Supreme Court: Lack Of Jurisdiction Plea In Petition U/S. 34 A&C Act Can Be Allowed Only When Party Makes Out Strong Reason For Its Failure To Take It Before Arbitral Tribunal

The Supreme Court held that a plea of lack of jurisdiction can be allowed only when the party makes out a strong reason for its failure to take such a plea before the Arbitral Tribunal.

The Court held thus in a Civil Appeal preferred against the Judgment of the Madhya Pradesh High Court, Jabalpur Bench which dismissed the Appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act).

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed, “… although a plea of lack of jurisdiction, being a question of law, can be raised even for the first time in the proceedings under Section 34 as held in Lion Engineering (supra), yet such a plea ought not to be allowed to be raised as it is deemed to have been waived in view of Section 4 of the Act, 1996 as per Pam Development (supra), unless the party makes out a strong and good reason for its failure to take such a plea before the arbitral tribunal as per Gas Authority of India (supra), and as per the dictum of L.G. Chaudhary (II) (supra) any failure to raise the issue of applicability of the MP Act, 1983 before the arbitral tribunal is not a strong and good reason to permit raising such a plea in the proceedings under Section 34 of the Act, 1996.”

The Bench reiterated that any awards that have already been made and if no objection to the jurisdiction was taken at the relevant stage, then the award may not be annulled ‘only’ on that ground.

AOR Kaushik Laik represented the Appellant while Senior Advocate Saurabh Mishra represented the Respondent.

Facts of the Case

The High Court had dismissed an Appeal filed under Section 37 of the A&C Act and affirmed the Order of the Commercial Court and Additional Sessions Judge, Bhopal allowing Application filed by the Respondent i.e., Madhya Pradesh Road Development Corporation Limited (MPRDC) under Section 34. The Respondent suffered an award passed by the Arbitral Tribunal which was challenged under Section 34. The Respondent’s Appeal was allowed on the ground that the Tribunal had no jurisdiction to pass the award in view of the provisions of the M.P. Madhyastham Adhikaran Adhiniyam, 1983 (MP Act).

The Order passed by the Commercial Court was challenged via Appeal before the High Court, which was dismissed. Hence, the case was before the Apex Court. The Appellant had executed a “works contract” with the Respondent for a project. The arbitration agreement mandated that the Tribunal shall comprise of three members, one to be appointed by each party and the two co arbitrators had to nominate the presiding arbitrator.

Reasoning

The Supreme Court after hearing the contentions of the counsel, noted, “What emerges from the foregoing is that although Lion Engineering (supra) affirms that a plea of lack of jurisdiction, being a question of law, may be raised for the first time under Section 34 of the Act, 1996, yet such a plea is nevertheless subject to the waiver as held in Pam Development (supra). Furthermore, as per Gas Authority of India (supra), such a plea may only be entertained if the party demonstrates a strong and sufficient reason for not raising it before the arbitral tribunal. However, L.G. Chaudhary (II) (supra) makes it clear that a failure to raise the issue of applicability of the MP Act, 1983 at the appropriate stage cannot be regarded as a sufficient reason, and therefore the plea cannot be permitted at the stage of Section 34 proceedings.”

The Court further took note of the following points –

i. Where the arbitration proceedings are still underway, but no statement of defence has been filed, there it would be open for the parties to raise an objection of lack of jurisdiction in view of the applicability of MP Act, 1983.

ii. Where the arbitration proceedings are still underway, but statement of defence has already been filed i.e., the relevant stage for raising an issue of jurisdiction is already crossed, there it would not be open for the parties to raise an objection of lack of jurisdiction in view of the applicability of MP Act, 1983.

iii. Where the arbitration proceedings have concluded and an award has been passed, and if no objection to the jurisdiction in view of the applicability of MP Act, 1983 was taken at the relevant stage then such an award cannot be annulled only on the ground of lack of jurisdiction.

iv. Any award passed by an arbitral tribunal under the Act, 1996, where otherwise the MP Act, 1983 was applicable, such an award may be challenged or assailed in terms of Section 34 and thereafter Section 37 of the Act, 1996 and other relevant provisions thereunder.

v. Any award passed by an arbitral tribunal under the Act, 1996, where otherwise the MP Act, 1983 was applicable, such an award must be executed in terms of the MP Act, 1983 and the relevant provisions thereunder.

vi. Where the objection based on applicability of the MP Act, 1983 had been raised in the written statement or statement of defence, but the parties never took steps towards challenging the jurisdiction of the arbitral tribunal under Section 16 of the Act, 1996 or where such plea of jurisdiction was turned down, the award should not be disturbed or set-aside only on the ground of lack of jurisdiction.

The Court said that once the award had been passed and no objection as to the jurisdiction of the arbitral tribunal had been taken at the relevant stage, then the award could not have been annulled by the High Court only on the ground of lack of jurisdiction.

Accordingly, the Apex Court disposed of the Appeal, set aside the High Court’s Judgment, and restored the arbitration proceedings.

Cause Title- M/s Gayatri Project Limited v. Madhya Pradesh Road Development Corporation Limited (Neutral Citation: 2025 INSC 698)

Appearance:

Appellant: AOR Kaushik Laik, Advocates Ashay Kaushik, Shashank Tiwari, and Houmei Ngamthonba Thangal.

Respondent: Senior Advocate Saurabh Mishra, AOR Harmeet Singh Ruprah, and Advocate Kanishk Sharma.

Click here to read/download the Judgment