Case: Madhya Pradesh Rural Road Development Authority and Ors Vs. L.G. Chaudhary Engineers and Contractors

1. The matter has been placed before this Bench of three Judges pursuant to order dated 24th January, 2012 which is as follows:In view of some divergence of views expressed in the two judgments delivered today by us, the matter may be placed before Honble the Chief Justice of India for constituting a larger Bench to resolve the divergenceAppointment of arbitrator in a dispute arising out of execution of a works contract was the subject-matter for consideration before the High Court Under Section 11 of the Arbitration and Conciliation Act, 19962. Appellants raised objection that the matter being covered by a special State Act, namely, M.P. Madhyastham Adhikaran Adhiniyam, 1983 ("M.P. Act", in short), the application Under Section 11 of the Arbitration and Conciliation Act, 1996 could not be entertained. The High Court, however, overruled the said objection relying upon the judgment of this Court in Va Tech Escher Wyass Flovel Ltd. v. MPSE Board and Anr. (2011) 13 SCC 261  3. When the matter was considered by a Bench of this Court on 24th January, 2012 (order reported in Madhya Pradesh Rural Road Development Authority and Anr. v. L.G. Chaudhary Engineers and Contractors (2012) 3 SCC 495  ), this Court held that the judgment in Va Tech Escher Wyass Flovel Ltd. (supra) was per incuriam insofar as it held that the M.P. Act stands implied repealed by the Central Act. While Honble Ganguly J., held that the State Act will cover a dispute even after termination of the works contract, Honble Gyan Sudha Mishra J. took a different view as follows:51. It is no doubt true that if the matter were before an Arbitrator appointed under the Arbitration and Conciliation Act, 1996 for adjudication of any dispute including the question regarding the justification and legality as to whether the cancellation of works contract was legal or illegal, then the said Arbitrator in view of the ratio of the judgment of the Supreme Court in Maharshi Dayanand University and Anr. v. Anand Coop L(C) Society (2007) 5 SCC 295  , as also in view of the persuasive reasoning assigned in the judgment and order reported in Heyman and Anr. v. Darwins, Limited (1942) 1 All E.R. 337 (HL), would have had the jurisdiction to adjudicate the dispute regarding the justification and legality of cancellation of works contract also. But the same cannot be allowed to be raised under the M.P. Act of 1983 since the definition of works contract unambiguously lays down in explicit terms as to what is the nature and scope of works contract and further enumerates the specific nature of disputes arising out of the execution of works contract which would come within the definition of a works contract. However, the same does not even vaguely include the issue or dispute arising out of cancellation and termination of contract due to which this question, in my considered opinion, would not fall within the jurisdiction of the M.P. State Arbitration Tribunal so as to be referred for adjudication arising out of its termination11. Proceedings under the M.P. Madhyastham Adhikaran Adhiniyam, 1983 (the State Act) were pending before the M.P. Arbitration Tribunal at Bhopal. The Respondent raised an objection that in view Va Tech Escher Wyass Flovel Ltd. v. MPSE Board and Anr. 2011 (13) SCC 261  , the Arbitration and Conciliation Act 1966 Act will apply and the State Act will not apply. This objection was rejected. The Respondent preferred a writ petition. The High Court has upheld the objection and quashed the proceedings under the State Act.

Reasoning: 4. We find from the definition Under Section 2(d) of the Arbitration and Conciliation Act, 1996 that even after a contract is terminated, the subject-matter of dispute is covered by the said definition. The said provision has not been even referred to in the judgment rendered by Honble Gyan Sudha Mishra, J14. The same view was taken in Punjab State Electricity Board, Mahilpur v. Guru Nanak Cold Storage & ICE Factory, Mahilpur and Anr. (1996) 5 SCC 411     in para 12 which is as follows:Sections 6(1), 7, 12, 36 and 37 have expressly excluded from the operation of statutory arbitration. The rest of the provisions per force would get attracted. But the provisions of the appropriate statute or rules should necessarily be consistent with the provisions of the Arbitration Act. In that event, despite absence of an arbitration agreement, rest of the provisions of Arbitration Act would apply (as if there was an arbitration agreement between the parties) and the dispute becomes arbitrable under the Arbitration Act, as if there was an arbitration agreement between the parties. If there is any inconsistency, then the provisions of the Arbitration Act do not get attracted. Section 33 expressly gives power to the civil court to decide the existence or validity of the arbitration agreement or the award as such. If this question was to arise, necessarily the civil court would be devoid of jurisdiction to decide the dispute on merits but only in the forum of arbitration. The existence and validity of the arbitration agreement should be decided by the civil court. The arbitrator cannot clothe himself with jurisdiction to conclusively decide it by himself as a jurisdictional issue. It is for the court to decide it. The dispute on merits should be resolved by the arbitrator and the legality of the award would be subject to decision by the court Under Section 3315. In view of above, we are of the view that the State law will prevail in terms of Section 2(4) of the Central ActThis contention cannot be accepted in view of the fact that the SLP was filed prior to the filing of statement of defence wherein this objection was raised21. 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.