Chloro Controls is Good Law: Arasmeta Captive Power Co. v. Lafarge India

Recently, a two judge Bench of the Supreme Court of India had the occasion in Arasmeta Captive Power Co. v. Lafarge India (12.12.2013) to deal with the submission by Mr. Ranjit Kumar, senior counsel that since Chloro Controls contradicted with the decision of the larger Bench in Patel Engineering the same must be placed before a larger Bench. This post reviews the said decision.

 

Facts:

Arasmeta Captive Power Co. was engaged in the business of power generation. Lafarge India owned 49% equity in Arasmeta. Appellant No. 2 owned 51% in Arasmeta. Arasmeta had entered into two power purchase agreements (PPA) with Lafarge India for supply of power. The PPA provided for arbitration except in case of excepted matters which were to be referred to an expert. Disputes arose between Arasmeta and Lafarge India. 

Arasmeta wanted the disputes to be resolved by an expert while Lafarge India argued that the same were to be referred to arbitration. Lafarge India therefore filed an application under Section 11 for the constitution of the tribunal. Arasmeta resisted the same and contended that the High Court had to determine whether the dispute was an excepted matter. The High Court concluded that the dispute was not an excepted matter and referred the same to arbitration.

Hence, an appeal by special leave was filed by Arasmeta. 

 

Contentions:

Following were the contentions of Arasmeta in the SLP:

• The dispute between the parties was an excepted matter and was therefore not arbitrable. The dispute had to be resolved by an expert committee constituted as per the agreement.
• Since the dispute was non-arbitrable, the court under Section 11 alone had to decide questions pertaining to arbitrability.
• The analysis by the two judge Bench in Boghara Polyfab and by the three judge Bench in Chloro Controls was not in consonance with that of the five judge Bench in Patel Engineering.
• Shree Ram Mills Case and Boghara Polyfab contradicted with each other and Chloro Controls was wrong to read both the judgements as not being contrary.

Contentions on behalf of Lafarge India were following:

• The question as to whether the matter was an excepted matter or not was to be decided by the arbitrator.
• This is in line with Patel Engineering, Boghara Polyfab and Chloro Controls.
• Considering that the law has been well settled by decided cases, the matter has to be referred to arbitration.

Decision:

The court agreed with the contention of Lafarge India that the decided cases including Boghara Polyfab and Chloro Controls were in consonance with the seven judge bench decision in Patel Engineering. Further, the court held that Chloro Controls was right in reading Boghara Polyfab and Shree Ram Mills as not being contrary. In fact, the Booz Allen decision of the Supreme Court also held that the question on arbitrability as regards Section 8 proceedings should be left to the tribunal. However, the court held that the High Court had erred in holding the dispute as arbitrable and held that the same had to be decided by the arbitral tribunal.