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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.11003 OF 2013 (Arising out of SLP (Civil) No. 29651 of 2013)

Arasmeta Captive Power Company Private Limited and another ...  Appellants

Versus

Lafarge India Private Limited         ...Respondent

J U D G M E N T

Dipak Misra, J.

Leave granted.

2. In  Government of Andra Pradesh and others v.   

A. P. Jaiswal and others1 a three-Judge Bench has  

observed thus:-

“Consistency  is  the  cornerstone  of  the  administration of justice.  It is consistency which  creates  confidence  in  the  system  and  this  consistency  can  never  be  achieved  without  

1 AIR 2001 SC 499

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respect to the rule of finality.  It is with a view to  achieve consistency in judicial pronouncements,  the Courts have evolved the rule of precedents,  principle  of  stare decisis  etc.  These rules and  principle are based on public policy...”

3. We have commenced our opinion with the aforesaid  

exposition of law as arguments have been canvassed  

by Mr. Ranjit Kumar, learned senior counsel for the  

appellants,  with  innovative  intellectual  animation  

how a three-Judge Bench in  Chloro Controls India  

Private  Limited  v.  Seven  Trent  Water  

Purification Inc. and others2 has inappositely and  

incorrectly  understood  the  principles  stated  in  the  

major part of the decision rendered by a larger Bench  

in  SBP  &  Company  v.  Patel  Engineering  Ltd.  

and another3 and,  in  resistance,  Mr.  Harish Salve  

and Dr. A.M. Singhvi, learned senior counsel for the  

respondent, while defending the view expressed later  

by  the  three-Judge  Bench,  have  laid  immense  

emphasis  on consistency  and certainty  of  law that  

garner  public  confidence,  especially  in  the  field  of  

arbitration, regard being had to the globalization of  

2 (2013) 1 SCC 641 3 (2005) 8 SCC 618

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economy and stability of the jurisprudential concepts  

and  pragmatic  process  of  arbitration  that  sparkles  

the soul of commercial progress.  We make it clear  

that we are not writing the grammar of arbitration  

but indubitably we intend, and we shall, in course of  

our delineation, endeavour to clear the maze, so that  

certainty remains “A Definite” and finality is ‘Final’.

4. The  present  appeal,  by  special  leave,  is  directed  

against  the  judgment  and  order  dated  22.7.2013  

passed by the learned Judge,  the designate of  the  

Chief  Justice  of  the  High  Court  of  Chhattisgarh  at  

Bilaspur,  in  Arbitration  Application  No.  24  of  2012  

whereby  and  whereunder,  while  dealing  with  an  

application preferred under Section 11(5) and (6) of  

the Arbitration and Conciliation Act, 1996 (for brevity  

“the  Act”),  has  repelled  the  submission  of  the  

appellant  herein,  the  respondent  in  the  original  

proceedings,  that  the  disputes  raised  by  the  

applicant,  being  excepted  matters,  were  squarely  

covered  within  the  ambit  of  clause  9.3  of  the  

agreement and hence, it was only to be referred to  

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an expert for resolution and not to an arbitrator and,  

further addressing the issue on merits, opined that as  

the  disputes  are  not  covered  under  the  subject-

matter of billing disputes that find place in clause 9.3  

of  the  agreement,  the  parties  are  not  under  

obligation  to  refer  the  matter  to  the  expert,  and,  

accordingly,  called  for  the  names  from  both  the  

parties and taking note of the inability expressed by  

the counsel  for  the respondents  therein,  appointed  

an  arbitrator  to  adjudicate  the  disputes  that  have  

arisen between the parties.

5. Regard  being  had  to  the  narrow  compass  of  the  

controversy  that  has  emanated  for  consideration  

before this Court, we need not dwell upon the factual  

matrix  in  extenso.   Suffice  it  to  state  that  the  

appellant No. 1 is a company carrying on business in  

generation  of  power.   The  respondent  owns  49%  

equity  of  the  appellant  No.  1  company  and  the  

appellant No. 2 owns 51% equity of the appellant No.  

1 company.  The appellant-company had entered into  

two agreements  with  the  respondent  for  supply  of  

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power  to  the  respondent.   The  first  agreement,  

namely,  a  Power  Purchase  Agreement  (PPA)  was  

entered into on 10.2.2005 and the second agreement  

of similar nature was entered into on 1.11.2007 for  

supply  of  power.   In  course  of  subsistence  of  the  

agreements  dispute  arose  between  the  parties  

relating to amounts that  is  due and payable.   The  

appellants treated the dispute raised to be a “billing  

dispute”  and  sought  to  appoint  an  expert  in  

accordance with clause 16.2 of the agreements and,  

accordingly, communicated with the respondent vide  

letter dated 4.5.2012 proposing for  appointment of  

one of the three persons of expertise and repute for  

appointment  as  an  expert  in  respect  of  both  the  

PPAs.   The  appellant  No.1  requested  the  

Confederation  of  Indian  Industry  vide  letter  dated  

30.5.2012 to appoint a suitable expert.  As put forth  

by the appellant, the respondent did not accede to  

resolve the dispute by way of appointing an expert  

instead, it moved the High Court for appointment of  

an arbitrator.

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6. In  support  of  the  application  for  appointment  of  

arbitrator,  it  was  contended  before  the  learned  

designated Judge that as the claims for recovery of  

arrears  had  not  been  settled  and  the  respondents  

therein  had  communicated  that  the  claims  came  

within the ambit of sub-clause (a) of clause 9.3 of the  

agreement and required the matter to be dealt with  

by an expert and an expert should be appointed in  

terms of clause 16.2 and 16.4 of the agreement and  

declined  to  take  recourse  to  arbitration,  it  had  

become  incumbent  to  move  the  court  for  

appointment of an arbitrator.

7. The  said  stand  and  stance  put  forth  by  the  

respondent before the High Court was resisted by the  

present appellants that disputes would come within  

clause  16.2  of  the  agreement  that  deals  with  

“Dispute  Resolution”  which  provides  a  specific  

mechanism  and  not  arbitration,  for  it  has  been  

clearly postulated therein that where any dispute is  

not resolved as provided for in clause 16.2 then only  

the matter  shall  be submitted to arbitration at  the  

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request of either of the parties by written notice in  

accordance with the provisions contained in the Act.   

8. The High Court adverted to the meanings of “billing  

date”,  “billing  period”,  “billing  year,  “clarification  

notice”  and  various  terms  used  in  the  agreement,  

scanned the anatomy of clause 9.3 of the agreement  

that deals with “billing disputes” and arrived at the  

conclusion that disputes raised do not come within  

the  purview  of  sub-clause  (a)  of  clause  9.3  and,  

accordingly,  appointed  an  arbitrator,  as  has  been  

stated hereinbefore.

9. Mr.  Ranjit  Kumar, learned senior counsel appearing  

for the appellants, criticizing the view expressed by  

the designated Judge, has submitted that the dispute  

raised  by  the  respondent  being  a  “billing  dispute”  

which is an excepted matter, it was obligatory on the  

contracting parties to resolve the dispute through an  

expert committee by the mechanism provided in the  

agreement itself and the same could not have been  

referred  to  an  arbitrator  to  be  arbitrated  upon.  

Pyramiding  the  said  proponement,  learned  senior  

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counsel would submit that once a dispute falls in the  

realm of  an  excepted  matter,  as  stipulated  in  the  

agreement,  it  is  a  non-arbitrable  claim and hence,  

the  court  alone  has  the  jurisdiction  to  decide  the  

issue  of  arbitrability  and  it  cannot  be  left  to  be  

adjudicated by an arbitrator  and as  in  the present  

case the learned Judge has erroneously decided that  

it  is  not  a  “billing  dispute”  and  thereby  not  an  

excepted matter, the same warrants interference.  In  

essence,  the  submission  is  that  advertence  to  the  

spectrum of arbitrability or to the sphere of excepted  

matter  to  decide  the  issue  of  jurisdiction  as  

contemplated  under  Section  11(6)  of  the  Act  is  

justified  but  the  analysis  and  the  conclusion  as  

regards  the  nature  of  dispute  is  indefensible.   To  

buttress  his  submissions he has commended us  to  

the  decisions  in  SBP  &  Co. (supra)  and  APS  

Kushwaha (SSI Unit)  v.  Municipal Corporation,  

Gwalior and others4.

4 (2011) 13 SCC 258

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10. Mr.  Harish  N.  Salve  and  Dr.  A.M.  Singhvi,  learned  

senior  counsel  appearing  for  the  respondent,  in  

oppugnation,  have  submitted  that  the  principles  

stated  in  SBP’s  case  have  been  appositely  

understood by a two-Judge Bench in the decision in  

National  Insurance  Company  Limited  v.  

Boghara  Polyfab  Private  Limited5 and  the  

analysis therein has been accepted and approved by  

a  three-Judge  Bench  in  Chloro  Controls  India  

Private Limited (supra) and, therefore, whether it is  

an excepted matter or not, despite strenuous urging  

of the same by the appellants, is required to be left  

to be adjudicated in  the arbitral  proceedings.   The  

learned  senior  counsel  would  further  submit  that  

what has been opined in the SBP’s case has already  

been  reflected  upon  and  that  being  the  settled  

position of law, certainty in the realm of adjudication  

should be allowed to stay.  That apart, it is urged by  

Mr. Salve and Dr. Singhvi that the designated Judge  

has fallen into error by  delving into the merits of the  

matter,  i.e.,  whether  the  disputes  are  “billing  5 (2009) 1 SCC 267

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disputes” or not, for it should have been left to be  

adjudicated  upon  by  the  learned  arbitrator.   It  is  

submitted that if  any interference is  warranted the  

said  findings  should  be  set  aside  and  the  matter  

should  be  allowed  to  be  arbitrated  upon  by  the  

learned arbitrator as other conditions precedent for  

invocation  of  the  arbitration  clause  have  been  

accepted and are not under assail.

11. In reply to the submissions of learned senior counsel  

for the respondent, Mr. Ranjit Kumar, learned senior  

counsel  for  the appellants,  would contend that  the  

analysis  made  in  the  case  of  Boghara  Polyfab  

Private Limited  (supra) by the two-Judge Bench is  

contrary to what has been stated in SBP’s case and  

similarly the seal of concurrence given by the three-

Judge  Bench  in  Chloro  Controls  India  Private  

Limited (supra) is neither justified nor correct, and in  

fact,  on  a  studied  scrutiny,  the  lis  deserves  to  be  

referred  to  a  larger  Bench.   The  learned  senior  

counsel would further submit that certainty of law in  

its  fundamental  conceptuality  has  to  be  in  

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consonance with the principles stated in larger Bench  

decisions  and  not  to  be  allowed  to  exist  despite  

striking a note of discordance.   

12. To appreciate the controversy it is pertinent to refer  

to certain provisions, namely, Sections 8, 9, 11 and  

16 of the Act.  Section 8 deals with power to refer  

parties  to  arbitration  where  there  is  an  arbitration  

agreement.  The said power is conferred on a judicial  

authority  before  which  an  action  is  brought  in  a  

matter  which  is  the  subject-matter  of  agreement.  

Certain conditions precedent have been incorporated  

in  sub-sections  (1)  and  (2)  of  the  said  provision.  

Section 9 provides for grant of interim measures by  

court.   Section  11  deals  with  appointment  of  

arbitrators.  Section 11(2) stipulates that subject to  

sub-section (6),  the parties are free to agree on a  

procedure for appointing the arbitrator or arbitrators.  

Sub-sections (3) to (5) deal with requisite procedure  

to  be  followed  in  certain  circumstances  for  

appointment of arbitrator.  Sub-sections (6) and (8) of  

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the said provision, which are relevant for the present  

purpose, read as follows: -

“(6) Where,  under  an  appointment  procedure  agreed upon by the parties, -  

a. a  party  fails  to  act  as  required  under  that  procedure; or

b. the parties, or the two appointer arbitrators,  fail to reach an agreement expected of them  under that procedure; or

c. a  person,  including  an  institution,  fails  to  perform any function entrusted to him or it  under that procedure,

a  party  may  request  the  Chief  Justice  or  any  person or institution designated by him to take  the necessary measures, unless the agreement  on  the  appointment  procedure  provides  other  means for securing the appointment.

xxx xxx xxx

(8) The  Chief  Justice  or  the  person  or  institution designated by him, in appointing an  arbitrator, shall have due regard to -

(a) any qualifications required of the arbitrator  by the agreement of the parties; and

(b) other considerations as are likely to secure  the  appointment  of  an  independent  and  impartial arbitrator.”

Section  16  provides  for  competence  of  arbitral  

tribunal to rule on its own jurisdiction.  It stipulates that  

the  arbitral  tribunal  may  rule  on  its  own  jurisdiction,  

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including  ruling  on  any  objections  with  respect  to  the  

existence or validity of the arbitration agreement.    

13. Regard being had to the anatomy of the Act and the  

contours  of  the  aforesaid  provisions,  a  Bench  of  

seven Judges in  SBP & Co. (supra) by majority has  

stated about the functions to be performed by the  

Chief  Justice  or  his  designate  to  do.   Or,  to  put  it  

differently,  what  are required to  be determined by  

the  Chief  Justice  or  his  designate,  have  been  

exposited thus: -

“39. It is necessary to define what exactly the  Chief  Justice,  approached  with  an  application  under Section 11 of the Act, is to decide at that  stage.   Obviously,  he  has  to  decide  his  own  jurisdiction  in  the  sense  whether  the  party  making  the  motion  has  approached  the  right  High Court.  He has to decide whether there is  an arbitration agreement, as defined in the Act  and  whether  the  person  who  has  made  the  request  before  him,  is  a  party  to  such  an  agreement.  It is necessary to indicate that he  can also decide the question whether the claim  was a dead one; or a long-barred claim that was  sought  to  be  resurrected  and  whether  the  parties  have  concluded  the  transaction  by  recording satisfaction of their mutual rights and  obligations  or  by  receiving  the  final  payment  without  objection.   It  may  not  be  possible  at  that stage, to decide whether a live claim made,  is one which comes within the purview of the  arbitration  clause.   It  will  be  appropriate  to  

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leave that question to be decided by the Arbitral  Tribunal  on  taking  evidence,  along  with  the  merits of the claims involved in the arbitration.  The  Chief  Justice  has  to  decide  whether  the  applicant  has  satisfied  the  conditions  for  appointing an arbitrator under Section 11(6) of  the Act.  For the purpose of taking a decision on  these  aspects,  the  Chief  Justice  can  either  proceed  on  the  basis  of  affidavits  and  the  documents produced or take such evidence or  get  such  evidence  recorded,  as  may  be  necessary.   We  think  that  adoption  of  this  procedure in the context of the Act would best  serve the purpose sought to be achieved by the  Act  of  expediting  the  process  of  arbitration,  without  too  many approaches  to  the  court  at  various  stages  of  the  proceedings  before  the  Arbitral Tribunal.”

14. In the said case,  in paragraph 47 the majority has  

summed up the conclusions in seriatim.  Conclusion  

(iv),  as  summed  in  the  said  paragraph,  reads  as  

follows: -

“(iv) The Chief Justice or the designated Judge  will  have  the  right  to  decide  the  preliminary  aspects  as  indicate  in  the  earlier  part  of  this  judgment.  These will be his own jurisdiction to  entertain the request, the existence of a valid  arbitration  agreement,  the  existence  or  otherwise of a live claim, the existence of the  condition for the exercise of his power and on  the qualifications of the arbitrator or arbitrators.  The Chief Justice or the designated Judge would  be entitled to seek the opinion of an institution  in  the  matter  of  nominating  an  arbitrator  qualified in terms of Section 11(8) of the Act if  the  need  arises  but  the  order  appointing  the  

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arbitrator could only be that of the Chief Justice  or the designated Judge.”

15. On  a  careful  reading  of  the  paragraph  39  and  

conclusion No. (iv), as set out in paragraph 47, it is  

limpid that for the purpose of setting into motion the  

arbitral procedure the Chief Justice or his designate is  

required to decide the issues, namely, (i)  territorial  

jurisdiction, (ii) existence of an arbitration agreement  

between the parties, (iii) existence or otherwise of a  

live  claim,  and  (iv)  existence  of  the  conditions  for  

exercise of power and further satisfaction as regards  

the qualification of the arbitrator.  That apart, under  

certain  circumstances  the  Chief  Justice  or  his  

designate  is  also  required  to  see  whether  a  long-

barred claim is sought to be restricted and whether  

the  parties  had  concluded  the  transaction  by  

recording  satisfaction  of  the  mutual  rights  and  

obligations or by receiving the final payment without  

objection.

16. At this stage we may notice the opinion expressed by  

a  two-Judge  Bench  in  Shree  Ram  Mills  Ltd.  v.  

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Utility Premises (P) Ltd.6, pertaining to the issues  

which are to be dealt with by the Chief Justice or his  

designate.   The two-Judge Bench,  after  referring to  

paragraph 39 in SBP & Co. (supra), opined that the  

Chief  Justice  has  to  decide  about  the  territorial  

jurisdiction  and  also  whether  there  exists  an  

arbitration  agreement  between  the  parties  and  

whether  such  party  has  approached  the  court  for  

appointment of the arbitrator.  The Chief Justice has  

to examine as to whether the claim is a dead one or  

in  the  sense  whether  the  parties  have  already  

concluded  the  transaction  and  have  recorded  

satisfaction of their mutual rights and obligations or  

whether  the parties concerned have recorded their  

satisfaction  regarding  the  financial  claims.   In  

examining  the  said  aspect  if  the  parties  have  

recorded  their  satisfaction  regarding  the  financial  

claims,  there  will  be  no  question  of  any  issue  

remaining.  It is further observed therein that in the  

said context the Chief Justice has to examine as to  

whether  there  remains  anything  to  be  decided  6 (2007) 4 SCC 599

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between the parties in respect of the agreement and  

whether  the  parties  are  still  at  issue  on  any  such  

matter.   If  the Chief  Justice does not,  in  the  strict  

sense, decide the issue, in that event it is for him to  

locate  such  issue  and  record  his  satisfaction  that  

such issue exists between the parties.  It is only in  

that sense that the finding on a live issue is given.  

That apart, as observed, it is only for the purpose of  

finding out whether the arbitral procedure has to be  

started  that  the  Chief  Justice  has  to  record  

satisfaction  that  there  remains  a  live  issue  in  

between the parties.   The same thing is about the  

limitation which is  always a mixed question of  law  

and fact.   The Chief  Justice only has to record his  

satisfaction  that  prima  facie  the  issue  had  not  

become dead by the lapse of time or that any party  

to the agreement has not slept over its right beyond  

the  time  permitted  by  law  to  agitate  those  issues  

covered by the agreement.  The Chief Justice or his  

designate is required to record his satisfaction that  

the  parties  have  not  closed  their  rights  and  the  

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matter  has  not  been  barred  by  limitation.   Thus,  

whether  the  Chief  Justice  comes  to  a  finding  that  

there exists a live issue, then naturally this finding  

would include a finding that the respective claims of  

the parties have not become barred by limitation.

17. In Boghara Polyfab Private Limited (supra) a two-

Judge Bench, while understanding and explaining the  

duty of the Chief Justice or his designate, as defined  

in SBP & Co. (supra), has ruled thus: -

“22. Where  the  intervention  of  the  court  is  sought for appointment of an Arbitral  Tribunal  under Section 11, the duty of the Chief Justice  or his designate is defined in  SBP & Co.  This  Court identified and segregated the preliminary  issues  that  may  arise  for  consideration  in  an  application  under  Section  11  of  the  Act  into  three  categories,  that  is,  (i)  issues  which  the  Chief Justice or his designate is bound to decide;  (ii)  issues  which  he  can  also  decide,  that  is,  issues which he may choose to decide; and (iii)  issues  which  should  be  left  to  the  Arbitral  Tribunal to decide.

22.1. The issues (first category) which the  Chief  Justice/his  designate will  have to  decide  are:

(a)  Whether  the  party  making  the  application  has  approached  the  appropriate High Court.

(b)  Whether  there  is  an  arbitration  agreement and whether the party who has  

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applied under Section 11 of the Act,  is a  party to such an agreement.

22.2. The  issues  (second  category)  which  the Chief  Justice/his  designate may choose to  decide  (or  leave  them to  the  decision  of  the  Arbitral Tribunal) are:

(a) Whether claim is a dead (long-barred)  claim or a live claim.

(b)  Whether  the  parties  have  concluded  the  contract/transaction  by  recording  satisfaction  of  their  mutual  rights  and  obligation  or  by  receiving  the  final  payment without objection.

22.3. The issues (third category) which the  Chief  Justice/his  designate  should  leave  exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the  arbitration  clause  (as  for  example,  a  matter which is reserved for final decision  of a departmental authority and excepted  or excluded from arbitration).

(ii)  Merits  or  any  claim  involved  in  the  arbitration.”

18. In  the  said  case,  it  has  been  further  held  that  in  

regard  to  the  issues  falling  in  second  category,  if  

raised in an application under Section 11 of the Act,  

the Chief Justice/his designate may decide them, if  

necessary, by taking evidence.  Alternatively, he may  

leave  those  issues  open  with  a  direction  to  the  

Arbitral  Tribunal  to  decide  the  same.   In  case  the  

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Chief Justice or his designate chooses to examine the  

issue and decides it, the Arbitral Tribunal cannot re-

examine the same issue.  The learned Judges have  

observed by placing reliance on  SBP & Co. (supra)  

that  Chief  Justice/his  designate  would,  in  choosing  

whether he would decide such issue or leave it to the  

Arbitral Tribunal, be guided by the object of the Act,  

i.e., expediting the arbitration process with minimum  

judicial intervention.   

19. Recently in Chloro Controls India Private Limited  

(supra)  a  three-Judge  Bench  considered  the  issue  

whether  there is  any variance between the  Shree  

Ram  Mills  Ltd.  (supra)  and  Boghara  Polyfab  

Private Limited (supra) and observed that both the  

judgments are free from contradiction and capable of  

being read in harmony in order to bring them in line  

with the statutory law declared by the larger Bench  

in  SBP  &  Co. (supra).   The  Court  observed  that  

where  the  Chief  Justice  or  his  designate  actually  

decides  the  issue,  then  it  can  no  longer  be  prima  

facie, but would be a decision binding in law and on  

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such  an  issue  the  Arbitral  Tribunal  will  have  no  

jurisdiction  to  re-determine  the  issue.   The  three-

Judge  Bench  reproduced  paragraph  27  of  Shree  

Ram Mills Ltd. (supra) and we think that we should  

quote the relevant part on which an opinion has been  

expressed:-  

“If  the  Chief  Justice  does  not,  in  the  strict  sense, decide the issue, in that event it is for  him  to  locate  such  issue  and  record  his  satisfaction that such issue exists between the  parties.  It is only in that sense that the finding  on a live issue is given.  Even at the cost of  repetition we mush state that it is only for the  purpose  of  finding  out  whether  the  arbitral  procedure  has  to  be  started  that  the  Chief  Justice  has  to  record  satisfaction  that  there  remains  a  live  issue  in  between  the  parties.  The same thing is about the limitation which is  always a mixed question of law and fact.  The  Chief Justice only has to record his satisfaction  that  prima  facie  the  issue  has  not  become  dead by the lapse of time or that any party to  the  agreement  has  not  slept  over  its  rights  beyond the time permitted by law to agitate  those issues covered by the agreement.  It is  for this reason that it  was pointed out in the  above paragraph that it would be appropriate  sometimes to leave the question regarding the  live  claim  to  be  decided  by  the  Arbitral  Tribunal.  All that he has to do is to record his  satisfaction  that  the  parties  have  not  closed  their rights and the matter has not been barred  by  limitation.   Thus,  where  the  Chief  Justice  comes  to  a  finding  that  there  exists  a  live  issue, then naturally this finding would include  a  finding  that  the  respective  claims  of  the  

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parties have not become barred by limitation.”      

Thereafter,  the  three-Judge  Bench  explained  the  

decision in following terms:-  

“Thus,  the  Bench  while  explaining  the  judgment of this Court in  SBP & Co. has state  that the Chief Justice may not decide certain  issues  finally  and upon recording  satisfaction  that  prima  facie  the  issue  has  not  become  dead even leave it for the Arbitral Tribunal to  decide.”

20. Thereafter,  the  three-Judge  Bench  referred  to  

paragraph 20 of  SBP & Co. (supra) and stated that  

in  Shree Ram Mills Ltd.  (supra) clearly the Bench  

did not intend to lay down any law in direct conflict  

with seven-Judge Bench in SBP & Co. (supra).

21. At  that  juncture,  dealing  with  the  classification  

carved  out  by  the  Court  in  Boghara  Polyfab  

Private  Limited  (supra),  the  three-Judge  Bench  

observed that it draws its origin from para 39 of the  

judgment  in  SBP  &  Co. (supra)  and  thereafter  

proceeded to state thus: -

“124. The  foundation  for  Category  (2)  in  para  22.2  of  National  Insurance  Co.  Ltd. is  directly relatable to para 39 of the judgment of  

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this Court in  SBP & Co. and matters falling in  that  category  are  those  which,  depending  on  the  facts  and  circumstances  of  a  given  case,  could  be  decided  by  the  Chief  Justice  or  his  designate or even may be left for the decision  of the arbitrator, provided there exists a binding  arbitration  agreement  between  the  parties.  Similar is the approach of the Bench in  Shree  Ram Mills and that is why in para 27 thereof,  the  Court  has  recorded  that  it  would  be  appropriate  sometimes  to  leave  the  question  regarding the claim being alive to be decided by  the Arbitral Tribunal and the Chief Justice may  record  his  satisfaction  that  parties  have  not  closed their rights and the matter has not been  barred by limitation.

125.As already notice, the observations made  by  the  Court  have  to  be  construed  and  read to support the ratio decidendi of the  judgment.   Observations  in  a  judgment  which are stared upon by the judgment of  a larger Bench would not constitute valid  precedent as it will be hit by the doctrine  of stare decisis.  In Shree Ram Mills surely  the bench did not intend to lay down the  law or state a proposition which is directly  in  conflict  with  the  judgment  of  the  Constitution Bench of this Court in  SBP &  Co..

126.We  have  no  reason  to  differ  with  the    classification  carved  out  in    National    Insurance  Co.   as  it  is  very  much  in    conformity  with  the  judgment  of  the  Constitution Bench in   SBP  .”   

[Emphasis added]

22. Mr. Ranjit  Kumar, learned senior counsel appearing  

for the appellants, has drawn our attention to various  

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paragraphs of the decision in  SBP & Co. (supra) to  

highlight  that  excepted  matters  as  per  the  

agreement have to be decided by the Chief Justice or  

his designate.  Drawing our attention to paragraph 9  

of  the  said  judgment  learned  senior  counsel  has  

submitted that the larger Bench has clearly observed  

that while functioning under Section 11(6) of the Act,  

a  Chief  Justice  or  the  person  or  the  institution  

designated by him, is  bound to decide whether  he  

has  jurisdiction,  whether  there  is  an  arbitration  

agreement,  whether  the  applicant  before  him is  a  

party,  whether  the  conditions  for  exercise  of  the  

power have been fulfilled, and if an arbitrator is to be  

appointed,  who  is  the  fit  person,  in  terms  of  the  

provisions and the condition for exercise of power is  

dependent upon the nature of the agreement and the  

arbitration clause and in its sweep it commands that  

there  should  be  an  adjudication  in  respect  of  

excepted matters and once it is found that they are  

excepted  matters,  an  arbitrator  should  not  be  

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appointed in respect of such matters or the disputes  

should not be referred to arbitration.

23. The learned senior counsel has also drawn immense  

inspiration from paragraph 25 of the judgment of the  

said  case  wherein,  while  discussing  about  the  

jurisdiction  of  the  Chief  Justice,  it  has  been stated  

that  he  has  to  enquire  whether  the  conditions  for  

exercise of his power under Section 11(6) of the Act  

exist  in  the  case  and  only  being  satisfied  in  that  

behalf could he appoint an arbitrator or an Arbitral  

Tribunal  on  the  basis  of  the  request.     It  further  

observed that it is difficult to say that when one of  

the  parties  raises  an  objection  that  there  is  no  

arbitration  agreement,  raises  an  objection  that  the  

person who has come forward with a request is not a  

party to the agreement, the Chief Justice can come to  

a conclusion on those objections without following an  

adjudicatory  process.   Thereafter  the  seven-Judge  

Bench stated thus: -

“Can he constitute an Arbitral Tribunal, without  considering these questions?  If he can do so,  why should such a function be entrusted to a  

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high  judicial  authority  like  the  Chief  Justice.  Similarly,  when  the  party  raises  an  objection  that the conditions for exercise of power under  Section 11(6) of the Act are not fulfilled and the  Chief Justice comes to the conclusion that they  have been fulfilled, it is difficult to say that he  was not adjudicating on a dispute between the  parties  and  was  merely  passing  an  administrative order.   It  is  also not  correct  to  say that by the mere constitution of an Arbitral  Tribunal  the  rights  of  the  parties  are  not  affected.   Dragging  a  party  to  an  arbitration  when there existed no arbitration agreement or  when there  existed no arbitrable  dispute,  can  certainly affect the right of that party, and, even  on  monetary  terms,  impose on  him a  serious  liability  for  meeting  the  expenses  of  the  arbitration,  even  if  it  be  the  preliminary  expenses  and  his  objection  is  upheld  by  the  Arbitral Tribunal.  Therefore, it is not possible to  accept  the  position  that  no  adjudication  is  involved  in  the  constitution  of  an  Arbitral  Tribunal.”

24. Mr. Ranjit Kumar, learned senior counsel, has placed  

heavy emphasis on the words “when there existed no  

arbitral  dispute”  to  spiral  the  submission  that  the  

Chief  Justice  or  his  designate  is  under  the  legal  

obligation to decide the said facet when the issue is  

raised and it  cannot be left  to the arbitrator or  an  

Arbitral Tribunal for adjudication.  

25. Before we comment on this,  we may also  refer  to  

observations made in paragraph 38 of the judgment  

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in  SBP & Co. (supra)  as  the same has also  been  

repeatedly commended to  us by Mr.  Ranjit  Kumar.  

For understanding of the ratio decidendi we think it  

apt  to  reproduce  the  relevant  portion  which  has  

intellectually stimulated the  learned senior counsel  

for the appellants: -

“...  the  basic  requirement  for  exercising  his  power under Section 11(6), is the existence of  an arbitration agreement in terms of Section 7  of the Act and the application before the Chief  Justice being shown to be a party to  such an  agreement.  It would also include the question  of  the  existence  of  jurisdiction  in  him  to  entertain the request and an enquiry whether at  least a part  of the cause of action has arisen  within  the  State  concerned.   Therefore,  a  decision on jurisdiction and on the existence of  the  arbitration  agreement  and  of  the  person  making  the  request  being  a  party  to  that  agreement  and  the  subsistence  of  an  arbitral  dispute require to be decided and the decision  on  these  aspects  is  a  prelude  to  the  Chief  Justice considering whether the requirements of  sub-section  (4),  sub-section  (5)  or  sub- section(6)  of  Section  11  are  satisfied  when  approached with the request for appointment of  an arbitrator.”

26. The aforesaid passage is pressed into service for the  

Simon pure reason that the seven-Judge Bench has  

used  the  phraseology  “subsistence  of  an  arbitral  

dispute required to be decided”.  It is emphatically  

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submitted that it has to be read in harmony with the  

words used in  paragraph 25,  namely,  “when there  

existed no arbitral  dispute”.   In  this  backdrop it  is  

propounded that the decisions in  Boghara Polyfab  

Private Limited (supra) and Chloro Controls India  

Private Limited (supra) require reconsideration.  

27. Mr.  Salve  and Dr.  Singhvi,  learned counsel  for  the  

respondent,  in  their  turn,  have  submitted  that  

paragraph 39 in SBP & Co. (supra) speaks about the  

role of the Chief Justice in definitive exactitude and  

the same has been emphatically stated in sub-para  

(iv)  of  para  47  where  there  is  summation  of  the  

conclusions.   Quite  apart  from  the  above,  it  is  

contended that  in  Chloro Controls India Private  

Limited (supra) the three-Judge Bench has correctly  

understood the decision in  SBP & Co. (supra) and,  

accordingly,  did  not  differ  with  the  classification  

carved  out  in  Boghara  Polyfab  Private  Limited  

(supra).

28. At this juncture, we think it condign to refer to certain  

authorities  which  lay  down  the  principle  for  

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understanding  the  ratio  decidendi  of  a  judgment.  

Such  a  deliberation,  we  are  disposed  to  think,  is  

necessary as we notice that contentions are raised  

that certain observations in some paragraphs in SPB  

& Co. (supra)  have been  relied  upon to  build  the  

edifice  that  latter  judgments  have  not  referred  to  

them.   

29. In Ambica Quarry Works v. State of Gujarat and  

others7,  it  has  been  stated  that  the  ratio  of  any  

decision must  be understood in  the  background of  

the  facts  of  that  case.   Relying  on  Quinn  v.  

Leathem8 it has been held that the case is only an  

authority for what it actually decides, and not what  

logically follows from it.  

30.  Lord Halsbury in the case of Quinn (supra) has ruled  

thus: -

“...there are two observations of a general  character which I wish to make, and one is to  repeat what I have very often said before, that  every judgment must be read as applicable to  the particular  facts  proved,  or  assumed to be  proved, since the generality of the expressions  which may be found there are not intended to  

7 (1987) 1 SCC 213 8 (1901) AC 495

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be expositions of the whole law, but governed  and qualified by the particular facts of the case  in which such expressions are to be found.  The  other is that a case is only an authority for what  it actually decides.  I entirely deny that it can be  quoted  for  a  proposition  that  may  seem  to  follow  logically  from  it.   Such  a  mode  of  reasoning assumes that the law is necessarily a  logical  code,  whereas  every  lawyer  must  acknowledge that the law is not always logical  at all.”  

    [Emphasis  supplied]

31. In Krishena Kumar v. Union of India and others9,  

the  Constitution  Bench,  while  dealing  with  the  

concept  of  ratio  decidendi,  has  referred  to  

Caledonian Railway Co.  v. Walker’s Trustees10  

and Quinn (supra) and the observations made by Sir  

Frederick Pollock and thereafter proceeded to state  

as follows: -

“The ratio decidendi is the underlying principle,  namely,  the  general  reasons  or  the  general  grounds upon which the decision is  based on  the  test  or  abstract  from  the  specific  peculiarities of the particular case which gives  rise to the decision.  The ratio decidendi has to  be ascertained by an analysis of the facts of the  case and the process of reasoning involving the  major premise consisting of a pre-existing rule  of  law,  either  statutory  or  judge-made,  and a  minor premise consisting of the material facts of  

9 (1990) 4 SCC 207 10 (1882) 7 App Cas 259 : 46 LT 826 (HL)

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the case under immediate consideration. If it is  not clear, it is not the duty of the court to spell  it out with difficulty in order to be bound by it. In  the words of Halsbury (4th edn., Vol. 26, para  573)

“The  concrete  decision  alone  is  binding  between  the  parties  to  it  but  it  is  the  abstract ratio decidendi, as ascertained on  a consideration of the judgment in relation  to  the  subject  matter  of  the  decision,  which alone has the force of law and which  when it is clear it is not part of a tribunal’s  duty  to  spell  out  with  difficulty  a  ratio  decidendi in order to bound by it, and it is  always  dangerous  to  take  one  or  two  observations out of a long judgment and  treat  them  as  if  they  gave  the  ratio  decidendi of the case. If more reasons than  one  are  given  by  a  tribunal  for  its  judgment,  all  are  taken  as  forming  the  ratio decidendi.”

       [Emphasis  added]

32. In  State of Orissa  v.  Mohd. Illiyas11, it has been  

stated thus: -

“12. … According to the well-settled theory of  precedents, every decision contains three basic  postulates: (i) findings of material facts, direct  and inferential. An inferential finding of facts is  the inference which the Judge draws from the  direct,  or  perceptible  facts;  (ii)  statements  of  the  principles  of  law  applicable  to  the  legal  problems  disclosed  by  the  facts;  and  (iii)  judgment based on the combined effect of the  

11 (2006) 1 SCC 275

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above.  A  decision  is  an  authority  for  what  it  actually  decides.  What  is  of  the  essence in  a  decision is its ratio and not every observation  found therein nor what logically flows from the  various observations made in the judgment.”

33. In  Islamic  Academy  of  Education  v.  State  of  

Karnataka12,  the  Court  has  made  the  following  

observations: -

“2. … The ratio decidendi of a judgment has to  be  found  out  only  on  reading  the  entire  judgment. In fact, the ratio of the judgment is  what  is  set  out  in  the  judgment  itself.  The  answer to the question would necessarily have  to be read in the context of what is set out in  the judgment and not in isolation. In case of any  doubt as regards any observations, reasons and  principles, the other part of the judgment has to  be looked into. By reading a line here and there  from  the  judgment,  one  cannot  find  out  the  entire ratio decidendi of the judgment.”

  [Underlining  is  by  us]

34. The  said  authorities  have  been  relied  upon  in  

Natural  Resources  Allocation,  In  Re,  Special   

Reference No. 1 of 201213.

35. At this stage, we may also profitably refer to another  

principle  which  is  of  assistance  to  understand  and  

12 (2003) 6 SCC 697 13 (2012) 10 SCC 1

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appreciate the ratio decidendi of a judgment.   The  

judgments rendered by a court are not to be read as  

statutes.   In  Union  of  India  v.  Amrit  Lal  

Manchanda and another14, it has been stated that  

observations  of  courts  are  neither  to  be  read  as  

Euclid’s  theorems  nor  as  provisions  of  the  statute  

and  that  too  taken  out  of  their  context.   The  

observations  must  be  red  in  the  context  in  which  

they appear to have been stated.  To interpret words,  

phrases and provisions of a statute, it may become  

necessary  for  judges  to  embark  into  lengthy  

discussions  but  the  discussion  is  meant  to  explain  

and not to define.  Judges interpret statutes, they do  

not  interpret  judgments.   They  interpret  words  of  

statutes;  their  words  are  not  to  be  interpreted  as  

statutes.

36. In  Som Mittal  v.  Government of Karnataka15, it  

has  been  observed  that  judgments  are  not  to  be  

construed  as  statutes.   Nor  words  or  phrases  in  

judgments  to  be  interpreted  like  provisions  of  a  

14 (2004) 3 SCC 75 15 (2008) 3 SCC 574

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statute.  Some words used in a judgment should be  

read  and  understood  contextually  and  are  not  

intended to be taken literally.  Many a time a judge  

uses  a  phrase  or  expression  with  the  intention  of  

emphasizing  a  point  or  accentuating a  principle  or  

even  by  way  of  a  flourish  of  writing  style.   Ratio  

decidendi of a judgment is not to be discerned from a  

stray word or phrase read in isolation.

37. From the aforesaid authorities it is luculent that the  

larger Bench in SBP & Co. (supra), after deliberating  

at length with regard to the role of the Chief Justice  

or  his  designate,  while  dealing  with  an  application  

under  Section  11(6)  of  the  Act,  has  thought  it  

appropriate  to  define  what  it  precisely  meant  in  

paragraph 39 of the judgment.  The majority, if we  

allow ourselves to say so, was absolutely conscious  

that it required to be so stated and hence, it did so.  

The  deliberation  was  required  to  be  made  as  the  

decision in  Konkan Railway Corporation Ltd.  v.  

Rani  Construction  (P)  Ltd.16 where  the  

16 (2002) 2 SCC 388

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Constitution Bench had held that an order passed by  

the  Chief  Justice  under  Section  11(6)  is  an  

administrative order  and not  a judicial  one and,  in  

that  context,  the  Bench  in  many  a  paragraph  

proceeded to state about the role of the Chief Justice  

or  his  designate.   The  phrases  which  have  been  

emphasized  by  Mr.  Ranjit  Kumar,  it  can  be  

irrefragably  stated,  they  cannot  be  brought  to  the  

eminence of  ratio  decidendi  of the judgment.   The  

stress laid thereon may be innovative but when the  

learned Judges themselves have culled out the ratio  

decidendi in paragraph 39, it is extremely difficult to  

state that the principle stated in  SBP & Co. (supra)  

requires the Chief Justice or his designate to decide  

the  controversy  when  raised  pertaining  to  

arbitrability of the disputes.  Or to express an opinion  

on  excepted  matters.   Such  an  inference  by  

syllogistic process is likely to usher in catastrophe in  

jurisprudence  developed  in  this  field.   We  are  

disposed to think so as it is not apposite to pick up a  

line  from here  and there  from the judgment  or  to  

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choose one observation from here or there for raising  

it to the status of “the ratio decidendi”.  That is most  

likely to pave one on the path of danger and it is to  

be scrupulously avoided.  The propositions set out in  

SBP  &  Co. (supra),  in  our  opinion,  have  been  

correctly  understood  by  the  two-Judge  Bench  in  

Boghara Polyfab Private Limited (supra) and the  

same have been appositely approved by the three-

Judge  Bench  in  Chloro  Controls  India  Private  

Limited (supra) and we respectfully concur with the  

same.  We find no substance in the submission that  

the said decisions require reconsideration, for certain  

observations made in  SBP & Co. (supra), were not  

noticed.  We may hasten to add that the three-Judge  

Bench has been satisfied that the ratio decidendi of  

the judgment in SBP & Co. (supra) is really inhered  

in paragraph 39 of the judgment.

38. Before parting with this part of our ratiocination we  

may profitably reproduce the following words of Lord  

Denning which have become locus classicus: -

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“Precedent should be followed only so far as it  marks the path of justice, but you must cut the  dead wood and trim off the side branches else  you  will  find  yourself  lost  in  thickets  and  branches.  My plea is to keep the path to justice  clear of obstructions which could impede it.”

39. The aforesaid passage has been referred to in Amrit  

Lal Machanda and another (supra).

40. We will be failing in our duty if we do not take note of  

another decision in  Booz Allen and Hamilton Inc.  

v.  SBI  Home Finance  Limited and  others17 on  

which Mr. Ranjit Kumar has heavily relied upon.  He  

has drawn our attention to paragraph 34 where the  

Court  has  dealt  with  the  meaning  of  the  term  

“arbitrability”  and  stated  that  arbitrability  has  

different meanings in different contexts.  The Court  

enumerated  three  facets  which  relate  to  the  

jurisdiction of the Arbitral Tribunal.  In sub-para (ii) of  

the said paragraph it has been stated that one facet  

of  arbitrability  is  whether  the  disputes  are  

enumerated  or  described  in  the  arbitration  

agreement as matters to be decided by arbitration or  

whether  the  disputes  fall  under  the  “excepted  

17 (2011) 5 SCC 532

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matters” excluded from the purview of the arbitration  

agreement.   On  a  careful  reading  of  the  said  

judgment  we  find  that  the  learned  Judges  have  

referred to paragraph 19 of  SBP & Co. (supra) and  

thereafter referred to Section 8 of the Act and opined  

what the judicial authority should decide.  Thereafter  

the Court proceeded to deal with nature and scope of  

the issues arising for consideration in an application  

under Section 11 of the Act for appointment of the  

arbitrator and, in that context, it opined thus: -

“While considering an application under Section  11 of the Act, the Chief Justice or his designate  would not embark upon an examination of the  issue  of  “arbitrability”  or  appropriateness  of  adjudication by a private forum, once he finds  that  there  was  an  arbitration  agreement  between or among the parties, and would leave  the issue of arbitrability for the decision of the  Arbitral Tribunal.  If the arbitrator wrongly holds  that  the  dispute  is  arbitrable,  the  aggrieved  party will have to challenge the award by filing  an  application  under  Section  34  of  the  Act,  relying  upon  sub-section  (2)(b)(i)  of  that  section.”

41. The said ruling is absolutely in consonance with the  

principle  laid  down  in  SBP  &  Co. (supra).   The  

meaning  given  to  arbitrability  thereafter  has  been  

restricted to the adjudication under Section 8 and not  

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under Section 11 of the Act.  Thus, the reliance on  

the said decision further reflects how the court has  

consistently  understood the principles  laid  down in  

SBP & Co. (supra).

42. In  view  of  our  foregoing  analysis  we  sum  up  our  

conclusions as follows: -

(i) The decisions rendered in Boghara Polyfab Private  

Limited (supra) and Chloro Controls India Private  

Limited (supra) are in accord with the principles of  

law stated in SBP & Co. (supra).

(ii) The  designated  Judge,  as  perceived  from  the  

impugned  order,  while  dealing  with  an  application  

under Section 11(6)  of  the Act,  on an issue raised  

with regard to the excepted matters, was not justified  

in  addressing  the  same  on  merits  whether  it  is  a  

dispute  relating  to  excepted  matters  under  the  

agreement in question or not.

(iii) The designated Judge has fallen into error by opining  

that the disputes raised are not “billing disputes”, for  

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the same should have been left to be adjudicated by  

the learned Arbitrator.

(iv) The  part  of  the  order  impugned  that  reflects  the  

expression of opinion by the designate of the Chief  

Justice  on  the  merits  of  the  disputes,  being  

pregnable, deserves to be set aside and is hereby set  

aside.

43. In course of hearing we have been apprised that the  

learned  Arbitrator  has  adjourned  the  matter  to  

13.12.2013  for  filing  counter  affidavit/claim by  the  

appellants and it  has been submitted by Mr. Ranjit  

Kumar that it would not be possible for the appellants  

to file the counter affidavit/claim or objections to the  

claim by that date.  Mr. Harish Salve, learned senior  

counsel  appearing for  the respondent,  fairly  stated  

that this Court may take note of the concession given  

by him that the learned Arbitrator should grant six  

weeks’  time  commencing  13.12.2013  for  filing  the  

counter affidavit/counter claim/objections.  In view of  

the concession given, the time stands extended.  We  

have also been told that the learned Arbitrator has  

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fixed the schedule for  adjudication of the disputes.  

We  would  request  the  learned  Arbitrator  to  re-

schedule the dates as we have extended the time for  

filing of counter affidavit/claim by the appellants.

44. Ex consequenti, the appeal is allowed in part to the  

extent as has been stated in our conclusions.  There  

shall be no order as to costs.

……………………………….J.                                              [Anil R. Dave]

……………………………….J. [Dipak Misra]

New Delhi; December 12, 2013. ITEM NO.1B               COURT NO.10             SECTION IVA

           S U P R E M E   C O U R T   O F   I N D I A                          RECORD OF PROCEEDINGS                      Petition(s) for Special Leave to Appeal (Civil) No(s).29651/2013

(From the judgement and order  dated 22/07/2013 in AA No.24/2012 of The  HIGH COURT OF CHHATTISGARH AT BILASPUR)

ARASMETA CAPTIVE POWER CO. PVT. LTD & AN          Petitioner(s)

                VERSUS

LAFARGE INDIA P. LTD                              Respondent(s)

Date: 12/12/2013  This Petition was called on for Judgment today.   

For Petitioner(s) Ms. Bina Gupta, Adv.

For Respondent(s)               M/S Suresh A. Shroff & Co.

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Hon'ble Mr. Justice Dipak Misra pronounced the Judgment of the  

Bench comprising Hon'ble Mr. Justice Anil R. Dave and His Lordship.   

Leave granted.   

The Civil Appeal is allowed in part.     

(Jayant Kumar Arora) Sr. P.A.  

(Sneh Bala Mehra) Assistant Registrar

(Signed reportable Judgment is placed on  the file)

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