M/S MSP INFRASTRUCTURE LTD. Vs. M.P.ROAD DEVL.CORP. LTD : Supreme Court - Section 34 of the Arbitration and Conciliation Act, 1996
Supreme Court of India
CIVIL APPEAL No.10778 OF 2014 Judgment Date: Dec 05, 2014
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 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 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
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 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 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."
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 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 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
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 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 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 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 -
...........
the Court finds that -
the subject-matter of the dispute is not capable of settlement by
arbitration under the law for the time being in force, or
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 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."
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 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 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]
.....................................J.
[S.A. BOBDE]
New Delhi,
December 5th, 2014
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