2025 (5) TMI 1449 - SC - Indian Laws

Annulling of Award passed under the Act 1996 on the ground of lack of jurisdiction where no plea of applicability of MP Act 1993 was raised before the Arbitral Tribunal - conflict between the decisions of L.G. Chaudhary (II) 2012 (1) TMI 431 - SUPREME COURT and Lion Engineering 2018 (3) TMI 2055 - SUPREME COURT - plea of lack of jurisdiction may be raised for the first time under Section 34 of the Act 1996 if no such objection was taken before the arbitral tribunal - HELD THAT - The MP Act 1983 was first looked into by this Court in the case of State of M.P. v. Anshuman Shukla 2008 (5) TMI 726 - SUPREME COURT . This Court speaking through S.B. Sinha J. (as he then was) after going through the various provisions of the MP Act 1983 observed that the said legislation was a special Act that was enacted for providing compulsory arbitration on disputes to which the State Government or a public undertaking (wholly or substantially owned or controlled by the State Government) is a party and for matters incidental thereto or connected therewith. It observed that the MP Act 1983 postulates creation of a separate forum for the purpose of determination of disputes arising inter alia out of the works contract. The Madhya Pradesh Arbitration Tribunal established thereunder is not a domestic or an ad hoc arbitral tribunal by virtue of the unique scheme of provisions that govern its framework. The members of the MP Arbitral Tribunal are not nominated by the parties the Tribunal has the power to reject a reference for arbitration; it has the power to suo-motu summon records; take note of evidence; award costs and interests. In VA Tech 2010 (1) TMI 1312 - SUPREME COURT the short point that fell for the consideration of this Court was whether an application under Section 9 of the Act 1996 could be said to be maintainable where the arbitration proceedings were governed by the MP Act 1983. In other words where the dispute had to be resolved by way of arbitration in terms of the MP Act 1983 more particularly Section 7(1) thereof could the Act 1996 be said to also be applicable simultaneously or alternatively for such disputes. This Court held that since both the MP Act 1983 and the Act 1996 respectively were similar in nature inasmuch as both provided frameworks for resolution of dispute by way of arbitration any potential conflict or overlap in their application ought to be construed harmoniously. Can an Award passed under the Act 1996 be annulled on the ground of lack of jurisdiction where no plea of applicability of MP Act 1993 was raised before the Arbitral Tribunal? - HELD THAT - In the entire batch of matters that had been referred to this Court in L.G. Chaudhary (II) (supra) this Court in few of the civil appeals where the reference to arbitration under the Act 1996 had been challenged while the matters were still at the pre-award stage however the statement of defence had already been filed without raising a plea of lack of jurisdiction held that in such instances the plea of lack of jurisdiction cannot be allowed to be now raised in terms of Section 16 sub-section (2) of the Act 1996 and as such the award cannot be annulled only on such ground. Similarly in a batch of matters where the award had already been passed but no objection of jurisdiction was raised in terms of Section 16(2) of the Act 1996 there L.G. Chaudhary (II) whilst restoring the award again reiterated that the award could not have been annulled only on the ground of jurisdiction but clarified that all other challenges to the award may be made in appropriate proceedings under Section 34 of the Act 1996. Lastly in one of the civil appeals where the execution proceedings for the award passed were pending this Court in view of the prolonged nature of the litigation directed that the award be treated to have been rendered under the MP Act 1983 and transferred the execution proceedings to the High Court of Madhya Pradesh at Jabalpur. Is there a conflict between the decisions of L.G. Chaudhary (II) and Lion Engineering? - HELD THAT - The respondent herein has contended that there exists a conflict between the decisions of this Court in Lion Engineering and L.G. Chaudhary (II) insofar as the issue of when a plea of lack of jurisdiction on the basis of applicability of a State law can be raised. It was submitted that Lion Engineering clearly holds that an objection of lack of jurisdiction is a legal plea that may be raised for the first time in the proceedings under Section 34 of the Act 1996 even if the same was never raised before the arbitral tribunal and being a question of law Section 16 sub-section (2) of the Act 1996 would have no application. It was further canvassed on behalf of the respondents herein that the decision of L.G. Chaudhary (II) to the extent that it holds that no plea of lack of jurisdiction can be raised in the proceedings under Section 34 if it was never raised before the arbitral tribunal could be said to be per incuriam as it failed to refer and advert to the earlier binding decision of Lion Engineering (supra) which as per the respondents herein lays down a contradictory view. What can be discerned from the aforesaid is that L.G. Chaudhary (II) carved out an exception to the general rule that was laid in Lion Engineering (supra) that although a plea of lack of jurisdiction being a question of law can be raised for the first time in the proceedings under Section 34 of the Act 1996 yet insofar as the MP Act 1983 is concerned particularly the state of flux in which the position of law regarding its applicability stood in cases where either the award has already been passed or where the statement of defence is already been filed and no plea of lack of jurisdiction or applicability of the MP Act 1983 has been raised before the arbitral tribunal then such a plea of jurisdiction will no longer be available and the award cannot be annulled solely on such ground. This Court has consistently held that an exception has been carved out in L.G. Chaudhary (II) (supra) whereby any awards that have already been made and if no objection to the jurisdiction was taken at the relevant stage then the award may not be annulled only on that ground. Whether a plea of lack of jurisdiction may be raised for the first time under Section 34 of the Act 1996 if no such objection was taken before the arbitral tribunal? - HELD THAT - A similar view was reiterated in AC Chokshi Share Broker (P) Ltd. v. Jatin Pratap Desai 2025 (2) TMI 414 - SUPREME COURT wherein it was held that when the jurisdictional issue has not been raised in accordance with Section 16 of the Act 1996 it is deemed that the objecting party has waived his right in terms of Section 4 and the same cannot be raised at a later stage such as under Section 34 or 37 of the Act. Although a plea of lack of jurisdiction being a question of law can be raised even for the first time in the proceedings under Section 34 as held in Lion Engineering yet such a plea ought not to be allowed to be raised as it is deemed to have been waived in view of Section 4 of the Act 1996 as per Pam Development unless the party makes out a strong and good reason for its failure to take such a plea before the arbitral tribunal as per Gas Authority of India and as per the dictum of L.G. Chaudhary (II) (supra) any failure to raise the issue of applicability of the MP Act 1983 before the arbitral tribunal is not a strong and good reason to permit raising such a plea in the proceedings under Section 34 of the Act 1996. The present case is squarely covered by the decision of this Court in L.G. Chaudhary (II) more particularly the observations made in paras 6 to 9 thereunder and as such once the award had been passed and no objection as to the jurisdiction of the arbitral tribunal had been taken at the relevant stage then the award could not have been annulled by the High Court only on the ground of lack of jurisdiction. Conclusion - No conflict exists between the two decisions. Lion Engineering permits raising jurisdictional pleas in Section 34 proceedings even if not raised under Section 16 but L.G. Chaudhary (II) limits the annulment of awards solely on that ground where no such objection was raised at the relevant stage. The failure of L.G. Chaudhary (II) to cite Lion Engineering does not render it per incuriam. The High Court committed an egregious error in passing the impugned judgment - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(i) Whether an arbitral award rendered under the Arbitration and Conciliation Act, 1996 (the "Act, 1996"), in cases where the arbitration proceedings ought to have been governed by the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the "MP Act, 1983"), can be set aside or annulled solely on the ground of lack of jurisdiction if no such plea was raised before the arbitral tribunal in terms of Section 16(2) of the Act, 1996.

(ii) Whether there exists a conflict between the decisions of the Supreme Court in L.G. Chaudhary (II) and Lion Engineering, specifically regarding the stage at which a plea of lack of jurisdiction may be raised under the Act, 1996, and if so, whether the decision in L.G. Chaudhary (II) can be said to be per incuriam for not considering Lion Engineering.

2. ISSUE-WISE DETAILED ANALYSIS

Issue I: Can an arbitral award under the Act, 1996 be annulled on the ground of lack of jurisdiction where no plea of applicability of the MP Act, 1983 was raised before the Arbitral Tribunal?

Relevant Legal Framework and Precedents:

The MP Act, 1983 is a special statute enacted to provide compulsory arbitration for disputes involving the State Government or its undertakings in relation to works contracts. It establishes a statutory arbitration tribunal with distinct procedural features and powers, differing significantly from tribunals under the Act, 1996. Section 2(4) of the Act, 1996 preserves the applicability of such special laws unless inconsistent with the Act, 1996.

The Court in State of M.P. v. Anshuman Shukla held the MP Act, 1983 to be a special law with a statutory arbitration forum that is not governed by the Act, 1996. Conversely, in VA Tech, the Court held that the MP Act, 1983 applies only where there is no arbitration clause, and the Act, 1996 governs arbitration clauses in works contracts. However, this decision was later held to be per incuriam in L.G. Chaudhary (I), which clarified that the MP Act, 1983 prevails over the Act, 1996 in Madhya Pradesh for disputes covered by it, including those arising after termination of the contract.

L.G. Chaudhary (II) reaffirmed this position, holding that the MP Act, 1983 applies even after termination or repudiation of the works contract and that the Act, 1996 does not impliedly repeal the MP Act, 1983. It further clarified the procedural consequences where arbitration was conducted under the Act, 1996 instead of the MP Act, 1983.

Court's Interpretation and Reasoning:

The Court emphasized that the MP Act, 1983 creates a statutory tribunal with unique features, including compulsory arbitration and finality of awards, which cannot be ousted by the Act, 1996 unless explicitly inconsistent. The Court rejected the argument of repugnancy between the two statutes, noting the constitutional competence of the State to legislate on arbitration under the concurrent list.

The Court observed that if arbitration proceedings were conducted under the Act, 1996 without raising jurisdictional objections based on the MP Act, 1983 at the appropriate stage (i.e., before the arbitral tribunal under Section 16(2) or in the initial challenge under Section 34), the party is deemed to have waived the right to object to jurisdiction later. The Court reiterated that awards passed under the Act, 1996 where the MP Act, 1983 was applicable cannot be annulled solely on the ground of lack of jurisdiction if no such plea was timely raised.

Key Evidence and Findings:

In the present case, the respondent did not raise any jurisdictional objection before the arbitral tribunal or in its initial Section 34 petition. The objection based on the MP Act, 1983 was introduced only after the award was passed and after the decision in L.G. Chaudhary (II). The Court found this to be a waiver of the jurisdictional plea.

Application of Law to Facts:

The Court applied the principles from L.G. Chaudhary (II) and related decisions to hold that since the respondent failed to raise the jurisdictional objection at the relevant stage, the award could not be annulled solely on that ground. The Court also noted that the arbitration was conducted under the Act, 1996 with the consent or acquiescence of the parties, further reinforcing waiver.

Treatment of Competing Arguments:

The respondent argued that the MP Act, 1983 applied mandatorily and that jurisdictional objections could be raised at any stage. The Court rejected this, holding that procedural rules under the Act, 1996, including Section 16(2), require timely raising of such objections, and failure to do so results in waiver. The Court also considered the dissenting opinion in L.G. Chaudhary (I) but found the majority view and subsequent larger bench ruling in L.G. Chaudhary (II) to be authoritative.

Conclusions:

The Court concluded that an arbitral award under the Act, 1996 where the MP Act, 1983 was applicable cannot be annulled solely on the ground of lack of jurisdiction if no such objection was raised before the arbitral tribunal or in the initial challenge under Section 34. The procedural safeguards and waiver principles apply to jurisdictional pleas based on the MP Act, 1983.

Issue II: Whether there is a conflict between the decisions of L.G. Chaudhary (II) and Lion Engineering regarding the stage at which a plea of lack of jurisdiction may be raised under the Act, 1996?

Relevant Legal Framework and Precedents:

Lion Engineering held that an objection to jurisdiction, being a pure question of law, can be raised for the first time in proceedings under Section 34 of the Act, 1996 even if not raised under Section 16. It also held that such pleas may be raised without formal amendment of pleadings, and that public policy includes State laws, allowing objections based on State Acts in Section 34 proceedings.

L.G. Chaudhary (II) held that where no objection to jurisdiction was raised at the relevant stage before the arbitral tribunal, an award already passed cannot be annulled solely on that ground, effectively carving out an exception to the general rule in Lion Engineering.

Court's Interpretation and Reasoning:

The Court analyzed the two decisions and found no direct conflict. Lion Engineering addressed only the maintainability of raising jurisdictional pleas for the first time in Section 34 proceedings, particularly concerning amendment of pleadings. It did not address whether an award should be annulled solely on jurisdictional grounds if no objection was raised earlier.

L.G. Chaudhary (II) clarified that while such pleas may be maintainable under Section 34, the failure to raise them at the appropriate stage generally results in waiver, and awards should not be set aside solely on that basis. The Court emphasized that L.G. Chaudhary (II) consciously carved out this exception to preserve the efficacy of arbitration and avoid protracted litigation.

Key Evidence and Findings:

The Court noted that Lion Engineering was an order and not a full judgment, dealing with a narrower issue of amendment and maintainability, whereas L.G. Chaudhary (II) was a substantive judgment addressing the consequences of raising jurisdictional objections late. The Court also highlighted that L.G. Chaudhary (II) was aware of Lion Engineering but chose to clarify the law in light of conflicting judicial views.

Application of Law to Facts:

Applying these principles, the Court held that while a jurisdictional plea can be raised for the first time in Section 34 proceedings, it may be rejected on waiver grounds if not raised earlier. Thus, the procedural bar and waiver principles under Section 16(2) and Section 4 of the Act, 1996 remain effective.

Treatment of Competing Arguments:

The respondent contended that Lion Engineering overruled L.G. Chaudhary (II) and allowed jurisdictional pleas at any stage. The Court rejected this, holding that the two decisions deal with different aspects and are complementary rather than contradictory. The Court further noted that the procedural safeguards and waiver principles ensure finality and efficiency in arbitration.

Conclusions:

The Court concluded that no conflict exists between the two decisions. Lion Engineering permits raising jurisdictional pleas in Section 34 proceedings even if not raised under Section 16, but L.G. Chaudhary (II) limits the annulment of awards solely on that ground where no such objection was raised at the relevant stage. The failure of L.G. Chaudhary (II) to cite Lion Engineering does not render it per incuriam.

3. SIGNIFICANT HOLDINGS

"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." (Para 17, L.G. Chaudhary (II))

"We do not see any bar to plea of jurisdiction being raised by way of an objection under Section 34 of the Act even if no such objection was raised under Section 16." (Lion Engineering)

"The M.P. Act is a special law providing for statutory arbitration in the State of Madhya Pradesh even in the absence of arbitration agreement. The provisions of the M.P. Act are inconsistent with the provisions of the Arbitration and Conciliation Act, 1996. The M.P. Act will prevail in respect of disputes covered thereunder." (L.G. Chaudhary (I) and (II))

"Where a party does not raise a plea of jurisdiction before the arbitral tribunal, such plea is deemed waived under Section 4 read with Section 16 of the Act, 1996 and cannot be raised for the first time in Section 34 proceedings unless good reasons are shown." (Union of India v. Pam Development; Gas Authority of India Ltd. v. Keti Construction; AC Chokshi Share Broker Ltd.)

"The failure to raise the issue of applicability of the MP Act, 1983 before the arbitral tribunal is not a strong and good reason to permit raising such plea in Section 34 proceedings." (L.G. Chaudhary (II))

"Where arbitration proceedings are underway but no statement of defence filed, objection of lack of jurisdiction under MP Act, 1983 may be raised; if statement of defence filed or award passed without objection, such objection cannot be raised later to annul award solely on that ground." (L.G. Chaudhary (II))

"The conduct of parties in accepting arbitration under the Act, 1996 amounts to waiver of right to claim arbitration under MP Act, 1983." (L.G. Chaudhary (II))

Final determinations:

- An arbitral award under the Act, 1996 where the MP Act, 1983 was applicable cannot be annulled solely on lack of jurisdiction if no such objection was raised before the tribunal or in initial Section 34 petition.

- A plea of lack of jurisdiction may be raised for the first time in Section 34 proceedings, but such plea may be rejected on waiver grounds if not timely raised.

- The MP Act, 1983 prevails over the Act, 1996 for disputes covered by it.

- The decisions in L.G. Chaudhary (II) and Lion Engineering are not in conflict; L.G. Chaudhary (II) carves out an exception to the general rule in Lion Engineering.