Supreme Court
- Party to an arbitration proceeding can object to the jurisdiction of the tribunal on or before the submission of the statement of defense.
- Does not rule on the question of conflict of arbitration agreements governed by a special statute enacted by the State and a special statute of the Centre.
- The jurisdiction of a civil court can be challenged at any stage however this settled rule of law does not apply to arbitrations as they are governed under the Arbitration and Conciliation Act, 1996, which is a special law.
INTRODUCTION
The Supreme Court (“Court”) in the case of M/s MSP Infrastructure Ltd v/s M.P. Road Development Corporation Ltd1 has, in very clear terms, elaborated on the scope of Section 16 of the Arbitration and Conciliation Act, 1996 (“Act”).
Setting aside the order of the High Court permitting an amendment,
whereby a backdoor challenge to the jurisdiction of the tribunal would
be included, the Court held that all objections to the jurisdiction of
an arbitral tribunal must be taken no later than the submission of the
statement of defense.
FACTS
M.S.P. Infrastructure (“Appellant”) entered into a contract with M.P. Road Development Corporation (“Respondent”) for the development and upgradation of a stretch of road in Madhya Pradesh (“Agreement”).
A dispute arose between the parties. The Respondent terminated the
contract and enchased the bank guarantees. The Appellant had approached
the Calcutta High Court by way of a Civil Suit against the termination
and the encashment.
The
High Court disposed of the suit in terms of consent terms being filled
by the parties and referred the matter to arbitration under the
provisions of the Arbitration and Conciliation Act, 1996 (“Act”).
Thereafter, the arbitral tribunal passed an award on November 27, 2006
partly allowing the claims of the Appellant. The Respondent preferred a
challenge to the award and filed a petition under Section 34 of the Act.
Approximately two years later, the Respondent moved an amendment
application seeking to add additional grounds of objection.
The
amendment application was rejected by the District Court on the ground
that it was filled after a period of two years of the filing of the
petition under Section 34. The Respondent challenged the rejection of
the amendment application before the Madhya Pradesh High Court, which
was allowed by the High Court, citing that they were not going into the
merits of the matter and were just allowing the amendment application.
The High Court effectively allowed the Respondent to amend the petition
under Section 34 to add additional grounds which challenged the
jurisdiction of the arbitral tribunal to entertain a dispute arising
between a private party and a Government Undertaking, as only an
arbitral tribunal appointed by the State of Madhya Pradesh under the
provisions of the M.P. Madyastham Adhikaran Adhiniyam, 1983 (“State Act”)
could entertain the dispute between the parties. The State Act is
enacted to provide for the establishment of a tribunal to arbitrate on
disputes to whic h the State Government or a Public Undertaking (wholly
or substantially owned or controlled by the State Government), is a
party.
Aggrieved by the order, the Appellant approached the Court.
JUDGMENT
The
Court concluded that the question whether the provisions of the Act
would preside over the provisions of the State Act need not be discussed
if it was decided that the amendment sought by the Respondent could not
have been preferred in the first place.
The
Court observed that the Respondent had (i) in the Agreement, agreed to
refer all disputes arising out the Agreement to a Board of Arbitrators
as per the provisions of the Act, wherein such arbitration would be held
as per the rules of the Indian Council of Arbitration; (ii) filed
consent terms before the Calcutta High Court, wherein they had agreed to
refer the disputes to arbitration under the provisions of the Act;
(iii) filed the statement of defense wherein no challenge was raised qua
the jurisdiction of the arbitral tribunal; (iv) led evidence; (v)
suffered an award from where they preferred a petition under Section 34
of the Act; and (vi) two years thereafter, filed an application seeking
amendment of the grounds challenging the jurisdiction of the arbitral
tribunal.
The
Court discussed Section 16 of the Act which bestowed upon an arbitral
tribunal the power to decide as to whether it had the jurisdiction to
entertain the dispute referred to it by the parties. It was held that an
interpretation of the words used in Section 16 of the Act, leaves no
doubt that any challenge to the jurisdiction of the tribunal being
raised by a party would have to be done at any point of time before or
at the time of submission of the statement of defense.
The
Court reiterated that the intention of the parliament was to prevent
parties from raising a plea of lack of required jurisdiction at a
belated stage as a mode of prolonging proceedings. The parties could not
submit themselves to the arbitral proceedings, go through the process
and finally while challenging the award of the tribunal under Section 34
of the Act raise an objection as to the inherent lack of jurisdiction
of the tribunal.
The
Court held that an objection to the jurisdiction of a civil court could
be raised at any stage. However, this position of law was settled in
relation to civil disputes in courts and not in relation to arbitrations
under the Act. The Court stated that the parliament was well aware of
this position of law and had consciously enacted a special rule of law
to deal with arbitrations, which fixed a time limit for challenging the
jurisdiction of an arbitral tribunal.
The
Court held that Section 34(2)(b)(i) of the Act which states that an
award could be set aside if the subject matter of the dispute was not
arbitrable (under the Act) did not necessarily refer to the tribunal’s
lack of jurisdiction to entertain the dispute. It was held that all
objections with respect to the jurisdiction of the tribunal could be
raised under Section 16 of the Act and the tribunal was competent to
take a decision regarding all such objections. The Court referred to the
judgment of Booz Allen and Hamilton Inc v SBI Home Finance Limited and Ors2 which
had dealt with illustrative examples of subject matter which were not
arbitrable and which if entertained by the tribunal could be objected to
under Section 34(2 )(b)(i).
Further the Court refuted the argument of the Respondent that under Section 34(2)(b)(ii) of the Act “public policy”
would include within its purview, arbitration proceedings which were
not held under the appropriate law, i.e. the provisions of the Act
instead of the State Act. Consequently the Court held that “public policy” would imply the public policy of India as a whole and not merely the policy of an individual state.
ANALYSIS
The
Court has, keeping in mind the conduct of the Respondent right from
filing of consent terms up to its participation in the arbitration
proceedings and suffering an award, refused to permit the Respondent to
incorporate a ground challenging jurisdiction of the arbitral tribunal
at a belated stage subsequent to filing of a petition under Section 34
of the Act. This is in line with the pro-arbitration stance adopted by
Indian courts of late.
Having
held so, it was not necessary for the Court to go into the question of
whether the provisions of the State Act would prevail over the Act. That
issue remains open to be contended at another stage.
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