M/S TODAY HOMES & INFRASTRUCTURE PVT. LTD.versusLUDHIANA IMPROVEMENT TRUST & ANR.

                      [2013] 3 S.C.R. 589


   M/S TODAY HOMES & INFRASTRUCTURE PVT. LTD.                     A
                               v.
        LUDHIANA IMPROVEMENT TRUST & ANR.
           (Civil Appeal No. 4596 of 2013 etc.}
                        MAY 10, 2013.
                                                                  B
     [ALTAMAS KABIR, CJI AND SURINDER SINGH
                    NIJJAR, J.]

     ARBITRATION AND CONG/LIA TION ACT, 1996:
                                                                  c
     ss. 11(1)(b) and (6) - Existence of arbitration agreement
even if main agreement is illegal and void - Held: An
arbitration agreement could stand independent of the main
agreement and did not necessarily become otiose, even if the
main agreement, of which it is a part, is declared void -- By
virtue of s. 16(1)(b), the arbitration clause continues to be     D
enforceable, notwithstanding a deflaration that the contract
was null and void.

       s. 11 (6) - Application for appointment of arbitrator- Issues
 to be decided by Chief Justice or his designate - Explained - E
 Held: Designated Judge was not require'd to undertake a
 detailed scrutiny of merits and de-merits  oi    the case, almost
 as if he was deciding a suit - He was only required to decide
 preliminary issues such as jurisdiction to entertain the
 application, existence of a valid arbitration agreement, F
 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 uls 11 (6) was sought to be
decided, without any evidence being adduced by the parties
- Impugned order of designated Judge is set aside, and matter G
remitted to be considered de novo in the light of the instant
judgment and the decision of the Court.

     Disputes having arisen between the developers and
                             589                                  H
     590     SUPREME COURT REPORTS                      [2013] 3 S.C.R.


A Ludhiana Improvement Trust with respect to the
  agreement dated 24.5.2005, in an arbitration application
  u/s 11 (6) of the Arbitration and Conciliation Act, 1996, filed
  by the developers, the Chief Justice of the High Court by
  order dated 4.4.2008 appointed the arbitrator. The said
s order was challenged before the Supreme Court
  contending that since the main agreement which
  contained the arbitration agreement, was itself void, the
  arbitration agreement could not survive independent of
  the main agreement, and the question was required to be
c left to the arbitrator in terms of s.16 of the Act. Having
  regard of the 7-Judge Bench decision in SBP & Co. , the
  Supreme Court set aside the order of the Chief Justice
  of the High Court and remitted the matter for a fresh
  decision in keeping with the decision in SBP & Co.

D      The instant appeals arose out of the order of the
   designate of the Chief Justice of the High Court,
   dismissing the arbitration application and holding that the
   agreement dated 24.5.2005 was not legal and valid and,
   therefore, the disputes between the parties arising out of
E the said agreement could not be referred to arbitrator. It
 · was contended that the designate Judge treated the
   matter as if he was deciding a suit, but without adducing
   evidence .

.F         Disposing of the appeals, the Court

       HELD: 1.1. 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. and it
G was held that an arbitration agreement could stand
  independent of the main agreement and did not
  necessarily become otiose, even if the main agreement,
  of which it is a part, is declared void. Further, in Reva

H SBP & Co. vs. Patel Engineering Ltd. and Another 2005 (4) Suppl. SCR. 688.
    TODAY HOMES & INFRASTRUCTURE PVf. LID. v.       591
          LUDHIANA IMPROVEMENT TRUST
Electric Car Company Private Limited, it has been held A
that s.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 s. 16(1)(b), the arbitration
clau~e continues to be enforceable, notwithstanding a B
declaration that the contract was null and void. [para 13-
14] [598-C-E-H; 599-A-B]

     SBP & Co. Vs. Patel Engineering Ltd. and Another 2005
                   =
(4) Suppl. SCR 688 (2005) 8 SCC 618; and Reva Electric
Car Company Private Limited Vs. Green Mobil, 2011 (13) C
SCR 359 = 2012 (2) sec 93 - relied on

     1.2. In the instant case, the designated Judge
misunderstood the scope of the order dated 14.10.2008,
passed in the earlier proceedings and the provisions of o
s.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 main
agreement between the parties was declared void, the
entire contents thereof, including any arbitration clause E
that may have been incorporated in the main agreement,
were rendered invalid. The designated Judge was not
required to undertake a detailed scrutiny of the merits and
de-merits of the case, almost as if he was deciding a suit.
He was only required to decide preliminary issues such F
as jurisdiction to entertain the application, 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 uls 11(6) of the 1996 Act was sought to be
decided, without any evidence being adduced by the G
parties. [para 13 and 15] [598-B-D; 599-B-J)]
     1.3. In SBP & Co., r.egarding what the Chief Justice
is really required to decide on an application u/s 11(6) of
the 1996 Act, it has been stated that obviously the Chief H
    592      SUPREME COURT REPORTS                   [2013] 3 S.C.R.


A   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
8   agreement. It was further indicated that it was necessary
    to mention that the 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.
    [para 16) [599-D-G]
c        1.4. Therefore, the impugned judgment and the order
    of the designated Judge is once again set aside and the
    matter is directed to be again considered de novo in the
    light of the observations made in the instant judgment and
    the various decisions of this Court. [para 17] [600-B-C]
D
                         Case Law Reference:

          2005 (4) Suppl. SCR 688        relied on        para 7

          2011 (13) SCR 359              relied on         para 14
E       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    4596 of 2013.

        From the Judgment & Order dated 08.10.2009 of the High
    Court of Punjab and Haryana at Chandigarh in Arbitration Case
F   No. 76 of 2007.
                                  WITH
    C.A. Nos. 4597, 4598 and 4595 of 2013.

         Salil Sagar, Uday U. Lalit, Ajay Pal, Kapil Chaudhary, H.
G   Devarajan, P.N. Gupta, D. Ashok Rajagopalan, Bharti Gupta.
    Lalit Chauhan, Vivek Sibal, Somesh, Pallavi Sharma (for
    Parekh & Co.), Sumesh Dhawan, P.N. Puri, Vatsala Kak
    Panda, Ruhi, Kuldip Singh, Jagjit Chhabra for the Appearing
    parties.
H
   TODAY HOMES & INFRASTRUCTURE PVT. LTD. v.                 593
 LUDHIANA IMPROVEMENT TRUST [ALTAMAS KABIR, CJI.]
    The Judgment of the Court was delivered by                       A

     ALTAMAS. KABIR, CJI. 1. Special Leave Petition (Civil)
No. 7334 of 2010 and Special Leave Petition (Civil) No.11778
of 201 O have been filed by Mis Today Homes and Infrastructure
Pvt. Ltd. and Mapletree Properties Pvt. Ltd. respectively, against
                                                                     8
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 Mis Mapletree Properties Pvt. Ltd.
against the judgment and order dated 26.03.2010, passed by           C
the aforesaid High Court in R.A. No.49-Cll/2010 (of M) in
Arbitration Case No.76 of 2007. In addition I.A. No.2 of 2010
has been filed by Mis Mapletree Properties Pvt. ~td. 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        D
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
the four Special Leave Petitions, as referred to hereinabove.
Leave granted in all the Special Leave Petitions.                    E

     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          F
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       G
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 Intent was
issued in its favour on 18.05.2005, for de;velopment of the City
Centre, Ludhiana.
                                                                     H
    594      SUPREME COURT REPORTS                  (2013] 3 S.C.R.


A         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
B    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 Mis. Today Homes and Infrastructure
C    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
    Account of the Company and the Trust with the HDFC Bank,
    of which 30% was to be credited directly to the account of the
D   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
E   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,
F   before the expiry of the said period, on 15.09.2006, the
    Company filed an application before the Chief Justice of the
    Punjab 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
G   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
H   representatives of the Company, wherein it was agreed that
    TODAY HOMES & INFRASTRUCTURE PVI LTD. v.                   595
  LUDHIANAIMPROVEMENTTRUST[ALTAMAS KABIR, CJI.]

instead of the Company and the Trust sharing revenue from the         A
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            8
the Company. It was also decid~d that a Supplementary
Agreement incorporating the said terms and conditions should
also be executed. Instead of completing the said agreement,
the Trust filed its response to the A~bitration Application No.263
of 2006, raising a plea, for the first time, that the agreement
                                      I                               C
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.                               D

     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     E
that in the event no reply was received, the Company would
nominate its arbitrator. Since no 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     F
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              G
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,
                                                                      H
    596     SUPREME COURT REPORTS                   [2013] 3 S.C.R.


A   Shri R.C. Lahoti, as Arbitrator to adjudicate upon the 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.
B
        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 &
C 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.

o      8. The challenge to the appointment of the arbitrator by the
  Chief Justice of the Punjab and 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,
E 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
F 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
G be referred to an arbitrator. The application 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.
H
    TODAY HOMES & INFRASTRUCTURE PVT. LTD. v.                 597
  LUDHIANA IMPROVEMENT TRUST [ALTAMAS KABIR, CJI.]
      10. On behalf of M/s. Today Homes and Infrastructure Pvt.      A
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     B
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 required to be considered by an
arbitrator to be appointed.
                                                                     c
     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     D
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          E
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 facts of the present case.
                                                                     F
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            G
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.

                                                                     H
    598     SUPREME COURT REPORTS                  [2013) 3 S.C.R.


A       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 undertake
B 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
C 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,
0 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, even if the main agreement, of which it is a
   part, is declared void.
E
        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
F 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
G 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
H automatic invalidation of the arbitration clause. It was also held
     TODAY HOMES & INFRASTRUCTURE PVT. LTD. v.                599
   LUDHIANAIMPROVEMENTTRUST[ALTAMAS KABIR, CJI.]

 that Section 16(1)(a) of the 1996 Act presumes the existence        A
 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.                  B

        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           C
  arbitration agreement and in holding that once the 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.                                                           D

      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 appl.ication being made to him under Section            E
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
                                                                     F
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 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 cesurrected.
Summing up its views, in paragraph 47 of the judgment, the 7-.       G
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
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   600     SUPREME COURT REPORTS                 [2013) 3 S.C.R.

A 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
B 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 Judg~ once again and directing
  that the matter be again considered de novo in the light of the
  observations made hereinabove and the various decisions
C 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.

D R.P.                                     Appeals disposed of.