Arbitral Tribunal Under 'Madhyastham Adhikaran' Law Has Exclusive Jurisdiction To Decide 'Works Contract' Disputes In MP: High Court

The Madhya Pradesh High Court recently said that in the State, the dispute of 'works contract' could be raised before the Tribunal constituted under the M.P. Madhyastham Adhikaran Adhiniyam, 1983 alone, and in such disputes, the applicability of Arbitration and Conciliation Act 1996 is barred.

The Bench of Justice Sheel Nagu and Justice Purushaindra Kumar Kaurav further ruled that if an arbitration award is passed with respect to 'work contract' disputes, then such an award can be set aside under Section 34 of the Arbitration and Conciliation Act 1996.

The facts in brief 

An agreement was executed between M/s Gayatri Project Ltd. (appellant) and Madhya Pradesh Road Development Corporation Limited (Respondent) for the work of rehabilitation and strengthening of roads.

However, when the request for reimbursement of the extra cost incurred due to enhancement of entry tax was raised by the appellant herein, the same was rejected, and therefore, invoking the arbitration clause, the appellant herein went for the arbitration.

The presiding arbitrator appointed pronounced the award wherein a sum of Rs 1,03,55,187 was awarded to the appellant company. 

Against this, the respondent (Madhya Pradesh Road Development Corporation Limited) preferred an application under Section 34 of the Act of 1996 for setting aside the arbitral award before the Court below.

The said application was allowed on the ground that the award passed by the Arbitration Tribunal under the provisions of the Act of 1996 was without jurisdiction as the dispute falls within the definition of "Works Contract", and therefore, it is only the statutory Tribunal created under the provisions of the Act of 1983 which has the exclusive jurisdiction to deal with the subject matter.

Challenging the order of the lower court, the appellant moved to the High Court.

Court's observations

At the outset, the Court noted that in the State, the legislature has enacted M.P. Madhyastham Adhikaran Adhiniyam, 1983, and this act provides that all the disputes relating to "works contract" shall be exclusively decided by the Tribunal created under the Act of 1983 and therefore, the Court opined, such disputes can't be dealt with otherwise.

"...under the scheme of the Act of 1983, notwithstanding, there is a written arbitration agreement between the parties, the dispute of 'works contract' could be raised before the Tribunal alone. Arbitration under the Act of 1996 is barred. The Act of 1983, therefore, mandates exclusive jurisdiction to the Tribunal," the Court ruled.

Against this backdrop, the Court was of the opinion that since the dispute was arbitrated when the same was explicitly barred by the 1983 Act, therefore, the same could be set aside as per Section 34 of the Arbitration and Conciliation Act 1996.

"...Section 34(2)(b)(i) of the Act of 1996, provides that an arbitral award would be liable to be set aside if the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. If this Court applies the requirements of Section 34(2)(b)(i) of the Act of 1996 in the present case, it is apparent that the same are squarely met. Under Section 7 of the Act of 1983 a dispute of "works contract" is not capable of being adjudicated by an arbitral tribunal under the Act of 1996," the Court further added.

Apart from this, the Court also came to the finding that the objection regarding lack of jurisdiction could have been taken before the trial Court under Section 34 of the Act of 1996, even though no such objection was taken before the arbitral tribunal under Section 16(2) of the Act

Consequently, came to the conclusion that the trial court acted in accordance with law while entertaining the objection under Section 34 of the 1996 Act and setting aside the arbitral award on the ground of lack of jurisdiction.

"Thus, even if no ground is taken in a petition under Section 34 of the 1996 Act if the Court finds that the award is in respect of subject matter incapable of arbitration by operation of law; the court is duty-bound to set it aside under Section 34(2)(b)(i) of the 1996 Act. The legislature has consciously cast a duty on the court to set aside an award even though no specific challenge is made by a part," the Court further held as it dismissed the instant appeal.

However, the Court made it open for the appellant to raise a dispute before the Tribunal under the Act of 1983. 

For Appellant, Advocate Kunal Thakre and for Respondent, Advocate Siddharth Sharma appeared.

Case title - M/s Gayatri Project Ltd. Vs. Madhya Pradesh Road Development Corporation Limited
Case Citation: 2022 LiveLaw (MP) 19

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