M/S GAYATRI PROJECT LIMITED versus MADHYA PRADESH ROAD DEVELOPMENT CORPORATION LIMITED (15/05/2025) — Supreme Court headnote

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Summary

A 2011 arbitral award under the Arbitration and Conciliation Act, 1996 in favour of a contractor against a Madhya Pradesh State corporation was set aside by the Section 34 court and the High Court solely because the M.P. Madhyastham Adhikaran Adhiniyam, 1983 ought to have applied, though the corporation never objected to jurisdiction before the tribunal or in its original Section 34 petition. Reconciling Lion Engineering with L.G. Chaudhary (II), the Court held that a jurisdictional plea may be raised for the first time under Section 34 but is subject to deemed waiver under Section 4 read with Section 16(2) unless strong reasons are shown, that failure to raise the 1983 Act before the tribunal is not such a reason, and that an award already made cannot be annulled only on that ground. The Section 34 proceedings were restored for decision on the other grounds.

Issues

Whether an arbitral award rendered under the 1996 Act, in a dispute that ought to have been referred under the M.P. Madhyastham Adhikaran Adhiniyam, 1983, can be set aside solely for lack of jurisdiction when no such plea was raised before the arbitral tribunal under Section 16(2).
Whether L.G. Chaudhary (II) is per incuriam for not considering Lion Engineering, that is, whether the two decisions conflict on the stage at which a plea of lack of jurisdiction may be raised under the 1996 Act.
Whether a plea of lack of jurisdiction may be raised for the first time in proceedings under Section 34 if it was not raised before the arbitral tribunal, and on what conditions.

Provisions considered

Section 16(2), Arbitration and Conciliation Act, 1996A plea that the tribunal lacks jurisdiction must be raised not later than the submission of the statement of defence. Read with Section 4, failure to do so results in deemed waiver (Pam Development, AC Chokshi), so the plea cannot ordinarily be raised for the first time under Section 34 unless strong and good reasons are shown (Gas Authority of India). The respondent raised no such plea before the tribunal or in its original Section 34 petition. (¶¶ 4, 15, 27, 28, 29, 30, 32, 33, 34, 35, 36, 39)
Section 4, Arbitration and Conciliation Act, 1996A party who proceeds with the arbitration without stating its objection to non-compliance without undue delay is deemed to have waived the right to object. The Court applied this to hold that a jurisdictional plea not raised before the tribunal is deemed waived and ought not to be entertained under Section 34 absent a strong reason. (¶¶ 28, 30, 35, 36)
Section 34, Arbitration and Conciliation Act, 1996Lion Engineering holds that a pure legal plea of lack of jurisdiction on undisputed facts may be raised under Section 34 even if not raised under Section 16, and that 'public policy of India' includes State law; but it decided only maintainability, not whether the plea must be entertained or whether the award must be annulled. An award may be set aside for lack of jurisdiction only where it goes to the root and results in patent illegality; under L.G. Chaudhary (II) an award already made cannot be annulled only on the ground that the 1983 Act applied. (¶¶ 16, 17, 19, 20, 26, 31, 32, 33, 34, 35, 36, 40)
Section 2(4) and Section 2(5), Arbitration and Conciliation Act, 1996As held in L.G. Chaudhary (I) and (II), Part I applies to statutory arbitrations only insofar as not inconsistent with the other enactment, so the 1983 Act, a special law providing compulsory arbitration before the M.P. State Arbitration Tribunal, is saved and prevails over the 1996 Act for works contracts with the State or its undertakings; VA Tech, which held the 1983 Act impliedly repealed where an arbitration clause exists, was per incuriam. (¶¶ 4, 6, 7, 10, 11, 13)
Section 37, Arbitration and Conciliation Act, 1996The appellant's appeal under Section 37 against the order setting aside the award was dismissed by the High Court; the Supreme Court held the High Court committed an egregious error and set aside its judgment. (¶¶ 2, 3, 41)
Sections 2(d), 2(i) and 7, Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983Section 7 requires either party to a works contract with the State or a State public undertaking to refer disputes to the State Arbitration Tribunal whether or not the agreement contains an arbitration clause; 'dispute' in Section 2(d) covers disputes after termination of the contract. The Court traced Anshuman Shukla, VA Tech, Ravikant Bansal and L.G. Chaudhary (I) and (II) on the applicability of the 1983 Act, and explained how L.G. Chaudhary (II) dealt with proceedings and awards already undertaken under the 1996 Act. (¶¶ 4, 6, 7, 9, 10, 11, 12, 13, 14, 15, 38)

Held

L.G. Chaudhary (II) is not per incuriam for omitting to refer to Lion Engineering. Omission to cite an earlier decision does not make a judgment per incuriam where there is no palpable conflict of ratios; the very fact that L.G. Chaudhary (II) clarified that an award would not be annulled only on the ground of lack of jurisdiction shows it was conscious of Lion Engineering and deliberately carved out an exception in view of the earlier cleavage of judicial opinion. (¶¶ 19, 37)
Lion Engineering dealt only with whether an amendment of pleadings was needed to raise a jurisdictional plea, and its observation that no bar prevents such a plea under Section 34 even if not raised under Section 16 is confined to that context; it did not decide whether an award may be annulled solely for lack of jurisdiction, nor disturb the settled rule that an award is set aside on that ground only where the defect goes to the root and results in patent illegality. L.G. Chaudhary (II) addressed the different question of annulment, so the two decisions do not conflict. (¶¶ 19, 20, 37)
The exception carved out in L.G. Chaudhary (II), consistently followed in JMC Projects, Sweta Construction and Modern Builders, is that where an award has already been made and no objection to jurisdiction based on the 1983 Act was taken at the relevant stage, the award may not be annulled only on that ground, though other challenges under Section 34 remain open; the observations may also be read as made under Article 142 to do substantive justice and preserve arbitration as an expeditious remedy. (¶¶ 14, 15, 21, 22, 23, 24, 25)
Under Section 16(2) a jurisdictional plea must be raised by the statement of defence; a party that fails to do so is deemed under Section 4 to have waived it (Pam Development, AC Chokshi) and may raise it under Section 34 only on showing strong and good reasons for the failure (Gas Authority of India). Pam Development and Lion Engineering are consistent: the plea is maintainable under Section 34, but may be rejected if it is not a pure question of law or has been waived, questions Lion Engineering expressly left open. (¶¶ 27, 28, 29, 30, 32, 33, 34)
Although a plea of lack of jurisdiction, being a question of law, can be raised for the first time under Section 34, it ought not to be allowed where deemed waived under Section 4 unless strong reasons are shown, and under L.G. Chaudhary (II) a failure to raise the applicability of the 1983 Act before the arbitral tribunal is not a strong and good reason to permit the plea at the Section 34 stage. (¶¶ 35, 36)
Summary of the position following L.G. Chaudhary (II): where arbitration under the 1996 Act is pending and no statement of defence has been filed, the objection may be raised and transfer to the State Tribunal sought under Article 227; where the statement of defence has been filed, the objection is no longer open and the arbitration should conclude rather than be transferred; where an award has been passed without a timely objection it cannot be annulled only for lack of jurisdiction; such an award may be challenged under Sections 34 and 37 of the 1996 Act but must be executed under the 1983 Act; and where the objection was raised in the written statement but not pursued under Section 16, or was rejected under the law prevailing before L.G. Chaudhary (II), the award should still not be set aside only on this ground (Modern Builders). (¶ 38)
On the facts, the respondent never objected when the tribunal was constituted, VA Tech held the field throughout the arbitration, no jurisdictional objection was raised in the statement of defence or under Section 16 or in the original Section 34 petition, and the ground was introduced by amendment only after L.G. Chaudhary (II); the case was squarely covered by that decision and the award could not have been annulled only for lack of jurisdiction. (¶¶ 39, 40)

Result

Appeal disposed of; High Court judgment dated 07.01.2022 under Section 37 set aside; Section 34 proceedings (Arbitration Case No. 48 of 2011) restored to the Commercial Court at Bhopal for decision on merits of all other grounds raised by the respondent, excluding the plea of lack of jurisdiction; pending applications disposed of; Registry directed to circulate the judgment to all High Courts.