2018 (3) TMI 2055 - SC - Indian Laws

Unpressed late amendment makes appeal infructuous; matter remitted for trial to consider objections under Section 34

Lion Engineering Consultants Versus State of M.P. and Ors.

The SC held the amendment application beyond limitation was not pressed, rendering the appeal infructuous and setting aside the impugned order. The matter ... Amendment in objection to Arbitral award - Dispute in execution of a works contract was referred to the Arbitrator - Respondent sought to amend its objections after three years which was rejected by the trial Court - High Court has allowed the said amendment - Appellant submitted that the amendment could not be allowed beyond the period of limitation which affected the vested rights of a party - State of M.P. submitted that the amendment sought is formal. Legal plea arising on undisputed facts is not precluded by Section 34(2)(b) of the Act. HELD THAT:- We find merit in the contentions raised on behalf of the State. We proceed on the footing that the amendment being beyond limitation is not to be allowed as the amendment is not pressed. We do not see any bar to plea of jurisdiction being raised by way of an objection Under Section 34 of the Act even if no such objection was raised Under Section 16. Both stages are independent. Observations in MSP Infrastructure [2014 (12) TMI 1416 - SUPREME COURT] do not, in our view, lay down correct law. We also do not agree with the observation that the Public policy of India does not refer to a State law and refers only to an All India law. In our considered view, the public policy of India refers to law in force in India whether State law or Central law. Accordingly, we overrule the observations to the contrary MSP Infrastructures Ltd.[supra] Since amendment application is not pressed, the appeal is rendered infructuous. The impugned order is set aside. The matter may now be taken up by the trial court for consideration of objections Under Section 34 of the Central Act. It will be open for the Respondents to argue that its objection that the Act stands excluded by the M.P. Madhyastham Adhikaran Adhiniyam, 1983 could be raised even without a formal pleading, being purely a legal plea. It will also be open to the Appellant to argue to the contrary. We leave the question to be gone into by the concerned court. Issues Presented and ConsideredThe core legal questions considered by the Court were:Whether an objection to the jurisdiction of the arbitral tribunal, if not raised under Section 16(2) of the Arbitration and Conciliation Act, 1996 ('the Act'), can be raised subsequently under Section 34 of the Act during challenge to the arbitral award.Whether an application for amendment of objections to the arbitral award filed beyond the period of limitation can be allowed.The scope and interpretation of the phrase 'subject matter of the dispute is not capable of settlement by arbitration' under Section 34(2)(b) of the Act, particularly in relation to jurisdictional objections.Whether the public policy of India, for purposes of setting aside an arbitral award, refers exclusively to all-India (central) law or also includes State laws.The correctness of certain observations made in a prior decision concerning the above issues, particularly regarding the exclusivity of raising jurisdictional objections under Section 16 and the nature of public policy.Issue-wise Detailed Analysis1. Raising Jurisdictional Objections Under Section 16 vs Section 34Legal Framework and Precedents: Section 16(2) of the Act requires that objections to the jurisdiction of the arbitral tribunal must be raised at the earliest stage-specifically, in the statement of defence. Section 34 allows a party to challenge an arbitral award on limited grounds, including if the tribunal lacked jurisdiction. The Court examined the precedent from MSP Infrastructure Ltd. which held that jurisdictional objections must be raised under Section 16 and cannot be raised for the first time under Section 34.Court's Interpretation and Reasoning: The Court disagreed with the strict exclusivity implied by MSP Infrastructure Ltd. It held that there is no bar to raising a plea of jurisdiction under Section 34 even if it was not raised under Section 16. The Court distinguished between objections to jurisdiction and objections relating to the subject matter being non-arbitrable. It emphasized that the two stages-jurisdictional objections under Section 16 and challenges under Section 34-are independent.Key Evidence and Findings: The Court relied on the language of Section 34(2)(b) and the nature of objections permissible at that stage. It also analyzed the legislative intent and the scheme of the Arbitration Act, concluding that jurisdictional objections can be raised at both stages.Application of Law to Facts: The Respondent-State had not raised jurisdictional objections before the Arbitrator but sought to raise them during the Section 34 challenge. The Court found no legal impediment to this approach.Treatment of Competing Arguments: The Appellant argued that MSP Infrastructure Ltd. precluded such a belated objection, but the Court found that the precedent had incorrectly restricted the scope of Section 34. The Respondent's argument that legal pleas on admitted facts can be raised at any stage was accepted.Conclusion: The Court held that jurisdictional objections may be raised under Section 34 even if not raised under Section 16.2. Allowance of Amendment Beyond Period of LimitationLegal Framework: Amendments to pleadings are generally subject to limitation periods and procedural rules. The trial court initially rejected the amendment sought after three years, but the High Court allowed it on Article 227 powers.Court's Interpretation and Reasoning: The Court noted that the amendment was sought beyond the limitation period and was not pressed before it. Therefore, it declined to allow the amendment, effectively restoring the trial court's rejection.Application of Law to Facts: Since the amendment was not pressed, the Court rendered the appeal infructuous on this ground.Conclusion: Amendment beyond limitation was not allowed as it was not pressed before the Court.3. Interpretation of 'Subject Matter Not Capable of Settlement by Arbitration' under Section 34(2)(b)Legal Framework and Precedents: MSP Infrastructure Ltd. interpreted this phrase as referring to disputes inherently non-arbitrable, such as criminal matters, matrimonial disputes, insolvency, testamentary matters, eviction under special statutes, etc., as per the Supreme Court's earlier decision in Booz Allen and Hamilton Inc.Court's Interpretation and Reasoning: The Court agreed that the phrase refers to disputes that cannot be arbitrated at all, not simply jurisdictional objections. It clarified that objections to jurisdiction under Section 16 are distinct from objections under Section 34 relating to non-arbitrability of the subject matter.Application of Law to Facts: The Court found that the Respondent's objection that the Arbitration Act was excluded by a State law (M.P. Madhyastham Adhikaran Adhiniyam, 1983) is a legal plea which can be raised under Section 34.Conclusion: The Court distinguished between jurisdictional objections and non-arbitrability objections, confirming that the latter can be raised under Section 34.4. Scope of Public Policy of India in Arbitration AwardsLegal Framework: Section 34(2)(b)(ii) allows setting aside an arbitral award if it is in conflict with the public policy of India. MSP Infrastructure Ltd. had held that public policy refers only to all-India (central) law and not State law.Court's Interpretation and Reasoning: The Court rejected this narrow interpretation, holding that the public policy of India includes both Central and State laws. It reasoned that the Constitution of India (Article 1) defines India as a Union of States and therefore public policy must be understood as encompassing laws in force throughout the country, including State laws.Application of Law to Facts: The Court overruled the contrary observations in MSP Infrastructure Ltd. and allowed that a conflict with State law could be a valid ground under public policy.Conclusion: Public policy of India includes State laws and not exclusively Central laws.5. Correctness of MSP Infrastructure Ltd. ObservationsCourt's Reasoning: The Court found the observations in paragraphs 16 and 17 of MSP Infrastructure Ltd. to be incorrect in law, particularly regarding the exclusivity of raising jurisdictional objections under Section 16 and the narrow scope of public policy.Conclusion: The Court overruled these observations and clarified the correct legal position.Significant Holdings'We do not see any bar to plea of jurisdiction being raised by way of an objection Under Section 34 of the Act even if no such objection was raised Under Section 16.''The public policy of India refers to law in force in India whether State law or Central law.''Both stages [Section 16 and Section 34] are independent.''We overrule the observations to the contrary in Paragraphs 16 and 17 of the judgment in MSP Infrastructures Ltd.''Amendment being beyond limitation is not to be allowed as the amendment is not pressed.''It will be open for the Respondents to argue that its objection that the Act stands excluded by the M.P. Madhyastham Adhikaran Adhiniyam, 1983 could be raised even without a formal pleading, being purely a legal plea.'