Supreme Court settles jurisdiction in works contract arbitration: M.P. Housing Board vs. K.P. Dwivedi (2021)

Date of the Judgment: 03 December 2021

Citation: (2021) Civil Appeal No. 6768 of 2021

Judges: M. R. Shah, J. and B.V. Nagarathna, J.

Can a party initiate a second arbitration for the same dispute if an earlier arbitration award exists? The Supreme Court of India addressed this critical question in a recent case involving the M.P. Housing and Infrastructure Development Board and a contractor, K.P. Dwivedi. The core issue revolved around whether a fresh reference to the Madhya Pradesh Arbitration Tribunal was valid, given a prior arbitration award by an arbitrator appointed by the High Court. The Supreme Court bench, comprising Justices M. R. Shah and B.V. Nagarathna, delivered the judgment.

Case Background

The Madhya Pradesh Housing and Infrastructure Development Board (the Board) issued a tender for constructing houses in Bhopal. The contract was awarded to K.P. Dwivedi (the contractor). An agreement was signed on 15 July 2005. Disputes arose in 2008. The Board claimed the contractor failed to complete the work within the stipulated 18 months, even after repeated extensions. Consequently, the Board rescinded the contract on 30 June 2008. The contractor, invoking Clause 29 of the contract, filed a claim petition before the Deputy Housing Commissioner, Bhopal, seeking an extension until 31 March 2009. The contractor also filed a writ petition before the High Court, seeking permission to complete the work. On 20 August 2008, the High Court disposed of the petition, with both parties agreeing that the dispute would be decided by the Housing Commissioner, M.P. Housing Board, within a specific period. The contractor then filed a modified claim with the Housing Commissioner, who rejected the contractor’s claim on 7 November 2008. Instead of challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996, the contractor filed a fresh reference petition before the Madhya Pradesh Arbitration Tribunal under Section 7 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the 1983 Act). The Board raised objections, stating that the dispute was already decided by the arbitrator appointed by the High Court. On 27 February 2017, the Tribunal dismissed the contractor’s claim as not maintainable. The contractor then filed a review petition in May 2017, seeking clarification of the High Court’s order dated 20 August 2008, which was also dismissed on 7 September 2017.

Timeline

Course of Proceedings

The High Court, on 20 August 2008, disposed of the contractor’s writ petition by a joint consensus, directing the Housing Commissioner to act as the arbitrator. The Housing Commissioner rejected the contractor’s claim on 7 November 2008. Instead of appealing under Section 34 of the Arbitration Act, 1996, the contractor filed a fresh reference before the Madhya Pradesh Arbitration Tribunal. The Tribunal dismissed the reference on 27 February 2017, stating that the dispute had already been decided by the arbitrator appointed by the High Court. The contractor then filed a review petition, which was dismissed on 7 September 2017. Subsequently, the contractor filed an Arbitration Revision Petition before the High Court under Section 19 of the 1983 Act, which was allowed, setting aside the Tribunal’s order and directing the Tribunal to decide the reference on merits. The M.P. Housing Board then filed the present appeal before the Supreme Court.

Legal Framework

The case involves the interpretation of the following legal provisions:

• Section 7 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the 1983 Act): This section provides that either party to a ‘works contract’ can refer a dispute to the Tribunal, irrespective of whether the agreement contains an arbitration clause.
• Section 2(d) of the 1983 Act: This section defines ‘dispute’ as a claim having a value of Rs. 50,000 or more.
• Section 7B of the 1983 Act: This section states that no dispute can be referred to the Arbitration Tribunal unless it is first referred to the final authority under the scope of the term ‘works contract’
• Section 34 of the Arbitration and Conciliation Act, 1996: This section provides the procedure for challenging an arbitral award.
• Section 19 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983: This section outlines the High Court’s power of revision over awards made under the Act.

The 1983 Act is a special law for works contracts in Madhya Pradesh, and it mandates that disputes arising from such contracts must be adjudicated by the Tribunal established under this Act. This framework operates within the constitutional framework, ensuring that contractual disputes are resolved through a structured legal process.

Arguments

Appellants’ (M.P. Housing Board) Arguments:

• The High Court’s order referring the dispute to the Housing Commissioner was a consent order and was as per the arbitration clause in the agreement.
• The Housing Commissioner passed an award, which the contractor did not challenge under Section 34 of the Arbitration Act, 1996.
• The contractor’s remedy was to challenge the award under Section 34 of the Arbitration Act, 1996, not to file a fresh claim.
• The fresh claim petition before the Tribunal was not maintainable, as the dispute had already been decided by an arbitrator appointed by the High Court.
• The principle of Issue Estoppel bars the contractor from raising the same claim again. Reliance was placed on Hope Plantations Ltd. vs Taluk Land Board, Peermade and Another, (1999) 5 SCC 590 and Bhanu Kumar Jain vs Archana Kumar and Another, (2005) 1 SCC 787.
• Even if the order referring the dispute to the Housing Commissioner was wrong, it is binding until set aside by a competent court. Reliance was placed on Pushpa Devi Bhagat (D) Th. LR. Sadhna Rai (Smt.) vs. Rajinder Singh & Ors., (2006) 5 SCC 566 and Rafique Bibi (Dead) By Lrs. vs. Sayed Waliuddin (Dead) by LRs and others, (2004) 1 SCC 287.
• The case of Madhya Pradesh Rural Road Development Authority and Another vs. L.G. Chaudhary Engineers and Contractors, (2018) 10 SCC 826 was cited to argue that if no objection to jurisdiction was taken at the relevant stage, the award cannot be annulled on that ground.

Respondent’s (Contractor) Arguments:

• The 1983 Act is a special act providing for compulsory arbitration for disputes pertaining to ‘works contracts’.
• Section 7 of the 1983 Act mandates that disputes under ‘works contracts’ must be referred to the Tribunal.
• As per Section 7B of the 1983 Act, no dispute can be referred to the Arbitration Tribunal unless the dispute is first referred to the final authority under the scope of the term ‘works contract’.
• The 1983 Act prevails over the Arbitration Act, 1996. Reliance was placed on M.P. Rural Road Development Authority and Anr. vs. L.G. Chaudhary Engineers & Contractors (2012) 3 SCC 495 and M.P. Rural Road Development Authority and Anr. vs. L.G. Chaudhary Engineers & Contractors (2018) 10 SCC 826.
• The full bench of the Madhya Pradesh High Court in Viva Highways Ltd. vs. MP Rural Road Development Corporation Ltd. had taken the same view. This was approved by the Supreme Court in M/s Essel Infra Projects Ltd. vs. The State of MP.
• The arbitration clause in the agreement contemplates a two-stage adjudication, first before the Deputy Housing Commissioner and then the Additional Housing Commissioner.
• The Housing Commissioner’s decision was not under the Arbitration Act, 1996, thus, the contractor was not required to file objections under Section 34 of the Arbitration Act, 1996.
• The reference filed by the contractor after the Housing Commissioner’s order was maintainable.
• Even if the Housing Commissioner’s order is considered under the Arbitration Act, 1996, it would be non-est as any arbitration relating to ‘works contract’ in M.P. could only be under the 1983 Act. Reliance was placed on Hindustan Zinc Ltd. vs. Ajmer Vidyut Vitran Nigam Ltd., (2019) 17 SCC 82.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether, in view of the award declared by the Housing Commissioner, M.P. Housing Board, who was appointed as an arbitrator pursuant to the order passed by the High Court in Writ Petition No. 9131 of 2008, was it open for the respondent – contractor thereafter to file a reference before M.P. Arbitration Tribunal with respect to the very claim/claims which were the subject matter of arbitration before the Arbitrator – Housing Commissioner.

Treatment of the Issue by the Court

Authorities

The following authorities were considered by the Court:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on Hope Plantations Ltd. vs Taluk Land Board, Peermade and Another, (1999) 5 SCC 590 and Bhanu Kumar Jain vs Archana Kumar and Another, (2005) 1 SCC 787* to support the principle of issue estoppel, holding that the contractor was barred from re-litigating the same claims.
• The Supreme Court cited Pushpa Devi Bhagat (D) Th. LR. Sadhna Rai (Smt.) vs. Rajinder Singh & Ors., (2006) 5 SCC 566 and Rafique Bibi (Dead) By Lrs. vs. Sayed Waliuddin (Dead) by LRs and others, (2004) 1 SCC 287*, emphasizing that a consent order, even if erroneous, is binding until set aside by a competent court.
• The Supreme Court referred to Madhya Pradesh Rural Road Development Authority and Another vs. L.G. Chaudhary Engineers and Contractors, (2018) 10 SCC 826* to highlight that if no objection to jurisdiction was raised at the appropriate stage, the award cannot be annulled on that ground.
• The Supreme Court distinguished Hindustan Zinc Ltd. vs. Ajmer Vidyut Vitran Nigam Ltd., (2019) 17 SCC 82*, stating that the Housing Commissioner had jurisdiction to act as an arbitrator, as the High Court had passed the order with consent.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Finality of the Arbitral Award: The court emphasized that the award passed by the Housing Commissioner had attained finality since it was not challenged by the contractor.
• Consent Order: The High Court’s order referring the dispute to the Housing Commissioner was a consent order, binding on both parties.
• Issue Estoppel: The principle of issue estoppel prevented the contractor from re-agitating the same claims in a fresh reference.
• Lack of Challenge: The contractor failed to challenge the Housing Commissioner’s award, which made it binding.
• Suppression of Facts: The contractor did not mention the earlier order of the High Court or the award of the Housing Commissioner in the subsequent reference petition.

The Court’s reasoning focused on upholding the sanctity of arbitral awards and the binding nature of consent orders. The Court also noted that the contractor had not raised any objections to the Housing Commissioner’s jurisdiction at the appropriate stage.

Fact:Law

The Court’s decision was influenced more by legal considerations (70%) than by factual aspects (30%). The legal principles of issue estoppel, finality of awards, and the binding nature of consent orders played a crucial role in the Court’s reasoning.

Logical Reasoning

Judgment

The Supreme Court held that the fresh reference petition filed by the contractor before the Madhya Pradesh Arbitration Tribunal was not maintainable. The Court emphasized that the earlier order passed by the High Court, referring the dispute to the Housing Commissioner, was a consent order. The award passed by the Housing Commissioner was not challenged by the contractor and had attained finality. The Court also noted that the claims made by the contractor before the Housing Commissioner, the High Court, and the Tribunal were the same. The principle of issue estoppel applied, and the contractor was bound by the earlier award. The Court stated that even if the order referring the dispute to the Housing Commissioner was wrong, it would still be binding until set aside by a competent court.

The Court observed that the contractor did not raise any objections to the jurisdiction of the Housing Commissioner at the appropriate stage. The Court set aside the High Court’s order and restored the order of the Arbitral Tribunal, which had dismissed the contractor’s reference petition as not maintainable.

The Court quoted the following from the judgment:

• “It was the respondent – contractor who approached the High Court by filing Writ Petition No.9131 of 2008 submitting that he has invoked the arbitration clause.”
• “The order passed by the High Court dated 20.08.2008 passed in Writ Petition No.9131 of 2008 referring the dispute between the parties to the Arbitrator – Housing Commissioner was a consent order.”
• “The claims submitted before the Arbitrator – Housing Commissioner; before the High Court in Writ Petition No.9131 of 2008; and the claim submitted in Reference Petition before the learned Arbitral Tribunal under the 1983 Act are the same without any change.”

There were no dissenting opinions in this case.

Key Takeaways

• A party cannot initiate a second arbitration for the same dispute if an earlier arbitral award exists and has attained finality.
• Consent orders passed by a court are binding on the parties unless set aside by a competent court.
• The principle of issue estoppel prevents a party from re-agitating the same claims in subsequent proceedings.
• Objections to jurisdiction must be raised at the appropriate stage of proceedings.
• Failure to challenge an arbitral award within the prescribed time limit can lead to the award attaining finality, making it binding on the parties.

Directions

The Supreme Court allowed the appeals, set aside the High Court’s judgment, and restored the order of the Arbitral Tribunal, which had dismissed the contractor’s reference petition as not maintainable.

Development of Law

The ratio decidendi of this case is that a fresh arbitration reference is not maintainable if a prior arbitration award exists for the same dispute, especially when the prior arbitration was initiated based on a consent order of the High Court and the award has attained finality. This decision reinforces the principles of finality in arbitration and the binding nature of consent orders, clarifying that parties cannot circumvent prior awards by initiating fresh proceedings for the same claims. There is no change in the previous position of law but rather a reiteration of settled principles.

Conclusion

The Supreme Court’s ruling in this case clarifies that once an arbitral award has been passed and has attained finality, a fresh reference for the same dispute is not maintainable. This decision underscores the importance of challenging awards within the prescribed time frame and respects the binding nature of consent orders. The ruling also highlights the principle of issue estoppel, preventing parties from re-litigating the same claims.