Arbitration Award and Jurisdiction: State of Jharkhand vs. Hindustan Construction Co. Ltd.

The case of State of Jharkhand & Ors. vs. M/S Hindustan Construction Co. Ltd. revolves around the crucial legal question of whether the Supreme Court can entertain an application to make an arbitration award a rule of the Court. The case also highlights conflicting views in previous judgments on whether the Supreme Court retains jurisdiction over arbitral proceedings when it appoints an arbitrator.

The dispute arose after the Supreme Court referred the matter to arbitration. Following the arbitration award, the parties contested whether the award should be made a rule of the Court in the Supreme Court or in a civil court under the Arbitration and Conciliation Act, 1996. The State of Jharkhand challenged the award, leading to further legal proceedings.

Background of the Case

The Supreme Court, by an order dated 10.01.2013, had referred the dispute between the State of Jharkhand and Hindustan Construction Co. Ltd. to arbitration, appointing Hon’ble Justice S.B. Sinha (Retd.) as the arbitrator. The arbitrator issued an award on 16.10.2015 and filed it before the Supreme Court.

The respondent, Hindustan Construction Co. Ltd., requested the Court to pronounce judgment in terms of the arbitration award. However, the appellants (State of Jharkhand) challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the appropriate forum to decide objections was a civil court, not the Supreme Court.

Legal Issues

The Supreme Court identified the following key legal issues:

• Does the Supreme Court have jurisdiction to entertain an application to make an arbitration award a rule of the Court?
• Should objections to the arbitration award be decided by a civil court under Section 34 of the Arbitration Act?
• Does the Supreme Court retain jurisdiction over arbitration proceedings when it appoints an arbitrator?
• Should parties be deprived of their right to appeal if the Supreme Court decides objections to the arbitration award?

Arguments by the Appellant (State of Jharkhand)

The appellants, the State of Jharkhand, put forth the following arguments:

• The Supreme Court does not have jurisdiction to make an arbitration award a rule of the Court.
• The Arbitration Act, 1996, provides that objections to an arbitration award must be decided by a civil court.
• Right to appeal is a fundamental legal right, and if the Supreme Court directly rules on objections, parties will lose the opportunity to appeal.
• The Supreme Court’s role in appointing an arbitrator does not mean it retains jurisdiction over the entire arbitration process.

Arguments by the Respondent (Hindustan Construction Co. Ltd.)

The respondent, Hindustan Construction Co. Ltd., countered with the following arguments:

• Since the Supreme Court had directed the arbitrator to file the award before it, the Court had jurisdiction to make the award a rule of the Court.
• The award had already been filed with the Supreme Court, and objections should be decided at the same level to avoid unnecessary delays.
• Precedents, such as the case of McDermott International Inc. vs. Burn Standard Co. Ltd., established that if an arbitrator files an award in the Supreme Court, objections must be entertained by the Supreme Court itself.

Observations of the Supreme Court

The Supreme Court analyzed previous judgments and found conflicting views on the issue. It noted:

‘There is a difference of opinion in relation to the entertainability of an application by this Court for making the award a rule of the Court.’

The Court further held:

‘If this Court decides the objections to the award, the parties will lose their right of appeal. A litigant should not be deprived of the right to appeal unless there exist cogent reasons.’

The Court identified conflicting rulings in previous cases, including:

• McDermott International Inc. vs. Burn Standard Co. Ltd.: Held that if an arbitrator files an award in the Supreme Court, the Court must entertain the objections.
• State of Rajasthan vs. Nav Bharat Construction Company: Held that an application to make an award a rule of the Court must be filed in the Supreme Court if the arbitrator files it there.
• Bharat Coking Coal Ltd. vs. Annapurna Construction: Emphasized that the right to appeal should not be taken away without strong reasons.
• State of West Bengal vs. Associated Contractors: Held that the Supreme Court is not a ‘Court’ under Section 2(1)(e) of the Arbitration Act.

Final Judgment

Recognizing the legal ambiguity, the Supreme Court referred the matter to a larger bench for resolution. The Court framed the following question for determination:

‘Whether this Court can entertain an application for making the award as Rule of the Court, even if it retains seisin over arbitral proceedings?’

The Court directed that the matter be placed before the Hon’ble Chief Justice of India for an appropriate order to constitute a larger bench.

Impact of the Judgment

This judgment has significant implications for arbitration law in India:

• It highlights the lack of clarity in the law regarding the Supreme Court’s jurisdiction over arbitration awards.
• It reaffirms the importance of the right to appeal in arbitration disputes.
• It delays the final resolution of the arbitration award, pending the decision of the larger bench.

Conclusion

The Supreme Court’s ruling in State of Jharkhand vs. Hindustan Construction Co. Ltd. underscores the complexities of arbitration law and judicial jurisdiction. The Court’s decision to refer the matter to a larger bench ensures that a definitive ruling will be made on whether the Supreme Court can directly entertain an application to make an arbitration award a rule of the Court. This case will serve as an important precedent for arbitration disputes and the interpretation of the Arbitration and Conciliation Act, 1996.

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Download Judgment: State of Jharkhand & vs Hindustan Constructi Supreme Court of India Judgment Dated 22-09-2017.pdf

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