Trust & ANR. Vs. M/S Today Homes & Infrastructure P. Ltd.  INSC
1724 (14 October 2008)
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 &
M/s Today Homes and Infrastructure (Pvt) Limited ... Respondent
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 2 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.
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 3 be the highest bidder and a Letter of
Intent was thereupon issued to him on 18.5.2005 for development of the City
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.
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 4 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.
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 5 deposited in the Escrow account, resulting in huge losses to the
Government of Punjab towards its share of revenue.
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.
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 6 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
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.
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 7 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.
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, 8 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.
the proceedings under Section 11(6) of the 1996 Act, it was contended that the
9 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
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.
behalf of the appellant herein, it has been contended that the said Agreement
10 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.
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 Private Limited, [2002 (2) SCC 388], which 11 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.
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 12 not an administrative order as had been held in the Konkan
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.
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- 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.
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 14 the detailed submissions
advanced on behalf of the parties.
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 15 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.
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 16 Bench in S.B.P. & Company vs. Patel Engineering Limited and
Another [2005 (8) SCC 618].
appeal is disposed of accordingly.
will be no order as to costs.