30 August 2024 Arbitration Law >> Business & Commercial Law   |   Civil Appeals >> Civil & Consumer Law  

In a recent legal dispute in M/s. Modern Builders v/s State of Madhya Pradesh & Another involving a construction contract for a minor bridge in Madhya Pradesh, the Supreme Court of India addressed the applicability of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the 1983 Act) and the Arbitration and Conciliation Act, 1996 (the Arbitration Act). This case illustrates important principles regarding the jurisdiction of arbitration in contract disputes.

Case Background:

The appellant, a contractor, was appointed to build a minor bridge by the State of Madhya Pradesh. The contract included an arbitration clause as per Clause 29 of the work order. However, following the rescission of the contract by the Executive Engineer, National Highway Division, Sagar, the appellant sought to resolve the dispute through arbitration. Despite requesting the constitution of an Arbitral Board, the appellant’s requests were denied. Consequently, the appellant filed a petition under Section 7 of the 1983 Act, which governs arbitration in Madhya Pradesh.

On April 19, 2010, the Madhya Pradesh Arbitration Tribunal ruled that the arbitration clause in the contract necessitated the application of the Arbitration Act, rather than the 1983 Act. Acting on this decision, the appellant approached the High Court under Section 11(6) of the Arbitration Act to appoint an arbitrator. The High Court agreed, appointing a retired District Judge as the Arbitrator. An award was subsequently issued on April 25, 2014.

Challenge to the Award:

Dissatisfied with the award, the respondents filed a petition under Section 34 of the Arbitration Act before the District Judge, Jabalpur. The District Judge upheld the award. The respondents then appealed under Section 37 of the Arbitration Act to the High Court, which, referencing the Supreme Court’s decision in Madhya Pradesh Rural Road Development Authority & Anr. v. L. G. Chaudhary Engineers and Contractors ((2018) 10 SCC 826), set aside the award. The High Court ruled that the 1983 Act should have been applied instead of the Arbitration Act.

Supreme Court's Consideration:

The appellant contended that the Supreme Court’s decision in the Madhya Pradesh Rural Road Development Authority case, which was decided four years after the award was made, should not retroactively affect their case. The appellant argued that the jurisdictional objection regarding the applicability of the 1983 Act was not raised timely by the respondents and should not lead to the annulment of the award. Conversely, the respondents maintained that the issue of jurisdiction was appropriately raised in the arbitration proceedings and thus should be considered.

Court’s Ruling:

The Supreme Court observed that, following the rescission of the contract, the appellant initially approached the Arbitration Tribunal under the 1983 Act. The Tribunal’s ruling directed the use of the Arbitration Act. The High Court’s decision to set aside the award solely based on the 1983 Act’s applicability was deemed unjust, especially since the objection regarding jurisdiction was not raised in the earlier stages of the proceedings. The Court noted that the appellant had followed the procedural requirements by seeking an arbitrator under the Arbitration Act based on the Tribunal’s order. Given that the arbitration award was relatively modest (Rs. 6,52,235/- with interest), the Court found it inappropriate to invalidate the award on procedural grounds alone. To ensure justice, the Supreme Court exercised its jurisdiction under Article 142 of the Constitution of India. It set aside the High Court’s judgment and restored the appeal under Section 37 of the Arbitration Act to be reconsidered on its merits. The Court instructed the High Court to list the appeal for hearing and make decisions accordingly.

Conclusion:

This case underscores the complexities surrounding the application of different arbitration statutes and procedural fairness. It highlights the importance of raising jurisdictional objections at the appropriate stages of the arbitration process and affirms the necessity of adhering to procedural fairness to avoid undue prejudice. The Supreme Court's intervention ensures that the arbitration award will be evaluated on its substantive merits rather than procedural technicalities. The Registry is directed to forward a copy of this judgment to the Registrar (Judicial) of the High Court of Madhya Pradesh, Jabalpur, ensuring that the legal proceedings continue in alignment with the Supreme Court’s directives.

  Arbitration and Conciliation Act, 1996