The Madhya Pradesh High Court has affirmed that an arbitration award cannot be set aside merely because a subsequent Supreme Court ruling redefined the jurisdictional boundaries for works contracts, where the arbitrator was validly appointed under the law as it stood at the time. This decision reinforces the principle that procedural fairness and legitimate reliance on judicial precedent must prevail over retrospective application of new legal interpretations.
Background & Facts
The Dispute
The dispute arose from a works contract for the completion of an incomplete railway overbridge at Itarsi, District Hoshangabad, awarded by the State of Madhya Pradesh to M/s Mohanlal Heeralal Construction Company. The contractor claimed additional costs due to escalation and delay, leading to a dispute over payment. The contractor initially sought resolution under the M.P. Madhyastham Adhikaran Adhiniyam, 1983, but the MP Arbitration Tribunal rejected the reference on grounds of lack of jurisdiction.
Key Facts
- The contractor submitted its claim to the Superintending Engineer, Office of Chief Engineer, Capital Zone Bhopal, on 20.11.2003.
- Between 01.07.1999 and 30.06.2006, there was no Superintending Engineer posted in the Hoshangabad circle, making local adjudication impossible.
- The State did not dispute the contractor’s assertion that the claim was submitted to the competent authority.
- The contractor filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, before the Madhya Pradesh High Court on 20.04.2010.
- The High Court appointed a sole arbitrator by order dated 18.08.2011.
- The arbitrator rendered an award on 01.11.2014, granting Rs. 51,05,085/- to the contractor.
- The State filed an application under Section 34 of the Act to set aside the award, which was dismissed by the District Judge, Hoshangabad, on 01.12.2015.
- The State appealed under Section 37 of the Act to the High Court.
Procedural History
- 20.11.2003: Contractor submitted claim to Superintending Engineer, Bhopal.
- 2004: Contractor first approached MP Arbitration Tribunal under the 1983 Act; petition rejected for lack of jurisdiction.
- 20.04.2010: Contractor filed petition under Section 11(6) of the Arbitration Act before the Madhya Pradesh High Court.
- 18.08.2011: High Court appointed sole arbitrator.
- 01.11.2014: Sole arbitrator passed award of Rs. 51,05,085/-.
- 2015: State filed Section 34 application before District Judge, Hoshangabad.
- 01.12.2015: District Judge dismissed Section 34 application.
- 16.02.2016: Arbitration Appeal No. 16 of 2016 filed before Madhya Pradesh High Court.
- 26.02.2026: Judgment reserved.
- 17.03.2026: Judgment pronounced.
The Parties' Positions
Appellant (State of Madhya Pradesh): Argued that the arbitrator lacked jurisdiction because works contracts involving State engineering departments must be referred to the MP Arbitration Tribunal under the 1983 Act, as held in M.P. Rural Road Development Authority v. L.G. Chaudhary Engineers and Contractors (2018) 10 SCC 826. Also contended that arbitration was premature as no decision had been rendered by the Superintending Engineer, and that the award was exorbitant and unsupported.
Respondent (M/s Mohanlal Heeralal Construction Company): Maintained that the arbitrator was validly appointed under the Arbitration Act before the 2018 ruling, and that the State had not objected to the appointment at any stage prior to the award. Also asserted that the claim had been submitted to the competent authority and that the State had not disputed this.
Relief Sought
The State sought: (1) setting aside of the arbitrator’s award dated 01.11.2014; (2) setting aside of the District Judge’s order dated 01.12.2015; and (3) dismissal of the arbitration proceedings on grounds of lack of jurisdiction and procedural non-compliance.
The Legal Issue
The central question was whether an arbitration award rendered under the Arbitration and Conciliation Act, 1996, prior to the Supreme Court’s ruling in M.P. Rural Road Development Authority v. L.G. Chaudhary (2018), can be set aside on the ground that the arbitrator lacked jurisdiction under a subsequent interpretation of the law, when the parties had not objected to the appointment at the time it was made.
Arguments Presented
For the Appellant
The State relied on M.P. Rural Road Development Authority v. L.G. Chaudhary Engineers and Contractors (2018) 10 SCC 826, which held that works contracts by State engineering departments fall exclusively under the MP Arbitration Tribunal, 1983. It argued that the appointment of the arbitrator under Section 11(6) was void ab initio because the dispute was non-arbitrable under the 1983 Act. It further contended that the contractor failed to exhaust internal remedies under Clause 1.17 of the contract by not obtaining a decision from the Superintending Engineer. The State also challenged the quantum of the award as arbitrary and unsupported.
For the Respondent
The contractor argued that the arbitrator was appointed in 2011, when the prevailing law was governed by VA Tech Escher Wyss Flovel Ltd. v. M.P. SEB (2011) 13 SCC 261, which permitted arbitration under the 1996 Act. The State had not objected to the appointment under Section 11(6), nor invoked Section 16(1) before the arbitrator. The contractor submitted that the claim had been presented to the Superintending Engineer in Bhopal, and the State had not rebutted this. It relied on Modern Builders v. State of M.P. (2024) 10 SCC 637, which held that setting aside awards on jurisdictional grounds after the fact would be unjust where parties acted in good faith under prior legal understanding.
The Court's Analysis
The Court acknowledged that the Supreme Court’s decision in L.G. Chaudhary (2018) had conclusively held that disputes arising from works contracts of State engineering departments must be referred to the MP Arbitration Tribunal under the 1983 Act. However, it emphasized that the arbitrator in this case was appointed in 2011, when the law was unsettled and the prevailing view under VA Tech Escher Wyss permitted such appointments.
"The appellant had taken recourse to the 1983 Act before seeking the appointment of an arbitrator. 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 Court noted that the State did not challenge the appointment under Section 11(6) at the time, nor did it raise jurisdictional objections before the arbitrator under Section 16(1). The objection was raised only after the award was rendered, which the Court deemed an abuse of process.
The Court further held that the amendment to the Arbitration Act in 2015, which narrowed the referral court’s jurisdiction, was not applicable retroactively. Since the appointment occurred before the amendment, the wider jurisdiction of the referral court under the pre-2015 regime governed the validity of the appointment.
Regarding the Superintending Engineer’s role, the Court accepted the contractor’s unchallenged assertion that the claim was submitted to the competent authority in Bhopal, given the absence of a local Superintending Engineer between 1999 and 2006.
On merits, the Court reiterated that under Section 37, appellate jurisdiction is limited to the grounds under Section 34. The State failed to demonstrate any fundamental flaw in the arbitrator’s quantification or reasoning. The Court declined to re-appreciate evidence or substitute its own view.
The Verdict
The appeal was dismissed. The Court upheld the District Judge’s order dated 01.12.2015 and confirmed the arbitrator’s award of Rs. 51,05,085/- with interest. The State was directed to pay the amount within 8 weeks from the date of judgment. Costs of Rs. 50,000/- were awarded to the respondent. The Court held that setting aside the award on jurisdictional grounds after the fact would be unjust and contrary to the principles of finality and legitimate expectation under the Arbitration and Conciliation Act, 1996.
What This Means For Similar Cases
Prior Arbitration Appointments Are Protected
- Practitioners may rely on the Modern Builders precedent to defend awards where arbitrators were appointed before jurisdictional rulings changed.
- A party cannot remain silent during appointment and later challenge jurisdiction after an adverse award.
Exhaustion of Internal Remedies Must Be Proven
- Claims that internal procedures were bypassed must be substantiated with evidence; mere assertion is insufficient.
- If the authority designated under the contract is functionally unavailable, alternative submission to a higher competent authority may suffice.
Post-2015 Amendments Do Not Retrospectively Invalidate Appointments
- Arbitrations initiated under the pre-2015 regime retain the benefit of broader referral court powers.
- Courts will not apply new restrictions retroactively to invalidate appointments made in good faith under prior law.
Merits of Award Are Not Re-Examined on Appeal
- Section 37 appeals are not forums for re-quantifying claims or second-guessing the arbitrator’s factual findings.
- Only manifest illegality, procedural fraud, or patent perversity justify interference.
