ARASMETA CAPTIVE POWER CO. PVT. LTD & AN Vs LAFARGE INDIA P. LTD
Bench: ANIL R. DAVE,DIPAK MISRA
Case number: C.A. No.-011003-011003 / 2013
Diary number: 29482 / 2013
Advocates: BINA GUPTA Vs
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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
Page 2
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
31
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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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Page 33
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
33
Page 34
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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Page 35
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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Page 36
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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Page 40
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)
42