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Municipal Corporation, Gwalior And Others v. M/S. A.P.S Kushwaha (S.S I Unit)
Structured Summary of the Opinion (A.K. Shrivastava, J.)
Factual and Procedural Background
The Municipal Corporation of Gwalior installed pumps to supply water and, on 1-5-2002, entered into a written work contract with the respondent for maintaining and repairing the motor pumps and starters. The appellants allege the respondent did not perform as per the agreement and submitted bills contrary to the contract terms, leading to non-payment.
The respondent filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 before this Court (registered as MCC No. 685/2006) without disclosing that an Arbitration Tribunal had already been constituted under Section 3 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the "Adhiniyam of 1983"), which is applicable to the parties and excludes the provisions of the Act of 1996.
This Court appointed a sole arbitrator under Section 11(6) of the Act of 1996. The arbitrator overruled a jurisdictional objection on 30-9-2007 and, ultimately, passed a final award dated 30-1-2008 directing appellants to pay Rs. 76,64,725/- with 9% interest and costs.
The appellants filed an application under Section 34 of the Act of 1996 to set aside the award inter alia on the ground that the arbitrator lacked jurisdiction because the Adhiniyam of 1983 applied. The learned Court below rejected the jurisdictional objection by order dated 9-2-2009 and subsequently dismissed a review application on 17-7-2009. The appellants preferred the present appeal under Section 37 of the Act of 1996 against those orders. The Single Judge declined to hear the appeal on account of pecuniary jurisdiction, placing the matter before the Division Bench.
Legal Issues Presented
- Whether the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 is applicable to the parties and the contract in dispute, thereby excluding the applicability of Part I of the Arbitration and Conciliation Act, 1996.
- Whether the appointment of a sole arbitrator under Section 11(6) of the Act of 1996 and the award passed by that arbitrator are nullities for want of jurisdiction if the Adhiniyam of 1983 applies.
- Whether objections to the arbitrator's jurisdiction could properly be raised at the stage at which the appellants raised them, and whether procedural provisions of the Act of 1996 (such as Section 16(2)) bar raising such objections later.
- Whether a challenge to the appointment of the sole arbitrator made under Section 11 can only be entertained by the Supreme Court.
Arguments of the Parties
Appellants' Arguments (as presented in the opinion)
- The Adhiniyam of 1983 applies to disputes arising from the work contract between the Municipal Corporation and the contractor; hence the Act of 1996 (Section 11) is inapplicable and the appointment of a sole arbitrator under Section 11(6) was without jurisdiction.
- The respondent failed to disclose the existence of the tribunal constituted under the Adhiniyam when filing before this Court; therefore the appointment, the order dated 30-9-2007 overruling the jurisdictional objection, and the final award dated 30-1-2008 are nullities.
- An order or award that is a nullity for want of jurisdiction can be challenged anywhere and at any time, including in execution or in proceedings for setting aside.
- Relied upon earlier Full Bench and other decisions of the High Court and the Supreme Court (specific citations provided in the opinion) to support the position that the Adhiniyam governs such disputes and that consent to appointment under the Act of 1996 does not cure lack of jurisdiction.
Respondent's Arguments (as presented in the opinion)
- The appointment of the sole arbitrator under Section 11 of the Act of 1996 by the Chief Justice's nominee was valid and appellants had consented to the appointment; appellants cannot now disavow that consent.
- Under Section 16(2) of the Act of 1996, objections to jurisdiction should have been raised before submitting the statement of defence; having failed to do so, appellants cannot raise the objection later.
- Challenges to the appointment under Section 11 can only be made before the Supreme Court; because the appointment was not challenged in the Supreme Court, the arbitrator's jurisdiction cannot be attacked in proceedings under Section 34.
- Relied on several Supreme Court and High Court decisions (explicitly cited in the opinion) to support the above contentions and argued that provisions of the Act of 1996 (Sections 4 and 5) preclude relying on the Adhiniyam at this stage.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court in this Opinion |
|---|---|---|
| Shri Shankarnarayana Construction Company Vs. State of M.P. and others, 2007(4) M.P.H.T. 444 = 2008 (I) MPJR 20 (Full Bench) | Support for proposition that the Adhiniyam of 1983 is not repugnant to the Act of 1996 and that the Adhiniyam's provisions are saved and applicable. | The Court relied on this Full Bench decision to support the conclusion that the Adhiniyam remains operative and its provisions must be given effect; it reinforced the finding that the Act of 1996 cannot be applied where the Adhiniyam applies. |
| Administrator, Municipal Corporation, Durg & others Vs. M/s. Jainco Designers and Executors, Durg, AIR 1991 MP 233 (Full Bench) | Held that disputes between Administrator and Contractor for municipal works fall under Section 2(1)(g) of the Adhiniyam of 1983. | The Court cited this decision to show that municipal contracts fall within the Adhiniyam's ambit, supporting the conclusion that the Adhiniyam applies to the present dispute. |
| M/s. Spedra Engineering Corporation Engineers & Contractors, Bhopal Vs. State of Madhya Pradesh, AIR 1988 MP 111 (Division Bench) | Examined Adhiniyam of 1983 versus the Arbitration Act, 1940; held Adhiniyam provisions applicable. | The Court relied on this Division Bench authority to bolster the view that the Adhiniyam applies notwithstanding prior central legislation (Arbitration Act, 1940). |
| Mahindra & Mahindra Ltd. Vs. M/s. Kishan Tractors, 1998 (2) JLJ 57 (Single Bench) | Principle that consent to appointment of arbitrator under a statute may not cure an arbitrator's lack of jurisdiction. | The appellants relied on this decision; the Court referenced the principle in evaluating whether consent could cure the alleged jurisdictional defect. |
| M/s. R.S. Bajwa & Company Vs. State of Chhattisgarh & others, 2008(4) M.P.H.T. 105 (Chhattisgarh High Court) | Authority cited by appellants on related jurisdictional issues under statutory arbitration schemes. | Referenced by appellants; the present Court noted it among authorities supporting the appellants' position that statutory arbitration under the Adhiniyam governs. |
| A. Jithendernath Vs. Jubilee Hills Co-op. House Building Society & another, (2006) 10 SCC 96 (Supreme Court) | Ratio bearing on setting aside awards for want of jurisdiction (relied upon by the Court). | The Court placed reliance on the ratio decidendi of this Supreme Court decision to support the proposition that an award without jurisdiction can be set aside. |
| Gas Authority of India Ltd. & another Vs. Keti Construction (I) Ltd. & others, (2007) 5 SCC 38 (Supreme Court) | Principle regarding raising jurisdictional objections in a timely manner under Section 16(2) of the Act of 1996 (that objection should be raised before statement of defence). | The respondent relied on this decision to argue that the appellants waived their objection by not raising it earlier; the Court considered but found it inapplicable in view of the applicability of the Adhiniyam. |
| SBP & Co. Vs. Patel Engineering Ltd. & another, (2005) 8 SCC 618 (Constitution Bench) | Authority relied upon for the proposition that appointment of arbitrators under Section 11 may be challenged only before the Supreme Court. | The respondent relied on SBP & Co.; the Court observed the contention but proceeded to decide jurisdiction on the basis that the Adhiniyam applied, rendering that line of reasoning inapplicable here. |
| Niraj Kumar Bohra Vs. Union of India, 2009 Arb.W.LJ. 261 (Calcutta High Court) | Cited by respondent as supportive precedent regarding the scope of the Act of 1996 and challenges to appointment/jurisdiction. | Referenced by respondent; the Court noted it among authorities relied on by respondent but did not find it determinative in light of the Adhiniyam's applicability. |
Court's Reasoning and Analysis
The Court's analysis proceeded by first asking whether the Adhiniyam of 1983 applies to the parties and the contract. The Court examined the interplay between the Adhiniyam and the Act of 1996, specifically referring to Section 2(3), (4) and (5) of the Act of 1996 which, according to the Court's reading, preserves the operation of statutes like the Adhiniyam where they apply to statutory arbitrations arising out of work contracts between the State (or State undertakings) and contractors.
The Court noted that the State Legislature was competent to enact the Adhiniyam of 1983 even though the central Arbitration Act, 1940 already existed when the Adhiniyam was enacted, and that the Adhiniyam had received the President's assent under clause (2) of Article 254 of the Constitution. The Act of 1996 itself, in the Court's reading, saved the Adhiniyam's provisions in Section 2(4)–(5) where inconsistent.
The Court then examined statutory material and the Notification No. 17 (E) 85-96-XXI-B (II) dated 4-11-1996 which specified that agreements for construction, repair or maintenance of water supply systems constitute "work contract" under Section 2(1)(i) of the Adhiniyam. The definition of "Public Undertaking" in Section 2(1)(g) of the Adhiniyam was read to include corporations or statutory bodies "wholly or substantially owned or controlled by the State Government," and the Court concluded that the term "Corporation" would include a Municipal Corporation. Because the relevant work contract was dated 1-5-2002 (after the notification), the Court held the Adhiniyam applied to the contract.
Given that conclusion, the Court determined that the appointment of a sole arbitrator under the Act of 1996 and the award made by that arbitrator were without jurisdiction. The Court held that an order or award that is without jurisdiction is a nullity and can be set aside at any time. The Court therefore found that the learned Court below erred in rejecting the appellants' jurisdictional objection.
The Court considered the respondent's arguments based on provisions of the Act of 1996 (including Sections 4, 5, 11, 16(2)) and the authorities cited in support, but found these authorities and statutory provisions inapplicable to the present factual scenario because the Adhiniyam of 1983 operates in the field and had not been displaced by the Act of 1996. The Court expressly distinguished the respondent's cited decisions on the ground that those cases did not involve a statutory scheme like the Adhiniyam of 1983 that was saved by the Act of 1996.
Holding and Implications
Holding: The appeal is allowed. The Court set aside the impugned order dated 9-2-2009 (which had overruled the appellants' jurisdictional objection), the order dated 17-7-2009 (dismissing the review), and the arbitral award dated 30-1-2008 is held to be without jurisdiction and is set aside.
Implications and direct consequences:
- The award made by the sole arbitrator appointed under the Act of 1996 cannot stand because the Adhiniyam of 1983 applies to the parties and the subject contract.
- The appellants' jurisdictional objection was rightly sustainable and the learned Court below erred in rejecting it.
- The Court directed that, if advised, the parties may seek remedy before the Tribunal constituted under the Adhiniyam of 1983.
- The Court ordered that parties shall bear their own costs.
The opinion does not purport to announce a new, standalone principle beyond its application of the Adhiniyam to the present facts; it relies on and applies existing precedents and statutory constructions described above to reach the outcome.
A.K. Shrivastava, J. :— This appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (in short 'the Act of 1996') has been preferred against the orders dated 9-2-2009 and 17-7-2009 passed by the learned Sixth Additional District Judge, Gwalior, in M.J.C. No. 29/2008 by which the application for setting aside the award on the ground of want of jurisdiction and application for review have been rejected. 2. The facts in brief are that for the purpose of supplying water to the general public of Gwalior City, the Municipal Corporation installed several pumps. The work contract was given to the respondent on 1-5-2002 for maintaining and repairing the motor pumps and starter for supply of water from the pumps. According to the appellants, respondent did not execute the work as per the agreement and submitted bills against the terms of agreement, hence, payment was not made to him. Resultantly, respondent filed an application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 before this Court without disclosing the material fact that Arbitration Tribunal had already been constituted under Section 3 of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (in short 'the Adhiniyam of 1983'), which is applicable to the parties, for resolving the disputes arising out of work contract and which excludes the provisions of the Act of 1996. The application was registered as MCC No. 685/2006. 3. This Court while deciding the application under Section 11 (6) of the Act of 1996 appointed sole arbitrator and referred the matter to it. An objection was raised before the Arbitral Tribunal to the effect that since Arbitration Tribunal constituted under the Adhiniyam of 1983 is in existence, therefore, the matter which has been referred to Arbitral Tribunal presided by the sole arbitrator appointed under the Act of 1996 has no jurisdiction. However, this objection was turned down by the arbitrator vide its order dated 30-9-2007, which has been placed on record as Annexure 'A' and ultimately the sole arbitrator passed a final award directing the appellants to pay a sum of Rs. 76,64,725/- to the respondent with interest at the rate of 9% per annum from the date of passing of the award till its payment. The learned arbitrator also awarded costs to be paid to the respondent. 4. The appellants, in order to set aside the award dated 30-1-2008 passed by the learned Arbitral Tribunal presided by sole arbitrator, filed an application to set aside the arbitral award under Section 34 of the Act of 1996, inter alia on the ground that arbitrator had no jurisdiction to entertain the matter in view of the existence of Adhiniyam of 1983. A copy of the application has been placed on record as Annexure 'B'. The learned Court below rejected the objection of jurisdiction raised by the appellants. Thereafter, a review application was also submitted which was also dismissed on 17-7-2009. 5. This appeal was placed and listed before the learned Single Judge, however, learned Single Judge was of the view that because the value of the appeal exceeds the pecuniary jurisdiction of Rs. 25,00,000/-, therefore, it would lay only before the Division Bench, and hence, learned Single Judge held that it had no jurisdiction to hear the appeal. The learned Single Judge has placed reliance on Rule 2 of Chapter IV of the High Court of Madhya Pradesh Rules, 2008. Accordingly, the matter has been placed before us. 6. It has been vehemently contended by Shri H.D. Gupta, learned Senior Advocate for the appellants, that since the Adhiniyam of 1983 is applicable on the parties, therefore, the provision of Section 11 of the Act of 1996 is not applicable and, therefore, the appointment of the sole arbitrator by exercising powers conferred on the Chief Justice or his nominee under Section 11 (6) of the Act of 1966 as well as order dated 30-9-2007 overruling the objection of inherent lack of jurisdiction of the sole arbitrator as well as its final award dated 30-1-2008 is nullity and without jurisdiction. According to learned Senior Counsel, if an order is nullity and is without jurisdiction, it can be challenged anywhere and wherever it is enforced to be executed and hence according to learned Senior Counsel since the specific remedy under the special statute namely the Adhiniyam of 1983 is applicable to the parties, learned Court below illegally rejected the objection of appellants challenging the jurisdiction of the arbitrator in passing the award. In support of his contention, learned Senior Counsel has placed heavy reliance on the Full Bench decision of this Court in Shri Shankarnarayana Construction Company Vs. State of M.P. and others, 2007(4) M.P.H.T. 444 (FB) = 2008 (I) MPJR 20. Learned Senior Counsel has also placed reliance on another Full Bench decision of this Court in Administrator, Municipal Corporation, Durg and others Vs. Mis. Jainco Designers and Executors, Durg, AIR 1991 MP 233. Learned Counsel has further placed reliance on Division Bench decision of this Court in M/s. Spedra Engineering Corporation Engineers and Contractors, Bhopal Vs. State of Madhya Pradesh, AIR 1988 MP 111. By placing reliance on the Single Bench decision of this Court inMahindra andMahindra Ltd. (Mis.) Vs. M/s. Kishan Tractors, 1998 (2) JLJ 57, it has been contended that even if the appellants have given consent to appoint sole arbitrator under the Act of 1996, the sole arbitrator cannot assume its jurisdiction on that ground. Learned Senior Counsel has also placed reliance on Single Bench decision of Chhattisgarh High Court in M/s. R.S. Bajwa & Company Vs. State of Chhattisgarh and others, 2008(4) M.P.H.T. 105 (CG) and also on the decision of Supreme Court in A. Jithendernath Vs. Jubilee Hills Co-op. House Building Society and another, (2006) 10 SCC 96. On these premised submissions, it has been argued by learned Senior Counsel that by allowing this appeal the order of the Court below overruling the objection of appellants of inherent lack of jurisdiction of sole arbitrator be set aside as well as final award dated 30-1-2008 passed by the sole arbitrator be also set aside being without jurisdiction and nullity by also rejecting the order dated 30-9-2007, by which the objection in respect to inherent lack of jurisdiction raised by the appellants was rejected by the sole arbitrator. 7. Combating the aforesaid submissions of learned Senior Counsel for the appellants, Shri V.K. Bhardwaj, learned Senior Counsel for the respondent, submitted that validly the appointment of sole arbitrator was made by the nominee of the Chief Justice under Section 11 of the Act of 1996 and the consent was also given by the appellants to appoint the sole arbitrator, and therefore, now somersault stand cannot be permitted to be raised. By placing reliance on Section 16 (2) of the Act of 1996, it has been contended by learned Senior Counsel that if the sole arbitrator was not having jurisdiction, this objection ought to have been raised before entering into the submission of statement of defence and since before entering into the defence, the appellants have not raised the objection in that regard, hence, such an objection cannot be raised by them at a later stage before the arbitrator. In support of his contention, learned Senior Counsel has placed heavy reliance on the decision of Supreme Court in Gas Authority of India Ltd. and another Vs. Keti Construction (I) Ltd. and others, (2007) 5 SCC 38. Further, it has been contended by learned Senior Counsel that the appointment of the sole arbitrator by the Chief Justice or his designate while functioning under Section 11 of the Act of 1996 can only be challenged before the Supreme Court. Since the appointment of the sole arbitrator has not been challenged before the Apex Court, the jurisdiction of the sole arbitrator cannot be questioned in the proceedings under Section 34 of the Act of 1996. To bolster his submission, learned Senior Counsel has placed heavy reliance on the decision of Constitution Bench of Supreme Court in SBP& Co. Vs. Patel Engineering Ltd. and another, 2006(1) M.P.H.T. 61 (SC) = (2005) 8 SCC 618, and also on the decision of Calcutta High Court mNiraj Kumar Bohra Vs. Union of India, 2009 Arb.W.LJ. 261 (Cal). By putting emphasis on Sections 4 and 5 of the Act of 1996, it has been argued by learned Senior Counsel that in the light of these provisions, the question of validity of jurisdiction of the arbitrator now cannot be taken into consideration. 8. Having heard the learned Counsel for the parties, we are of the considered view that this appeal deserves to be allowed. 9. In order to take out the grain from its chaff, it is to be ascertained as to whether the Adhiniyam of 1983 is applicable on the parties or not. If this Court comes to the conclusion that the provisions of Adhiniyam of 1983 are applicable, then only the contention of learned Senior Counsel for the respondent can be taken into consideration on its own merit based on various provisions of the Act of 1996 and the decisions placed reliance by him. The Act of 1996 too is also very specific on this proposition. If we go through Section 2 (3), (4) and (5) of the Act of 1996, we find that since the Adhiniyam of 1983 is applicable to the parties, therefore, the Act of 1996 cannot be made applicable. Because, the State Legislature was competent to make a law (Adhiniyam of 1983) although the Arbitration Act, 1940 enacted by the Central Legislature was already in existence when the Adhiniyam of 1983 was enacted by the State Legislature. The said Adhiniyam of 1983 had received the assent of the President, as provided in clause (2) of Art. 254 of the Constitution. According to this provision of the Constitution, Parliament was competent to make the Act of 1996 in the same field, but while making the Act of 1996, has expressly saved the provisions of the Adhiniyam of 1983 in sub- sections (4) and (5) of Section 2 of the Act of 1996 which speaks of statutory arbitrations in respect of disputes arising out of work contracts between the State Government or a State Government Undertaking and the contractor from the provisions of Part I of the Act of 1996 which are inconsistent with the provisions of the Adhiniyam of 1983. Therefore, the Adhiniyam of 1983 is not repugnant to the Act of 1996 or for no rhyme or reason it can be said that the same is impliedly repealed by the Act of 1996. Our view is supported by the Full Bench decision of this Court in the case ofShri Shankarnamyana Construction Company (supra), (See Para 24 of the said decision). 10. In another Full Bench decision of this Court Administrator, Municipal Corporation, Durg and others (supra), it has been held that any dispute between the Administrator and Contractor in execution of the work of Municipal Corporation would come under the ambit and sweep of Section 2(1) (g) of the Adhiniyam of 1983 since the Administrator is a statutory body controlled by the State Government. The Division Bench of this Court in M/s. Spedra Engineering Corporation Engineers and Contractors, Bhopal (supra), also examined the provisions of Adhiniyam of 1983 vis-a-vis the provisions of the Arbitration Act, 1940, which was in force before the commencement of the Act of 1996 and it was held by the Division Bench that the provisions of Adhiniyam of 1983 would be applicable. 11. Thus, according to us, the award of Arbitral Tribunal presided by sole arbitrator appointed under the Act of 1996 is without jurisdiction. Needless to say, if the order or award is without jurisdiction, its validity can be set up at any moment of time. According to us, the learned Court below erred in rejecting the objection of inherent lack of jurisdiction raised by the appellants. 12. We do not find any substance in the contention of learned Counsel for the respondent that the notification under the Adhiniyam of 1983 speaks about the disputes of agreement pertaining to the State Government only, and therefore, the provisions of Adhiniyam of 1983 are not applicable because in the present case the dispute is between the Municipal Corporation and the contractor/respondent. In this regard, we think it appropriate to quote the Notification No. 17 (E) 85-96-XXI-B (II), which reads thus :- "(ii) Notfn. No. 17 (E) 85-96-XXI-B (II), dated 4-11-1996.— In exercise of the powers conferred by clause (1) of sub-section (1) of Section 2 of the Madhya Pradesh Madhyasthajn Adhikaran Adhiniyam, 1983 (No. 29 of 1983), the State Government hereby specifies that the agreements in writing for the execution of the work relating to construction, repair or maintenance of electric lines, water supply and sewerage/drainage system shall also be "work contract". The term 'work contract' has been explained under Section 2(1) (i) of the Adhiniyam of 1983 which speaks as under:— "2. (1) (i) "works contract" means an agreement in writing for the execution of any work relating to construction, repair or maintenance of any building or superstructure, dam, weir, canal, reservoir, tank, lake, road, well, bridge, culvert, factory, work-shop, powerhouse, transformers or such other works of the State Government or Public Undertaking as the State Government may by notification, specify in this behalf at any of its stages, entered into by the State Government or by an official of the State Government or Public Undertaking or its official for and on behalf of such Public Undertaking and includes an agreement for the supply of goods or material and all other matters relating to the execution of any of the said works". The term "Public Undertaking" has also been defined under Section 2(1) (g) of the Adhiniyam of 1983, which reads thus :— "2. (1) (g) "Public Undertaking" means a Government Company within the meaning of Section 617 of the Companies Act, 1956 (No. 1 of 1956) and includes a Corporation or other statutory body by whatever name called in each case, wholly or substantially owned or controlled by the State Government." 13. On going through the abovesaid provisions conjointly and by keeping them in juxtaposition since the term 'Corporation' would include Municipal Corporation also, hence, we have no scintilla of doubt that the provisions of Adhiniyam of 1983 would be applicable. Admittedly, the work contract is dated 1-5-2002, viz., much after the enforcement of the Notification No. 17 (E) 85-96-XXI-B (II), dated 4-11-1996. Therefore, full effect to above said notification is to be given according to its true spirit. 14. Since the sole arbitrator appointed under the Act of 1996 was having inherent lack of jurisdiction to decide the arbitral dispute, according t us, award passed by it, cannot be allowed to remain stand. In this context, we ma place reliance on the ratio decidendi of Apex Court in the decision of A Jithendernath (supra). 15. The decisions placed reliance by learned Senior Counsel for th respondent are not applicable in the present factual scenario for the simpl reason that in those decisions the similar provision of the enactment of th Adhiniyam of 1983 was not there, and therefore, according to us, the variou provisions of the Act of 1996 placed reliance by learned Senior Counsel for th respondent are not applicable in the present case. 16. For the reasons stated hereinabove, we hereby allow this appez and set aside the impugned order dated 9-2-2009 passed by learned Court belo overruling the objection of the appellants that Arbitral Tribunal presided by th sole arbitrator was not having jurisdiction over the matter as well as order date 17-7-2009 rejecting the review application of the appellants and we hereby holi that the arbitral award dated 30-1-2008 passed by the sole arbitrator is withou jurisdiction and the same is hereby set aside. However, if parties are so advisee they may seek the remedy before the Tribunal constituted under the Adhiniyar of 1983. 17. Looking to the facts and circumstances of the case, parties an directed to bear their own costs. _____________
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