Collateral arbitration clauses cannot supersede express exclusive civil jurisdiction clauses in primary contracts.

In 2005, MSRDC appointed Jai Laxmi as a contractor for toll collection.

The parties executed two contemporaneous documents on January 27, 2006: (i) a bipartite "Toll Collection Agreement," which lacked an arbitration clause and vested exclusive jurisdiction in the Principal Court of Ordinary Civil Jurisdiction at Mumbai.

(ii) a tripartite "Replacement Agreement" (including State Bank of India), which contained an arbitration clause for disputes arising "in connection with this Agreement" (the substitution of the contractor upon default).

The Toll Collection Agreement ran its course and was extended; the Replacement Agreement was never triggered.

In 2012, Jai Laxmi invoked arbitration for claims under the Toll Collection Agreement.

MSRDC initially proposed names for a sole arbitrator but subsequently filed a Section 16 application challenging jurisdiction.

The Arbitrator rejected the jurisdictional challenge in the final award, holding the agreements were a composite whole.

MSRDC filed this petition under Section 34 to set aside the award.

1. Whether an arbitration agreement existed to cover disputes arising solely under the Toll Collection Agreement.

2. Whether MSRDC’s participation in the appointment of the arbitrator and the filing of a counterclaim constituted a waiver of the right to object to jurisdiction or the creation of an arbitration agreement by correspondence under Section 7.

The court applied Section 7 of the Arbitration and Conciliation Act, 1996, which requires a written agreement to submit disputes from a "defined legal relationship" to arbitration.

Incorporation by reference under Section 7(5) requires a specific reference to the arbitration clause to make it part of the contract.

Section 16 mandates that a jurisdictional plea must be raised no later than the Statement of Defence and explicitly provides that participation in the appointment of an arbitrator does not preclude a party from raising such a plea.

The Court found the Arbitrator's finding of jurisdiction to be "patently illegal" and "perverse".

It reasoned that the Toll Collection Agreement and Replacement Agreement governed distinct legal relationships; the latter’s arbitration clause only applied to disputes regarding the substitution of the contractor, a contingency that never occurred.

The presence of Clause 8.2 in the Toll Collection Agreement, which mandated exclusive civil court jurisdiction, clearly signaled the parties' intent not to arbitrate disputes under that specific contract.

Regarding Section 7(4)(b), the court held that an exchange of letters proposing arbitrators cannot be elevated to a "conscious amendment" of a contract that explicitly provides for civil court jurisdiction, especially when the jurisdictional objection was raised at the threshold.

The court emphasized that under Section 16(2), MSRDC’s "without prejudice" participation and counterclaim did not erode its statutory right to challenge the existence of the arbitration agreement at the Section 34 stage.

The interpretation adopted by the Arbitrator was found to be unreasonable and contrary to the express terms of the contract.

The Court allowed the Section 34 petition and set aside the Impugned Award dated April 18, 2018.

All deposits made in the Court were ordered to be released to MSRDC.