Party Cannot Keep 'Jurisdictional Ace Up Sleeve' To Challenge Tribunal After Participating In Arbitration: Supreme Court

The Supreme Court on Wednesday observed that a party's conduct during arbitration is the clearest indicator of how it understood the arbitration agreement, and cannot later adopt a contrary interpretation to challenge the tribunal after an unfavourable award, while upholding an arbitral award against the Municipal Corporation of Greater Mumbai (MCGM).

A Division Bench of Justices J.K. Maheshwari and Atul S. Chandurkar dismissed MCGM's challenge to an arbitral award passed in favour of R.V. Anderson Associates Ltd., observing that the manner in which parties act upon a contract is the best guide to interpreting its terms.

“The manner in which a contract is understood and acted upon by the parties is the best aid to interpreting the contract and understanding the intent of the parties while drafting the contract.", it observed.

"Reliance on a party's original understanding of obligations under a contract as well as their actions prevents a party from later on adopting a legalistic interpretation which supports their case in stark contradiction of how they actually operated on the ground,” the Court added.

The Court said that a party which participates in arbitration without objection cannot later assail the constitution of the tribunal merely because the outcome is unfavorable.

“A party cannot keep a 'jurisdictional ace' up their sleeve and then claim that filing of the jurisdictional challenge under Section 16 would go back in time and wipe out the past conduct and acquiescence of the party which would clearly evince how the contractual terms were viewed by the parties. If the same is permitted, it will erode the basic principles of alternative dispute resolution and ethos of arbitration,” the bench observed.

The dispute arose from a consultancy agreement executed in September 1995 between MCGM and Canada-based R.V. Anderson Associates Ltd. for consultancy services in a World Bank-funded project to upgrade sewerage operations and maintenance systems in Mumbai.

The agreement contemplated execution of the consultancy over a period of 72 months. The work was completed in June 2001, but disagreements soon surfaced over unpaid dues, which the parties were unable to resolve through discussions.

With talks failing to produce a settlement, the respondent invoked the arbitration clause in August 2005. Clause 8 of the agreement laid down the procedure for constituting the tribunal. Each side was to nominate one arbitrator, and the two nominees were to jointly select the presiding arbitrator. It further provided that if the two arbitrators did not succeed in appointing the presiding arbitrator within 30 days, either party could approach the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) to make the appointment.

During the arbitration process, the two party-appointed arbitrators successively appointed presiding arbitrators, first Justice D.R. Dhanuka (Retd.), then John Savage, and finally Anwarul Haque, who headed the tribunal that delivered the award on June 5, 2010.

The tribunal directed MCGM to pay USD 2,078,349.25 and Rs 14,76,736 along with interest at 14% per annum on part of the amount from June 16, 2004 till realization, besides awarding arbitration costs in USD and INR.

MCGM challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 before the Bombay High Court, contending that the tribunal was improperly constituted because the presiding arbitrator had not been appointed through ICSID after the expiry of 30 days.

The Single Judge dismissed the challenge, and the matter was carried in appeal under Section 37 of the Arbitration and Conciliation Act. On July 4, 2025, a Division Bench of the Bombay High Court also declined to interfere, finding that the arbitral tribunal's reading of the arbitration clause was a plausible interpretation and did not warrant setting aside the award.

MCGM then moved the Supreme Court, maintaining that the arbitration agreement required the presiding arbitrator to be appointed through the Secretary-General of the International Centre for Settlement of Investment Disputes once the 30-day period had expired. According to the corporation, any appointment made thereafter by the co-arbitrators was contrary to the agreed procedure and rendered the tribunal improperly constituted.

R.V. Anderson Associates Ltd., on the other hand, argued that the clause did not make the ICSID route mandatory but only provided an alternative in case the arbitrators failed to agree. Since neither side had approached ICSID, the respondent contended, the two nominee arbitrators were well within their authority to proceed with the appointment of the presiding arbitrator.

Agreeing with the arbitral tribunal and the High Court, the Supreme Court held that the ICSID provision was only a safeguard to prevent deadlock and did not extinguish the power of the co-arbitrators.

“The parties have, in their commercial wisdom, drafted a 'fail-safe' into the arbitration clause to deal with a contingency where the co-arbitrators fail to appoint the third arbitrator, so as not to leave the dispute resolution process in the balance,” the Court observed.

The Bench noted that MCGM had not objected when multiple presiding arbitrators were appointed and had participated in the proceedings, raising the objection only after the arbitration had substantially progressed.

Holding that the tribunal's interpretation of the contract was a plausible and reasonable view, the Court said there was no ground for interference within the limited scope of judicial review under arbitration law and dismissed the appeals while upholding the arbitral award.

For Appellant (Municipal Corporation of Greater Mumbai): Senior Advocate Siddharth Bhatnagar, Advocates.

For Respondent (M/s R.V. Anderson Associates Ltd.): Senior Advocate Shyam Divan, Advocates.