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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4596 OF 2013

[Arising out of SLP(C)No.7334 of 2010] M/s Today Homes & Infrastructure  Pvt. Ltd. ...Appellant    

Vs. Ludhiana Improvement Trust & Anr. ...Respondents

WITH C.A. No.4597 of 2013 @ SLP(C)No.11778/2010, C.A. No.4598 of 2013 @ SLP(C)No.10795/2010, C.A. No.4595 of 2013 @ SLP(C)No.26173/2010.

J U D G M E N T

ALTAMAS KABIR, CJI.

1. Special Leave Petition (Civil) No.7334 of 2010  

and Special Leave Petition (Civil) No.11778 of 2010  

have  been  filed  by  M/s  Today  Homes  and

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Infrastructure Pvt. Ltd. and Mapletree Properties  

Pvt. Ltd. respectively, against a common judgment  

and order dated 08.10.2009, passed by the Punjab &  

Haryana  High  Court  in  Arbitration  Case  No.76  of  

2007.   Special Leave Petition (Civil) No.10795 of  

2010  has  been  separately  filed  by  M/s  Mapletree  

Properties Pvt. Ltd. against the judgment and order  

dated  26.03.2010,  passed  by  the  aforesaid  High  

Court in R.A. No.49-CII/2010 (of M) in Arbitration  

Case No.76 of 2007.  In addition I.A. No.2 of 2010  

has  been  filed  by  M/s  Mapletree  Properties  Pvt.  

Ltd. in Special Leave Petition (Civil) No.26173 of  

2010  filed  by  Ludhiana  Improvement  Trust  for  

vacating  the  interim  order  of  stay  passed  on  

15.09.2010, or modification thereof.  I.A. No.3 of  

2010 has been filed by Ludhiana Improvement Trust  

in  the  said  Special  Leave  Petition  to  bring  on  

record  certain  additional  documents.    Both  the  

said IAs have been taken up for hearing along with

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the four Special Leave Petitions, as referred to  

hereinabove.   Leave  granted  in  all  the  Special  

Leave Petitions.

2. The  Ludhiana  Improvement  Trust,  hereinafter  

referred to as "the Trust", the Appellant in the  

appeal arising out of SLP(C) No. 26173 of 2010, was  

constituted under the Punjab Town Improvement Act,  

1922, hereinafter referred to as "the 1922 Act",  

for  the  planned  development  of  the  city  of  

Ludhiana.  For the purpose of construction of the  

City Centre in Ludhiana, the Trust invited bids by  

a Request of Proposal document dated 15.03.2005,  

with the intention of entering into a Joint-Venture  

with  developers  in  the  private  sector.   After  

evaluation  of  the  bids,  M/s.  Today  Homes  and  

Infrastructure  Pvt.  Ltd.,  the  Appellant  in  the  

appeal arising out of SLP(C) No. 7334 of 2010, was  

found to be the highest bidder and a Letter of

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Intent was issued in its favour on 18.05.2005, for  

development of the City Centre, Ludhiana.

3. The records indicate that after the Letter of  

Intent was issued in its favour, M/s. Today Homes  

and  Infrastructure  Pvt.  Ltd.  deposited  Rs.  3.72  

crores  with  the  Trust  as  Performance  Security.  

According to the agreement arrived at between the  

parties, the successful bidder would ultimately be  

required to pay to the Trust Rs.371.12 crores.  The  

records further reveal that possession of an area  

measuring  25.59  acres  was  handed  over  to  the  

successful bidder by the Trust on 24.05.2005 by way  

of Concession Agreement.  A Tripartite Agreement  

was signed on 25.04.2005, between M/s. Today Homes  

and  Infrastructure  Pvt.  Ltd.,  the  Trust  and  the  

HDFC Bank.  In terms of the said agreement, the  

entire proceeds from booking of the saleable areas  

were required to be deposited in the Joint Escrow

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Account of the Company and the Trust with the HDFC  

Bank, of which 30% was to be credited directly to  

the  account  of  the  Trust  and  70%  was  to  be  

deposited to the account of the Company.  Disputes  

arose  regarding  the  deposits  made  in  the  Escrow  

Account  and  on  12.09.2006,  the  Trust  issued  a  

letter  to  the  Company  seeking  an  explanation  

regarding the allegations.  On the very next day, a  

reply was sent on behalf of the Company denying the  

allegations and indicating that its accounts could  

be  scrutinised,  and,  if  the  explanation  was  not  

found  to  be  satisfactory,  the  dispute  could  be  

referred to arbitration.  In fact, on 14.09.2006,  

the  Trust  wrote  to  M/s.  Today  Homes  and  

Infrastructure  Pvt.  Ltd.  indicating  that  it  was  

going to appoint an arbitrator within the next two  

days.   However,  before  the  expiry  of  the  said  

period,  on  15.09.2006,  the  Company  filed  an  

application before the Chief Justice of the Punjab

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and Haryana High Court under Section 11(6) of the  

Arbitration and Conciliation Act, 1996, hereinafter  

referred to as "the 1996 Act", being Arbitration  

Application No. 263 of 2006.

4. From  the  submissions  made  on  behalf  of  the  

parties, it transpires that on 6.10.2006, a meeting  

was  held  between  the  Principal  Secretary  and  

officers of the Trust and the representatives of  

the Company, wherein it was agreed that instead of  

the Company and the Trust sharing revenue from the  

project in the ratio of 70:30, the constructed area  

would be shared on the same basis.  It was also  

agreed  that  the  demarcation  of  the  operations  

involved would be done jointly by the architects of  

the parties and all bookings prior to 15.10.2006,  

would be honoured and would go to the share of the  

Company. It was also decided that a Supplementary  

Agreement  incorporating  the  said  terms  and

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conditions  should  also  be  executed.   Instead  of  

completing the said agreement, the Trust filed its  

response to the Arbitration Application No.263 of  

2006, raising a plea, for the first time, that the  

agreement executed with the Company was void.  Such  

plea was raised two years after the agreement was  

entered into and allowing a substantial portion of  

the construction of the City Centre, Ludhiana, to  

be completed, without any protest, after the Trust  

had received a sum of Rs.23 crores as its share of  

the sale/lease proceeds from over 300 customers.

5. Faced  with  the  above  situation,  the  Company  

wrote a letter to the Trust on 08.06.2007, invoking  

the provisions of Article 17.1(a) and (b) of the  

Agreement dated 24.05.2005, for appointment of an  

arbitrator.  It was also indicated in the letter  

that  in  the  event  no  reply  was  received,  the  

Company would nominate its arbitrator.  Since no

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reply  was  received  from  the  Trust,  the  Company  

wrote to the Trust on 30.06.2007, indicating that  

it  had  appointed  its  arbitrator.   The  Trust  

responded  to  the  said  letter  by  raising  an  

objection  that  since  the  matter  was  sub  judice  

before  the  Chief  Justice  of  the  High  Court,  no  

arbitrator  could  have  been  appointed  by  the  

Company.

6. On 22.08.2007, Arbitration Application No.263 of  

2006, was taken up by the Chief Justice of the  

Punjab and Haryana High Court, but the same was  

dismissed as withdrawn with liberty to file a fresh  

petition.  On the same day, a fresh petition was  

filed under Section 11(6) of the 1996 Act, being  

Arbitration Case No. 76 of 2007.  On 04.04.2008,  

the  Chief  Justice  of  the  aforesaid  High  Court  

appointed retired Chief Justice of India, Shri R.C.  

Lahoti,  as  Arbitrator  to  adjudicate  upon  the

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disputes  between  the  parties.  Arbitration  

proceedings were, thereafter, held on 22.04.2008,  

when  the  Company  filed  its  Statement  of  Claims.  

The next date for arguments, after completion of  

pleadings, was fixed on 02.06.2008.

7. In the meantime, however, SLP(C) No. 10550 of  

2008,  filed  by  the  Trust  challenging  the  

appointment of the arbitrator, in Arbitration Case  

No.76  of  2007,  came  up  for  consideration  before  

this Court by way of Civil Appeal No.6104 of 2008.  

Having regard to the decision of the 7-Judge Bench  

in SBP & Co. Vs. Patel Engineering Ltd. and Another  

[(2005) 8 SCC 618], this Court set aside the order  

of the Chief Justice and remitted the matter for a  

fresh decision in keeping with the decision of the  

7-Judge Bench of this Court in the above case.  

8. The  challenge  to  the  appointment  of  the  

arbitrator by the Chief Justice of the Punjab and

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Haryana High Court was that the agreement itself  

was  void  having  been  entered  into  in  suspicious  

circumstances.  It had been contended that since  

the main agreement, which contained the arbitration  

agreement,  was  itself  void,  the  arbitration  

agreement could not survive independent of the main  

agreement.  It was also contended that the said  

question was required to be left to the learned  

arbitrator in terms of Section 16 of the 1996 Act.  

Such  a  course  of  action,  however,  did  not  find  

favour  with  this  Court,  and  as  indicated  

hereinbefore, the matter was remanded to the Chief  

Justice of the Punjab and Haryana High Court for a  

fresh decision.  The matter was, thereafter, taken  

up by the designate Judge who came to a finding  

that the agreement dated 24.05.2005 was not legal  

and valid and, therefore, the disputes between the  

parties arising out of the said agreement could not  

be  referred  to  an  arbitrator.   The  application

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under Section 11(6) of the 1996 Act was, therefore,  

dismissed.

9. It is the said decision of the designate Judge,  

which is the subject matter of challenge in these  

appeals.

10. On  behalf  of  M/s.  Today  Homes  and  

Infrastructure Pvt. Ltd., it was urged that while  

considering  the  matter  on  remand,  the  designate  

Judge treated the matter as if he was deciding a  

suit, but without adducing evidence. Mr. Uday U.  

Lalit, learned Senior Advocate submitted that in  

the parameters for consideration of an application  

under Section 11(6) of the 1996 Act set out by this  

Court in the decision rendered by the 7-Judge Bench  

in  SBP & Co. (supra), this Court had intended a  

preliminary  enquiry  on  the  existence  of  an  

arbitration  agreement  and  a  dispute,  which  was

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required to be considered by an arbitrator to be  

appointed.   

11. Mr. Lalit urged that Section 11(6) of the above  

Act  nowhere  contemplates  an  application  filed  

thereunder to be gone into in intricate detail by  

framing issues and deciding the same without taking  

any evidence.  Mr. Lalit submitted that the essence  

of the issue before the Arbitrator, was lost sight  

of by the designated Judge.  

12. An attempt was made by Mr. Salil Sagar, learned  

Senior  Advocate,  appearing  for  the  Trust,  to  

counter the submissions made by Mr. Lalit and Mr.  

H. Devarajan, learned Advocate, appearing for the  

appellants in the appeals arising out of SLP (C)  

Nos. 11778 of 2010 and 10795 of 2010.  The learned  

counsel  supported  the  decision  of  the  learned  

designate  Judge  to  distinguish  the  decision  

rendered by this Court in SBP & Co. (supra) and the

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facts of the present case.  Mr. Sagar insisted that  

once the main agreement had been found to be void,  

the  contents  thereof,  including  any  arbitration  

agreement,  was  also  rendered  void.   The  learned  

counsel  submitted  that  the  arbitration  clause  

contained  in  the  arbitration  agreement  dated  

24.05.2005, stood automatically dissolved upon the  

agreement itself being held to be void.  Mr. Sagar,  

therefore,  urged  that  the  appointment  of  an  

arbitrator by the designated Judge in Arbitration  

Case No.76 of 2007 was void and was liable to be  

set aside.

13. We  have  carefully  considered  the  submissions  

made on behalf of the respective parties and we are  

of  the  view  that  the  learned  designated  Judge  

exceeded  the  bounds  of  his  jurisdiction,  as  

envisaged in SBP & Co. (supra).  In our view, the  

learned  designated  Judge  was  not  required  to

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undertake a detailed scrutiny of the merits and de-

merits of the case, almost as if he was deciding a  

suit.   The  learned  Judge  was  only  required  to  

decide such preliminary issues such as jurisdiction  

to entertain the application, the existence of a  

valid arbitration agreement, whether a live claim  

existed or not, for the purpose of appointment of  

an arbitrator.  By the impugned order, much more  

than what is contemplated under Section 11(6) of  

the 1996 Act was sought to be decided, without any  

evidence being adduced by the parties.  The issue  

regarding  the  continued  existence  of  the  

arbitration  agreement,  notwithstanding  the  main  

agreement  itself  being  declared  void,  was  

considered  by  the  7-Judge  Bench  in  SBP  &  Co.  

(supra)  and  it  was  held  that  an  arbitration  

agreement  could  stand  independent  of  the  main  

agreement and did not necessarily become otiose,

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even if the main agreement, of which it is a part,  

is declared void.

14. The same reasoning was adopted by a member of  

this Bench (S.S. Nijjar, J.), while deciding the  

case of  Reva Electric Car Company Private Limited  

Vs.  Green  Mobil [(2012)  2  SCC  93],  wherein  the  

provisions of Section 16(1) in the backdrop of the  

doctrine of kompetenz kompetenz were considered and  

it was  inter alia held that under Section 16(1),  

the  legislature  makes  it  clear  that  while  

considering  any  objection  with  regard  to  the  

existence or validity of the arbitration agreement,  

the arbitration clause, which formed part of the  

contract,  had  to  be  treated  as  an  agreement  

independent  of  the  other  terms  of  the  contract.  

Reference  was  made  in  the  said  judgment  to  the  

provisions  of  Section  16(1)(b)  of  the  1996  Act,  

which provides that even if the arbitral tribunal

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concludes that the contract is null and void, it  

should  not  result,  as  a  matter  of  law,  in  an  

automatic invalidation of the arbitration clause.  

It was also held that Section 16(1)(a) of the 1996  

Act presumes the existence of a valid arbitration  

clause and mandates the same to be treated as an  

agreement  independent  of  the  other  terms  of  the  

contract.  By virtue of Section 16(1)(b) of the  

1996 Act, the arbitration clause continues to be  

enforceable, notwithstanding a declaration that the  

contract was null and void.

15. In  our  view,  the  learned  designated  Judge  

misunderstood  the  scope  of  the  order  dated  

14.10.2008, passed in the earlier proceedings and  

the provisions of Section 16 of the 1996 Act in  

going  into  a  detailed  examination  regarding  the  

merits  of  the  case  and  the  existence  of  an  

arbitration agreement and in holding that once the

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main  agreement  between  the  parties  was  declared  

void, the entire contents thereof, including any  

arbitration clause that may have been incorporated  

in the main agreement, were rendered invalid.

16. It may be profitable to remind ourselves of the  

observations made by the 7-Judge Bench in SBP & Co.  

(supra), regarding what the Chief Justice is really  

required to decide on an application being made to  

him  under  Section  11(6)  of  the  1996  Act.   In  

paragraph 39 of the judgment, it has been stated  

that  obviously  the  Chief  Justice  has  to  first  

decide his own jurisdiction and whether the party  

concerned has approached the right High Court.  He  

also has to decide whether there is an arbitration  

agreement and as to whether the person who has made  

the  request  before  him,  is  a  party  to  such  

agreement.  Their Lordships further indicated that  

it  was  necessary  to  mention  that  the  learned

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arbitrator  could  also  decide  the  question  as  to  

whether the claim was a dead one or a long-barred  

claim, that was sought to be resurrected.  Summing  

up its views, in paragraph 47 of the judgment, the  

7-Judge  Bench,  while  holding  that  the  power  

exercised by the Chief Justice of the High Court or  

the Chief Justice of India under Section 11(6) of  

the 1996 Act is not an administrative power but a  

judicial one, also held that the Chief Justice or  

the designated Judge would have the right to decide  

the preliminary aspects, as indicated hereinbefore.

17. The above views expressed by the 7-Judge Bench  

and by the learned Single Judge are sufficient to  

dispose of these appeals.  In the light of what has  

been indicated hereinbefore, we have no hesitation  

in  setting  aside  the  impugned  judgment  and  the  

order  of  the  designated  Judge  once  again  and  

directing that the matter be again considered  de

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novo in  the  light  of  the  observations  made  

hereinabove and the various decisions cited at the  

Bar.

18. The appeals are, accordingly, disposed of along  

with the interlocutory applications.  Having regard  

to the peculiar facts of this case, the parties  

will bear their own costs.

...................CJI.    (ALTAMAS KABIR)

.....................J.  (SURINDER SINGH NIJJAR)

New Delhi Dated: May 10, 2013.