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2009 DIGILAW 431 (AP)

KREBS BIOCHEMICALS & INDUSTRIES LTD. v. NANNAPANENI VENKATRAO CO-OPERATIVE SUGARS LTD.

2009-07-06

V.V.S.RAO

body2009
JUDGMENT V.V.S. RAO, J. This application under Section 11(6) of the Arbitration and Conciliation Act, 1996 ('the Arbitration Act', for brevity) is filed by M/s. Krebs Bio-chemicals & Industries Limited (hereafter called 'KREBS'), Hyderabad, for appointment of sole arbitrator for resolving dispute between KREBS and Nannapaneni Venkatrao Co-operative Sugars Limited, Jampani (hereafter called 'Society'), a society registered under the Andhra Pradesh Co-operative Societies Registration Act, 1964 ('Co-operative Act' for brevity), which owns a sugar factory at Jampani, Vemuru Mandal in Guntur District. The dispute between parties is in relation to Sale and Purchase Agreement (SPA), whereby and whereunder Society agreed to sell assets of sugar factory for a sum of Rs. 18.09 crores (Rupees Eighteen crores and nine lakhs only). Clause 25 of SPA dated 27.12.2003 contains covenants in re governing law and dispute resolution. Needless to mention that Clause 25.2 mandates reference to arbitration in accordance with Arbitration Act for resolving any dispute. The following narration of facts is necessary for disposal of this application. In 2003, Government of Andhra Pradesh decided to privatise co-operative sugar factories in the State. The Implementation Secretariat ('IS' for brevity) was established for formulating strategies, assessing realisable net value of sugar factories, formulating methodology for selling assets by public auction/calling for tenders, evaluating and identifying suitable purchasers and transferring assets to successful purchasers. The job of selling co-operative sugar factories was also entrusted to IS by enacting Section 12-A in Co-operative Act by way of amendment. Having formed opinion that Society cannot be revived, Registrar of Co-operative Societies nominated IS as authorised agent to advise the Registrar in the sale of unit as per Section 12-A of the Co-operative Act. KREBS offered Rs. 18.09 crores for the Society's unit. It was accepted and purchaser was asked to deposit Rs. 4.52 crores being 25% of purchase money. Applicant entered into escrow agreement with Society and Andhra Bank on 07.11.2003. Following the same, respondent passed resolution permitting KREBS to carry out overhauling of machinery and factory so as to commence crushing operations from December 2003. At or about the same time, on 27.12.2003, SPA was executed between parties. Immediately thereafter, KREBS took possession of assets on 28.12.2003 through memorandum of record of possession. Following the same, respondent passed resolution permitting KREBS to carry out overhauling of machinery and factory so as to commence crushing operations from December 2003. At or about the same time, on 27.12.2003, SPA was executed between parties. Immediately thereafter, KREBS took possession of assets on 28.12.2003 through memorandum of record of possession. As per Clause 11.4 of SPA, KREBS has a right to carry on business of manufacture of sugar for a minimum period of five years from the date of agreement with a view to safeguard interest of cane growers and employees. KREBS obtained permission from Cane Commissioner for drawal of cane seed for supply to cane growers on 10.02.2004 and also extended various benefits and incentives like supply of seeds, fertilisers, pesticides, etc. and incurred expenditure. After doing so, KREBS undertook repairs, overhauling and after obtaining permission from the Registrar commenced crushing operations from 04.01.2004 for season 2003-2004. In all, KREBS spent Rs. 12,09,30,043 (Rupees Twelve crores nine lakhs thirty thousand and forty three only) on the repairs to get started the factory into working condition. In the meanwhile, writ petition being WP No. 26875 of 2003 was filed before this court challenging vires of Section 12-A of the Co-operative Act and for other consequential reliefs. While admitting writ petition on 08.01.2004, this court passed interim orders to maintain status quo. It may be mentioned that in G.V. Jayachandra Chowdary v. Government of Andhra Pradesh, 2004 (3) ALD 474 (DB) = 2004 (3) ALT 417 (DB), a Division Bench of this court while striking down Explanation (h) to Section 12-A of the Co-operative Act upheld constitutional validity of Section 12-A(1), (2) and (9) to (13) and explanations except Explanation (h) of the Co-operative Act. The Division Bench also declared all decisions taken pursuant to Explanation (h) to Section 12-A as void. The writ petition being WP No. 26875 of 2003 filed challenging the sale of sugar factory of the Society was disposed of by Division Bench on 29.06.2004 in terms of Jayachandra Chowdary. Consequent to the order of Division Bench, the applicant, though with some delay, handed over possession of assets of sugar factory to Society on 01.12.2004. Thereafter, applicant addressed the Commissioner to settle the amount of loans advanced to cane growers and other operational expenditure. Applicant also issued notice to IS, which by their reply, dated 13.06.2008, denied the claim. Consequent to the order of Division Bench, the applicant, though with some delay, handed over possession of assets of sugar factory to Society on 01.12.2004. Thereafter, applicant addressed the Commissioner to settle the amount of loans advanced to cane growers and other operational expenditure. Applicant also issued notice to IS, which by their reply, dated 13.06.2008, denied the claim. Respondent Society did not give any reply. Therefore, KREBS issued notice invoking arbitration for resolving dispute. In response thereto, Government of Andhra Pradesh in Public Enterprises Department refuted the claim. Therefore, present application. Government of Andhra Pradesh, represented by Secretary to Government, Public Enterprises Department, and also represented by Secretary to Government, Industries & Commerce (Sugar) Department and Commissioner of Sugar and Cane Commissioner filed AAMP No. 170 of 2009 to implead as respondent Nos. 2 to 4. The same was ordered by this court on 16.03.2009. In effect, the government opposed arbitration on the ground that no arbitral dispute exists and KREBS received payment made by government without any protest. After receiving notice, respondent Society filed detailed counter-affidavit opposing appointment of arbitrator, mainly on four grounds, which are as follows : The SPA dated 27.12.2003 executed pursuant to Explanation (h) to Section 12-A of the Co-operative Act having been declared void, no rights and obligations can be claimed and/or enforced under such void agreement; secondly, writ petition filed by applicant being WP No. 22259 of 2004 having been dismissed, the same operates as res judicata; thirdly, after the judgment of Division Bench, applicant handed over possession of assets on 01.12.2004 and, therefore, claim is barred by limitation; and lastly after considering the request of applicant, government determined a sum of Rs. 44,07,000 as due to applicant which was received by applicant without any demur and, therefore, no arbitral dispute or live issue exists. This court heard learned counsel for applicant and learned Advocate General for respondent Nos. 2 to 4 and learned counsel for first respondent Society. For the reasons to follow, the only question that arises for consideration is whether an application under Section 11(6) of the Arbitration Act for appointment of arbitrator would lie even when the agreement is declared void ? In Chairman and Managing Director, NTPC Limited v. Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663 = 2004 (1) Arb. For the reasons to follow, the only question that arises for consideration is whether an application under Section 11(6) of the Arbitration Act for appointment of arbitrator would lie even when the agreement is declared void ? In Chairman and Managing Director, NTPC Limited v. Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663 = 2004 (1) Arb. LR 156 (SC); S.B.P. & Company v. Patel Engineering Limited, (2005) 8 SCC 618 = 2005 (3) Arb. LR 285 (SC); Shree Ram Mills Limited v. Utility Premises Private Limited, (2007) 4 SCC 599 = 2007 SCACTC 180 (SC) = 2007 (1) Arb. LR 517 (SC); and National Insurance Company Limited v. Boghara Polyfab Private Limited, (2009) 1 SCC 267 = 2008 (12) SCALE 654 = 2008 SCACTC 547 (SC) = 2008 (3) Arb. LR 633 (SC) Supreme Court elaborately considered the scope of power of the Chief Justice or his nominee in dealing with applications for appointment of arbitrators. It is not necessary to refer to these decisions. It is suffice to refer to Boghara Polyfab which considered earlier precedents and summarised the principles. It is apt to quote the following passages from the said judgment : "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 S.B.P. & 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 the claim is a dead (long barred) claim or a live claim ? 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 the 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 obligations 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 of any claim involved in the arbitration." Dealing with the question whether the Chief Justice/his nominee designate should not intervene when settlement/discharge is pleaded by opposite party, Supreme Court held as under : "What is however clear is that when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no claim certificate, and the claimant contends that it was obtained by fraud, coercion or undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the arbitral tribunal as directed by the order tinder Section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant." The two mandatory conditionalities are very much present in this case. KREBS and Society are parties to the SPA and Clause 25.2 thereof provides for arbitration in accordance with Arbitration Act. The other issues whether the claim made by KREBS is barred by limitation, whether it is hit by doctrine of res judicata and whether parties concluded contract by recording full satisfaction of their mutual rights and obligations are the matters which are not to be decided by the Chief Justice/his designate. They might decide themselves or leave them to the decision of the arbitral tribunal. Having regard to the other question, which is adverted to infra, I am of considered opinion that these issues are to be left to be decided by arbitral tribunal. They might decide themselves or leave them to the decision of the arbitral tribunal. Having regard to the other question, which is adverted to infra, I am of considered opinion that these issues are to be left to be decided by arbitral tribunal. Whether arbitration clause survives even if the agreement between the parties is void or has been rendered void by subsequent events or by reason of event prior to initiation of pre-arbitral procedure culminating in an application under Section 11(6) of the Arbitration Act ? This is the core point that has been argued by learned counsel appearing for respective parties. As per Section 2(1)(b) of the Arbitration Act, 'arbitration agreement' means, "an agreement referred to in Section 7", which reads as under : "7. Arbitration agreement – (1) In this Part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in - (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract." An arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes, which might arise between them. It can be a separate agreement or arbitration agreement may be in the form of arbitration clause in the contract. It can also be a covenant in a separate contract which is referred to in the contract between the, parties. It can also be an agreement between the parties (though not formal) by way of exchange of statements of claim or defence or by exchange of letters. It can also be a covenant in a separate contract which is referred to in the contract between the, parties. It can also be an agreement between the parties (though not formal) by way of exchange of statements of claim or defence or by exchange of letters. Thus, arbitration agreement can be divided into two categories. First, pre-contract understanding, which may take the shape of a separate agreement or a separate clause in the contract. Second category consists of post-contract understanding of the contract already entered into or post-contract understanding to agree to arbitration. Arbitration agreements referred to in Section 7(1), (2) and (5) of the Arbitration Act fall in the first category. Arbitration agreements referred to in Section 7(4) of the Arbitration Act fall in the second category. First category of arbitration agreements is pre-contractual or contemporaneous - three types. First type is an arbitration agreement between the parties separately entered into, which is referred to in Section 7(1) read with Section 7(2) of the Arbitration Act. Second type consists of arbitration agreement in the form of arbitration clause in the contract as is referred to in Section 7(2) of the Arbitration Act. Third type is a reference in the contract to a document containing arbitration clause as is referred to in Section 7(5) of the Arbitration Act. Second category of arbitration agreements, as is mentioned supra, is neither pre-contractual nor contemporaneous. They come into existence when there is exchange of letters, telex, telegrams or other means of telecommunications, which provide a record of agreement or an exchange of statements of claim and defence as is referred to in Section 7(4)(b) and (c) of the Arbitration Act. Whether it is by way of separate agreement or by way of arbitration clause in the contract, the law thus is clear that whether or not a contract is void or voidable, legal or valid, arbitration agreement or arbitration clause treated as independent of the nature of the contract. This is made clear by Section 16(1) of the Arbitration Act, which reads as below : "16. This is made clear by Section 16(1) of the Arbitration Act, which reads as below : "16. Competence of arbitral tribunal to rule on its jurisdiction – (1) 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, and for that purpose, - (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) to (6) xxx xxx xxx" A plain reading of above would show that - (i) arbitration clause which is part of the contract shall be treated as an agreement independent of other terms of the contract; and (ii) even if arbitral tribunal decides a contract as null and void, arbitration clause would not be rendered invalid. Therefore, even if this court in Jayachandra Chowdary declared the provision of law as ultra vires and, therefore, also declared consequential decisions as void, the same shall not have any effect on Clause 25.2 of SPA dated 27.12.2003. Indeed, as held by Supreme Court in the decision referred to herein below, the Chief Justice/his designate while exercising jurisdiction under Section 11(6) of the Arbitration Act cannot decide such issues. Before referring to these precedents, it may be mentioned that in cases that were decided under Arbitration Act, 1940 (which has been repealed by new Act), Supreme Court took the view that "where an agreement is invalid, every part of it including the clause as to arbitration contained therein must also be invalid" and that, "an arbitration clause which is one of the terms of the void contract must also perish along with it and the dispute relating to validity of contract is one such case for the court and not for the arbitrator to decide" [Khardah Company Limited v. Raymon & Company (India) (P.) Ltd., AIR 1962 SC 1810 and Waverly Jute Mills Company Limited v. Raymon & Company (India) (P.) Ltd., AIR 1963 SC 90 ]. The position has now been changed. The position has now been changed. The widespread abuse of arbitral process pointed out by Supreme Court in Guru Nanak Foundation v. Rattan Singh and Sons, AIR 1981 SC 2075 , was mainly due to 1940 Act itself which gave scope for "interminable, time consuming, complex and expensive court procedures". This required a law which enables an arbitration as an alternative resolution method in more informal ways and less unenforceable complexity. Seventy sixth Report of Law Commission (1978) and Chief Ministers and Chief Justices Conference recommended a model arbitration law to meet the needs of the day to reduce the problem of arrears in the conventional court system. The Government of India having regard to various opinions and recommendations decided to adopt new arbitration law, which would be based on Model Law on International Commercial Arbitration established by United Nations Commission on International Trade Law. (UNCITRAL). Accordingly repealing 1940 Act, 1996 Act, which also includes provisions of conciliation, was enacted on 16.01.1996. This came into force on 25.01.1996. The 1996 Act is divided into four parts and contains eighty-six sections and three schedules, which re-produced Geneva Convention on Execution of Foreign Awards. The Geneva Protocol on Arbitration Clauses, 1993 and New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958 respectively. Part I consisting of ten chapters (Sections 2 to 43) follows the provisions of UNCITRAL Model Law except Section 10(1) (number of arbitrators) and Section 11 (appointment of arbitrators) and other matters to which reference is not necessary in this order. UNCITRAL Model Law permits the parties to approach a court or authority specified in the national law for appointment of third arbitrator/sole arbitrator where the parties failed to reach the agreement. Section 11 empowers the Chief Justice of High Court to appoint arbitrator. 1996 Act drastically deviated from 1940 Act in ways more than one. For instance, under 1940 Act, courts could intervene and give interim orders on whole range of matters concerning arbitration. The new Act minimizes supervisory role of courts and courts can intervene only after the award is made by the arbitral tribunal (Sections 5 and 16(6) read with Section 34). By reason of Section 16(1) of the 1996 Act, the arbitral tribunal is all powerful to decide its own jurisdiction inter alia the question whether the contract is null and void and renders ipso jure arbitral clause invalid. By reason of Section 16(1) of the 1996 Act, the arbitral tribunal is all powerful to decide its own jurisdiction inter alia the question whether the contract is null and void and renders ipso jure arbitral clause invalid. In 1940 Act, this is different. Section 33 thereof enables any party to an arbitration agreement to challenge existence or validity of an arbitration agreement, before the civil court, which shall be decided based on the affidavits. Section 16(1) of the 1996 Act and Section 33 of the 1940 Act, in comparison reads as under : ------------------------------------------------------------------------------------- "Section 33 of 1940 Act Section 16(1) of 1996 Act ------------------------------------------------------------------------------------- 33. Arbitration agreement or 16. Competence of arbitral award to be contested by tribunal to rule on its application - Any party to an jurisdiction - (1) The arbitral arbitration agreement or any tribunal may rule on its own person claiming under him jurisdiction, including ruling desiring to challenge the on any objections with respect existence or validity of an to the existence or validity arbitration agreement or an of the arbitration agreement, award or to have the effect of and for that purpose, - either determined shall apply to the court and the court shall (a) an arbitration clause which decide the question on forms part of a contract shall affidavits : be treated as an agreement independent of the other Provided that where the court terms of the contract; and deems it just and expedient, it may set down the application (b) a decision by the arbitral for hearing on other evidence tribunal that the contract is also, and it may pass such null and void shall not entail orders for discovery and ipso jure the invalidity of particulars as it may do in the arbitration clause." a suit. -------------------------------------------------------------------------------------- Under 1940 Act, an arbitrator cannot decide the question whether the agreement is valid, void and/or unenforceable and such a question has to be decided only by civil court, whereas under 1996 Act, the arbitral tribunal can decide all questions including the question whether the contract is null and void rendering arbitral clause itself as void. -------------------------------------------------------------------------------------- Under 1940 Act, an arbitrator cannot decide the question whether the agreement is valid, void and/or unenforceable and such a question has to be decided only by civil court, whereas under 1996 Act, the arbitral tribunal can decide all questions including the question whether the contract is null and void rendering arbitral clause itself as void. In Boghara Polyfab it was also held that when an objection is raised that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no claim certificate, and the claimant contends that it was obtained by fraud, coercion and undue influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under Section 11 of the Act or by the arbitral tribunal as directed by the order under Section 11 of the Act. Therefore, the question of validity or findings of a contract or arbitration clause cannot be decided by Chief Justice/his designate. In Rodemadan India Limited v. International Trade Expo Centre Limited, (2006) 11 SCC 651 = 2006 SCACTC 186 (SC) = 2006 (2) Arb. LR 83 (SC) a question was raised that there is no arbitration agreement in existence, and that for want of consideration, the management agreement is void. Supreme Court held that such issues cannot be considered under Section 11(6) of the 1996 Act. The observations are as follows : "The next contention raised by Mr. Ranjit Kumar is that the petitioner is attempting to obtain specific performance when specific performance of the contract cannot be granted in arbitral proceedings. In fact, this contention has been squarely rejected by the judgment of this court in Olympus Superstructures Private Limited v. Meena Vijay Khetan, (1999) 5 SCC 651 = 1999 (2) Arb. LR 695 (SC). Further, it was urged that Clauses 8.0 and 8.1 of the management agreement are mutually exclusive and, therefore, the relief for specific performance cannot be asked for and since no consideration had been paid the contract was void and unenforceable. In my view, these are not issues to be considered in a petition under Section 11(6) of the Act, as they can all be raised during the arbitral proceedings. In short, I am not satisfied that the arbitral agreement was vitiated on any of the grounds averred by Mr. Ranjit Kumar. In my view, these are not issues to be considered in a petition under Section 11(6) of the Act, as they can all be raised during the arbitral proceedings. In short, I am not satisfied that the arbitral agreement was vitiated on any of the grounds averred by Mr. Ranjit Kumar. I am satisfied that there exists a valid arbitration agreement which contemplates that all disputes between the parties under that agreement be referred to arbitration." In Aurohill Global Commodities Limited v. M.S.T.C. Limited, AIR 2007 SC 2706 = 2007 (4) RAJ 77 (SC) = 2007 SCACTC 400 (SC) = 2007 (3) Arb. LR 188 (SC), adverting to a similar question, Supreme Court observed thus : "In the present case, M/s. Aurohill Global Commodities Limited has filed this petition under Section 11(9) read with Section 11(5) of the said Act. Section 11 falls in Part I. The alleged contract is an international transaction, therefore, this court has the power to appoint an arbitrator in accordance with the terms of the contract. Under the said Act, the arbitral tribunal has very wide powers. The powers of the courts have been curtailed. The arbitral tribunal's authority under Section 16 of the said Act is not confined to the width of its jurisdiction but goes to the very root of its jurisdiction [Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd. and another, (2004) 3 SCC 447 = 2004 (1) Arb. LR 425 (SC)]. In the present case, therefore, the question as to whether the draft purchase order acquired the character of a concluded contract or not and the question as to whether the contract was non est can only be decided by the arbitrator. Therefore, the aforestated questions have got to be decided by arbitration proceedings. In my view, therefore, there is no merit in the contention advanced on behalf of M/s. M.S.T.C. Ltd. that the arbitration petition was misconceived and not maintainable in law." A reference may also be made to the following passage from the Seven Judge Bench decision in S.B.P. & Company : "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. 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." Similar observations are also made in Shree Ram Mills Limited. The law was further explained as under : "A glance on this para would suggest the scope of the order under Section 11 to be passed by the Chief Justice or his designate. Insofar as the issues regarding territorial jurisdiction and the existence of the arbitration agreement are concerned, the Chief Justice or his designate has to decide those issues because otherwise the arbitration can never proceed. Thus, 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 right court for appointment of the arbitrator. Thus, 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 right court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one 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 if the parties have recorded their satisfaction regarding the financial claims, there will be no question of any issue remaining. It is in this sense that 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. Even at the cost of repetition we must 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 to 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 para 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. 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." In Tata Industries Limited v. Grasim Industries Limited, (2008) 10 SCC 187 = 2008 SCACTC 419 (SC) = 2008 (3) Arb. LR 1 (SC) Supreme Court made the following observations : "The other major limb of the argument was, however, that this issue could not arise and became a dead issue at least after the applicants sold out all their shares and their shareholding fell below 15%. The aforementioned clauses on which Shri Venugopal, Dr. Singhvi and Shri Shyam Diwan, Senior Advocates for the non-applicant heavily relied, being Clauses 7.01(a) and 7.01(b), as also Clause 7.02(b) provided that in case the shareholding-falls below 15%, and in this case it has actually fallen below 15%, such party would not have any rights left with it under the agreement (shareholders agreement). The argument is obviously incorrect, as the arbitration agreement under Clause 12.04 would be clearly autonomous of the shareholders agreement. The law is settled on this point that even if the whole agreement is terminated, the arbitration agreement would still remain [Chairman and MD, NTPC Ltd. v. Reshmi Constructions, Builders & Contractors, (2004) 2 SCC 663 = 2004 (1) Arb. LR 156 (SC)]. It was argued that Clause 7.01(b) operates as a complete bar on the exercise by the applicants of the substantive right to seek a buy out. That may be so, however, that is only an eventuality subsequent to the crystallisation of the live issue between the parties for which the arbitration clause would come handy to the applicants." In Shakti Bhog Foods Limited v. Kola Shipping Limited, (2009) 2 SCC 134 = 2008 SCACTC 572 (SC) = 2008 (4) Arb. LR 1 (SC) Supreme Court held as under : "It is further observed by us that the claims raised by the appellant before us about the non-existence of the charter party agreement can also be raised by the same before the arbitral tribunal at London. LR 1 (SC) Supreme Court held as under : "It is further observed by us that the claims raised by the appellant before us about the non-existence of the charter party agreement can also be raised by the same before the arbitral tribunal at London. Under the English Arbitration Act, 1996, as per Sections 30 and 31 of the said Act, the arbitral tribunal may rule on its own jurisdiction and also can decide on the existence of a valid arbitration agreement. This is similar to the provisions under Section 16 of the Act, whereby the arbitral tribunal can decide on its jurisdiction as also on the existence or validity of the arbitration agreement." Thus, there is more than abundant authority to conclude that even if a contract is void, or even if a contract/agreement is terminated, or even if an agreement is invalid or even if the arbitration clause itself is invalid, the jurisdiction to appoint arbitrator vested in the Chief Justice/his designate under Section 11(6) of the Arbitration Act is not taken away. This seems to be the position of law in England as well. Russell in his treatise (Russell on Arbitration, 23rd Edn.) explains the legal position as follows : "2-008. Void contracts - Similarly, even where the matrix contract is held to be void, the arbitration agreement which forms part of it may still be upheld as a valid and independent agreement, so that any dispute must be referred to arbitration (Vee Networks Limited v. Econet Wireless International Limited, (2004) EWHC 2909 : (2005) 1 Lloyd's Rep. 192)." As Colman, J. put it in Vee Networks Limited - "If, in accordance with Section 7 (of the Arbitration Act, 1996), an arbitrator determines that the matrix contract is, for example, void ab initio by reason of illegality and it is not in issue whether the arbitration agreement is also illegal and void, the tribunal can continue to exercise such jurisdiction under the arbitration agreement as its scope permits. For example, if there were an alternative claim in tort or for restitution which was within the scope of the clause, the tribunal would continue to have jurisdiction conclusively to determine that claim." In a recent judgment in Premium Nafta Products Limited v. Fili Shipping Company Limited, (2007) UKHL 40 House of Lords, dealing with Section 7 of (British) Arbitration Act, 1996, made the following observations : "If one accepts that this is the purpose of an arbitration clause, its construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts. Could they have intended that the question of whether the contract was repudiated should be decided by arbitration but the question of whether it was induced by misrepresentation should be decided by a court ? If, as appears to be generally accepted, there is no rational basis upon which business would be likely to wish to have questions of the validity or enforceability of the contract decided by one tribunal and questions about its performance decided by another, one would need to find very clear language before deciding that they must have had such an intention. There was for some time a view that arbitrators could never have jurisdiction to decide whether a contract was valid. If the contract was invalid, so was the arbitration clause. In Overseas Union Insurance Limited v. AA Mutual International Insurance Company Limited, (1988) 2 Lloyd's Rep 63, 66 Evans, J. said that this rule "owes as much to logic as it does to authority". If the contract was invalid, so was the arbitration clause. In Overseas Union Insurance Limited v. AA Mutual International Insurance Company Limited, (1988) 2 Lloyd's Rep 63, 66 Evans, J. said that this rule "owes as much to logic as it does to authority". But the logic of the proposition was denied by the Court of Appeal in Harbour Assurance Company (UK) Limited v. Kansa General International Insurance Company Limited, (1993) QB 701 and the question was put beyond doubt by Section 7 of the Arbitration Act, 1996 : 'Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.' In my opinion, the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction. As Longmore, LJ. remarked at para 17 : 'if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so'." Apart from the effect of Section 16(1) of the Arbitration Act on the issue raised in this case, which has already been discussed in the foregoing paragraphs, a party to a contract which is void (even assuming it is to be shown), has a remedy to receive compensation from the person who got benefit of it. This common law principle is adumbrated in Section 65 of the Indian Contract Act, 1872, which reads as under : "65. This common law principle is adumbrated in Section 65 of the Indian Contract Act, 1872, which reads as under : "65. Obligation of person who has received advantage under void agreement, or contract that becomes void - When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it." Therefore, KREBS, applicant herein, which allegedly expended about Rs. 12 crores during the period from the date of taking over possession of sugar factory of the Society, till it was handed over to the Society by virtue of the judgment of this court, is entitled to recover that money subject to, of course, proving their case as alleged. Therefore, Clause 25.2, which has been broadly worded, even takes care of such a situation. The words "... in respect of any matter arising out of this agreement. ..." used in Clause 25.2 suggests that even if the agreement is rendered void or declared illegal, still matter can go before arbitration for consideration of the claims which are now raised by KREBS. The question of the SPA being void or not and the question of KREBS claiming compensation under the said agreement are aspects which fall within the jurisdiction of arbitrator under Section 11(6) of the Arbitration Act. Therefore, all the objections raised by Advocate General and counsel for Society have to be overruled. This arbitration application is accordingly allowed. Hon'ble Sri Justice Syed Shah Mohammed Quadri, retired judge of Supreme Court, H. No. 8-1-346/10, "SABJA", Toli Chowki, Hyderabad, is appointed and requested to be sole arbitrator to adjudicate the disputes between the parties. It shall be open to learned arbitrator to fix professional fees as deemed fit and proper. The parties shall bear their own costs of this application.