The Madhya Pradesh High Court has delivered a significant ruling clarifying the exclusive jurisdiction of the Supreme Court to appoint arbitrators in international commercial arbitrations. The court set aside an arbitral award on the ground that the arbitrator was appointed by the High Court, a procedural flaw that constitutes an inherent lack of jurisdiction, rendering the entire arbitral process a nullity. This decision reinforces the non-derogable nature of Section 11(6) of the Arbitration and Conciliation Act, 1996, and has profound implications for parties engaging in cross-border disputes seated in India.
Background & Facts
The Dispute
The dispute arose from a consultancy contract executed between the State of Madhya Pradesh, through its Water Resources Department (WRD), and M/s SMEC International Pty. Ltd., an Australian company incorporated in Cooma, Australia. The contract, dated 28.03.2007, was for developing Capacity Building for Water User Associations in five river basins of Madhya Pradesh, financed by the World Bank. The total contract value was Rs. 19,26,83,092, with a stipulated performance period of 36 months, extendable to 30.09.2010.
Key Facts
- The contract was executed on 28.03.2007 under Agreement No. 16/EE/BVPP/SAC/225/06-07
- An advance payment of Rs. 1,92,58,309 was made by the State against a bank guarantee
- The State terminated the contract on 27.12.2010, alleging failure to deploy key professionals and deliver quality outputs, and encashed the bank guarantee
- The respondent, SMEC International Pty. Ltd., filed a writ petition (W.P. No. 7781/2013) on 15.04.2013 seeking appointment of an arbitrator
- The High Court appointed Justice V.K. Agarwal (Retd.) as Sole Arbitrator by order dated 06.05.2015
- The arbitrator passed the original award on 15.02.2018, directing the State to pay Rs. 8,17,43,319, USD 1,85,578, AUD 1,47,007, interest at 9% p.a., and costs of Rs. 20,00,000
- The respondent filed a Section 33 application for correction, resulting in a modified award dated 13.03.2018
- The State filed an application under Section 34 of the Act on 06.08.2018 to set aside the award
Procedural History
- 14.12.2005: Request for Proposal (RFP) issued by WRD
- 28.03.2007: Contract executed between WRD and SMEC International Pty. Ltd.
- 27.11.2010: Termination notice issued by WRD
- 27.12.2010: Contract closed and bank guarantee encashed
- 15.04.2013: Writ Petition (W.P. No. 7781/2013) filed by respondent
- 06.05.2015: High Court appoints Justice V.K. Agarwal (Retd.) as Sole Arbitrator
- 15.02.2018: Original arbitral award passed
- 13.03.2018: Corrected/modified award issued under Section 33
- 06.08.2018: Section 34 application filed by State
- 20.04.2022: Commercial Court, Bhopal, dismisses Section 34 application on limitation grounds
- 15.09.2022: Division Bench of MP HC sets aside 20.04.2022 order and remands for fresh hearing
- 22.06.2023: Commercial Court again dismisses Section 34 application, holding it barred by limitation
- 16.03.2026: Arbitration Appeals No. 265 and 266 of 2023 heard by Division Bench
- 08.04.2026: Judgment pronounced setting aside the award
The Parties' Positions
The State contended that the arbitration was an International Commercial Arbitration (ICA) under Section 2(1)(f) of the Act, and that the High Court’s appointment of the arbitrator was void ab initio under Section 11(6), rendering the award a nullity. It further argued that the arbitrator lacked the required international expertise and that the award was vitiated by patent illegality.
The respondent argued that the Section 34 application was barred by limitation, that the ICA status did not affect the maintainability of the challenge, and that the State had waived any jurisdictional objections by participating in the proceedings without objection.
Relief Sought
The State sought setting aside of the arbitral award dated 15.02.2018 and the corrected award dated 13.03.2018, along with the Commercial Court’s order dated 22.06.2023, on the grounds of lack of jurisdiction in the appointment of the arbitrator.
The Legal Issue
The central question was whether the appointment of an arbitrator in an International Commercial Arbitration by a High Court, instead of the Supreme Court under Section 11(6) of the Arbitration and Conciliation Act, 1996, constitutes a procedural irregularity or an inherent lack of jurisdiction rendering the arbitral award a nullity.
Arguments Presented
For the Appellant/State
The State argued that Section 11(6) of the Act is non-derogable and vests exclusive power to appoint arbitrators in ICA solely in the Supreme Court. It relied on Madras High Court in 2025 Live Law (Mad) 479 and Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd. to assert that any appointment by a High Court is a jurisdictional defect, not a procedural flaw, and cannot be cured by consent or participation. The State emphasized that the contract contemplated UNCITRAL rules and foreign law, and that the arbitrator appointed lacked international expertise as required under Clause 8.5 of the agreement.
For the Respondent/SMEC
The respondent contended that the State had waived its right to object by actively participating in the arbitration, filing counterclaims, and not raising jurisdictional objections under Section 16 of the Act. It relied on Narayan Prasad Lohia v. Nikunj Kumar Lohia and Section 4 of the Act to argue that procedural defects, even if technically improper, do not invalidate an award if not raised in time. It further argued that the High Court’s appointment was valid as both parties consented, and that the award was well-reasoned and free from patent illegality.
The Court's Analysis
The Court undertook a rigorous analysis of Section 11(6) of the Arbitration and Conciliation Act, 1996, which provides: "In the case of an international commercial arbitration, the appointment of the arbitrator shall be made by the Supreme Court of India." The Court held that this provision is not merely procedural but goes to the very foundation of the tribunal’s authority.
"A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree, and such a defect cannot be cured even by consent of parties."
The Court distinguished Narayan Prasad Lohia on the ground that it dealt with domestic arbitrations and procedural irregularities, whereas the present case involved an ICA governed by a statutory mandate that excludes High Courts from appointment powers. The Court emphasized that the Supreme Court’s exclusive jurisdiction under Section 11(6) is a matter of public policy and statutory imperative, not subject to waiver.
The Court further noted that the parties’ agreement, while providing for UNCITRAL rules and a foreign consultant, did not override the statutory framework of the Act. The fact that the seat of arbitration was in Bhopal did not alter the nature of the arbitration as international, nor did it confer jurisdiction on the High Court to appoint the arbitrator.
The Court also rejected the respondent’s reliance on Gayatri Project Ltd., which dealt with state-specific arbitration statutes, as inapplicable to the statutory jurisdictional defect under Section 11(6). The Court held that the appointment of the arbitrator by the High Court rendered the arbitral tribunal coram non judice, and therefore the award, regardless of its merits, was a nullity.
The Court concluded that the State’s failure to raise the objection under Section 16 did not cure the inherent lack of jurisdiction, as such a defect is not waivable and can be raised at any stage, including under Section 34.
The Verdict
The State succeeded. The Madhya Pradesh High Court set aside the arbitral award dated 15.02.2018 and the corrected award dated 13.03.2018, and quashed the order dated 22.06.2023 of the Commercial Court, Bhopal. The Court held that the appointment of the arbitrator by the High Court was a nullity under Section 11(6) of the Arbitration and Conciliation Act, 1996, rendering the entire arbitral proceeding void ab initio. No monetary relief or remand was ordered, as the award was declared legally non-existent.
What This Means For Similar Cases
Appointment by High Court in ICA Is a Nullity
- Practitioners must ensure that in any International Commercial Arbitration seated in India, the application for arbitrator appointment is made exclusively to the Supreme Court under Section 11(6)
- Any appointment by a High Court, even with party consent, renders the award unenforceable and void
- This applies regardless of whether the parties participated in the proceedings without objection
Waiver Does Not Cure Jurisdictional Defects
- Participation in arbitration, filing of counterclaims, or silence does not cure a lack of jurisdiction under Section 11(6)
- Section 4 of the Act on waiver applies only to procedural defects, not to statutory jurisdictional mandates
- Parties must raise jurisdictional objections under Section 16 at the earliest opportunity, but even failure to do so does not validate an appointment made by an incompetent authority
Strategic Implications for Drafting Arbitration Clauses
- Arbitration clauses must clearly specify the appointing authority as the Supreme Court for ICA
- Clauses that delegate appointment to a High Court or institutional body may be rendered void if the arbitration is international
- Parties should conduct due diligence on the legal seat and appointing authority before initiating arbitration
Jurisdictional Challenges Are Permissible at Any Stage
- A challenge based on lack of jurisdiction under Section 11(6) can be raised under Section 34, during enforcement, or even in collateral proceedings
- Courts will not uphold awards where the tribunal was constituted by an authority lacking statutory power
- This reinforces the principle that jurisdictional nullities are not subject to estoppel or laches
