Supply Contracts For Infrastructure Projects Classified As "Works Contracts" Under M.P. Madhyastham Adhikaran Adhiniyam: Madhya Pradesh High Court
The Court held that a jurisdictional objection under the Adhiniyam cannot invalidate an arbitral award if not raised during the original proceedings.
The Madhya Pradesh High Court has held that supply contracts for specialised materials, such as disc insulators for high-voltage transmission, constitute "works contracts" under the M.P. Madhyastham Adhikaran Adhiniyam, 1983. However, the Bench emphasised that a jurisdictional objection under the 1983 Adhiniyam cannot be the sole ground for setting aside an arbitral award if the party failed to raise it during the original proceedings.
The Court determined that when goods are procured exclusively for the execution of infrastructure projects like "electric lines" or "powerhouses," the agreement forms the material substratum of the project and falls under the exclusive jurisdiction of the Madhyastham Tribunal. The Court harmonised the mandatory provisions of the 1983 Adhiniyam with the procedural finality of the Arbitration and Conciliation Act, 1996, holding that once an award is passed, a late jurisdictional challenge is only actionable if independent grounds for interference exist.
The bench of Justice Vivek Rusia and Justice Pradeep Mittal in the two connected appeals while interpreting the scheme and purpose of the Adhiniyam, 1983 and the intent of the Legislature, observed, “…expanding the definition in 1990 was evidently to bring within the specialised forum disputes relating not merely to execution contractors but also to suppliers whose contracts are the very substratum of infrastructure projects. A supply contract for goods procured solely for a specific enumerated work, pursuant to a project document, forms the material substratum of that work and cannot be disaggregated from it simply because the physical act of installation is to be performed by the purchaser or another contractor”.
The dispute originated from purchase orders issued on September 29, 2007 by the Madhya Pradesh Power Transmission Company Limited (MPPTCL) for disc insulators under an ADB-funded project. Following delivery, the insulators failed quality inspections and exhibited large-scale breakages, leading MPPTCL to reject the material and procure the balance quantity from other sources at an additional expenditure.
The respondent-supplier initiated arbitration and secured an award on November 16, 2018, which MPPTCL subsequently challenged.
Procedurally, MPPTCL challenged the award under Section 34 of the 1996 Act before the Commercial Court, Jabalpur, which dismissed the application on January 03, 2024. In the present appeal, MPPTCL argued for the first time that the contract was a "works contract" and thus the Arbitral Tribunal lacked jurisdiction. The Court noted that the appellant had participated in the arbitration without raising this objection in its statement of defense or via a Section 16 application.
The Court’s reasoning focused on the interpretation of the 1990 and 1996 amendments to the Adhiniyam, which expanded the definition of "works contract" to include supply agreements integrally connected to power infrastructure.
“Accordingly, this Court holds that the present contract being an agreement for supply of disc insulators specifically for use in EHV transmission lines under an ADB-funded power sector investment programme constitutes a ‘works contract’ within the meaning of Section 2(1)(i) of the M.P. Madhyastham Adhikaran Adhiniyam, 1983, as amended…”, the Bench noted.
However, referring to Gayatri Project Ltd. v. M.P. Road Development Corpn. Ltd., (2025) 10 SCC 750, the Bench noted, “…since the Appellant did not raise any objection to the jurisdiction of the Arbitral Tribunal at the relevant stage either in its statement of defence or by way of an application under Section 16 of the Act, 1996 the arbitral award cannot be set aside solely on the ground of lack of jurisdiction. The award is, however, found to suffer from patent illegality and is liable to be set aside on that ground”.
Accordingly, the Court allowed the appeal, setting aside the Commercial Court's order and the arbitral award. The parties were granted liberty to have their disputes adjudicated by the Madhyastham Tribunal.
“The award is set aside on the ground of patent illegality, inasmuch as the learned Arbitrator has: (i) failed to consider the Appellant’s objections founded on Sections 20, 73 and 74 of the Contract Act; (ii) misapplied Section 62 of the Contract Act by treating a bilateral contractual amendment, validly entered into between the parties, as a nullity; and (iii) rendered a finding on rejection of goods that is contrary to the documentary record and the terms of the contract. Each of these infirmities independently constitutes patent illegality within the meaning of Section 34(2A) of the Act, 1996, warranting interference”, the Bench had noted.
Cause Title: Madhya Pradesh Power Transmission Company Limited v. V.K. Udyog Ltd. Arbitration Appeal No. 15 of 2024
Appearances:
Appellant: Sheersh Agrawal for the appellant, Advocate.
Respondent: K. T. Thakre, Senior Advocate with Vaishali Dubey, Advocate.