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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.