M A I N   N E W S

City Centre Scam
SC sets aside Lahoti’s appointment as arbitrator
R. Sedhuraman
Legal Correspondent

New Delhi, October 14
In a case that has the potential of changing political equations in Punjab, the Supreme Court today set aside the Punjab and Haryana High Court Chief Justice’s order appointing Justice R.C. Lahoti as the sole arbitrator to resolve the dispute between the Ludhiana Improvement Trust and Today Homes and Infrastructure Pvt Ltd.

Described as the “City Centre Scam”, the case had rocked the state and was the rallying point in the February 2007 Assembly elections, which saw the Parkash Singh Badal-led SAD-BJP combine win the polls.

“We have no option but to set aside the order of the Chief Justice and remit the matter for a fresh decision in keeping with the observations of the seven-Judge Bench of the apex court in a similar case”, a Bench comprising Justices Altamas Kabir and Markandey Katju said in its 16-page judgment.

During the rule of Capt Amarinder Singh as Chief Minister, the Ludhiana Improvement Trust had invited bids on March 15, 2005, for joint venture with developers and bids were filed by interested parties by May 10 and the evaluation of the technical bids was completed by May 16. Today Homes was found to be the highest bidder and a letter of intent was issued on May 18 for the development of the City Centre, Ludhiana.

The company then deposited Rs 3.72 crore with the Trust toward security for the purposes of the contract and ultimately it was required to pay Rs 371.12 crore. An area measuring 25.59 acres was handed over to the company on May 24.

The company subsequently had an agreement with HDFC Bank under which money received for bookings in the City Centre would go to an escrow account, of which 30 per cent would be paid to the Trust.

Later, disputes arose following allegations that under-hand dealings were being resorted to and up to 70 per cent of the total amounts payable by those who had booked space in the City Centre were being received in cash and only 30 per cent being received by means of cheques was being deposited in the escrow account, resulting in huge losses to the Punjab government toward its share of revenue.

Subsequently, the company applied to the Chief Justice of the high court under Section 11(6) of the Arbitration and Conciliation Act, 1996, for the appointment of an arbitrator as envisaged in the arbitration clause in the agreement.

However, the Trust contended that the agreement itself was void having been entered into under suspicious circumstances and by perpetrating fraud by altering the terms of the advertisement inviting bids, thereby enlarging the eligibility criteria for participation in the bid, so that persons, who were otherwise ineligible, were given an entry into the bidding process.

Various irregularities were also pointed out by which it was claimed that the main agreement, which contained the arbitration clause, was itself void and hence the arbitration agreement could not also survive.

The high court Chief Justice, citing the case of Konkan Railway Corporation Ltd Vs Rani Construction Pvt Ltd (2002(2) SCC 388), ruled that under Section 16 of the Arbitration Act, it was for the arbitrator and not the Chief Justice to decide the question of jurisdiction.

The apex court pointed out that incidentally the Chief Justice did not refer to the decision of the seven-Judge Bench in the SBP and Company Vs Patel Engineering Ltd (2005(8) SCC 618), which had overruled the views of the five-Judge Bench in the Konkan case.

The judgment for the Bench was written by Justice Kabir.



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