M/s Gayatri Project Limited v. Madhya Pradesh Road Development Corporation Limited

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(iv) Lastly, it observed that even otherwise, the conduct of the respondent therein of accepting the notice of invocation and commencing arbitration under the Act, 1996 on their own volition amounts to a waiver of their right to claim initiation of arbitration under the State Act. In such circumstances it was held that the respondent therein cannot be now permitted to approbate and reprobate a right it failed to exercise on it own, and that too in a manner which would defeat the entire object of arbitration. The relevant observations read as under: - “18. We are also of the view that in particular facts of the present case, the position is even more gross because when the appellant claimed arbitration, the respondent accepted invocation of arbitration, suggested a panel of arbitrators, the appellant chose one of the arbitrators out of the two suggested and the arbitrator was so appointed as the sole arbitrator. Thus, the arbitration proceedings commenced in pursuance to the acts of the respondent and it cannot be permitted to get away to say that the whole process was gone through because of some misconception or inappropriate legal advice. Arbitration by consent is always possible. The mode and manner of conduct of arbitration is possible and how those arbitration proceedings would be governed is also a matter of consent. If at all there were any rights of the respondent to have claimed arbitration under the 1983 Adhiniyam, that right was never exercised or waived. The respondent cannot be permitted to approbate and reprobate and that too in arbitration proceedings and that too in dispute or resolution through the method of arbitration defeating the very purpose of an alternative dispute resolution to arbitration as an expeditious remedy.” (Emphasis supplied)

24. In yet another decision of this Court in Modern Builders v. State of Madhya Pradesh & Anr. reported in (2024) 10 SCC 637, the appellant contractor therein had approached the M.P. State Arbitration Tribunal for initiation of arbitration in respect of certain disputes,

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however the reference was rejected by the State Tribunal in view of the law laid down by VA Tech (supra) that held field at that time. Accordingly, the appellant therein initiated arbitration under the Act, 1996, and consequently an award was passed. The aforesaid award came to be challenged, wherein the High Court under Section 37 of the Act, 1996 set-aside the award only on the ground that the arbitral tribunal had no jurisdiction in view of the MP Act, 1983. In appeal, this Court setting aside the order of the High Court, held that even though the objection based on applicability of the MP Act, 1983 had been raised by the respondent therein in its written statement filed before the arbitrator, nevertheless, in view of the fact that the respondents therein neither raised this objection when the Section 11 petition was filed by the appellant, nor did it take recourse of Section 16 of the Act, 1996 to challenge the jurisdiction of the arbitral tribunal, it would be unjust to set aside the award only on the ground of the failure of the appellant to take recourse to the MP Act, 1983. Furthermore, in light of the fact that the only reason the appellant took recourse to the Act, 1996 was because its earlier reference to the M.P. State Arbitration Tribunal had been rejected in terms of the decision of VA Tech (supra), this Court held that it is a fit case to exercise its jurisdiction under Article 142 of the Constitution and restore the award to ensure complete justice. The relevant observations read as under: - “6. A few factual aspects will have to be noted. After the contract granted to the appellant was rescinded, the appellant invoked Section 7 of the 1983 Act by approaching the Arbitration Tribunal. By the order dated 19-4-2010, the Arbitration Tribunal held that in view of the arbitration clause in the contract, the 1983 Act will have no application and the appellant will have to take recourse to the Arbitration Act. In view of this order, the appellant invoked the jurisdiction of the High Court under Section 11(6) of the Arbitration Act by filing a petition for the appointment of an arbitrator.

7. The order dated 22-7-2011 passed by the High Court on the said petition shows that the respondents’ opposition was only on the merits of the claim. The objection based on the applicability of the 1983 Act was not raised. The respondents did not challenge the order of appointment of the arbitrator passed by the High Court under Section 11(6)

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of the Arbitration Act. Even before the learned arbitrator, Section 16(1) of the Arbitration Act was not invoked to raise the jurisdiction issue. However, in the written statement filed before the arbitrator, the contention regarding the applicability of the 1983 Act was raised.

9. As noted earlier, in the facts of the case, before taking recourse to the Arbitration Act, the appellant had taken recourse to Section 7 of the 1983 Act. The order of the Arbitration Tribunal, holding that the Arbitration Act will apply, led the appellant to file a petition under Section 11(6) of the Arbitration Act, which was not objected to on the grounds of the applicability of the 1983 Act. The objection of the State Government was confined to the merits of the claim. The award is only in the sum of Rs 6,52,235 with interest. The award was made on 25-4-2014. Therefore, in the facts of the case, it will be unjust to set aside the award only on the ground of the failure of the appellant to take recourse to the 1983 Act. In fact, the appellant had taken recourse to the 1983 Act before seeking the appointment of an arbitrator.

10. In this case, as can be seen from the impugned judgment, the award has been set aside only on the ground that the appellant ought to have invoked the provisions of the 1983 Act. Even assuming that the observations in para 17 of the decision in M.P. Rural Road Development Authority, are not applicable, this is a fit case to exercise jurisdiction under Article 142 of the Constitution of India to ensure that complete justice is done. Therefore, by setting aside the impugned judgment, the appeal under Section 37 of the Arbitration Act will have to be restored with a request to the High Court to decide the same on merits. (Emphasis supplied)

25. What can be discerned from the above is that, this Court has consistently held that an exception has been carved out in L.G. Chaudhary (II) (supra) whereby 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.

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b. Whether a plea of lack of jurisdiction may be raised for the first time under Section 34 of the Act, 1996 if no such objection was taken before the arbitral tribunal?

26. The aforesaid may be looked at from one another angle, with a view to obviate the possibility of any confusion. The respondent herein placed much emphasis on the observations made in Lion Engineering (supra) to canvass that a plea of lack of jurisdiction being a question of law may be raised at any stage. Even where no such plea was raised at the time of filing of written submissions, the same can be validly raised for the first time in the proceedings under Section 34 of the Act, 1996, and the bar under Section 16 sub-section (2), would not come in the way.

27. Before adverting to the aforesaid submission, it would be apposite to first look into the interplay between Section(s) 16 and 34 of the Act, 1996, respectively. These two provisions, although distinct in form and function, yet are intrinsically linked in the broader scheme of the Act, insofar as the stage at which issues pertaining to the jurisdiction of the arbitral tribunal may be validly raised.

28. In Union of India v. Pam Development (P) Ltd. reported in (2014) 11 SCC 366 this Court held that where a party does not raise a plea of jurisdiction before the arbitral tribunal, then such a plea is deemed to have been waived in view of the provisions contained in Section 4 read with Section 16 of the Arbitration Act, 1996, and in consequence cannot be raised for the first time in the proceedings under Section 34. The relevant observations read as under: - “16. As noticed above, the appellant not only filed the statement of defence but also raised a counterclaim against the respondent. Since the appellant has not raised the objection with regard to the competence/jurisdiction of the Arbitral Tribunal before the learned arbitrator, the same is deemed to have been waived in view of the provisions contained in Section 4 read with Section 16 of the Arbitration Act, 1996.

17. Section 16 of the Arbitration Act, 1996 provides that the Arbitral Tribunal may rule on its own jurisdiction. Section 16 clearly recognises the principle of kompetenz-kompetenz. Section 16(2) mandates that a plea that the Arbitral Tribunal

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does not have jurisdiction shall be raised not later than the submission of the statement of defence. Section 4 provides that a party who knows that any requirement under the arbitration agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay shall be deemed to have waived his right to so object.

8. In our opinion, the High Court has correctly come to the conclusion that the appellant having failed to raise the plea of jurisdiction before the Arbitral Tribunal cannot be permitted to raise for the first time in the Court. [...] (Emphasis supplied)

29. In Gas Authority of India Ltd. v. Keti Construction (I) Ltd. reported in (2007) 5 SCC 38 this Court held that where a party does not raise a plea of lack of jurisdiction before the arbitral tribunal, he must make out a strong case why he did not do so if he chooses to move a petition for setting aside the award under Section 34 of the Act, 1996 on such ground. The relevant observations read as under: - “25. Where a party has received notice and he does not raise a plea of lack of jurisdiction before the Arbitral Tribunal, he must make out a strong case why he did not do so if he chooses to move a petition for setting aside the award under Section 34(2)(a)(v) of the Act on the ground that the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties. If plea of jurisdiction is not taken before the arbitrator as provided in Section 16 of the Act, such a plea cannot be permitted to be raised in proceedings under Section 34 of the Act for setting aside the award, unless good reasons are shown.” (Emphasis supplied)

30. A similar view was reiterated in AC Chokshi Share Broker (P) Ltd. v. Jatin Pratap Desai reported in (2025) SCC OnLine SC 281 wherein it was held that when the jurisdictional issue has not been raised in accordance with Section 16 of the Act, 1996, it is deemed that the objecting party has waived his right, in terms of Section 4, and the

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same cannot be raised at a later stage such as under Section 34 or 37 of the Act. The relevant observations read as under: - “20. The High Court in the impugned order relied on this rationale of a “private” transaction to hold that the arbitral tribunal lacked inherent jurisdiction to decide the claim against respondent no. 1, and such a jurisdictional plea could be raised at any stage even if it was not raised before the arbitral tribunal. From the above reasons, it is clear that there is no inherent lack of jurisdiction. Consequently, any issue regarding the scope of Bye-law 248(a) ought to have been raised in accordance with Section 16 of the Act, i.e. during the arbitration, not later than the submission of statement of defence. Neither respondent has, in their statements of defence or Section 34 petitions, raised an objection to the arbitral tribunal›s jurisdiction in clear terms beyond stating that there is a misjoinder of parties as they are not jointly and severally liable. A clear jurisdictional issue was only raised at the Section 37 appeal stage, as has also been noted by the High Court in the impugned order.

21. This Court has held, in several judgments, that when the jurisdictional issue has not been raised in accordance with Section 16, it is deemed that the objecting party has waived his right, in terms of Section 4 of the Act to raise the same at a later stage. Such objection cannot be raised for the first time when the party is challenging the award under Section 34. Here, respondent no. 1 not only filed his statement of defence and participated in the arbitral proceedings but also filed a counter-claim, thereby submitting to the arbitral tribunal’s jurisdiction. Hence, any jurisdictional objection must be rejected on this ground as well.” (Emphasis supplied)

31. The fallacy of the aforesaid argument of the respondent herein lies in the very fact, that it has misconstrued the observations of this Court in Lion Engineering (supra) by ignoring the very settled position of law as regards the interplay between Section(s) 16 and 34 of the Act, 1996, respectively.

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32. The observations made by this Court in Lion Engineering (supra) that “We do not see any bar to plea of jurisdiction being raised by way of an objection under Section 34 of the Act even if no such objection was raised under Section 16” cannot be singled out and construed devoid of its context. The aforesaid observations have to be construed in light of the settled position of law by a catena of decisions of this Court. The decision of this Court in Pam Development (supra) has held that where a plea of lack of jurisdiction is not raised before the arbitral tribunal, such a plea cannot be raised later in the proceedings under Section 34. Pam Development (supra) says this, not because such a plea is barred from being raised only by virtue of Section 16 sub-section (2), but rather says this, because such a plea is deemed to have been waived on account of the failure of the party in raising such a plea. Thus, Pam Development (supra) in no manner lays down that a plea of lack of jurisdiction cannot be raised in the proceedings under Section 34 due to the bar of Section 16 sub- section (2) of the Act, 1996, and thus to this extent both the decisions of Pam Development (supra) and Lion Engineering (supra) are in tune with each other. The variance between the decisions of Pam Development (supra) and Lion Engineering (supra) is only in respect of whether a failure to raise such a plea at the relevant stage in terms of Section 16 sub-section (2) of the Act, 1996 would amount to a ‘waiver’ or not, and this issue was never examined or looked into by Lion Engineering (supra).

33. On the contrary Lion Engineering (supra) specifically observed in para 9 that “It will be open for the respondents to argue that its objection that the Act stands excluded by the M.P. Madhyastham Adhikaran Adhiniyam, 1983 could be raised even without a formal pleading, being purely a legal plea. It will also be open to the appellant to argue to the contrary. We leave the question to be gone into by the court concerned.” The observations that it will be open for the respondents therein to argue that such an object could be raised even without a formal pleading AND that it will be open for the appellants therein to argue the contrary, clearly shows that the very issue of whether such a plea can be allowed to be raised or not i.e., issues such as whether it is a purely legal plea or whether there was any waiver or not etc. were never decided by this Court in Lion Engineering (supra) and rather was left to be gone into by the court under Section 34 of the Act, 1996. The aforesaid observations clearly show, that although

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such a plea may be raised for the first time in the proceedings under Section 34 of the Act, 1996, it may still nevertheless be rejected if it is found that such a plea is not purely a question of law or that the party raising the plea had waived it in terms of Pam Development (supra). Whereas Gas Authority of India (supra) goes one step ahead of Pam Development (supra) and lays down that where a party makes out a strong and good reason for its failure to take a plea of lack of jurisdiction before the arbitral tribunal, then there would be no deemed waiver of such a plea, and the same may then be looked into by the courts under Section 34 of the Act, 1996.

34. Thus, insofar as the manner in which the question of whether a plea of lack of jurisdiction being raised for the first time under Section 34 of the Act, 1996 has to be decided, the decision of this Court in Pam Development (supra) and Gas Authority of India (supra) would be applicable, as Lion Engineering (supra) only decided the limited issue of whether the bar under Section 16 sub-section (2) would preclude raising of such a plea i.e., whether such a plea is maintainable or not, and never decided or laid down when the courts would entertain such a plea. It is in this aforesaid context that the observations of this Court in L.G. Chaudhary (II) (supra), more particularly at para 17 that “We do not express any opinion on the applicability of the State Act where award has already been made. In such cases if no objection to the jurisdiction of the arbitration was taken at relevant stage, the award may not be annulled only on that ground” assumes significance. What has been conveyed, in so many words, by this Court in L.G. Chaudhary (II) (supra) is that any failure to raise the issue of applicability of the MP Act, 1983 before the arbitral tribunal is not a strong and good reason in terms of Gas Authority of India (supra) to permit raising such a plea in the proceedings under Section 34 of the Act, 1996.

35. Thus, what can be discerned from the aforesaid is that 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

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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.

D. CONCLUSION

36. 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.

37. L.G. Chaudhary (II) (supra) carved out the aforesaid limited exception to the general rule laid down in Lion Engineering (supra) that a plea of lack of jurisdiction, being a pure question of law, may be raised for the first time under Section 34 of the Act, 1996. The failure of L.G. Chaudhary (II) (supra) to take into consideration the decision of this Court in Lion Engineering (supra) does not render the former per incuriam, as there exists no direct conflict between the two. While Lion Engineering (supra) permits a jurisdictional plea to be raised under Section 34 of the Act, 1996 even if not urged under Section 16, L.G. Chaudhary (II) (supra) merely clarifies that an arbitral award will not be annulled solely on that ground, particularly where the issue was not raised before the tribunal. On the contrary, the aforesaid observations of L.G. Chaudhary (II) (supra) had been consciously made by this Court keeping in mind the ratio of Lion Engineering (supra), even though the latter was never explicitly referred to. L.G. Chaudhary (II) (supra) cannot be termed to be per incuriam, as the very factum that the aforesaid observations were made by L.G. Chaudhary (II) (supra) in paras 16, 17 and 19 respectively shows that this Court was well aware of the decision of this Court in Lion Engineering (supra), and accordingly chose to carve out an exception to the ratio of Lion Engineering (supra) keeping in mind the cleavage of judicial view that was prevailing earlier.

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38. In view of the above exposition of law, what has been conveyed by this Court in L.G. Chaudhary (II) (supra) in so many words is that: - 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. The parties will also be at liberty to approach the High Court by way of a petition under Article 227 of the Constitution for seeking a transfer of the arbitration proceedings to the M.P. State Arbitration Tribunal under the 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. Furthermore, in such scenarios since the arbitration proceedings have already commenced and made substantial progress, it would not be appropriate to transfer such proceedings to the M.P. State Arbitration Tribunal under the MP Act, 1983, and the better course of action would be to let the arbitration proceedings conclude. iii. As per L.G. Chaudhary (II) (supra) 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.

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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 in view of the position of law that was prevailing prior to L.G. Chaudhary (II) (supra) i.e., such challenge to the jurisdiction was decided prior to the date of pronouncement of L.G. Chaudhary (II) (supra), then even in such cases, as per the decision of this Court in Modern Builders (supra), the award should not be disturbed or set-aside only on the ground of lack of jurisdiction.

39. In the present case at hand, we take note of the following circumstances emerging from the facts on record: - a. It is an admitted fact that at the time of constitution of the arbitral tribunal, the respondent never objected to the invocation of arbitration under the Act, 1996 and both the parties proceeded to nominated their respective co-arbitrators. b. On the date of invocation of the Act, 1996, and commencement of arbitration proceedings, as well as of the date when the arbitration proceeding concluded and the award in question passed, the erstwhile decision of this Court in VA Tech (supra) held the field. c. The respondent herein never raised any objection to the arbitral tribunal’s lack of jurisdiction during the arbitration proceedings either in its statement of defence or by way of an application under Section 16 of the Act, 1996. d. Even when the award was challenged by the respondents, the initial petition filed by them under Section 34 of the Act, 1996 also did not contain any objection as regards the lack of jurisdiction of the arbitral tribunal. e. The ground of lack of jurisdiction was introduced by the respondents herein only after the decision of L.G. Chaudhary (II) (supra) by way of an application for amending the grounds of its petition under Section 34 of the Act, 1996, i.e., after the award had been passed.

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40. Thus, the present case is squarely covered by the decision of this Court in L.G. Chaudhary (II) (supra), more particularly the observations made in paras 6 to 9 thereunder, and as such 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.

41. For all the foregoing reasons, we have reached the conclusion that the High Court committed an egregious error in passing the impugned judgment. We are left with no other option but to set aside the impugned judgment and order passed by the High Court, and restore the proceedings in Arbitration Case No. 48 of 2011 to the court of Commercial Court and 19th Upper District Judge, Bhopal (M.P.), for deciding all other issues on merit that may have been raised by the respondent in its petition under Section 34 of the Act,

1996. We accordingly pass such order. Thus, the appeal is disposed of in the above terms.

42. Pending application(s) if any, also stand disposed of.

43. We direct the Registry to circulate a copy of this judgment to all High Courts. Result of the case: Appeal disposed of.

ukund P. Unny, Hony. Associate Editor (Verified by: Liz Mathew, Sr. Adv.)