This matter is related to a dispute between SMEC, an engineering company and the State of Chhattisgarh. The issue arises over payments as to a government contract. Due to this, the matter went to arbitration whereby an award was passed in favour of SMEC by the arbitral tribunal on certain claims. The State then filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award before the Commercial Court. The court returned the petition stating that it lacked jurisdiction because the arbitration was an International Commercial Arbitration(ICA) and that only the High Court has the authority to hear such cases under Section 34 of the Act.
The case prima facie looks like only a challenge to an arbitral award. But interestingly, it was filed as an appeal before the High Court of Chhattisgarh to decide the issue as to procedure i.e., whether the Commercial Court had the jurisdiction to hear such a challenge.
The dispute arose from a contract which was signed on 3 March 2015, between the appellant, the State of Chhattisgarh and the respondent, SMEC International Pty. Ltd.. The agreement involved certain services as to consultancy for construction of a road and a few projects in Raipur. It also included payment related terms and tax components. As the execution of the project began, disputes arose regarding reimbursement of GST as well as service tax. The consultancy firm stated that as per the contract, the State was responsible to reimburse the taxes. However, the state disagreed.
The matter was referred to arbitration as per the arbitration clause in the contract. When disputes took the high road, the respondent approached the High Court under Section 11(6) for appointing an arbitrator. The appellant challenged the appointment before the Supreme Court which was later rejected.
Following this, the process continued and the sole arbitrator delivered the award on 18 July 2022 in favour of the respondent. Dissatisfied with the award, the State filed a Section 34 application before the Commercial Court at Raipur. The court examined its jurisdiction and concluded that the arbitration was an ICA and returned the Section 34 petition stating that it has to be presented before the High Court.
Due to the same, the state filed the current appeal under Section 37, challenging the order of the Commercial Court.
Legal Issues
Decision
The appeal under Section 37 of the Arbitration and Conciliation Act 1996 was dismissed by the High Court. It was stated by the court that there are only specific situations under which such appeals are permitted. When it comes to Section 34, an appeal can be filed only when a court has set aside or has refused to set aside an arbitral award. Here, the Commercial Court has only returned the petition because it concluded that it did not have any jurisdiction to deal with the matter.
The High Court, on whether the arbitration was an ICA, agreed with the Commercial Court’s reasoning. Under Section 2(1)(f), if one of the parties in an arbitration agreement is incorporated outside India, then the arbitration would be an ICA. The documents as to the joint venture, clearly shows that SMEC International Pty. Ltd., was incorporated in Australia and was the lead member and authorised representative.
This makes the High Court the competent court for Section 34 proceedings under section 2(1)(e)(ii) of the Act. As a result, it was held by the High Court that the appeal is not maintainable and dismissed it accordingly.
Case Reference :- ARBA No. 42 of 2023 (SJB, Delivered by Rajani Dubey, J.) State of Chattisgarh Vs. SMEC International Pty. Ltd.
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