Wednesday, 25 November 2015

Whether arbitration clause contained in MOU will stand even though MOU is terminated?

Dealing with the said Clause and the arguments raised on behalf of
the respective parties, the law has been laid down as under in
paragraphs 82 and 83 which are to the following effect:
“82. Further, the arbitration agreement contained in Clauses
18.1 to 18.3 of IPLA is very widely worded and would include
all the disputes, controversies or differences concerning the
legal relationship between the parties. It would include the
disputes arising in respect of the IPLA with regard to its
validity, interpretation, construction, performance,
enforcement or its alleged breach. Whilst interpreting the
arbitration agreement and/or the arbitration clause, the court
 must be conscious of the overarching policy of least
 intervention by courts or judicial authorities in matters
covered by the Indian Arbitration Act, 1996. In view of the
aforesaid, it is not possible for us to accept the submission of
Mr Nariman that the arbitration agreement will perish as the
IPLA has not been finalised. This is also because the
arbitration clause (agreement) is independent of the
underlying contract i.e. the IPLA containing the arbitration
clause. Section 16 provides that the arbitration clause forming
part of a contract shall be treated as an agreement
 independent of such a contract.
 The concept of separability of the arbitration
clause/agreement from the underlying contract is a necessity
to ensure that the intention of the parties to resolve the
disputes by arbitration does not evaporate into thin air with
every challenge to the legality, validity, finality or breach of
the underlying contract. The Indian Arbitration Act, 1996, as
noticed above, under Section 16 accepts the concept that the
main contract and the arbitration agreement form two
independent contracts. Commercial rights and obligations are
contained in the underlying, substantive, or the main contract.
It is followed by a second contract, which expresses the
agreement and the intention of the parties to resolve the
disputes relating to the underlying contract through
arbitration. A remedy is elected by parties outside the normal
civil court remedy. It is true that support of the national courts
would be required to ensure the success of arbitration, but
this would not detract from the legitimacy or independence of
the collateral arbitration agreement, even if it is contained in
a contract, which is claimed to be void or voidable or
unconcluded by one of the parties.”

(Emphasis added)
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3702 OF 2015
(@ SLP (C) NO.1963 of 2014)
Ashapura Mine-Chem Ltd. ….Appellant
VERSUS
Gujarat Mineral Development Corporation ….Respondent
Citation;(2015) 8 SCC 193

2. This appeal is directed against the judgment of the High Court of
Judicature of Gujarat at Ahmedabad in Arbitration Petition No. 9/2013
dated 27.9.13/04.10.2013. By the impugned judgment, the learned
Single Judge of the High Court dismissed the appellant’s application filed
under Section 11 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to “Act”).
3. Short facts which are required to be noted are that the appellant
and the respondent entered into a Memorandum of Understanding (MoU)
on 17.08.2007. Under the said MoU, the appellant proposed to constitute
a joint venture along with Chinese Company, namely, “M/s Qing TongXia

Aluminium Group Co. Ltd. Ningxia of China (hereinafter referred to as
“QTX”) as well as the respondent for setting up an alumina plant of
appropriate capacity in the Kutch District of Gujarat. The MoU also
records that the Government of Gujarat agreed to encourage and support
the proposed joint venture for setting up of the alumina plant. The
respondent agreed to supply on priority basis, medium grade Bauxite to
the proposed plant from its 10 existing and 18 expected Bauxite mining
leases in the Kutch District.
4. The other relevant terms were that the appellant should arrange for
the equity participation of the QTX in the proposed joint venture, that the
respondent should invest in the equity of the joint venture to the extent
determined by the Government of Gujarat but not exceeding 26% while
the appellant and the QTX should hold 74% of the equity. The capacity of
the proposed plant should be 1.00 million tonnes per annum which may
be enhanced subsequently. On the part of the respondent, it should
assist the joint venture in obtaining the required land for locating the
project. Under Clauses 5, 6, 8, 10 and 11, the quantity of the medium
grade Bauxite to be supplied by the respondent, the grade of the
Bauxite, the specifications, the rate at which it was to be supplied, the
time within which such supply should be effected were all set out which
also included a long term agreement for the supply to be entered into.
5. MoU also stipulated certain other conditions by which the appellant

was obligated upon to reimburse to the respondent, within 60 days of the
signing of the MoU, an amount of Rs.3.94 crores being the direct
expenses incurred by the respondent on its Alumina Project and related
matter. It is not in dispute that within the stipulated time limit the
appellant gave its cheque for the said sum but the respondent did not
encash the same. It also provided for the appellant to pay the respondent
a further sum of Rs.6.25 crores within 60 days of the execution of the
MoU by way of signature bonus apart from providing a bank guarantee to
the value of Rs.10 crores for the due observance for the joint venture by
the appellant under the various terms and conditions of the MoU within
30 days of the signing of the MoU.
6. Clause 12 of the MoU specifically provided that the rights and
privileges were not transferable for a period of five years and the
appellant should not exit the project/joint venture for a period of five
years after the commencement of commercial production.
7. Under Clause 19, it was stipulated that the MoU was subject to
approval of the Board of Directors of the appellant as well as the
respondent, that the equity investment and decisions of the respondent
should be subject to the concurrence of the Government of Gujarat, while
the investment of the appellant should be subject to approval of its
shareholders. It was specifically mentioned that both the appellant and
the respondent should endeavour to obtain necessary approval within

three months from the date of execution of the MoU. It was further
specifically mentioned that on getting necessary approval by both sides,
the MoU would be converted into an agreement between the appellant
and the respondent. Clause 21 contained relevant stipulation to the
effect that in case the concurrence of the Government of Gujarat was not
forthcoming for equity participation in the project within six months of
the signing of the MoU, the MoU would be construed as one relating to
long term supply of medium grade Bauxite to the joint venture by the
respondent from its Kutch mines.
8. The more important Clauses contained in MoU pertaining to
arbitration are found in Clauses 26 and 27 which read as under:
“26. In the event of difference disputes arising between the
parties in respect of any matter arising out of and relating to
this MoU, such dispute/difference shall, in the first instance,
be resolved amicably by mutual consultation within 45 days of
the reference of disputes by either party.
27. If amicable settlement is not reached between the parties
then such unresolved dispute or difference of opinion
concerning or arising from the MoU and its implementation,
breach or termination whatsoever, including any difference or
dispute as to the interpretation of any of the terms of the
MoU, shall be referred to the arbitration or a sole arbitrator
appointed to GMDC and AML. The Arbitrator shall give
reasoned award. The Arbitration shall be governed by
Arbitration and Conciliation Act, 1996 (India) and conducted in
the city of Ahmedabad. The language of Arbitration shall be
English. The parties shall share the cost of Arbitration equally
Arbitration clause to be acceptable to the Financing sources.”
9. Subsequent to the signing of the above MoU, there was a Board

Resolution of respondent dated 29.10.2007. The said Resolution stated
that the Board resolved to accord its approval to the MoU executed on
17.08.2007 between the appellant and the respondent subject to the
modifications noted in the said resolution. Subsequent to the said
resolution which was communicated to the appellant, correspondence
was exchanged between the appellant and the respondent and on some
occasions with the Principal Secretary of the State of Gujarat between
17.12.2007 and 10.03.2010. There was a Board Resolution of the
respondent dated 18.03.2010 which disclose that the Board decided to
the effect that in the light of the new mineral policy announced by the
State Government in November, 2009, major changes were made in
respect of Bauxite also and, therefore, it was not inclined to extend the
validity of the proposed MoU and also decided to invite fresh EOI in
Bauxite for higher value addition in alumina. However, in a subsequent
communication dated 26.07.2010, the respondent informed the appellant
that to maintain parity necessary modification in the terms and
conditions of the MoU dated 17.8.2007 as approved by the Board of the
respondent were communicated to the State Government for approval
which was awaited and that on receipt of such approval, a fresh MoU
may have to be executed.
10. But subsequently, by communication dated 25.04.2011, the
respondent tacitly informed the appellant that it decided to forthwith
cancel the MoU dated 17.08.2007 in view of failure on the part of the

appellant in complying with various terms and conditions of the MoU.
The respondent, thus, threw the blame on the appellant for the proposed
project not being able to be finalized.
11. In response to the said letter dated 25.04.2011, the appellant wrote
a detailed reply on 11.07.2011 wherein the appellant expressed its desire
to amicably resolve the dispute and requested the respondent to make
an attempt for an amicable settlement as regards the issues and alleged
breaches mentioned in the respondent’s letter dated 25.04.2011.
Subsequently, the appellant caused a legal notice dated 07.12.2012 to
the respondent, wherein it was claimed that its attempt to amicably
resolve the dispute as provided under Clause 26 of the MoU failed and,
therefore, it decided to invoke Clause 27 of the MoU to appoint an
Arbitrator and suggested the name of a retired High Court Judge for
appointment with the concurrence of the respondent or else the
appellant’s decision to invoke Section 11 of the Act.
12. On behalf of the respondent, a reply was addressed to the appellant
on 04.01.2013 stating that there was no fault whatsoever on its side and,
therefore, there was no question of any obligation to be fulfilled on its
side and it also expressed its decision not to concur for the appointment
of the Arbitrator.
13. It was in the above stated sequence of events i.e. from the date of
MoU to the date of filing of the application, the appellant approached the

High Court by filing an application under Section 11 of the Act and sought
for appointment of an Arbitrator. By the impugned order, the High Court
having rejected the appellant’s application, the appellant has come
forward with this appeal.
14. We heard Mr. Dushyant Dave, learned senior counsel for the
appellant and Mr. Vikas Singh, learned senior counsel for the respondent.
Mr. Dushyant Dave after referring to the above course of events that has
taken place between the appellant and the respondent from the date of
MoU dated 17.8.2007 till the rejection of the Arbitration Application by
the High Court, contended that since indisputably the respondent
terminated the MoU, the conclusion of the High Court that the same was
a still-born was wholly unjustified. The learned senior counsel submitted
that even if the MoU for the proposed joint venture did not ultimately
fructify into the creation of the joint venture, Clauses 26 and 27 of the
MoU by virtue of the specific terms contained therein would operate as
stand-alone agreement for arbitration and with reference to the said
agreed terms, since there was a consensus ad idem between the
parties, the High Court ought to have appointed the Arbitrator exercising
its power under Section 11 of the Act, inasmuch as the respondent
declined to express its consent for the named Arbitrator suggested by
the appellant.
15. As against the above submission Mr. Vikas Singh, learned senior

counsel appearing for the respondent vehemently submitted that the
High Court was able to highlight that the parties had no consensus ad
idem even with reference to the very MoU itself and in the
circumstances, there was no scope for applying Clauses 26 and 27 for
the appointment of Arbitrator as claimed by the appellant.
16. While Mr. Dushyant Dave, learned senior counsel placed reliance
upon the decisions in Enercon (India) Limited & Ors. v. Enercon
GMBH & Anr. - 2014 (5) SCC 1, Reva Electric Car Company Private
Ltd. v. Green Mobil - 2012 (2) SCC 93 and Today Homes and
Infrastructure Pvt. Ltd. v. Ludhiana Improvement Trust and Anr. -
2014 (5) SCC 68, Mr. Vikas Singh relied upon the decisions reported as
SBP & Co. v. Patel Engineering Ltd. & Anr. - 2005 (8) SCC 618,
National Insurance Company Ltd. v. Boghara Polyfab Pvt. Ltd. –
2009 (1) SCC 267 and Chloro Controls India Pvt. Ltd. v. Severn
Trent Water Purification Inc. & Ors. - 2013 (1) SCC 641 in support of
his submissions.
17. Having heard the submissions of the respective counsel, we find
that the sum and substance of the submission of Mr. Dushyant Dave was
that the arbitration Clause contained in Clause 27 of the MoU was an
independent arbitration agreement and, therefore, even if respondent
chose to terminate the MoU dated 17.8.2007, the Arbitration agreement
would continue to remain and consequently the parties are entitled to

invoke the said Clause 27 and exercise their option for appointment of an
Arbitrator and seek for concurrence of the other party. The learned senior
counsel contended that since the respondent expressed its decision to
terminate the MoU, the appellant after exhausting its attempt for an
amicable settlement at bilateral level as between the appellant and the
respondent by invoking Clause 26 had no other option but to invoke
Clause 27 and opt for the appointment of a retired Judge Hon’ble Mr.
Justice B.N. Mehta as an Arbitrator and sought for the concurrence of the
respondent. The learned senior counsel submitted that when the
respondent refused to concur with the appointment of the said learned
Judge as an Arbitrator, the appellant was well justified in approaching the
High Court under Section 11 for the appointment of an Arbitrator. The
learned senior counsel, therefore, contended that the rejection of the
said application filed under Section 11 of the Act by the impugned order
is liable to be set aside and an Arbitrator has to be appointed.
18. According to Mr. Vikas Singh, learned senior counsel for the
respondent inasmuch as the MoU itself was not a concluded contract,
Clauses 26 and 27 of the said MoU do not survive and consequently there
was no scope for appointment of an Arbitrator by invoking Clause 27 of
the MoU.
19. To appreciate the respective contentions and having regard to the
law on this issue been already settled in more than one decision, we are

of the view that the statement of law so declared by this Court can be
straightaway noted in order to render our decision in tune with the said
proposition of law declared by this Court.
20. In this context, we find, the reliance placed upon by Mr. Dushyant
Dave, learned senior counsel for the appellant on the decisions in Reva
Electrical Car Company Private Ltd. (supra), Today Homes and
Infrastructure Pvt. Ltd. (supra) and Enercon (India) Limited
(supra) fully support the stand of the appellant. The decision in Reva
Electrical Car Company Private Ltd. (supra) was a case which arose
under Section 11 of the Act. A question was raised on behalf of the
respondent in the said case to the effect that with the termination of the
MoU itself, the Arbitration Clause would cease to exist. Dealing with the
said question, the learned Judge has held as under in paragraphs 54 and
55:
“54. Under Section 16(1), the legislature makes it clear that
while considering any objection with respect to the existence
or validity of the arbitration agreement, the arbitration clause
which formed part of the contract, has to be treated as an
agreement independent of the other terms of the contract. To
ensure that there is no misunderstanding, Section 16(1)(b)
further provides that even if the Arbitral Tribunal concludes
that the contract is null and void, it should not result, as a
matter of law, in an automatic invalidation of the arbitration
clause. Section 16(1)(a) presumes the existence of a valid
arbitration clause and mandates the same to be treated as an
agreement independent of the other terms of the contract. By
virtue of Section 16(1)(b), it continues to be enforceable
notwithstanding a declaration of the contract being null and
void. In view of the provisions contained in Section 16(1) of
the Arbitration and Conciliation Act, 1996, it would not be
possible to accept the submission of Ms Ahmadi that with the

termination of the MoU on 31-12-2007, the arbitration clause
would also cease to exist.
55. As noticed earlier, the disputes that have arisen between
the parties clearly relate to the subject-matter of the
relationship between the parties which came into existence
through the MoU. Clearly, therefore, the disputes raised by the
petitioner need to be referred to arbitration. Under the
arbitration clause, a reference was to be made that the
disputes were to be referred to a single arbitrator. Since the
parties have failed to appoint an arbitrator under the agreed
procedure, it is necessary for this Court to appoint the
arbitrator.”
(Emphasis added)
21. In Today Homes and Infrastructure Pvt. Ltd. (supra), this
Court approved the statement of law stated by the learned Judge of this
Court in Reva Electrical Car Company Private Ltd. (supra).
Paragraph 14 can be usefully referred to which reads as under:
“14. The same reasoning was adopted by a member of this
Bench (S.S. Nijjar, J.), while deciding Reva Electric Car Co. (P)
Ltd. v. Green Mobil, wherein the provisions of Section 16(1) in
the backdrop of the doctrine of kompetenz kompetenz were
considered and it was inter alia held that under Section 16(1),
the legislature makes it clear that while considering any
objection with regard to the existence or validity of the
arbitration agreement, the arbitration clause, which formed
part of the contract, had to be treated as an agreement
independent of the other terms of the contract. Reference was
made in the said judgment to the provisions of Section 16(1)
(b) of the 1996 Act, which provides that even if the Arbitral
Tribunal concludes that the contract is null and void, it should
not result, as a matter of law, in an automatic invalidation of
the arbitration clause. It was also held that Section 16(1)(a) of
the 1996 Act presumes the existence of a valid arbitration
clause and mandates the same to be treated as an agreement
independent of the other terms of the contract. By virtue of
 Section 16(1)( b ) of the 1996 Act, the arbitration clause
continues to be enforceable, notwithstanding a declaration
that the contract was null and void.”

(Emphasis added)
22. Again this very question came up for consideration in Enercon
(India) Limited (supra) to which one of us (F.M.I Kalifulla, J.) was a
party. In the said decision, the nature of transaction between the parties
was more or less identical to the facts of this case. The contention raised
on behalf of the appellant in that case was that there can be no
arbitration agreement in the absence of a concluded contract, that,
therefore, there was no question of an arbitration agreement coming into
existence and, therefore, there was no scope for referring the dispute for
arbitration.
23. As against the above submissions, it was contended on behalf of
the respondent in the said decision that even if the existence of the main
contract is under dispute, the Court is concerned only with the arbitration
agreement, i.e. the arbitration clause and that when once such a Clause
is very much present, that would by itself result in the matter being
referable for arbitration. In fact, in the said case, the Clause relating to
arbitration was found in Clause No.18.1 which provided for an attempt to
resolve the dispute, controversy or difference through mutual
consultation and if it is not resolved through mutual consultation within
30 days after commencement of discussion, then the parties may refer
the dispute, controversy or difference for resolution to an Arbitral
Tribunal.

24. Dealing with the said Clause and the arguments raised on behalf of
the respective parties, the law has been laid down as under in
paragraphs 82 and 83 which are to the following effect:
“82. Further, the arbitration agreement contained in Clauses
18.1 to 18.3 of IPLA is very widely worded and would include
all the disputes, controversies or differences concerning the
legal relationship between the parties. It would include the
disputes arising in respect of the IPLA with regard to its
validity, interpretation, construction, performance,
enforcement or its alleged breach. Whilst interpreting the
arbitration agreement and/or the arbitration clause, the court
 must be conscious of the overarching policy of least
 intervention by courts or judicial authorities in matters
covered by the Indian Arbitration Act, 1996. In view of the
aforesaid, it is not possible for us to accept the submission of
Mr Nariman that the arbitration agreement will perish as the
IPLA has not been finalised. This is also because the
arbitration clause (agreement) is independent of the
underlying contract i.e. the IPLA containing the arbitration
clause. Section 16 provides that the arbitration clause forming
part of a contract shall be treated as an agreement
 independent of such a contract.
83. The concept of separability of the arbitration
clause/agreement from the underlying contract is a necessity
to ensure that the intention of the parties to resolve the
disputes by arbitration does not evaporate into thin air with
every challenge to the legality, validity, finality or breach of
the underlying contract. The Indian Arbitration Act, 1996, as
noticed above, under Section 16 accepts the concept that the
main contract and the arbitration agreement form two
independent contracts. Commercial rights and obligations are
contained in the underlying, substantive, or the main contract.
It is followed by a second contract, which expresses the
agreement and the intention of the parties to resolve the
disputes relating to the underlying contract through
arbitration. A remedy is elected by parties outside the normal
civil court remedy. It is true that support of the national courts
would be required to ensure the success of arbitration, but
this would not detract from the legitimacy or independence of
the collateral arbitration agreement, even if it is contained in
a contract, which is claimed to be void or voidable or
unconcluded by one of the parties.”

(Emphasis added)
25. Mr. Vikas Singh, learned senior counsel for the respondent by
referring to the Seven Judge Bench decision of this Court in Patel
Engineering Ltd. (supra) sought to contend that the reliance placed
upon the said decision by this Court in Today Homes and
Infrastructure Pvt. Ltd. (supra) with particular reference to the
position stated in paragraph 13 of the said judgment was not
appropriate.
26. We are not inclined to entertain the said submission, as we find that
we are not concerned with the said issue as to whether what was held in
paragraph 13 of Today Homes and Infrastructure Pvt. Ltd. (supra)
judgment was correct or not when it makes reference to the Seven Judge
Bench decision in Patel Engineering Ltd.(supra). We are only
concerned with the question whether an Arbitration Clause contained in
the MoU is a stand alone agreement or not. For that purpose, what has
been stated in Today Homes and Infrastructure Pvt. Ltd. (supra) in
paragraph 14 is only relevant and we find the legal position stated
therein in tune with the ratio decidendi laid down consistently by this
Court in very many decisions.
27. The reliance was also placed upon the decision in National
Insurance Company Ltd. (supra). Paragraphs 19, 20 and 21 were
referred to in the said judgment. Paragraph 19 can be usefully referred,
which reads as under:

“19. In SBP & Co. v. Patel Engg. Ltd., a seven-Judge Bench of
this Court considered the scope of Section 11 of the Act and
held that the scheme of Section 11 of the Act required the
Chief Justice or his designate to decide whether there is an
arbitration agreement in terms of Section 7 of the Act before
exercising his power under Section 11(6) of the Act and its
implications. It was of the view that sub-sections (4), (5) and
(6) of Section 11 of the new Act, combined the power vested
in the court under Sections 8 and 20 of the old Act (the
Arbitration Act, 1940). This Court held: (SCC pp. 660-61 &
663, paras 39 & 47)
“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 longbarred
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.
***
47. (iv) The Chief Justice or the Designated Judge will have

the right to decide the preliminary aspects as indicated 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.”
28. Having gone through the said paragraphs, we do not find any
position in law contrary to what has been stated in Today Homes and
Infrastructure Pvt. Ltd. (supra), Reva Electrical Car Company
Private Ltd. (supra) and Enercon (India) Limited (supra).
29. Similarly, the reliance placed upon in Chloro Controls India Pvt.
Ltd. (supra) also does not in any manner dislodge the legal position
relating to the stand alone Arbitration Clause in a substantive transaction
recorded in writing. Therefore, we do not find any useful purpose by
referring to the said decision as well.
30. Having thus ascertained the legal position regarding the stand
alone agreement relating to arbitration with particular reference to
arbitration agreement in a legal transaction between the parties, when
we refer to Clause 27 of the MoU, we wish to find out whether the said
Clause satisfies the principles set down and applicable to a stand alone
Arbitration Agreement. When we refer to Clause 27, we find that in the
event of failure of an amicable settlement at the bilateral level relating to
a dispute or difference arising between the appellant and the respondent
to be reached as contained in Clause 26 of the MoU, then such
unresolved dispute or difference concerning or arising from the MoU, its

implementation breach or termination whatsoever including any
difference or dispute as to the interpretation of any of the terms of the
MoU is referable to the sole Arbitrator appointed by the appellant and the
respondent. Therefore, irrespective of the question or as to the fact
whether the MoU fructified into a full-fledged agreement, having regard
to the non-fulfilment of any of the conditions or failure of compliance of
any requirement by either of the parties stipulated in the other Clauses
of MoU, specific agreement has been entered into by the appellant and
the respondent under Clause 27 to refer such controversies as between
the parties to the sole arbitrator by consensus. Therefore, when
consensus was not reached as between the parties for making the
reference, eventually it will be open for either of the parties to invoke
Section 11 of the Act and seek for reference of the dispute for arbitration.
31. In the case on hand, as we have noted earlier, after the signing of
the MoU on 17.8.2007, the Board of Directors of the Respondent passed
a Resolution on 29.10.2007 which expressed its approval to the MoU,
subject, however, to modification of the conditions. Thereafter,
correspondence exchanged between the parties from 17.12.2007 to
10.03.2010. There was a subsequent Board Resolution of the respondent
on 18.03.2010 which stated that the Board took a decision that it was not
inclined to extend the validity of proposed MoU due to change in the
mineral policy of the State Government. However, on 26.07.2010, the
respondent informed the appellant that to maintain parity, necessary

modification in the terms and conditions of the MoU dated 17.8.2007 was
communicated to the State Government for approval which was awaited
and that on receipt of such approval, a fresh MoU can be executed.
Thereafter, by communication dated 25.4.2011, the respondent
categorically informed the appellant that it decided to forthwith cancel
the MoU dated 17.8.2007 alleging fault on the side of the appellant with
regard to failure to comply with the various terms and conditions of the
MoU. Thus, from the above referred to sequence of events which
occurred between 17.8.2007 and 25.4.2011, it is crystal clear that both
parties were at variance with reference to the various terms and
conditions contained in the MoU and consequently there was every right
in either of the parties to seek for an amicable settlement in the first
instance as specified in Clause 26 of the MoU.
32. We find from the materials on record that the appellant in its letter
dated 11.07.2011 addressed to respondent expressed its desire to
amicably resolve the dispute at the bilateral level. Since there was no
response from the respondent, the appellant caused a legal notice on
07.12.2012 by invoking Clause 27 of the MoU for appointment of an
Arbitrator and also suggested the name of a retired High Court Judge and
sought for the concurrence of the respondent. In the legal notice, the
appellant specifically intimated that in the event of the respondent failing
to express its concurrence for the appointment of the named Arbitrator,
it will have no other option but to move the High Court under Section 11

of the Act. The respondent having made it clear in its reply dated
04.01.2013 to the lawyer’s notice stating that it was not inclined to agree
for a reference, the appellant had no other option except to move the
High Court by filing an application under Section 11 of the Act.
33. Having noted the above factors and inasmuch as we are convinced
that Clause 27 is a valid arbitration agreement contained in the MoU
dated 17.8.2007, the appellant was fully entitled to invoke the said
agreement and seek for a reference to the Arbitrator.
34. In the light of our above conclusion, we hold that the learned Judge
having failed to appreciate the legal position as regards the existence of
an arbitration agreement in the MoU irrespective of the failure of the
parties to reach a full-fledged agreement with respect to the various
terms and conditions contained in the MoU for a joint venture, the said
conclusion and judgment of the learned Judge is liable to be set aside
and is accordingly set aside. Since the respondent has expressed its
disinclination to agree to express its concurrence and thereby the parties
failed to appoint an Arbitrator under the agreed procedure, it is
necessary for this Court to appoint an Arbitrator. Therefore, while setting
aside the judgment impugned in this appeal, we hereby appoint Hon'ble
Ms. Justice Rekha Manharlal Doshit, resident of C-5, 402, Deo Sangam
Flat, Guartgam Road, Near Gandhi Nagar, Gujarat, former Chief Justice of
Patna High Court and former Judge of Gujarat High Court as the sole
Arbitrator to adjudicate the disputes that have arisen between the

parties on such terms and conditions as the sole Arbitrator deems fit and
proper. Undoubtedly, the learned sole Arbitrator shall decide all the
disputes arising between the parties under the MoU, without being
influenced by any prima facie opinion expressed in this order with regard
to the respective claims of the parties.
35. The Registry is directed to communicate this order to the sole
Arbitrator to enable him to enter upon the reference and decide the
matter as expeditiously as possible.

36. The appeal stands allowed with the above directions.
….………….………………………………J.
 [Fakkir Mohamed Ibrahim Kalifulla]
..……………………………………………J.
[Shiva Kirti Singh]
New Delhi;
April 16, 2015

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1 comment:

  1. The principle of separability off ab arbitration clause is widely recognised as useful.

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