Does Arbitral Tribunal have exclusive jurisdiction to settle disputes relating to “works contract” in State of Madhya Pradesh under the scheme of M.P Madhyastham Adhikaran Adhiniyam, 1983? MP HC explains

Madhya Pradesh High Court: The Division Bench of Sheel Nagu and Purushaindra Kumar Kaurav, JJ., while holding that M.P Madhyastham Adhikaran Adhiniyam, 1983 mandates exclusive jurisdiction to Tribunal for settling “works contract” added that Section 34(2)(b)(i) of the Arbitration and Conciliation Act 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.

An arbitration appeal under Section 37 of the Arbitration and Conciliation Act, 1996 took exception to the impugned order passed by the Commercial Court and Additional Sessions Judge allowing an application under Section 34 of the Act, 1996 whereby the original award was set aside.

Brief Facts

An agreement was executed between the appellant and the respondent for the work of rehabilitation and strengthening of Khargone-Barwani road and Khargone-Biston Road for a sum of Rs 58,25,28,228 and on 31-3-2009 the work was completed.

On 3-11-2009 a request was made by the appellant for reimbursement of the extra cost incurred due to enhancement of entry tax, but the said request was rejected which gave rise to him to invoke the arbitration clause.

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

The Court below had set aside the above award passed by the Arbitral Tribunal on the ground that under the provisions of the Act of 1996 the tribunal was without jurisdiction and the matter of the dispute fell within the definition of “Works Contract”, therefore, it was only the statutory tribunal created under the provisions of the Act of 1983 which had the exclusive jurisdiction to deal with the subject matter.

Analysis, Law and Discussion

High Court noted that in the State of Madhya Pradesh, the legislature enacted the Act of 1983, and the said Act provides all disputes relating to “works contract” shall be exclusively decided by the Tribunal created under the Act of 1983.

Elaborating further, Bench expressed,

“…the Act of 1983 provides that whether the parties to a “works contract” incorporate an arbitration agreement or not, any dispute relating to “works contract” shall fall within the exclusive jurisdiction of the Tribunal.”

Hence, the Act of 1983 mandates exclusive jurisdiction to the Tribunal.

As per the decision of Madhya Pradesh Rural Road Development Authority v. L.G. Chaudhary Engineers and Contractors, (2018) 10 SCC 826, the jurisdiction of the arbitral tribunal under the Act of 1996 is barred by operation of law.

Bench added that 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 arbitral tribunal under the Act of 1996.

Hence, the High Court held that the Court below rightly found the arbitral award to be without jurisdiction.

Bench opined 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.

Court also gave a different reasoning for the above-stated, which was as follows:

If we examine Section 34 of the Act of 1996, it has two parts. Part (a) deals with grounds where a “party making an application furnishes proof”. Whereas part (b) deals with where “the Court finds”. 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.

In the Supreme Court decision of Fiza Developers & Inter-Trade (P) Ltd. v. Amci(I) (P) Ltd., (2009) 17 SCC 796, it was categorically laid down that an award is liable to be set aside by the Court’s own initiative if the subject-matter of the dispute is not arbitrate or the award is in conflict with the public policy of India.

Hence, even if a party assailing an arbitral award has not taken a ground in its Section 34 petition, the Court under Section 34 (2)(b)(i) of the Act of 1996 is obligated to set aside an award, which under the law in force, is not capable of arbitration.

Further, it was added that if the Court finds that when there is a challenge to lack of inherent jurisdiction the same can be raised at any stage and decree y a forum lacking inherent jurisdiction on the subject matter is a nullity.

Lastly, the High Court observed that the Court below did not commit any error in setting aside the arbitral award on the ground of lack of jurisdiction. Appellants can raise the dispute before the Tribunal under the Act of 1983.

Thus, if a dispute under Section 7 of the Act of 1983 is raised by the appellant along with an application seeking condonation of delay on the principles of Section 14 of the Limitation Act, Court directs the Tribunal to consider the same. [Gayatri Project Ltd. v. Madhya Pradesh Road Development Corpn. Ltd., 2022 SCC OnLine MP 133, decided on 7-1-2022]


Advocates before the Court:

For Appellant: Kunal Thakre, Advocate

For Respondent: Siddharth Sharma, Advocate.

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