Even Consent Cannot Cure Lack of Jurisdiction In HC Appointment Of Arbitrator In ICA: MP High Court

The Madhya Pradesh High Court has held that an arbitrator appointed by a High Court in an international commercial arbitration has no authority in law to decide the dispute, and any award passed in such proceedings is void.

A bench of Justice Vivek Rusia and Justice Pradeep Mittal said, “The conjoint reading of Section 11(6) and Section 11(12)(a), ACA makes it abundantly clear that the power to appoint an arbitrator in an ICA lies exclusively with the Supreme Court. The High Court has no jurisdiction to appoint an arbitrator in an international commercial arbitration, and such power is in the exclusive domain of the Supreme Court. The aforesaid provisions are non-derogable and any order passed by the High Court appointing an arbitrator in ICA suffers from complete lack of jurisdiction and is a nullity in law.”

The bench said this defect goes to the root of the tribunal's authority and cannot be cured by consent or participation. It held, “Parties by consenting to the appointment of the arbitrator could not cure what was on the face of it a clear case of inherent lack of jurisdiction.”

The dispute arose from a World Bank-funded consultancy contract awarded by the State of Madhya Pradesh to SMEC International Pty Ltd, an Australian company. The State alleged that the consultant failed to deploy key professionals and did not deliver work of acceptable quality, leading to termination of the contract and encashment of a bank guarantee.

Arbitration followed, and a sole arbitrator appointed by the High Court passed an award in favour of the company. The State's challenge to the award was first dismissed by the Commercial Court; the matter was remanded by the High Court for fresh consideration, and the challenge was dismissed again, leading to the present appeals.

The State argued that the arbitration qualified as an international commercial arbitration because one party was a foreign company and, therefore, only the Supreme Court could appoint an arbitrator under the law. It said the High Court's appointment rendered the entire arbitral process void.

The respondent opposed the challenge, arguing that it was filed beyond the prescribed time, that the State had not raised objections to the tribunal's jurisdiction at the appropriate stage before the arbitrator, and that any defect in appointment was procedural and stood waived due to participation in the proceedings.

Rejecting these contentions, the court held that the arbitration was international in nature since the respondent was incorporated in Australia and the contract itself contemplated UNCITRAL Rules when the consultant was a foreign entity.

It observed, “Since the respondent is admittedly a foreign firm, the contract itself contemplated UNCITRAL rules, confirming the international character of the arbitration. Despite this clear position, the arbitration was conducted under Part I of the Act by a domestic arbitrator appointed by this Court, a circumstance that directly goes to the root of jurisdiction and maintainability.”

On limitation, the court held that the period to challenge an award runs from the date of the corrected award, even if the request for correction was made by the opposite party.

It observed, “The language of the provision is unambiguous, it uses the passive phrase "if a request had been made," without any qualification as to which party made it.”

Referring to the facts, it held that “The original award of 15.02.2018 was thereby modified in material respects specifically, Clauses 1 and 2 of Para 102 were amended to clarify the inclusion of the bank guarantee amount. A party challenging an award must be entitled to challenge the final, operative version of the award. Since the corrected award was passed on 13.03.2018, and the Section 34 application was filed on 06.08.2018, the application is within the maximum period of three months plus thirty days.”

The court also clarified that in international commercial arbitration, a challenge cannot be based on errors of law in the award and must fall within limited statutory grounds such as lack of jurisdiction or violation of fundamental legal principles.

Relying on settled law that a decision rendered without jurisdiction is void and can be challenged at any stage, the bench rejected the respondent's argument of waiver.

It held that participation in the arbitration does not cure an inherent lack of jurisdiction. The appeals were allowed, and both the arbitral award and the Commercial Court's order were set aside.