[Cites 12, Cited by 0]
Bombay High Court
Maharashtra State Road Development ... vs Jai Laxmi Constructions Engineers And ... on 16 April, 2026
2026:BHC-OS:9470
F-J-CARBP-899-2018+.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION NO. 899 OF 2018
WITH
NOTICE OF MOTION IN COMM. DIV. MATTERS NO. 1436 OF 2018
IN
COMMERCIAL ARBITRATION PETITION NO. 899 OF 2018
Maharashtra State Road Development Corporation ...Petitioner
Ltd.
Versus
Jai Laxmi Constructions Engineers And ...Respondents
Contractors
Dr. Birendra Saraf, Advocate General, a/w Mr. Jay Sanklecha, Mr. Arun
Siwach, Ms. Priyanka Mitra and Mr. Shanthan Reddy, i/b Cyril
Amarchand Mangaldas, for the Petitioner.
Digitally
Mr. Sachin Punde a/w Mr. Suraj B. Jadhav, for Respondents.
signed by
ASHWINI
ASHWINI JANARDAN
JANARDAN VALLAKATI
VALLAKATI Date:
2026.04.16
18:23:16
+0530
CORAM : SOMASEKHAR SUNDARESAN, J.
RESERVED ON: March 23, 2026
PRONOUNCED ON: April 16, 2026
Judgement:
Context and Factual Background:
1. This Petition under Section 34 of the Arbitration and Conciliation
Act, 1996 ("the Act") is filed by the Maharashtra State Road Development
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
Corporation Ltd. ("MSRDC"), impugning an arbitral award dated April 18,
2018 ("Impugned Award") passed in favour of the Respondent, Jai Laxmi
Constructions Engineers and Contractors (" Jai Laxmi"). The challenge is
primarily on the ground of absence of jurisdiction owing to non-existence of
an arbitration agreement covering the subject matter of the dispute.
2. The factual matrix relevant for purposes of these proceedings may
be summarized as under:
A) On July 9, 2005, MSRDC floated a tender inviting offers for
the appointment of a contractor for purposes of toll collection at a toll
station near Dusarbeed on the Mehkar-Sindkhedraja Road (" Toll Road")
and issued an offer document;
B) A corrigendum was issued on July 18, 2005 pursuant to a
pre-bid meeting held on July 16, 2005. On July 20, 2005, Jai Laxmi
purchased the bid document and went on to submit the offer accepting
the terms and conditions of the tender on July 26, 2005;
C) The selected bidder was to pay upfront the net present value
of the potential toll that could be collected, for which the right to collect
toll from the Toll Road was granted. Jai Laxmi was the third highest
bidder but was selected after the first and second highest bidders backed
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
out. Jai Laxmi was issued a letter of acceptance dated December 30,
2005, appointing Jai Laxmi as the contractor for the Toll Road with an
entitlement to collect the toll for a period of 156 weeks i.e. three years
("Collection Period");
D) Jai Laxmi's bid was for an amount of Rs.3.60 crores payable
to MSRDC upfront on a lumpsum basis. Jai Laxmi was also required to
provide a performance bank guarantee in the sum of Rs.14 lakhs and
make the upfront payment within 30 days. To make this payment, Jai
Laxmi would borrow Rs. 3.5 crores, from State Bank of India ("SBI");
E) On January 27, 2006, the parties executed a contract by
which MSRDC appointed Jai Laxmi as the "contractor" for the project
("Toll Collection Agreement"), which does not contain an arbitration
clause;
F) On the same date and simultaneously, an agreement was
executed among MSRDC, Jai Laxmi and SBI, by which a person
nominated by SBI would have a right to step into the shoes of Jai Laxmi
if the Toll Collection Agreement were to be terminated (" Replacement
Agreement") with a default being alleged against Jai Laxmi;
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
G) On January 27, 2006, a Work Order was executed by
MSRDC in favour of Jai Laxmi to commence the Collection Period,
effective midnight of January 28, 2006. A status quo order passed by a
Civil Court in a Suit filed by another bidder, led to Jai Laxmi taking
possession only at midnight of February 21, 2006 and until February 16,
2009;
H) On February 16, 2009, MSRDC extended the Toll Collection
Agreement on the same terms and conditions for a further period until
June 14, 2009, with upfront monthly payments as stipulated in a letter
issued on that date. This arrangement too ran its course as scheduled
without any termination or substitution of Jai Laxmi. In short, the
Replacement Agreement never had to be invoked and nothing contained
in it had to be activated;
I) On May 26, 2012, Jai Laxmi invoked arbitration raising 1o
claims under the Toll Collection Agreement but invoking the arbitration
clause contained in the Replacement Agreement and proposed three
names, one of whom could be appointed as a Sole Arbitrator. On June
28, 2012, MSRDC proposed three different nominees for appointment
of a Sole Arbitrator. On July 3, 2012, Jai Laxmi consented to
appointment of one of the three nominees proposed by MSRDC as the
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
Sole Arbitrator, who commenced proceedings on October 12, 2012 with
a meeting that was not attended by MSRDC;
J) On November 6, 2012, MSRDC communicated its objection
to the appointment of the Learned Sole Arbitrator stating that there was
no arbitration agreement between the parties in relation to the Toll
Collection Agreement and that the dispute resolution procedure set out
in the Toll Collection Agreement would need to be adopted - civil courts
and not arbitration;
K) On March 16, 2013, MSRDC sought time to file a formal
application under Section 16 of the Act challenging the jurisdiction of
the Learned Sole Arbitrator, which was filed on April 18, 2013.
Meanwhile, a Statement of Claim had been filed by Jai Laxmi on
November 26, 2012. Along with a preliminary objection to jurisdiction,
and without prejudice to it, the Statement of Defence was filed by
MSRDC on June 27, 2013 i.e. after the application under Section 16 of
the Act;
L) On June 30, 2013, Jai Laxmi filed its reply to the Section 16
Application, contending that the arbitration clause in the Replacement
Agreement stood incorporated by reference in the Toll Collection
Agreement in terms of Section 7(5) of the Act. That apart, it was
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
contented that the participation by MSRDC in the appointment of the
Arbitral Tribunal, with none other than MSRDC having recommended
three names, one of which was picked by Jai Laxmi, led to an arbitration
agreement coming into existence by exchange of correspondence under
Section 7(4)(b) of the Act;
M) On July 5, 2013, MSRDC filed written submissions pursuant
to the Section 16 Application and dealt with the interpretation of
Sections 7(5) and 7(4)(b) of the Act to contend that no conscious
acceptance of an arbitration agreement is discernible. It was stated that
mere participation in the constitution of the Arbitral Tribunal would not
confer jurisdiction on an Arbitral Tribunal constituted without an
arbitration agreement between the parties being in existence, and under
Section 16, participation in constitution would not preclude the right to
challenge the absence of jurisdiction; and
N) Between September 2013 and November 2013, pleadings
were completed including on MSRDC's counter claim. Eventually, the
arbitral proceedings were concluded in October 2017 and the Impugned
Award was passed on April 18, 2018 with reasons for rejecting the
Section 16 Application being set out in the Impugned Award.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
MSRDC's Contentions:
3. It is against this backdrop that the submissions were made before
this Court. The hearing was conducted last year and I heard Dr. Birendra
Saraf, Learned Senior Advocate for MSRDC and Mr. Sachin Punde, Learned
Advocate for Jai Laxmi. Due to a significant efflux of time since the hearing,
the matter was fixed for hearing afresh on March 23, 2026, when I heard Mr.
Jay Sanklecha for MSRDC and Mr. Sachin Punde for Jai Laxmi. Judgement
was reserved afresh.
4. Having examined the record with the assistance of the advocates, I
must note at the threshold that MSRDC restricted its line of attack to the
Impugned Award to questioning the jurisdiction of the Arbitral Tribunal. If the
Arbitral Tribunal had no jurisdiction at all to conduct the proceedings, the
Impugned Award would be a nullity in the eyes of law. Consent by expression
of clear and unfettered exercise of sovereign autonomy to contract is the
bedrock of arbitration. In the absence of consensual agreement to arbitrate to
the exclusion of all forums, there cannot be jurisdiction for an Arbitral
Tribunal to adjudicate. On the other hand, if despite being party to an
arbitration agreement, if a party were t0 avoid arbitration, the Arbitral
Tribunal would be entitled to proceed the whole hog and adjudicate since
there has been a consensual expression of commitment to arbitrate.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
5. Therefore, whether the disputes referred to arbitration were
amenable to arbitration is the core issue to be considered in this Petition.
6. MSRDC would contend that the Toll Collection Agreement and the
Replacement Agreement may have been executed on the very same day but
each of them individually dealt with a different scope of coverage. It was
contented that not only was the subject matter of the two contracts distinct
and separate, even the privity to contract was not uniform. Further, MSRDC
would contend that in the Toll Collection Agreement the parties explicitly
agreed that all disputes would be subject to the exclusive jurisdiction of the
Principal Court of Ordinary Civil Jurisdiction at Mumbai and that no suit or
other proceedings relating to the conditions of the tender and the performance
or breach of contract could be filed in any forum other than the aforesaid
Court.
7. Reliance was placed on Clause 8.2 of the Toll Collection Agreement
to contend that the parties had squarely agreed to resolve their disputes and
differences by reference to the aforesaid exclusive jurisdiction alone. Clause 38
of the Toll Collection Agreement also provided that disputes and differences of
opinion between the parties would be resolved by the decision of the Vice
Chairman and Managing Director of MSRDC, which shall be final and binding.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
Yet, the parties also agreed in Clause 8 that their litigation would be subject to
the exclusive jurisdiction of the Principal Civil Court in Mumbai.
8. The Replacement Agreement, MSRDC would contend, granted
rights to SBI to step in and replace Jai Laxmi in the case of termination of the
Toll Collection Agreement. The arbitration clause in this instrument could
never be intended to cover disputes and differences between MSRDC and Jai
Laxmi. That arbitration agreement, it is contended, was meant to cover
disputes with SBI over the replacement and substitution of Jai Laxmi. The
dominant object of the Replacement Agreement was protection of SBI in the
event of the replacement of Jai Laxmi, bearing in mind that SBI had lent
Rs.3.5 crores used by Jai Laxmi to pay MSRDC. Therefore, if Jai Laxmi were to
be replaced, SBI would need to be protected with the underlying rights of toll
collection vesting in SBI for the residual period of the contract.
9. The Toll Collection Agreement governed the terms on which Jai
Laxmi would pay MSRDC upfront and recover the investment from toll
collection during the Collection Period while the Replacement Agreement
governed the terms on which SBI would replace Jai Laxmi with a selectee for
toll collection work for the residual contract period should the Toll Collection
Agreement be terminated.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
Jai Laxmi's Contentions :-
10. In sharp contrast, Jai Laxmi would contend that the tender
document should be read as a whole and the drafts of both the agreements
constitute a composite unified contract and therefore the arbitration clause in
the Replacement Agreement would form a binding arbitration agreement that
would govern the offer and acceptance represented by the terms of the tender.
The offer document has been signed by MSRDC as well as by Jai Laxmi upon
the latter's selection and such signatures would indicate that that instrument
by itself contained the consent of the parties to its contents and thereby to the
arbitration agreement, which came into existence under Section 7 of the Act.
11. Jai Laxmi would further contend that the tender terms provided for
three options to pay MSRDC. These included Jai Laxmi making the payment
using its own funds; Jai Laxmi taking financial assistance from a lender
without the Replacement Agreement being executed; and Jai Laxmi taking
financial assistance from a lender who executes the Replacement Agreement
along with MSRDC and Jai Laxmi. The sample form of the Replacement
Agreement also forms an integral part of the offer document along with the
tender. Indeed, Jai Laxmi availed of a loan from SBI which led to execution of
the Replacement Agreement. Therefore, it is contended, the arbitration clause
in that agreement read with the integral composite whole represented by the
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
offer document and tender terms which have been signed by all parties
together, would indicate that the two instruments fused into one, with the
arbitration clause of the Replacement Agreement also governing disputes and
differences between MSRDC and Jai Laxmi including disputes under the Toll
Collection Agreement.
12. Jai Laxmi would also point out that the term "Replacement
Agreement" is defined and incorporated into the Toll Collection Agreement
and the term "parties" would refer to Jai Laxmi, MSRDC, the lenders and any
special purpose vehicle, if applicable. Therefore, the tripartite Replacement
Agreement, would only lead to a lender becoming a party to the bipartite Toll
Collection Agreement by execution of the Replacement Agreement. Therefore,
the privity of contract is to be considered as uniform across both instruments.
Jai Laxmi would point to the Replacement Agreement to indicate that the
lender would be able to take over the toll collection rights of Jai Laxmi by
appointing a selectee, underlining the interlinkage between the two
instruments. So also, the step-in rights of the lender are pointed to, to indicate
that the lender would be deemed to be in the shoes of Jai Laxmi under the Toll
Collection Agreement, again interlinking the two instruments. Therefore, Jai
Laxmi would contend that there is an inseparable interlinkage between the
Toll Collection Agreement and the Replacement Agreement.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
13. Case law relating to non-signatory veritable parties being amenable
to the arbitration agreement is also relied upon in a bid to address the absence
of SBI's signature on the Toll Collection Agreement. It is also contended that
the arbitration clause in the Replacement Agreement relates to disputes and
differences "arising out of" or "in connection with" the Replacement
Agreement being amenable to arbitration. The Toll Collection Agreement and
the Replacement Agreement being inter-connected, disputes and differences
arising out of the Toll Collection Agreement would have a connection with the
Replacement Agreement. Therefore, it is contended that the arbitration clause
in the Replacement Agreement would also be an arbitration agreement
between MSRDC and Jai Laxmi even if SBI had no role in the dispute.
14. Finally, Jai Laxmi would also point to the fact that in response to
the three names proposed by Jai Laxmi, MSRDC proposed three names of
arbitrators and all that Jai Laxmi did was pick one of the names suggested by
none other than MSRDC. Therefore, the exchange of correspondence on the
identity of the arbitrators, with Jai Laxmi's invocation notice indicating three
names, which were rejected by MSRDC only to propose three other names,
which would indicate that there was no quarrel about the applicability of the
arbitration clause under the Replacement Agreement to the disputes between
the parties. Therefore, the exchange of letters in connection with the process of
appointment of the arbitrator itself constitutes an agreement under Section 7
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
of the Act, and the parties had consensus on the identity of the arbitrator. In
the absence of a positive repudiation of the arbitration clause in the
Replacement Agreement being invoked by Jai Laxmi, MSRDC has not only
participated in the constitution of the Arbitral Tribunal but also expressed its
consent by proposing names. Moreover, MSRDC filed a counter claim and is
therefore deemed to have submitted to the jurisdiction of the Learned Arbitral
Tribunal and cannot now be heard to deny the existence of the arbitration
agreement.
15. Jai Laxmi would also invoke Section 4 of the Act to contend that
when any requirement under an arbitral agreement has not been complied
with by a party and yet, the other party proceeds with the arbitration without
stating an objection to such non-compliance, there would be a deemed waiver
of the right to object under the Act. Therefore, it is also contented that
MSRDC's conduct is a textbook case of approbation and reprobation, blowing
hot and cold by participating in the arbitral proceedings to avail of its benefits
and taking a chance with its counterclaim, and yet challenging the jurisdiction
of the Arbitral Tribunal after losing in the arbitration. Jai Laxmi would
contend that if two views are possible, the view that upholds the arbitration
agreement must be preferred. The two instruments being integrally
interwoven, the interpretation by the Learned Arbitral Tribunal is a reasonable
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
and accurate interpretation of contract, which this Court must be slow to
interfere with.
Analysis and Findings:
16. It is apparent that the issue falls within a very narrow compass. The
core issue to be considered is the existence or absence of the arbitration
agreement for existential validity of the Impugned Award.
Reasoning in the Impugned Award:
17. The Learned Arbitral Tribunal interpreted Clause 6.1(xi) of the
Replacement Agreement which provided that the parties shall read the two
instruments together and construe them harmoniously and that in the event of
any inconsistency between the Toll Collection Agreement and the
Replacement Agreement, the provisions of the Replacement Agreement shall
prevail. The Learned Arbitral Tribunal also relied on Clause 36 of the Toll
Collections Agreement to hold that upon a termination of that instrument, Jai
Laxmi would not be entitled to any refund of the lumpsum upfront payment
made by it at the commencement of the contractual relationship and the
action to be taken by MSRDC would be in accordance with the Replacement
Agreement.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
18. The Learned Arbitral Tribunal went on to refer to the arbitration
clause in the Replacement Agreement, to hold that such clause could be
invoked for resolving disputes under the Toll Collection Agreement as well and
that the decision of the arbitrator would be binding on both the parties.
Specifically, examining the Clause 38 of the Toll Collection Agreement, the
Learned Arbitral Tribunal took the view that the decision of the Vice Chairman
and Managing Director of MSRDC would be binding only on Jai Laxmi and
not on MSRDC and the Vice Chairman and Managing Director could never be
considered to be a judge in his own cause, and therefore, that provision would
not constitute an arbitration clause.
19. The Learned Arbitral Tribunal also held that the Replacement
Agreement had been signed by both MSRDC and Jai Laxmi on every page, and
therefore, a conjoint reading of the two contemporaneous instruments,
according to the Learned Arbitral Tribunal would point to a fusion of the two
instruments into an inseparable whole which negated MSRDC's contention
that the Toll Collection Agreement was not arbitrable with the consent of the
parties. As regards the role of SBI, the Learned Arbitral Tribunal held that SBI
was in no way concerned with the disputes between the MSRDC and Jai Laxmi
and MSRDC and Jai Laxmi as parties to the dispute appointed the Learned
Arbitral Tribunal.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
20. Finally, the Learned Arbitral Tribunal also held that MSRDC's own
conduct through its officer, recommending three names in response to the
three names suggested by Jai Laxmi, would indicate that without any doubt,
MSRDC had shown its readiness to resolve the disputes through arbitration.
Since Jai Laxmi simply accepted one of the three names suggested by none
other than MSRDC, MSRDC could not resile from its conduct which is
consistent with a belief that there was an arbitration agreement between the
parties.
Interplay between the two Agreements:
21. At the threshold, the arbitration agreement in the Replacement
Agreement must be noticed - it reads thus:
(v) Any dispute, difference or claim arising out of or in connection with
or in relation to this Agreement which is not resolved amicably shall be decided
finally by a sole Arbitrator appointed by mutual consent of all parties to the
dispute and in case of disagreement on the appointment of the sole Arbitrator
the matter shall be referred to the Chief Justice of High Court Judicature,
Mumbai for appointment of Arbitrator under the provision of Arbitration and
Conciliation Act, 1996. The Arbitrator shall issue a reasoned award. The venue
of such arbitration shall be Mumbai, India. The Award shall be final and
binding on the parties. The Parties agree and undertake to carry out the award
of the arbitrators (The 'Award") without delay. Subject to the final award during
the pendancy of Arbitration all costs of Arbitration (Excepting the Advocates
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
Solicitors fees) shall be borne and paid by in equal proportion by all the parties
to the dispute.
[Emphasis Supplied]
22. The disputes and differences covered by the aforesaid provision are
those under "this Agreement" i.e. the Replacement Agreement. The disputes
must arise out of the Replacement Agreement'; or they must be in connection
with the Replacement Agreement; or they must relate to the Replacement
Agreement. In all circumstances, where the disputes have an inextricable
connection to the Replacement Agreement, such dispute irrespective of who
the parties to the dispute are - this could include disputes between MSRDC
and Jai Laxmi - would need to be referred to arbitration. However, what is
vital at the core is that the differences of opinion must relate to the
Replacement Agreement. The subject matter of the Replacement Agreement
is the substitution of Jai Laxmi in the event of the termination of the Toll
Collection Agreement. At the core of the jurisdictional fact necessary to trigger
the terms of the Replacement Agreement to start their operation is the
termination or even a purported termination of the Toll Collection Agreement.
23. However, the Toll Collection Agreement was not even purported to
be terminated. Not only was Jai Laxmi not sought to be ejected from the Toll
Road, it was even given an extension on the same terms for a longer period.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
The Replacement Agreement had no role whatsoever and nothing contained in
it had to ever be acted upon; no obligation contained in it had to be
discharged; and nothing in it was to be executed. The claims raised by Jai
Laxmi were admittedly under the Toll Collection Agreement. They had
nothing to do with the Replacement Agreement. Therefore, on these facets
alone, in my opinion, the arbitration agreement among the parties had no role
whatsoever.
24. It would then be instructive to examine the provisions governing
dispute resolution in the Toll Collection Agreement - Clause 8.2 and Clause
38 read thus:
8.2 LAW : The contract shall be governed and construed in accordance with the
law of India. No suit or other proceedings relating to this offer, its conditions and
performance or breach of contract shall be filed or taken by the Contractor in any
Court of Law except Principal Court of Ordinary Civil Jurisdiction at Mumbai
which shall have exclusive jurisdiction to the exclusion of any outside court.
[Emphasis Supplied]
25. The parties evidently contracted that if Jai Laxmi sought to initiate
any proceedings, it could only do so in the Principal Court of Ordinary Civil
Jurisdiction at Mumbai. Therefore, what is clear is that the parties had
agreed how to resolve their disputes in relation to the Toll Collection
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
Agreement - that was by resort to the Principal Court of Ordinary Civil
Jurisdiction at Mumbai.
26. Clause 38 is problematic on the choice by the parties. It reads thus:
38.0 DISPUTES AND RESOLUTION: In case of disputes or difference of opinion
arising, the decision of the Vice Chairman and Managing Director shall be final and
binding on the Contractor. The Contractor shall be given 'reasonable opportunity to
represent his case before the Vice Chairman and Managing Director.
[Emphasis Supplied]
27. Although the heading uses the words "Disputes" and "Resolution",
the manner of drafting of the provision does not necessarily lend itself to being
an arbitration provision - there is nothing to indicate that the parties would
have to abide by whatever the Vice-Chairman and Managing Director of
MSRDC would say. This provision also has to be reconciled with Clause 8.2,
which would only mean that the parties would attempt to resolve by means of
Clause 38, but it is possible that Jai Laxmi would be dissatisfied and would
want to litigate. If that occasion were to arise, Clause 8.2 would point to Jai
Laxmi having to litigate in the Principal Civil Court in Mumbai - far from
resorting to arbitration.
28. Whether Clause 38 is an arbitration clause came up for
consideration before the Learned Arbitral Tribunal and it has held that this
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
provision is not an arbitration agreement. I would agree with that decision -
merely stating that one of the parties to the agreement would decide upon a
dispute would not constitute arbitration. In an arbitration, only the forum
changes - from the public courts to private tribunals contractually created by
parties. However, what is vital is that the parties must be heard by a neutral
impartial and independent forum; they must be able to present their
respective positions and reasons; and the forum would adjudicate issues.
Clause 38 is more in the nature of identifying who in MSRDC would deal with
representations made by Jai Laxmi. Clause 8.2 could only mean that the
handling of the representation by the Vice-Chairman and Managing Director
may not be satisfactory to Jai Laxmi and therefore, it would have a right to
litigate, and such litigation would go to the Principal Civil Court at Mumbai.
Therefore, the phrase "final and binding" in Clause 38 would mean the final
position from MSRDC i.e. the last word from that party would come from the
Vice-Chairman and Managing Director. That may indeed warrant a claim and
a dispute, which can be resolved by litigation, and such litigation would fall in
the exclusive jurisdiction of the agreed Court, and therefore, not in arbitration.
29. The Toll Collection Agreement and the Replacement Agreement are
of course related. They cannot be unrelated - the removal of Jai Laxmi would
lead to the agreed terms for its substitution under the Replacement Agreement
kicking in. However, they are not inextricably intertwined at all as is sought
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
to be contended by Jai Laxmi. They are connected only where the termination
of Jai Laxmi is proposed and the provisions of the Replacement Agreement are
attracted. Any dispute in connection with the substitution and replacement
would be amenable to arbitration. Therefore, in my view the Learned Arbitral
Tribunal has taken a view that is foundationally flawed insofar as the existence
of the arbitration agreement is concerned.
Section 7 - Formation of the Arbitration Agreement:
30. For an arbitration agreement to come into being, the parties ought
to have a written agreement unequivocally committing to arbitration. What is
meant by party autonomy is that the parties must have understood in the same
manner that the only means of dispute resolution is to arbitrate. The provision
governing the subject is Section 7 of the Act, which reads thus:
7. Arbitration agreement.--(1) In this Part, "arbitration agreement" means an
agreement by the parties to submit to arbitration all or certain disputes which
have arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause
in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in--
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication including communication through electronic means which
provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of
the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing and the
reference is such as to make that arbitration clause part of the contract.
[Emphasis Supplied]
31. Under Section 7(1), the parties to the agreement ought to have
agreed to submit specified disputes between them in respect of a defined legal
relationship to arbitration. An essential ingredient is that the disputes ought
to be in respect of a defined legal relationship. The Replacement Agreement
has a very specific defined relationship in respect of which disputes have been
agreed to be referred to arbitration. The defined legal relationship in the
Replacement Agreement is that of how the substitution of Jai Laxmi as the
contractor for collection of tolls on the Toll Road, would be acted upon. In
sharp contrast, the defined legal relationship in the Toll Collection Agreement
are the terms on which the Toll Collection has been contracted to Jai Laxmi by
MSRDC. The two defined legal relationships are distinct and separate
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
although they are related to each other. Discharge of the terms of the
Replacement Agreement would commence when the termination under the
Toll Collection Agreement is effected (Clause 38 of that instrument). But if
there is no termination, although executed and signed, the Replacement
Agreement would have no role to play.
32. Therefore, the main test of Section 7(1) has not been met by the
arbitration clause in the Replacement Agreement when applied to disputes
raised entirely under the Toll Collection Agreement. On the disputes under
the Toll Collection Agreement, the parties have agreed that Jai Laxmi would
have resort to the Principal Civil Court at Mumbai.
33. The contractual framework at hand in these proceedings also fails
to meet two other provisions where there is potential to discern an arbitration
agreement. Indeed, MSRDC raised a counterclaim after having raised its
objection to existence of the arbitration agreement. Section 7(4)(c) would
discern an arbitration agreement only if there is an exchange of Statement of
Claim and Statement of Defence in which existence is alleged by one party and
not denied by the other. In this case, MSRDC has clearly denied the existence
of an arbitration agreement. The further without-prejudice participation was
necessitated because the jurisdictional fact necessary for determining the
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
existence, was postponed by the Learned Arbitral Tribunal to the stage of final
adjudication. Therefore, the ingredients of Section 7(4)(c) are not attracted.
34. Section 7(5) too enables incorporation of an arbitration agreement
by reference. A contract that makes a reference in a manner as to incorporate
the arbitration agreement in another instrument by making such reference
would lead to an arbitration agreement. In this case, the Toll Collection
Agreement makes no incorporation by reference. On the contrary it explicitly
provides for exclusive jurisdiction in a Court. Therefore, in my opinion, no
arbitration agreement is discernible on this count too. Indeed, Jai Laxmi has
made a laborious interpolation and sought to canvas an inter-connection
between the two instruments. I have already explained why the two
instruments are indeed connected but can never be regarded as being
inextricably interwoven into a single whole. Therefore, Section 7(5) too is of
no avail.
35. The next facet for consideration is whether the exchange of
correspondence by Jai Laxmi naming three proposed arbitrators in an
invocation notice being replied to by an official of MSRDC with three alternate
names (one of which was chosen by Jai Laxmi) would by itself lead to an
arbitration agreement having come into existence. While this contention is
very attractive at first blush, on a careful consideration, it does not lend itself
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
to acceptance. This is because the parties had a specific and unequivocal
agreement on how they would resolve disputes in each of the respective
instruments. Therefore, for the exchange of letters to constitute a new
arbitration agreement, it would have to partake the character of an
amendment to the Toll Collection Agreement. A reply to the invocation notice
cannot be elevated to a considered and conscious amendment to Clause 8.2 of
the Toll Collection Agreement. Clearly, there is no evidence to indicate that
whosever replied to the invocation notice had authority to amend the Toll
Collection Agreement on his own. Moreover, well before the Statement of
Defence was filed, MSRDC explicitly raised the plea that the dispute is not
amenable to arbitration.
MSRDC's Participation and Counterclaim:
36. In this light, Section 16 of the Act must be noticed - it reads thus:
16. Competence of arbitral tribunal to rule on its jurisdiction.-- (1) The
arbitral tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the arbitration agreement,
and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated
as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void
shall not entail ipso jure the invalidity of the arbitration clause.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
(2) A plea that the arbitral tribunal does not have jurisdiction shall be
raised not later than the submission of the statement of defence; however, a party
shall not be precluded from raising such a plea merely because that he has
appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority
shall be raised as soon as the matter alleged to be beyond the scope of its
authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-
section (2) or sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section
(2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting
the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an
application for setting aside such an arbitral award in accordance with Section
[Emphasis Supplied]
37. This provision clearly empowers the Arbitral Tribunal to rule on its
own jurisdiction. Section 16 also makes it clear the participation in the
constitution of the Arbitral Tribunal would not preclude the ability to raise a
plea on jurisdiction. The question of existence of an arbitration agreement is
a core existential question of jurisdiction and cuts to the root of the matter.
This cannot be wished away by the participation in constitution of the Arbitral
Tribunal. The legislative policy choice is clearly that such a situation may
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
emerge, and that the participation in constituting the Arbitral Tribunal ought
not to preclude the capacity to raise the objection on the existence of the
arbitration agreement. Put differently, in the absence of an arbitration
agreement, it has been legislatively made impossible to contend that the
participation in formation of the Arbitral Tribunal would suffice to constitute
an arbitration agreement. This is precisely what Jai Laxmi is contending as its
last submission. This is contrary to the scheme of Section 16 and is therefore
repelled.
38. Moreover, where the agreement to arbitrate is itself non-existent,
the participation in selecting an arbitrator would still be ultra vires the
contract. The proposal of three names by the officials of MSRDC would be
ultra vires the Toll Collection Agreement if that instrument did not have an
arbitration agreement. As seen above, that agreement contains an exclusive
jurisdiction clause pointing to any claim by Jai Laxmi having to be adjudicated
in that Court. Therefore, it is not at all tenable to contend that the exchange of
correspondence pursuant to the invocation notice gave rise to an arbitration
agreement.
39. Indeed, under Section 16 of the Act, the objection to jurisdiction has
to be raised at the earliest opportunity, which MSRDC has done. It is equally
true that the Learned Arbitral Tribunal did not rule on the jurisdictional
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
objection as a preliminary point and deferred that decision to the final
outcome in the arbitral proceedings. Even if there had been a preliminary
ruling in favour of jurisdiction, under Section 16, a challenge at that stage is
prohibited and the challenge is deferred to the Section 34 stage, which too is
only should the need to challenge arise i.e. if the party raising the
jurisdictional objection is the judgement debtor in the arbitral award. Under
Section 37(2)(a) too, it is only when a plea of absence of jurisdiction is
accepted that a statutory appeal is provided for.
40. In this case, the plea of the absence of an arbitration agreement has
been rejected simultaneously with the final adjudication. At this stage, the
challenge under Section 34 is the stage at which the plea under Section 16 has
been disallowed. If the plea of absence of jurisdiction is allowed, the
jurisdiction of Section 37 would be attracted. The plea of absence of
jurisdiction has been rejected in this case and outcome in the arbitration also
is against MSRDC. The challenge of the decision under Section 16 has now
fused into the challenge of the Impugned Award.
41. I have been anxious and conscious of the serious time and
expenditure that has been invested by the parties in the arbitration
proceedings. Whenever a jurisdictional objection is raised and rejected and
eventually has to be adjudicated after an award is made, this facet always
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
weighs in the mind of the Court. Yet, the jurisdictional objection is a real
objection - if there is no jurisdiction, it cuts to the root of the matter. This is a
conscious policy feature in the legislative design of the Act. The party seeking
to raise the objection has to raise it at the earliest opportunity. The Arbitral
Tribunal may rule on it as a preliminary issue and at times may have to
consider questions of fact if a facet of jurisdictional fact is involved in taking a
decision.
42. In this case, indeed, the Learned Arbitral Tribunal felt it necessary
to examine the facts fully with evidence before answering the jurisdictional
question. The contemporaneous conduct of the parties and evidence on that
would have a bearing on taking the decision, and the Learned Arbitral
Tribunal cannot be faulted for deferring the decision on jurisdiction to the
stage of final adjudication, after examining the evidence. It must be
emphasised that MSRDC had indeed raised its jurisdictional objection at the
threshold and at the earliest. The very scheme and design of Section 16 of the
Act is that an Arbitral Tribunal is empowered to rule on its own jurisdiction,
and should it hold that it indeed has jurisdiction, such decision is not
amenable to challenge except at the Section 34 stage i.e. should the need arise
for the party raising the jurisdictional challenge to challenge the arbitral
award. This is the core element of the scheme of the Act with minimal
interference by the Court as codified in Section 5 of the Act.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
43. Therefore, the contention that the counterclaim by MSRDC would
indicate submission to arbitration and that MSRDC is approbating and
reprobating, is not tenable. Of course, the filing of such counterclaim was
without prejudice to the jurisdictional objection, which had been taken at the
threshold. Therefore, on this count too, I am not persuaded to hold that
MSRDC had given rise to a new arbitration agreement first by proposing three
names in response to the invocation notice, and then by filing its counterclaim
in the course of the arbitration. MSRDC indeed raised its objection and
retained in. The engagement in arbitration was without prejudice to its
objection to jurisdiction and therefore, it has not eroded its statutory right to
object to jurisdiction at the Section 34 stage. The challenge at this stage is not
the case of an ambush after finding that a willing participation in an
arbitration turned out adverse - MSRDC had indeed challenged the
jurisdiction and contended the absence of an arbitration agreement for the
Toll Collection Agreement.
Scope of Review of the Impugned Award - Section 34:
44. Against this backdrop, I have also considered whether the Learned
Arbitral Tribunal's interpretation of contract is a plausible and reasonable one
or whether it is so unreasonable that it cuts to the root of the matter. This is
because it is well settled that the Learned Arbitral Tribunal has the prerogative
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
of interpreting the agreement and as the master of evidence is the best judge of
the quality and quantity of evidence.
45. I have set out my analysis above as to how to interpret the two
instruments in the context of discerning an arbitration agreement. In my view
the analysis by the Learned Arbitral Tribunal is not just implausible - it is not
at all a reasonable view that is possible. Indeed, the Replacement Agreement
has to be read consistent with the Toll Collection Agreement. However, for
that situation to arise, the jurisdictional fact necessary to attract the provisions
of the Replacement Agreement ought to have occurred - the termination of
Jai Laxmi as the contractor. That situation never arose. On the contrary the
Toll Collection Agreement was extended further. Therefore, the circumstances
never even necessitated the parties having to interpret the Replacement
Agreement for such interpretation to be consistent with the Toll Collection
Agreement. If and when and as and when the hypothesis of the Replacement
Agreement having to be interpreted were to arise, it would have had to be
interpreted consistent with the Toll Collection Agreement. That situation has
nothing to do with the parties having agreed that the disputes under the Toll
Collection Agreement can be raised by Jai Laxmi outside the exclusive
jurisdiction agreed to in Clause 8.2 of the Toll Collection Agreement, and by
reference to arbitration under the Replacement Agreement.
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
46. Therefore, I am quite satisfied that the error in the interpretation
adopted by the Learned Arbitral Tribunal is so gross and perverse that it cuts
to the root of the matter. When parties have agreed on a specific means of
dispute resolution under the Toll Collection Agreement and that is not
arbitration, it is quite perverse to purport that the agreed exclusive jurisdiction
provision stood displaced by nothing more than the interpretation of another
clause in the Toll Collection Agreement.
47. I have also discounted the fact that the Learned Arbitral Tribunal is
not a trained judicial mind and may not express reasons in a sophisticated
judicial manner. In fact, I am conscious that even implicit reasons that would
otherwise support the outcome, when discernible, must lead to the Section 34
Court not interfering with an arbitral award. This situation at hand is quite
grossly skewed - to a degree that the findings are patently illegal for being
completely contrary to contract. The Impugned Award provides the reason of
harmonious reading when no circumstance of harmonious reading arose. The
specific subject matter of the two instruments is distinct and different and this
nuance has been completely lost to the Learned Arbitral Tribunal. The
requirement that MSRDC would conduct itself in terms of the Replacement
Agreement would be attracted only if the Toll Collection Agreement were to be
terminated. Far from having been terminated, it was even extended.
Therefore, in my opinion, the reading of the two instruments and their
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
interplay is so patently wrong that is cuts to the root of the matter that no
reasonable reading could adopt.
48. It is made clear that the observations in this judgement are in
relation to the jurisdictional question and the existence of the arbitration
agreement. Having found that that there is no jurisdiction, I have explained
my reasons for disagreeing with the Learned Arbitral Tribunal. Therefore,
nothing contained in this judgement is an expression of an opinion on merits
of the case.
49. I have already explained why MSRDC's participation in constitution
of the Learned Arbitral Tribunal and the filing of a counterclaim are no bar to
filing its objection on jurisdiction and continuing with it. On this count too,
the Learned Arbitral Tribunal has fallen into error and has not appreciated the
scope and import of Section 16 of the Act.
50. In these circumstances, I am constrained to quash and set aside the
Impugned Award for being a product of a forum that lacked jurisdiction
(coram non judice).
51. The Section 34 Petition is allowed. All interim applications shall
stand disposed of accordingly. Any deposits made in this Court shall be
April 16, 2026
Ashwini Vallakati
F-J-CARBP-899-2018+.doc
released to MSRDC within a period of six weeks from the upload of this
judgement on the website of this Court.
52. All actions required to be taken pursuant to this order shall be
taken upon receipt of a downloaded copy as available on this Court's website.
[ SOMASEKHAR SUNDARESAN, J.]
April 16, 2026
Ashwini Vallakati
