Saturday 31 March 2018

Whether public policy for purpose of arbitration proceeding means only law laid down by parliament?

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 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 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 be 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.”
8. Both stages are independent. Observations in
Paragraphs 16 and 17 in MSP Infrastructure (supra) do not,
in our view, lay down correct law. We also do not agree
with the observation that the Public policy of India does
not refer to a State law and refers only to an All India
law.
9. In our considered view, the public policy of India
refers to law in force in India whether State law or
Central law. Accordingly, we overrule the observations to
the contrary in Paragraphs 16 and 17 of the judgment in MSP
Infrastructures Ltd. (supra).
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 8984-8985 OF 2017
 M/S LION ENGINEERING CONSULTANTS 
 Vs
 STATE OF M.P. & ORS. 
Dated:March 22, 2018.


1. We have heard learned counsel for the parties.
2. The matter arising out of a dispute in execution of
a works contract was referred to the Arbitrator by the High
Court on 4.09.2008. The Arbitrator made his Award dated
10.07.2010 in favour of the appellant. It was challenged
under Section 34 of the Arbitration and Conciliation Act,
1996 (“the Act”) before the Seventh Additional District
Judge, Bhopal by the respondent-State of M.P. The
respondent sought to amend its objections after three years
which was rejected by the trial Court. On a petition under
Article 227 of the Constitution of India, the High Court
has allowed the said amendment.
3. Learned counsel for the appellant submitted that the
amendment could not be allowed beyond the period of
limitation which affected the vested rights of a party. It2
was also submitted that the objection having not been
raised under Section 16(2) of the Act before the
Arbitrator, could not be raised under Section 34 of the
Act. In support of this submission reliance has been placed
on MSP Infrastructure Ltd. vs. Madhya Pradesh Road
Development Corporation Ltd. reported in (2015) 13 SCC 713.
4. Learned Advocate General for the State of M.P.
submitted that the amendment sought is formal. Legal plea
arising on undisputed facts is not precluded by Section
34(2)(b) of the Act. Even if an objection to jurisdiction
is not raised under Section 16 of the Act, the same can be
raised under Section 34 of the Act. It is not even
necessary to consider the application for amendment as it
is a legal plea, on admitted facts, which can be raised in
any case. He thus submits the amendment being unnecessary
is not pressed. Learned Advocate General also submitted
that observations in M/s MSP Infrastructure Ltd. (supra),
particularly in Paragraphs 16 and 17 do not laid down
correct law.
5. We find merit in the contentions raised on behalf of
the State. We proceed on the footing that the amendment
being beyond limitation is not to be allowed as the
amendment is not pressed.
6. We do not see any bar to plea of jurisdiction being3
raised by way of an objection under Section 34 of the Act
even if no such objection was raised under Section 16.
7. We may quote the observations from M/s MSP
Infrastructure (supra):
“16. 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 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 Booz Allen and Hamilton Inc. V/s.
SBI Home Finance Limited (2011) 5 SCC 532. 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."
The scheme of the Act is thus clear. All4
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 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 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 be 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.”
8. Both stages are independent. Observations in
Paragraphs 16 and 17 in MSP Infrastructure (supra) do not,
in our view, lay down correct law. We also do not agree
with the observation that the Public policy of India does
not refer to a State law and refers only to an All India
law.
9. In our considered view, the public policy of India
refers to law in force in India whether State law or
Central law. Accordingly, we overrule the observations to
the contrary in Paragraphs 16 and 17 of the judgment in MSP
Infrastructures Ltd. (supra).
10. Since amendment application is not pressed, the
appeal is rendered infructuous. The impugned order is set
aside.
11. The matter may now be taken up by the trial court
for consideration of objections under Section 34 of the
Central Act. It will be open for the respondents to argue
that its objection that the Act stands excluded by the
M.P. Madhyastham Adhikaran Adhiniyam, 1983 could be raised
even without a formal pleading, being purely a legal plea.
It will also be open to the appellant to argue to the
contrary. We leave the question to be gone into by the
concerned court.
The appeals are disposed of accordingly.
…...…................J.
(ADARSH KUMAR GOEL)
...….…................J.
(ROHINTON FALI NARIMAN)
...….…................J.
(UDAY UMESH LALIT)
NEW DELHI,
MARCH 22, 20187
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION (C) NO. 15059 OF 2011
M/S MMC PROJECTS INDIA PVT. LTD. PETITIONER(S)
 VERSUS
GUJARAT STATE ELECTRICITY CORPORATION
LTD. & ANR. RESPONDENT(S)
O R D E R
It is not disputed that for purposes of decision of
the question arising in the present case the provisions of
Gujarat Public Works Contracts Disputes Arbitration
Tribunal Act, 1992 are in pari materia to the provisions of
M.P. Madhyastham Adhikaran Adhiniyam, 1983 which have been
considered by this Court vide Order dated 8.03.2018 in
Civil Appeal No. 974/2012 titled as “Madhya Pradesh Rural
Road Development Authority & Anr. vs. M/s L.G. Chaudhary
Engineers and Contractors.”
In view of above, this petition is dismissed.
…...…................J.
(ADARSH KUMAR GOEL)
...….…................J.
(ROHINTON FALI NARIMAN)
...….…................J.
(UDAY UMESH LALIT)
NEW DELHI,
MARCH 22, 2018
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.3344 OF 2018
(Arising out of SLP (C) No(s). 18212 OF 2017
THE STATE OF BIHAR & ORS. Appellant(s)
 VERSUS
M/S. BRAHMAPUTRA INFRASTRUCTURE LIMITED Respondent(s)
WITH
CIVIL APPEAL NO.3345 OF 2018
(Arising out of SLP (C) No(s). 21434 OF 2017)
THE STATE OF BIHAR & ORS. Appellant(s)
 VERSUS
M/S. SUPREME BRAHMAPUTRA (JV) Respondent(s)
O R D E R
(1) Leave granted. We have heard learned counsel for the
parties.
(2) The State is aggrieved by the appointment of arbitrator
under Section 11(6) of the Arbitration and Conciliation Act,
1996 (the Central Act) on the ground that the said Act is
excluded by the Bihar Public Works Contracts Arbitration
Tribunal Act, 2008 (Bihar Act 21 of 2008) (the State Act).
(3) To appreciate the plea raised, it is necessary to refer
to the scheme of the State Act as reflected in some of the key
provisions. Sections 8, 9 and 22 of the State Act are as
follows:
“8. Act to be in addition to Arbitration &
Conciliation Act, 1996. - Notwithstanding
anything contained in this Act, and of the9
provisions shall be in addition to and
supplemental to Arbitration & Conciliation Act,
1996 and in case any of the provision contained
herein is construed to be in conflict with
Arbitration Act, then the latter Act shall
prevail to the extent of conflict.
9. Reference to Tribunal and making of award.--
(1) Where any dispute arises between the
parties to the contract, either party shall,
irrespective of whether such contract contains
an arbitration clause or not refer, within one
year from the date on which the dispute has
arisen, such dispute in writing to the Tribunal
for arbitration in such form and accompanied by
such documents or other evidence and by such
fees, as may be prescribed.
(2) On receipt of a reference under subsection
(10, the Tribunal may, if satisfied
after such inquiry as it may deem fit to make,
that the requirements under this Act in
relation to the reference are complied with,
admit such reference and where the Tribunal is
not so satisfied, it may reject the reference
summarily.
(3) Where the Tribunal admits the reference
under sub-section (2), it shall, after
recording evidence if necessary, and after
perusal of the material on record and on
affording and opportunity to the parties to
submit their argument, make an award or an
interim award, giving its reasons therefor.
(4) The Tribunal shall use all reasonable
dispatch in entering on and proceeding with the
reference admitted by it and making the award,
and an endeavour shall be made to make an award
within four months from the date on which the
Tribunal had admitted the reference.
(5) The award including the interim award
made by the Tribunal shall, subject to an
order, if any made under Section – 12 or 13, be
final and binding on the parties to the
dispute.
(6) An award including an interim award as
confirmed or varied by an order, if any, made
under Section- 12 or 13 shall be deemed to be
a decree within the meaning of section-2 of the10
Code of Civil Procedure, 1908 of the principal
Court of original jurisdiction within the local
limits whereof the award or the interim award
has been made and shall be executed
accordingly.
22. Overriding effect of this Act.-
Notwithstanding any thing contained in any
other Law, Rule, Order, Scheme, or Contract
Agreement entered into before or after
commencement of this Act, any dispute as
defined in Section 2(e) of this Act shall be
regulated under the provisions of this Act,
Rules and Regulations framed thereunder, and
absence of arbitration clause in any contract
agreement shall not have effect excluding any
dispute from the purview of this Act.”
(4) It is not in dispute that the parties have executed
agreement dated 22nd June, 2012, providing for appointment of
an arbitrator as per provisions of the Central Act.
Relevant portion of Clause 25 of the said Agreement is as
follows:
“The arbitration shall be conducted in
accordance with provisions of the Arbitration
and Conciliation Act, 1996 (26 of 1996) or any
statutory modification or re-enactment thereof
and the rules made there under and for the time
being in force shall apply to the arbitration
proceeding under the clause.”
(5) The scheme of Sections 8, 9 and 22 of the State Act shows
that in the absence of an agreement stipulating the
applicability of the Central Act, the State Act applies to
works contracts. Since in the present cases, an arbitration
agreement exists and stipulates applicability of the Central
Act, the State Act will not apply. We, thus, do not find any
ground to interfere with the impugned order.11
(6) The appeals are dismissed. It will, however, be open to
the appellant-State to move the High Court for change of
Arbitrator, if a case to this effect is made out on an
objection of neutrality, as submitted by learned counsel for
the State.
(7) Before parting with this order, we consider it
appropriate to deal with the submission raised by learned
counsel for the respondent(s) that Section 4(3)(b) of the
State Act is patently unconstitutional. The said section is
as follows:
“Section 4. Terms and conditions of service of
the Chairman and other members of Tribunal.-
(3) (b) The Chairman and any other member shall
hold the office at the pleasure of the Government,
provided that; in case of premature termination;
they shall be entitled to three months pay &
allowances in lieu of compensation.”
(8) We are of the view that a provision that the tenure of
the Chairman and other members of the Arbitration Tribunal at
the pleasure of the Government is inconsistent with the
constitutional scheme, particularly Article 14 of the
Constitution of India. Section 4(1) of the State Act provides
for a three year tenure or till the age of 70 years whichever
is earlier. Termination of the said tenure cannot be at
pleasure within the term stipulated as the arbitration
tribunal has quasi judicial functions to perform. Any
termination of the service of such member by a party to the
dispute would interfere directly with the impartiality and
independence expected from such member. The said provision is,12
thus, manifestly arbitrary and contrary to the Rule of Law.
Accordingly, we declare the said provision to be
unconstitutional.
..........................J.
 (ADARSH KUMAR GOEL)
..........................J.
 (ROHINTON FALI NARIMAN)
..........................J.
 (UDAY UMESH LALIT)
New Delhi,
March 22, 2018.
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