Arbitration In India Has Not Failed, Courts Sometimes Have Failed Arbitration: Supreme Court

The Supreme Court on Friday remarked that “Arbitration in India has not failed; however, Courts sometimes have failed arbitration in India,” while dismissing Madhya Pradesh Road Development Corporation Ltd.'s (MPRDC) challenge to an arbitral award that had already survived multiple rounds of judicial scrutiny over nearly 12 years.

A Bench of Justice J.K. Maheshwari and Justice Atul S. Chandurkar made the observation while refusing to interfere with an arbitral award in favour of Jabalpur Corridor Pvt. Ltd. (JCPL). The Court also rejected MPRDC's attempt to revive a jurisdictional objection that had attained finality in earlier proceedings.

“A single doubtful precedent in the arbitration field has the potential to cast a shadow on its viability in India and its impact on the ease of doing business in India. There is no gainsaying that judicial interference in alternative dispute resolution has often been a cure without a disease in India. In this context, it is high time that judges realize that certainty, uniformity, and finality are also cherished values.”

The dispute arose from a concession agreement executed on April 11, 2003, between MPRDC, Malaysian company Tiara Dhaya Maju Constructions (TDM), and JCPL, a special purpose vehicle incorporated to implement the 176-km Sagar-Damoh-Jabalpur Road Project on a build-operate-transfer basis.

Pursuant to the concession agreement, JCPL obtained a loan of ₹80.85 crore from EXIM Bank Malaysia for the project. According to JCPL, the project was delayed because vacant possession of land required for construction was not made available.

In March 2007, JCPL approached the Madhya Pradesh High Court seeking handover of land required for the project. During the pendency of those proceedings, MPRDC terminated the concession agreement on July 12, 2007.

JCPL subsequently challenged the termination and invoked arbitration.

It sought more than ₹176 crore in arbitration, including termination-related payments, damages and reimbursement of amounts it said had been spent on the project. MPRDC, in response, lodged counterclaims worth over ₹277 crore. It also argued that the dispute should not be heard by a private arbitral tribunal and instead belonged before the tribunal constituted under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983.

That objection initially found favour with a District Court in 2013. JCPL challenged the ruling before the Madhya Pradesh High Court, which reversed it and held that the dispute could be resolved through arbitration under the Arbitration and Conciliation Act, 1996. The matter later reached the Supreme Court, which declined to interfere, clearing the way for the arbitration proceedings to continue.

The Supreme Court subsequently declined to interfere with that ruling, allowing the arbitral proceedings to continue.

By a majority award dated August 22, 2014, the arbitral tribunal awarded JCPL ₹49.47 crore towards termination payment and ₹4.92 crore towards share capital equity invested in the project. The tribunal also awarded costs and post-award interest. MPRDC's challenge to the award was dismissed by the District Court under Section 34 of the Arbitration and Conciliation Act, 1996. Its appeal was thereafter dismissed by the Madhya Pradesh High Court.

Before the Supreme Court, MPRDC principally argued that the arbitral tribunal had travelled beyond the scope of the claims before it by awarding termination payment under the concession agreement. It also sought to revive its objection to the tribunal's jurisdiction.

Rejecting the jurisdictional challenge, the Court held that the issue had already attained finality in earlier proceedings between the parties and could not be reopened at such a belated stage.

The Court noted that the award-holder had succeeded before the arbitral tribunal, the District Court and the High Court, yet the dispute continued to remain unresolved.

“The Appellant's approach also fundamentally undermines the core objectives of the 1996 Act, namely certainty, expediency, and finality of adjudication."

The Court further observed:

“In background of long protracted litigation over the aforesaid issue of jurisdiction, the present attempt of the Appellant to once again reopen the same question at the stage of Special Leave Petition, especially by raising it for the first time in rejoinder affidavit constitutes a clear abuse of process and an impermissible attempt to indefinitely defer the finality of the arbitral award”

On the merits of the award, the Court upheld the tribunal's interpretation of the concession agreement. It held that the view taken by the tribunal regarding termination payment was a plausible interpretation of the contract and did not warrant interference.

The Court also emphasised the limited scope of judicial intervention in arbitral awards and reiterated that courts exercising jurisdiction over arbitral awards are not expected to function as appellate forums.

Referring to the broader arbitration framework in India, the Court observed that prolonged judicial intervention can undermine the finality and effectiveness of arbitral proceedings.

“Before we part, we need to note that arbitral awards and processes have to be treated with open judicial mind. There remains a hesitancy still for some Courts to accept alternative dispute resolution mechanisms. This hesitance is rooted in suspicion of the process which often leads to re-examination of evidence and re-interpretation of contractual terms at the stage of Section 34 and Section 37. This Court has to ensure that arbitration is accepted as a norm, and its true essence, which is party autonomy and equality is realized. Finality and uniformity in judicial processes associated with or arising out of arbitration therefore, are ideals which are to be progressively realized by thejudiciary as a whole."

Dismissing MPRDC's appeal, the Court upheld the arbitral award, including the interest awarded under the contract.

For Appellant (Madhya Pradesh Road Development Corporation Ltd.): Attorney General R. Venkataramani.

For Respondent (Jabalpur Corridor Pvt. Ltd.): Senior Advocates Dr. Abhishek Manu Singhvi and Vivek Tankha; Advocate Rishabh Sancheti.