Supreme Court Remands Madhya Pradesh Arbitration Dispute for Fresh Review image for SC Judgment dated 29-08-2024 in the case of M/s. Modern Builders vs State of Madhya Pradesh & Anr.
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Supreme Court Remands Madhya Pradesh Arbitration Dispute for Fresh Review

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The case of M/s. Modern Builders v. State of Madhya Pradesh & Anr. revolves around an arbitration dispute regarding a construction contract for a minor bridge in Madhya Pradesh. The Supreme Court was called upon to determine whether the High Court had correctly set aside an arbitration award based on the applicability of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983 (the ‘1983 Act’). In its ruling, the Supreme Court found that the High Court had erred in setting aside the award solely on procedural grounds and remanded the case for fresh adjudication.

The dispute originated when the State of Madhya Pradesh rescinded the contract with the appellant, M/s. Modern Builders, leading to an arbitration claim. The appellant initially sought relief under the 1983 Act but was directed to proceed under the Arbitration and Conciliation Act, 1996 (the ‘Arbitration Act’). Following an arbitration award in favor of the appellant, the respondents challenged it in the High Court, which annulled the award on procedural grounds. The Supreme Court found this to be unjustified and reinstated the appeal for a fresh hearing.

Background of the Case

Facts Leading to the Dispute

  • The appellant was awarded a contract for constructing a minor bridge by the State of Madhya Pradesh.
  • The contract was rescinded by the Executive Engineer, National Highway Division, Sagar, Madhya Pradesh, on November 9, 2001.
  • Clause 29 of the work order contained an arbitration clause.
  • The appellant requested the constitution of an Arbitral Board, but the request was rejected.
  • Following a subsequent rejection, the appellant sought a reference to the Madhya Pradesh Arbitration Tribunal under Section 7 of the 1983 Act.
  • On April 19, 2010, the Tribunal ruled that since there was an arbitration clause in the contract, the provisions of the Arbitration Act, 1996, would apply instead of the 1983 Act.
  • The appellant then filed a petition under Section 11(6) of the Arbitration Act before the Madhya Pradesh High Court, which was allowed.
  • A retired District Judge was appointed as the Arbitrator, and an award was passed on April 25, 2014.
  • The State of Madhya Pradesh challenged the award under Section 34 of the Arbitration Act before the District Judge, Jabalpur, but the challenge was dismissed.
  • The respondents then filed an appeal under Section 37 of the Arbitration Act before the High Court, which set aside the award based solely on the inapplicability of the Arbitration Act.

Legal Issues Raised

Appellants’ Arguments

The appellant, M/s. Modern Builders, contended that:

  • The High Court’s decision was incorrect as it annulled the arbitration award based only on procedural grounds.
  • The objection regarding the applicability of the 1983 Act was not raised at the appropriate stage.
  • The respondents did not challenge the High Court’s earlier order under Section 11(6) of the Arbitration Act, which had appointed an Arbitrator.
  • The award had already been issued before the Supreme Court’s ruling in Madhya Pradesh Rural Road Development Authority v. L.G. Chaudhary Engineers and Contractors (2018) clarified the applicability of the 1983 Act.
  • As per paragraph 17 of the Madhya Pradesh Rural Road Development Authority judgment, an arbitration award should not be annulled if no jurisdictional objection was raised at the relevant stage.

Respondents’ Arguments

The State of Madhya Pradesh contended that:

  • The appellant was required to proceed under the 1983 Act, and thus the arbitration award was invalid.
  • The objection regarding the 1983 Act’s applicability was raised in the written submissions before the Arbitrator.
  • The High Court was justified in setting aside the award since it was based on an incorrect application of the Arbitration Act.

Supreme Court’s Observations

On the Applicability of the 1983 Act

The Supreme Court acknowledged the ruling in Madhya Pradesh Rural Road Development Authority but noted:

  • The arbitration award had been issued in 2014, four years before the Supreme Court clarified the law in 2018.
  • At the time of the proceedings, the appellant had reasonably relied on the Tribunal’s order directing it to proceed under the Arbitration Act.
  • Since the jurisdictional issue was not raised in the Section 11(6) proceedings, it should not have been used as a sole ground for setting aside the award.

On the Need for a Fresh Hearing

The Court found that:

  • The High Court’s order was flawed as it focused only on procedural aspects without examining the merits of the award.
  • The respondents had not objected to the High Court’s earlier order appointing an Arbitrator.
  • The case required a full-fledged review under Section 37 of the Arbitration Act.

Final Judgment

The Supreme Court ruled that:

  • The High Court’s order setting aside the arbitration award was quashed.
  • The appeal under Section 37 of the Arbitration Act was restored before the High Court for a fresh hearing.
  • The High Court was directed to decide the matter on its merits rather than solely on jurisdictional grounds.
  • The appellant was required to deposit any withdrawn arbitration amount with the High Court within two months.
  • The High Court was instructed to list the matter for hearing on September 30, 2024.

This ruling underscores the importance of conducting thorough judicial reviews in arbitration disputes and discourages setting aside awards based solely on technical grounds.


Petitioner Name: M/s. Modern Builders.
Respondent Name: State of Madhya Pradesh & Anr..
Judgment By: Justice Abhay S. Oka, Justice Augustine George Masih.
Place Of Incident: Madhya Pradesh.
Judgment Date: 29-08-2024.

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