Sunday, 24 February 2019

Whether jurisdiction of arbitrator can be challenged after passing of arbitral award?

 However, since it is stated that proceedings are pending before the Arbitrator in pursuance of the impugned order, the same will stand transferred to the State Tribunal and the State Tribunal may proceed further taking into account the proceedings which have already been taken. Learned Counsel for the Respondent(s) pointed out that in view of Section 16(2), the objection to the jurisdiction could not be raised after statement of defence was filed. This contention cannot be accepted in view of the fact that the SLP was filed prior to the filing of statement of defence wherein this objection was raised.

21. We do not express any opinion on the applicability of the State Act where award has already been made. In such cases if no objection to the jurisdiction of the arbitration was taken at relevant stage, the award may not be annulled only on that ground.

IN THE SUPREME COURT OF INDIA

C.A. No. 974 of 2012,

Decided On: 08.03.2018

Madhya Pradesh Rural Road Development Authority Vs. L.G. Chaudhary Engineers and Contractors

Hon'ble Judges/Coram:
A.K. Goel, Rohinton Fali Nariman and U.U. Lalit, JJ.

Citation: (2018) 10 SCC 826


1. The matter has been placed before this Bench of three Judges pursuant to order dated 24th January, 2012 which is as follows:

In view of some divergence of views expressed in the two judgments delivered today by us, the matter may be placed before Hon'ble the Chief Justice of India for constituting a larger Bench to resolve the divergence.
Appointment of arbitrator in a dispute arising out of execution of a 'works contract' was the subject-matter for consideration before the High Court Under Section 11 of the Arbitration and Conciliation Act, 1996.

2. Appellants raised objection that the matter being covered by a special State Act, namely, M.P. Madhyastham Adhikaran Adhiniyam, 1983 ("M.P. Act", in short), the application Under Section 11 of the Arbitration and Conciliation Act, 1996 could not be entertained. The High Court, however, overruled the said objection relying upon the judgment of this Court in Va Tech Escher Wyass Flovel Ltd. v. MPSE Board and Anr. MANU/SC/0569/2010 : (2011) 13 SCC 261.

3. When the matter was considered by a Bench of this Court on 24th January, 2012 (order reported in Madhya Pradesh Rural Road Development Authority and Anr. v. L.G. Chaudhary Engineers and Contractors MANU/SC/0055/2012 : (2012) 3 SCC 495), this Court held that the judgment in Va Tech Escher Wyass Flovel Ltd. (supra) was per incuriam insofar as it held that the M.P. Act stands implied repealed by the Central Act. While Hon'ble Ganguly J., held that the State Act will cover a dispute even after termination of the 'works contract', Hon'ble Gyan Sudha Mishra J. took a different view as follows:

51. It is no doubt true that if the matter were before an Arbitrator appointed under the Arbitration and Conciliation Act, 1996 for adjudication of any dispute including the question regarding the justification and legality as to whether the cancellation of works contract was legal or illegal, then the said Arbitrator in view of the ratio of the judgment of the Supreme Court in Maharshi Dayanand University and Anr. v. Anand Coop L(C) Society MANU/SC/7344/2007 : (2007) 5 SCC 295, as also in view of the persuasive reasoning assigned in the judgment and order reported in Heyman and Anr. v. Darwins, Limited (1942) 1 All E.R. 337 (HL), would have had the jurisdiction to adjudicate the dispute regarding the justification and legality of cancellation of works contract also. But the same cannot be allowed to be raised under the M.P. Act of 1983 since the definition of 'works contract' unambiguously lays down in explicit terms as to what is the nature and scope of 'works contract' and further enumerates the specific nature of disputes arising out of the execution of works contract which would come within the definition of a 'works contract'. However, the same does not even vaguely include the issue or dispute arising out of cancellation and termination of contract due to which this question, in my considered opinion, would not fall within the jurisdiction of the M.P. State Arbitration Tribunal so as to be referred for adjudication arising out of its termination.
4. We find from the definition Under Section 2(d) of the Arbitration and Conciliation Act, 1996 that even after a contract is terminated, the subject-matter of dispute is covered by the said definition. The said provision has not been even referred to in the judgment rendered by Hon'ble Gyan Sudha Mishra, J.

5. In view of above, we are of the opinion that the view expressed by Hon'ble Ganguly J. is the correct interpretation and not the contra view of Hon'ble Gyan Sudha Mishra J. Reference stands answered accordingly.

6. Taking up appeal on merits, we find that the High Court proceeded on the basis of the judgment of this Court in Va Tech Escher Wyass Flovel Ltd. (supra) which has been held to be per incuriam. The M.P. Act cannot be held to be impliedly repealed.

7. We are, thus, is agreement with the proposed opinion of Hon'ble Ganguly J. in para 42 of the reported judgment which reads as follows:

42. Therefore, appeal is allowed and the judgment of the High Court which is based on the reasoning of Va Tech : Escher Wyass Flovel Ltd. v. M.P. SEB, Misc. Appeal No. 380 of 2003, order dated 5-3-2003 (MP) is set aside. This Court holds the decision in Va Tech Escher Wyass Flovel Ltd. v. M.P. SEB MANU/SC/0569/2010 : (2011) 13 SCC 261 has been rendered in per incuriam. In that view of the matter the arbitration proceeding may proceed under M.P. Act of 1983 and not under the A.C. Act 1996.
8. The appeal is accordingly disposed of. C.A. No. 2615 of 2018 @ SLP (C) No. 16889/2012:

9. Leave granted.

10. Heard learned Counsel for the parties.

11. Proceedings under the M.P. Madhyastham Adhikaran Adhiniyam, 1983 (the State Act) were pending before the M.P. Arbitration Tribunal at Bhopal. The Respondent raised an objection that in view Va Tech Escher Wyass Flovel Ltd. v. MPSE Board and Anr. MANU/SC/0569/2010 : 2011 (13) SCC 261, the Arbitration and Conciliation Act 1966 Act will apply and the State Act will not apply. This objection was rejected. The Respondent preferred a writ petition. The High Court has upheld the objection and quashed the proceedings under the State Act.

12. Learned Counsel for the State has drawn our attention to Section 2(4) of the Central Act which is as follows:

This part except Sub-section (1) of Section 40, Sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.
13. It was pointed out that the above provision was in pari materia with Section 46 of the Arbitration Act, 1940 which was interpreted by this Court in Dhanrajamal Gobindram v. Shamji Kalidas & Co. MANU/SC/0362/1961 : (1961) 3 SCR 1020 : AIR 1961 SC 1285. This Court held:

Section 46 makes the provisions of any other enactment or any rules made thereunder to prevail over the Arbitration Act, if inconsistent with the latter. In view of these several provisions, it is clear that the Arbitration Act applies to all Arbitrations and Chap. II makes it applicable also to arbitrations, in which the arbitration agreement is asked to be filed in Court Under Section 20 subject, however, to this that the provisions of any other enactment or rules made thereunder, if inconsistent with the Arbitration Act, are to prevail.
14. The same view was taken in Punjab State Electricity Board, Mahilpur v. Guru Nanak Cold Storage & ICE Factory, Mahilpur and Anr. MANU/SC/0677/1996 : (1996) 5 SCC 411 in para 12 which is as follows:

Sections 6(1), 7, 12, 36 and 37 have expressly excluded from the operation of statutory arbitration. The rest of the provisions per force would get attracted. But the provisions of the appropriate statute or rules should necessarily be consistent with the provisions of the Arbitration Act. In that event, despite absence of an arbitration agreement, rest of the provisions of Arbitration Act would apply (as if there was an arbitration agreement between the parties) and the dispute becomes arbitrable under the Arbitration Act, as if there was an arbitration agreement between the parties. If there is any inconsistency, then the provisions of the Arbitration Act do not get attracted. Section 33 expressly gives power to the civil court to decide the existence or validity of the arbitration agreement or the award as such. If this question was to arise, necessarily the civil court would be devoid of jurisdiction to decide the dispute on merits but only in the forum of arbitration. The existence and validity of the arbitration agreement should be decided by the civil court. The arbitrator cannot clothe himself with jurisdiction to conclusively decide it by himself as a jurisdictional issue. It is for the court to decide it. The dispute on merits should be resolved by the arbitrator and the legality of the award would be subject to decision by the court Under Section 33.
15. In view of above, we are of the view that the State law will prevail in terms of Section 2(4) of the Central Act. The reference under the State law was valid and could be decided in accordance with the State.

16. Accordingly, we set aside the impugned order and restore the proceedings before the Tribunal.

17. The appeal is, accordingly, allowed in above terms.

C.A. No. 2751 of 2018 @ SLP(C) No. 11615/2012, C.A. No. 2753 of 2018 @ SLP(C) No. 11617/2012, C.A. No. 2754 of 2018 @ SLP(C) No. 11618/2012, C.A. No. 2755 of 2018 @ SLP(C) No. 11619/2012, C.A. Nos. 2756-2757 of 2018 @ SLP(C) Nos. 11633-11634/2012, C.A. Nos. 2758-2759 of 2018 @ SLP(C) Nos. 11631-11632/2012 & C.A. Nos. 2760-2761 of 2018 @ SLP(C) No. 11628-11629/2012:

18. Leave granted.

19. In view of order passed in Civil Appeal No. 2615 of 2018 (@ SLP(C) No. 16889 of 2012), the impugned order is set aside and the application(s) filed by the Respondent(s) Under Section 11 of the Arbitration and Conciliation Act 1996 are dismissed.

20. However, since it is stated that proceedings are pending before the Arbitrator in pursuance of the impugned order, the same will stand transferred to the State Tribunal and the State Tribunal may proceed further taking into account the proceedings which have already been taken. Learned Counsel for the Respondent(s) pointed out that in view of Section 16(2), the objection to the jurisdiction could not be raised after statement of defence was filed. This contention cannot be accepted in view of the fact that the SLP was filed prior to the filing of statement of defence wherein this objection was raised.

21. We do not express any opinion on the applicability of the State Act where award has already been made. In such cases if no objection to the jurisdiction of the arbitration was taken at relevant stage, the award may not be annulled only on that ground.

22. The appeals are, accordingly, disposed of.

C.A. No. 2616 @ SLP(C) No. 35641/2011:

23. Leave granted.

24. In view of order passed in C.A. No. 2751 of 2018 @ SLP(C) No. 16615/2012, no objection having been raised by the Respondents in terms of Section 16(2) of the Arbitration and Conciliation Act, 1996 at appropriate stage within the time stipulated, the award could not have been annulled.

25. Accordingly, this appeal is allowed, the impugned judgment is set aside and the award is restored.

26. It is, however make it clear that this order will not debar proceedings Under Section 34 of the Arbitration and Conciliation Act, 1996.

C.A. No. 2762 of 2018 @ SLP(C) No. 796/2014:

27. Leave granted.

28. In view of order passed in C.A. No. 2616 of 2018 @ SLP(C) No. 35641/2011, the impugned order is set aside and the matter is remanded to the High Court for fresh decision under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, in accordance with law.

29. The appeal is disposed of in above terms.

30. Pending applications, if any, are also stand disposed of.

SLP(C) No. 19637/2017, SLP(C) No. 21017/2017, SLP(C) No. 7416/2017, SLP(C) No. 21037/2017, SLP(C) No. 30773/2017, SLP(C) No. 23107/2017, SLP(C) No. 7407/2017, SLP(C) No. 5076/2017 & SLP(C) No. 20744/2017:

31. Heard learned Counsel for the parties.

32. We do not find any ground to interfere with the impugned order. The special leave petitions are, accordingly, dismissed.

33. Pending applications, if any, are also stand disposed of.

C.A. No. 11383/2017:

34. Heard learned Counsel for the parties.

35. We do not find any ground to interfere with the impugned order. However, this order will not affect the remedy of the Appellants under the Arbitration and Conciliation Act, 1996.

36. The appeal is disposed of in above terms.


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