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                                                        REPORTABLE

              IN THE SUPREME COURT OF INDIA                  CIVIL ORIGINAL JURISDICTION              ARBITRATION PETITION NO.7 OF 2008

ANIL KUMAR                                     --   PETITIONER

                                VERSUS

B.S. NEELKANTA & ORS.                          --   RESPONDENTS

                              ORDER

D.K. JAIN, J.:

1.This is a petition under Sections 11(5) and 11(6) of the Arbitration

and Conciliation Act, 1996 (for short ‘the Act’) for appointment of an

Arbitrator for adjudication of the disputes which are stated to have

arisen between the parties to this petition.

2.Since the case has had a chequered history, it would be appropriate

to narrate the background facts, giving rise to this petition, in detail:

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                                                                    2       On 13th April 1998, the Andhra Pradesh Tourism Development

Corporation Ltd. (hereinafter referred to as the "Corporation"), a

statutory body owned and controlled by the State of Andhra Pradesh,

awarded a lease in favour of one M/s Goldstone Engineering Ltd.,

presently known as Goldstone Teleservices Ltd. (hereinafter referred

to as the "Goldstone") for a piece of land for development of the

existing Hotel Ritz as a "Heritage Grand" category hotel, as notified

by the Department of Tourism, Government of India.

     On 8th November 1999, Goldstone entered into an agreement

with respondents No.1, 2 and 3 (hereinafter referred to as the "BSN

Group") by which they agreed to execute the said project through a

new company known as M/s Varsha Hill Fort Resorts Pvt. Ltd. (for

short "Varsha"), respondent No.4 in this petition. As per the said

agreement BSN Group agreed to acquire 74% of equity in Varsha

whilst Goldstone agreed to retain 26% of equity in the said Company.

On 17th May 2001, the Corporation executed a lease deed for the said

site in favour of Varsha. The lease provided in extenso the rights and

obligations of the parties with respect to the project. Clause 12(u) of

the lease deed provided that there would be no change in the

constitution of the Lessee viz. Varsha, without the prior consent of the

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                                                                      3 Corporation and clause 21 thereof -- the non-assignability clause,

provided that neither of the parties to the lease deed shall directly or

indirectly sell, transfer, assign or otherwise part with the whole or part

of their respective interest and/or benefits or obligations under the

lease deed in any manner whatsoever to any other person or party

without obtaining the prior written consent of the Corporation. On

29th November 2002, Goldstone and BSN Group entered into yet

another agreement whereby the latter agreed to take over the entire

stake of Goldstone in Varsha. The Corporation felt that agreements

dated 8th November 1999 and 29th November 2002 were in breach of

the terms of the lease deed dated 17th May 2001 as no written consent

of the Corporation had been sought prior to the purported change of

shareholding in Varsha, on 4th August 2003, a notice for termination

of the lease deed was issued to Varsha. According to the petitioner, in

order to prevent the Corporation from resuming possession of the

hotel site, on 22nd November 2003 the shareholders of Varsha, i.e.

Goldstone and BSN Group, invited the petitioner to take over

shareholding of Varsha, subject to the prior approval of the

Corporation. A meeting of the Board of Directors of Varsha was held

on 22nd November 2003, where, according to the petitioner, three

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                                                                     4 Directors, namely, B.S. Neelkanta (respondent No.1), Mr. P.

Rameshbabu and Mrs. B. Renuka (respondent No.2) were present.

Minutes of the meeting were duly drawn wherein it was recorded that

the petitioner shall be investing funds to the tune of Rs.15 to 18 crores

in the form of equity in Varsha. It was also resolved that the proposal

approved by the Board shall be subject to the approval by the

Corporation and the execution of the relevant documents.              In

furtherance of the said Resolution, Varsha requested the Corporation

to accord permission for change in the shareholding pattern in favour

of M/s Anil Kumar & Associates (hereinafter referred to as "AKA").

The Corporation granted the permission vide their letter dated 10th

December 2003.

     Pursuant to Corporation’s approval, an agreement dated 19th

January 2004 was entered into between AKA, BSN Group comprising

Mr. B.S. Neelkanta, Mrs. B. Renuka, Amogh Hotels Ltd. and Varsha

respectively as parties of the first, second and third part, whereunder

BSN Group agreed to transfer 19,68,300 shares in Varsha to AKA

under the terms and conditions of the said agreement.          The said

agreement was signed on behalf of AKA by Anil Kumar, the

petitioner herein and a resident of great Britain, Mr. B.S. Neelkanta

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                                                                   5 (Respondent No.1) and Mrs. B. Renuka (Respondent No.2). The

agreement contained the following arbitration clause:

     "41. Any dispute, difference or controversy of whatever       nature howsoever arising under, out of or in relation to       this agreement between the parties and so notified in       writing by either party to the other (the Dispute) in the       first instance shall be attempted to be resolved amicably       by them. If the parties are unable to do so, such dispute       shall be referred to arbitration by a sole Arbitrator       mutually agreed by the parties to the dispute. In the       event the parties are unable to agree on an Arbitrator with       15 days, then the arbitrator shall be nominated by       Managing Director of APTDCL on the request of any       party.     The arbitration shall be governed by the       provisions of Arbitration and Conciliation Act, 1996 and       the venue of arbitration shall be at Hyderabad, and shall       be conducted in English Language. Any decision or       award resulting from arbitration shall be final and       binding upon the parties."

     The said agreement was followed up by another agreement

dated 23rd January 2004 between AKA represented by Mr. Anil

Kumar, Goldstone, BSN Group represented by Mr. B.S. Neelkanta,

respondent No.1 in this petition, and Varsha, represented again by Mr.

B.S. Neelkanta, as its Director.    Under the said agreement, AKA

agreed to purchase 1,00,000 equity shares of Varsha held by

Goldstone for a consideration of Rs.10 lacs.       As a result of the

aforesaid two agreements, AKA became entitled to acquire 74%

equity stake in Varsha whilst the equity shareholding of BSN Group

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                                                                   6 stood reduced to 26%. As per agreement dated 23rd January 2004,

upon transfer of shares of Goldstone to AKA, all Directors of Varsha,

representing Goldstone were to resign from the Board of Directors of

Varsha and AKA was entitled to nominate its directors on the Board

of Varsha.

     The Corporation withdrew its order cancelling lease deed and

signed a supplemental lease deed dated 21st February 2004 with

Varsha.      The supplemental lease deed recorded the shareholding

pattern of Varsha as on that date as Anil Kumar & Associates holding

74% equity shares and Mr. B.S. Neelkanta holding 26% of the equity

share capital of Varsha. The said supplemental agreement was signed

by the petitioner on behalf of Varsha as its director. The stand of the

petitioner is that in furtherance of the said arrangement, he engaged

the services of an architect in London to prepare the plans for

construction of the Ritz hotel and on 14th March 2004, executed two

contracts, being a management agreement and a technical services

agreement with Meridien S.A.           It appears that as per the

understanding between AKA, Varsha and Goldstone, the shares of

Varsha, which were to be acquired by AKA under agreements dated

19th January 2004 and 23rd January 2004 were actually subscribed by a

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                                                                      7 Company known as M/s India International Construction Private Ltd.

(for short "IICL"), purportedly belonging to a group called the

"Progressive Group".

     On 31st August 2005, the petitioner received an email from one

Mr. Ashish Kumar attaching a copy of letter dated 22nd August 2005

addressed by Varsha to the petitioner, advising the petitioner that

Varsha was contemplating to issue a public notice for the information

of the general public that petitioner’s association with the hotel project

had been terminated and that promoter group, including the BSN

Group did not require petitioner’s support and association with the

hotel project. It was alleged that the petitioner had not invested a

single rupee in the project, thus hampering the progress of the hotel

project and that the promoter group viz. the BSN group, was forced to

mobilize the requisite resources in the form of debt and equity. The

petitioner was also informed that he was no longer representing

Varsha as its director. A separate email dated 5th September 2005

addressed by Mr. B.S. Neelkanta (respondent No.1), purportedly on

behalf of Varsha, was sent to Le Meridien, informing them that their

agreement with Varsha regarding the hotel project had been

terminated.

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                                                                    8       As expected, vide his advocate’s letter dated 23rd September

2005, the petitioner objected to the termination of his association with

Varsha, as conveyed to him vide respondent No.1’s letter dated 22 nd

August 2005 and asserted that he, through his nominee and associate

IICL is a stake holder of 74% equity in Varsha and would take steps

to seek registration of the said shareholding in his own name. The

relevant portion of the reply is extracted below:

     "My client has fully honored his obligations under the       Agreement and has through his nominee made substantial       investments into the Company. My client is the       approved investor in the Company and pursuant to his       assurances given to the Andhra Pradesh Tourism       Development Corporation Ltd., that Corporation signed       the Supplementary Lease Deed dated 21st February, 2004.       The said Supplementary Lease is signed by my client as       the Director of the Company. As you are fully aware the       Andhra Pradesh Tourism Development Corporation Ltd.       was holding the Company in breach of the Lease       Agreement and had issued a notice terminating the Lease       Deed. The notice of cancellation was withdrawn and a       Supplemental Lease executed in favour of the Company       pursuant to the request and representations made by any       client. Further the Corporation has approved my client       holding 74% of the Capital and my client has the first       preemptive right and option to purchase the 26% shares       held by the BSN Group as defined in the Agreement of       19th January, 2004. The BSN Group is obliged to first       offer the sale of those shares to my client and is further       obliged not to sell those shares to any other party. My       client accordingly exercises his rights to purchase the       said 26% shares held by the BSN Group directly in his       own name."

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                                                                    9

     On 1st October 2005, the petitioner received a letter from the

Corporation seeking certain clarifications of documents attached with

the letter on the change in shareholding pattern of Varsha. According

to the petitioner, it was only on receipt of this letter from the

Corporation that he came to know that BSN Group and Varsha were

trying to create rights in the so-called "progressive group", the said

group having acquired shares in Varsha. Thereafter, some

correspondence ensued between the Corporation and the petitioner

with which I am not directly concerned.

3.On 22nd November 2005, the petitioner filed a petition under Section

9 of the Act before the City Civil Court at Hyderabad seeking certain

interim reliefs including a direction to Varsha to maintain status quo

in connection with the terms and conditions of lease agreement dated

17th May 2001, as amended by supplemental lease deed dated 21st

February 2004. Eventually, on 17th December 2005, the petitioner

through his Advocate sent a letter to Varsha and the BSN Group

calling upon them to confirm the appointment of an Arbitrator within

15 days of the said letter, in terms of the arbitration agreement. Since

no reply to the said notice was received, vide his letter dated 30th

January 2006, the petitioner approached the Corporation requesting

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                                                                    10 them to nominate an Arbitral Tribunal as per the arbitration agreement

dated 19th January 2004. The respondents as also the Corporation

having failed to appoint an Arbitrator, the petitioner filed a petition

under Section 11(6) of the Act before Hon’ble the Chief Justice of

High Court of Andhra Pradesh for appointment of an Arbitrator. Vide

order dated 6th February 2007, rejecting the objections raised by the

respondents, the learned Single Judge of the High Court allowed the

petition and appointed a former Judge of this Court as the sole

Arbitrator.

4.Aggrieved by order dated 6th February 2007, respondent No.4 in this

petition, filed a Special Leave Petition (C) No.5493 of 2007. This

Special Leave Petition was subsequently amended with the permission

of this Court, incorporating the objection of the respondent with

regard to the jurisdiction of the High Court to entertain the petition

under Section 11(6) for appointment of an Arbitrator. The stand of

the said respondent was that the dispute, if any, involved International

Commercial Arbitration and, therefore, the jurisdiction to appoint an

Arbitrator vested in the Chief Justice of India alone.         On 23rd

November 2007, leave to appeal was granted to the respondents.

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                                                                    11 5. On 22nd January 2008, the petitioner filed the present petition under

Sections 11(5) and 11(6) of the Act seeking appointment of an

Arbitrator in terms of the Arbitration Agreement dated 19th January

2004.

6.A common affidavit has been filed on behalf of the respondents

resisting the petition.   By way of preliminary submissions, it is

pleaded that: (a) the petitioner has no locus standi to file the present

petition inasmuch as the Arbitration Agreement dated 19th January

2004 was between the BSN Group, Varsha and a business concern

known as M/s Anil Kumar & Associates. Therefore, the petitioner in

his individual capacity has no locus standi to file the present petition

without specific plea that it was being filed for and on behalf of Anil

Kumar & Associates, allegedly a distinct entity and claiming

shareholding in his individual capacity; (b) the shares in Varsha were

to be acquired by M/s Anil Kumar & Associates under agreements

dated 19th January 2004 and 23rd January 2004 which were actually

subscribed by yet another company known as IICL, in the assumed

name of the "Progressive Group" - an undertaking of AKA and some

others, who have not invoked the arbitration clause and, therefore, the

present petition is liable to be dismissed as the petitioner has not

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                                                                      12 brought any documentary record to show that he was authorised by

IICL to file the present petition and (c) in the absence of IICL and

other associate companies of IICL, holding shares in Varsha, in the

arbitration proceedings no declaration can be made by the Arbitral

Tribunal to the effect that the petitioner is entitled to 74%

shareholding in Varsha. The plea of the petitioner with regard to the

minutes dated 22nd November 2003 has also been disputed. Needless

to say, at the outset, that all these questions are within the competence

of the Arbitrator as under Section 16 of the Act, it is for him to rule on

his own jurisdiction, including the question about existence or validity

of the Arbitration Agreement.

7.At this juncture, it may be relevant to note that since in the Special

Leave Petitions, filed against the orders passed by the Andhra Pradesh

High Court including the order appointing the Arbitrator, leave had

been granted by this Court vide order dated 23rd November 2007, the

hearing in the present petition on 25th August 2008 was deferred with

a view to await the decision in those appeals (Civil Appeal Nos.5645-

5647 of 2007 and 5642-5644 of 2007), which were disposed of on

22nd May 2009 as the withdrawal of the original application under

Section 11(6) of the Act filed by the petitioner before the High Court

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                                                                    13 was allowed. The effect of the said order is that the order passed by

the High Court on petitioner’s application under Section 11(6) has

been set at naught.

8.I have heard learned counsel for the parties.

9.Mr. Rajiv Sawhney, learned Senior Counsel appearing for the

petitioner, strenuously urged that in terms of agreement dated 19th

January 2004, it was agreed that the petitioner and his associates

would acquire 74% of equity in Varsha, they having fulfilled their part

of the obligation under the said agreement by contributing towards

74% of the equity, respondent No.1, in breach of the said agreement,

has by notice dated 22nd August 2005 sought to unilaterally terminate

petitioner’s association with Varsha for no rhyme or reason. It was

argued that not only the dispute with regard to the validity of the said

notice is a live issue, even the genuineness of the minutes dated 22 nd

November 2003, forwarded by Varsha to the Corporation and

agreement dated 23rd January 2004, creating rights in a Group of

Companies viz., the "Progressive Group" has been seriously contested

by the petitioner, which matters can be resolved only through the

medium of arbitration, as stipulated in Arbitration Agreement dated

19th January 2004. It was, thus, submitted that either the Arbitrator

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                                                                    14 appointed by the High Court may be permitted to re-enter the

reference or a new Arbitrator be appointed to adjudicate upon the

disputes between the parties.

10.Mr. C.A. Sundaram, learned Senior Counsel appearing on behalf of

the respondents, on the other hand, vehemently contended that the

present petition is utterly misconceived inasmuch as the controversy

regarding termination of relationship between the petitioner and

Varsha in terms of letter dated 22nd August 2005 is not connected with

agreement dated 19th January 2004 as after allotment of 74% of equity

in Varsha to the associates of the petitioner, the agreement dated 19th

January 2004 worked itself out and, therefore, there is no subsisting

dispute between the parties to the agreement. It was asserted that the

agreement was only for transfer of shares of Varsha to Anil Kumar &

Associates and with transfer of 74% of equity in favour of the

associates of Anil Kumar, the petitioner, no cause of action to file the

present petition survived. It was also contended that the disputes now

sought to be raised necessarily involve the companies forming the

"Progressive Group", who were neither parties to the Arbitration

Agreement nor are before me in these proceedings. In support of the

proposition that any matter which lies outside the Arbitration

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                                                                    15 Agreement and is also between some of the parties who were not

parties to the Arbitration Agreement, there is no question of reference

to Arbitration under Section 11(6) of the Act, reliance is placed on a

decision of this Court in Sukanya Holdings (P) Ltd. Vs. Jayesh H.

Pandya & Anr1. Reference was also made to the decision of a Bench

of seven Judges of this Court in SBP & Co. Vs. Patel Engineering

Ltd. & Anr.2, to contend that the question of subsistence of an

arbitrable dispute between the parties is to be demonstrated by the

party requesting for arbitration and is required to be decided by me in

these proceedings.

11.It is manifest from the pleadings that the parties are ad idem that

there is an Arbitration Agreement between them vide Clause 41 of

agreement dated 19th January 2004, but the contention of the

respondents is that there is no live issue requiring resolution by

arbitration.

12.Thus, the question that falls for consideration before me is whether

the dispute regarding termination of relationship between Varsha and

the petitioner is dead one in the sense that on alleged allotment of

equity in favour of an associate of the petitioner, agreement dated 19th 1     (2003) 5 SCC 531 2     (2005) 8 SCC 618

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                                                                    16 January 2004 has worked itself out and no live issue in terms of the

said agreement subsists?

13.The controversy in regard to the nature of function to be performed

by the Chief Justice or his designate under Section 11 of the Act has

been set at rest by a Bench of seven Judges of this Court in SBP case

(supra). It has been held, per majority, that the function performed by

the Chief Justice or his nominee under the said Section is a judicial

function. Defining as to what the Chief Justice or his designate is

required to determine while dealing with an application under Section

11 of the Act, P.K. Balasubramanyan, J., speaking for the majority

said: (Para 39, SCC)

     "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

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                                                                         17        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."

14.It is clear from the above extracted paragraph that in order to set

into motion the arbitral procedure, the Chief Justice or his designate

has to decide the issues, if raised, regarding: (i) territorial jurisdiction;

(ii) existence of an Arbitration Agreement between the parties and (iii)

whether the claim made by the applicant was a dead one in the sense

that the parties have already concluded the transaction by recording

satisfaction of their mutual rights and obligations or have recorded

satisfaction regarding their financial claims. Nevertheless, the Court

made it clear that at that stage it may not be possible to decide

whether a live claim made, is one which comes within the purview of

the arbitration clause and this question should be left to be decided by

the Arbitral Tribunal on taking evidence. It is, therefore, plain that

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                                                                     18 purely for the purpose of deciding whether the arbitral procedure is to

be set into motion or not, the Chief Justice or his designate has to

examine and record his satisfaction that an Arbitration Agreement

exists between the parties and that in respect of the agreement a live

issue, to be decided between the parties, still exists. On being so

satisfied, he may allow the application and appoint an Arbitral

Tribunal or a sole Arbitrator, as the case may be. However, if he finds

and is convinced that the claim is a dead one or is patently barred by

time or that he lacks territorial jurisdiction, he may hold so and

decline the request for appointment of an Arbitrator.

15.Having examined the whole matter in the light of afore-noted

principles, I am of the opinion that the petition deserves to be allowed.

From the material placed on record by the parties, it appears to me

that: (i) there are disputes between the parties on the issues/claim

raised by the petitioner and countered by the respondents, including

whether the claim still subsists or has been extinguished as alleged by

the respondents, which cannot be resolved without evidence; (ii) there

is an Arbitration Agreement in Clause 41 of agreement dated 19th

January 2004, to which the petitioner is a party along with the

respondents. The Arbitration Agreement is in clear terms and brings

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                                                                    19 within its ambit the disputes sought to be raised by the petitioner:

whether there was a breach of the terms of agreement dated 19th

January 2004, in as much as the petitioner failed to pump in the

requisite funds in Varsha either by way of equity or otherwise, as

alleged, in Varsha’s letter dated 22nd August 2005, would be a matter

in the realm of arbitration and this Court cannot go into that question;

(iii) the issues/claim raised by the petitioner, on a mere assertion

cannot be said to be a dead one without evidence to be produced by

the parties in support of and rebuttal thereto, on their respective

stands, regarding rights and obligations of the parties under

agreements dated 19th January 2004 and 23rd January 2004, on

allotment of 74% of equity in favour of IICL and petitioner’s right to

nominate or being himself on the Board of Directors of Varsha; and

(iv) the Arbitrator is competent under Section 16 of the Act to rule on

its own jurisdiction, including rule on any objections with respect to

existence or validity of the Arbitration Agreement, on a plea being

raised before him that he has no jurisdiction.

16.For the foregoing reasons, the petition is allowed and Mr. Justice

M. Jagannadha Rao, a former Judge of this Court is appointed as the

sole Arbitrator to adjudicate upon the claims/disputes raised by the

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                                                                            20 petitioner, subject to his consent and such terms as he may deem fit

and proper. It goes without saying that the learned Arbitrator shall

deal with the matter uninfluenced by the observations made by the

High Court of Andhra Pradesh in its order dated 6th February 2007 or

in this order, on the rival stands of the parties.

17.The Registry is directed to communicate this order to the learned

Arbitrator to enable him to enter upon the reference and give his

Award as expeditiously as practicable. The petition stands disposed

of with no order as to costs.

                                     .........................................J.                                     ( D.K. JAIN ) NEW DELHI; MAY 07, 2010