Objections To Jurisdiction Of Arbitrator Raised U/S. 34 Must Not Be Rejected Only On Jurisdiction Without Touching Merits Of Case: Madhya Pradesh High Court

Brief Facts:

M/s Lion Engineering Consultants Pvt. Ltd. (the Appellant) submitted its bid pursuant to a tender by the State of Madhya Pradesh (the Respondent) for providing consultancy services valued at Rs. 19.67 crores for construction projects. After starting the work, Rs. 232.09 crores worth of work was verified and bills were submitted to the Manager Civil. However, some disputes arose between the parties and further bills were withheld. Subsequently, the respondent terminated the contract.

Thereafter, the appellant filed an application under Section 11(6) of the Arbitration and Conciliation Act to appoint a sole arbitrator. The M.P. High Court appointed a sole arbitrator. The arbitrator passed an award dated 10.07.2010 in favour of the appellant.

Aggrieved by the award dated 10.07.2010, the Respondents approached the District Court Bhopal by way of a Section 34 application. During the pendency of this proceeding, the respondent filed an application seeking amendment in the application, raising the ground of lack of jurisdiction of the Arbitrator for entertaining the dispute. The District Court vide order dated 14.02.2014 rejected the application.

The respondents then approached the M.P. High Court by way of a Writ Petition, which was allowed on 25.11.2014. The amendment sought by the respondent was allowed to be incorporated in the Section 34 application.

Aggrieved by the order dated 25.11.2014, the appellant approached the Supreme Court. By the order dated 22.03.2018 in Lion Engineering Consultants Pvt. Ltd. vs. State of Madhya Pradesh [(2018) 16 SCC 758], the respondent was allowed to argue that the Arbitration and Conciliation Act stands excluded by the M.P. Madhyastham Adhikaran Adhiniyam, 1983. The respondents were permitted to raise objection about the jurisdiction of the Arbitrator without formal amendment in the 34 application.

In compliance with the Supreme Court's order, the District Judge permitted the respondent to raise the plea. The Commercial Court set aside the award dated 10.07.2010 and held it to be without jurisdiction in its order dated 20.12.2019 (impugned order).

Hence, the Appellant filed the appeal under Section 37 of the Arbitration and Conciliation Act, challenging the impugned order, whereby the Section 34 application had been allowed and the award had been set aside for want of jurisdiction.

Contentions of the Parties:

• Appellant's Contentions:
• The respondents had not raised any objection regarding jurisdiction in earlier proceedings before the court u/s. 11(6) of the Act and therefore, the appointment of the sole arbitrator has attained finality.
• The plea of jurisdiction in the proceedings u/s. 34 of the Act was time-barred and could not be raised by way of amendment.
• Reliance was placed on the matter of MPRRDA vs. L.G. Choudhary [(2018) 10 SCC 826], where the Supreme Court declined to express any opinion on the applicability of the State Act i.e. Adhiniyam, where the award has already been made because no such objection to the jurisdiction of the arbitration was taken at the relevant stage. Hence, the award may not be annulled on that ground. It was made clear that this order will not debar the proceeding under Section 34 of the Act. Therefore, the District Judge should have entertained the Section 34 application on merit instead of dismissing it as not maintainable.
• In the case of M/s JMC Projects Ltd. vs. MPRRDA [Civil Appeal No.204/2020], the Apex Court has held that the plea of jurisdiction, if not raised as per Section 16(2) of the Arbitration & Conciliation Act 1996 cannot be subsequently raised by the parties.
• In Shweta Construction V/s Chhattisgarh State Power Generation Company Ltd. [(2024) 4 SCC 722], it was held that the decision in Lion Engineering Consultants Pvt. Ltd. vs. State of Madhya Pradesh [(2018) 16 SCC 758] is an order and not a judgment.
• The respondent never claimed any right to arbitration under the Adhiniyam, 1983.
• The respondent cannot be permitted to approbate or reprobate in an arbitration proceeding and finally relegate the matter to the Commercial Court to decide the matter under Section 34 of the Act on merit dehors the issue of jurisdiction.
• The impugned order must be set aside and the matter be remitted back to the Commercial Court for deciding the application under Section 34 of the Act on its merit.
• Respondent's Contentions:
• The lis between the parties has been settled in Lion Engineering, where the respondent was permitted to raise the plea of jurisdiction in the Section 34 application.
• in view of the law laid down in L.G. Choudhary, the jurisdiction lies with the State Arbitration Tribunal and not before the Arbitrator.
• In Dr Subrabanyam Swami vs State of Tamil Nadu [2014 (5) SCC 75], the Supreme Court has held that the Court's decision on the question of law which attained finality would operate as res judicata even if the same is erroneous. Therefore, the Lion Engineering judgment given by the Three Judges Bench will prevail over all the judgments given by the Two Judges Bench of the High Court.
• The matter is a works contract for which the M.P. Arbitration Tribunal has exclusive jurisdiction to decide the issue.

Observations of the High Court:

The court observed that it was open to respondents to argue that its objection that the Arbitration & Conciliation Act 1996 stand excluded by Adhiniyam and could be raised even without formal pleading. Hence, the respondents were permitted to plea about the jurisdiction without formal amendment in the application under Section 34. The court noted that the lis between the parties has been settled in the matter of Lion Engineering. The court observed that:

“There is no bar to take the plea of jurisdiction by way of an objection under Section 34, even if no such objection was raised under Section 16 of the Arbitration & Conciliation Act 1996 and the issue came to an end between the parties.”

The court reiterated that in L.G. Choudhary, a three Judges Bench the Supreme Court has held that if no objection to the jurisdiction of the arbitration was taken at the relevant stage, the award may not be annulled only on that ground. In that case, it was made clear if an award is passed without any objections being raised, it wouldn't debar proceedings under Section 34 of the Arbitration and Conciliation Act, 1996. The court also referred to Shweta Construction, where the Supreme Court held that the issue of jurisdiction can be raised in objection under Section 34.

The court held that the Supreme Court in Loin Engineering had not directed the District Court to decide the Section 34 application only on the issue of maintainability without considering the merits. It held that the application was wrongly rejected on the ground of jurisdiction. The court referred to para 17 of the case, where it was observed:

“...the objections under Section 34 of the said Act, where no such plea of jurisdiction was raised in proceedings before the Arbitrator, should not be dealt with “alone” on the plea of jurisdiction i.e., it should be considered on merits.”

Thus, the court set aside the impugned order. It directed the Commercial Court to decide the Section 34 application on merit as well as on jurisdiction.

Case Title: M/S Lion Engineering Consultants Pvt. Ltd. vs. The State of Madhya Pradesh & Ors.
Case Number: Arbitration Appeal No. 23 of 2020
Counsel for the Appellant: Shri Naman Nagrath, learned Senior Advocate along with Shri Jubin Prasad, Advocate.

Counsel for the Respondent: Shri Anshuman Singh Advocate with Shri Anuj Shrivastava, Advocate for Respondent No.3.

Date of Order: 03.10.2024

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