IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6104     OF 2008 (@Special Leave Petition (Civil) No.10550 of 2008)

Ludhiana Improvement Trust & Another   ...Appellants

Vs. M/s Today Homes and Infrastructure (Pvt) Limited ... Respondent  

J U D G M E N T

ALTAMAS KABIR,J.

1. Leave granted.

2. This appeal has been filed by the Ludhiana

Improvement  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

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Conciliation Act, 1996 (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  made

respondents.   

3. The Ludhiana Improvement Trust (hereinafter

referred to as “the Trust”) 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, with

the  intention  of  entering  into  a  joint-

venture  with  developers  in  the  private

sector,  invited  bids  by  a  Request  of

Proposal  document  dated  15.3.2005.   Bids

were  filed  by  interested  parties  by

10.5.2005  and  evaluation  of  the  Technical

bids  was  completed  by  16.5.2005.   In  the

final evaluation the respondent was found to

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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  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. 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  a  part-time

agreement with the respondent and the HDFC

Bank limited whereby it was agreed that the

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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 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 respondent to act as its

lawful attorney for the development work and

marketing of the City Centre.

5. During  the  continuance  of  the  agreement

certain  disputes  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  Centre,

were  being  received  in  cash  and  only  30%

being received by means of cheques was being

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deposited in the Escrow 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 No.1 on 12.9.2006 seeking an

explanation   regarding  the  allegations  to

which a  reply was sent by the respondent

No.1  on  the  very  next  day    denying  the

allegations and indicating that its accounts

could  be  scrutinized,  and,  if  the

explanation  was  not  found  to  be

satisfactory, the dispute could be referred

to arbitration.

7. The suggestion made by the respondent No.1

was  rejected  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.

According to the respondent No.1, the said

action of the petitioner was not in keeping

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with  the  terms  and  conditions  of  the

Agreement  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 conciliation and settlement of

disputes  in  an  amicable  manner.   The

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  respondent  No.1

for making such application.

8. Subsequently,  however,  an  application  was

moved on behalf of the respondent No.1 on 9th

August,  2007,  for  withdrawal  of  the

arbitration case. The same was allowed and

the said case was dismissed as withdrawn on

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22nd August, 2007, with liberty as was prayed

for.   Thereafter,  various  circumstances

intervened.  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 respondent No.1 from 5th October, 2006,

upon  the  agreement  that  the  sales  and/or

leases of the Ludhiana City Centre property,

which had been effected till then, 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 terms of the

Memorandum of Settlement dated 6th 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,

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2006,  requesting  such  supplementary

agreement  to  be  executed.    When  nothing

more  was  heard  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 30th

June,  2007,  another  letter  was  written  by

the respondent No. 1 indicating 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,  arbitration

could  not  be  resorted  to.  It  was  in  such

circumstances,  that  the  application  under

Section  11(6)  of  the  Arbitration  Act  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

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Trust  had  awarded  the  contract  to  the

respondent No.1 herein in keeping with all

the norms and procedures and after bids had

been invited by way of public advertisement.

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.   Subsequently,  disputes  arose

between  the  parties  with  regard  to  the

working  of  the  Agreement,  which  prompted

the  respondent  No.1  to   invoke  the

arbitration clause in the Agreement and on

the  failure  of  the  appellant  herein  to

appoint an Arbitrator, the respondent 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.   

11. On behalf of the appellant herein, it has

been  contended  that  the  said  Agreement

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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 that persons,

who were otherwise ineligible, were given an

entry  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  Agreement  which

contained  the  Arbitration  Agreement  was

itself  void  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], which

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was  followed  in  Hindustan  Petroleum

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.

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)  SCC

618],  wherein  the  views  expressed  by  the

Constitution  Bench  in  the  Konkan  Railway

case  (supra)  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

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not an administrative order as had been held

in the Konkan Railway case(supra).

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 now

been made before us in the instant appeal.   

15. On  behalf  of  the  appellant  various

submissions were made regarding the manner

in which the contract had been awarded to

the respondent company in violation of the

provisions  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 therein was

void and unenforceable. The said contention

was opposed by Mr. Shanti Bhushan, learned

Senior Counsel appearing for the respondent-

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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

Conciliation 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. According to Mr. Shanti

Bhushan, even if the main Agreement was held

to  be  void,   it  did  not  affect  the

Arbitration  Agreement  which  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  Engineering  case  (supra),  such  an

omission  could  be  rectified  by  this  Court

itself in these proceedings on the basis of

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the detailed submissions advanced on behalf

of the parties.

17. We have considered the submissions of both

the  parties  and  have  also  considered  Mr.

Shanti Bhushan’s submissions that the issues

which had been left undecided by the High

Court could be decided in these proceedings

itself. However, 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

between the parties. Unfortunately, relying

on the earlier Constitution 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-Judge Bench of this Court

in the Patel Engineering case (supra), which

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categorically overruled the decision of the

Constitution  Bench  in  the  Konkan  Railway

case.  In fact, in sub-paragraphs (10) and

(12) of Paragraph 47 of the said judgment,

the seven-Judge Bench specifically indicated

that  the  orders  which  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 rendered 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  order  of  the  Chief  Justice  and

remit  the  matter  for  a  fresh  decision  in

keeping with the decision of the seven-Judge

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Bench  in  S.B.P.  &  Company  vs.  Patel

Engineering  Limited  and  Another  [2005  (8)

SCC 618].   

19. The appeal is disposed of accordingly.

20. There will be no order as to costs.  

_________________J. (ALTAMAS KABIR)

_________________J. (MARKANDEY KATJU)

New Delhi

Dated:October 14, 2008

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