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Arbitration and conciliation Act – Disputes between the parties – whether to send it for expert opinion or to arbitrator – High Court instead of deciding issue whether there is any arbitration clause or not-open the issue on merits of disputes – billing – date of billing – billing disputes etc., and appointed arbitrator – Apex court set aside the orders of high court to that extent of opening of issues on merits as it should be decided by the Arbitrator but not by the court = Arasmeta Captive Power Company Private Limited and another … Appellants Versus Lafarge India Private Limited …Respondent = published in / cited in / Reported in judis.nic.in/supremecourt/filename=41075

Arbitration and conciliation Act – Disputes between the parties whether to send it for expert opinion or to arbitrator – High Court instead of

English: The supreme court of india. Taken abo...

English: The supreme court of india. Taken about 170 m from the main building outside the perimeter wall (Photo credit: Wikipedia)

deciding issue whether there is any arbitration clause or not-open the issue on merits of disputes – billing – date of billing – billing disputes etc., and appointed arbitrator – Apex court set aside the orders of high court to that extent of opening of issues on merits as it should be decided by the Arbitrator but not by the court = 

Suffice it to state that the appellant

      No. 1 is a company carrying on business in generation of  power.   

The

      respondent owns 49% equity of the appellant  No.  1  company  and  the

      appellant No. 2 owns 51% equity of the appellant No. 1  company.   

The

      appellant-company had entered into two agreements with the  respondent

      for supply of power to the respondent.  

The first agreement, namely, a

      Power Purchase Agreement (PPA) was entered into on 10.2.2005  and 

 the

      second agreement of similar nature was entered into on  1.11.2007  for

      supply of power.  

In course of subsistence of the  agreements  dispute

      arose between the parties relating to amounts that is due and payable.

       

The appellants treated the dispute raised to be a  “billing  dispute”

      and sought to appoint an expert in accordance with clause 16.2 of  the

      agreements and, accordingly, communicated  with  the  respondent  vide

      letter dated 4.5.2012 proposing for appointment of one  of  the  three

      persons of expertise and  repute  for  appointment  as  an  expert  in

      respect  of  both  the  PPAs.   

The  appellant  No.1   requested   the

      Confederation of  Indian  Industry  vide  letter  dated  30.5.2012  to

      appoint a suitable  expert.   

As  put  forth  by  the  appellant,  the

      respondent did not accede to resolve the dispute by way of  appointing

      an expert instead, it moved the  High  Court  for  appointment  of  an

      arbitrator.          =   

 

The High Court adverted to the meanings of  “billing  date”,  “billing

      period”, “billing year, “clarification notice” and various terms  used

      in the agreement, scanned the anatomy of clause 9.3 of  the  agreement

      that deals with “billing disputes” and arrived at the conclusion  

that

      disputes raised do not come within the purview of  sub-clause  (a)  of

      clause 9.3 and, accordingly, appointed  an  arbitrator,  as  has  been

      stated hereinbefore.

 

In view of our  foregoing  analysis  we  sum  up  our  conclusions  as

      follows: –

 

   i) The decisions rendered in Boghara Polyfab Private Limited (supra)  and

      Chloro Controls India Private Limited (supra) are in accord  with  the

      principles of law stated in SBP & Co. (supra).

 

  ii) The designated Judge, as perceived  from  the  impugned  order,  while

      dealing with an application under Section 11(6)  of  the  Act,  on  an

      issue raised with regard to the excepted matters, was not justified in

      addressing the same on merits whether it  is  a  dispute  relating  to

      excepted matters under the agreement in question or not.

 

 iii) The designated Judge  has  fallen  into  error  by  opining  that  the

      disputes raised are not “billing disputes”, for the same  should  have

      been left to be adjudicated by the learned Arbitrator.

 

  iv) The part of the order impugned that reflects the expression of opinion

      by the designate of the Chief Justice on the merits of  the  disputes,

      being pregnable, deserves to be set aside and is hereby set aside.

 

  43. In course of hearing we have been apprised that the learned Arbitrator

      has  adjourned  the  matter   to   13.12.2013   for   filing   counter

      affidavit/claim by the appellants and it has  been  submitted  by  Mr.

      Ranjit Kumar that it would not be possible for the appellants to  file

      the counter affidavit/claim or objections to the claim by  that  date.

      Mr. Harish Salve, learned senior counsel appearing for the respondent,

      fairly stated that this Court may take note of the concession given by

      him  that  the  learned  Arbitrator  should  grant  six  weeks’   time

      commencing  13.12.2013  for  filing  the   counter   affidavit/counter

      claim/objections.  In view of the concession given,  the  time  stands

      extended.  We have also been told  that  the  learned  Arbitrator  has

      fixed the schedule for adjudication of the disputes.  We would request

      the learned Arbitrator to re-schedule the dates as  we  have  extended

      the time for filing of counter affidavit/claim by the appellants.

 

  44. Ex consequenti, the appeal is allowed in part to  the  extent  as  has

      been stated in our conclusions.  There shall be no order as to costs.

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.11003 OF 2013
(Arising out of SLP (Civil) No. 29651 of 2013)
Arasmeta Captive Power Company Private
Limited and another … Appellants

Versus

Lafarge India Private Limited …Respondent
J U D G M E N T
Dipak Misra, J.
Leave granted.

2. In Government of Andra Pradesh and others v. A. P. Jaiswal and
others[1] a three-Judge Bench has observed thus:-
“Consistency is the cornerstone of the administration of justice. It
is consistency which creates confidence in the system and this
consistency can never be achieved without respect to the rule of
finality. It is with a view to achieve consistency in judicial
pronouncements, the Courts have evolved the rule of precedents,
principle of stare decisis etc. These rules and principle are based on
public policy…”

3. We have commenced our opinion with the aforesaid exposition of law as
arguments have been canvassed by Mr. Ranjit Kumar, learned senior
counsel for the appellants, with innovative intellectual animation how
a three-Judge Bench in Chloro Controls India Private Limited v. Seven
Trent Water Purification Inc. and others[2] has inappositely and
incorrectly understood the principles stated in the major part of the
decision rendered by a larger Bench in SBP & Company v. Patel
Engineering Ltd. and another[3] and, in resistance, Mr. Harish Salve
and Dr. A.M. Singhvi, learned senior counsel for the respondent, while
defending the view expressed later by the three-Judge Bench, have laid
immense emphasis on consistency and certainty of law that garner
public confidence, especially in the field of arbitration, regard
being had to the globalization of economy and stability of the
jurisprudential concepts and pragmatic process of arbitration that
sparkles the soul of commercial progress. We make it clear that we
are not writing the grammar of arbitration but indubitably we intend,
and we shall, in course of our delineation, endeavour to clear the
maze, so that certainty remains “A Definite” and finality is ‘Final’.

4. The present appeal, by special leave, is directed against the judgment
and order dated 22.7.2013 passed by the learned Judge, the designate
of the Chief Justice of the High Court of Chhattisgarh at Bilaspur, in
Arbitration Application No. 24 of 2012 whereby and whereunder, while
dealing with an application preferred under Section 11(5) and (6) of
the Arbitration and Conciliation Act, 1996 (for brevity “the Act”),
has repelled the submission of the appellant herein, the respondent in
the original proceedings, that the disputes raised by the applicant,
being excepted matters, were squarely covered within the ambit of
clause 9.3 of the agreement and hence, it was only to be referred to
an expert for resolution and not to an arbitrator and, further
addressing the issue on merits, opined that as the disputes are not
covered under the subject-matter of billing disputes that find place
in clause 9.3 of the agreement, the parties are not under obligation
to refer the matter to the expert, and, accordingly, called for the
names from both the parties and taking note of the inability expressed
by the counsel for the respondents therein, appointed an arbitrator to
adjudicate the disputes that have arisen between the parties.

5. Regard being had to the narrow compass of the controversy that has
emanated for consideration before this Court, we need not dwell upon
the factual matrix in extenso. Suffice it to state that the appellant
No. 1 is a company carrying on business in generation of power. The
respondent owns 49% equity of the appellant No. 1 company and the
appellant No. 2 owns 51% equity of the appellant No. 1 company. The
appellant-company had entered into two agreements with the respondent
for supply of power to the respondent. The first agreement, namely, a
Power Purchase Agreement (PPA) was entered into on 10.2.2005 and the
second agreement of similar nature was entered into on 1.11.2007 for
supply of power. In course of subsistence of the agreements dispute
arose between the parties relating to amounts that is due and payable.
The appellants treated the dispute raised to be a “billing dispute”
and sought to appoint an expert in accordance with clause 16.2 of the
agreements and, accordingly, communicated with the respondent vide
letter dated 4.5.2012 proposing for appointment of one of the three
persons of expertise and repute for appointment as an expert in
respect of both the PPAs. The appellant No.1 requested the
Confederation of Indian Industry vide letter dated 30.5.2012 to
appoint a suitable expert. As put forth by the appellant, the
respondent did not accede to resolve the dispute by way of appointing
an expert instead, it moved the High Court for appointment of an
arbitrator.

6. In support of the application for appointment of arbitrator, it was
contended before the learned designated Judge that as the claims for
recovery of arrears had not been settled and the respondents therein
had communicated that the claims came within the ambit of sub-clause
(a) of clause 9.3 of the agreement and required the matter to be dealt
with by an expert and an expert should be appointed in terms of clause
16.2 and 16.4 of the agreement and declined to take recourse to
arbitration, it had become incumbent to move the court for appointment
of an arbitrator.

7. The said stand and stance put forth by the respondent before the High
Court was resisted by the present appellants that disputes would come
within clause 16.2 of the agreement that deals with “Dispute
Resolution” which provides a specific mechanism and not arbitration,
for it has been clearly postulated therein that where any dispute is
not resolved as provided for in clause 16.2 then only the matter shall
be submitted to arbitration at the request of either of the parties by
written notice in accordance with the provisions contained in the Act.

8. The High Court adverted to the meanings of “billing date”, “billing
period”, “billing year, “clarification notice” and various terms used
in the agreement, scanned the anatomy of clause 9.3 of the agreement
that deals with “billing disputes” and arrived at the conclusion that
disputes raised do not come within the purview of sub-clause (a) of
clause 9.3 and, accordingly, appointed an arbitrator, as has been
stated hereinbefore.

9. Mr. Ranjit Kumar, learned senior counsel appearing for the appellants,
criticizing the view expressed by the designated Judge, has submitted
that the dispute raised by the respondent being a “billing dispute”
which is an excepted matter, it was obligatory on the contracting
parties to resolve the dispute through an expert committee by the
mechanism provided in the agreement itself and the same could not have
been referred to an arbitrator to be arbitrated upon. Pyramiding the
said proponement, learned senior counsel would submit that once a
dispute falls in the realm of an excepted matter, as stipulated in the
agreement, it is a non-arbitrable claim and hence, the court alone has
the jurisdiction to decide the issue of arbitrability and it cannot be
left to be adjudicated by an arbitrator and as in the present case the
learned Judge has erroneously decided that it is not a “billing
dispute” and thereby not an excepted matter, the same warrants
interference. In essence, the submission is that advertence to the
spectrum of arbitrability or to the sphere of excepted matter to
decide the issue of jurisdiction as contemplated under Section 11(6)
of the Act is justified but the analysis and the conclusion as regards
the nature of dispute is indefensible. To buttress his submissions he
has commended us to the decisions in SBP & Co. (supra) and APS
Kushwaha (SSI Unit) v. Municipal Corporation, Gwalior and others[4].

10. Mr. Harish N. Salve and Dr. A.M. Singhvi, learned senior counsel
appearing for the respondent, in oppugnation, have submitted that the
principles stated in SBP’s case have been appositely understood by a
two-Judge Bench in the decision in National Insurance Company Limited
v. Boghara Polyfab Private Limited[5] and the analysis therein has
been accepted and approved by a three-Judge Bench in Chloro Controls
India Private Limited (supra) and, therefore, whether it is an
excepted matter or not, despite strenuous urging of the same by the
appellants, is required to be left to be adjudicated in the arbitral
proceedings. The learned senior counsel would further submit that
what has been opined in the SBP’s case has already been reflected upon
and that being the settled position of law, certainty in the realm of
adjudication should be allowed to stay. That apart, it is urged by
Mr. Salve and Dr. Singhvi that the designated Judge has fallen into
error by delving into the merits of the matter, i.e., whether the
disputes are “billing disputes” or not, for it should have been left
to be adjudicated upon by the learned arbitrator. It is submitted
that if any interference is warranted the said findings should be set
aside and the matter should be allowed to be arbitrated upon by the
learned arbitrator as other conditions precedent for invocation of the
arbitration clause have been accepted and are not under assail.

11. In reply to the submissions of learned senior counsel for the
respondent, Mr. Ranjit Kumar, learned senior counsel for the
appellants, would contend that the analysis made in the case of
Boghara Polyfab Private Limited (supra) by the two-Judge Bench is
contrary to what has been stated in SBP’s case and similarly the seal
of concurrence given by the three-Judge Bench in Chloro Controls India
Private Limited (supra) is neither justified nor correct, and in fact,
on a studied scrutiny, the lis deserves to be referred to a larger
Bench. The learned senior counsel would further submit that certainty
of law in its fundamental conceptuality has to be in consonance with
the principles stated in larger Bench decisions and not to be allowed
to exist despite striking a note of discordance.

12. To appreciate the controversy it is pertinent to refer to certain
provisions, namely, Sections 8, 9, 11 and 16 of the Act. Section 8
deals with power to refer parties to arbitration where there is an
arbitration agreement. The said power is conferred on a judicial
authority before which an action is brought in a matter which is the
subject-matter of agreement. Certain conditions precedent have been
incorporated in sub-sections (1) and (2) of the said provision.
Section 9 provides for grant of interim measures by court. Section 11
deals with appointment of arbitrators. Section 11(2) stipulates that
subject to sub-section (6), the parties are free to agree on a
procedure for appointing the arbitrator or arbitrators. Sub-sections
(3) to (5) deal with requisite procedure to be followed in certain
circumstances for appointment of arbitrator. Sub-sections (6) and (8)
of the said provision, which are relevant for the present purpose,
read as follows: –

“(6) Where, under an appointment procedure agreed upon by the
parties, –

a. a party fails to act as required under that procedure; or

b. the parties, or the two appointer arbitrators, fail to reach an
agreement expected of them under that procedure; or

c. a person, including an institution, fails to perform any function
entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or institution
designated by him to take the necessary measures, unless the agreement
on the appointment procedure provides other means for securing the
appointment.

xxx xxx xxx

(8) The Chief Justice or the person or institution designated by
him, in appointing an arbitrator, shall have due regard to –

(a) any qualifications required of the arbitrator by the agreement
of the parties; and

(b) other considerations as are likely to secure the appointment of
an independent and impartial arbitrator.”

Section 16 provides for competence of arbitral tribunal to rule on its
own jurisdiction. It stipulates that the arbitral tribunal may rule on its
own jurisdiction, including ruling on any objections with respect to the
existence or validity of the arbitration agreement.

13. Regard being had to the anatomy of the Act and the contours of the
aforesaid provisions, a Bench of seven Judges in SBP & Co. (supra) by
majority has stated about the functions to be performed by the Chief
Justice or his designate to do. Or, to put it differently, what are
required to be determined by the Chief Justice or his designate, have
been exposited thus: –

“39. 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 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. In the said case, in paragraph 47 the majority has summed up the
conclusions in seriatim. Conclusion (iv), as summed in the said
paragraph, reads as follows: –

“(iv) The Chief Justice or the designated Judge will have the right to
decide the preliminary aspects as indicate in the earlier part of this
judgment. These will be his own jurisdiction to entertain the
request, the existence of a valid arbitration agreement, the existence
or otherwise of a live claim, the existence of the condition for the
exercise of his power and on the qualifications of the arbitrator or
arbitrators. The Chief Justice or the designated Judge would be
entitled to seek the opinion of an institution in the matter of
nominating an arbitrator qualified in terms of Section 11(8) of the
Act if the need arises but the order appointing the arbitrator could
only be that of the Chief Justice or the designated Judge.”

15. On a careful reading of the paragraph 39 and conclusion No. (iv), as
set out in paragraph 47, it is limpid that for the purpose of setting
into motion the arbitral procedure the Chief Justice or his designate
is required to decide the issues, namely, (i) territorial
jurisdiction, (ii) existence of an arbitration agreement between the
parties, (iii) existence or otherwise of a live claim, and (iv)
existence of the conditions for exercise of power and further
satisfaction as regards the qualification of the arbitrator. That
apart, under certain circumstances the Chief Justice or his designate
is also required to see whether a long-barred claim is sought to be
restricted and whether the parties had concluded the transaction by
recording satisfaction of the mutual rights and obligations or by
receiving the final payment without objection.

16. At this stage we may notice the opinion expressed by a two-Judge Bench
in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd.[6], pertaining to
the issues which are to be dealt with by the Chief Justice or his
designate. The two-Judge Bench, after referring to paragraph 39 in
SBP & Co. (supra), opined that the Chief Justice has to decide about
the territorial jurisdiction and also whether there exists an
arbitration agreement between the parties and whether such party has
approached the court for appointment of the arbitrator. The Chief
Justice has to examine as to whether the claim is a dead one or in the
sense whether the parties have already concluded the transaction and
have recorded satisfaction of their mutual rights and obligations or
whether the parties concerned have recorded their satisfaction
regarding the financial claims. In examining the said aspect if the
parties have recorded their satisfaction regarding the financial
claims, there will be no question of any issue remaining. It is
further observed therein that in the said context the Chief Justice
has to examine as to whether there remains anything to be decided
between the parties in respect of the agreement and whether the
parties are still at issue on any such matter. If the Chief Justice
does not, in the strict sense, decide the issue, in that event it is
for him to locate such issue and record his satisfaction that such
issue exists between the parties. It is only in that sense that the
finding on a live issue is given. That apart, as observed, it is only
for the purpose of finding out whether the arbitral procedure has to
be started that the Chief Justice has to record satisfaction that
there remains a live issue in between the parties. The same thing is
about the limitation which is always a mixed question of law and fact.
The Chief Justice only has to record his satisfaction that prima
facie the issue had not become dead by the lapse of time or that any
party to the agreement has not slept over its right beyond the time
permitted by law to agitate those issues covered by the agreement.
The Chief Justice or his designate is required to record his
satisfaction that the parties have not closed their rights and the
matter has not been barred by limitation. Thus, whether the Chief
Justice comes to a finding that there exists a live issue, then
naturally this finding would include a finding that the respective
claims of the parties have not become barred by limitation.

17. In Boghara Polyfab Private Limited (supra) a two-Judge Bench, while
understanding and explaining the duty of the Chief Justice or his
designate, as defined in SBP & Co. (supra), has ruled thus: –

“22. Where the intervention of the court is sought for appointment of
an Arbitral Tribunal under Section 11, the duty of the Chief Justice
or his designate is defined in SBP & Co. This Court identified and
segregated the preliminary issues that may arise for consideration in
an application under Section 11 of the Act into three categories, that
is, (i) issues which the Chief Justice or his designate is bound to
decide; (ii) issues which he can also decide, that is, issues which he
may choose to decide; and (iii) issues which should be left to the
Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his
designate will have to decide are:

(a) Whether the party making the application has approached the
appropriate High Court.

(b) Whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a party to
such an agreement.

22.2. The issues (second category) which the Chief Justice/his
designate may choose to decide (or leave them to the decision of the
Arbitral Tribunal) are:

(a) Whether claim is a dead (long-barred) claim or a live claim.

(b) Whether the parties have concluded the contract/transaction
by recording satisfaction of their mutual rights and obligation
or by receiving the final payment without objection.

22.3. The issues (third category) which the Chief Justice/his
designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether a claim made falls within the arbitration clause (as
for example, a matter which is reserved for final decision of a
departmental authority and excepted or excluded from
arbitration).

(ii) Merits or any claim involved in the arbitration.”

18. In the said case, it has been further held that in regard to the
issues falling in second category, if raised in an application under
Section 11 of the Act, the Chief Justice/his designate may decide
them, if necessary, by taking evidence. Alternatively, he may leave
those issues open with a direction to the Arbitral Tribunal to decide
the same. In case the Chief Justice or his designate chooses to
examine the issue and decides it, the Arbitral Tribunal cannot re-
examine the same issue. The learned Judges have observed by placing
reliance on SBP & Co. (supra) that Chief Justice/his designate would,
in choosing whether he would decide such issue or leave it to the
Arbitral Tribunal, be guided by the object of the Act, i.e.,
expediting the arbitration process with minimum judicial intervention.

19. Recently in Chloro Controls India Private Limited (supra) a three-
Judge Bench considered the issue whether there is any variance between
the Shree Ram Mills Ltd. (supra) and Boghara Polyfab Private Limited
(supra) and observed that both the judgments are free from
contradiction and capable of being read in harmony in order to bring
them in line with the statutory law declared by the larger Bench in
SBP & Co. (supra). The Court observed that where the Chief Justice or
his designate actually decides the issue, then it can no longer be
prima facie, but would be a decision binding in law and on such an
issue the Arbitral Tribunal will have no jurisdiction to re-determine
the issue. The three-Judge Bench reproduced paragraph 27 of Shree Ram
Mills Ltd. (supra) and we think that we should quote the relevant part
on which an opinion has been expressed:-

“If the Chief Justice does not, in the strict sense, decide the
issue, in that event it is for him to locate such issue and record
his satisfaction that such issue exists between the parties. It is
only in that sense that the finding on a live issue is given. Even
at the cost of repetition we mush state that it is only for the
purpose of finding out whether the arbitral procedure has to be
started that the Chief Justice has to record satisfaction that there
remains a live issue in between the parties. The same thing is about
the limitation which is always a mixed question of law and fact. The
Chief Justice only has to record his satisfaction that prima facie
the issue has not become dead by the lapse of time or that any party
to the agreement has not slept over its rights beyond the time
permitted by law to agitate those issues covered by the agreement.
It is for this reason that it was pointed out in the above paragraph
that it would be appropriate sometimes to leave the question
regarding the live claim to be decided by the Arbitral Tribunal. All
that he has to do is to record his satisfaction that the parties have
not closed their rights and the matter has not been barred by
limitation. Thus, where the Chief Justice comes to a finding that
there exists a live issue, then naturally this finding would include
a finding that the respective claims of the parties have not become
barred by limitation.”

Thereafter, the three-Judge Bench explained the decision in following
terms:-

“Thus, the Bench while explaining the judgment of this Court in SBP &
Co. has state that the Chief Justice may not decide certain issues
finally and upon recording satisfaction that prima facie the issue has
not become dead even leave it for the Arbitral Tribunal to decide.”

20. Thereafter, the three-Judge Bench referred to paragraph 20 of SBP &
Co. (supra) and stated that in Shree Ram Mills Ltd. (supra) clearly
the Bench did not intend to lay down any law in direct conflict with
seven-Judge Bench in SBP & Co. (supra).

21. At that juncture, dealing with the classification carved out by the
Court in Boghara Polyfab Private Limited (supra), the three-Judge
Bench observed that it draws its origin from para 39 of the judgment
in SBP & Co. (supra) and thereafter proceeded to state thus: –

“124. The foundation for Category (2) in para 22.2 of National
Insurance Co. Ltd. is directly relatable to para 39 of the judgment of
this Court in SBP & Co. and matters falling in that category are those
which, depending on the facts and circumstances of a given case, could
be decided by the Chief Justice or his designate or even may be left
for the decision of the arbitrator, provided there exists a binding
arbitration agreement between the parties. Similar is the approach of
the Bench in Shree Ram Mills and that is why in para 27 thereof, the
Court has recorded that it would be appropriate sometimes to leave the
question regarding the claim being alive to be decided by the Arbitral
Tribunal and the Chief Justice may record his satisfaction that
parties have not closed their rights and the matter has not been
barred by limitation.

125. As already notice, the observations made by the Court have to be
construed and read to support the ratio decidendi of the
judgment. Observations in a judgment which are stared upon by
the judgment of a larger Bench would not constitute valid
precedent as it will be hit by the doctrine of stare decisis.
In Shree Ram Mills surely the bench did not intend to lay down
the law or state a proposition which is directly in conflict
with the judgment of the Constitution Bench of this Court in SBP
& Co..

126. We have no reason to differ with the classification carved out
in National Insurance Co. as it is very much in conformity with
the judgment of the Constitution Bench in SBP.”

[Emphasis added]

22. Mr. Ranjit Kumar, learned senior counsel appearing for the appellants,
has drawn our attention to various paragraphs of the decision in SBP &
Co. (supra) to highlight that excepted matters as per the agreement
have to be decided by the Chief Justice or his designate. Drawing our
attention to paragraph 9 of the said judgment learned senior counsel
has submitted that the larger Bench has clearly observed that while
functioning under Section 11(6) of the Act, a Chief Justice or the
person or the institution designated by him, is bound to decide
whether he has jurisdiction, whether there is an arbitration
agreement, whether the applicant before him is a party, whether the
conditions for exercise of the power have been fulfilled, and if an
arbitrator is to be appointed, who is the fit person, in terms of the
provisions and the condition for exercise of power is dependent upon
the nature of the agreement and the arbitration clause and in its
sweep it commands that there should be an adjudication in respect of
excepted matters and once it is found that they are excepted matters,
an arbitrator should not be appointed in respect of such matters or
the disputes should not be referred to arbitration.

23. The learned senior counsel has also drawn immense inspiration from
paragraph 25 of the judgment of the said case wherein, while
discussing about the jurisdiction of the Chief Justice, it has been
stated that he has to enquire whether the conditions for exercise of
his power under Section 11(6) of the Act exist in the case and only
being satisfied in that behalf could he appoint an arbitrator or an
Arbitral Tribunal on the basis of the request. It further observed
that it is difficult to say that when one of the parties raises an
objection that there is no arbitration agreement, raises an objection
that the person who has come forward with a request is not a party to
the agreement, the Chief Justice can come to a conclusion on those
objections without following an adjudicatory process. Thereafter the
seven-Judge Bench stated thus: –

“Can he constitute an Arbitral Tribunal, without considering these
questions? If he can do so, why should such a function be entrusted
to a high judicial authority like the Chief Justice. Similarly, when
the party raises an objection that the conditions for exercise of
power under Section 11(6) of the Act are not fulfilled and the Chief
Justice comes to the conclusion that they have been fulfilled, it is
difficult to say that he was not adjudicating on a dispute between the
parties and was merely passing an administrative order. It is also
not correct to say that by the mere constitution of an Arbitral
Tribunal the rights of the parties are not affected. Dragging a party
to an arbitration when there existed no arbitration agreement or when
there existed no arbitrable dispute, can certainly affect the right of
that party, and, even on monetary terms, impose on him a serious
liability for meeting the expenses of the arbitration, even if it be
the preliminary expenses and his objection is upheld by the Arbitral
Tribunal. Therefore, it is not possible to accept the position that
no adjudication is involved in the constitution of an Arbitral
Tribunal.”

24. Mr. Ranjit Kumar, learned senior counsel, has placed heavy emphasis on
the words “when there existed no arbitral dispute” to spiral the
submission that the Chief Justice or his designate is under the legal
obligation to decide the said facet when the issue is raised and it
cannot be left to the arbitrator or an Arbitral Tribunal for
adjudication.

25. Before we comment on this, we may also refer to observations made in
paragraph 38 of the judgment in SBP & Co. (supra) as the same has also
been repeatedly commended to us by Mr. Ranjit Kumar. For
understanding of the ratio decidendi we think it apt to reproduce the
relevant portion which has intellectually stimulated the learned
senior counsel for the appellants: –

“… the basic requirement for exercising his power under Section
11(6), is the existence of an arbitration agreement in terms of
Section 7 of the Act and the application before the Chief Justice
being shown to be a party to such an agreement. It would also include
the question of the existence of jurisdiction in him to entertain the
request and an enquiry whether at least a part of the cause of action
has arisen within the State concerned. Therefore, a decision on
jurisdiction and on the existence of the arbitration agreement and of
the person making the request being a party to that agreement and the
subsistence of an arbitral dispute require to be decided and the
decision on these aspects is a prelude to the Chief Justice
considering whether the requirements of sub-section (4), sub-section
(5) or sub-section(6) of Section 11 are satisfied when approached with
the request for appointment of an arbitrator.”

26. The aforesaid passage is pressed into service for the Simon pure
reason that the seven-Judge Bench has used the phraseology
“subsistence of an arbitral dispute required to be decided”. It is
emphatically submitted that it has to be read in harmony with the
words used in paragraph 25, namely, “when there existed no arbitral
dispute”. In this backdrop it is propounded that the decisions in
Boghara Polyfab Private Limited (supra) and Chloro Controls India
Private Limited (supra) require reconsideration.

27. Mr. Salve and Dr. Singhvi, learned counsel for the respondent, in
their turn, have submitted that paragraph 39 in SBP & Co. (supra)
speaks about the role of the Chief Justice in definitive exactitude
and the same has been emphatically stated in sub-para (iv) of para 47
where there is summation of the conclusions. Quite apart from the
above, it is contended that in Chloro Controls India Private Limited
(supra) the three-Judge Bench has correctly understood the decision in
SBP & Co. (supra) and, accordingly, did not differ with the
classification carved out in Boghara Polyfab Private Limited (supra).

28. At this juncture, we think it condign to refer to certain authorities
which lay down the principle for understanding the ratio decidendi of
a judgment. Such a deliberation, we are disposed to think, is
necessary as we notice that contentions are raised that certain
observations in some paragraphs in SPB & Co. (supra) have been relied
upon to build the edifice that latter judgments have not referred to
them.

29. In Ambica Quarry Works v. State of Gujarat and others[7], it has been
stated that the ratio of any decision must be understood in the
background of the facts of that case. Relying on Quinn v. Leathem[8]
it has been held that the case is only an authority for what it
actually decides, and not what logically follows from it.

30. Lord Halsbury in the case of Quinn (supra) has ruled thus: –
“…there are two observations of a general character which I
wish to make, and one is to repeat what I have very often said before,
that every judgment must be read as applicable to the particular facts
proved, or assumed to be proved, since the generality of the
expressions which may be found there are not intended to be
expositions of the whole law, but governed and qualified by the
particular facts of the case in which such expressions are to be
found. The other is that a case is only an authority for what it
actually decides. I entirely deny that it can be quoted for a
proposition that may seem to follow logically from it. Such a mode of
reasoning assumes that the law is necessarily a logical code, whereas
every lawyer must acknowledge that the law is not always logical at
all.”

[Emphasis supplied]

31. In Krishena Kumar v. Union of India and others[9], the Constitution
Bench, while dealing with the concept of ratio decidendi, has referred
to Caledonian Railway Co. v. Walker’s Trustees[10] and Quinn (supra)
and the observations made by Sir Frederick Pollock and thereafter
proceeded to state as follows: –
“The ratio decidendi is the underlying principle, namely, the general
reasons or the general grounds upon which the decision is based on the
test or abstract from the specific peculiarities of the particular
case which gives rise to the decision. The ratio decidendi has to be
ascertained by an analysis of the facts of the case and the process of
reasoning involving the major premise consisting of a pre-existing
rule of law, either statutory or judge-made, and a minor premise
consisting of the material facts of the case under immediate
consideration. If it is not clear, it is not the duty of the court to
spell it out with difficulty in order to be bound by it. In the words
of Halsbury (4th edn., Vol. 26, para 573)

“The concrete decision alone is binding between the parties to
it but it is the abstract ratio decidendi, as ascertained on a
consideration of the judgment in relation to the subject matter
of the decision, which alone has the force of law and which when
it is clear it is not part of a tribunal’s duty to spell out
with difficulty a ratio decidendi in order to bound by it, and
it is always dangerous to take one or two observations out of a
long judgment and treat them as if they gave the ratio decidendi
of the case. If more reasons than one are given by a tribunal
for its judgment, all are taken as forming the ratio decidendi.”

[Emphasis added]

32. In State of Orissa v. Mohd. Illiyas[11], it has been stated thus: –

“12. … According to the well-settled theory of precedents, every
decision contains three basic postulates: (i) findings of material
facts, direct and inferential. An inferential finding of facts is the
inference which the Judge draws from the direct, or perceptible facts;
(ii) statements of the principles of law applicable to the legal
problems disclosed by the facts; and (iii) judgment based on the
combined effect of the above. A decision is an authority for what it
actually decides. What is of the essence in a decision is its ratio
and not every observation found therein nor what logically flows from
the various observations made in the judgment.”

33. In Islamic Academy of Education v. State of Karnataka[12], the Court
has made the following observations: –
“2. … The ratio decidendi of a judgment has to be found out only on
reading the entire judgment. In fact, the ratio of the judgment is
what is set out in the judgment itself. The answer to the question
would necessarily have to be read in the context of what is set out in
the judgment and not in isolation. In case of any doubt as regards any
observations, reasons and principles, the other part of the judgment
has to be looked into. By reading a line here and there from the
judgment, one cannot find out the entire ratio decidendi of the
judgment.”

[Underlining is by us]

34. The said authorities have been relied upon in Natural Resources
Allocation, In Re, Special Reference No. 1 of 2012[13].

35. At this stage, we may also profitably refer to another principle which
is of assistance to understand and appreciate the ratio decidendi of a
judgment. The judgments rendered by a court are not to be read as
statutes. In Union of India v. Amrit Lal Manchanda and another[14],
it has been stated that observations of courts are neither to be read
as Euclid’s theorems nor as provisions of the statute and that too
taken out of their context. The observations must be red in the
context in which they appear to have been stated. To interpret words,
phrases and provisions of a statute, it may become necessary for
judges to embark into lengthy discussions but the discussion is meant
to explain and not to define. Judges interpret statutes, they do not
interpret judgments. They interpret words of statutes; their words
are not to be interpreted as statutes.

36. In Som Mittal v. Government of Karnataka[15], it has been observed
that judgments are not to be construed as statutes. Nor words or
phrases in judgments to be interpreted like provisions of a statute.
Some words used in a judgment should be read and understood
contextually and are not intended to be taken literally. Many a time
a judge uses a phrase or expression with the intention of emphasizing
a point or accentuating a principle or even by way of a flourish of
writing style. Ratio decidendi of a judgment is not to be discerned
from a stray word or phrase read in isolation.

37. From the aforesaid authorities it is luculent that the larger Bench in
SBP & Co. (supra), after deliberating at length with regard to the
role of the Chief Justice or his designate, while dealing with an
application under Section 11(6) of the Act, has thought it appropriate
to define what it precisely meant in paragraph 39 of the judgment.
The majority, if we allow ourselves to say so, was absolutely
conscious that it required to be so stated and hence, it did so. The
deliberation was required to be made as the decision in Konkan Railway
Corporation Ltd. v. Rani Construction (P) Ltd.[16] where the
Constitution Bench had held that an order passed by the Chief Justice
under Section 11(6) is an administrative order and not a judicial one
and, in that context, the Bench in many a paragraph proceeded to state
about the role of the Chief Justice or his designate. The phrases
which have been emphasized by Mr. Ranjit Kumar, it can be irrefragably
stated, they cannot be brought to the eminence of ratio decidendi of
the judgment. The stress laid thereon may be innovative but when the
learned Judges themselves have culled out the ratio decidendi in
paragraph 39, it is extremely difficult to state that the principle
stated in SBP & Co. (supra) requires the Chief Justice or his
designate to decide the controversy when raised pertaining to
arbitrability of the disputes. Or to express an opinion on excepted
matters. Such an inference by syllogistic process is likely to usher
in catastrophe in jurisprudence developed in this field. We are
disposed to think so as it is not apposite to pick up a line from here
and there from the judgment or to choose one observation from here or
there for raising it to the status of “the ratio decidendi”. That is
most likely to pave one on the path of danger and it is to be
scrupulously avoided. The propositions set out in SBP & Co. (supra),
in our opinion, have been correctly understood by the two-Judge Bench
in Boghara Polyfab Private Limited (supra) and the same have been
appositely approved by the three-Judge Bench in Chloro Controls India
Private Limited (supra) and we respectfully concur with the same. We
find no substance in the submission that the said decisions require
reconsideration, for certain observations made in SBP & Co. (supra),
were not noticed. We may hasten to add that the three-Judge Bench has
been satisfied that the ratio decidendi of the judgment in SBP & Co.
(supra) is really inhered in paragraph 39 of the judgment.

38. Before parting with this part of our ratiocination we may profitably
reproduce the following words of Lord Denning which have become locus
classicus: –

“Precedent should be followed only so far as it marks the path of
justice, but you must cut the dead wood and trim off the side branches
else you will find yourself lost in thickets and branches. My plea is
to keep the path to justice clear of obstructions which could impede
it.”

39. The aforesaid passage has been referred to in Amrit Lal Machanda and
another (supra).

40. We will be failing in our duty if we do not take note of another
decision in Booz Allen and Hamilton Inc. v. SBI Home Finance Limited
and others[17] on which Mr. Ranjit Kumar has heavily relied upon. He
has drawn our attention to paragraph 34 where the Court has dealt with
the meaning of the term “arbitrability” and stated that arbitrability
has different meanings in different contexts. The Court enumerated
three facets which relate to the jurisdiction of the Arbitral
Tribunal. In sub-para (ii) of the said paragraph it has been stated
that one facet of arbitrability is whether the disputes are enumerated
or described in the arbitration agreement as matters to be decided by
arbitration or whether the disputes fall under the “excepted matters”
excluded from the purview of the arbitration agreement. On a careful
reading of the said judgment we find that the learned Judges have
referred to paragraph 19 of SBP & Co. (supra) and thereafter referred
to Section 8 of the Act and opined what the judicial authority should
decide. Thereafter the Court proceeded to deal with nature and scope
of the issues arising for consideration in an application under
Section 11 of the Act for appointment of the arbitrator and, in that
context, it opined thus: –

“While considering an application under Section 11 of the Act, the
Chief Justice or his designate would not embark upon an examination of
the issue of “arbitrability” or appropriateness of adjudication by a
private forum, once he finds that there was an arbitration agreement
between or among the parties, and would leave the issue of
arbitrability for the decision of the Arbitral Tribunal. If the
arbitrator wrongly holds that the dispute is arbitrable, the aggrieved
party will have to challenge the award by filing an application under
Section 34 of the Act, relying upon sub-section (2)(b)(i) of that
section.”

41. The said ruling is absolutely in consonance with the principle laid
down in SBP & Co. (supra). The meaning given to arbitrability
thereafter has been restricted to the adjudication under Section 8 and
not under Section 11 of the Act. Thus, the reliance on the said
decision further reflects how the court has consistently understood
the principles laid down in SBP & Co. (supra).

42. In view of our foregoing analysis we sum up our conclusions as
follows: –

i) The decisions rendered in Boghara Polyfab Private Limited (supra) and
Chloro Controls India Private Limited (supra) are in accord with the
principles of law stated in SBP & Co. (supra).

ii) The designated Judge, as perceived from the impugned order, while
dealing with an application under Section 11(6) of the Act, on an
issue raised with regard to the excepted matters, was not justified in
addressing the same on merits whether it is a dispute relating to
excepted matters under the agreement in question or not.

iii) The designated Judge has fallen into error by opining that the
disputes raised are not “billing disputes”, for the same should have
been left to be adjudicated by the learned Arbitrator.

iv) The part of the order impugned that reflects the expression of opinion
by the designate of the Chief Justice on the merits of the disputes,
being pregnable, deserves to be set aside and is hereby set aside.

43. In course of hearing we have been apprised that the learned Arbitrator
has adjourned the matter to 13.12.2013 for filing counter
affidavit/claim by the appellants and it has been submitted by Mr.
Ranjit Kumar that it would not be possible for the appellants to file
the counter affidavit/claim or objections to the claim by that date.
Mr. Harish Salve, learned senior counsel appearing for the respondent,
fairly stated that this Court may take note of the concession given by
him that the learned Arbitrator should grant six weeks’ time
commencing 13.12.2013 for filing the counter affidavit/counter
claim/objections. In view of the concession given, the time stands
extended. We have also been told that the learned Arbitrator has
fixed the schedule for adjudication of the disputes. We would request
the learned Arbitrator to re-schedule the dates as we have extended
the time for filing of counter affidavit/claim by the appellants.

44. Ex consequenti, the appeal is allowed in part to the extent as has
been stated in our conclusions. There shall be no order as to costs.
……………………………….J.
[Anil R. Dave]
……………………………….J.
[Dipak Misra]

New Delhi;
December 12, 2013.
ITEM NO.1B COURT NO.10 SECTION
IVA

S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Civil) No(s).29651/2013

(From the judgement and order dated 22/07/2013 in AA No.24/2012 of The
HIGH COURT OF CHHATTISGARH AT BILASPUR)

ARASMETA CAPTIVE POWER CO. PVT. LTD & AN Petitioner(s)

VERSUS

LAFARGE INDIA P. LTD Respondent(s)

Date: 12/12/2013 This Petition was called on for Judgment today.

For Petitioner(s) Ms. Bina Gupta, Adv.

For Respondent(s) M/S Suresh A. Shroff & Co.
Hon’ble Mr. Justice Dipak Misra pronounced the Judgment of the Bench
comprising Hon’ble Mr. Justice Anil R. Dave and His Lordship.
Leave granted.
The Civil Appeal is allowed in part.
|(Jayant Kumar Arora) | |(Sneh Bala Mehra) |
|Sr. P.A. | |Assistant Registrar |

(Signed reportable Judgment is placed on the file)
———————–
[1] AIR 2001 SC 499
[2] (2013) 1 SCC 641
[3] (2005) 8 SCC 618
[4] (2011) 13 SCC 258
[5] (2009) 1 SCC 267
[6] (2007) 4 SCC 599
[7] (1987) 1 SCC 213
[8] (1901) AC 495
[9] (1990) 4 SCC 207
[10] (1882) 7 App Cas 259 : 46 LT 826 (HL)
[11] (2006) 1 SCC 275
[12] (2003) 6 SCC 697
[13] (2012) 10 SCC 1
[14] (2004) 3 SCC 75
[15] (2008) 3 SCC 574
[16] (2002) 2 SCC 388
[17] (2011) 5 SCC 532

———————–
35

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