Holding

The Supreme Court held that the Designate Judge was correct in finding a live issue and that the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 was valid.

Summary

Shree Ram Mills Ltd. and Utility Premises (P) Ltd. entered into two development agreements for a parcel of land, the first for 1.20 lakh sq.ft. of FSI and the second for a reduced area. A Memorandum of Understanding (MoU) dated 19‑Jan‑2005 was later executed to settle all disputes, with the respondent receiving a partial payment of Rs 10 lakhs, but the MoU was subsequently cancelled by the respondent. The respondent then invoked the arbitration clauses in the agreements and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator, which the Bombay High Court granted. The appellant challenged the appointment, arguing that there was no live issue because the MoU had settled the dispute and that any claim was barred by limitation. The Supreme Court held that the Designate Judge was correct in finding a live issue, that the existence of a live dispute precludes a conclusion that the claim is time‑barred, and that questions of limitation and the effect of the MoU are for the arbitral tribunal to decide. Consequently, the appointment of the arbitrator stood and the appeal was dismissed.

Issues considered

The High Court’s authority under Section 11(6) to determine the existence of a live issue and limitation before appointing an arbitrator.
Whether the MoU dated 19‑Jan‑2005 constituted a final settlement, thereby extinguishing the dispute and rendering the arbitration clause inapplicable.
Whether the respondent’s claim is barred by limitation under the Limitation Act.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6), s. 16
Limitation Act, 1963s. Article 137

Subjects

ArbitrationSection 11(6)Live issueLimitationMemorandum of UnderstandingArbitral tribunal jurisdictionAppointment of arbitrator

Judgment

-... M/S SHREE RAM MILLS LTD. A
v.
.. MIS UTILITY PREMISES (P) LTD .

MARCH 21, 2007

[H.K. SEMA AND V.S. SIRPURKAR, JJ.] B
.-..
>-
Arbitration and conciliation Act, 1996-Section 11(6)-Agreement of
providing an area of land for development entered into between the parties-
Another agreement came to be entered into when only a part of the agreed
area was made available-Memorandum of Understanding (MoV) entered
c
into to settle the dispute by payment of compensation-Aggrieved party
.
'
repudiated the MoU and invoked Arbitration Clause under the Agreement-
Petition before High Court for appointment of an Arbitrator was allowed-
Correctness of-Held, High Court under the Act only records a prima facie
finding about the existence of live issue between the parties before initiating D
Arbitration proceeding-Arbitration Tribunal can go into the question of
-'·
live issue and limitation while deciding the dispute.
""'
Appellant-company entered into an agreement with respondent-company
for providing an area for development of land owned by the appellant Later, a
second agreement came to be executed between the parties since the appellant E
could make available only a part of the agreed area to the respondent. A
Memorundum ofUnde"'Standing (MoU) was entered into by the Parties to settle
the disputes for a compensation amount. The respondent received a part
payment of the compensation amount. Thereafter, the respondent cancelled
'1 the MoU and returned the amount received. The respondent invoked the
F
- Arbiti;-ation Clause under the two agreement by a notice to the appellant on
the g_~ound that the appellant failed to transfer the full extent of agreed FSI
as per the first agreement. When the appellant denied its liability, an
Arbitration Petition was failed by the respondent before High Court under
section 11(6) of the Arbitration and Conciliation Act, 1996 for appointing an
Arbitrator. A Designated Judge of the High Court allowed the petition. G
--~

In appeal to this Court, the appellant contended that there was no live
-f issue in existence in between the parties since the respondent entered into a
MoU giving up part of its claim under the first agreement; that the respondent

279 H
280 SUPREME COURT REPORTS [2007] 4 S.C.R.

A cannot unilaterally cancel the MoU and invoke the Arbitration Clause under
the agreements; that the claim of the respondent, if any, had become barred
by limitation; that the High Court, in the Arbitration Petition, has already
givJ!n findings regarding the existence of live claim and limitation and hence,
it is for this Court to test the correctness of the findings.

B The respondent
'
contended. that since the liabilities
. under the first
agreement were constantly being negotiated and renegotiated in so many
proceedings and hence, it cannot be said that the issue between the parties
was dead and barred by time; that the issues, as to whether there was any live
issue or not and the issue of limitation, could be decided by the Arbitral
C Tribunal under sectio~ 16 of the Act since the High Court has not finally
decided such issues.
'
. .t
Dismissing the appeal, the C!>urt

HELD: 1.1. A Chief Justice or his Designate of the High Court, under
D section 11 (6) of the Arbitration and Conciliation Act, 1996, has to examine
as to whether the claim is a dead one or whether the i;arties 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_this, ifthe parties
have recorded thelr satisfaction rega'rding finanCiaI claims, there will be no
E question of any .is-sue remaining. It is in this sense that the High Court has
to examine as to ~vhether 'there remains anything to b~ decided be~ween the
parties'in respect of the agreement and ,whether the parties are still at issue
on a~y such mattir. If the Chief Justice. does not, decide the issue, in that ,)

event it is for him to locate such is~ue ~nd record the satisfaction that.such
, ·' l
issue exists between the pa"rties. It is only in that sense that the findings on
F - ' 1 .,
purpos~
a 'tive' issue is given. It is only for the
..
of finding out whether the
a~pitral procedure has to be started that the ..Chief Justice has to record
satisfaction that there- remains a live issue in between
f •
the parties. (Para .27)

1.2. The Chief Justice only has to record his satisfaction that prima
G facie the issue has not become dead by the tapse 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 would be appropriate 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
( I
have Closed their rights and the matter has not been barred by limitation.
H
' -
f

SH REE RAM MILLS LTD."· UTILITY PREMISES (P) LTD 28\

-.,.._ Thus, where the Chief Justice comes to a findings that there exists a live A
issue, then naturally this finding would include a finding that the respective
claims of the parties tiave not become barred by limitation. When there was
a live issue, the question of limitation automatically gets resolved. Where the
negotiations were still on, there would be no question of starting of the
limitation period. !Paras 27 and 3011289-E-G; 292-G; 293-AI
B
SBP & Co. v. Patel Engineering Ltd. & Anr.. f20051 8 SCC 618; and
Hari Shankar Singhania & Ors. v. Gaur Hari Singhania & Ors., f2006J .t
sec 658, referred to.
1.3. This Court has no jurisdiction to decide.as to whether the
respondents were within their rights to repudiate the MoU and serve the c
notice of arbitration. The very fact that the parties chose to create the MoU
suggests that it was never treated to have closed and in that sense it was still
a live issue. It would be only for the Arbitral Tribunal to decide the effect of
the respondent having signed the MoU. On facts, there was no final settlement
of the issue even by the MoU. If that was so, there was live issue in between D
the parties and the parties were at loggerheads on that issue .
.., !Para 29) (292-F-GI .
I
Nathani Steels Ltd. v. Associated Constructions, f 1995J Supp. 3 SCC
324, distinguished.

1.4. The claim of the respondent cannot be said to have become dead
E
firstly because of lapse of limitation. The Arbitral Tribunal can also go into
the question of limitation for the claims in between the parties. Since the issue
between the parties is still alive, there would be no question of stining the
arbitration proceedings by holding that the issue has become dead by
._.. limitation. jPara 31 I (293-F-G; 294-A-BJ F
Group Chimique Tunisien SA v. Southern Petrochemicals Industries
Corpn. Ltd, f 2006) 5 SCC 275, referred to.

CIVIL APPELLA,TE JURISDICTION: Civil Appeal No. 1523 of2007.

From the Order dated 11.8.2006 of the High Court of Judicature at G
Bombay in A.A. No. 12312005.

Harish N. Salve, Shyam Diwan, Saurabh Agarwal, Lalit Kataria, Ruby
Singh Ahuja, Debmalya Banerjee and Manik Karanjawala for the Appellant.

K.K. Venugopal, R?njit Kumar, Sushi! K. Teki-iwal, Venkateswara Rao H
282 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Anumolu for the Respondent.

The Judgment of the Court was delivered by

V.S. SIRPURKAR, J. 1. Leave granted.

B 2. An order under Section 11(6) of the Arbitration and Conciliation Act,
1996 (hereinafter called as "the Act" for short) appointing Arbitrators, passed
by the Designate Judge of the Bombay High Court is questioned in this
appeal at the instance of Shree Ram Mills Ltd. (hereinafter called "the
petitioner").

C 3. The said order is assailed mainly on two grounds, firstly, that there
was no live issue in existence in between the parties and the learned Judge
erred in holding that there was a live issue in between the parties and
secondly that the claim had become barred by limitation between the parties.
As against this the respondents Mis.Utility Premises (P) Ltd., supported the
order and pointed out that in pursuance of the order passed not only had the
D Arbitrator been appointed but they had also chosen the third Arbitrator to
preside over the Arbitral Tribunal and the Arbitral Tribunal had commenced
its proceedings. Presently the proceedings before the Arbitral Tribunal are
stayed.

E 4. It has, therefore, to be decided as to whether the order passed under
Section 11(6) of the Act appointing the Arbitrators is good order in law
particularly in the· w~e of the above two objections.

5. Following undisputed facts would have to be borne in mind before
approaching the questions raised.
F
6. The appellant is a company incorporated under the Companies Act,
1956, so also the respondent. The appellant company became a sick industrial
unit sometime in the year 1987 under the Sick Industrial Companies (Special
Provisions) Act, 1985 (hereinafter referred to as "the SICA"). It was ordered
to be wound up in the year 1994 and on approaching the Board For Industrial
G and Financial Reconstruction (BIFR) a rehabilitation scheme was worked out
whereby IDBI was appointed as an operating agency under the scheme. The
Asset Sale Committee approved the sale of 1.20 lakh sq.ft. FSI owned by the
appellant company to the respondent for a total sale consideration of Rs.21.60
crores and accordingly an agreement came to be executed in between ,the .:.
H parties on 27.4.1994. This was a Joint Development Agreement between the ..
SHREE RAM MILLS LTD. r. UTILITY PREMISES (P) LTD. [V.S. SIRPURKA!i:. J.] 283
parties in respect of the land owned by the appellant. By Clause 1 of the A
agreement, the area mentioned for development was between 86,000 sq.ft to
1.20 lakh sq.ft. Clause 15 of the said agreement provides that the land owner,
the appellant herein, shall not create any encumbrance or third party rights.
By Clause 19 the appellant had undertaken to add additional FSI. By Clause
22 the period was fixed for utilization of the full FSI covered under the B
agreement. Clause 24 was the Arbitration Clause to resolve the disputes, if
any, between the parties. The property covered was described in the Third
Schedule of the said agreement which mentions 1.20 lakh sq.ft. FSI.

7. After this agreement a second agreement came to be executed in
between the parties on 18.7.1994. This was necessitated because the appellant C
herein could make available only 86,725 sq.ft. FSI. Under this second agreement
it was agreed to by the appellant herein that the further land admeasuring
2500 sq.mtrs. would be allowed to be developed by the respondent. The said
2500 sq.mtrs. land was reserved by Bombay Municipal Corporation for
Municipal Primary School and playground. However, the appellant herein
undertook to shift the said reservation to some other property of the appellant D
at the cost of the respondent. There was an arbitration clause vide Clause
No. I 0 in this agreement also.

8. On 9.11.1994 there was a Tripartite Agreement between the appellant
and respondent herein along with one Bhupendra Capital and Finance Limited
whereby 50% of the appellant's entire interest under the Agreement dated E
27.4.1994 and 18. 7.1994 was agreed to be transferred.

9. On 22.6.1996 the agreement dated 18.7.1994 was cancelled by mutual
consent as. the parties were unable to agree on the cost of shifting the
reservation which was agreed to in the agreement dated 18.7.1994. It was, F
'I therefore, agreed vide clause 5 that the respondent and the third party
~....._, brought in, i.e., Bhupendra Capital and Finance Ltd., would have no right or
claim in respect of the said property belonging to the appellant and more
particularly described in the First Schedule, save and except, the 86725 sq.ft.
FSI.
G
10. On 28.6.1996 the respondent herein entered into an Assignment
Agreement with Ansal Housing and Construction to build flats on the area
with FSI of 86725 sq.ft.

11. On 4.5.2001 the respondent herein had filed a petition under Section
H
284 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 9 of the Act seeking injunction and appointment of Receiver in respect of
2500 sq.mtrs. of land. However, that was dismissed by the High Court on the
ground that the area was covered under the agreement dated 18. 7 .1994 and
it was cancelled by an agreement dated 22.6.1996 and, therefore, the application
was not maintainable. The appeal against this order also failed vide order
B dated 3.6.2002.

12. On 12.9.2001 respondent and one Santosh Singh Bagla who was the
Promoter of the respondent company, filed application before the Appellate
Authority for Industrial and Financial Reconstruction (AAIFR) contending
therein that the promoters of the petitioner company were guilty of misfeasance
C and hence those acts were liable to be inquired into. It was secondly prayed
that the Board of Directors of the appellant company should be superseded.
It was thirdly prayed that the injunction be issued restraining the appellant
"from selling or transferring the lands. This application was dismissed by
AAIFR leaving the parties to get the disputes adjudicated before an appropriate
forum. It is to be noted here that a specific statement was made before the
D AAIFR by the respondent herein that the sale of 1.20 lakh sq.ft. was not the
subject matter of the application as the separate proceedings were being
contemplated before the appropriate forum.

13. On 11.6.2002 the respondent served a notice invoking the arbitration
clause under agreements dated 27.4.1994 and 18.7.1994 on the ground that the
--
E petitioner had denied its liability to transfer the FSI beyond 86725 sq.ft.
though it was bound to make available FSI of 1.20 lakh sq.ft. to the respondents.

14. The respondent and Shri Santosh Singh Bagla filed a writ petition
in the Delhi High Court on 26.7.2004 whereby they challenged the order
F passed by the AAIFR dated 12.9.2001. Though the respondents had, in their
appeal before AAIFR, claimed that the sale of 1.20 Iakh sq.ft. of FSI was not ::.,.
the subject matter of that application, it was all the same prayed before the ,.... -
High Court in the writ petition that the appellant should be restrained from
transferring <he additional FSI left with them. Thereupon an undertaking was
given by the counsel for the appellant that the appellant would not sell the
G property which was covered in the agreement dated 27.4.1994.

15. On 6.8.2004 the appellant agreed to mortgage the property covered
by the agreel}lent dated 27.4.1994 in favour of IL&FS for Rs.50 crores.

16. On 15.10.2004 the appellant company was released from SICA as it
H- became viable.
SHREE RAM MILLS LTD. v. UTILITY PREMISES (P) LTD. [V.S. SIRPURKAR, J] 285
17. At this juncture on 19.1.2005 a Memorandum of Understanding A
(MoU) was signed between the parties to settle all disputes between them
which naturally included the issue regarding the transfer of 1.20 Iakh sq.ft. of
FSI. The n:spondent under the same agreed to accept 1.20 crores out of which
a payment of Rs. I 0 lakhs was already made by the appellant to the respondent.
The appellant also agreed to execute the necessary conveyance deed as per
agreement dated 27.4 .1994 and 22.6.1996 thereby seeking to confine the claim B
of the respondent to 86725 sq.ft. of FSI.

18. This MoU was cancelled by the respondent on 8.3.2005 and the
respondent returned the amount of Rs. I 0 lakhs.

19. The respondent invoked the Arbitration Clause under the Agreements C
dated 27.4.1994 and 18.7.1994 by a notice dated 24.5.2005. The said notice was
replied to by the appellant vide its reply dated 21.6.2005 denying its liability
and as a result an Arbitration Petition under Section 11(6) of the Act was filed
on 1.7.2005 for appointing Shri S.C. Agarwal as the Sole Arbitrator. It is this
application which was disposed of by the learned Judge on 11.8.2006 which D
- is the subject matter of the present proceedings before us at the instance of
the appellant.

20. As has been stated earlier, the learned Senior Counsel Shri Salve
basically raised two points, they being (i) that there was no live issue left in
between the parties and controversy had become dead; and (ii) that the claim, E
if any, of the respondent had become barred by limitation. In support of his
arguments the learned counsel painstakingly took us through the whole
record.

21. Shortly stated the argument of the learned counsel is that there is
no live issue remaining between the parties particularly in respect of 1.20 lakh F
sq.ft. of FSI. Learned counsel points out firstly that the subject of 1.20 lakh
sq.ft. of FSI being made available under the agreement dated 27.4.1994 was
finally given a decent burial by the parties by the MoU dated 19.1.2005
whereunder the respondent had specifically agreed to restrict his claim only
to 86725 sq.ft. of FSI covered under the agreement dated 27.4.1994. He points G
out that in pursuance of that MoU not only did the respondent accept the
draft of Rs. I0 lakhs out of the total agreed amount of Rs.1.20 crores but also
proceeded to encash the same. Learned counsel points out that on a second
thought the respondent proceeded to cancel the said agreement and thereupon
proceeded to serve an arbitration notice on 24.5.2005. Learned counsel,
H
286 SUPREl\·IE COURT REPORTS [2007] 4 S.C.R.

A therefore, points out that firstly it cannot be said that respondents had any
right under the agreement dated 27.4.1994 left with it and if at all there were
any such rights, they were crystallized vide the MoU dated 19.1.2005 wherein
it had specifically agreed to give up the rest of the claim barring the claim of
86725 sq.ft. FSI and the appellant would have no qualms about the claim of
86725 sqSt. FSI and it would always be prepared to convey the same in terms
B of the agreement dated 27.4.1994. Learned counsel argues that having a
second thought regarding the MoU dated 19.1.2005 the respondent cannot be
allowed to wriggle out of its liabilities and fall back upon the agreement dated
27.4.1994 which had become an antiquated agreement. If at all it has any
rights, those rights would be in terms of the MoU dated 19:1.2005. It is,
C therefore, pointed out that there is no live issue left between the parties, more
particularly in respect of 1.20 lakh sq.ft. FSI out of which 86725·sq.ft. FSI has
already been given in possession of the respondent.

22. Learned counsel further argues that even if there are any rights left,
the claim of the respondent has become hopelessly barred by time. Learned
D counsel contends that the Arbitral Tribunal would now have to go back to
the agreement dated 27.4.1994 and interpret the same to decide the rights
between the parties which is not possible under the law of limitation. The /
learned counsel suggests a simple test that a suit for spec.ific performance of
the agreement dated 27.4.1994 would obviously oe time barred and, therefore,
E the respondent cannot have an arbitration as regards that agreement.

23. Learned counsel lastly states that while passing the order under
Section 11 (6) of the Act, the issues regarding the Jim itation and the jurisdiction
could be left open to be decided by the Arbitral Tribunal, however, since the
learned Designated Judge has decided those issues, there will be no question
p of the Arbitral Tribunal deciding these questions and it is; therefore, that the
appellant is required to challenge the order under Section 11 (6) of the Act.

24. Shri Venugopal, the learned Senior Counsel appearing on behalf of
the respondent, however, pointed out that the controversy regarding the
liability of the appellant to make available 1.20 lakh sq.ft. of FSI was never
G dead as otherwise there was no question of the respondent executing the
MoU as late as on 19.1.2005. He points out that the appellant had given an
undertaking in respect of that property before the Delhi High Court in a writ
petition which writ petition is still pending before the Delhi High Court and
the appellant is facing contempt proceedings on account of the breach of the
H undertaking. Learned counsel further points out that firstly there was no
......,__
SHREE RAM MILLS LTD.,.. UTILITY PREMISES (P) LTD. [V.S. SIRPURKAR, J.] 287
necessity on the part of the appellant to extend the agreement dated 27 .4.1994 A
by agreeing to handover the rest of the FSl beyond 86725 S'!.ft. by an
agreement dated 18. 7.1994. It was only on account of the fact that the appellant
also felt bound by the agreement dated 27.4.1994 to transfer 1.20 lakh sq.ft.
FSI under the agreement dated 27.4.1994 for which he had received full
consideration of Rs.21.60 crores. Learned counsel was at pains to point out
further that in fact it was an admitted position that the appellant got B
""7 approximately Rs.4 crores more as the respondent had paid a sum of Rs.25
.......
crores approximately on behalf of the appellant company which was its financial
liability. Learned counsel points out that issue regarding 1.20 lakh sq.ft. FSI
was never closed and was always alive between the parties which prompted
the parties ultimately to execute the MoU dated 19.1.2005. Learned counsel c
then points out that the respondent had cancelled the MoU later on realizing
that the entire property stood mortgaged by the appellant on 6.8.2004 which
also included the land measuring 4848.10 sq. ft. which was the subject matter
of the agreement dated 27.4.1994. He, therefore, poibt~ out that the parties
were continuously negotiating in respect of the liability on the part of the
appellant to transfer 1.20 lakh sq.ft. FSl and there was no resolution of that D

-· +
issue. Learned counsel points out that the moment the MoU was cancelled,
the parties reverted back to their rights under the agreement dated 27.4.1994
and, therefore, it cannot be said that the claim of the respondent stood
satisfied.
E
25. Learned counsel further points out that since liabilities under the
agreement dated 27.4.1994 were constantly being negotiated and re-negotiated
in so many proceedings, it cannot be said that firstly the issue between the
parties was dead and secondly the application under Section 11(6) was barred
'i by time. Learned counsel in that behalf relied on the reported decision of this

·- Court in Hari Shankar Singhania & Ors. v. Gaur Hari Singhania & Ors.,
[2006] 4 sec 658. It was lastly suggested by the learned counsel that the
F

issue as to whether there was any live issue or not and the issue of limitation
could be decided by the Arbitral Tribunal under Section 16 of the Act and
it cannot be said that those issues were finally decided by the learned Judge
while passing the order under Section 11(6) of the Act. ~e points out that
it is only for the purpose of appointing the Arbitrator that the learned
G
Designated Judge has referred the live issue and the issue of limitation.
~

26. On these rival contentions it has to be seen as to whether the
learned Judge was right in passing the order.
H
288 SUPREME COURT REPORTS (2007] 4 S.CR.

A 27. We shall take up the last contention raised by the appellant regarding
the scope of the order passed by the Chief Justice or his Designate Judge.
It was contended that since the Designate Judge has already given findings
regarding the existence of live claim as also the limitation, it would be for this
Court to test the correctness of the findings. As against this it was argued
by the respondent that such issues regarding the live claim as also the
B limitation are decided by the ChiefJustice or his Designate not finally but for
the purpose of making appointment of the Arbitrators under Section 11 (6) of
the Act. In our opinion what the Chief Justice or his Designate does is to put
the arbitration proceedings in motion by appointing an Arbitrator and it is for
that purpose that the finding is given in respect of the existence ·of the
C arbitration clause, the territorial jurisdiction, live issue and the limitation. It
cannot be disputed that unless there is a finding given on these issues, there
would be no question of proceeding with the arbitration. Shri Salve as well
as Shri Venugopal invited our attention to the observations made in para 39
in SBP & CO. v. Patel Engineering ltd. & Anr., [2005] 8 SCC 618] which are
/
as under:
D ._
"It is necessary to define what exactly the Chief Justice, approacherJ
with an application under Section I I of the Act, is to decide at that
stage. Obviously, he has to decide his otlvn jurisdiction in the sense
whether the party making the motion has approached the right High
Court. He h~s to decide whether there is an arbitration agreement, as
E defined in the Act and whether the person who has made the request
before him, is a party to such an agreement. ft 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
F 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 ofthe 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
G 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 or get such evidence recorded, as may be
necessary. We think that adoption of this procedure in the context of
H the Act would best serve the purpose sought to be achieved by the
SHREE RAM MILLS LTD. v. UTILITY PREMISES (P) LTD. [V.S. SIRPURKAR, J.J 289

Act of expediting the process of arbitration, without too many A
approaches to the court at various stages of the proceedings before
the Arbitral Tribunal."

A glance on this para would suggest the scope of order under Section 11 to
be passed by the Chief Justice or his Designate. In so far as the issues
regarding territorial jurisdiction and the existence of the arbitration agreement B
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 court for appointment of the Arbitrator. The Chief Justice has C
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 this 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 D
Chief Justice has to examine as to whether their remains anything: to be
decided between the parties in respect of the agreement and whether the
parties are still at issue on apy such matter. If the Chief Justice does not, in
~he strict sense, decide the issue, in that event it is for him to locate sur;:h
issue and record his satisfaction that such issue exists between the parties. E
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 find.ing out
whether the arbitral procedure has to be started that the Chief Justice has to
record satisfaction that their 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 F
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 questi~n 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 G
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.
H
290 SUPREME COURT REPORTS (2007] 4 S.C.R.

A 28. Applying these ·principles to the present case, it will be seen that
the Designate-Judge has clearly recorded his satisfaction that the parties had
not concluded their claims. We must, at this stage, note that after the first
agreement which clearly covers the issue regarding 1,20,000 sq.ft. ofFSI, the
said issue kept haunting the parties time and again. We have already referred
R to the agreements and their cancellations. The first agree'ment was on 27.4.1994
which is the basic·agreement The parties then entered into a second agreement
dated· 18. 7.1994 which was necessitated on account of the fact that then the
appellant could make available only 86725· sqJt. of FSI. It was under this
agreement that the· appellant agreed that the further land. measuring 2500
sq.mtrs. would be allowed to be developed by the respondents which land
C was reserved by Bombay Municipal Corporation for Municipal Primary School
and playground. By that agreement, the appellant undertook to shift the said
reservation to some otherproperty. This agreement was followed by a Tripartite
Agreement dated 9.1 l.1994 where a third party, namely, Bhupendra Capital &
Finance Limited·joined. On 22;6.1996 the agreement dated· 18.7.1994 was
cancelled by the mutual consent as the parties were unable to agree regarding
D the cost of shifting the reservation further, thereby the third party, namely,
Bhupendra Capital & Finance Limited was excluded. If the things had remained
at this stage, there was no question of the issue regarding the 1,20,000 sq.ft.
of FSI remaining alive. However, it is clear from the developments thereafter
that this issue remained burning in between the parties which is evident from
E the fact that the respondents moved: an application under Section 9 of the Act
on 45.2001 in respect of 2500 sq.mtrs. of land obviously to safeguard their
interest regarding the 1,20,000 sq.ft. of FSI. It is obvious that this FSI was
linked with the aforementioned land measuring 2500 sq.mtrs .. Though the
respondents failed in their attempt to get an injunction under Section 9 of the
Act, they did not leave the things at that and brought in the such issue firstly
F by serving the notice dated 11.6.2002 invoking the arbitration clause and
secondly by including this issue in their writ petition filed before the Delhi
High Court wherein the appellants were made to give an undertaking that they
will not sell tlte property which was covered· under the agreement dated
27.4.1994· which obviously included the 1,20,000 sq.ft of FSI. Now this
G undertaking is still continuing. It is not for us to go into the correctness or
otherwise of the order passed by the Delhi High Court regarding the
undertaking because that is not the question pending before us, however, it
only shows that the parties had not closed the question regarding 1,20,000
sq.ft. of FSl. As if all this was not sufficient, lastly the parties agreed on
19 .1.2005 for a MoU where this precise question came up. There, it seems the
H respondent bad agreed to leave their claim regarding the 1,20,000 sq.ft. ofFSI.
(

>
SHREE RAM MILLS LTD.'" UTILITY PREMISES(P) LTD. [V.S. SIRPURKAR, J.] 291
It, however, seems that the respondent wriggled out of the MoU and cancelled A
it and chose to serve the arbitration notice for appointment of the arbitrators.

29. Learned counsel Shri Salve points out that this was not possible as
the respondent could not wriggle out of the commitment made in the MoU
and could not have unilaterally cancelled the MoU as the respondent had
accepted to give up their claim for a consideration of Rs. l .20 crores and had B
accepted part payment of Rs. I 0 lakhs out of the same. We must state here
that it will not be for us to decide as to whether the respondents were within
their rights to repudiate the MoU and serve the notice of arbitration. What
would be the rights of the parties on account of entering into a MoU dated
19.1.2005 would not be for us to decide sitting in this jurisdiction. We have C
only to adjudge as to whether the parties were still at loggerheads as regards
.... the present issue. The very necessity felt on their part for a MoU would
suggest that the issue was not closed. Shri Salve argues that the respondents
could not be allowed now to revert back on the agreement dated 27 .4.1994
once it had chosen to close the issue by entering iitto the MoU dated
19.1.2005. Learned Senior Counsel sought our finding on that. We have D.
already clarified that it will not be for us to give that finding. In our opinion
the very fact that the parties chose to create the MoU dated l 9. l.2005
suggests that the order regarding 1,20,000 sq.ft. of FSI was never closed or
atleast was never treated to have closed and in that sense it was still a live
issue. Learned counsel Shri Savle relied upon the decision in Nathani Steels E
Ltd. v. Associated Constructions, [I 995] Supp. 3 SCC 324. Our attention was
drawn particularly to contents of paragraph 3 which are as under:

" ....once there is a full and final settlement in respect any particular
dispute or difference in relation to a matter covered under the
Arbitration clause in the contract and that dispute or difference is F
finally settled by and between the parties, such a dispute or difference
does not remain to be an arbitrable dispute and the Arbitration clause
cannot be invoked even though for certain other matters, the contract
may be in subsistence. Once the parties have arrived at a settlement
in respect of any dispute or difference arising under a contract and
that dispute or difference is amicably settled by way of a final G
settlement by and between the parties, unless that settlement set
aside in proper proceedings, it cannot lie in the mouth of one of the
parties to the settlement to spurn it on the ground that it was a
mistake and proceed to invoke the arbitration clause. If this is permitted
the sanctity of contract, the settlement also being a contract would H
292 SUPREME COURT REPORTS [2007] 4 S.C.R.

A be whQlly lost and it would be open to one party to take the benefit
under the settlement and then to question the same on the ground of
mistak:e without having the settlement set aside"

Though. the observations at the first blush appear to be in favour of the
appellants, on the closer look they are not so. This was a case where in a
B contract the pai;ties had amicably settled their disputes and the parties also
did not dispute that the they have arrived at such a settlement. It is under
those circumstances that the observations were made. However,. we do not
think that the facts in the present case suggest that there was a full and final
settlement in between the parties in respect of the. issue regarding 1,20,000
C sq.ft. ofFSl and that a MoU was signed wherein the respondent and Bhupendra
Capital & Finance Limited who was the party to the third agreement,
acknowledged that they were left with rights limited to 86,725 sq.ft. of FSI.
It must be seen that there is no reference whatsoever to any consideration
as regards the 1,20,000 sq.ft. ofFSI, much less to the figure ofRs.l.20 crores
in ·this MoU. As to what would be the effect of this MoU on the rights of
D the respondent herein would not be for us to go into but it is certain that the
issue had not been settled completely. In Nathani 's case (supra) the issue
was admittedly settled and that was not disputed by the parties thereto. Here
the parties and more particularly the respondents are seriously disputing that
the issue regarding 1,20,000 sq.ft. of FSI .was finally settled in between the
E parties. It would be only for the Arbitral Tribunal to decide the effect of the
respondent having signed the MoU. We have pointed out earlier that this
MoU cannot be said to be in the nature of a contract. In Nathani 's case the
settlement was viewed as a contract and it was, therefore, reiterated that if
the parties are allowed to wriggle out of their obligation from the contract, no
sanctity would be left to the settlement which are in the nature of a contract.
F It is for this reason that, in our opinion, the decision in Nathani'.s case is not
applicable to the present facts. We also reiterate at this juncture that the cloud
on 2500 sq'.mtrs. of land which is inexplicably connected with the FSI of
1,20,000 sq.ft. created by the undertaking given before the Delhi High Court
still remains looming large and remained so even ~n the date of the MoU. It
is for this reason_ also that we are of the clear opinion that there was no final
G settlement of the issue regarding 1,20,000 sq.ft. ofFSI even by the MoU dated
19.1.2005. If that was so,' it is clear that there was live issue in between the
parties and the parties were at loggerheads on that issue.

30. ·Once we have come to the conclusion that the learned Designate
H Judge was right in holding that there was a live issue, the question of
SHREE RAM MILLS LTD. r. UTILITY PREMISES (P) LTD. [V.S. SlRPURKAR. .1) 293
limitation automatically gets resolved. This Court in Hari Shanker Singhania's A
case (supra) held that till such time as the settlement talks are going on
directly or by way of correspondence no issue arises and with the result the
clock of limitation does not start ticking. This Court observed:

"Where a settlement with or without conciliation is not possible, then
comes the stage of adjudication by way of arbitration. Article 137 as B
construed in this sense, then as long as parties are in dialogue and
even the differences would have surfaced it cannot be asse11ed that
a limitation under Article 13 7 has commenced. Such an interpretation
will compel the parties to resort to litigation/ arbitration even where
there is serious hope of the parties themselves resolving the issues. C
The learned Judges of the High Court, in our view have erred in
dismissing the appellants' appeal and affirming the findings of the
learned Single Judge to the effect that the application made by the
appellants under Section 20 of the Act, 1940 asking for a reference
was beyond time under Article 137 ofthe Limitation Act.. As.already
noticed, the correspondence between the parties in fact, bears out D
that every attempt was being made to comply with and carry out the
reciprocal obligations spelt out in the agreement between the parties.

-- These observations would clearly suggest that where the negotiations were
still on, there would be no question of starting of the limitation period.
E
31. According to Shri Salve, learned counsel appearing on behalf of the
appellants the clock had started ticking against the respondents in relation
to the agreement dated 27.4.1994 and they could have had only three years
per: 1d for filing a suit as per Article 13 7 of the Limitation Act and as such
the claim made with reference to that agreement cannot be arbitrable now in F
the year 2005. We do not agree. It is for this reason alone that we have given
the complete history of the negotiations in between the parties. The things
( do not seem to have settled even by 19.1.2005 but that would be for the
Arbitral Tribunal to decide. We only observe, at this stage, that the claim of
the respondent cannot be said to have become dead firstly because of the
settlement or because of lapse of limitation. What is the effect of MoU dated G
19.1.2005; was the respondent justified in repudiating the said MoU; and what
is the effect of repudiation thereof on the earlier agreement dated 27.4.1994
would be for the Arbitral Tribunal to decide. In Groupe Chimique Tunisien
SA v. Southern Petrochemicals Industries Corpn. Ltd, [2006] 5 SCC 275 this
Court had clearly held in para I0 that the Arbitral Tribunal can also go into
H
-(
294 SUPREME COURT REPORTS [2007] 4 S.C.R.

A the question of limitation for the claims in between the parties. We have
discussed this subject only to hold that since the issue in between the parties
is sti II alive; there would be no question of stifling the arbitration proceedings
by holding that the issue has become dead by limitation. We leave the
question of limitat,ion also upon the Arbitral Tribunal to decide.

B 32. In view 1of the foregoing discussion we are of the clear opinion that
the learned Designate Judge was right in appointing the Arbitrator under
Section 11 (6) of the Act, We, therefore, proceed to dismiss the Civil Appeal
with no order as to costs.

C B.S. Appeal dismissed.