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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4596 OF 2013
[Arising out of SLP(C)No.7334 of 2010]
M/s Today Homes & Infrastructure
Pvt. Ltd. ...Appellant
Vs.
Ludhiana Improvement Trust & Anr. ...Respondents
WITH
C.A. No.4597 of 2013 @ SLP(C)No.11778/2010,
C.A. No.4598 of 2013 @ SLP(C)No.10795/2010,
C.A. No.4595 of 2013 @ SLP(C)No.26173/2010.
J U D G M E N T
ALTAMAS KABIR, CJI.
1. Special Leave Petition (Civil) No.7334 of 2010
and Special Leave Petition (Civil) No.11778 of 2010
have been filed by M/s Today Homes and
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Infrastructure Pvt. Ltd. and Mapletree Properties
Pvt. Ltd. respectively, against a common judgment
and order dated 08.10.2009, passed by the Punjab &
Haryana High Court in Arbitration Case No.76 of
2007. Special Leave Petition (Civil) No.10795 of
2010 has been separately filed by M/s Mapletree
Properties Pvt. Ltd. against the judgment and order
dated 26.03.2010, passed by the aforesaid High
Court in R.A. No.49-CII/2010 (of M) in Arbitration
Case No.76 of 2007. In addition I.A. No.2 of 2010
has been filed by M/s Mapletree Properties Pvt.
Ltd. in Special Leave Petition (Civil) No.26173 of
2010 filed by Ludhiana Improvement Trust for
vacating the interim order of stay passed on
15.09.2010, or modification thereof. I.A. No.3 of
2010 has been filed by Ludhiana Improvement Trust
in the said Special Leave Petition to bring on
record certain additional documents.
Both the
said IAs have been taken up for hearing along with
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the four Special Leave Petitions, as referred to
hereinabove.
Leave granted in all the Special
Leave Petitions.
2. The Ludhiana Improvement Trust, hereinafter
referred to as "the Trust", the Appellant in the
appeal arising out of SLP(C) No. 26173 of 2010, was
constituted under the Punjab Town Improvement Act,
1922, hereinafter referred to as "the 1922 Act",
for the planned development of the city of
Ludhiana.
For the purpose of construction of the
City Centre in Ludhiana, the Trust invited bids by
a Request of Proposal document dated 15.03.2005,
with the intention of entering into a Joint-Venture
with developers in the private sector.
After
evaluation of the bids, M/s. Today Homes and
Infrastructure Pvt. Ltd., the Appellant in the
appeal arising out of SLP(C) No. 7334 of 2010, was
found to be the highest bidder and a Letter of
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Intent was issued in its favour on 18.05.2005, for
development of the City Centre, Ludhiana.
3. The records indicate that after the Letter of
Intent was issued in its favour,
M/s. Today Homes
and Infrastructure Pvt. Ltd. deposited Rs. 3.72
crores with the Trust as Performance Security.
According to the agreement arrived at between the
parties, the successful bidder would ultimately be
required to pay to the Trust Rs.371.12 crores.
The
records further reveal that possession of an area
measuring 25.59 acres was handed over to the
successful bidder by the Trust on 24.05.2005 by way
of Concession Agreement.
A Tripartite Agreement
was signed on 25.04.2005, between M/s. Today Homes
and Infrastructure Pvt. Ltd., the Trust and the
HDFC Bank.
In terms of the said agreement, the
entire proceeds from booking of the saleable areas
were required to be deposited in the Joint Escrow
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Account of the Company and the Trust with the HDFC
Bank, of which 30% was to be credited directly to
the account of the Trust and 70% was to be
deposited to the account of the Company.
Disputes
arose regarding the deposits made in the
Escrow Account and
on 12.09.2006, the Trust issued a
letter to the Company seeking an explanation
regarding the allegations.
On the very next day, a
reply was sent on behalf of the Company denying the
allegations and indicating that its accounts could
be scrutinised, and, if the explanation was not
found to be satisfactory, the dispute could be
referred to arbitration.
In fact, on 14.09.2006,
the Trust wrote to M/s. Today Homes and
Infrastructure Pvt. Ltd. indicating that it was
going to appoint an arbitrator within the next two
days.
However, before the expiry of the said
period, on 15.09.2006, the Company filed an
application before the Chief Justice of the Punjab
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and Haryana High Court under Section 11(6) of the
Arbitration and Conciliation Act, 1996, hereinafter
referred to as "the 1996 Act", being Arbitration
Application No. 263 of 2006.
4. From the submissions made on behalf of the
parties, it transpires that on 6.10.2006, a meeting
was held between the Principal Secretary and
officers of the Trust and the representatives of
the Company, wherein it was agreed that instead of
the Company and the Trust sharing revenue from the
project in the ratio of 70:30, the constructed area
would be shared on the same basis.
It was also
agreed that the demarcation of the operations
involved would be done jointly by the architects of
the parties and all bookings prior to 15.10.2006,
would be honoured and would go to the share of the
Company.
It was also decided that a Supplementary
Agreement incorporating the said terms and
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conditions should also be executed.
Instead of
completing the said agreement, the Trust filed its
response to the Arbitration Application No.263 of
2006, raising a plea, for the first time, that the
agreement executed with the Company was void.
Such
plea was raised two years after the agreement was
entered into and allowing a substantial portion of
the construction of the City Centre, Ludhiana, to
be completed, without any protest, after the Trust
had received a sum of Rs.23 crores as its share of
the sale/lease proceeds from over 300 customers.
5. Faced with the above situation, the Company
wrote a letter to the Trust on 08.06.2007, invoking
the provisions of Article 17.1(a) and (b) of the
Agreement dated 24.05.2005, for appointment of an
arbitrator.
It was also indicated in the letter
that in the event no reply was received, the
Company would nominate its arbitrator.
Since no
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reply was received from the Trust, the Company
wrote to the Trust on 30.06.2007, indicating that
it had appointed its arbitrator.
The Trust
responded to the said letter by raising an
objection that since the matter was sub judice
before the Chief Justice of the High Court, no
arbitrator could have been appointed by the
Company.
6. On 22.08.2007, Arbitration Application No.263 of
2006, was taken up by the Chief Justice of the
Punjab and Haryana High Court, but the same was
dismissed as withdrawn with liberty to file a fresh
petition.
On the same day, a fresh petition was
filed under Section 11(6) of the 1996 Act, being
Arbitration Case No. 76 of 2007. On 04.04.2008,
the Chief Justice of the aforesaid High Court
appointed retired Chief Justice of India, Shri R.C.
Lahoti, as Arbitrator to adjudicate upon the
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disputes between the parties. Arbitration
proceedings were, thereafter, held on 22.04.2008,
when the Company filed its Statement of Claims.
The next date for arguments, after completion of
pleadings, was fixed on 02.06.2008.
7. In the meantime, however, SLP(C) No. 10550 of
2008, filed by the Trust challenging the
appointment of the arbitrator, in Arbitration Case
No.76 of 2007, came up for consideration before
this Court by way of Civil Appeal No.6104 of 2008.
Having regard to the decision of the 7-Judge Bench
in SBP & Co. Vs. Patel Engineering Ltd. and Another
[(2005) 8 SCC 618], this Court set aside the order
of the Chief Justice and remitted the matter for a
fresh decision in keeping with the decision of the
7-Judge Bench of this Court in the above case.
8. The challenge to the appointment of the
arbitrator by the Chief Justice of the Punjab and
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Haryana High Court was that the agreement itself
was void having been entered into in suspicious
circumstances.
It had been contended that since
the main agreement, which contained the arbitration
agreement, was itself void, the arbitration
agreement could not survive independent of the main
agreement.
It was also contended that the said
question was required to be left to the learned
arbitrator in terms of Section 16 of the 1996 Act.
Such a course of action, however, did not find
favour with this Court, and as indicated
hereinbefore, the matter was remanded to the Chief
Justice of the Punjab and Haryana High Court for a
fresh decision.
The matter was, thereafter, taken
up by the designate Judge who came to a finding
that the agreement dated 24.05.2005 was not legal
and valid and, therefore, the disputes between the
parties arising out of the said agreement could not
be referred to an arbitrator.
The application
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under Section 11(6) of the 1996 Act was, therefore,
dismissed.
9. It is the said decision of the designate Judge,
which is the subject matter of challenge in these
appeals.
10. On behalf of M/s. Today Homes and
Infrastructure Pvt. Ltd.,
it was urged that while
considering the matter on remand, the designate
Judge treated the matter as if he was deciding a
suit, but without adducing evidence.
Mr. Uday U.
Lalit, learned Senior Advocate submitted that
in
the parameters for consideration of an application
under Section 11(6) of the 1996 Act set out by this
Court in the decision rendered by the 7-Judge Bench
in SBP & Co. (supra), this Court had intended a
preliminary enquiry on the existence of an
arbitration agreement and a dispute, which was
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required to be considered by an arbitrator to be
appointed.
11. Mr. Lalit urged that
Section 11(6) of the above
Act nowhere contemplates an application filed
thereunder to be gone into in intricate detail by
framing issues and deciding the same without taking
any evidence. Mr. Lalit submitted that the essence
of the issue before the Arbitrator, was lost sight
of by the designated Judge.
12. An attempt was made by Mr. Salil Sagar, learned
Senior Advocate, appearing for the Trust, to
counter the submissions made by Mr. Lalit and Mr.
H. Devarajan, learned Advocate, appearing for the
appellants in the appeals arising out of SLP (C)
Nos. 11778 of 2010 and 10795 of 2010.
The learned
counsel supported the decision of the learned
designate Judge to distinguish the decision
rendered by this Court in SBP & Co. (supra) and the
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facts of the present case.
Mr. Sagar insisted that
once the main agreement had been found to be void,
the contents thereof, including any arbitration
agreement, was also rendered void.
The learned
counsel submitted that
the arbitration clause
contained in the arbitration agreement dated
24.05.2005, stood automatically dissolved upon the
agreement itself being held to be void.
Mr. Sagar,
therefore, urged that
the appointment of an
arbitrator by the designated Judge in Arbitration
Case No.76 of 2007 was void and was liable to be
set aside.
13. We have carefully considered the submissions
made on behalf of the respective parties and
we are
of the view that the learned designated Judge
exceeded the bounds of his jurisdiction, as
envisaged in SBP & Co. (supra).
In our view, the
learned designated Judge was not required to
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undertake a detailed scrutiny of the merits and demerits of the case,
almost as if he was deciding a
suit.
The learned Judge was only required to
decide such preliminary issues such as jurisdiction
to entertain the application, the existence of a
valid arbitration agreement, whether a live claim
existed or not, for the purpose of appointment of
an arbitrator.
By the impugned order, much more
than what is contemplated under Section 11(6) of
the 1996 Act was sought to be decided, without any
evidence being adduced by the parties.
The issue
regarding the continued existence of the
arbitration agreement, notwithstanding the main
agreement itself being declared void, was
considered by the 7-Judge Bench in SBP & Co.
(supra) and it was held that an arbitration
agreement could stand independent of the main
agreement and did not necessarily become otiose,
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even if the main agreement, of which it is a part,
is declared void.
14. The same reasoning was adopted by a member of
this Bench (S.S. Nijjar, J.), while deciding the
case of
Reva Electric Car Company Private Limited
Vs. Green Mobil [(2012) 2 SCC 93], wherein the
provisions of Section 16(1) in the backdrop of the
doctrine of kompetenz kompetenz were considered and
it was inter alia held that under Section 16(1),
the legislature makes it clear that while
considering any objection with regard to the
existence or validity of the arbitration agreement,
the arbitration clause, which formed part of the
contract, had to be treated as an agreement
independent of the other terms of the contract.
Reference was made in the said judgment to the
provisions of Section 16(1)(b) of the 1996 Act,
which provides that even if the arbitral tribunal
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concludes that the contract is null and void, it
should not result, as a matter of law, in an
automatic invalidation of the arbitration clause.
It was also held that Section 16(1)(a) of the 1996
Act presumes the existence of a valid arbitration
clause and mandates the same to be treated as an
agreement independent of the other terms of the
contract. By virtue of Section 16(1)(b) of the
1996 Act, the arbitration clause continues to be
enforceable, notwithstanding a declaration that the
contract was null and void.
15. In our view, the learned designated Judge
misunderstood the scope of the order dated
14.10.2008, passed in the earlier proceedings and
the provisions of Section 16 of the 1996 Act in
going into a detailed examination regarding the
merits of the case and the existence of an
arbitration agreement and in holding that once the
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main agreement between the parties was declared
void, the entire contents thereof, including any
arbitration clause that may have been incorporated
in the main agreement, were rendered invalid.
16. It may be profitable to remind ourselves of the
observations made by the 7-Judge Bench in SBP & Co.
(supra), regarding what the Chief Justice is really
required to decide on an application being made to
him under Section 11(6) of the 1996 Act.
In
paragraph 39 of the judgment, it has been stated
that obviously the Chief Justice has to first
decide his own jurisdiction and
whether the party
concerned has approached the right High Court.
He
also has to decide
whether there is an arbitration
agreement and as to whether the person who has made
the request before him, is a party to such
agreement.
Their Lordships further indicated that
it was necessary to mention that the learned
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arbitrator could also decide the question as to
whether the claim was a dead one or a long-barred
claim, that was sought to be resurrected.
Summing
up its views, in paragraph 47 of the judgment,
the
7-Judge Bench, while holding that the power
exercised by the Chief Justice of the High Court or
the Chief Justice of India under Section 11(6) of
the 1996 Act is not an administrative power but a
judicial one, also held that the Chief Justice or
the designated Judge would have the right to decide
the preliminary aspects, as indicated herein before.
17. The above views expressed by the 7-Judge Bench
and by the learned Single Judge are sufficient to
dispose of these appeals.
In the light of what has
been indicated hereinbefore, we have no hesitation
in setting aside the impugned judgment and the
order of the designated Judge once again and
directing that the matter be again considered de
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novo in the light of the observations made
hereinabove and the various decisions cited at the
Bar.
18. The appeals are, accordingly, disposed of along
with the interlocutory applications. Having regard
to the peculiar facts of this case, the parties
will bear their own costs.
...................CJI.
(ALTAMAS KABIR)
.....................J.
(SURINDER SINGH NIJJAR)
New Delhi
Dated: May 10, 2013.
