SUPREME COURT SETS ASIDE HIGH COURT ORDER DISMISSING ARBITRAL AWARD, AS RESPONDENTS FAILED TO CHALLENGE THE JURISDICTION BEFORE ARBITRATOR

In a recent case of M/s. Modern Builders vs State of Madhya Pradesh & Anr. Civil Appeal Nos. 8528-8529 Of 2024, Justice Abhay S. Oka and Justice Augustine George Masih passed a Judgment dated 30-08-2024 and observed that it would be unjust to set aside the Arbitral Award merely on the ground that the Arbitrator was appointed as per provisions of the Arbitration and Conciliation Act 1996 and not as per the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 and more so, when the Respondents failed to raise such challenge before the Arbitrator.

Facts

(i) In the present case, the Appellant- M/s. Modern Builders was appointed as a contractor to construct a minor bridge by the Respondent No. 1 – State of Madhya Pradesh (MP). The Respondent No. 2 – Executive Engineer, National Highway Division Sagar, Madhya Pradesh, cancelled the Contract, vide Letter dated 09-11-2001. Aggrieved, the Appellant requested for constitution of an Arbitral Board, as the said Contract incorporated an Arbitration Clause. However, the said request was rejected by the Respondent.

(ii)  Therefore, the Appellant applied for a reference to the Madhya Pradesh Arbitration Tribunal, Bhopal (Arbitration Tribunal) under Section 7 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (1983 Act).

(iii)  The said Arbitral Tribunal, vide Order dated 19-04-2010, decided that there was an Arbitration Clause in the Contract and that the provisions of the Arbitration and Conciliation Act 1996 would apply (Arbitration Act). Further, that the 1983 Act would apply only if there is no arbitration clause in the Contract. However, in this case as the Contract contained Arbitration Clause, hence, the Arbitration Act would be applicable.

(iv) Based on the said Order dated 19-04-2010 of the Arbitral Tribunal, the Appellant sought for appointment of arbitrator under Section 11 of the Arbitration Act (Appointment of arbitrators) before the High Court of MP.

(v)  The High Court, vide Order dated 22-07-2011, appointed a retired District Judge as the Arbitrator, who then passed an Award dated 25-04-2014. The Award directed the Respondent to pay Rs. 6,52,235/- (Rupees Six Lakhs Fifty-Two Thousand Two Hundred and Thirty-Five only) with interest to the Appellant.

(vi) Aggrieved by the Award, the Respondent filed a Petition under Section 34 of the Arbitration Act (Application for setting aside arbitral awards) before the District Court, Jabalpur, which was dismissed.

(vii) Aggrieved, the Respondent filed an Appeal in Arbitration Appeal No.45 of 2019 before the High Court under Section 37 of the Arbitration Act (Appealable orders). The High Court, vide Order dated 05-07-2021, set aside the Award on the ground that the 1983 Act would apply and not the Arbitration Act. As a result, the Arbitrator, appointed as per provisions of the Arbitration Act, did not have jurisdiction in the present case.

Supreme Court Observations

Aggrieved by the High Court Order, the Appellant filed Civil Appeal Nos. 8528-8529 Of 2024 before the Supreme Court. The Apex Court, vide Order dated 30-08-2024, made the following observations:

(1)  That the High Court had erred in setting aside the Award merely on the ground that the Appellant ought to have invoked the provisions of the 1983 Act. In fact, the Appellant had applied for a reference to the Arbitration Tribunal under the 1983 Act, that held that the provisions of the Arbitration Act would apply. Therefore, the Appellant sought for appointment of arbitrator under Section 11 of the Arbitration Act before the High Court and thereafter, participated in the arbitration proceedings.

(2) Further, the Respondents did not raise the challenge to the appointment of the Arbitrator during the proceedings under Section 11 of the Arbitration Act before the High Court as well as during the arbitration proceedings before the Ld. Arbitrator.

Conclusion

Thus, based on the aforesaid observations, the Bench held that it would be unjust to set aside the Award only on the ground of failure of the Appellant to take recourse to the 1983 Act and thereby, set aside the High Court Order dated 05-07-2021 that quashed the Arbitral Award. As a result, the Arbitration Appeal No.45 of 2019 under Section 37 of the Arbitration Act was restored before the High Court to be decided on merits.

 

Harini Daliparthy

Lead Senior Associate

The Indian Lawyer