Larsen & Toubro vs. MMRDA: Supreme Court Dismisses Arbitration Petition for Lack of International Jurisdiction

The case of Larsen and Toubro Limited & Scomi Engineering Bhd vs. Mumbai Metropolitan Region Development Authority (MMRDA) concerns the dispute over the invocation of arbitration in an infrastructure project related to the construction of a monorail system in Mumbai. The Supreme Court of India, in its judgment dated 3rd October 2018, ruled that the case did not qualify as an ‘international commercial arbitration’ under Section 2(1)(f) of the Arbitration and Conciliation Act, 1996, and dismissed the petition.

Background of the Case

The dispute arose from a contract signed on 9th January 2009 between the petitioners, Larsen and Toubro Limited (L&T), an Indian company, and Scomi Engineering Bhd, a Malaysian company, forming a consortium to design, construct, and operate a monorail system in Mumbai. The agreement contained an arbitration clause which provided for the resolution of disputes between the parties.

The key issues leading to the dispute included:

The consortium claimed additional payments and time extensions, which MMRDA refused.
Multiple claims were raised but were rejected by MMRDA.
Despite the contract specifying a three-tier dispute resolution mechanism, the consortium invoked arbitration prematurely, bypassing some procedural requirements.

Legal Issues Before the Court

The petitioners approached the Supreme Court under Section 11 of the Arbitration and Conciliation Act, arguing that the arbitration should be treated as an international commercial arbitration. The key legal questions before the court were:

Whether the dispute qualified as an international commercial arbitration under Section 2(1)(f) of the Arbitration Act.
Whether the consortium could invoke arbitration without exhausting prior dispute resolution steps in the contract.
Whether the arbitration clause covered the claims raised by the petitioners.

Arguments by the Petitioner (Larsen and Toubro & Scomi Engineering Bhd)

The petitioners contended that:

The consortium included Scomi Engineering Bhd, a Malaysian company, qualifying it as an international commercial arbitration.
Multiple claims had been rejected by MMRDA, justifying immediate arbitration.
The contract permitted independent claims by each consortium member.
The High Court of Bombay’s earlier ruling that claims could be pursued only by the consortium should not prevent individual claims.

Arguments by the Respondent (MMRDA)

MMRDA opposed the petition, arguing that:

The consortium was an unincorporated joint venture, not an independent legal entity.
The lead partner was L&T, an Indian company, and the consortium’s management and control were exercised in India, making it domestic arbitration.
The contract mandated a dispute resolution hierarchy before arbitration, which the petitioners failed to follow.
The Bombay High Court had already ruled that the consortium must act as a single entity, barring separate claims.

Supreme Court Judgment

The Supreme Court ruled that:

The consortium was an unincorporated association, controlled in India, disqualifying it from international arbitration under Section 2(1)(f) of the Arbitration Act.
The earlier Bombay High Court judgment prevented the petitioners from independently filing claims.
The arbitration clause required the exhaustion of a pre-arbitration dispute resolution process, which was not followed.
The matter did not qualify for arbitration under the court’s jurisdiction.

Key Observations by the Supreme Court

The Supreme Court stated:

“The central management and control of the consortium is exercised in India, and the lead partner, L&T, is an Indian entity. This does not fulfill the conditions for an international commercial arbitration.”

It further held:

“The arbitration clause explicitly provides for a step-by-step process before arbitration can be invoked. The petitioners have not exhausted those remedies.”

Final Judgment

The Supreme Court:

Dismissed the arbitration petition for lack of jurisdiction.
Ruled that the petitioners must approach an appropriate domestic arbitration tribunal.
Clarified that consortium agreements must be read in their entirety before determining arbitration eligibility.

Legal Precedents and Significance

The judgment reinforces:

The importance of contractual hierarchy in dispute resolution.
That international commercial arbitration must meet strict jurisdictional criteria.
That Indian-controlled consortia cannot claim international arbitration solely due to foreign members.

Conclusion

The case of Larsen and Toubro vs. MMRDA establishes key principles in arbitration law, particularly for large-scale infrastructure projects. The ruling ensures that parties follow the dispute resolution mechanism outlined in contracts and prevents misuse of international arbitration provisions. This decision strengthens contractual compliance and safeguards against premature arbitration proceedings.

Petitioner Name: Larsen and Toubro Limited & Scomi Engineering Bhd.
Respondent Name: Mumbai Metropolitan Region Development Authority (MMRDA).
Judgment By: Justice R.F. Nariman, Justice Navin Sinha.
Place Of Incident: Mumbai, Maharashtra.
Judgment Date: 03-10-2018.

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