by the allowing of the amendment
application, the Appellant has moved this Court. We must at
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once notice that the main challenge to the order allowing the
amendment is that it allows the Respondent to raise an
objection to jurisdiction contrary to Section 16 of the
Arbitration Act, 1996, which provides that an objection to
jurisdiction shall not be raised later than the submission of
the statement of defence. The grounds allowed to be raised
by the order allowing the amendment application are as
follows:
“I-A That the Indian Council of Arbitration, New Delhi had no jurisdiction to appoint any Arbitral Tribunal of private persons to entertain and decide the dispute between the parties as it related to a works contract between a contractor and a/Govt. Undertaking.
I-B That the dispute being a dispute between a contractor and a Govt. Undertaking arising out of a works contract of more than Rs.50,000/- the Arbitration Tribunal Constituted by the State Govt. of M.P. had the exclusive jurisdiction to decide the said dispute on being submitted to it under sub section 1 of, Section 7 of the M.P. Madhyastham Adhikaran Adhiniyam, 1983 and none else. As
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such, the impugned award passed by the Arbitral Tribunal constituted-by the Indian Council of Arbitration, New Delhi having no jurisdiction to entertain and/or decide the dispute, the impugned award is a total nullity and non-est in the eye of law.”
11. According to the Appellant, the Tribunal under the
Arbitration Act, 1996 was fully empowered to enter into and
decide the dispute submitted to it, since the dispute was
referred in pursuance of an arbitration clause contained in
the Concession Agreement, which reads as follows:
“39.1 Any dispute, which is not resolved amicably as provided in Clause 39.1 and 39.2 shall be finally decided by reference to arbitration by a Board of Arbitrators appointed as per the provision of the Arbitration and Conciliation Act, 1996 and any subsequent amendment thereto. Such Arbitration shall be held in accordance with the Rules of Arbitration of the Indian Council of Arbitration and shall be subject to the provisions of the Arbitration and Conciliation Act, 1996 and as amended from time to time thereafter.”
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12. The Appellant further contends that the aforesaid
clause covers any dispute which is not resolved amicably
and is intended to cover the present dispute which arises
under the contract formed and concluded by the agreement
which contains this very arbitration clause. The Appellant
further contends that this agreement was entered into by
the parties in the year 2002, being fully aware of the
existence of the Madhya Pradesh Madhyastham Adhikaran
Adhiniyam, 1983 (for short “the M.P. Act of 1983”). Not only
this, the parties reiterated this agreement before the
Calcutta High Court when they specifically agreed vide
Clause ‘C’ of the consent terms that if the Appointing
Authority fails to appoint and constitute the Tribunal in terms
of the Concession Agreement dated 04-04-2002 within a
period of 30 days, the parties shall be at liberty to apply to
the Madhya Pradesh High Court for appointment and
constitution of the Tribunal under the provisions of the
Arbitration Act, 1996. Thus, on two occasions, the parties
asserted and consented that the dispute between them
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would be resolved by Arbitration under the provisions of the
Arbitration Act, 1996. Therefore, according to the Appellant,
there is no merit whatsoever in the ground introduced by the
amendment application. Even otherwise, the Appellant
contended that the provisions of the Arbitration Act, 1996,
being a Parliamentary Statute would have precedence over
the M.P. Act of 1983, which is a State Act on the same
subject. Above all, it was contended that the introduction of
the ground that the Tribunal did not have jurisdiction is
grossly belated and impermissible in view of Section 16(2) of
the Arbitration Act, 1996.
13. It is clear from the circumstances, that in the
event it is found that the newly added ground could not have
been raised at this stage, i.e. the stage at which it was
allowed to be raised, it is not necessary to go into the wider
question as to which Act will prevail, the Central Act or the
State Act. Thus, the only question that falls for consideration
at this stage is whether, having regard to Section 16 of the
Arbitration Act, 1996, the Respondent was entitled to
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introduce the ground that the Arbitration Tribunal constituted
under the M.P. Act of 1983 would take precedence over the
Tribunal constituted under the Arbitration Act, 1996, that too
by way of an amendment to the petition under Section 34.
14. Section 16(2) of the Arbitration Act, 1996 reads as
follows:
“Section 16(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.”
On a plain reading, this provision mandates that a plea
that the Tribunal does not have jurisdiction shall not be
raised later than the submission of the statement of defence.
There is no doubt about either the meaning of the words
used in the Section nor the intention. Simply put, there is a
prohibition on the party from raising a plea that the Tribunal
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does not have jurisdiction after the party has submitted its
statement of defence. The intention is very clear. So is the
mischief that it seeks to prevent. This provision disables a
party from petitioning an Tribunal to challenge its jurisdiction
belatedly, having submitted to the jurisdiction of the
Tribunal, filed the statement of defence, led evidence, made
arguments and ultimately challenged the award under
Section 34 of the Arbitration Act, 1996. This is exactly what
has been done by the Respondent Corporation. They did not
raise the question of jurisdiction at any stage. They did not
raise it in their statement of defence; they did not raise it at
any time before the Tribunal; they suffered the award; they
preferred a petition under Section 34 and after two years
raised the question of jurisdiction of the Tribunal. In our
view, the mandate of Section 34 clearly prohibits such a
cause. A party is bound, by virtue of sub-section (2) of
Section 16, to raise any objection it may have to the
jurisdiction of the Tribunal before or at the time of
submission of its statement of defence, and at any time
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thereafter it is expressly prohibited. Suddenly, it cannot
raise the question after it has submitted to the jurisdiction of
the Tribunal and invited an unfavourable award. It would be
quite undesirable to allow arbitrations to proceed in the
same manner as civil suits with all the well-known drawbacks
of delay and endless objections even after the passing of a
decree.
15. Shri Divan, the learned senior counsel for the
Respondent vehemently submitted that a party is entitled
under the law to raise an objection at any stage as to the
absence of jurisdiction of the Court which decided the
matter, since the order of such a Court is a nullity. It is not
necessary to refer to the long line of cases in this regard
since, that is the law. But, it must be remembered that this
position of law has been well settled in relation to civil
disputes in Courts and not in relation to arbitrations under
the Arbitration Act, 1996. Parliament has the undoubted
power to enact a special rule of law to deal with arbitrations
and in fact, has done so. Parliament, in its wisdom, must be
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deemed to have had knowledge of the entire existing law on
the subject and if it chose to enact a provision contrary to
the general law on the subject, its wisdom cannot be
doubted. In the circumstances, we reject the submission on
behalf of the Respondent.
16. It was next contended on behalf of the Respondent
by Shri Divan, that Section 16 undoubtedly empowers the
Tribunal to rule on its own jurisdiction and any objections to
it must be raised not later than the submission of the
statement of defence. However, according to the learned
senior counsel, objections to the jurisdiction of a Tribunal
may be of several kinds as is well-known, and Section 16
does not cover them all. It was further contended that
where the objection was of such a nature that it would go to
the competence of the Arbitral Tribunal to deal with the
subject matter of arbitration itself and the consequence
would be the nullity of the award, such objection may be
raised even at the hearing of the petition under Section 34 of
the Act. In support, the learned senior counsel relied on
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clause (b) of sub-section (2) of Section 34 which reads as
follows:-
“34(2) An arbitral award may be set aside by the Court only if –
(a) ……….. (b) the Court finds that –
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
It is not possible to accept this submission. In the first place,
there is nothing to warrant the inference that all objections
to the jurisdiction of the Tribunal cannot be raised under
Section 16 and that the Tribunal does not have power to rule
on its own jurisdiction. Secondly, Parliament has employed a
different phraseology in Clause (b) of Section 34. That
phraseology is “the subject matter of the dispute is not
capable of settlement by arbitration.” This phrase does not
necessarily refer to an objection to ‘jurisdiction’ as the term
is well known. In fact, it refers to a situation where the
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dispute referred for arbitration, by reason of its subject
matter is not capable of settlement by arbitration at all.
Examples of such cases have been referred to by the
Supreme Court in the case of Booz Allen and Hamilton
Inc. Vs. SBI Home Finance Limited and Ors.1 This Court
observed as follows:-
“36. The well-recognised examples of non- arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grants of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.”
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(2011) 5 SCC 532
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The scheme of the Act is thus clear. All objections to
jurisdiction of whatever nature must be taken at the stage of
the submission of the statement of defence, and must be
dealt with under Section 16 of the Arbitration Act, 1996.
However, if one of the parties seeks to contend that the
subject matter of the dispute is such as cannot be dealt with
by arbitration, it may be dealt under Section 34 by the Court.
17. It was also contended by Shri Divan, that the
newly added ground that the Tribunal under the Arbitration
Act, 1996 had no jurisdiction to decide the dispute in
question because the jurisdiction lay with the Tribunal under
the M.P. Act of 1983, was a question which can be agitated
under sub-clause (ii) of clause (b) of sub-section (2) of
Section 34 of the Arbitration Act, 1996. This provision
enables the court to set-aside an award which is in conflict
with the public policy of India. Therefore, it is contended
that the amendment had been rightly allowed and it cannot
be said that what was raised was only a question which
pertained to jurisdiction and ought to have been raised
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exclusively under Section 16 of the Arbitration Act, 1996, but
in fact was a question which could also have been raised
under Section 34 before the Court, as has been done by the
Respondent. This submission must be rejected. The
contention that an award is in conflict with the public policy
of India cannot be equated with the contention that Tribunal
under the Central Act does not have jurisdiction and the
Tribunal under the State Act, has jurisdiction to decide upon
the dispute. Furthermore, it was stated that this contention
might have been raised under the head that the Arbitral
Award is in conflict with the public policy of India. In other
words, it was submitted that it is the public policy of India
that arbitrations should be held under the appropriate law. It
was contended that unless the arbitration was held under
the State Law i.e. the M.P. Act that it would be a violation of
the public policy of India. This contention is misconceived
since the intention of providing that the award should not be
in conflict with the public policy of India is referable to the
public policy of India as a whole i.e. the policy of the Union of
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India and not merely the policy of an individual state.
Though, it cannot be said that the upholding of a state law
would not be part of the public policy of India, much depends
on the context. Where the question arises out of a conflict
between an action under a State Law and an action under a
Central Law, the term public policy of India must necessarily
understood as being referable to the policy of the Union. It
is well known, vide Article 1 of the Constitution, the name
‘India’ is the name of the Union of States and its territories
include those of the States.
18. We have thus no hesitation in coming to the
conclusion that the amendment application raised a ground
which was contrary to law and ought not to have been
allowed by the High Court. We accordingly set aside the
judgment and order of the High Court. There shall be no
order as to costs.
…….................………..J. [J. CHELAMESWAR]
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..........………………………J. [S.A. BOBDE]
New Delhi, December 5th, 2014
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