Party Cannot Reopen Maintainability Of Fresh Arbitration After Challenging Earlier Award: MP High Court

The Madhya Pradesh High Court has recently held that a party cannot reopen the issue of maintainability at the stage of appointment of an arbitrator after having challenged an earlier arbitral award and after a court permitted fresh arbitration if disputes persisted.

The ruling came while the court appointed a fresh arbitrator to adjudicate a dispute between MSP Infrastructures Limited and Madhya Pradesh Road Development Corporation Ltd. (MPRDCL).

Justice Deepak Khot held that the question of maintainability had already been settled between the parties in earlier proceedings. The court appointed former Madhya Pradesh High Court judge Justice Ved Prakash Sharma as the sole arbitrator.

The court observed, "Once the non applicant has prosecuted section 34 application under the Act of 1996, wherein liberty has been granted to the applicant to further arbitrate if dispute persists between the parties, then, in such case, the non applicant cannot reopen the issue of maintainability at the stage of appointment of an Arbitrator under the Act of 1996."

The dispute arose out of a concession agreement dated April 4, 2002, under which MSP Infrastructures was engaged to strengthen, widen, upgrade, operate, and maintain the Raisen-Rahatgarh Road.

MSP alleged that MPRDCL failed to provide a hindrance-free site, preventing timely execution of the project, before terminating the concession agreement on March 22, 2003.

The parties entered into a settlement agreement on May 19, 2003, following which their disputes were referred to arbitration before the Indian Council of Arbitration. A three-member arbitral tribunal partly allowed MSP's claims by an award dated November 13, 2006.

MPRDCL challenged the award before the Commercial Court at Bhopal. On November 24, 2022, the Commercial Court set aside the award after holding that it suffered from patent illegality and conflicted with the public policy of India. At the same time, it permitted the parties to initiate fresh arbitration if their disputes remained unresolved. A review order passed on May 2, 2023 clarified that the proceedings would be conducted before the Indian Council of Arbitration.

MSP approached the Indian Council of Arbitration to constitute a fresh arbitral tribunal. When no tribunal was constituted despite its request dated March 7, 2024, the company moved the High Court seeking the appointment of an arbitrator.

Before the High Court, MSP contended that MPRDCL could no longer question the maintainability of arbitration because that issue had already been decided in the earlier round of litigation.

It relied on the High Court's October 24, 2018 order holding that the earlier Supreme Court decision between the parties remained binding inter se. MPRDCL's Special Leave Petition against that order was dismissed by the Supreme Court on January 25, 2019.

MPRDCL, however, contended that subsequent Supreme Court judgments dealing with works contracts entitled it to raise the jurisdictional objection afresh. It argued that disputes arising from the concession agreement were required to be decided by the Madhya Pradesh Madhyastham Adhikaran.

Rejecting the objection, the High Court held that the maintainability issue had already been conclusively determined between the parties and could not be reopened. It held that allowing MPRDCL to raise the same objection again would be barred by the principles of constructive res judicata and estoppel.

The court observed, "Even if subsequent law has diluted the principle of law laid down earlier by the Hon'ble Apex Court which has settled the question of law, rights and mode of litigation between the parties, cannot be reagitated."

The High Court further noted that under the post-2015 arbitration regime, a referral court examining an application for appointment of an arbitrator is ordinarily confined to considering the existence of an arbitration agreement.

Jurisdictional objections and other preliminary issues, it held, can be raised before the arbitral tribunal.

Allowing MSP's application, the High Court appointed Justice Ved Prakash Sharma (Retd.) as the sole arbitrator. It directed that the arbitration be conducted at Bhopal, authorised the arbitrator to issue notices to the parties, and directed both sides to deposit the prescribed fees under the Madhya Pradesh Arbitration Centre (Domestic and International) Rules, 2019.

For Applicant (MSP Infrastructures Limited): Senior Advocate Naman Nagrath with Advocate Prabhanshu Chaturvedi.

For Respondent (Madhya Pradesh Road Development Corporation Ltd.): Senior Advocate Manoj Munshi with Advocate Akshay Jha.

For Respondent/State: Government Advocate Naveen Ahuja.