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Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  3702 OF 2015 (@ SLP (C) NO.1963 of 2014)  

Ashapura Mine-Chem Ltd.  ….Appellant

VERSUS

Gujarat Mineral Development Corporation          ….Respondent

J U D G M E N T

Fakkir Mohamed Ibrahim Kalifulla, J.

1. Leave granted.

2. This appeal is directed against the judgment of the High Court of  

Judicature  of  Gujarat  at  Ahmedabad in Arbitration Petition No.  9/2013  

dated  27.9.13/04.10.2013.  By  the  impugned  judgment,  the  learned  

Single Judge of the High Court dismissed the appellant’s application filed  

under  Section  11  of  the  Arbitration  and  Conciliation  Act,  1996  

(hereinafter referred to “Act”).

3. Short facts which are required to be noted are that the appellant  

and the respondent entered into a Memorandum of Understanding (MoU)  

on 17.08.2007. Under the said MoU, the appellant proposed to constitute  

a joint venture along with Chinese Company, namely, “M/s Qing TongXia  

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Aluminium Group Co. Ltd.  Ningxia of  China (hereinafter referred to as  

“QTX”)  as  well  as  the  respondent  for  setting  up  an  alumina  plant  of  

appropriate  capacity  in  the  Kutch  District  of  Gujarat.  The  MoU  also  

records that the Government of Gujarat agreed to encourage and support  

the  proposed  joint  venture  for  setting  up  of  the  alumina  plant.  The  

respondent agreed to supply on priority basis, medium grade Bauxite to  

the proposed plant from its 10 existing and 18 expected Bauxite mining  

leases in the Kutch District.  

4. The other relevant terms were that the appellant should arrange for  

the equity participation of the QTX in the proposed joint venture, that the  

respondent should invest in the equity of the joint venture to the extent  

determined by the Government of Gujarat but not exceeding 26% while  

the appellant and the QTX should hold 74% of the equity. The capacity of  

the proposed plant should be 1.00 million tonnes per annum which may  

be  enhanced  subsequently.  On  the  part  of  the  respondent,  it  should  

assist the joint venture in obtaining the required land for locating the  

project.  Under Clauses 5, 6, 8, 10 and 11, the quantity of the medium  

grade  Bauxite  to  be  supplied  by  the  respondent,  the  grade  of  the  

Bauxite, the specifications, the rate at which it was to be supplied, the  

time within which such supply should be effected were all set out which  

also included a long term agreement for the supply to be entered into.  

5. MoU also stipulated certain other conditions by which the appellant  

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was obligated upon to reimburse to the respondent, within 60 days of the  

signing  of  the  MoU,  an  amount  of  Rs.3.94  crores  being  the  direct  

expenses incurred by the respondent on its Alumina Project and related  

matter.  It  is  not  in  dispute  that  within  the  stipulated  time  limit  the  

appellant gave its cheque for the said sum but the respondent did not  

encash the same. It also provided for the appellant to pay the respondent  

a further sum of Rs.6.25 crores within 60 days of the execution of the  

MoU by way of signature bonus apart from providing a bank guarantee to  

the value of Rs.10 crores for the due observance for the joint venture by  

the appellant under the various terms and conditions of the MoU within  

30 days of the signing of the MoU.   

6. Clause  12  of  the  MoU  specifically  provided  that  the  rights  and  

privileges  were  not  transferable  for  a  period  of  five  years  and  the  

appellant should not exit  the project/joint  venture for a period of five  

years after the commencement of commercial production.   

7. Under Clause 19,  it  was stipulated that  the MoU was subject  to  

approval  of  the  Board  of  Directors  of  the  appellant  as  well  as  the  

respondent, that the equity investment and decisions of the respondent  

should be subject to the concurrence of the Government of Gujarat, while  

the  investment  of  the  appellant  should  be  subject  to  approval  of  its  

shareholders. It was specifically mentioned that both the appellant and  

the respondent should endeavour to obtain necessary approval  within  

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three  months  from the  date  of  execution  of  the  MoU.  It  was  further  

specifically mentioned that on getting necessary approval by both sides,  

the MoU would be converted into an agreement between the appellant  

and  the  respondent.  Clause  21  contained  relevant  stipulation  to  the  

effect that in case the concurrence of the Government of Gujarat was not  

forthcoming for equity participation in the project within six months of  

the signing of the MoU, the MoU would be construed as one relating to  

long term supply of medium grade Bauxite to the joint venture by the  

respondent from its Kutch mines.   

8. The  more  important  Clauses  contained  in  MoU  pertaining  to  

arbitration are found in Clauses 26 and 27 which read as under:

“26. In the event of difference disputes arising between the  parties in respect of any matter arising out of and relating to  this MoU, such dispute/difference shall, in the first instance,  be resolved amicably by mutual consultation within 45 days of  the reference of disputes by either party.

27. If amicable settlement is not reached between the parties  then  such  unresolved  dispute  or  difference  of  opinion  concerning or arising from the MoU and its implementation,  breach or termination whatsoever, including any difference or  dispute as to  the interpretation of  any of  the terms of  the  MoU, shall be referred to the arbitration or a sole arbitrator  appointed  to  GMDC  and  AML.   The  Arbitrator  shall  give  reasoned  award.   The  Arbitration  shall  be  governed  by  Arbitration and Conciliation Act, 1996 (India) and conducted in  the city of Ahmedabad.  The language of Arbitration shall be  English.  The parties shall share the cost of Arbitration equally  Arbitration clause to be acceptable to the Financing sources.”

9. Subsequent to the signing of the above MoU, there was a Board  

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Resolution of respondent dated 29.10.2007. The said Resolution stated  

that the Board resolved to accord its approval to the MoU executed on  

17.08.2007 between the appellant  and the respondent  subject  to  the  

modifications  noted  in  the  said  resolution.  Subsequent  to  the  said  

resolution  which  was communicated  to  the  appellant,  correspondence  

was exchanged between the appellant and the respondent and on some  

occasions with the Principal Secretary of the State of Gujarat between  

17.12.2007  and  10.03.2010.  There  was  a  Board  Resolution  of  the  

respondent dated 18.03.2010 which disclose that the Board decided to  

the effect that in the light of the new mineral policy announced by the  

State  Government  in  November,  2009,  major  changes  were  made  in  

respect of Bauxite also and, therefore, it was not inclined to extend the  

validity  of  the  proposed  MoU and  also  decided  to  invite  fresh  EOI  in  

Bauxite for higher value addition in alumina. However, in a subsequent  

communication dated 26.07.2010, the respondent informed the appellant  

that  to  maintain  parity  necessary  modification  in  the  terms  and  

conditions of the MoU dated 17.8.2007 as approved by the Board of the  

respondent were communicated to the State Government for approval  

which was awaited and that on receipt of such approval,  a fresh MoU  

may have to be executed.   

10. But  subsequently,  by  communication  dated  25.04.2011,  the  

respondent  tacitly  informed the appellant  that  it  decided to  forthwith  

cancel the MoU dated 17.08.2007 in view of failure on the part of the  

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appellant in complying with various terms and conditions of the MoU.  

The respondent, thus, threw the blame on the appellant for the proposed  

project not being able to be finalized.   

11. In response to the said letter dated 25.04.2011, the appellant wrote  

a detailed reply on 11.07.2011 wherein the appellant expressed its desire  

to amicably resolve the dispute and requested the respondent to make  

an attempt for an amicable settlement as regards the issues and alleged  

breaches  mentioned  in  the  respondent’s  letter  dated  25.04.2011.  

Subsequently, the appellant caused a legal notice dated 07.12.2012 to  

the  respondent,  wherein  it  was  claimed  that  its  attempt  to  amicably  

resolve the dispute as provided under Clause 26 of the MoU failed and,  

therefore,  it  decided  to  invoke  Clause  27  of  the  MoU  to  appoint  an  

Arbitrator  and  suggested  the  name of  a  retired  High Court  Judge for  

appointment  with  the  concurrence  of  the  respondent  or  else  the  

appellant’s decision to invoke Section 11 of the Act.

12. On behalf of the respondent, a reply was addressed to the appellant  

on 04.01.2013 stating that there was no fault whatsoever on its side and,  

therefore, there was no question of any obligation to be fulfilled on its  

side and it also expressed its decision not to concur for the appointment  

of the Arbitrator.   

13. It was in the above stated sequence of events i.e. from the date of  

MoU to the date of filing of the application, the appellant approached the  

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High Court by filing an application under Section 11 of the Act and sought  

for appointment of an Arbitrator.  By the impugned order, the High Court  

having  rejected  the  appellant’s  application,  the  appellant  has  come  

forward with this appeal.

14. We  heard  Mr.  Dushyant  Dave,  learned  senior  counsel  for  the  

appellant and Mr. Vikas Singh, learned senior counsel for the respondent.  

Mr. Dushyant Dave after referring to the above course of events that has  

taken place between the appellant and the respondent from the date of  

MoU dated 17.8.2007 till the rejection of the Arbitration Application by  

the  High  Court,  contended  that  since  indisputably  the  respondent  

terminated the MoU, the conclusion of the High Court that the same was  

a still-born was wholly unjustified.  The learned senior counsel submitted  

that even if the MoU for the proposed joint venture did not ultimately  

fructify into the creation of the joint venture, Clauses 26 and 27 of the  

MoU by virtue of the specific terms contained therein would operate as  

stand-alone  agreement  for  arbitration  and  with  reference  to  the  said  

agreed  terms,   since  there  was  a   consensus  ad  idem between  the  

parties, the High Court ought to have appointed the Arbitrator exercising  

its  power  under  Section  11  of  the  Act,  inasmuch  as  the  respondent  

declined to express its consent for the named Arbitrator suggested by  

the appellant.

15. As against the above submission Mr.  Vikas Singh,  learned senior  

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counsel  appearing  for  the  respondent  vehemently  submitted  that  the  

High Court was able to highlight that the parties had no  consensus ad  

idem even  with  reference  to  the  very  MoU  itself  and  in  the  

circumstances, there was no scope for applying Clauses 26 and 27 for  

the appointment of Arbitrator as claimed by the appellant.   

16. While Mr. Dushyant Dave, learned senior counsel  placed reliance  

upon the  decisions  in  Enercon (India)  Limited & Ors.  v.  Enercon  

GMBH & Anr. - 2014 (5) SCC 1, Reva Electric Car Company Private  

Ltd.  v.  Green  Mobil  -  2012  (2)  SCC  93 and Today  Homes  and  

Infrastructure Pvt. Ltd. v. Ludhiana Improvement Trust and Anr. -  

2014 (5) SCC 68, Mr. Vikas Singh relied upon the decisions reported as  

SBP & Co. v. Patel Engineering Ltd. & Anr. -  2005 (8)  SCC 618,  

National Insurance Company Ltd. v. Boghara Polyfab Pvt. Ltd.  –  

2009 (1)  SCC 267 and Chloro Controls  India Pvt.  Ltd.  v.  Severn  

Trent Water Purification Inc. & Ors. - 2013 (1) SCC 641 in support of  

his submissions.   

17. Having heard the submissions of the respective counsel,  we find  

that the sum and substance of the submission of Mr. Dushyant Dave was  

that the arbitration Clause contained in Clause 27 of the MoU was an  

independent  arbitration  agreement  and,  therefore,  even if  respondent  

chose to terminate the MoU dated 17.8.2007, the Arbitration agreement  

would continue to remain and consequently the parties are entitled to  

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invoke the said Clause 27 and exercise their option for appointment of an  

Arbitrator and seek for concurrence of the other party. The learned senior  

counsel contended that since the respondent expressed its decision to  

terminate  the  MoU,  the  appellant  after  exhausting  its  attempt  for  an  

amicable settlement at bilateral level as between the appellant and the  

respondent  by invoking Clause 26 had no other  option but  to  invoke  

Clause 27 and opt for the appointment of a retired Judge Hon’ble Mr.  

Justice B.N. Mehta as an Arbitrator and sought for the concurrence of the  

respondent.   The  learned  senior  counsel  submitted  that  when  the  

respondent refused to concur with the appointment of the said learned  

Judge as an Arbitrator, the appellant was well justified in approaching the  

High Court under Section 11 for the appointment of an Arbitrator.  The  

learned senior  counsel,  therefore,  contended that  the rejection of  the  

said application filed under Section 11 of the Act by the impugned order  

is liable to be set aside and an Arbitrator has to be appointed.   

18. According  to  Mr.  Vikas  Singh,  learned  senior  counsel  for  the  

respondent inasmuch as the MoU itself  was not a concluded contract,  

Clauses 26 and 27 of the said MoU do not survive and consequently there  

was no scope for appointment of an Arbitrator by invoking Clause 27 of  

the MoU.   

19. To appreciate the respective contentions and having regard to the  

law on this issue been already settled in more than one decision, we are  

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of the view that the statement of law so declared by this Court can be  

straightaway noted in order to render our decision in tune with the said  

proposition of law declared by this Court.

20. In this context, we find, the reliance placed upon by Mr. Dushyant  

Dave, learned senior counsel for the appellant on the decisions in Reva  

Electrical  Car Company Private Ltd. (supra), Today Homes and  

Infrastructure  Pvt.  Ltd.  (supra)  and Enercon  (India)  Limited  

(supra) fully support the stand of the appellant.  The decision in Reva  

Electrical Car Company Private Ltd. (supra) was a case which arose  

under Section 11 of the Act.   A question was raised on behalf  of the  

respondent in the said case to the effect that with the termination of the  

MoU itself, the Arbitration Clause would cease to exist.  Dealing with the  

said question, the learned Judge has held as under in paragraphs 54 and  

55:

“54. Under Section 16(1), the legislature makes it clear that  while considering any objection with respect to the existence  or validity of the arbitration agreement, the arbitration clause  which formed part of the contract, has to be treated as an  agreement independent of the other terms of the contract. To  ensure  that  there  is  no  misunderstanding,  Section  16(1)(b)  further provides that even if  the Arbitral  Tribunal  concludes  that the contract is null  and void, it should not result,  as a  matter of law, in an automatic invalidation of the arbitration  clause.  Section  16(1)(a)  presumes  the  existence  of  a  valid  arbitration clause and mandates the same to be treated as an  agreement independent of the other terms of the contract. By  virtue  of  Section  16(1)(b),  it  continues  to  be  enforceable  notwithstanding a declaration of the contract being null and  void. In view of the provisions contained in Section 16(1) of  the  Arbitration  and  Conciliation  Act,  1996,  it  would  not  be  possible to accept the submission of Ms Ahmadi that with the  

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termination of the MoU on 31-12-2007, the arbitration clause  would also cease to exist.

55. As noticed earlier, the disputes that have arisen between  the  parties  clearly  relate  to  the  subject-matter  of  the  relationship between the parties which came into existence  through the MoU. Clearly, therefore, the disputes raised by the  petitioner  need  to  be  referred  to  arbitration.  Under  the  arbitration  clause,  a  reference  was  to  be  made  that  the  disputes were to be referred to a single arbitrator. Since the  parties have failed to appoint an arbitrator under the agreed  procedure,  it  is  necessary  for  this  Court  to  appoint  the  arbitrator.”

(Emphasis added)

21. In  Today  Homes  and  Infrastructure  Pvt.  Ltd.  (supra),  this  

Court approved the statement of law stated by the learned Judge of this  

Court  in  Reva  Electrical  Car  Company  Private  Ltd.  (supra).  

Paragraph 14 can be usefully referred to which reads as under:

“14. The same reasoning was adopted by a member of this  Bench (S.S. Nijjar, J.), while deciding Reva Electric Car Co. (P)   Ltd. v. Green Mobil, wherein the provisions of Section 16(1) in  the backdrop of the doctrine of  kompetenz kompetenz were  considered and it was inter alia held that under Section 16(1),  the  legislature  makes  it  clear  that  while  considering  any  objection  with  regard  to  the  existence  or  validity  of  the  arbitration  agreement,  the  arbitration  clause,  which  formed  part  of  the  contract,  had  to  be  treated  as  an  agreement  independent of the other terms of the contract. Reference was  made in the said judgment to the provisions of Section 16(1) (b) of the 1996 Act, which provides that even if the Arbitral  Tribunal concludes that the contract is null and void, it should  not result, as a matter of law, in an automatic invalidation of  the arbitration clause. It was also held that Section 16(1)(a) of  the 1996 Act  presumes the existence of  a  valid  arbitration  clause and mandates the same to be treated as an agreement  independent of the other terms of the contract.  By virtue of  Section  16(1)(  b  )  of  the  1996  Act,  the  arbitration  clause    continues  to  be  enforceable,  notwithstanding  a  declaration  that the contract was null and void.”

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(Emphasis added)

22. Again  this  very  question  came up  for  consideration  in  Enercon  

(India) Limited (supra)  to which one of us (F.M.I  Kalifulla,  J.)  was a  

party. In the said decision, the nature of transaction between the parties  

was more or less identical to the facts of this case. The contention raised  

on  behalf  of  the  appellant  in  that  case  was  that  there  can  be  no  

arbitration  agreement  in  the  absence  of  a  concluded  contract,  that,  

therefore, there was no question of an arbitration agreement coming into  

existence and, therefore, there was no scope for referring the dispute for  

arbitration.   

23. As against the above submissions, it was contended on behalf of  

the respondent in the said decision that even if the existence of the main  

contract is under dispute, the Court is concerned only with the arbitration  

agreement, i.e. the arbitration clause and that when once such a Clause  

is  very  much present,  that  would  by itself  result  in  the matter  being  

referable for arbitration. In fact, in the said case, the Clause relating to  

arbitration was found in Clause No.18.1 which provided for an attempt to  

resolve  the  dispute,  controversy  or  difference  through  mutual  

consultation and if it is not resolved through mutual consultation within  

30 days after commencement of discussion, then the parties may refer  

the  dispute,  controversy  or  difference  for  resolution  to  an  Arbitral  

Tribunal.   

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24. Dealing with the said Clause and the arguments raised on behalf of  

the  respective  parties,  the  law  has  been  laid  down  as  under  in  

paragraphs 82 and 83 which are to the following effect:

“82. Further, the arbitration agreement contained in Clauses  18.1 to 18.3 of IPLA is very widely worded and would include  all  the disputes, controversies or differences concerning the  legal  relationship between the parties.  It  would include the  disputes  arising  in  respect  of  the  IPLA  with  regard  to  its  validity,  interpretation,  construction,  performance,   enforcement or  its  alleged  breach.  Whilst  interpreting  the  arbitration agreement and/or the arbitration clause, the court  must  be  conscious  of  the  overarching  policy  of    least    intervention  by  courts  or  judicial  authorities   in  matters    covered by the Indian Arbitration Act,  1996.  In view of  the  aforesaid, it is not possible for us to accept the submission of  Mr Nariman that the arbitration agreement will perish as the  IPLA  has  not  been  finalised.  This  is  also  because  the  arbitration  clause  (agreement)  is  independent  of  the  underlying  contract  i.e.  the  IPLA  containing  the  arbitration  clause. Section 16 provides that the arbitration clause forming  part  of  a  contract  shall  be  treated  as  an  agreement  independent   of such a contract  .

83. The  concept  of  separability  of  the  arbitration  clause/agreement from the underlying contract is a necessity  to  ensure  that  the  intention  of  the  parties  to  resolve  the  disputes by arbitration does not evaporate into thin air with  every challenge to the legality, validity, finality or breach of  the underlying contract. The Indian Arbitration Act, 1996, as  noticed above, under Section 16 accepts the concept that the  main  contract  and  the  arbitration  agreement  form  two  independent contracts. Commercial rights and obligations are  contained in the underlying, substantive, or the main contract.  It  is  followed  by  a  second  contract,  which  expresses  the  agreement  and  the  intention  of  the  parties  to  resolve  the  disputes  relating  to  the  underlying  contract  through  arbitration. A remedy is elected by parties outside the normal  civil court remedy. It is true that support of the national courts  would be required to ensure the success of  arbitration,  but  this would not detract from the legitimacy or independence of  the collateral arbitration agreement, even if it is contained in  a  contract,  which  is  claimed  to  be  void  or  voidable  or  unconcluded by one of the parties.”

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(Emphasis added)

25. Mr.  Vikas  Singh,  learned  senior  counsel  for  the  respondent  by  

referring  to  the  Seven  Judge  Bench  decision  of  this  Court  in  Patel  

Engineering Ltd. (supra)  sought to contend that the reliance placed  

upon  the  said  decision  by  this  Court  in  Today  Homes  and  

Infrastructure  Pvt.  Ltd.  (supra) with  particular  reference  to  the  

position  stated  in  paragraph  13  of  the  said  judgment  was  not  

appropriate.  

26. We are not inclined to entertain the said submission, as we find that  

we are not concerned with the said issue as to whether what was held in  

paragraph 13 of Today Homes and Infrastructure Pvt. Ltd. (supra)  

judgment was correct or not when it makes reference to the Seven Judge  

Bench  decision  in  Patel  Engineering  Ltd.(supra).  We  are  only  

concerned with the question whether an Arbitration Clause contained in  

the MoU is a stand alone agreement or not. For that purpose, what has  

been stated in Today Homes and Infrastructure Pvt. Ltd. (supra) in  

paragraph  14  is  only  relevant  and  we  find  the  legal  position  stated  

therein in tune with the  ratio decidendi laid down consistently by this  

Court in very many decisions.   

27. The  reliance  was  also  placed  upon  the  decision  in  National  

Insurance Company Ltd.  (supra).  Paragraphs  19,  20  and  21  were  

referred to in the said judgment. Paragraph 19 can be usefully referred,  

which reads as under:

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 “19. In SBP & Co. v. Patel Engg. Ltd., a seven-Judge Bench of  this Court considered the scope of Section 11 of the Act and  held that the scheme of Section 11 of the Act required the  Chief Justice or his designate to decide whether there is an  arbitration agreement in terms of Section 7 of the Act before  exercising his power under Section 11(6) of the Act and its  implications. It was of the view that sub-sections (4), (5) and  (6) of Section 11 of the new Act, combined the power vested  in  the  court  under  Sections  8  and  20  of  the  old  Act  (the  Arbitration  Act,  1940).  This  Court  held:  (SCC pp.  660-61  &  663, paras 39 & 47)

“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  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. *** 47. (iv) The Chief Justice or the Designated Judge will have  

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the right to decide the preliminary aspects as indicated 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.”

28. Having  gone  through  the  said  paragraphs,  we  do  not  find  any  

position in law contrary to what has been stated in Today Homes and  

Infrastructure  Pvt.  Ltd.  (supra),  Reva  Electrical  Car  Company  

Private Ltd. (supra) and Enercon (India) Limited (supra).

29. Similarly, the reliance placed upon in Chloro Controls India Pvt.  

Ltd. (supra)  also does not in any manner dislodge the legal position  

relating to the stand alone Arbitration Clause in a substantive transaction  

recorded in  writing.  Therefore,  we do not  find  any useful  purpose by  

referring to the said decision as well.

30. Having  thus  ascertained  the  legal  position  regarding  the  stand  

alone  agreement  relating  to  arbitration  with  particular  reference  to  

arbitration agreement in a legal transaction between the parties, when  

we refer to Clause 27 of the MoU, we wish to find out whether the said  

Clause satisfies the principles set down and applicable to a stand alone  

Arbitration Agreement. When we refer to Clause 27, we find that in the  

event of failure of an amicable settlement at the bilateral level relating to  

a dispute or difference arising between the appellant and the respondent  

to  be  reached  as  contained  in  Clause  26  of  the  MoU,  then  such  

unresolved dispute or difference concerning or arising from the MoU, its  

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implementation  breach  or  termination  whatsoever  including  any  

difference or dispute as to the interpretation of any of the terms of the  

MoU is referable to the sole Arbitrator appointed by the appellant and the  

respondent.  Therefore,  irrespective  of  the  question  or  as  to  the  fact  

whether the MoU fructified into a full-fledged agreement, having regard  

to the non-fulfilment of any of the conditions or failure of compliance of  

any requirement by either of the parties stipulated in the other Clauses  

of MoU, specific agreement has been entered into by the appellant and  

the respondent under Clause 27 to refer such controversies as between  

the  parties  to  the  sole  arbitrator  by  consensus.  Therefore,  when  

consensus  was  not  reached  as  between  the  parties  for  making  the  

reference, eventually it will be open for either of the parties to invoke  

Section 11 of the Act and seek for reference of the dispute for arbitration.  

31. In the case on hand, as we have noted earlier, after the signing of  

the MoU on 17.8.2007, the Board of Directors of the Respondent passed  

a Resolution on 29.10.2007 which expressed its  approval  to the MoU,  

subject,  however,  to  modification  of  the  conditions.  Thereafter,  

correspondence  exchanged  between  the  parties  from  17.12.2007  to  

10.03.2010.  There was a subsequent Board Resolution of the respondent  

on 18.03.2010 which stated that the Board took a decision that it was not  

inclined to extend the validity of proposed MoU due to change in the  

mineral  policy of the State Government. However, on 26.07.2010, the  

respondent  informed the  appellant  that  to  maintain  parity,  necessary  

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modification in the terms and conditions of the MoU dated 17.8.2007 was  

communicated to the State Government for approval which was awaited  

and  that  on  receipt  of  such  approval,  a  fresh  MoU can  be  executed.  

Thereafter,  by  communication  dated  25.4.2011,  the  respondent  

categorically informed the appellant that it decided to forthwith cancel  

the MoU dated 17.8.2007 alleging fault on the side of the appellant with  

regard to failure to comply with the various terms and conditions of the  

MoU.   Thus,  from  the  above  referred  to  sequence  of  events  which  

occurred between 17.8.2007 and 25.4.2011, it is crystal clear that both  

parties  were  at  variance  with  reference  to  the  various  terms  and  

conditions contained in the MoU and consequently there was every right  

in either of the parties to seek for an amicable settlement in the first  

instance as specified in Clause 26 of the MoU.  

32. We find from the materials on record that the appellant in its letter  

dated  11.07.2011  addressed  to  respondent  expressed  its  desire  to  

amicably resolve the dispute at the bilateral level.  Since there was no  

response from the respondent, the appellant caused a legal notice on  

07.12.2012 by invoking Clause 27 of  the MoU for  appointment  of  an  

Arbitrator and also suggested the name of a retired High Court Judge and  

sought for the concurrence of the respondent. In the legal notice, the  

appellant specifically intimated that in the event of the respondent failing  

to express its concurrence for the appointment of the named Arbitrator,  

it will have no other option but to move the High Court under Section 11  

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of  the  Act.  The  respondent  having  made  it  clear  in  its  reply  dated  

04.01.2013 to the lawyer’s notice stating that it was not inclined to agree  

for a reference, the appellant had no other option except to move the  

High Court by filing an application under Section 11 of the Act.   

33. Having noted the above factors and inasmuch as we are convinced  

that  Clause 27 is  a valid arbitration agreement contained in the MoU  

dated  17.8.2007,  the  appellant  was  fully  entitled  to  invoke  the  said  

agreement and seek for a reference to the Arbitrator.   

34. In the light of our above conclusion, we hold that the learned Judge  

having failed to appreciate the legal position as regards the existence of  

an arbitration agreement in the MoU irrespective of  the failure of  the  

parties  to  reach a  full-fledged agreement  with  respect  to  the  various  

terms and conditions contained in the MoU for a joint venture, the said  

conclusion and judgment of the learned Judge is liable to be set aside  

and  is  accordingly  set  aside.  Since  the  respondent  has  expressed  its  

disinclination to agree to express its concurrence and thereby the parties  

failed  to  appoint  an  Arbitrator  under  the  agreed  procedure,  it  is  

necessary for this Court to appoint an Arbitrator. Therefore, while setting  

aside the judgment impugned in this appeal, we hereby appoint Hon'ble  

Ms. Justice Rekha Manharlal Doshit, resident of C-5, 402, Deo Sangam  

Flat, Guartgam Road, Near Gandhi Nagar, Gujarat, former Chief Justice of  

Patna High Court and former Judge of  Gujarat High Court  as the sole  

Arbitrator  to  adjudicate  the  disputes  that  have  arisen  between  the  

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parties on such terms and conditions as the sole Arbitrator deems fit and  

proper.  Undoubtedly,  the  learned  sole  Arbitrator  shall  decide  all  the  

disputes  arising  between  the  parties  under  the  MoU,  without  being  

influenced by any prima facie opinion expressed in this order with regard  

to the respective claims of the parties.

35. The  Registry  is  directed  to  communicate  this  order  to  the  sole  

Arbitrator  to  enable  him to  enter  upon the reference  and  decide  the  

matter as expeditiously as possible.   

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36. The appeal stands allowed with the above directions.

….………….………………………………J.              [Fakkir Mohamed Ibrahim Kalifulla]

..……………………………………………J. [Shiva Kirti Singh]

New Delhi; April 16, 2015

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