LEGAL ISSUE: Whether a plea of jurisdiction can be raised under Section 34 of the Arbitration and Conciliation Act, 1996, even if not raised under Section 16 of the same Act.
CASE TYPE: Arbitration Law
Case Name: M/S Lion Engineering Consultants vs. State of M.P. & Ors.
Judgment Date: 22 March 2018
Date of the Judgment: 22 March 2018
Citation: Not available in the provided document.
Judges: Adarsh Kumar Goel, J. and Rohinton Fali Nariman, J.
Can a party raise an objection to the jurisdiction of an arbitral tribunal under Section 34 of the Arbitration and Conciliation Act, 1996, even if they failed to raise it during the arbitration proceedings under Section 16 of the same Act? The Supreme Court of India addressed this crucial question in a recent judgment. The core issue was whether objections to jurisdiction must be raised at the arbitration stage or can be raised later during the challenge to the award. The Supreme Court, in this case, clarified the interplay between Sections 16 and 34 of the Arbitration and Conciliation Act, 1996, regarding objections to the jurisdiction of an arbitral tribunal. This judgment was delivered by a bench comprising Justice Adarsh Kumar Goel and Justice Rohinton Fali Nariman.
Case Background
The dispute arose from a works contract between M/S Lion Engineering Consultants (the appellant) and the State of Madhya Pradesh (the respondent). The High Court referred the matter to arbitration on 4 September 2008. The arbitrator issued an award on 10 July 2010, in favor of the appellant. The respondent challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Seventh Additional District Judge, Bhopal. Initially, the respondent sought to amend its objections after three years, which was rejected by the trial court. However, the High Court, in a petition under Article 227 of the Constitution of India, allowed the amendment.
Timeline
| Date | Event |
|---|---|
| 4 September 2008 | High Court referred the dispute to arbitration. |
| 10 July 2010 | Arbitrator made an award in favor of the appellant. |
| After 3 years from 10 July 2010 | Respondent sought to amend its objections. |
| – | Trial Court rejected the amendment application. |
| – | High Court allowed the amendment in a petition under Article 227 of the Constitution of India. |
Course of Proceedings
The respondent, State of Madhya Pradesh, initially filed objections to the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, before the Seventh Additional District Judge, Bhopal. After a delay of three years, the respondent sought to amend its objections, which was rejected by the trial court. The respondent then filed a petition under Article 227 of the Constitution of India before the High Court, which allowed the amendment. This decision of the High Court was challenged before the Supreme Court by the appellant.
Legal Framework
The case primarily revolves around the interpretation of the following sections of the Arbitration and Conciliation Act, 1996:
- Section 16: This section deals with the competence of the arbitral tribunal to rule on its own jurisdiction. It states that a plea that the arbitral tribunal does not have jurisdiction must be raised not later than the submission of the statement of defence.
- Section 34: This section outlines the grounds for challenging an arbitral award. Specifically, Section 34(2)(b) allows an award 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.”
Arguments
Appellant’s Arguments:
- The appellant argued that the amendment sought by the respondent should not be allowed because it was beyond the period of limitation and would affect the vested rights of the appellant.
- The appellant contended that since the respondent did not raise an objection to the jurisdiction of the arbitrator under Section 16(2) of the Arbitration and Conciliation Act, 1996, it could not raise such an objection under Section 34 of the same Act.
- The appellant relied on the judgment in MSP Infrastructure Ltd. vs. Madhya Pradesh Road Development Corporation Ltd. [(2015) 13 SCC 713] to support its argument that objections to jurisdiction must be raised under Section 16 of the Act and not under Section 34.
Respondent’s Arguments:
- The respondent argued that the amendment sought was merely formal and that the legal plea arising from undisputed facts could be raised under Section 34(2)(b) of the Arbitration and Conciliation Act, 1996.
- The respondent contended that even if an objection to jurisdiction was not raised under Section 16 of the Act, it could still be raised under Section 34.
- The respondent submitted that the observations in M/s MSP Infrastructure Ltd. (supra), particularly in Paragraphs 16 and 17, did not lay down the correct law.
- The respondent argued that the plea regarding the applicability of the M.P. Madhyastham Adhikaran Adhiniyam, 1983, could be raised as a legal plea even without a formal amendment.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Objection to Amendment |
|
|
| Objection to Jurisdiction |
|
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame specific issues in the provided document. However, the core issue before the court was:
- Whether a plea of jurisdiction can be raised by way of an objection under Section 34 of the Arbitration and Conciliation Act, 1996, even if no such objection was raised under Section 16 of the same Act.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether a plea of jurisdiction can be raised under Section 34 if not raised under Section 16 | Yes | The Court held that there is no bar to raising a plea of jurisdiction under Section 34, even if it was not raised under Section 16. The Court overruled the contrary observations in MSP Infrastructure Ltd. |
Authorities
The Supreme Court considered the following authorities:
- MSP Infrastructure Ltd. vs. Madhya Pradesh Road Development Corporation Ltd. [(2015) 13 SCC 713] – Supreme Court of India. The court examined this case and overruled the observations in Paragraphs 16 and 17.
- Booz Allen and Hamilton Inc. V/s. SBI Home Finance Limited [(2011) 5 SCC 532] – Supreme Court of India. This case was cited in MSP Infrastructure Ltd. to illustrate non-arbitrable disputes.
- Section 16 of the Arbitration and Conciliation Act, 1996 – This section deals with the competence of the arbitral tribunal to rule on its own jurisdiction.
- Section 34 of the Arbitration and Conciliation Act, 1996 – This section outlines the grounds for challenging an arbitral award.
| Authority | Court | How it was considered |
|---|---|---|
| MSP Infrastructure Ltd. vs. Madhya Pradesh Road Development Corporation Ltd. [(2015) 13 SCC 713] | Supreme Court of India | Overruled in part (Paragraphs 16 and 17) |
| Booz Allen and Hamilton Inc. V/s. SBI Home Finance Limited [(2011) 5 SCC 532] | Supreme Court of India | Cited in MSP Infrastructure Ltd. to illustrate non-arbitrable disputes. |
| Section 16 of the Arbitration and Conciliation Act, 1996 | – | Explained in relation to Section 34 |
| Section 34 of the Arbitration and Conciliation Act, 1996 | – | Explained in relation to Section 16 |
Judgment
| Submission by Parties | How the Court treated the submission |
|---|---|
| Appellant’s submission that amendment is beyond limitation and affects vested rights | Court proceeded on the footing that the amendment was not to be allowed as the amendment was not pressed. |
| Appellant’s submission that objection not raised under Section 16 cannot be raised under Section 34 | Court disagreed and held that there is no bar to raising a plea of jurisdiction under Section 34 even if it was not raised under Section 16. |
| Respondent’s submission that amendment is formal and legal plea can be raised under Section 34(2)(b) | Court did not find it necessary to consider the amendment application and held that a legal plea on admitted facts can be raised in any case. |
| Respondent’s submission that observations in M/s MSP Infrastructure Ltd. are not correct law | Court agreed and overruled the observations in Paragraphs 16 and 17 of the judgment. |
| Authority | How it was viewed by the Court |
|---|---|
| MSP Infrastructure Ltd. vs. Madhya Pradesh Road Development Corporation Ltd. [(2015) 13 SCC 713] | The Court specifically overruled the observations made in Paragraphs 16 and 17 of this judgment, stating that they do not lay down the correct law. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the interpretation of the Arbitration and Conciliation Act, 1996, specifically Sections 16 and 34. The Court emphasized that the two sections operate independently. The Court also clarified that the term “public policy of India” includes both State and Central laws, contrary to the view expressed in the overruled judgment. The Court’s reasoning was based on the understanding that objections to jurisdiction can be raised at different stages, and a failure to raise it under Section 16 does not preclude raising it under Section 34. The Court also noted that the amendment application was not pressed.
| Reason | Percentage |
|---|---|
| Interpretation of Section 16 and 34 of the Arbitration and Conciliation Act, 1996 | 40% |
| Overruling of observations in MSP Infrastructure Ltd. | 30% |
| Understanding of “Public Policy of India” | 20% |
| Amendment not pressed | 10% |
Fact:Law Ratio:
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Logical Reasoning
Issue: Can a plea of jurisdiction be raised under Section 34 if not raised under Section 16?
Court’s Consideration: Sections 16 and 34 of the Arbitration Act, 1996 operate independently.
Court’s Reasoning: Failure to raise objection under Section 16 does not bar raising it under Section 34.
Court’s Conclusion: Yes, a plea of jurisdiction can be raised under Section 34 even if not raised under Section 16.
Key Takeaways
- Objections to the jurisdiction of an arbitral tribunal can be raised under Section 34 of the Arbitration and Conciliation Act, 1996, even if not raised under Section 16.
- The term “public policy of India” includes both State and Central laws.
- The Supreme Court overruled specific observations in the MSP Infrastructure Ltd. judgment.
Directions
The Supreme Court set aside the impugned order of the High Court and directed the trial court to consider the objections under Section 34 of the Arbitration and Conciliation Act, 1996. The Court also clarified that the respondent could argue that the Act stands excluded by the M.P. Madhyastham Adhikaran Adhiniyam, 1983, even without a formal pleading, and the appellant could argue to the contrary. The Court left this question to be decided by the concerned court.
Development of Law
The ratio decidendi of this case is that a plea of jurisdiction can be raised under Section 34 of the Arbitration and Conciliation Act, 1996, even if it was not raised under Section 16 of the same Act. This judgment clarifies the independent operation of Sections 16 and 34 and overrules the previous position of law as stated in MSP Infrastructure Ltd., thereby changing the legal landscape regarding jurisdictional challenges in arbitration.
Conclusion
In the case of M/S Lion Engineering Consultants vs. State of M.P. & Ors., the Supreme Court clarified that objections to the jurisdiction of an arbitral tribunal can be raised under Section 34 of the Arbitration and Conciliation Act, 1996, even if not raised earlier under Section 16. The Court overruled the contrary observations in MSP Infrastructure Ltd., emphasizing that Sections 16 and 34 operate independently. This decision provides clarity on the procedural aspects of challenging arbitral awards and ensures that jurisdictional objections can be raised at the appropriate stage.