Disputes During Subsisting Works Contract Can Be Referred To Arbitration Within 3 Years: Madhya Pradesh HC

The Madhya Pradesh High Court at Jabalpur has recently held that contractors can approach the arbitration tribunal within three years if a dispute arises while a government works contract is still ongoing, even though the law also prescribes a one-year limitation after the final authority's decision.

A Division Bench of Justice Vivek Rusia and Justice Pradeep Mittal set aside an order of the M.P. Arbitration Tribunal, which had dismissed a plea filed by LCC Projects Pvt. Ltd. against Madhya Pradesh Jal Nigam Maryadit as time-barred.

Clarifying the position under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983, the court said held:

“It is correct that under subsection (1) of section 7-B, for filing a reference before the Tribunal the period of limitation is one year from the date of communication of the decision by the final authority. Admittedly, the petitioner has filed a reference beyond the period of one year on 02.9.2024, as it should have been filed on or before 18.8.2024. But, section 7(2-A) is a non obstante clause, meaning thereby, despite the one year period of limitation prescribed under section 7-B(1) in a case where the contract is ongoing or pending, and any dispute arises, the contractor can approach the Tribunal by way of reference within a period of 03 years"

The case stems from a Rs 248 crore turnkey contract awarded to LCC Projects Pvt Ltd for the Madia Multi Village Scheme in Sagar. The agreement was executed on January 11, 2021.

The dispute began after the government withdrew an agreed price adjustment formula for steel and HDPE components through a communication dated March 1, 2023. This led to a deduction of Rs 36,86,681 from the contractor's running bill.

LCC Projects challenged the deduction under the contract. Its claim was first rejected by a departmental authority on June 7, 2023, and later by the final authority on August 18, 2023.

The company then approached the Arbitration Tribunal. However, on November 18, 2025, the Tribunal dismissed the case, holding that it had been filed beyond one year from the final decision.

Before the High Court, the contractor argued that the dispute arose while the contract was still ongoing, and therefore it had three years to approach the Tribunal.

On the other hand, the state authorities argued that once the final authority had decided the dispute, the one-year limit would apply.

Rejecting this, the High Court explained that the law creates two separate timelines depending on when the dispute arises.

Explaining this under the Adhiniyam, the Court said:

“The Legislature has provided two limitations, firstly, a period of one year under Section 7-B(1) of the Adhiniyam, for the reason being that under section 7-A (1) every reference petition shall include the whole of the claim which the party is entitled to make in respect of the works contract till the filing of the reference petition. However, under sub-section (3) of Section 7-A, the Tribunal may entertain such a dispute which may arise after the filing of the reference, subject to conditions as may be prescribed. Therefore, after the conclusion of the contract period, if any dispute occurs, it can be added to the pending reference petition with the permission of the Tribunal under Section 7-A (3) of the Adhiniyam. Hence, the period of one year is bound to be extended for a fresh cause of action which arises during the pendency of the reference petition before the Tribunal. Secondly, if the dispute arises during the pendency of the contract, the reference could be filed within three years under the provision of section 7(2-A) of the Adhiniyam, and in which further claims can also be added after the conclusion of the contract under sub-section (3) of Section 7-A.”

The court found that the Tribunal had ignored this provision and wrongly dismissed the case only on limitation grounds.

It therefore set aside the tribunal's order dated November 18, 2025, held that the contractor's plea was filed within time, and directed that the matter be decided on its merits.

For Petitioner: Advocate Ms. Bhakti Vyas

For Respondents: Advocate Shri Shubham Manchani