M/s Gayatri Project Limited vs Madhya Pradesh Road Development Corporation Limited

The appellant executed a “works contract” dated 12.12.2005 with the respondent for “Rehabilitation and Strengthening of KhargoneBarwani Road (SH-26) Project Road No.19” & “Rehabilitation and Strengthening of Khargone-Bistan Road (SH-31) Project Road No.20” in the State of Madhya Pradesh – Clause 67.3 of the “General Conditions of Contract” read with Clause 67.4 of the “Conditions of Particular Application” provided for arbitration as the means for resolution of disputes between the Parties – The arbitration agreement mandated that the tribunal shall comprise of three members, one to be appointed by each party and the two coarbitrators had to nominate the presiding arbitrator – The disputes arose between the parties from 06.08.2010 onwards in relation to the appellant’s right to be reimbursed additional cost incurred by it on account of introduction of subsequent legislation on increase in entry tax on High-Speed Diesel under Clause 70.8 of the Particular Conditions of Contract – The appellant invoked arbitration under Clause 67.4 vide its notice dated 06.08.2010 and the Tribunal stood constituted on 24.09.2010 – The Tribunal passed a unanimous award dated 08.07.2011 in favour of the appellant for a sum of Rs.1,03,55,187 (i.e. Rs.1.04 Crore) – As is evident from Para 1.19 of the Award quoted above, the quantification of this amount was in-fact recommended by the Engineer and had been admitted by the respondent – The Tribunal also awarded future interest at the rate of 10% p.a. from the date of the award till the date of actual payment as per para 3.1 – As of 17.02.2025, the amount payable by the respondent to the appellant stands at Rs.2,44,63,775 – The respondent challenged the award before the Civil Court under Section 34 of the Arbitration Act vide a petition filed on 30.09.2011 – The same came to be allowed holding that the Arbitral Tribunal did not jurisdiction in view of M.P Madhyastham Adhikaran Adhiniyam, 1983 – The order passed by the Commercial Court and 19th Additional Sessions Judge, Bhopal (M.P.) came to be challenged by way of appeal before the High Court under Section 37 of the Act, 1996 – The appeal came to be dismissed – Hence, the present Appeal before this Court.

Held: It was noted that the decision in M.P. Road Development Authority & Anr v. L.G. Chaudhary Engineers & Contractors (2018) 10 SCC 826 elucidated how the courts are expected to deal with the various issues that may arise insofar as the pending proceedings that were inadvertently initiated under the Arbitration and Conciliation Act, 1996 and any awards already passed thereunder are concerned – M.P. Road Development Authority v. L.G. Chaudhary, (2018) 10 SCC 826 was referred to wherein it was held that an arbitral award cannot be set aside solely on the ground of jurisdiction if no objection was raised under Section 16(2) of the Arbitration and Conciliation Act, 1996 – However, other challenges may be raised under Section 34 of the Act. [Paras 14, 15] Arbitration and Conciliation Act, 1996 – M.P Madhyastham Adhikaran Adhiniyam, 1983 – Stage at which plea regarding jurisdictional error has to be raised – Plea of jurisdiction can be raised under Section 34 of the Act even if no such objection was raised under Section 16:

Held: In Lion Engineering Consultants v. State of Madhya Pradesh (2018) 16 SCC 758, it was held that any legal plea arising on undisputed facts can be raised in the proceedings under Section

34 of the Act, 1996 even if they were never raised under Section

16 – It further held that, such plea being a question of law arising from admitted facts, can be raised without seeking any amendment of the pleadings – Accordingly, it held that there is no 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. [Para 16]

Arbitration and Conciliation Act, 1996 – M.P Madhyastham Adhikaran Adhiniyam, 1983 – There is no conflict between Lion Engineering Consultants v. State of Madhya Pradesh (2018) 16 SCC 758 & M.P. Road Development Authority v. L.G. Chaudhary (2018) 10 SCC 826 if either omission in referring to previous decision does not amount to a nonconsideration of the ratio of an earlier decision or where there is no palpable conflict or contradiction in the ratio of both decisions:

Held: It was 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 – However, in L.G. Chaudhary (II) it was held that no plea of lack of jurisdiction can be raised in the proceedings under Section 34 – This was contended to be per incurium and a contradictory view since L.G. Chaudhary (II) did not refer to Lion Engineering – It was held that merely because L.G. Chaudhary (II) does not refer to the decision of Lion Engineering, would not render it per incuriam, if either such omission in referring to previous decision does not amount to a non-consideration of the ratio of an earlier decision or where there is no palpable conflict or contradiction in the ratio of both decisions – If L.G. Chaudhary (II) was not conscious of the position of law laid in Lion Engineering, then there was no need for it to clarify that an award would not be annulled only on the ground of lack of jurisdiction – As even without the aforesaid clarification, such awards would not have been susceptible to annulment, if not for the ratio of Lion Engineering – Thus, it was held that even if L.G. Chaudhary (II) does not refer to the decision of Lion Engineering, it cannot be termed to be per incuriam, as the very factum that the aforesaid observations were made by L.G. Chaudhary (II) in paras 16, 17 and 19, shows that this Court was well aware of the decision of Lion Engineering, and accordingly chose to carve out an exception to the ratio of Lion Engineering keeping in mind the cleavage of judicial view that was prevailing earlier – Lion Engineering does not address the question whether an award may be annulled only on the ground of lack of jurisdiction or not – It does not disturb the settled position of law as regards the scope of Section 34 of the Act, 1996 i.e., an award may be set aside only if such lack of jurisdiction goes to the root of the matter and results in patent illegality – On the contrary, L.G. Chaudhary (II) specifically addresses this question in the context of the issue of applicability of MP Act, 1983 and explicitly states that any award already passed shall not be annulled only on the ground of lack of jurisdiction where such plea was not raised at the relevant stage – Thus, the aforesaid ratio of Lion Engineering by no stretch can be construed to mean that such a plea of jurisdiction would automatically result in annulment of an award, de hors the fact whether such lack of jurisdiction goes to the root of the award rendered or not – The ratio of L.G. Chaudhary (II) unlike Lion Engineering does not deal with whether it is permissible for such plea of jurisdiction to be raised under Section 34 or not, and only deals with the issue whether an award may be annulled only on the ground of jurisdiction or not, which was never an issue before Lion Engineering, hence there is no conflict or contradiction between the ratios of the aforesaid two decisions. [Para 19] It was held that L.G. Chaudhary (II) carved out an exception to the general rule that was laid in Lion Engineering, 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. [Para 20]

Sweta Construction v. Chhattisgarh State Power Generation Company Ltd. (2022) SCC OnLine SC 1447 referred to where it was held that the law expounded in L.G. Chaudhary (II) insofar as those awards which have already been passed are concerned, should be read as one made by this Court under Article 142 of the Constitution to do substantive justice inter se the parties, keeping in mind the cleavage of judicial view earlier and to ensure that the objective of arbitration as an expeditious and effective alternative dispute resolution mechanism is not defeated. [Para 23]

Arbitration and Conciliation Act, 1996 – M.P Madhyastham Adhikaran Adhiniyam, 1983 – The question of whether a failure to raise a plea of jurisdiction at the relevant stage in terms of Section 16 sub-section (2) of the Act, 1996 would amount to a ‘waiver’ or not was never examined or looked into by Lion Engineering – This question left to the Court exercising jurisdiction under Section 34:

Held: The observations made by this Court in Lion Engineering that “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” cannot be singled out and construed devoid of its context – The aforesaid observations have to be construed in light of the settled position of law by a catena of decisions of this Court – The decision of this Court in Pam Development has held that where a plea of lack of jurisdiction is not raised before the arbitral tribunal, such a plea cannot be raised later in the proceedings under Section 34 – Pam Development says this, not because such a plea is barred from being raised only by virtue of Section 16 sub-section (2), but rather says this, because such a plea is deemed to have been waived on account of the failure of the party in raising such a plea – Thus, Pam Development in no manner lays down that a plea of lack of jurisdiction cannot be raised in the proceedings under Section

34 due to the bar of Section 16 sub-section (2) of the Act, 1996, and thus to this extent both the decisions of Pam Development and Lion Engineering are in tune with each other – The variance between the decisions of Pam Development and Lion Engineering is only in respect of whether a failure to raise such a plea at the relevant stage in terms of Section 16 sub-section (2) of the Act, 1996 would amount to a ‘waiver’ or not, and this issue was never examined or looked into by Lion Engineering – The observations that it will be open for the respondents therein to argue that such an object could be raised even without a formal pleading and that it will be open for the appellants therein to argue the contrary, clearly shows that the very issue of whether such a plea can be allowed to be raised or not i.e., issues such as whether it is a purely legal plea or whether there was any waiver or not etc. were never decided by this Court in Lion Engineering and rather was left to be gone into by the court under Section 34 of the Act, 1996. [Paras 32, 33]

Arbitration and Conciliation Act, 1996 – M.P Madhyastham Adhikaran Adhiniyam, 1983 – Plea of jurisdiction cannot be raised for the first time in proceedings under Section 34 as it is deemed to have been waived, 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 Ltd. v. Keti Construction (I) Ltd. reported in (2007) 5 SCC 38: Held: 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 Ltd. v. Keti Construction (I) Ltd. reported in (2007) 5 SCC 38, and as per the dictum of L.G. Chaudhary (II) 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. [Para 35] Arbitration and Conciliation Act, 1996 – M.P Madhyastham Adhikaran Adhiniyam, 1983 – Stage of seeking transfer to MP Arbitration Tribunal – Explained:

Held: Where the arbitration proceedings are still underway, but no statement of defence has been filed, there it would be open for the parties to raise an objection of lack of jurisdiction in view of the applicability of MP Act, 1983 – The parties will also be at liberty to approach the High Court by way of a petition under Article 227 of the Constitution for seeking a transfer of the arbitration proceedings to the M.P. State Arbitration Tribunal under the MP Act, 1983 – Where the arbitration proceedings are still underway, but statement of defence has already been filed i.e., the relevant stage for raising an issue of jurisdiction is already crossed, there it would not be open for the parties to raise an objection of lack of jurisdiction in view of the applicability of MP Act, 1983 – Furthermore, in such scenarios since the arbitration proceedings have already commenced and made substantial progress, it would not be appropriate to transfer such proceedings to the M.P. State Arbitration Tribunal under the MP Act, 1983, and the better course of action would be to let the arbitration proceedings conclude – As per L.G. Chaudhary (II) where the arbitration proceedings have concluded and an award has been passed, and if no objection to the jurisdiction in view of the applicability of MP Act, 1983 was taken at the relevant stage then such an award cannot be annulled only on the ground of lack of jurisdiction – Any award passed by an arbitral tribunal under the Act, 1996, where otherwise the MP Act, 1983 was applicable, such an award may be challenged or assailed in terms of Section

34 and thereafter Section 37 of the Act, 1996 and other relevant provisions thereunder. [Para 38]