“Public Policy” includes State Law, no bar on objecting the Tribunal’s Competence even after submission of the statement of defence

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Image Courtesy AAUW Sacramento (CA) Branch 

In M/s. MSP Infrastructure Ltd. v. Madhya Pradesh Road Development Corporation Ltd. (2015) 13 SCC 713, the Supreme Court of India was faced with a peculiar issue of “whether a party to an arbitration proceeding may be permitted to raise objections under Section 34 of the Arbitration and Conciliation Act, 1996, with regard to the jurisdiction of the Arbitral Tribunal after the stage of submission of the written statement.”

In this case the Court had analyzed the intention behind Section 16(2) of the Arbitration Act, 1996 and concluded that “there is a prohibition on the party from raising a plea that the Tribunal does not have jurisdiction after the party has submitted its statement of defence.”

Recently, similar issue came up for consideration before Supreme Court of India in M/s Lion Engineering Consultants v.  State Of M.P., Civil Appeal Nos. 8984-8985 of 2017. The factual matrix of the case was as follows-

  • Dispute referred for arbitration by Madhya Pradesh High Court
  • Award was passed in favour of Lion Engineering Consultants (LEC)
  • State of MP challenged the award under Section 34 of the Arbitration Act, 1996
  • State of MP also applied for amendment of its objections after a lapse of 3 years which was rejected by the lower Court.
  • State of MP went in High Court against this order and allowed such amendment.
  • LEC appealed in Supreme Court against allowing such amendment by High Court.

It is apparent that the order of High Court was against the earlier dictum of the Supreme Court of India in M/s. MSP Infrastructure Ltd (Supra). On the issue of amendment, the Supreme Court in M/s Lion Engineering Consultants (Supra) held that the amendment being beyond limitation is not to be allowed as the amendment is not pressed.

Here, I want to emphasis on wordings of Section 16(2) for a moment. Section 16(2) reads as follows:

“(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

Further in Section 16(6) it is stated as follows:

“(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.”

It appears that Supreme Court in M/s. MSP Infrastructure Ltd (Supra) totally scrapped out the possibility of a situation which may fall in the underlined part of Section 16(2) above. A further remedy available is sanctioned under Section 16(6) of the Act i.e. application under Section 34.

In M/s. MSP Infrastructure Ltd (Supra)., State of MP relied on Section 34(2)(b) while contending that the award is against the public policy of India since the tribunal lacked jurisdiction to decide upon the matter. As per the State of MP, “unless the arbitration was held under the State Law i.e. the M.P. Act that it would be a violation of the public policy of India.”  The Court inter alia held that the Public policy of India does not refer to a State law and refers only to an All India law. Section 34(2)(b) reads as follows:

“34 Application for setting aside arbitral award. —

(2) An arbitral award may be set aside by the Court only if—

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.”

This argument was rejected by the Supreme Court in M/s Lion Engineering Consultants (Supra) stating that “the public policy of India refers to law in force in India whether State law or Central law.” On the issue of jurisdiction the Supreme Court rightly held that “there is no 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.”

Comment

As I have highlighted above, in Section 16(2) the legislation provides an option to the party for raising such (objection regarding jurisdiction) a plea even if the arbitrator has been appointed by the party or such party has participated in its appointment. Further Section 16(6) gives an opportunity to challenge an award under Section 34 of the Arbitration Act which in its opinion is rendered by a tribunal which lacks jurisdiction. In my opinion, the Supreme Court in  M/s. MSP Infrastructure Ltd (Supra) failed to consider the possibility of such situation which was not even far-fetched.  In M/s Lion Engineering Consultants (Supra) the Court has corrected its mistake. I do not agree with authors of “Supreme Court States That There Is No Bar To Plea Of Jurisdiction Being Raised In Objection Under Section 34 Of The Arbitration Act Even If The Same Was Not Raised Under Section 16”  that the M/s Lion Engineering Consultants (Supra) had “widens the scope of challenge to an arbitral award under Section 34(2)(b)(ii) of the Act.” The Supreme Court has rightly interpreted the law by adopting a contextual interpretation approach.

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