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AC Nos.111/2019 and 112/2019

IN THE HIGH COURT OF MADHYA PRADESH

AT JABALPUR

BEFORE

HON’BLE SHRI JUSTICE VIVEK JAIN

ARBITRATION CASE No. 111 of 2019

M/S MAVERICK DEVELOPER AND COLONIZERS PVT. LTD.

Versus

PROJECT OFFICER

WITH

ARBITRATION CASE No. 112 of 2019

M/S MAVERICK DEVELOPER AND COLONIZERS PVT. LTD.

Versus

PROJECT OFFICER

Appearance:

Shri Shekhar Sharma – Sr. Advocate with Shri Dhruv Sharma –

Advocate for the petitioner.

Shri Mihir Agarwal – Advocate for the respondent.

O R D E R

(Reserved on 03.12.2025)

(Pronounced on 20.01.2026)

Since both these petitions are on common legal issues and involve

similar facts, therefore they are being decided by this common order. For

the sake of convenience the facts are being taken from AC No.111/2019.

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AC Nos.111/2019 and 112/2019

2. The present petition has been filed under Section 11(6) of Arbitration

and Conciliation Act, 1996 (for short ‘Act of 1996’), wrongly captioned in

the application as under Section 11(5), for appointment of arbitrator on

account of disputes rising between the parties in relation to agreement for

construction of RCC overhead tanks and other ancillary works for water

supply distribution network project floated by Bhopal Municipal

Corporation.

3. The sole question that arises for consideration in the present case is

that whether an arbitrator under Act of 1996 can be appointed in the present

case or not, or whether the arbitration will be conducted as per the statutory

provisions contained in MP Madhyastham Adhikaran Adhiniyam,1983 (for

short ‘Adhiniyam 1983’) which provides for a separate procedure for

arbitration and M.P. Arbitration Tribunal has been constituted by the State

Government under the said Adhiniyam 1983 and the parties have to

approach the said statutory Tribunal, or the petitioner can maintain the

present application under section 11(6) of Act 1996 for getting an arbitrator

appointed under Act of 1996.

4. The legal question is that whether the Act of 1996 would prevail

over Adhiniyam, 1983, has been subject matter of determination by the

Hon’ble Supreme Court from time to time and initially in the case of VA

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AC Nos.111/2019 and 112/2019

Tech Escher Wyass Flovel Ltd. v. M.P. SEB, (2011) 13 SCC 261 the

issue was decided in favour of Act of 1996. However, later on the in case

of M.P. Rural Road Development Authority v. L.G. Chaudhary

Engineers & Contractors, (2012) 3 SCC 495 it was decided by the

Hon’ble Supreme Court that all disputes in relation to works contract have

to be statutorily referred to the Tribunal set up under 1983 Act. However,

there was partly dissenting opinion between the Hon’ble Judges

constituting the Bench that whether disputes pertaining to termination,

cancellation or repudiation of works contract would still be maintainable

before the Tribunal under the Adhiniyam, 1983 and the matter was referred

to Larger Bench of the Hon’ble Apex Court.

5. Thereafter the Larger Bench in the case of M.P. Rural Road

Development Authority v. L.G. Chaudhary Engineers and

Contractors, (2018) 10 SCC 826 has emphatically overruled the judgment

in the case of V.A. Tech (Supra) and it has been conclusively held that in

view of Section 2 (d) of the Adhiniyam, 1983, the State Act will cover a

dispute even after termination of the works contract. It was held that the

State Act cannot be said to be impliedly repealed by the Act of 1996. The

Larger Bench in L.G. Choudhary Engineers (supra) held as under:-

“4. When the matter was considered by a Bench of this Court on

24-1-2012 (order in M.P. Rural Road Development

Authority v. L.G. Chaudhary Engineers and Contractors [M.P.

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Rural Road Development Authority v. L.G. Chaudhary

Engineers and Contractors, (2012) 3 SCC 495 : (2012) 2 SCC

(Civ) 210] ), this Court held that the judgment in VA Tech

Escher Wyass Flovel Ltd. [VA Tech Escher Wyass Flovel

Ltd. v. M.P. SEB, (2011) 13 SCC 261 : (2012) 3 SCC (Civ) 468]

was per incuriam insofar as it held that the M.P. Act stands

impliedly repealed by the Central Act. While Hon'ble Ganguly,

J., held that the State Act will cover a dispute even after

termination of the “works contract”, Hon'ble Gyan Sudha

Mishra, J. took a different view as follows : (M.P. Rural Road

Development case [M.P. Rural Road

Development Authority v. L.G. Chaudhary Engineers and

Contractors, (2012) 3 SCC 495 : (2012) 2 SCC (Civ) 210] , SCC

p. 511, para 51)

“51. It is no doubt true that if the matter were before an

arbitrator appointed under the Arbitration and

Conciliation Act, 1996 for adjudication of any dispute

including the question regarding the justification and

legality as to whether the cancellation of works contract

was legal or illegal, then the said arbitrator in view of the

ratio of the judgment of the Supreme Court in Maharshi

Dayanand University v. Anand Coop. L/C Society

Ltd. [Maharshi Dayanand University v. Anand Coop. L/C

Society Ltd., (2007) 5 SCC 295] , as also in view of the

persuasive reasoning assigned in the judgment and order

in Heyman v. Darwins Ltd. [Heyman v. Darwins Ltd., 1942

AC 356 : (1942) 1 All ER 337 (HL)] would have had the

jurisdiction to adjudicate the dispute regarding the

justification and legality of cancellation of works contract

also. But the same cannot be allowed to be raised under the

M.P. Act of 1983 since the definition of “works contract”

unambiguously lays down in explicit terms as to what is the

nature and scope of “works contract” and further

enumerates the specific nature of disputes arising out of the

execution of works contract which would come within the

definition of a “works contract”. However, the same does

not even vaguely include the issue or dispute arising out of

cancellation and termination of contract due to which this

question, in my considered opinion, would not fall within

the jurisdiction of the M.P. State Arbitration Tribunal so as

to be referred for adjudication arising out of its

termination.”

5. We find from the definition under Section 2(d) of the

Arbitration and Conciliation Act, 1996 that even after a contract

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AC Nos.111/2019 and 112/2019

is terminated, the subject-matter of dispute is covered by the said

definition. The said provision has not been even referred to in the

judgment rendered by Hon'ble Gyan Sudha Mishra, J.

6. In view of the above, we are of the opinion that the view

expressed by Hon'ble Ganguly, J. is the correct interpretation

and not the contra view of Hon'ble Gyan Sudha Mishra, J.

Reference stands answered accordingly.”

6. The counsel for the petitioner did not dispute the aforesaid legal

position at all, but submitted that though the contract in question falls

within the definition of works contract being a contract relating to

construction of overhead tanks and other ancillary works for water supply

system and also that the dispute in the present case is covered within the

definition of Section 2(d) of Adhiniyam, 1983, but submits that the

respondent is not such an institution the disputes relating to which can be

referred to the Tribunal under Adhiniyam, 1983. It is stated that this is

because the disputes relating to works contracts of State Government or

Public undertakings or notified Corporations of the State Government are

referrable to the statutory Tribunal under State Act, which are covered

within purview of Section 2 (i) of Adhiniyam 1983 and public undertaking

is defined under section 2(g) of Adhiniyam, 1983. The Municipal

Corporation Bhopal being a Municipal Corporation constituted under Part-

IX-A of the Constitution of India and as per Article 243Q of the

Constitution of India the Municipal Corporation being an institution of

local self-government under Article 243 P(e) of the Constitution, therefore

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it being a separate statutory entity, would not fall within the purview of

‘Corporation or other statutory body by whatever name called, wholly or

substantially owned or controlled by the State Government’. It is argued

that the Municipal Corporation is not a Corporation or a Statutory body

wholly or substantially owned or controlled by the State Government and

since Article 243 P(e) readwith Article 243Q vests local self-government in

the Municipality constituted under Part IX-A of the Constitution of India,

therefore the Municipal Corporation is not an entity substantially owned or

controlled by the State Government and therefore would not fall within the

purview of ‘public undertaking’.

7. Per contra, the petition is vehemently opposed by counsel for the

respondents and it is contended that the Municipal Corporation would

indeed fall within the purview of ‘public undertaking’.

8. Heard the counsel for the parties.

9. For appreciating the controversy arising between the parties, the

relevant provisions of the Adhiniyam 1983 are required to be considered

that is Section 2(g) and 2 (i), which are as under:-

“[(g) "public undertaking" means a Government Company

within the meaning of clause (45) of Section 2 of the

Companies Act, 2013 (No. 18 of 2013) and includes a

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AC Nos.111/2019 and 112/2019

corporation or other statutory body by whatever name

called in each case, wholly or substantially owned or

controlled by the State Government.

(i) "works-contract" means an agreement in writing or a

letter of intent or work order issued for the execution of any

work relating to construction, repair or maintenance of any

build-ing or superstructure, dam, weir, canal, reservoir,

tank, lake, road, well, bridge, culvert, factory, work-shop,

power-house, transformer or such other works of the State

Govern-ment or public undertakings or of the Corporations

of the State as the State Government may, by notification,

specify in this behalf at any of its stages, entered into by the

State Government or by any official of the State Government

or by public undertakings or Corporation or by any official

of the State Government for and on behalf of such

Corporation or public undertakings and includes an

agreement for supply of goods or material and all other

matters relating to execu-tion of any of the said works and

also includes the services so hired for carrying out the

aforesaid works and shall also include all concession

agreement, so entered into by the. State Government or

public undertakings or Corporation, wherein a State

support is involved or not:].”

10. By referring to Article 243 Q and 243 P(e) of the Constitution of

India it was vehemently argued before this Court that a Municipality being

an institution of local self-government, it is not a Corporation “owned or

controlled” by the State Government and therefore, it does not fall within

the definition of Public Undertaking under Section 2(g) Adhiniyam, 1983.

The learned counsel for the petitioner has heavily stressed on Article 243P

(e) and 243-Q to contend that the Municipality does not function as

servient to the State Government and it is not a Corporation owned or

controlled by the State Government and it is an autonomous entity deriving

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its existence and autonomy from Part IX-A of the Constitution of India and

declared as such by virtue of Article 243 P(e) and 243 Q of the Constitution

of India. The relevant provisions which have been heavily relied by the

counsel for petitioner are as under:-

243P. Definitions. In this Part, unless the context

otherwise requires,-

(a) "Committee" means a Committee constituted under

article 2435;

(b) "district" means a district in a State;

(c) "Metropolitan area" means an area having a population

of ten lakhs or more, comprised in one or more districts and

consisting of two or more Municipalities or Panchayats or

other contiguous areas, specified by the Governor by public

notification to be a Metropolitan area for the purposes of

this Part;

(d) "Municipal area" means the territorial area of a

Municipality as is notified by the Governor;

(e) "Municipality" means an institution of self-

government constituted under article 243Q;

(f) "Panchayat" means a Panchayat constituted under

article 243B;

(g) "population" means the population as ascertained at the

last preceding census of which the relevant figures have

been published.

243Q. Constitution of Municipalities. (1) There shall be

constituted in every State,-

(a) a Nagar Panchayat (by whatever name called) for a

transitional area, that is to say, an area in transition from a

rural area to an urban area;

(b) a Municipal Council for a smaller urban area; and

(c) a Municipal Corporation for a larger urban area, in

accordance with the provisions of this Part:

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Provided that a Municipality under this clause may not be

constituted in such urban area or part thereof as the

Governor may, having regard to the size of the area and the

municipal services being provided or proposed to be

provided by an industrial establishment in that area and

such other factors as he may deem fit, by public notification,

specify to be an industrial township.

(2) In this article, "a transitional area", "a smaller urban

area" or "a larger urban area" means such area as the

Governor may, having regard to the population of the area,

the density of the population therein, the revenue generated

for local administration, the percentage of employment in

non-agricultural activities, the economic importance or

such other factors as he may deem fit, specify by public

notification for the purposes of this Part.

11. Previously a Coordinate Bench of this Court has already decided the

issue in the favour of applicability and jurisdiction of the Tribunal

constituted under State Act/Adhiniyam of 1983 for Municipalities. The

matter has been decided in case of Indian Construction Co. (Guj.) Ltd. Vs.

Indore Municipal Corporation and Ors., 2019 (1) MPLJ 206. The

Coordinate Bench has held that Municipal Corporation is a public

undertaking and by going through the provisions of M.P. Municipal

Corporation Act, 1956 has held that Municipal Corporation is substantially

controlled by the State Government and therefore it is a public undertaking

under section 2(g) the Adhiniyam, 1983. The Coordinate Bench held as

under:-

“17. To examine the issue if Indore Municipal Corporation is

substantially controlled by the State Government, the provisions

of Municipal Corporation Act, 1956 (for short "theAct") need to

be looked into.

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18 . The respondent-Municipal Corporation Indore has been

constituted under the provisions of the Act. Chapter 36 of the Act

deals with the control of the State Government on the Municipal

Corporation. Section 417 of Chapter 36 empowers the State

Government to require the Commissioner to furnish the return or

to call for and examine the record of any case pending before or

disposed of by the Commissioner, the Corporation or the Mayor-

in-Council. Section 417-A empowers the Government to depute

officers to make enquiry into the affairs of the Corporation or

inspection or examination of any department, office, service,

work or thing under the control of any Corporation authority

and to report to it the result of such enquiry, inspection or

examination. Section 418 gives power to the State Government to

require Municipal Authority to take action. Section 418-A gives

power to the State Government to issue directions to the

Municipal Corporation for implementation of welfare measure.

Under section 419 the Government is empowered to appoint a

person if the Corporation fails to take action within stipulated

period on the order issued under section 418 or directions issued

under section 418-A. If the Government feels that any officer or

servant of the Corporation is negligent in the discharge of his

duty, it can require the Corporation to suspend, fine or otherwise

punish him under section 420. Section 421empowers the

Government to suspend any resolution or order of the

Corporation ands ection 422 empowers the State Government to

dissolve the Corporation on certain contingencies. Under section

423 on dissolution of the Corporation, the administrator can be

appointed by the Government. Section 425 empowers the

Government to enforce its order if the Corporation makes default

in carrying out them. In terms of section 425-A authorized

officials of the State Government are entitled to attend any

meeting of the Corporation or Mayor-in-Council and address it

on any matter concerning the work o fhis department. Section

426 empowers the Government to make rules authorizing

inspection by servants of the Government, of Institution and

works which are under the management and control of the

Corporation and regulating such inspection. Section426-A

authorises the Government to remove any difficulty which arises

in giving effect to the provisions of the Act.

19 . The aforesaid provisions make it clear that the Municipal

Corporation is substantially controlled by the State Government,

therefore, it is a public undertaking under section 2(1)(g) of the

Madhyastham Act.

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20. The record further reveals that in the matters relating to

Works Contract with the Municipal Corporation, other

aggrieved parties are approaching the Madhyastham Tribunal

and such references are being entertained and adjudicated by the

Tribunal. Along with the additional reply one such award passed

by the Madhyastham Tribunal has been placed on record.

21. Having regard to the aforesaid analysis, I am of the opinion

that the Municipal Corporation, Indore being substantially

controlled by the State Government, is a Public Undertaking

within the meaning of section 2(1)(i) of the Madhyastham Act

and since undisputedly the agreement was for execution of Works

Contract, therefore, the applicant has a remedy to approach the

statutory Arbitration Tribunal constituted under the

Madhyastham Act and the present application under section

11(6) of the Arbitration and Conciliation Act, 1996 is not

maintainable, which is accordingly rejected.”

12. The counsel for the petitioner had tried to distinguish the aforesaid

judgment of the Coordinate Bench on the ground that the Coordinate Bench

has not considered Articles 243-P and 243-Q of the Constitution of India

and therefore, the judgement of the Coordinate Bench is per incurium

inasmuch as the autonomy given to the Municipalities under Part IX-A of

the Constitution of India has not been taken up for consideration by the

Coordinate Bench and without considering the effect of Constitutional

provisions, the Coordinate Bench has held that the Municipalities are

public undertakings under Section 2(g) of Adhiniyam, 1983 which should

not be followed by this Court because owing to failure to consider the

relevant constitutional provisions, the aforesaid judgment deserves to be

declared per incuriam by this Court and is not a binding precedent.

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13. Upon considering the aforesaid assertions of the counsel for

petitioner, it is seen that though as per Article 243-P(e), Municipality is an

institution of self-government constituted under Article 243Q, but the said

Part IX-A nowhere vests any status to the Municipalities which brings them

out of control of the State Government concerned. The self-government as

prescribed in Article 243-P(e) has to be understood in the manner of self-

government of the Municipal area or the local area for which the

Municipality is functioning. It cannot be construed to be a self-government

institution vis-à-vis the State Government and to bring it out of financial

and supervisory control of the State Government. Such a status is not

contemplated by the Constitution of India which would catapult the

Municipalities to the status of quasi-states under the Constitution of India,

that is nowhere contemplated in the Constitution and the interpretation

which is being suggested to this Court by counsel for the petitioner would

indeed catapult the Municipalities to the status of quasi-states under the

Constitution.

14. As per Articles 243-P to 243-ZG of the Constitution of India which

constitute Part-IX A of the Constitution of India, powers have been given

to the Legislature of the State concerned to frame laws in the matter of

constitution of municipalities, composition of municipalities, composition

of wards, reservation of seats, duration of municipalities, powers,

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authorities and responsibilities of municipalities, power to impose taxes,

funds, finance, audit, election and all other matters containing

municipalities for which the legislature of the State concerned would make

the laws.

15. The State Government of Madhya Pradesh indeed enacted M.P.

Municipal Corporation Act 1956 which provides for all such matters which

have been laid down in the Constitution of India for the State Legislature to

enact and provide.

16. As per Section 4, Provisional Commissioner shall be appointed by

the State Government. As per Section 5(1), the State Government can

appoint an administrator. As per Section 9(1)(c), Eldermen are to be

appointed by the Government. As per Section 10(1) the State Government

shall determine by notification, the number and extent of wards in

municipal area. As per Section 14(2), State Government will frame rules

for preparation of electoral rolls. As per Section 17(3) the State

Government has the power to decide whether vacancy has occurred in the

Municipal Corporation. As per Section 17-A power to disqualify ex-Mayor

and Speaker etc. rests with the Government. As per Section 19- B removal

of Mayor or Speaker or Chairman of Committee can be ordered by the

State Government. As per Section 25(2)(a) the Mayor is prohibited to work

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in contravention of any order of the State Government. The honorarium or

allowances of the Mayor, Councillors, Speakers etc. shall be determined by

the State Government. In case the Office of Mayor is declared vacant under

the Act, then the Councillor nominated by the Government under Section

21(2) shall perform the duties of the Mayor. The State Government has the

power to prescribe the functions and powers of wards committees and the

procedure for conduct of their business as per Section 48A(7).

17. Not only this, but in the matter of Municipal Officers and servants,

Municipal Commissioner is appointed by the State Government under

Section 54(1). He receives a salary as shall be determined by the State

Government from time to time and the Government grants leave of absence

to the Commissioner in consultation with the Municipality. The rules are to

be made by the State Government for service conditions of Municipal

servants as per Section 58(1). Major penalties cannot be imposed on the

employees without previous sanction of the State Government as per

Section 60(6). The State Government has the power to declare state of

emergency in the municipal area as per Section 65.

18. As per Section 68 which relates to functions of municipal authorities

and powers of said authorities, the State Government is having power to

entrust functions to the Corporation. The Municipality is vested with the

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Municipal property transferred to it by the Government and the

Corporation can rescind or vary the by-laws for management of such lands

only with the previous approval of the State Government. The Government

is having power to resume any immovable property transferred to the

Corporation without payment of compensation and this power is given to

the Government by Section 84.

19. So far as municipal funds are concerned, the Corporation receives

funds from the State Government. As per Section 98, the State Government

has power to direct that budget of the Corporation shall be subject to

sanction of the Government in case the financial condition of corporation is

such that it is desirable to have such control over the Corporation. The

Corporation cannot raise any loan without sanction of the Government as

per Section 102. The Corporation cannot issue debentures without previous

sanction of the Government as provided under Section 105. The

establishment and maintenance of sinking funds under Section 114 is also

to be made with permission of the Government. As per Section 122, the

Government can attach the municipal fund. The Government has the power

to prescribe the manner of receipt and expenditure of Corporation as per

Section 125 and such accounts have to be transmitted to the government as

per Section 126. Annual administration report and accounts have to be

forwarded to the Government as per Section 127. An audit has to be

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conducted by Auditor appointed by the Government in terms of Section

129. The State Government also has a power to prescribe the manner of

social audit as per Section 130-A.

20. In the matter of taxation, the Corporation can impose taxes as per

Section 132 subject to any general or special order made by the State

Government. Same is the situation for levy of user charges as per Section

132A which is also subject to any general or special order of the State

Government. As per Section 133-A, the State Government shall pay to the

Corporation from the consolidated fund of the State, a grant-in-aid, equal to

the duty realised under Section 133-A(1) which is for the purpose of raising

funds for the Corporation. The State Government has been given a power

to require Corporation to impose taxes which is as per Section 133-B.

21. The aforesaid provisions that have been quoted above by this Court

are only illustrations and from the entire perusal of the M.P. Municipal

Corporation Act 1956, it is clear that the municipality works under active

control of the State Government and it cannot be disputed that there is

substantial control of the State Government in each sphere of management

and functioning of the Municipal Corporation.

22. The State Government has powers in the matter of requiring works to

be undertaken by the Corporation, town planning schemes to be framed,

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grant permission to the Corporation to close the public streets, to frame

rules for grant of permission to lay down railways, transmission, electricity

and telephone poles, etc., permit streets to be opened or broken up, etc.

23. The State Government has the power to decide disputes between

corporation and local authorities as per Section 415 and as per Chapter

XXXVI of the Act of 1956, the Government exercises control over the

Corporation and Government can require returns from the Corporation as

per Section 417. Government can depute Officers to make enquiry,

inspection or examination and submit report to the Government as per

Section 417A. The Government can require an municipal authority to take

action as per Section 418. Government can issue directions for

implementation of welfare schemes, and most importantly as per Section

419, there is a detailed procedure to be taken by the Government when

municipal authority fails to take action. Government can suspend any

resolution or order of the Corporation as per Section 421. As per Section

422 the Government can dissolve the Corporation and appoint a committee

after such resolution by exercising powers under Section 423. The

Government has the powers under Section 425 to get its orders enforced by

the Corporation.

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24. In view of the aforesaid detailed provisions most importantly the

provisions of Chapter XXXVI, it is clear that Municipal Corporation works

under substantial control of the State Government and it cannot be inferred

that the Municipal Corporation is a body not substantially controlled by the

State Government. In fact there is substantial control of the State

Government in every manner and every facet of working of the

Corporation. The Constitution of India duly authorizes the State Legislature

to make laws to regulate working of the Corporation and the State

Government has enacted the Act of 1956, which contains detailed

provisions in the manner in which the Municipal Corporation will function

and such provisions give power to the State Government to control each

and every facet of activities of the Municipal Corporation.

25. Therefore, this Court does not find any good ground to take any

different view from the view already taken by the Coordinate Bench in the

case of Indian Construction (Supra). It is held that the Municipal

Corporation is a statutory body substantially controlled by the State

Government. As the necessary data with regard to finances of Municipal

Corporation Bhopal have not been placed for consideration of this Court,

therefore this Court has not given any finding that whether Municipal

Corporation, Bhopal is substantially owned by the State Government or

not. However it is to be noted that Government vests funds so also

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properties in the Municipal Corporation which are managed by the

Municipal Corporation. However substantial control of the State

Government in the Municipal Corporation cannot be denied and therefore it

is held that Municipal Corporation is a “public undertaking” under Section

2(g) of the Adhiniyam 1983.

26. After having held so, in view of the judgment of the Hon’ble Apex

Court in the case of L.G. Chaudhary Engineers-II (supra) the provisions

of Act of 1996 would not apply to the contract in question which is a works

contract in terms of Adhiniyam 1983 and therefore, no arbitrator can be

appointed by this Court by exercising powers under section 11(6) of Act of

1996. Resultantly, the petitions for appointment of arbitrator under section

11(6) of Act of 1996 are rejected, leaving it open to the petitioner to

approach the Tribunal under the State Adhiniyam of 1983, subject to law of

Limitation.

27. With the aforesaid liberty, the petitions are dismissed.

(VIVEK JAIN)

nks JUDGE