Supreme Court Upholds Arbitral Award in Highway Dispute | Says ‘Work Contract’ Claims Against MP Govt Bodies Must Be Referred to MP Arbitration Tribunal Under Statutory Mandate
Kiran Raj
The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan held that disputes arising from concession agreements executed by the State or its instrumentalities—being works contracts—must be adjudicated exclusively by the Madhya Pradesh Arbitration Tribunal established under the Madhya Pradesh Madhyastham Adhikaran Adhiniyam, 1983. The Court quashed the arbitration proceedings initiated under the Arbitration and Conciliation Act, 1996 and directed the appellant to seek revival of the statutory reference previously withdrawn.
The appellant, a private tollways company, entered into a Concession Agreement dated 05.01.2012 with the respondent, a wholly state-owned corporation, for the development of the Umari–Pooph–Pratappur Road in Madhya Pradesh. The road project, involving an estimated cost of ₹73.68 crores, was structured on a Build, Operate and Transfer (BOT–Toll + Annuity) basis. In accordance with the contract, the appellant furnished a performance bank guarantee and entered into an Escrow Agreement with the respondent and a nationalised bank.
Disputes arose regarding project execution, beginning with delays caused by the change in Independent Engineer and non-approval of submitted designs. The appellant was directed to revise and resubmit designs, leading to rework and escalation of project costs to ₹99.80 crores. Alleging breaches by the respondent, the appellant raised 19 claims through the contractual dispute resolution process under Article 44.2 of the agreement, and later filed Reference Case No. 61 of 2018 before the Madhya Pradesh Arbitration Tribunal.
Despite the pending statutory reference, the appellant invoked Clause 44.3.1 of the Concession Agreement and approached the International Centre for Alternative Dispute Resolution (ICADR), which appointed an arbitrator for the respondent after the respondent declined to nominate one. The arbitral tribunal subsequently constituted held a preliminary hearing and set procedural timelines.
Thereafter, the appellant sought withdrawal of the statutory reference pending before the Madhya Pradesh Arbitration Tribunal. The withdrawal was allowed on 08.02.2023 without liberty to re-agitate. Aggrieved by the ICADR arbitral proceedings, the respondent filed a writ petition before the High Court of Madhya Pradesh, challenging the orders dated 02.06.2022 and 07.06.2022 passed by the ICADR and Arbitral Tribunal respectively. The High Court allowed the writ petition, quashing both orders. This judgment was challenged before the Supreme Court.
“The private arbitration proceedings initiated under the 1996 Act are non est in law”, recorded the Court, after analysing the interplay between the 1983 Act and the Arbitration and Conciliation Act, 1996. The Bench observed that the Concession Agreement clearly falls within the statutory definition of “works contract” under Section 2(1)(i) of the 1983 Act, and that the disputes—quantified at ₹280.1566 crores—were either ascertained or ascertainable monetary claims.
“The reference contemplated under the 1983 Act implies that the claims covered by the Act shall be decided only by the Tribunal constituted under its provisions, when it comes to a works contract with the State Government, an instrumentality of the State, or a State Corporation.”
The Court cited several binding precedents, including Viva Highways Ltd v. Madhya Pradesh Road Development Corporation Ltd, wherein the Madhya Pradesh High Court held, and this Court affirmed, that even the presence of an arbitration clause cannot override the statutory reference mechanism of the 1983 Act. The Bench reiterated: “Section 7 clearly mandates that all disputes arising from such works contracts shall be referred to the Madhya Pradesh Arbitration Tribunal, even if the agreement contains an arbitration clause.”
Rejecting the appellant’s contention that its claims were “unascertained,” the Court noted: “The list of claims filed by the appellant clearly discloses a quantified monetary claim of ₹280.1566 crores, which squarely falls within the definition of ‘dispute’ under Section 2(1)(d) of the 1983 Act.”
On the issue of maintainability of the writ petition, the Court held that despite the appellant being a private entity, the challenge was to the invocation of a non-statutory arbitral mechanism in the face of a binding statutory obligation. The Court applied the functional test to observe: “The contract for laying of a State Highway, when assigned by the Corporation owned and run by the government, assumes the character of a public function – even if performed by a private party.”
Addressing the issue of the contractual arbitration clause, the Court declared: “Clause 44.3.1 of the Concession Agreement, to the extent it purports to permit private arbitration, is inoperative insofar as it seeks to override the statutory mandate of the 1983 Act.”
The Bench noted that the appellant had already approached the Madhya Pradesh Arbitration Tribunal and withdrawn the proceedings without liberty to re-file, which attracted the bar under Rule 53(3)(b) of the Madhya Pradesh Madhyastham Adhikaran Regulations, 1985. However, the Court extended limited relief: “We are of the opinion that the appellant can be permitted to seek revival of Reference Petition No. 61 of 2018 before the Madhya Pradesh Arbitration Tribunal.”
The Court distinguished all contrary precedents relied on by the appellant and confirmed that statutory enactments prescribing exclusive jurisdiction cannot be contractually displaced. The Bench noted that the appellant was party to prior litigation where the jurisdiction of the statutory Tribunal was upheld.
The Supreme Court quashed the private arbitration proceedings initiated by the appellant under the Arbitration and Conciliation Act, 1996, holding them to be without jurisdiction.
The Court directed the appellant to file an application for recalling the withdrawal order dated 08.02.2023 and to seek restoration of Reference Petition No. 61 of 2018 before the Madhya Pradesh Arbitration Tribunal within two weeks from the date of receipt of the judgment.
Upon such filing, the Madhya Pradesh Arbitration Tribunal was directed to consider the application on its own merits and to pass appropriate orders within a further period of two weeks.
If the application for restoration is allowed, the Tribunal shall dispose of the Reference Petition on merits, in accordance with law, and after affording reasonable opportunity to both parties, preferably within four months from the date of restoration.
The appeal was disposed of in the above terms, with no order as to costs. All pending applications were disposed of.
Advocates Representing the Parties
For Petitioner(s): Mr. Siddharth Dave, Sr. Adv., Ms. Sadapurna Mukherjee, Mr. Saurabh Kumar, Ms. Manvi Sharma, Advocates, Mr. Rajat Mittal, AOR.
For Respondent(s): Mr. Tushar Mehta, Solicitor General, Mr. Siddharth Sharma, AOR, Mr. Bhuvan Kapoor, Ms. Rajeshwari Shankar, Ms. Ishika Chauhan, Advocates.
Case Title: Umri Pooph Pratappur (UPP) Tollways Pvt. Ltd. v. M.P. Road Development Corporation and Another
Neutral Citation: 2025 INSC 907
Case Number: Civil Appeal No. 9920 of 2025
Bench: Justice J.B. Pardiwala, Justice R. Mahadevan
