Appointment of Arbitrator by High Court Declared a Nullity Due to Jurisdictional Error
In a significant ruling, the Madhya Pradesh High Court nullified an arbitral award in an international commercial arbitration case involving the State of Madhya Pradesh and M/s SMEC International Pvt. Ltd., an Australian company. The judgment, delivered by Justices Vivek Rusia and Pradeep Mittal, emphasized the jurisdictional error in the appointment of the arbitrator by the High Court instead of the Supreme Court, rendering the arbitral award a nullity.
The case stemmed from a consultancy contract for capacity building in water basins across Madhya Pradesh, financed by the World Bank. Disputes arose when the project was terminated by the State, leading to arbitration proceedings. The High Court had appointed Justice V.K. Agarwal (Retd.) as the sole arbitrator, who ruled in favor of the respondent, SMEC International, directing the State to pay substantial sums.
However, the High Court found that the arbitration was indeed an "International Commercial Arbitration" as the respondent was incorporated in Australia, necessitating the appointment of the arbitrator by the Supreme Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court highlighted that such jurisdictional errors cannot be cured by party consent or participation in proceedings.
Additionally, the Court clarified that the limitation period for challenging the arbitral award commenced from the corrected award date, thereby ruling that the State's application was filed within the permissible time frame.
This judgment underscores the importance of adhering to jurisdictional mandates in international arbitration cases, reinforcing the procedural safeguards under the Arbitration and Conciliation Act.
Bottom Line:
In an international commercial arbitration, the appointment of an arbitrator by a High Court instead of the Supreme Court, as stipulated under Section 11(6) of the Arbitration and Conciliation Act, 1996, renders the arbitral award a nullity due to lack of jurisdiction.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 - Sections 2(1)(f), 11(6), 34(2)(a), 34(2)(b), 34(3), 37
Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983
