Supreme Court of India
LUDHIANA IMPROVEMENT TRUST & ANOTHERversusM/S. TODAY HOMES AND INFRASTRUCTURE (PVT.) LIMITED
- Citation
- 2008 INSC 1147
- Decided
- 14 October 2008
- Disposal
- Disposed off
- Bench
- ALTAMAS KABIR
Holding
Post the Patel Engineering decision, applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 must be decided by the court, and the jurisdictional question cannot be left to the arbitrator.
Summary
The Ludhiana Improvement Trust (LIT) and the State of Punjab filed an appeal against the Chief Justice of the Punjab and Haryana High Court, who had, relying on the Konkan Railway decision, referred a dispute to an arbitrator under Section 16 of the Arbitration and Conciliation Act, 1996. The dispute arose from allegations of fraud and irregularities in awarding a development contract for the Ludhiana City Centre to M/s. Today Homes & Infrastructure. The High Court had appointed a former Chief Justice of India as sole arbitrator, treating the application under Section 11(6) as an administrative order. The Supreme Court examined whether the High Court should have decided the jurisdictional question itself, in light of the later seven‑Judge decision in S.B.P. & Co. v. Patel Engineering, which overruled the Konkan Railway precedent. The Court held that after the Patel Engineering judgment, applications under Section 11(6) must be decided by the court, not left to the arbitrator. Consequently, the order of the Chief Justice was set aside and the matter remitted to the High Court for a fresh decision consistent with the Patel Engineering ruling. The appeal was disposed of without any order as to costs.
Issues considered
- Whether an order passed by a Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, 1996 is a judicial order subject to the jurisdictional test of Section 16, post the Patel Engineering decision.
- Whether the High Court correctly referred the dispute to an arbitrator based on the earlier Konkan Railway precedent.
- Effect of the Patel Engineering judgment on pending applications under Section 11(6) of the 1996 Act.
Legislation cited
Subjects
ArbitrationSection 11(6)Section 16JurisdictionArbitrator appointmentSupreme Court precedentVoid contractHigh Court order
Judgment
[2008] 14 S.C.R. 397
,-__( LUDHIANA IMPROVEMENT TRUST & ANOTHER A
v.
M/S. TODAY HOMES AND INFRASTRUCTURE (PVT.)
LIMITED
(Civil Appeal No. 6104 of 2008)
OCTOBER 14, 2008 B
-l [ALTAMAS KABIR AND MARKANDEY KATJU, JJ.]
- Arbitration and Conciliation Act, 1996 - s. 11 (6) -Appli-
cation for reference of dispute to arbitrator - Chief Justice of
High Court relying on judgment passed by Supreme Court, in
c
view of s. 16 of the Act referring the issue to arbitrator - On
appeal, held: The decision whereupon High Court placed re-
liance, since was subsequently overruled by another decision
of Supreme Court, matter to be decided in keeping with sub-
D
sequent judgment - Hence matter remitted to High Court.
)( In an application u/s. 11 (6) of Arbitration an Concilia-
tion Act, 1996, Chief Justice of High Court, relying on
*Konkan Railway case held that in view of s. 16 of the Act,
it was for the Arbitrator to decide the issue. Hence the E
present appeal.
Disposing of the appeal, and remitting the matter to
High Court, the Court
HELD: High Court, relying on the earlier Constitu- F
'\ tion Bench decision of this Court in the *Konkan Railway
case left it to the Arbitrator appointed by it, to decide the
issues u/s. 16 of the 1996 Act. This was contrary to the
directions given by the seven-Judge Bench of this Court
in the **Patel Engineering case, which categorically over-
G
ruled the decision in the Konkan Railway case. Therefore,
the order of the Chief Justice is set aside and the matter
t4"
is remitted for a fresh decision in keeping with the deci-
sion in Patel Engineering case. [Paras 17 and 18] [403 G-
H, 404-A, 404-0]
397 H
398 SUPREME COURT REPORTS [2008] 14 S.C.R.
A **S.B.P and Company vs. Patel Engineering Limited and
Anr. 2005 (8) SCC 618 - followed.
*Konkan Railway Corporation Limited and Anr. vs. Rani
Construction Private Limited 2002 (2) SCC 388 - referred
to.
B
CASE LAW REFERENCE
2005 (8) sec 618 Followed. Para 17 -\.--
2002 (2) sec 388 Referred to. Para 17 ...
'
c CIVILAPPELLATE JURISDICTION : Civil Appeal No. 6104
of 2008
From the final Judgment and Order dated 4.4.2008 of the
High Court of Punjab and Haryana at Chandigarh in Arbitration
D
Case No. 76 of 2007
K.K. Venugopal, Ravi Shanker Prasad, Ajay Pal, Nikhil
Jain, Ashish Chopra, Ankur Talwar and Ru pa for the Appellants. x
Shanti Bhushan, Mukul Rohatagi, Vivek Sibal, Sumesh I
Dhawan, Jayashree Wad, Ashish Wad and Chirag S. Dave (for \
E
M/s. J.S. Wad & Co.) for the Respondent.
The Judgment of the Court was delivered by
ALTAMAS KABIR, J. 1. Leave granted.
F 2. This appeal has been filed by the Ludhiana Improve-
ment Trust, through its Administrator, and the State of Punjab, )· -<
against the order passed by the Chief Justice of Punjab and
Haryana High Court in a petition filed by the respondent herein
under Section 11 of the Arbitration and Conciliation Act, 1996
G (hereinafter referred to as 'the 1996 Act') for the appointment of
an Arbitrator. In the said application, which was numbered as
Arbitration Case No.76 of 2007, the appellants herein were
'~
m·ade respondents.
3. The Ludhiana Improvement Trust (hereinafter referred
H to as "the Trust") was constituted under the Punjab Town Im-
LUDHIANA IMPROVT. TRUST & ANR. v. M/S. TODAY 399
HOMES & INFRASTRE. (PVT.) LTD. [ALTAMAS KABIR, J.]
provement Act, 1922 (hereinafter referred to as "the 1922 Act") A
---(
for the planned development of the city of Ludhiana. For the
purpose of construction of the City Centre in Ludhiana, the Trust,
with the intention of entering into a joint-venture with developers
in the private sector, invited bids by a Request of Proposal docu-
ment dated 15.3.2005. Bids were filed by interested parties by 8
10.5.2005 and evaluation of the Technical bids was completed
by 16.5.2005. In the final evaluation the respondent was found
-f- to be the highest bidder and a Letter of Intent was thereupon·
issued to him on 18.5.2005 for development of the City Centre,
Ludhiana. The said Letter of Intent was alleged to have been c
approved by the Trust in its meeting held on 18.5.2005, which
was attended by 7 out of its 10 members.
4. The records indicate that on being issued the Letter of
Intent the respondent deposited an amount of Rs.3.72 crores
with the Trust towards security for the purposes of the contract. D
According to the Agreement, the respondent would ultimately
be required to pay to the Trust an amount of (Rs.371.12 crores).
The records also reveal that possession of an area measuring
25.59 acres was handed over to the said respondent by the
Trust on 24.5.2005. The Trust also appears to have entered into E
a part-time agreement with the respondent and the HDFC Bank
limited whereby it was agreed that the entire proceeds received
from bookings of the area to be sold would be deposited in an
Escrow Account with the HDFC Bank, out of which 30% of the
amount so deposited would be credited automatically to the F
account of the Trust and the balance 70% would be available to
"'' the respondent No.1 for the purpose of development of the City
Centre. A Power of Attorney was also executed by the Trust in
favour of the respondent No.1 empowering the said respon-
dent to act as its lawful attorney for the development work and
G
marketing of the City Centre.
5. During the continuance of the agreement certain dis-
j..I
putes arose and certain allegations surfaced that under-hand
dealings were being resorted to and up to 70% of the total
amounts payable, by those who had booked space in the City H
400 SUPREME COURT REPORTS [2008) 14 S.C.R.
A Centre, were being received in cash and only 30% being re-
ceived by means of cheques was being deposited in the Es-
crow account, resulting in huge losses to the Government of
Punjab towards its share of revenue.
6. Accordingly, the Trust issued .a letter to the respondent
B No.1 on 12.9.2006 seeking an explanatic;m regarding the alle-
gations to which a reply was sent by the respondent No.1 on the
very next day denying the allegations and indicating that its ac- ·
counts could be scrutinized, and, if the explanation was not found
to be satisfactory, the dispute could be referred to arbitration.
c
7. The suggestion made by the respondent No.1 was re-
jected by the Trust by its letter dated 14th September, 2006, and
in the said letter it was mentioned that an Arbitrator for auditing
the accounts, would be appointed within the next two days. Ac-
D cording to the respondent No.1, the said action of the petitioner
was not in keeping with the terms and conditions of the Agree-
ment and clause 17 of the Concession Agreement dated 24th
May, 2005, and the petitioner ought to have invoked clause
17.1 (a) and (b) of the said Agreement which provides for con-
ciliation and settlement of disputes in an amicable manner. The
E respondent No.1 accordingly filed Arbitration Petition No. 263
of 2006 under Section 11 (6) of the 1996 Act for appointment of
an Arbitrator in accordance with clause 17 of the Concession
·Agreement. The said petition was contested by the petitioner .
on the ground that no cause of action had accrued to the re-
F spondent No.1 for making such application.·
8. Subsequently, however, an application was moved on
;-
I .
.
behalf of the respondent No.1 on 9th August, 2007, for withdrawal
of the arbitration case. The same was allowed and the said
G case was dismissed as withdrawn on 22nd August, 2007, with
liberty as was prayed for. Thereafter, various circumstances in-
tervened. The Trust was dissolved by the Government on 14th
September, 2006 and one of the major decisions taken was to
revoke the Power of the Attorney granted in favour of the re-
spondent No.1 from 5th October, 2006, upon the agreement that
H
LUDHIANA IMPROVT. TRUST & ANR. v. MIS. TODAY 401
HOMES & INFRASTRE. (PVT.) LTD. [ALTAMAS KABIR, J.]
the sales and/or leases of the Ludhiana City Centre property, A
which had been effected till the"n, which was approximately 22%
of the total saleable area, would go to the share of the petitioner
herein which would have the effect of validating the sales and
leases which had already taken place.
9. It also appears that since the t~rms of the Memoran- B
--1- dum of Settlement dated 5th October, 2006, provided for the
execution of a supplementary agreement, and nothing further
was done in that regard, the respondent No.1 wrote a letter to
the Trust on 29th December, 2006, requesting such supplemen-
tary agreement to be executed. When nothing more was heard c
from the petitioners, the respondent No.1 again addressed a
letter to the Trust on 8th June, 2007, that in the absence of the
procedure under clause 17.1 (a) and (b) the dispute should be
settled by way of an amicable settlement. Again on 3Qth June,
2007, another letter was written by the respondent No. 1 indi- D
_.,, eating the name of the Arbitrator from its side. The proposal
was, however, rejected on the ground that in the absence of any
dispute, merely on vague, false or motivated averments, arbi-
tration could not be resorted to. It was in such circumstances,
that the application under Section 11 (6) of the Arbitration Act E
for appointment of an Arbitrator by the Court came to be filed.
,. 10. In the proceedings under Section 11 (6) of the 1996 Act,
it was contended that the Trust had awarded the contract to the
'
respondent No.1 herein in keeping with all the norms and proce-
~ du res and after bids had been invited by way of public advertise- F
ment. It was submitted that after the Technical and Financial bids
submitted by the bidders were opened, the contract was awarded
to the respondent No.1 herein, as the highest bidder. Subse-
quently, disputes arose between the parties with regard to the
· working of the Agreement, which prompted the respondent No.1 G
),./ to invoke the arbitration clause in the Agreement and on the fail-
ure of the appellant herein to appoint an Arbitrator, the respon-
dent No.1 had applied to the Chief Justice of Punjab and Haryana
under Section 11 (6) of the Arbitration and Conciliation Act, 1996,
for the appointment of an Arbitrator. H
402 SUPREME COURT REPORTS [2008] 14 S.C.R.
A 11. On behalf of the appellant herein, it has been contended
that the said Agreement itself was void having been entered
into in suspicious circumstances and by perpetrating fraud by
altering the terms of the advertisement inviting bids thereby
enlarging the eligibility criteria for participation in the bid, so
B that persons, who were otherwise ineligible, were given an en-
try into the bidding process and ultimately the contract was
awarded to one of such persons. Various irregularities were
also pointed out by which it was claimed that the main Agree-
ment which contained the Arbitration Agreement was itself void
c and hence the Arbitration Agreement could not also survive.
12. After considering the submissions made on behalf of the
respective parties, by placing reliance upon the decision of this
Court in the Case of Konkan Railway Corporation Limited and
Anr. Vs. Rani Construction Private Limited, [2002 (2) SCC 388],
D which was followed in Hindustan Petroleu1 n Corporation Ltd. vs.
Pinkcity Midway Petroleum [2003 (6) SCC 503], the Hon'ble the
Chief Justice took the view that having regard to Section 16 of the
Arbitration and Conciliation Act, 1996, it was for the Arbitrator and
not the Chief Justice to decide the question of jurisdiction.
E 13. Incidentally, no reference has been made in the order
of the Hon'ble Chief Justice to the later decision of the Bench of
Seven Judges in S.B.P. and Company vs. Patel Engineering
Ltd. and Anr. [2005 (8) sec 618], wherein the views expressed
by the Constitution Bench in the Konkan Railway case (supra)
F were overruled and it was asserted that an order passed by the
Chief Justice or his delegatee Judge, on an application under
Section 11 (6) of the aforesaid Act, would be a judicial order
and not an administrative order as had been held in the Konkan
Railway case(supra).
G
14. On the basis of his aforesaid finding, the Chief Justice
appointed a former Chief Justice of India as Sole Arbitrator to
adjudicate upon all the disputes between the parties, including
the disputes which had been indicated in the order which has
H now been made before us in the instant appeal.
LUDHIANA IMPROVT. TRUST & ANR. v. M/S. TODAY 403
. -I
HOMES & INFRASTRE. (PVT.) LTD. [ALTAMAS KABIR, J.]
15. On behalf of the appellant various submissions A
were made regarding the manner in which the contract had been
awarded to the respondent company in violation of the provi-
sions of Rule 94 of the Punjab Town Improvement Trust Rules,
1939. It was contended that since the main Agreement had been
fraudulently obtained, even the Arbitration Agreement contained B
therein was void and unenforceable. The said contention was
-J_ opposed by Mr. Shanti Bhushan, learned Senior Counsel ap-
pearing for the respondent-company, and it was urged that the
High Court had quite correctly allowed the application filed by
the Company under Section 11 (6) of the Arbitration and Con- c
ciliation Act, 1996. Mr. Shanti Bhushan contended that the main
Agreement and the Arbitration Agreement contained therein
could not be equated as they were for different purposes. Ac-
cording to Mr. Shanti Bhushan, even ifthe main Agreement was
held to be void, it did not affect the Arbitration Agreement which
D
had been included in the main Agreement for the purpose of
deciding such issue.
16. Mr. Shanti Bhushan, submitted that even if it is accepted
that the High Court ought to have taken into consideration the
later decision of the seven-Judge Bench in the Patel Engineer- E
ing case (supra), such an omission could be rectified by this
Court itself in these proceedings on the basis of the detailed
submissions advanced on behalf of the parties.
- j
'-.
17. We have considered the submissions of both the par-
ties and have also considered Mr. Shanti Bhushan's submis-
sions that the issues which had been left undecided by the High
Court could be decided in these proceedings itself. However,
F
in our view, such a course of action would have been justified if
after considering the submissions of the respective parties the
High Court had arrived at a finding regarding the dispute be- G
~
tween the parties. Unfortunately, relying on the earlier Constitu-
h?
tion Bench decision of this Court in the Konkan Railway case
(supra), the High Court left it to the learned Arbitrator appointed
by it to decide the said issues under Section 16 of the 1996
Act, which was contrary to the directions given by the seven- H
404 SUPREME COURT REPORTS [2008] 14 S.C.R.
A Judge. Bench of this Court in the Patel Engineering case. (su-
pra), which categorically overruled the decision of the Constitu-
tion Bench in the Konkan Railway case. In fact, in sub-para-
graphs (10) and (12) of Paragraph 4 7 of the said judgment, the
seven-Judge Bench specifically indicated that the orders which
B had already been passed in applications under Section 11 (6)
· of the 1996 Act, prior to the decision in the Patel Engineering
case (supra), would be treated as valid, leaving all objections
to be decided under Section 16 of the Act. It was also indicated
that from the date of the judgment, however, the decision ren-
C dered in the Patel Engineering case (supra), would govern all
applications and even pending applications under Section 11 (6)
of the 1996 Act.
18. We have, therefore, no option but to set aside the or-
der of the Chief Justice and remit the matter for a fresh deci-
D sion in keeping with the decision of the seven-Judge Bench in
S.B.P. & Company vs. Patel Engineering Limited and Another
r2oos (8) sec 618].
19. The appeal is disposed of accordingly.
E 20. There will be no order as to costs.
K.K.T. Appeal disposed of.
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