Urban Infrastructure Real Estate Fund vs. Neelkanth Realty Private Limited

REPORTABLE
2025 INSC 1255


IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION (CIVIL) NO. 26660 OF 2025


URBAN INFRASTRUCTURE REAL ESTATE FUND …PETITIONER(S)

VERSUS

NEEKLANTH REALTY PRIVATE LIMITED & ORS. …RESPONDENT(S)


WITH

SPECIAL LEAVE PETITION (CIVIL) NO. 26661 OF 2025
(Diary No. 36228 of 2025)

AND
SPECIAL LEAVE PETITION (CIVIL) NO. 26662 OF 2025
(Diary No. No. 36232 of 2025)



J U D G M E N T



Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2025.10.27
10:44:17 IST
Reason:

J.B. PARDIWALA, J.:
For the convenience of exposition, this judgment is divided into the
following parts: -

INDEX
A. FACTUAL MATRIX .................................................................................. 4
I. The Interim Award. ......................................................................................... 9

II. The Decision of the Single Judge under Section 34 of the Act, 1996. .. 12
III. The Impugned Decision. ........................................................................ 17

B. SUBMISSIONS ON BEHALF OF THE PETITIONER ..................... 20
C. ISSUES FOR DETERMINATION ........................................................ 24
D. ANALYSIS ................................................................................................. 24
I. Whether the Preliminary Issue on the question of limitation decided on
demurrer, could have been foreclosed by the arbitrator? ...................... 24
a. The definition, scope and nature of the term “demurrer”. ................ 24
b. The legal position in the United States. ................................................ 30
i. Demurrer to Evidence ........................................................................ 32
ii. Demurrer to Declaration or Pleading ................................................ 40
c. The legal position as understood in Indian jurisprudence. ............... 60
i. Some decisions employing the concept of demurrer and the contours
thereof. ................................................................................................ 60
ii. Deciding the issue of Limitation on demurrer and its similarity with
an application under Order VII Rule 11(d) of the CPC. ................... 76
iii. Decision of the Privy Council in Kanhaya Lal v. The National Bank of
India and that of the Calcutta High Court in Angelo Brothers. ........ 86
II. Whether the Doctrine of Party Autonomy can be utilised to adopt a
procedure which has the consequence of infringing Section 3 of the
Limitation Act, 1963? ..................................................................................... 98

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III. Whether the Interim Award warranted interference by the court under
Section 34 of the Act, 1996? ........................................................................ 113
E. CONCLUSION ....................................................................................... 133




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1. After hearing the learned Counsel appearing for the Petitioner at
length, and upon a threadbare examination of the reasoning assigned
by the High Court, we ordered dismissal of the Special Leave
Petitions. However, considering the nature of the issues involved, we
thought it appropriate to assign reasons for the same by a separate
judgment. The order dated 15.09.2025 reads thus: -

“ 1. Delay condoned.
2. Heard Mr.Neeraj Kishan Kaul, the learned Senior counsel
appearing for the petitioner at length.
3. We find no good ground to interfere with the impugned order
passed by the High Court.
3. The Special Leave Petitions are, accordingly, dismissed.
4. Reasons to follow by a separate order.”



2. These petitions arise from the common judgment and order dated
02.04.2025 passed by the High Court of Judicature at Bombay in the
Commercial Appeal Nos. 37, 38 and 40 of 2020 respectively
(hereinafter, the “ impugned decision ”) by which the High Court
dismissed the appeal filed by the petitioner herein under Section 37
of the Arbitration and Conciliation Act, 1996 (hereinafter, the “ Act,
1996 ”) and thereby, affirmed the common judgment and order dated
04.12.2019 passed by a Single Judge of the High Court interfering
with the interim award dated 27.08.2019 and holding that the
preliminary issue of limitation decided on the basis of demurrer
would not preclude the Arbitral Tribunal from further examining the
same on the basis of evidence and other materials on record, if
tendered and if so warranted.


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A. FACTUAL MATRIX

3. The Urban Infrastructure Real Estate Fund or UIREF (hereinafter, the
“ petitioner ”) is a private equity fund based in Mauritius
incorporated as a public company. The Neelkanth Realty Private
Limited (hereinafter, the “ respondent no. 1 company ”) is a private
limited company incorporated under the Companies Act, 2013. The
respondent nos. 2, 7 and 8 respectively are the Directors of the
respondent no. 1 company, whereas the respondent nos. 3 to 6
respectively are the legal representatives of the original respondent
no. 3 who was also a Director of the respondent no. 1 company.


4. The respondent no.1 company is said to have been set up for the
purpose of undertaking an integrated township/resort/bungalow
scheme spanning an area of about 700 acres in villages Bhukum,
Bhugaon and Ahire/Mokarwadi respectively of Taluka Malushi and
Taluka Haveli respectively in Pune, Maharashtra. The petitioner and
the respondents entered into two agreements i.e., a Share
Subscription Agreement dated 23.07.2008 (hereinafter, the “ SSA ”)
and a Shareholders Agreement also dated 23.07.2008 (hereinafter, the
“ SHA ”) respectively. The SSA inter alia set out the terms and
conditions on which the petitioner had agreed to invest in the
respondent no. 1 company. Some relevant clauses are reproduced
hereinbelow: -
“ 5.2 Fulfilment of Conditions Precedent

5.2.1 The Company and the Promoters shall fulfil all the
Conditions Precedent to Subsequent Investment under Clause
5.1 (unless any such conditions are waived by the Investor in
writing) within ninety (90) Business Days from the date of

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execution of this Agreement or within such extended period as
agreed to by the investor.

5.2.2 If at any time any Party becomes aware of any
circumstances that will or is likely to give rise to the non-
fulfilment of the Conditions Precedent then such Party shall
immediately give to the other Parties, written particulars of any
such circumstances and the Parties hereto shall co-operate fully
with a view to procuring fulfilment of the relevant Conditions
Precedent.
5.2.3 On the fulfilment of the Conditions Precedent, the
Promoters and the Company shall submit to the Investor a
certificate signed by duly authorised representative of the
Company certifying fulfilment of each of the Conditions
Precedent.

5.3 Non-Fulfilment of Conditions Precedent
In the event of non-fulfilment of the Conditions Precedent
under Clause 5.1 within ninety (90) Business Days from the
date of execution of this Agreement or the extended period as
agreed to by the Investor, then at the option of the investor, the
Company and the promoters shall forthwith refund to the
investor the amounts that may have been paid towards any of
the obligations of the Investor together with interest thereon at
the rate of 18% per annum until the date of payment and/or
realization.

xxx xxx xxx

13.2 Arbitration
13.2.1 In the event that any dispute or difference as referred to
in Clause 13.1 is not resolved within a period of 30 (thirty) days
from the date of reference to the representatives of the Parties for
amicable resolution, then such dispute or difference shall be
referred to arbitration in accordance with Clause 13.2.2 and
Clause 13.2.3. Such arbitration shall be held in accordance with
the Arbitration and Conciliation Act, 1996.

13.2.2 The place of arbitration and the seat of arbitral
proceedings shall be Mumbai, India. Any arbitral proceeding
begun pursuant to any reference made under this Agreement

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shall be conducted in English language. The decision of the
arbitral tribunal and any award given by the arbitral tribunal
shall be final and binding upon the Parties.

13.2.3 The arbitral tribunal shall be comprised of a sole
arbitrator if the Parties to the dispute so agree. Failing such
agreement, the arbitral tribunal shall comprise 3 (three)
Arbitrators, one to be appointed by the Promoters and one to be
appointed by the Investor and Other Investors jointly and the
third Arbitrator shall be appointed by the two Arbitrators so
appointed by the Promoters and the investor and Other
Investors, which third Arbitrator shall be the Presiding
Arbitrator. It is clarified that in the event that the Company is
also a party to the dispute or difference, then for the purpose of
appointment of Arbitrators, the Promoters and the Company
shall jointly appoint one Arbitrator, the Investor and Other
Investors shall jointly the second Arbitrator and the third
Arbitrator shall be appointed by the two Arbitrators so
appointed by the Parties. ”



5. In furtherance of the aforesaid agreements, the petitioner paid a sum
of Rs. 25 Crore to the respondent no.1 company to fund the
undertaking of the project. As per Clause 5.3 of the SSA reproduced
hereinabove, in the event of the Conditions Precedent stipulated in
the SSA not being fulfilled within a period of 90 days from the date
of execution of the SSA, or the extended period as agreed to by the
petitioner herein, then at the option of the petitioner, the respondents
would be liable to refund the amount paid by the petitioner along
with interest at the rate of 18% per annum till the date of payment
and/or realisation. The said period of 90 days is said to have ended
on 22.10.2008.


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6. The Urban Infrastructure Venture Capital Limited or UIVCL, in the
capacity of an advisor had acted on behalf of the petitioner in several
dealings. On 21.01.2009, the UIVCL addressed a letter to the
respondent no.1 company highlighting that no equity had been
allotted against the investment of Rs. 25 Crore and called upon them
to remit the said amount.

7. The respondent no. 1 company replied to the abovementioned letter
only to the effect that a detailed reply would soon be sent to the
UIVCL. Thereafter, on 14.02.2009, the UICVL addressed yet another
letter to the respondent no.1 company reiterating that no equity
instruments had been issued to the petitioner and sought refund of
the amount invested. Therein, several other breaches were alleged,
including the non-fulfilment of the Conditions Precedent, at the end
of the respondents. On 19.02.2009, the respondent no. 1 company
replied to the letters dated 21.01.2009 and 14.02.2009 respectively,
wherein it was mentioned that without-prejudice negotiations were
ongoing between the parties as regards the issues between them. The
respondent no.1 company expressed surprise that although without-
prejudice negotiations were ongoing, yet the petitioner had chosen
to address the letter dated 14.02.2009.


8. It is the case of the petitioner that settlement discussions with a
mediator were ongoing between the parties in 2011, however, those
remained inconclusive. Subsequently, on 14.09.2016, the petitioner
addressed yet another letter to the respondent no. 1 company calling
upon them to rectify several alleged breaches which included

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providing a suitable exit to the petitioner insofar as their investment
was concerned, failing which they would be constrained to invoke
arbitration. Yet again, discussions on how the issues could be
amicably settled were initiated by the parties, but in vain. Thereafter,
finally on 11.01.2017, the petitioner addressed a letter to the
respondents calling upon them to compensate them in terms of the
Clauses 3.1.14 and 5.3 of the SSA respectively, within a period of 15
days, failing which the disputes would be referred to arbitration. In
the said communication, the petitioners had also nominated an
arbitrator for the aforesaid purpose.


9. On 19.07.2017, the petitioner filed a petition under Section 11 of the
Act, 1996, before this Court for the appointment of an arbitrator. Vide
order dated 15.01.2018, this Court appointed Hon’ble Mr. Justice S.N.
Variava (Retd.) to act as the sole arbitrator to adjudicate the disputes
between the parties.


10. On 01.10.2018, the Statement of Claim on behalf of the petitioners was
filed before the Arbitral Tribunal. During its meeting dated
26.06.2019, the Arbitral Tribunal proceeded to frame issues and the
Issue No. 1 read thus – “ Whether all or any of the claims made by the
Claimant are barred by the law of limitation ”. The counsel appearing on
behalf of the respondents submitted that the Issue No. 1 be decided
as a preliminary issue. On the other hand, the counsel for the
petitioner submitted that the said issue should be taken up only after
all the evidence had been led.


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I. The Interim Award.


11. Later, in the next meeting dated 27.08.2019, the arbitrator informed
that if Issue No. 1 was to be tried as a preliminary one then it had to
be decided on the basis of demurrer. The respondents were also told
that, in such a scenario, they would afterwards not be able to contest
any statement of fact stated by the claimant in the Statement of Claim
or in their evidence, or attempt to prove the contrary. It was made
clear that once the issue was decided, it would not be open to the
parties to reagitate it subsequently. Over the course of the meeting,
the counsel for the respondents seem to have acceded and submitted
that no evidence was required to be led on their behalf in order to
arrive at a decision insofar as the Issue No. 1 was concerned and also
that they would be willing to proceed on the basis of demurrer.
Hence, on the same day, the Issue No. 1 was heard on the basis of
demurrer as a preliminary issue. The said issue came to be decided
in favour of the petitioner herein. The relevant observations made in
the interim award dated 27.08.2019 are reproduced as follows: -
“ 1. The Arbitration has been fixed today to decide whether Issue
No. 1 should be tried as a Preliminary issue. Parties are told,
that if Issue No. 1 is to be tried today as a Preliminary Issue,
then it has to be decided on the basis of demurrer. Respondents
are told that they would then not be able to contest any
statement of fact stated by the Claimant in the Statement of
Claim or in their Evidence or on documents annexed to the
Statement of Claim or to attempt to prove the contrary. It is
clarified that if this Issue proceeds to a hearing on the basis of
demurrer, it will be answered today and then it will not be open
to reagitate the Issue subsequently.

xxx xxx xxx


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8. It appears that Mr Seksaria has not understood what the
Tribunal had stated at the start. The authorities cited only deal
with, what a Court or Tribunal can do. The question today is
not what the Tribunal can or cannot do. Respondents have first
to decide whether they want Issue No. 1 to be decided only on
the basis of the Statement of Claim, documents annexed thereto
and evidence of Claimant as they stand today. If so, it would
necessarily mean on the basis of the demurer. What the Tribunal
has enquired is whether the Respondents feel that any evidence
is required on this Issue. If Respondents or any of them feel that
evidence is necessary then they must say so at this stage. If issue
No.1 is being argued today, it is on the basis that according to
the Respondents no evidence is required to be led by them on
this Issue. Therefore, this Issue will necessarily be argued today
on the basis of a demurrer. Once the Issue is argued, this
Tribunal is not going to leave this Issue unanswered so that
parties can reagitate the same Issue subsequently. Therefore,
Respondents are called upon again to state whether according
to them this issue requires any evidence at all or whether it can
be tried only on the basis of the pleadings. If the Respondents
decide that this issue will require evidence, then the issue cannot
be proceeded with today.

xxx xxx xxx

11. Mr. Ghelani, Mr. Seksaria and Mr. A.S. Pal state that the
Respondents are willing to proceed on the basis of demurrer; as
according to them, no evidence is required to decide Issue No.1.
Accordingly, Issue No. 1 is being heard on the basis of demurrer
as a Preliminary Issue.

xxx xxx xxx

37. Heard the parties. As stated above, at this stage, the
Tribunal is proceeding on the basis of demurrer. Had this issue
been answered after all evidence had been recorded, then this
Tribunal may have been, inclined to accept some of the
submissions of the Respondents. But at this-stage as this Issue
is being decided on the basis of demurrer, the averments in the
Statement of Claim have to be taken as correct. It is clear that
Clause 5.2.1 and 5.3 give to the Claimant a right to extend the

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time for performance of the Conditions Precedent. Thus even
though a notice may have been given, it is still open to claimant
to extend time for performance Of Condition Precedents. Once
time is so extended then a fresh cause of action arises if again
there is a breach. It is not possible to accept submission that in
paragraph 21 the claimant has only averred that it had extended
time for payment. Such a submission is against the wording of
the paragraph. In paragraph 21 Claimant have averred "The
respondents requested the Claimant to consider a settlement of
the disputes between the parties and in the meantime extend
time for fulfilling various commitments and desist from taking
legal action. The Claimant agreed to extend time for compliance
of the terms of SSA in accordance with Clause 5.3 and desist
from exercising its remedies under the SSA while the parties
were exploring a settlement.” (Emphasis supplied). The words
"fulfilling various commitments” can by no stretch of
imagination refer to right of Claimant to receive refund. The
words ''Agreed to extend time for compliance of the terms of
SSA" cannot be read in isolation and have to be read in the
context of the sentence stating that Respondents had requested
for extension of time. Read as whole paragraph 21 makes it clear
that Claimant is claiming that at the request of Respondents,
Claimant extended time to perform the Condition Precedents.
Thus even though a notice had been given under Clause 5.3, it
was possible for the Claimant to thereafter extend time for
performance of the Conditions Precedent. Mr. Seksaria is right
the right to take any legal action on the notice dated February
2009 would expire in 2012 and Clause 15.3 would not enable
claimant to extend limitation once it had expired. However
within the tenure of the SSA Claimant could extend time for
compliance and if claimant has extended time for compliance
then a fresh cause of action would arise and the Claimant could
again exercise its right under Clause 5.3 when there is again a
breach of the Condition Precedents. The Claimant has averred
that it had extended time. At this stage this averment has to be
accepted. As at this stage the proceeding are proceeding on the
basis of demurrer, the statement of Claimant that It had
extended time has to be accepted. It will therefore have to be
held that now time only started running once the negotiations
failed and there was a again a breach of the SSA by the
Respondents. This was, at the earliest in 2016.

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38. As this issue is being decided on basis of demurer, in view
of a plain reading of the Statement of Claim it is not possible to
accept Mr. Geelani's' submission that time had, in fact, been
extended only to consider how the payment/refund was to be
made. Such a contention may have been possible if Claimants'
witness has first been cross examined in this regard and if there
was some evidence, to this effect, on Respondents' behalf.

39. It will therefore have to be held that the claims are therefore
within time. Issue No. 1 is therefore answered in the negative.”

(Emphasis supplied)


12. It appears that the Arbitral Tribunal accepted the submission of the
petitioner that as it had extended time for fulfilling the Conditions
Precedent as per Clause 5.3 of the SSA, the claims could not be said
to be barred by limitation. The Arbitral Tribunal re-emphasised
saying that such a conclusion was being reached as the issue was
being decided on the basis of demurrer and because the averments
in the Statement of Claim had to be taken as true. It was also noted
that - “ Had this issue been answered after all evidence had been recorded,
then this Tribunal may have been, inclined to accept some of the submissions
of the Respondents ” and also that “ Such a contention may have been
possible if Claimants' witness has first been cross examined in this regard
and if there was some evidence, to this effect, on Respondents' behalf. ”

II. The Decision of the Single Judge under Section 34 of the Act, 1996.

13. Aggrieved by the aforesaid interim award, the respondent nos. 1, 2
and 8 respectively filed separate Arbitration Petitions under Section
34 of the Act, 1996 before the Single Judge of the High Court alleging

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that the interim award was in contravention of the fundamental
policy of Indian law. Vide the common judgment and order dated
04.12.2019, the Single Judge disposed of all the three petitions, by
interfering with the interim award and observing that the
preliminary finding as regards the Issue No. 1 i.e., the issue of
limitation, cannot be foreclosed owing to it being a decision rendered
on demurrer. It was observed that the Arbitral Tribunal would not
be barred from re-examining the issue on the basis of the evidence
that may be led by the parties before the Arbitral Tribunal and other
materials on record. The reasoning assigned by the Single Judge may
be summarised as follows: -

(i) First , while examining whether the principles underlying
Order VII Rule 11 of the Code of Civil Procedure, 1908
(hereinafter, the “ CPC ”) could be applied to a determination
made on demurrer, the decision of the Calcutta High Court in
Angelo Brothers Limited v. Bennett, Coleman and Co. Ltd. &
Anr. reported in 2017 SCC OnLine Cal 7682 was relied upon.
Therein, various judicial pronouncements on the aspect of
demurrer vis-à-vis Order VII Rule 11 was examined and it was
held that it is not the law in India that a motion for dismissal of
a plaint or petition (in other words, a decision on demurrer) on
a preliminary point would have the consequence of the
respondent forfeiting the right to contest the case later. It would
also not mean that adopting such a procedure would result in
an automatic admission of the facts pleaded in such a plaint
which was sought to be dismissed. More particularly, when the
adjudication of such a preliminary question involves a mixed

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question of fact and law, then the adjudication of that question
would stand deferred and those points would be left to be
determined in the course of the proceedings.
(ii) Secondly , while applying the analogy that was being drawn
from Order VII Rule 11(d), a pertinent question was put forth –
Even, on the basis of bare averments made in the plaint if the
court comes to the conclusion that the suit cannot be said to be
barred by any law still could it be said that the court would
then be precluded from finally looking into the question as to
whether the suit is barred by any law after all the evidence and
the other materials on record are examined? The answer, in the
court’s opinion, was an emphatic ‘No’. Therefore, it was held
that the finding of the arbitrator would remain a preliminary
finding subject to the evidence that may be tendered in the
course of the proceedings.
(iii) Lastly, upon a consideration of Section 3(1) of the Limitation
Act, 1963, it was stated that the objection as to limitation is quite
fundamental to any dispute. It is a substantive objection which
goes to the root of the matter. Such an issue as regards
limitation, being a mixed question of fact and law, it would not
be proper for the same to be foreclosed especially upon a
preliminary determination on maintainability which is made
on the basis of demurrer. In other words, a decision on the basis
of demurrer cannot preclude a final decision on merit.

The relevant observations made by the Single Judge of the High
Court are reproduced herein below: -

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“ 20. Learned Senior Counsel for the petitioners has drawn an
analogy of deciding an issue on the basis of demurrer with an
application under Order VII Rule 11(d) of the Civil Procedure
Code and contends that even if an application for rejection of
plaint is rejected at the threshold, the same would not come in
the way of the Court to decide whether the suit was barred by
any law at the stage of trial when evidence would be available
on record.
xxx xxx xxx

24. In Angelo Brothers Limited (supra), Calcutta High Court
examined various judicial pronouncements on the point of
demurrer vis-a-vis Order VII Rule 11 of the Code of Civil
Procedure and came to the conclusion that it is not the law in
India that a motion for dismissal of a plaint or petition on a
preliminary point forfeits the right of the applicant to contest
the case later or such a procedure results in admission of facts
pleaded in such plaint or petition whose dismissal is sought for.
It was held that the term "demurrer” In the Indian context has
been construed to have a connotation wider than the dictionary
meaning and a motion for dismissal of a proceeding on a
preliminary point has been commonly referred to as an
application "in demurrer". Accordingly, it was held that the
expression "demurrer" when used in connection with an
application seeking dismissal of a petition on a preliminary or
maintainability point would not imply automatic admission of
facts contained in the plaint or petition whose dismissal is
sought for by the opposing party. Principles of Order VII Rule
11 would apply in relation to such a petition and if it is found
that adjudication of such motion involves mixed question of fact
and law, then adjudication of that question would stand
deferred, and those points would be left to be determined on
trial.

25. This Court is in respectful agreement with the above
proposition of law as propounded by the Calcutta High Court.

26. Proceeding further, let us take a hypothetical case. It is trite
that an application under Order VII Rule 11 can be filed at any
stage of the suit. For examining whether the suit is barred by
any law, the averments made in the plaint alone would be

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germane. However, examination of the plaint alone under
Order VII Rule 11 would not permit the Court to examine or
declare upon the correctness of the contents or otherwise of the
plaint. If there is any doubt at this stage, the benefit of doubt has
to go to the plaintiff. If the Court comes to the conclusion that
on the basis of the averments pleaded in the plaint, it cannot be
said that the suit appears to be barred by any law, can it be said
that it would preclude the Court from finally looking into the
question as to whether the suit is barred by any law when all the
evidence and other materials are before the Court.

27. In the considered opinion of the Court, the answer has to be
in the negative.

28. The same principle can be applied in the present case as well.
Issue No. l was heard as a preliminary issue on the basis of the
statement of claim, and on that basis, finding has been recorded
by the learned Arbitrator that the claims are within time. Being
a preliminary issue decided on demurrer, this finding of the
learned Arbitrator would remain a preliminary finding subject
to the evidence that may be tendered. As a matter of fact, learned
Arbitrator himself stated that the contention of the respondents
(petitioners herein) might have been possible if the claimant's
witness was first cross-examined in this regard and if there was
some evidence to this effect on the respondents’ behalf. In fact,
learned Arbitrator went on to observe that had this issue been
answered after all the evidence had been recorded, then the
Arbitral Tribunal might have been inclined to accept some of the
submissions of the respondents (petitioners herein).

29. Considering Section 3(1) of the Indian Limitation Act,
1963, it is quite clear that objection as to limitation is quite
fundamental. It is a substantive objection which goes to the root
of the claim. Limitation being a mixed question of fact and law,
a preliminary finding of maintainability on the point of
limitation decided on demurrer would not preclude a final
determination of the question based on facts which may come on
record through adducing of evidence, because application of law
is on facts and not in a vacuum. A decision on the basis of
demurrer cannot foreclose a final decision on merit.


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30. Therefore, in the light of the discussions made above, Court
is of the view that the interim award dated 27.08.2019 is liable
to be modified to the extent that the preliminary finding on issue
No. 1 on the basis of demurrer would not foreclose the issue and
would not preclude the Tribunal from examining this issue on
the basis of evidence and other materials on record, if tendered
and if so warranted. However, no opinion is expressed by the
Court.

31. With the above modification, the three Commercial
Arbitration Petitions are disposed of.”

(Emphasis supplied)


III. The Impugned Decision.

14. Being aggrieved with the aforesaid, the present petitioner preferred
three appeals under Section 37 of the Act, 1996 before the Division
Bench of the High Court challenging the aforesaid interference to the
interim award made by the Single Judge. However, the same came to
be dismissed vide the common impugned judgment and order dated
02.04.2025. The following are certain aspects which seem to have
weighed with the Division Bench: -

(i) First, while examining whether the grounds for interference
under Section 34(2)(b)(ii) of the Act, 1996, was made out, it was
opined that the phrase “fundamental policy of Indian law”
would require a Court or Tribunal to adopt a ‘judicial
approach’ and also that the decision must not be so perverse or
irrational that no reasonable person would arrive at such a
conclusion.
(ii) Secondly , it was stated that although Section 19(1) of the Act,
1996 provides that the Arbitral Tribunal would not be bound

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by the provisions of the CPC or the Indian Evidence Act, 1872,
yet this must not be construed to mean that the Arbitral
Tribunal would be prohibited from applying the fundamental
principles underlying the aforesaid Acts.
(iii) Thirdly, it was held that an issue of limitation, which is
normally a mixed question of law and fact, could be tried as a
preliminary issue, only if the same does not require any
evidence.

(iv) Lastly, it was pointed out that the arbitrator, in the present
case, had not arrived at a categorical finding that the issue of
jurisdiction was such that the parties were not required to
adduce any evidence at all. In such circumstances, the learned
arbitrator could be said to have not adopted a ‘judicial
approach’ in rendering the interim award.

The relevant observations made by the Single Judge of the High
Court are reproduced herein below: -
“ 19. In the backdrop of aforementioned well settled legal
position, we now examine whether a ground under Section
34(2)(b)(il) for interference with the impugned interim award
is made out. An award shall be treated to be in conflict with
public policy of India if it is in contravention of fundamental
policy of Indian law or is conflict with most basic notions of
morality or justice. The phrase ‘fundamental policy of Indian
law’ requires a Court or other authority determining the rights
of citizen to adopt a judicial approach. The expression
‘fundamental policy of Indian law’ would include within its
ambit a decision which is so perverse or irrational that no
reasonable person would arrive at the same. Thus, the
Arbitrator, while deciding the issue of limitation is required to
adopt a judicial approach. Even though Section 19(1) of the
1996 provides that arbitral tribunal shall not be bound by the
Code of Civil Procedure, 1908 or by the Indian Evidence Act,

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1872, however Section 19(1) does not prohibit the arbitral
tribunal from following the fundamental principles underlying
the Civil Procedure Code, 1908 or the Indian Evidence Act,
1872.

20. The Court or other authority dealing with the rights of
parties has power to try the issue as a preliminary issue if the
same relates to the jurisdiction of the Court or a bar created by
any law for the time being in force. An issue of limitation which
normally is a mixed question of law and fact could be tried as a
preliminary issue only if the same does not require any evidence.

xxx xxx xxx

24. In the instant case, the Arbitrator has not recorded a finding
that the issue of jurisdiction is an issue which does not require
the parties to adduce any evidence. The Arbitrator himself in
para 37 of the interim award has held that had parties adduced
evidence it would have arrived at a different conclusion. In our
opinion, the Arbitrator, while passing the impugned award has
failed to adopt a judicial approach and has arrived at a decision
which no reasonable person would have arrived at, especially in
absence of any finding in the impugned award whether the issue
of limitation is a mixed question of law and fact and whether the
same can be decided without recording any evidence. It was
clearly stated on behalf of respondent No.3 that issue of
limitation should not be decided on the basis of demurrer but on
the principles analogous to Order XIV Rule 2 of the CPC and
after taking into consideration the pleadings and admitted
evidence on record. If paragraph 2, 3, 4, 8, 10 and 11 are read
together, the contention that the respondents had agreed t the
decision of the issue without recording evidence does not deserve
acceptance. Thus, it is axiomatic that the impugned award has
been passed in violation of ‘fundamental policy of Indian law’
and a ground for interference with the impugned award under
Section 34(2)(b)(ii) is made out.”


(Emphasis supplied)


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15. In such circumstances referred to above, the petitioner is here before
us with the present Special Leave Petitions.

B. SUBMISSIONS ON BEHALF OF THE PETITIONER


16. Mr. Neeraj Kishan Kaul, the learned Senior Counsel appearing on
behalf of the petitioner would submit that the respondents having
elected and insisted upon piece-meal adjudication under Section 19
of the Act, 1996 would be estopped from challenging the same
procedure under Section 34 of the Act, 1996. The Minutes of Meeting
dated 26.06.2019 indicate that it was on the request of the
respondents that the issue of limitation was considered as a separate
and preliminary issue. As plainly recorded in the interim award
dated 27.08.2019, the parties had mutually consented that the
question of limitation would be (a) decided on the basis of demurrer,
(b) without evidence and (c) would be determined finally. Therefore,
the interim award constitutes a final decision on limitation and it
cannot be re-opened to allow the respondent a second bite at the
cherry. To substantiate this contention, the counsel would place
reliance on the decision of this Court in IFFCO Ltd. v. Bhadra
Products reported in (2018) 2 SCC 534.

17. The counsel would also submit that, party autonomy, which is the
hallmark and bedrock of arbitration, cannot be deprived of its
sanctity by the unsuccessful party. A bare reading of Section 19 of the
Act, 1996 would reveal that the Arbitral Tribunal would not be bound
by the CPC and the parties to the arbitration may agree to any
procedure; such procedure which may also differ from the standard

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court processes. Therefore, having elected to adopt a certain
procedure, the respondents cannot be allowed to cry foul when the
decision is adverse to them. They cannot clamour for certain
procedures which are legislatively not sanctioned for arbitrations
and are, instead, available in the normal machinery of the courts. In
other words, since the parties have consciously chosen to deviate
from the traditional procedure adopted in the courts, they cannot
challenge or reverse their agreement to the same simply because they
are dissatisfied with the result.

18. It was also submitted that, the present case being an International
Commercial Arbitration, the interim award could not have been
interfered with on the ground of the arbitrator not following a
‘judicial approach’ since the same would fall foul of the law settled
by this Court as regards the scope of intervention under Section 34 of
the Act, 1996 insofar as the awards rendered in the International
Commercial Arbitrations are concerned.

19. Furthermore, it was submitted that the ground of non-adoption of a
judicial approach to interfere with an arbitral award would
tantamount to intervening in the merits of the matter, which cannot
be sustained due to the position of law clarified by this Court in
Ssangyong Engineering & Construction Co. Ltd v. NHAI reported in
(2019) 15 SCC 131. The said decision clarified that the term
“fundamental policy of Indian Law” would be relegated to its
understanding as determined by this Court in Renusagar Power Co.
Ltd. v. General Electric Co. reported in (1994) Supp. (1) SCC 644. It

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was opined in Ssangyong (supra) that the decisions of this Court in
ONGC v. Saw Pipes Ltd. reported in (2003) 5 SCC 705 and ONGC v.
Western Geco International Ltd. reported in (2014) 9 SCC 263
respectively, had expanded the scope of the term “public policy”
occurring under Section 34 of the Act, 1996 to include the aspects of
“patent illegality” and “judicial approach”. However, such an
expansion was effectively done away with by the 2015 Amendment
Act to the Act, 1996.

20. Therefore, he would submit that, the observations made in the
impugned decision, more particularly that – “ In our opinion, the
Arbitrator, while passing the impugned award has failed to adopt a judicial
approach and has arrived at a decision which no reasonable person would
have arrived at..” , to justify the interference with the interim award,
would stand contrary to settled law.

21. He would further submit that the impugned decision has sought to
set aside the award on the basis that it was passed without evidence.
The same, as per the decision in Ssangyong (supra), can at most fall
under the ambit of “patent illegality” which has been made
unavailable as a ground for setting aside an award rendered in an
International Commercial Arbitration.


22. As regards the applicability of Section 3 of the Limitation Act, 1963,
the counsel would submit that, there has neither been a waiver of the
terms of the statute nor have the parties contracted out of the
provisions of the Limitation Act, 1963. Rather, it could only be said

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that the parties had agreed to a specific procedure by which the issue
of limitation would be decided and the arbitrator had granted fair
opportunity to both the parties to decide whether the claims raised
by the petitioner fell within the prescribed period of limitation or not.


23. The counsel would submit that the respondents, having chosen not
to lead evidence, cannot now claim that there has been a violation of
the Limitation Act, 1963. He would place reliance on the decision of
this Court in Associate Builders v. DDA reported in (2015) 3 SCC 49 ,
to buttress his submission that an Arbitrator is the ultimate master of
the evidence and the reason that an award is based on little evidence
or such evidence that may not measure up in quality to a trained legal
mind, would not constitute the basis for setting aside an award under
Section 34 of the Act, 1996. Therefore, even assuming that the award
on the issue of limitation is based on insufficient evidence, the same
would not constitute a ground for interference with the interim
award.



24. In the last, even if argued that interference with the interim award
could be sustained under the ground of “basic notions of justice”, the
counsel would submit that this Court in Ssangyong (supra) has
recognised that such a ground could be invoked only in very
exceptional circumstances when the conscience of the Court is
shocked by the infraction caused to the fundamental notions of
principles of justice. This must not be construed to mean that
interference may be warranted when justice has not been done ‘in the
opinion of the Court’. In the present case, he would submit that, no
such exceptional circumstances are made out.

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25. In such circumstances referred to above, the learned Senior Counsel
prayed that there being merit in his petition, notice be issued to the
other side and the matter be heard finally. He would submit that the
impugned judgment ultimately deserves to be interfered with.


C. ISSUES FOR DETERMINATION

26. Having heard the learned Counsel appearing for the petitioner and
having gone through the materials on record, the following
questions of law fall for our consideration: -

I) Whether the preliminary issue on the question of limitation,
decided on the basis of demurrer, could have been
permanently foreclosed by the arbitrator?


II) Whether the doctrine of Party Autonomy, which is the
bedrock of arbitration, can be utilised to decide on a
procedure which has the consequence of infringing Section 3
of the Limitation Act, 1963?
III) Whether the interim award warranted interference by the
court under Section 34 of the Act, 1996?


D. ANALYSIS

I. Whether the Preliminary Issue on the question of limitation
decided on demurrer, could have been foreclosed by the arbitrator?

a. The definition, scope and nature of the term “demurrer”.


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27. The word “demurrer” is derived from the Latin word “ demorari ” or
the French word “ demorrer ” which means to wait, stay, rest or pause.
P. Ramantha Aiyar in his Advanced Law Lexicon elaborates that this
term imports that the party pleading demurrer would go no further
insofar as the case or matter is concerned, but would wait the
judgment of the court as to whether he is bound to answer his
opponent’s insufficient pleading. In other words, it is the term
formerly applied to the mode of disputing the sufficiency in law of
the pleading of the other side or saying that the pleading is yet to
show any cause as to why the party demurring should be compelled
by the court to proceed further.


28. Generally, a demurrer is an issue upon a matter of law. While raising
this issue of law through the plea of demurrer, what occurs is that,
the party pleading it confesses (or supposes for argument sake) that
the facts as stated by the opposite party or the plaintiff/claimant are
true, however, denies that by the law arising upon those facts, any
injury is done to the plaintiff/claimant. To put it more simply, it is a
method to test the sufficiency of the plaintiff’s/claimant’s case at the
threshold. In the absence of said sufficiency, the matter will collapse
on its own strength.


29. Demurrers are either general i.e., where no particular cause is
assigned and the insufficiency of the pleading is stated in general
terms, or it is special i.e., where some particular defects are pointed
out. To put it simply, a general demurrer is a demurrer framed in
general terms without showing specifically the nature of the
objection. A special demurrer is a demurrer based on some defect of

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form, which is specifically set forth. Therefore, demurrers may be to
the whole or any part of a pleading. Edwin E. Bryant in his Law of
Pleading under the Codes of Civil Procedure goes on to say that each
party may demur to what he deems to be an insufficient pleading of
the other. The demurrer is general when it is to a matter of substance
and it is special when made to a matter of form. When it is special,
the specific defect must be pointed out.

30. Craig R. Ducat in his Constitutional Interpretation, elaborates on
the concept of demurrer and states it to be a “ form of response in which
the defendant argues that, even if the facts are as the plaintiff alleges, no
actionable wrong has occurred ”.

31. Black’s Law Dictionary defines the terms as “ a pleading stating that
although the facts alleged in the complaint may be true, they are insufficient
for the plaintiff to state a claim for relief and for the defendant to frame an
answer. ”
32. A common theme running across these definitions or discussions of
the term “demurrer” and its scope, is the understanding that the
party raising this plea merely pauses and refrains from making any
progress in his case. Instead, he requires the plaintiff/claimant to
preliminarily establish that their case rests on a solid foundation, at
least on the aspect that a cause of action is made out and that the
claim is not barred by any law. At this stage, this duty could be said
to be imposed on the plaintiff/claimant for the reason that they must
satisfy the court, albeit on a very preliminary level, that a valid legal
claim exists. This duty would be co-terminus with their role as the
dominus litus . If the same is not established, then there would be no

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reason to proceed further or for the defendant/respondent to pursue
the matter. In other words, the defendant/respondent would be
‘bound to answer’ only if such a prima facie satisfaction that a valid
legal claim exists is achieved. If the pleading of the plaintiff/claimant
is insufficient in law then the matter would come to an end at the
threshold.


33. During such an exercise, i.e., where the defendant/respondent asks
the plaintiff to satisfy and also for the court to be satisfied of the legal
sufficiency of the plaintiff’s case, the defendant/respondent assumes
that the averments in the plaint are true and upon that assumption,
raises a question of law. What must be noted is that this ‘assumption’
is limited to the decision on demurrer and must not be taken to bind
the defendant/respondent for all times to come. Without absolutely
conceding to the truthfulness and veracity of the facts stated in the
plaint, the defendant only raises an issue as regards the sufficiency of
the plaintiffs case in law. In such a scenario, when the decision on
demurrer goes against him, i.e., when the issue raised in law is
answered against him, could he be said to be foreclosed from
tendering further evidence, in the course of the proceedings, which
dispute the truthfulness of the facts which were merely
hypothetically ‘assumed’ as right while raising an issue in law? The
answer must be an emphatic ‘No’.


34. We say so, also because, at the stage during which such a plea of
demurrer is taken, the defendant bears no burden of proof. The
plaintiff is yet to shift it to the defendant. Therefore, this ‘assumption’
as aforementioned, must not be construed to the defedant’s

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detriment. In an alternate situation, i.e., let us assume that the case
was at a stage where the defendant was required in law to dispute a
fact brought forth in the pleadings by way of leading witnesses or
tendering further evidence. Now, in contravention of that
requirement, assume that the defendant chooses to remain silent. In
such a scenario, it could very well be said that the defendant failed to
discharge his burden of proof and would therefore, be taken to have
submitted to the case of the plaintiff and the truthfulness of the
plaint’s averments. However, this is entirely different from what we
are dealing with presently. Here is a scenario, where this plea of
demurrer is raised at a stage when there exists no corresponding duty
on part of the defendant to convince the court to accept his version of
the matter. He is simply pausing or demurring and pointing out to
the court that the sufficiency of the plaintiff’s case in law be checked
first. Therefore, the object of the party raising this plea, at such a
stage, is simple – to sweep away a defective pleading, by raising
issues of law, upon an assumption that the facts stated in the
pleading ‘may’ be true.

35. If the court agrees that the plaintiff’s case is sufficient in law, i.e., if
the plea of demurrer remains unsuccessful, then the matter can be
proceeded with. However, in such proceedings, the defendant must
not be held to be strictly tethered to his stance during the proceedings
on demurrer, at least insofar as his assumption of the truthfulness of
the facts alleged by the plaintiff, are concerned. If he wishes to
adduce further evidence, which was not previously available with
the court during its decision on demurrer, he must be allowed to do
so. In other words, the question of law, as decided during the plea of

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demurrer must not be foreclosed permanently. The defendant should
be held to have some opportunity, howsoever small or large, to
convince the court to revisit the question of law decided on demurrer.
This is especially so because, while deciding on the basis of demurrer,
the court is mandated to only look at the averments in the plaint or
claim and the documents annexed thereto. It would be entirely futile
for the defendant to lead any evidence at that stage because the court
would not be allowed to examine them or even taken the defendants
version of the case into consideration while rendering a decision on
demurrer.

36. Having said so, the aforesaid scope to revisit must not be construed
as giving the defendant an endless leeway or a free-pass on
completely rehashing the same question of law from scratch. He
must not be allowed to upend the decision merely on his whims. He
must convince the court that an interference may be warranted and
also tender evidence which the court did not have the benefit of
looking into. If unable to do so, it is obvious that the arbitrator will
be compelled to arrive at a conclusion similar to the one arrived at
during his adjudication on demurrer.

37. In rendering a decision on demurrer, all that the Court does is declare
that, if the facts be as such, then the question of law would remain
answered as such. However, this by no means, must foreclose any
opportunity that a party may have, to prove by leading evidence, that
the facts are different from the version that has been put forth in the
plaint/complaint. Herein, the dismissal of the case of the plaintiff is
sought on a maintainability point, without adverting to the merits of

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the case. Ergo, since the decision on demurrer is not an adjudication
on merits, there arises no question of foreclosing any issue against
the party taking the plea of demurrer.


38. This rationale is what is adopted in Indian jurisprudence and the
same shall be elaborated upon in the latter parts of this judgment.


b. The legal position in the United States.


39. At this juncture, we find it relevant to discuss the nature of the
concept of demurrer as understood in the U.S. since there seem to be
several decisions which uniformly hold that an applicant seeking
dismissal of a plaint by way of a plea by demurrer would be bound
to the facts which are pleaded in the plaint. It is necessary for us to
dissect under what circumstances such an assertion may be true and
even if true, whether the legal position in India is any different.

40. Only a few states in the U.S., more particularly California and
Virginia, still use the demurrer, while most of the other states and the
federal government seem to have replaced it with the functionally
equivalent “motion to dismiss” for failure to state a claim.

41. The concept of demurrer is well-entrenched in the civil procedure
system of the aforementioned States in the U.S. It is a valid method
through which any party can reply to the averments of another.
Generally, such a route is adopted when the exists no issue of fact to
be tried in the cause.


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42. Before discussing some decisions in this regard, it would be apposite
for us to look into the Civil Procedure Code governing civil actions
in the States of California and Virginia respectively, in order to
understand the legislative framework under which a plea of
demurrer can be raised.

43. In Virginia, in any suit in equity or action at law, the contention that
a pleading does not state a cause of action or that such pleading fails
to state facts upon which the relief demanded can be granted, may be
made by demurrer. However, all such demurrers shall be in writing
and shall specifically state the grounds on which the demurrant
concludes that the pleading is insufficient in law. In such a case, no
grounds other than those specifically stated by the demurrant in the
demurrer shall be considered by the court.

44. Moreover, § 8.01-235 of the Code of Virginia on Civil Remedies and
Procedure, specifically states that if a party seeks to raise an objection
that the action is not commenced within the limitation period
prescribed by law, the same must only be raised as an affirmative
defense specifically set forth in a responsive pleading and not by way
of demurrer. The relevant provision is reproduced as thus: -

“ § 8.01-235. Bar of expiration of limitation period raised
only as affirmative defense in responsive pleading.

The objection that an action is not commenced within the
limitation period prescribed by law can only be raised as an
affirmative defense specifically set forth in a responsive
pleading. No statutory limitation period shall have
jurisdictional effects and the defense that the statutory
limitation period has expired cannot be set up by demurrer. This

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section shall apply to all limitation periods, without regard to
whether or not the statute prescribing such limitation period
shall create a new right.”
(Emphasis supplied)



45. In California, the Code of Civil Procedure under § 430.10 – 430.90
provides for Objections to Pleadings and provides for two ways in
which a party against whom a complaint or cross-complaint has been
filed may go about with raising their objections i.e. One , by demurrer
and/or, two, by answer. When an answer is filed by the objecting
party, the other party is also free to object to the answer by way of
demurrer. Such a demurrer may be taken either to the whole of the
complaint, cross-complaint or answer or to any of the causes of action
or defenses stated therein. However, it is required that a demurrer
distinctly specify the grounds upon which any of the objections to the
complaint, cross-complaint, or answer are taken. Unless it does so,
the demurrer may be disregarded. Each such ground of demurrer
must also be in a separate paragraph. Furthermore, a party filing
demurrer must serve and also file therewith a notice of hearing that
must specify a hearing date. After this, demurrers are set for hearing
not more than 35 days following the filing of the demurrer or on the
first date available to the court thereafter. On good cause being
shown, this can be preponed or postponed. After the decision on
demurrer, i.e., after either overruling or sustaining the demurrer, the
court may, in its discretion, also allow the party in fault to plead anew
or amend on such terms as may be just.

i. Demurrer to Evidence


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46. Several decisions of the Supreme Court of the United States touch
upon the concept of demurrer. One of those is the decision in Fowle
v. Common Council of Alexandria reported in 24 U.S. 320 delivered
in the year 1826 . Before delving into this decision, a key procedural
aspect involved in raising a plea of demurrer to evidence, must be
brought to notice. When a demurrer is offered by one party, the
adverse party “joins” with him in demurrer, and the answer which
he makes is called a “joinder in demurrer”. In a joinder in demurrer,
the adverse party essentially agrees with the legal challenge posed
by the demurrer and joins in arguing only the point of law raised in
demurrer. In other words, both parties clearly agree that there is only
an issue of law which remains to be adjudicated. Without such a
joinder in demurrer entered on the record, the court would not
proceed to give judgment upon the demurrer. Another pertinent
aspect here is that such a joinder in demurrer ought not to be required
or permitted if there was “ any matter of fact in controversy between the
parties ”. This reinforces that a decision in demurrer can only be on a
question of law.

47. In the aforesaid context, let us look into the decision in Fowle (supra).
Therein, after both parties had introduced a good deal of evidence
for the purpose of supporting or repelling the presumption of a fact,
the defendants demurred to the evidence of the plaintiff as
insufficient to maintain their action and the court proceeded to give
judgment upon the demurrer in favour of the defendants. While
reversing the judgment and ordering a new trial through a new jury
panel, the Supreme Court elaborated as follows: -

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(i) First, that the Circuit Court totally misunderstood the nature
of proceedings upon demurrer to evidence. It was clarified that
the object of such proceedings in demurrer was not to bring
before the court, an investigation into the facts in dispute or
task the court with weighing the force of the testimonies or the
presumptions arising from the evidence. The true and proper
object is simple – to refer to the court the law arising from facts,
facts which are already admitted and ascertained. Nothing
remains except for the court to apply the law to those facts.
(ii) Secondly, that no party could insist upon the other party
joining in demurrer without distinctly admitting, upon record,
every fact and every conclusion which the evidence conduced
to prove. If there is a joinder without such admission i.e., the
facts are left unsettled and indeterminate, this would constitute
sufficient reason for the court to refuse judgment upon
demurrer, and the judgment rendered, if any, is liable to be
reversed for error.

(iii) Lastly, it was stated, in the facts of the case, that the demurrer
by the defendant had been so incautiously framed, that there
was no manner of certainty in the state of facts, upon which any
judgment can be founded. The demurrer was so framed as to
rebut what the plaintiff aimed to establish and to overthrow the
presumptions arising therefrom through counter
presumptions. In such a circumstance, it was the duty of the
Circuit Court to overrule the demurrer as incorrect and
untenable in principle, more particularly because the question

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referred by the demurrer to the court ended up being a
question of fact instead of one in law.

The relevant observations are reproduced hereinbelow: -

“ Indeed, the nature of the proceedings upon a demurrer to
evidence, seems to have been totally misunderstood in the
present case. It is no part of the object of such proceedings, to
bring before the Court an investigation of the facts in dispute,
or to weigh the force of testimony or the presumptions arising
from the evidence. That is the proper province of the jury. The
true and proper object of such a demurrer is to refer to the Court
the law arising from facts. It supposes, therefore, the facts to be
already admitted and ascertained, and that nothing remains but
for the Court to apply the law to those facts. This doctrine is
clearly established by the authorities, and is expounded in a very
able manner by Lord Chief Justice Eyre in delivering the
opinion of all the Judges in the case of Gibson v. Hunter, before
the House of Lords. (2 H. Bl. Rep. 187.) It was there held, that
no party could insist upon the other party's joining in
demurrer, without distinctly admitting, upon the record, every
fact, and every conclusion, which the evidence given for his
adversary conduced to prove. If, therefore, there is parol
evidence in the case, which is loose and indeterminate, and may
be applied with more or less effect to the jury, or evidence of
circumstances, which is meant to operate beyond the proof of the
existence of those circumstances, and to conduce to the proof of
other facts, the party demurring must admit the facts of which
the evidence is so loose, indeterminate, and circumstantial,
before the Court can compel the other side to join therein. And
if there should be such a joinder without such admission,
leaving the facts unsettled and indeterminate, it is a sufficient
reason for refusing judgment upon the demurrer; and the
judgment, if any is rendered, is liable to be reversed for error.
Indeed, the case made for a demurrer to evidence, is, in many
respects, like a special verdict. It is to state facts, and not merely
testimony which may conduce to prove them. It is to admit
whatever the jury may reasonably infer from the evidence, and
not merely the circumstances which form a ground of

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presumption. The principal difference between them is, that,
upon a demurrer to evidence, a Court may infer, in favour of the
party joining in demurrer, every fact of which the evidence
might justify an inference; whereas, upon a special verdict,
nothing is intended beyond the facts found.

Upon examination of the case at bar, it will be at once perceived,
that the demurrer to evidence, tried by the principles already
stated, is fatally defective. The defendants have demurred, not
to facts, but to evidence of facts; not to positive admissions, but
to mere circumstances of presumption introduced on the other
side. The plaintiff endeavoured to prove, by circumstantial
evidence, that the defendants granted a license to Marsteller as
an auctioneer. The defendants not only did not admit the
existence of such a license, but they introduced testimony to
disprove the fact. Even if the demurrer could be considered as
being exclusively taken to the plaintiff's evidence, it ought not
to have been allowed without a distinct admission of the facts
which that evidence conduced to prove. But when the demurrer
was so framed as to let in the defendants' evidence, and thus to
rebut what the other side aimed to establish, and to overthrow
the presumptions arising therefrom, by counter presumptions,
it was the duty of the Circuit Court to overrule the demurrer,
as incorrect, and untenable in principle. The question referred
by it to the Court, was not a question of law, but of fact.

This being, then, the posture of the case, the next consideration
is, what is the proper duty of this Court, sitting in error. It is;
undoubtedly, to reverse the judgment, and award a venire facias
de novo. We may say, as was said by the Judges in Gibson v.
Hunter, that this demurrer has been so incautiously framed,
that there is no manner of certainty in the state of facts, upon
which any judgment can be founded. Under such a
predicament, the settled practice is, to award a new trial, upon
the ground that the issue between the parties, in effect, has not
been tried. ”
(Emphasis supplied)


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48. The foremost aspect bearing significance in the decision in Fowler
(supra) was the emphasis that if, in the opinion of the court, there
appears to be a dispute as to certain facts between the parties, then a
decision on demurrer must not be proceeded with. There must be a
clear admission of the facts which the plaintiff’s evidence conduced
to prove, on part of the defendant, for a valid plea of demurrer. Upon
such a clear admission, there remains no doubt that the defendant
raising the plea of demurrer would be bound by the facts whose
veracity was admitted on demurrer.


49. In Slocum v. New York Life Ins. Co. reported in 228 U.S. 364, the
Supreme Court discussed ‘demurrer to evidence’ in a similar manner
as elaborated in Fowle (supra) and observed that: -

(i) First , that a demurrer to evidence is a proceeding whereby the
court is called upon to declare what the law is “upon the facts
shown in evidence”.

(ii) Secondly, such a demurrer would be permissible only when it
is (a) proposed by one party, (b) joined in by the other, and (c)
allowed by the court. The demurrer to evidence must contain
an express and distinct admission by the demurrant ‘of every
fact’ which the evidence of his adversary ‘conduces to prove’.
Otherwise, he would not be able to insist that the adversary join
him in the demurrer.
(iii) Thirdly , once a demurrer to evidence is made, for the
admission to be effective, the admission must be of the facts
and not merely the evidence from which their existence is
inferable. In other words, the defendant must demur to facts
and not to evidence of facts; must demur to positive admissions

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and not to mere circumstances of presumption introduced by
the other side. A demurrer to evidence is to state facts and not
merely agree to the testimony which may conduce to prove
such facts. To put it simply, it would be to admit whatever the
jury may reasonably infer from the evidence, and not just the
circumstances which form a ground of presumption of facts.
(iv) Fourthly, only when the matter of fact is so ascertained and
shown in the demurrer, the case can be deemed to be ripe for
judgment pertaining to a question of law. Therefore, a
demurrer to evidence must not be allowed or admitted when
the demurring party refuses to admit the facts which the other
side attempts to prove and more so, when the demurring party
offers contradictory evidence or attempts to establish
inconsistent propositions.

(v) Lastly, if it is concluded by the appellate court that the
judgment which was given for one party on a demurrer to
evidence must instead have been in favour of the other, such
an error can simply be corrected by directing the proper
judgment. This is because the error was confined to the
judgment and did not affect/reach the facts as ascertained and
shown in the demurrer. However, if the appellate court comes
to the conclusion that there was an error in allowing the
demurrer itself, it would mean that there were no ascertained
facts at all on which a judgment could have been based.
Therefore, in this scenario, directing a new trial is the only
option.

The relevant observations are thus: -

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“The leading English cases dealing with demurrers to evidence
as employed at common law are Middleton v. Baker, Cro. Eliz.
752; Wright v. Pindar, Aleyn, 18; S.C., Style, 34, and Gibson
v. Hunter, 2 H. Bla. 187, 205. The last, which adhered to the
principle of the other two, was much considered in the House of
Lords, and the opinion delivered by Lord Chief Justice Eyre, who
spoke for all the judges, was to the following effect: (a) A
demurrer to the evidence is a proceeding whereby the court,
whose province it is to answer all questions of law, is called
upon to declare what the law is "upon the facts shown in
evidence," and, "in the nature of the thing, the question of law
to arise out of the fact, cannot arise until the fact is ascertained."
(b) Such a demurrer is permissible only when proposed by one
party, joined in by the other and allowed by the court. It must
contain an express and distinct admission by the demurrant of
every fact which the evidence of his adversary conduces to prove,
else he cannot insist that the latter join in the demurrer; and the
admission, to be effective to that end, must be of the facts, and
not merely the evidence from which their existence is inferable.
(c) When the matter of fact is so ascertained and shown in the
demurrer, the case is deemed ripe for judgment in matter of law,
and the jury properly may be discharged from giving a verdict.

This statement of the true office and use of a demurrer to
evidence was both accepted and applied by this court in Fowle
v. Alexandria, 11 Wheat. 320, decided in 1826. There the court
below had sustained such a demurrer, which merely set forth
and admitted the evidence as introduced at the trial, as well the
testimony of witnesses as written documents. […]

xxx xxx xxx

And that this was not a new doctrine in this court is shown
in Young v. Black, 7 Cranch, 565, 568, decided thirteen years
before, where, in declining to disturb the action of the court
below in refusing to compel a joinder in a demurrer to the
evidence, it was said: The party demurring is bound to admit as
true, not only all the facts proved by the evidence introduced by
the other party, but also all the facts which that evidence legally
may conduce to prove. It follows that it [the demurrer] ought
never to be admitted where the party demurring refuses to admit

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the facts which the other side attempts to prove; and it would be
as little justifiable where he offers contradictory evidence, or
attempts to establish inconsistent propositions."

xxx xxx xxx

At common law, if on a demurrer to the evidence judgment was
given for one party when it should have been for the other, the
error was corrected in the appellate tribunal by directing the
proper judgment, and this because the error was confined to the
judgment, and did not reach the facts as ascertained and shown
in the demurrer. But when the reversal was for error in allowing
the demurrer, the latter necessarily went for naught, and, as
there remained no ascertained facts on which to base a
judgment, a new trial was deemed essential. Thus in Gibson v.
Hunter, supra, one of the questions was, whether, considering
the state of the evidence and the admissions in the demurrer, the
plaintiff was obliged to join in it. The question was resolved in
the negative, and, as this eliminated the demurrer on which
judgment had been given in the court of King's Bench, the
judgment of reversal was accompanied by a direction for a new
trial. And in Fowle v. Alexandria, supra, where this court ruled
that the demurrer ought not to have been allowed, the judgment
rendered thereon was reversed with a like direction. So, in the
present case when the verdict was set aside there remained no
ascertained facts on which a judgment might be rested, and that
made a new trial necessary. ”
(Emphasis supplied)



ii. Demurrer to Declaration or Pleading


50. In Aurora City v. W. reported in 74 U.S. 82, the question involved
was whether a judgment on demurrer to a declaration or pleading
would be a bar to any subsequent action between the same parties
for the same cause of action. Answering in the affirmative, the
Supreme Court elaborated as thus: -

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(i) First , it was stated that it cannot be denied that the effect of a
demurrer to a declaration or other pleading, is that it admits all
such matters of fact as are sufficiently pleaded. This is a rule
universally acknowledged. The foundation of this rule is that
the party demurring, has had the option to either plead or
demur, and therefore, in choosing to adopt the latter
alternative, he shall be considered to have admitted or
conceded that he had no ground for denial.

(ii) Secondly, it was held that, in principle, it would make no
difference whether the facts upon which the court proceeded
with its adjudication on merits, were proved by competent
evidence, or whether they were admitted by the parties. An
admission by way of demurrer to a pleading in which the facts
are alleged, must be held to be the same as though an
admission of fact had been made before a competent jury.
Therefore, a judgment rendered on demurrer settles every
matter which was well alleged in the pleadings of the plaintiff.

(iii) Lastly, it was stated that upon the overruling of a demurrer
and when the judgment is rendered in favour of one party, it is
final only “ if the merits are involved ”. Only in such judgments on
merits, which are although rendered on demurrer, it would
mean that every material matter of fact which was sufficiently
pleaded, was admitted.

The relevant observations are reproduced hereinbelow: -

“ First. They contend that a judgment on demurrer is not a bar
to a subsequent action between the same parties for the same
cause of action, unless the record of the former action shows that

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the demurrer extended to all the disputed facts involved in the
second suit, nor unless the subsequent suit presents
substantially the same questions as those determined in the
former suit. Where the second suit presents no new question,
they concede that the judgment in the former suit, though
rendered on demurrer, may be a bar to the second suit, but they
maintain that it can never be so regarded, unless all those
conditions concur.
xxx xxx xxx

[...] They were not only put in issue but they were determined,
unless it be denied that the effect of a demurrer to the declaration
or other pleading, is that it admits all such matters of fact as are
sufficiently pleaded. Such a denial, if made, would be entitled to
no weight, as it is a rule universally acknowledged.

Foundation of the rule is that the party demurring, having had
his option to plead or demur, shall be taken, in adopting the
latter alternative, to admit that he has no ground for denial or
traverse.

On the overruling of a demurrer, the general rule is that
judgment for the plaintiff is final if the merits are involved, but
a judgment that a declaration is bad, cannot be pleaded as a bar
to a good declaration for the same cause of action, because such
a judgment is in no just sense a judgment upon the merits.
Other exceptional cases might be named, but it is unnecessary,
as none of them can have any bearing on this case.

Taken as a whole, the pleadings of the defendants in the
respective cases amounted to a demurrer to the respective
declarations, and the substantial import of the decision of the
court in each case, was that the declaration was sufficient to
entitle the plaintiffs to judgment. Beyond question they were
judgments on the merits, although rendered on demurrer; and
in such case the well-settled rule is that every material matter
of fact sufficiently pleaded is admitted.

Objection was taken in the case of Bouchaud v. Dias, that the
former judgment between the parties could not be a bar to the
subsequent action, because it was rendered on demurrer to the

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defendant's plea, but the court held that it made no difference in
principle whether the facts upon which the court proceeded were
proved by competent evidence, or whether they were admitted
by the parties; and they also held that an admission, by way of
demurrer to a pleading, in which the facts are alleged, must be
just as available to the opposite party as though the admission
had been made are tenus before a jury.

Reference to cases decided in other jurisdictions, however, is
unnecessary, as this court decided, in the case of Clearwater v.
Meredith, that on demurrer to any of the pleadings which are in
bar of the action, the judgment for either party is the same as it
would have been on an issue of fact joined upon the same
pleading, and found in favor of the same party.

Defence of a former judgment rendered upon general demurrer
to the declaration was also set up in the case of Goodrich v. The
City, and this court held that it was a good answer to the suit,
although the appellant insisted that it was not, because the
judgment was rendered on demurrer.

xxx xxx xxx

Judgment in a writ of entry is not a bar to a writ of right; but
the meaning of the rule is, that each species of judgment is
equally conclusive upon its own subject-matters by way of bar
to future litigation for the thing thereby decided. Hence, the
verdict of a jury, followed by a judgment or a decree in chancery,
as held by this court, puts an end to all further controversy
between the parties to such suit, and it has already appeared that
a judgment for either party on demurrer to a pleading involving
the merits, is the same as it would have been on an issue in fact,
joined upon the same pleading, and found in favor of the same
party.
xxx xxx xxx

Better opinion is, that the estoppel, where the judgment was
rendered upon the merits, whether on demurrer, agreed
statement, or verdict, extends to every material allegation or
statement which, having been made on one side and denied on

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the other, was at issue in the cause, and was determined in the
course of the proceedings.

[...] Applying that rule to the case at bar it is clear that a
judgment rendered on demurrer settles every matter which was
well alleged in the pleadings of the opposite party. ”

(Emphasis supplied)


51. Although the decision in Aurora City (supra) has given a finding that
a party pleading demurrer admits the facts as stated in the plaint or
the declaration to which he demurs, yet it places importance on the
kind and nature of the adjudication made upon the demurrer. It is
emphasized that a “ decision on merits” rendered as a consequence of
the demurrer would admit the facts of the declaration demurred to.
In other words, the decision on demurrer must be a “final
adjudication” between the parties for it to have the effect of barring
the demurring party from raising the issue subsequently. Such an
observation is made also as a consequence of the stage at which the
plea of demurrer is raised and the object it seeks to achieve i.e.,
whether it seeks to test the maintainability of the suit/claim or
whether it seeks to have an impact on the final decision on merits.

52. In the former situation, i.e., while the court is tasked with testing
whether the suit or action is simply maintainable or not, or not barred
by any law, the defendant could not be said to have elected to demur
‘instead of’ pleading. Having chosen to demur, he could not be said
to have foregone the option to plead and thereby, admitted or
conceded that he has no grounds for denial at all. There is simply no
requirement for the defendant to plead at this stage since it is the

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plaintiff who must satisfy the court that the action is maintainable.
On the other hand, when tasked with the obligation to plead in the
course of the proceedings, if a party choses to demur, then this choice
would imply an admission to the facts sufficiently pleaded by the
other. Therefore, a key distinction as regards the consequences of
demurrer could be said to lie depending on the stage at which such
a plea of demurrer is raised, and also the nature of the finding on
demurrer.

53. In Gould v. Evansville & C.R. Co. reported in 91 U.S. 526, the
Supreme Court reiterated certain principles pertaining to demurrer
and stated as follows: -
(i) First, that in any civil action, if the defendant choses to appear
in the matter, he has two options in most jurisdictions i.e.,
either to elect to plead or demur. This is subject to the condition
that if the defendant chooses to plead to the declaration of the
plaintiff, then the plaintiff would also have the choice to either
reply to the defendant’s plea or to demur. The general rule is
that, in both the aforementioned scenarios, if the other party
joins in demurrer, then it becomes the duty of the court to
determine the question of law presented. If such a decision by
the court involves the merits of the controversy and it is
determined in favour of the demurring party, and if the other
party does not amend, then the judgment rendered is final.
(ii) Secondly , that a judgment which is rendered upon demurrer to
a declaration or to a material pleading which sets forth the
facts, would be equally conclusive of the matters confessed by

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the demurrer, similar to a verdict finding the same facts. This
is because the matters in controversy are established in the
former scenario as well as in the latter, by a matter of record.
Therefore, the facts thus established can never be contested
between the same parties or those in privity with them,
afterwards.
(iii) Thirdly, it was, however, stated that, if the plaintiffs fails on
demurrer in his first action due to an omission of an essential
allegation in his declaration and the same is fully supported in
the second suit, then the judgment in the first suit would not be
a bar to the second suit despite the fact that both the respective
actions are instituted to enforce the same right. This is because
the merits of the cause, as is being disclosed in the second
declaration, were not decided and heard in the first action.

(iv) Lastly, that, a demurrer admits only the facts which are ‘well
pleaded’. For instance, it cannot be said to admit to the accuracy
of a wrong construction of an instrument, especially when the
alleged construction is not supported by the terms of the
instrument which is also produced on the record. In other
words, the mere averments of a legal conclusion cannot be said
to be admitted by a demurrer, unless, the facts and
circumstances set forth are sufficient to sustain the allegation.

The relevant observations are reproduced hereinbelow: -

“ Due service of process compels the defendant to appear, or to
submit to a default; but, if he appears, he may, in most
jurisdictions, elect to plead or demur, subject to the condition,
that, if he pleads to the declaration, the plaintiff may reply to his
plea, or demur; and the rule is, in case of a demurrer by the

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defendant to the declaration, or of a demurrer by the plaintiff to
the plea of the defendant, if the other party joins in demurrer, it
becomes the duty of the court to determine the question
presented for decision; and if it involves the merits of the
controversy, and is determined in favor of the party demurring,
and the other party for any cause does not amend, the judgment
is in chief; [...]
xxx xxx xxx

From these suggestions and authorities two propositions may
be deduced, each of which has more or less application to certain
views of the case before the court: (1.) That a judgment rendered
upon demurrer to the declaration or to a material pleading,
setting forth the facts, is equally conclusive of the matters
confessed by the demurrer as a verdict finding the same facts
would be, since the matters in controversy are established in the
former case, as well as in the latter, by matter of record; and the
rule is, that facts thus established can never after be contested
between the same parties or those in privity with them. (2.) That
if judgment is rendered for the defendant on demurrer to the
declaration, or to a material pleading in chief, the plaintiff can
never after maintain against the same defendant, or his privies,
any similar or concurrent action for the same cause upon the
same grounds as were disclosed in the first declaration; for the
reason that the judgment upon such a demurrer determines the
merits of the cause, and a final judgment deciding the right
must put an end to the dispute, else the litigation would be
endless. Rex v. Kingston, 20 State Trials, 588; Hutchin v.
Campbell, 2 W. Bl. 831; Clearwater v. Meredith, 1 Wall. 43;
Gould on Plead., sect. 42; Ricardo v. Garcias, 12 Cl. & Fin. 400.

Support to those propositions is found everywhere; but it is
equally well settled, that, if the plaintiff fails on demurrer in his
first action from the omission of an essential allegation in his
declaration which is fully supplied in the second suit, the
judgment in the first suit is no bar to the second, although the
respective actions were instituted to enforce he same right; for
the reason that the merits of the cause, as disclosed in the second
declaration, were not heard and decided in the first
action. Aurora City v. West, 7 Wall. 90; Gilman v. Rives, 10
Pet. 298; Richardson v. Barton, 24 How. 188.

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Viewed in the light of that suggestion, it becomes necessary to
examine the third proposition submitted by the plaintiff; which
is, that the demurrer to the declaration in the former suit was
sustained because the declaration was materially defective, and
that the present declaration fully supplies all such imperfections
and defects.
xxx xxx xxx

Tested by these considerations, it is clear that the proposition
that the defects, if any, in the declaration in the former suit were
supplied by new allegations in the present suit, is not supported
by a comparison of the two pleadings. Should it be suggested
that the demurrer admits the proposition, the answer to the
suggestion is, that the demurrer admits only the facts which are
well pleaded; that it does not admit the accuracy of an alleged
construction of an instrument when the instrument is set forth
in the record, if the alleged construction is not supported by the
terms of the instrument. Ford v. Peering, 1 Ves. Jr. 78; Lea v.
Robeson, 12 Gray, 280; Redmond v. Dickerson, 1 Stockt. 507;
Green v. Dodge, 1 Ham. 80.

Mere averments of a legal conclusion are not admitted by a
demurrer unless the facts and circumstances set forth are
sufficient to sustain the allegation. Nesbitt v. Berridge, 8 Law
Times, N.S. 76; Murray v. Clarendon, Law Rep. 9 Eq. 11;
Story's Eq. Plead. 254 b; Ellis v. Coleman, 25 Beav. 662; Dillon
v. Barnard, 21 Wall. 430.”
(Emphasis supplied)


54. While clarifying some general principles pertaining to demurrer, the
decision in Gould (supra) , emphasised that the general rule that a
demurrer has the consequence of accepting the facts as stated in the
declaration would hold good only if the facts are “well pleaded”.

55. In Alley v. Nott reported in 111 U.S. 472, the State Court had
overruled the demurrers of four individual defendants. However,

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leave was granted to the demurring defendants to withdraw their
demurrers and answer the complaint of the plaintiff within twenty
days, on the failure of which, a final judgment would be rendered
against them for the relief to which the plaintiff was entitled. After
this, the defendants has filed a petition for removal of the matter from
the State Court and into the Circuit Court. While deciding that this
petition for removal was not filed within the time required by the
statute, the Supreme Court made certain pertinent observations on
the concept of demurrer: -
(i) First, that a demurrer to a complaint on the ground that it does
not state facts sufficient to constitute a cause of action would be
equivalent to a general demurrer to a declaration at common
law. This raises an issue, which when tried, would finally
dispose of the case on merits, unless the court grants leave to
amend or plead over to the party who is unsuccessful in the
decision on demurrer.
(ii) Secondly, that if a final judgment is entered on the basis of the
demurrer, it will be a final determination of the rights of the
parties which can then, in turn, be pleaded as a bar to any other
suit instituted for the same cause of action.

The relevant observations are reproduced hereinbelow: -
“ A demurrer to a complaint because it does not state facts
sufficient to constitute a cause of action, is equivalent to a
general demurrer to a declaration at common law, and raises an
issue which, when tried, will finally dispose of the case as stated
in the complaint, on its merits, unless leave to amend or plead
over is granted. The trial of such an issue is the trial of the cause
as a cause, and not the settlement of a mere matter of form in
proceeding. There can be no other trial except at the discretion
of the court, and if final judgment is entered on the demurrer, it

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will be final determination of the rights of the parties which can
be pleaded in bar to any other suit for the same cause of action.
[...] In effect, when this case was heard on the demurrer, the
issue made by the pleadings, and on which the rights of the
parties depended, was submitted to the court for judicial
determination. This issue the court decided, but, before entering
final judgment, granted a new trial, with leave to amend
pleadings. The situation of the case at this time, for the purposes
of removal, was precisely the same as it would be if the trial,
instead of being on an issue of law involving the merits, had
been on an issue of fact to the jury, and the court had, in its
discretion, allowed a new trial after verdict. We can hardly
believe it would be claimed that a removal could be had in the
last case, and, in our opinion, it cannot in the first. ”

(Emphasis supplied)

56. The aforesaid decision in Alley (supra) had thrown light on the aspect
that even if a decision on demurrer is rendered, the unsuccessful
party could be granted leave to amend or otherwise plead over i.e.
file answers to the complaint of the plaintiff, in the discretion of the
court. In other words, there remains some scope for manoeuvring
before the decision on demurrer could bind the defendant forever in
the form of a final determination of the lis between the parties.


57. In Bissell v. Spring Valley Township reported in 124 U.S. 225 , the
Supreme Court was, yet again, faced with the same question –
whether the litigation is any less concluded because the fact upon
which the judgment rested was established by demurrer? The answer
was an emphatic ‘No’. In answering thus, the Court drew a fine
distinction between when a judgment rendered on demurrer can and
cannot be a bar to a future action as follows: -

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(i) First , it was acknowledged that there are many scenarios in
which a final judgment rendered upon demurrer will not
conclude as to a future action. For instance, there may be a
demurrer which may go to the form of the action, to a defect of
pleading or to the jurisdiction of the court. In all such instances,
the judgment thereon will not preclude future litigation ‘on the
merits of the controversy’ in a court of competent jurisdiction,
upon proper pleadings.

(ii) Secondly, in a scenario where a demurrer goes both, to the
defects of form and also to the merits, and a judgment is
rendered, if the judgment does not designate or specify which
of the two grounds of demurrer has been sustained or
overruled, then such a judgment will be presumed to rest on
the former ground i.e., on the demurrer to defects of form. In
other words, benefit would be given such that there is still
scope for the parties to adjudicate the merits by taking a plea of
answer.

(iii) Thirdly, however, if the demurrer is to a pleading which sets
forth distinctly, the specific facts touching upon the merits of
the action or defence, and a final judgment is rendered thereon,
only then it would be said that the facts thus admitted would
be considered as fully established as if found by a jury, or
admitted in open court.

(iv) Fourthly, if a party against whom a ruling is made on
demurrer, wants or wishes to avoid the effect of that demurrer
as an admission of the facts in the pleading demurred to, then
he has scope to seek to amend his pleading or answer, as the

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case may be. If such a request is made, leave for that purpose
will seldom be refused by the court, if the party states that he
can controvert the facts by evidence which he can produce.
Only if he does not ask for such a permission, it will be
presumed that he is unable to produce any more evidence on
the issue and that the fact is, indeed, as is alleged in the
pleading. In other words, only in such a scenario, it could be
stated that he would be estopped and bound by the facts
confessed by the demurrer.
(v) Lastly, it was emphasised that courts are not established to
determine what the law might be upon possible facts, but to
adjudge the rights of the parties upon existing facts. Therefore,
some certainty must exist that the parties are pleading the
actual and not the supposable facts touching upon the matters
in controversy.

The relevant observations are reproduced hereinbelow: -
“ Is the litigation any the less concluded because the fact upon
which the judgment rested was established by the demurrer?
There are undoubtedly many cases where a final judgment upon
a demurrer will not conclude as to a future action. The demurrer
may go to the form of the action, to a defect of pleading, or to the
jurisdiction of the court. In all such instances the judgment
thereon will not preclude future litigation on the merits of the
controversy in a court of competent jurisdiction upon proper
pleadings. And it has been held that where a demurrer goes both
to defects of form and also to the merits, a judgment thereon, not
designating between the two grounds, will be presumed to rest
on the former. But where the demurrer is to a pleading setting
forth distinctly specific facts touching the merits of the action or
defence, and final judgment is rendered thereon, it would be
difficult to find any reason in principle why the facts thus
admitted should not be considered for all purposes as fully

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established as if found by a jury, or admitted in open court. If
the party against whom a ruling is made on a demurrer wishes
to avoid the effect of the demurrer as an admission of the facts
in the pleading demurred to, he should seek to amend his
pleading or answer, as the case may be. Leave for that purpose
will seldom be refused by the court upon a statement that he can
controvert the facts by evidence which he can produce. If he does
not ask for such permission, the inference may justly be drawn
that he is unable to produce the evidence, and that the fact is as
alleged in the pleading. Courts are not established to determine
what the law might be upon possible facts, but to adjudge the
rights of parties upon existing facts; and when their jurisdiction
is invoked, parties will be presumed to represent in their
pleadings the actual, and not supposable, facts touching the
matters in controversy.

The law on this subject is well stated in Gould's Treatise on
Pleading, a work of recognized merit in this country, as follows:
"A judgment, rendered upon demurrer, is equally conclusive
(by way of estoppel) of the facts confessed by the demurrer, as a
verdict finding the same facts would have been; since they are
established, as well in the former case as in the latter, by way of
record. And facts, thus established, can never afterwards be
contested, between the same parties, or those in privity with
them." Chap. IX, part 1, sec. 43.

[...] A distinction was suggested between the cases on the
ground that the former judgment between the parties was
rendered on a demurrer to the defendant's plea. But the court
answered that "it can make no difference, in principle, whether
the facts upon which the court proceeded were proved by deeds
and witnesses, or whether they were admitted by the parties.
And an admission by way of demurrer to a pleading, in which
the facts are alleged, must be just as available to the opposite
party as though the admission had been made ore tenus before a
jury. If the plaintiff demurred for want of form, or if for any
other reason he wished to controvert the facts alleged in the plea,
he might, after learning the opinion of the court, have asked
leave to withdraw the demurrer and reply. But he suffered a
final judgment to be entered against him. He probably thought
that the facts were truly alleged in the plea, and therefore did

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not wish to amend. But however that may be, the judgment is a
bar to this action." p. 244. See also Coffin v. Knott, 2 Greene,
(Iowa,) 582; Birckhead v. Brown, 5 Sandford, Sup. Ct. N.Y.
134. ”
(Emphasis supplied)


58. In Bissell (supra), the Court highlighted yet another important aspect
– the duty of the court to reasonably ensure that the judgment
rendered is upon actual facts and not on supposable ones.


59. In Nalle v. Oyster reported in 230 U.S. 165 , the Supreme Court threw
light to the general rule that provided that, after a demurrer is
overruled, i.e., after the party demurring is unsuccessful, leave is
generally given by the court to instead plead or answer. Now, when
the demurring party pleads or answers the pleading that he initially
demurred to, he would be considered to have waived the initial
demurrer and took it out of the record. This leeway given to the
demurring party was also pointed out in Alley (supra). In the facts of
Nalle (supra), this general rule was modified by law, to the extent
that, the demurring party would have the right to plead over, but
without waiving his demurrer. Irrespective, the aspect deserving
consideration for the purposes of our inquiry is that the right to
answer or plead over, given to the demurring party, remained intact.
The relevant observations are thus: -
“ Sec. 1533 of the District Code provides that in all cases where
a demurrer to a declaration or other pleading shall be overruled,
the party demurring shall have the right to plead over, without
waiving his demurrer. This is obviously designed to modify the
former rule that where after demurrer overruled, leave was
given to plead, and the demurring party pleaded to the pleading
demurred to, he waived the demurrer, and took it out of the
record, so that it did not appear in the judgment roll. Young v.

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Martin, 8 Wall. 354, 357; Stanton v. Embry, 93 U.S. 548,
553; Del., Lack. & West. R. Co. v. Salmon, 39 N.J. Law (10
Vr.), 299, 301. The section has no bearing upon the case where
a demurrer is sustained. ”
(Emphasis supplied)

60. A conspectus of this elaborate legal discussion on the position of law
as regards the concept of ‘demurrer’ in the Unites States is as follows: -

(i) The Civil Procedure Code in those States of the U.S. which still
employ demurrer as a concept have detailed instructions on
how such a plea or objection may be raised by one party. It is a
legislatively sanctioned method of replying to the averments
and raising objections to the pleadings of another party.

(ii) The State of Virginia, for example, requires that all demurrers
be made in writing and specifically state the grounds through
which the demurring party alleges that the pleading is
insufficient in law. No other grounds other than those that are
written in the demurrer would be considered by the Court. In
California, as well, the Civil Code requires that the demurrer
filed, distinctly specify the grounds upon which any of the
objections to the complaint, cross-complaint, or answer are
taken. The party filing the demurrer also files a notice of
hearing and after the decision on demurrer is taken at the
hearing, the court may, in its discretion, also allow the party in
fault to plead anew or amend on such terms, as may be just.

(iii) It must be noted that even in Virginia, which endorses the
practice of demurrer, if a party seeks to raise an objection that
the action is not commenced within the limitation period
prescribed by law, the same must only be raised as an

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 55 of 133

affirmative defense specifically set forth in a responsive
pleading and not by way of demurrer.

(iv) What assumes significance in the aforementioned practice
adopted in the U.S. is that, a party raising a plea of demurrer
has the opportunity to meet with every averment made by the
plaintiff in the plaint/claim specifically and either deny or
agree with them as they file a demurrer. This is simply because
it’s a recognised method of pleading just like the filing of a
written statement in India.
(v) On facts that the parties disagree on, a decision on demurrer
can never be rendered. Only on the facts agreed upon, if a pure
issue of law arises, the situation can be directed for a decision
on demurrer.

(vi) It is only in this background that it is stated that a decision
taken on demurrer has the consequence of the party raising the
plea of demurrer admitting to the facts as stated in the plaint or
original claim. Therefore, it can be seen that procedurally, the
concept is wholly different.
(vii) When a plea of demurrer to evidence is raised, again, things are
slightly different. To elaborate further, in such a scenario, when
a demurrer is offered by one party, the adverse party has to
“join” with him in demurrer, and the answer which he makes
is called a “joinder in demurrer”. In a joinder in demurrer, the
adverse party essentially agrees with the legal challenge posed
by the demurrer and joins in arguing only the point of law
raised in demurrer. In other words, both parties clearly agree
that there is only an issue of law which remains to be

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 56 of 133

adjudicated. Without such a joinder in demurrer entered on the
record, the court would not proceed to give judgment upon the
demurrer. Such a joinder in demurrer ought not to be required
or permitted by the court if there was “ any matter of fact in
controversy between the parties ”.

(viii) In the aforesaid context, the decision in Fowle (supra) observed
that the object of the proceedings in demurrer would be to only
apply the law to facts, those facts which are already admitted
or ascertained. If the facts are left unsettled and indeterminate,
then there would be no ‘joinder’ and the court would refuse
judgment on demurrer. In short, it would be no demurrer if it
ends up raising question(s) of facts instead of one in law. Only
if the ‘joinder’ was proper, then the defendant raising the plea
of demurrer would be bound by the facts whose veracity was
admitted on demurrer.
(ix) In a similar manner, the decision in Slocum (supra) agreed that
when the demurring party refuses to admit the facts which the
other side attempted to prove and more so, when the
demurring party offered contradictory evidence or attempted
to establish inconsistent propositions, this cannot be
considered to be a valid demurrer and any consequential
decision rendered on demurrer would be liable to be reversed
for error. This is for the reason that there were no ascertained
facts at all on which a judgment could have been based.
(x) Another aspect pointed out by Aurora City (supra) is that, in
the U.S., the party has an “option” to plead or demur. In other

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words, one can demur even while the matter is to be decided
on merits.

(xi) Therefore, in choosing to adopt the latter alternative, he shall
be considered to have admitted or conceded that he had no
ground for denial by way of a proper pleading, even on merits.
In such a situation, a demurrer is merely a shortcut to admit the
facts which the party would anyway not seek to dispute at trial;
in that sense, there is no difference whether the facts upon
which the court proceeded with, in its adjudication on merits,
were proved by competent evidence, or whether they were
admitted by the parties by way of demurrer.

(xii) Hence, it is only when the ‘merits’ of the matter are decided
upon the overruling of a demurrer, could it be said that every
material matter of fact which was sufficiently pleaded, was
admitted.
(xiii) To summarize, a key distinction as regards the consequences of
demurrer could also be said to lie depending on the stage at
which such a plea of demurrer is raised, and also the nature of
the finding on demurrer i.e., whether it is on the merits of the
matter or not.

(xiv) The decision in Gould (supra) reinforced the ratio of Aurora
City (supra) and added that the general rule that a demurrer
has the consequence of accepting the facts as stated in the
declaration would hold good only if the facts are “well
pleaded”.

(xv) The decision in Alley (supra) pointed out that the party who is
unsuccessful in the decision on demurrer, may also be granted

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leave by the court to amend or plead over afresh. Seldom will
such a leave be refused, if the party states that he can controvert
the facts, which he initially demurred to, by evidence which he
can produce. In other words, there remains some scope for
manoeuvring before the decision on demurrer could bind the
demurring party in the form of a final determination of the lis
between the parties.
(xvi) The decision in Bissell (supra) highlighted one another
important aspect – that courts are not established to determine
what the law might be upon possible facts, but to adjudge the
rights of the parties upon existing facts. This could be said to
bring forth a corresponding duty of the court to reasonably
ensure that the judgment rendered is upon actual facts and not
on supposable ones.

61. The aforesaid summary of the position in the United States brings to
the fore one conclusion – that the understanding of the concept of
demurrer in American jurisprudence cannot be directly imported to
ours. Their version of the idea of demurrer is heavily rooted in the
civil procedure that they follow, the stage at which the demurrer is
made and the nature of the decision which is rendered on demurrer.

62. Even assuming that we could directly borrow from their
interpretation of the scope and ambit of the concept of demurrer, it
is plainly obvious that when there is an issue of fact, a decision on
demurrer, even if rendered by the court, cannot be proper and is
liable to be reversed for error. Therefore, courts or forums, even in

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 59 of 133

the U.S. must be careful to ensure that there is no fact in controversy
between the parties before they proceed to give a decision on
demurrer.

c. The legal position as understood in Indian jurisprudence.

63. In contradistinction to the legal system and jurisprudence in the
Unites States, the concept of ‘demurrer’ has not found a direct
mention in any of our statute books. Such an idea remains alien
insofar as the CPC is concerned. However, several decisions of this
Court have referred to and have also employed this concept.

i. Some decisions employing the concept of demurrer and the contours
thereof.

64. In O.N. Bhatnagar v. Rukibai Narsindas and Others reported in
(1982) 2 SCC 244, one of the many questions that this Court was faced
with pertained to the issue of jurisdiction i.e., whether it is the Small
Causes Court under Section 28(1)(a) of the Bombay Rent Act, 1947 or
the Registrar under Section 91(1) of the Maharashtra Cooperative
Societies Act, 1960 which would have the jurisdiction to hear the
matter. This determination was dependant on the nature of the jural
relationship in which the parties stood i.e., whether they had a
landlord-tenant relationship or that of licensor-licensee. In this
background, this Court observed that the appellant-licensee had
raised the objection to jurisdiction in the nature of demurrer i.e., that
the issue of jurisdiction had to be determined by adverting to the

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 60 of 133

allegations contained in the statement of claim made by the
respondent no. 1 in the proceedings before the Registrar. Those
allegations must be taken to be true. Upon a perusal of the averments
it was evident that the respondent no. 1 had unequivocally asserted
that the parties stood in a licensor-licensee relationship and that fact
was also clearly borne out from the terms of the agreement of leave
and licence between the parties.


65. However, after observing as aforesaid, this Court in O.N. Bhatnagar
(supra) also observed that when the respondent no. 1 did not admit
to a relationship which would attract the provisions of the Bombay
Rent Act, 1947, the appellant-defendant cannot by his mere plea on
demurrer force the plaintiff-respondent no.1 to go to a forum which
is clearly different from the averments made by the respondent no. 1
in the statement of claim and where the claim simply does not lie. It
was added that the burden rested on the appellant-licensee to
establish that he had the status of a “tenant” within the meaning of
the Bombay Rent Act, 1947 and that “he had failed to discharge that
burden”.


66. The aforesaid observations in O.N. Bhatnagar (supra) must be
understood in the right context. The decision in O.N. Bhatnagar
(supra) does not say that when a plea of demurrer as regards
jurisdiction was raised by the appellant-licensee, the appellant-
licensee was also simultaneously required to discharge his burden of
proof and prove that he was a tenant as was claimed by him. That
would be absurd for the reason that, when only the averments made

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in the plaint/complaint are being looked at, there cannot be any
burden of proof resting on the opposite party or the defendant which
then has to be discharged. In the aforesaid case, when the plea of
jurisdiction was raised by way of demurrer, the averments made by
the respondent no.1 in the statement of claim along with the terms of
the leave and licence agreement were looked at and it was decided
that it was the Registrar who had jurisdiction over the matter.
However, even as the matter progressed before the Registrar and
evidence was taken, the defendant failed to prove that he was a
“tenant” as so staunchly averred by him. This is the reason why this
Court had observed that the defendant had failed to discharge his
burden. This clarification is important for two reasons – (a) When a
plea of demurrer is being decided, the party raising the plea could
only be said to be pausing or waiting. The question raised on
demurrer would not be ‘finally’ decided when it is decided against
the party raising the plea by way of demurrer; and (b) The issue can
be said to be finally decided and can also be ‘foreclosed’ only at a
stage when the party who raised the plea by way of demurrer was,
by law, required to discharge his burden of proof and he failed to do
so.

67. The relevant observations made in O.N. Bhatnagar (supra) are
reproduced as under: -
“ 5. [...] Again, the appellant asked for a de novo trial, but in
view of the provisions of Section 91-A(4) his application was
rejected. Respondent 1 was however re-summoned for further
cross-examination and thereafter the appellant's evidence was
recorded. In August 1977 there was a change of the Judge of the
Cooperative Court and the appellant repeated his prayer for a de

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novo trial but this application of his was also rejected. The
learned Judge of the Cooperative Court by his judgment dated
April 28, 1978, made an award against the appellant for
possession of the flat in dispute and for arrears of rent and mesne
profits amounting to Rs 30,000. Against the award the
appellant filed an appeal before the Cooperative appellate court
but it was dismissed in January 1979. Thereafter the appellant
filed a writ petition in the High Court in February 1979 and it
was dismissed in March 1981 by a learned Single Judge. The
appellant unsuccessfully preferred a letters patent appeal which
was dismissed by a Division Bench on April 21, 1981.

xxx xxx xxx

9. The two enactments deal with two distinct and separate fields
and therefore the non obstante clause in Section 91(1) of the Act
and that in Section 28 of the Rent Act operate on two different
planes. The two legislations pertain to different topics of
legislation. It will be noticed that Section 28 of the Rent Act
proceeds on the basis that exclusive jurisdiction is conferred on
certain courts to decide all questions or claims under that Act
as to parties between whom there is or was a relationship of
landlord and tenant. It does not invest those courts with
exclusive power to try questions of title, such as between the
rightful owner and a trespasser or a licensee, for such questions
do not arise under the Act. The appellant having raised a plea
in the nature of demurrer, the question of jurisdiction had to be
determined with advertence to the allegations contained in the
statement of claim made by Respondent 1 under Section 91(1)
of the Act and those allegations must be taken to be true.
Respondent 1 unequivocally asserts that the parties stood in the
relation of licensor and licensee and that fact is clearly borne out
by the terms of the agreement of leave and licence as between the
parties. The burden was on the appellant to establish that he had
the status of a “tenant” within the meaning of Section 5(11) of
the Rent Act, as it then stood, and that burden he has failed to
discharge. If, therefore, plaintiff in the plaint does not admit a
relationship which would attract any of the provisions of the Act
on which the exclusive jurisdiction given in Section 28 depends,
the defendant cannot by his plea force the plaintiff to go to a
forum where on averments the claim does not lie.

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 63 of 133


xxx xxx xxx

21. [...] But where the parties admittedly do not stand in the
jural relationship of landlord and tenant, as here, the dispute
would be governed by Section 91(1) of the Act. No doubt, the
appellant acquired a right to occupy the flat as a licensee, by
virtue of his being a nominal member, but in the very nature of
things, his rights were inchoate. In view of these considerations,
we are of the opinion that the proceedings under Section 91(1)
of the Act were not barred by the provisions of Section 28 of the
Rent Act.”
(Emphasis supplied)

68. In Exphar SA and Another v. Eupharma Laboratories Ltd. and
Another reported in (2004) 3 SCC 688 , the question pertained to
whether the High Court could exercise jurisdiction under Section
62(2) of the Copyright Act, 1957 to entertain the suit. In this context,
it was held that when an objection is taken by way of demurrer and
not at trial, the objection must be proceeded with on the basis that the
facts which are pleaded by the initiator of the proceedings are true.
For that objection to succeed, it must be shown that granted those
facts, the question of law must be answered against the initiator of
the proceedings. The relevant observations are thus: -
“9. Besides, when an objection to jurisdiction is raised by way
of demurrer and not at the trial, the objection must proceed on
the basis that the facts as pleaded by the initiator of the
impugned proceedings are true. The submission in order to
succeed must show that granted those facts the court does not
have jurisdiction as a matter of law. In rejecting a plaint on the
ground of jurisdiction, the Division Bench should have taken
the allegations contained in the plaint to be correct. [...]”

(Emphasis supplied)


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69. This Court in Man Roland Druckimachinen AG v. Multicolour Offset
Ltd. and Another reported in (2004) 7 SCC 447 , was concerned with
an objection made in the nature of a demurrer. Therein, the
respondent no. 1 had filed an application before the Commission set
up under the Monopolies and Restrictive Trade Practices Act, 1969
(hereinafter, the “ Act, 1969 ”), complaining of unfair trade practices
and had also made a claim for compensation. The appellant, had
raised objections to the Commission’s jurisdiction to entertain the
respondent’s application on two grounds, the first of which was that,
in the event of any dispute, the parties had agreed that the applicable
law would be German law. It was also said to have been agreed that
the disputes between the parties should be resolved either by
proceedings brought in German Courts or alternatively, through
arbitration conducted in accordance with the International Chamber
of Commerce Rules. The second ground was that the appellant being
incorporated under German law and having its registered office in
Germany, neither provided any service nor carried on any trade or
trade practice in India for the purposes of the Act, 1969 and the
printing machine in question was also sold to the respondent no. 1
outside India.

70. While arriving at the conclusion that the jurisdictional clause in the
contract between the parties would only determine the manner and
forum in which rights under the contract would be enforced, Man
Roland (supra) stated the such a clause would not act as a bar to
proceedings under the Act, 1969 which provides for statutory

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remedies in respect of statutorily defined offences. Observing so, this
Court made a few observations on demurrer as follows: -

(i) First, that an objection to jurisdiction can be taken in two ways
– (a) by way of demurrer, or (b) by raising it as a preliminary
issue. If taken by way of demurrer, the objection is essentially
decided on the basis of the allegations contained in the
complaint itself by taking them to be true. If raised as a
preliminary issue, it has to be adjudicated upon after the parties
are given an opportunity to lead evidence.
(ii) Secondly, that the Commission wrongly proceeded on the
footing that both the objections to the maintainability of the
complaint were raised by way of demurrer. It was clarified that
the first objection which was based on a clause in the agreement
was indeed in the nature of a demurrer and could also be
decided as such. However, the second objection must have
been determined only after the taking of evidence. Therefore,
the appeal was disposed with a direction that the Commission
deal with the second objection on the basis of evidence which
may be adduced by either party.

The relevant observations are thus: -

“18. An objection to jurisdiction can either be taken by way of
demurrer or raised as an issue in the proceeding. In the first case
the objection will have to be decided on the basis of the
allegations contained in the complaint, taking the statements
contained therein to be correct. Otherwise an objection to the
jurisdiction of a court may be raised as a preliminary issue. In
such event, the issue would have to be adjudicated upon after
giving the parties an opportunity to lead evidence. The

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Commission proceeded on the basis that both the objections
raised by the appellant, were by way of demurrer.

19. The appellant's first objection to the Commission's
jurisdiction based on the clause in the agreement was in fact in
the nature of a demurrer and could be decided as such. But in
our opinion the second objection to the jurisdiction of the
Commission was not. It would have to be determined on
evidence.

xxx xxx xxx

26. We, therefore, dispose of the appeal by directing the
Commission to deal with the second aspect of the preliminary
objection on evidence which may be adduced by either party and
in the light of the legal issues determined by us. It is clarified
that in the event the Commission finds on evidence that the
appellant does not carry on business in India through
Respondent 2 and that the alleged unfair trade practice did not
take place in India, the Commission will dismiss Respondent 1's
complaint without deciding the matter on merits. The appeal is
accordingly disposed of without any order as to costs.”

(Emphasis supplied)


71. The aforesaid observations made in Man Roland (supra) must be
scrutinised closely. To reiterate, it was observed that – “ The appellant's
first objection to the Commission's jurisdiction based on the clause in the
agreement was in fact in the nature of a demurrer and could be decided as
such.” This Court had cleared the misconception of the Commission
and stated that both the preliminary objections could not be
considered to have been taken by demurrer. The reason behind
observing that the first objection could be taken in the nature of a
demurrer was because it only involved a contractual clause. In such
a scenario, when objection to jurisdiction is taken by drawing the

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attention of the court to a clause in the contract, there is no complexity
involved in deciding the objection to jurisdiction since both the
parties did not question the vires of the clause per say or contend that
the contract was entered into due to fraud or misrepresentation. In
situations like this, the task is simple. The court does not need any
additional evidence to be led by the parties because it can decide the
question of jurisdiction by solely resorting to an examination of the
clause. This is the reason why it was understood that the first
objection was taken by way of demurrer.

72. Due emphasis must also be placed on the words “ and could be decided
as such ”. This reveals that the court or forum which is deciding an
objection must be reasonably convinced that such an objection does
not require evidence. This is the incumbent duty of the court or
forum before which the dispute is brought. The objection must be
such that it is inherently capable of being decided without evidence.
Taking this into consideration, and examining the nature of the
second objection, this Court held that, contrary to the first objection,
the second objection required to be decided as a preliminary issue
after evidence was led by the parties. The second objection was
intertwined with several questions of fact which had to be
established by the parties, i.e., whether the appellant carried on
business in India through the respondent no. 2 and if the alleged
unfair trade practice even took place in India. This Court was alive to
the fact that the parties were at loggerheads insofar as these questions
was concerned and therefore, relegated its determination to be on the
basis of a preliminary issue and not by way of demurrer. In other

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words, both parties wanted to rebut what the other side aimed to
establish and lead evidence to the contrary. There was no consensus
and the court was cognisant of such a disagreement. In such a
scenario, it would be the responsibility of the court or forum deciding
the matter, to require the parties to lead evidence and decide the
objection thereafter.

73. In Indian Mineral & Chemical Co. and Others v. Deutsche Bank
reported in (2004) 12 SCC 376, this Court was concerned with the
order of the High Court revoking leave which was earlier granted to
the appellants under Clause 12 of the Letters Patent, 1865 to institute
a suit. This was done on the ground that no part of the cause of action
as pleaded in the plaint had arisen within the original jurisdiction of
the court. While the Single Judge dismissed the application for
revocation of leave, the Division Bench had allowed it. The Division
Bench had conducted a scrutiny into the veracity or plausibility of
the averments made in the plaint and examined whether those
averments were borne out by the documents which were annexed to
the plaint. Disagreeing with the Division Bench of the High Court,
this Court observed that leave was wrongly revoked since in
determining whether a leave granted is liable to be revoked, one
must look at the assertions made in the plaint and must assume them
to be true. In other words, the decision must be taken on demurrer.

74. While observing so in Indian Mineral & Chemical Co. (supra) , it was
stated that, it might have been open to the Division Bench to hold
that what was alleged to be a part of the cause of action did not form

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 69 of 133

a part of the cause of action at all, i.e., that after assuming the
averments are true, the question of law as to whether the cause of
action was made out could have been answered against the plaintiffs.
However, this was not done. What was done was that a contrary
factual conclusion was arrived at by the Division Bench and this was
impermissible while rendering a decision on demurrer since it has to
be determined ex-facie the plaint.


75. What must also be noted is that, in Indian Mineral & Chemical Co.
(supra), the defendants had submitted that the High Court did not
have jurisdiction because UCO bank, Calcutta was not authorised to
receive the documents and that the payment under the letter of credit
was to be made, not in Calcutta, but in Düsseldorf, Germany.
However, this Court acknowledged that the role that the Calcutta
branch of UCO Bank played in the transaction was a mixed question
of law and fact and therefore, these contentions of the defendants
would have to be decided on the basis of evidence and not in an
application for revocation of leave under Clause 12 of the Letters
Patent. To put it simply, although this Court, on assuming that the
averments in the plaint are true, stated that leave was rightly granted,
yet it left it open for the defendants to agitate the issue of jurisdiction
after evidence was taken since the question involved was a mixed
one of both law and fact. In other words, the issue of jurisdiction
decided in favour of the plaintiffs on the basis of demurrer was not
foreclosed.


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 70 of 133

76. The relevant observations made in Indian Mineral & Chemical Co.
(supra) are reproduced hereinbelow: -
“ 8. On 30-8-1999, the respondent made an application for
revocation of leave under clause 12 of the Letters Patent on the
ground that no part of the cause of action arose within the
jurisdiction of the Calcutta High Court. The learned Single
Judge dismissed the application.

9. The Division Bench accepted the submission of the
respondent that although the pleadings in the plaint showed
that the Calcutta High Court had jurisdiction to entertain the
suit, the averments in the plaint were not borne out by the letter
of credit which was annexed to the plaint. The Division Bench
also accepted the respondents' contention that the letter of credit
was to be honoured by payment “at sight” and that if the terms
and conditions of credit were fully complied with, the
respondent would credit the account of UCO Bank, Düsseldorf
Branch upon presentation of the documents indicated in the
letter of credit. Payment “at sight” was therefore to be made at
Düsseldorf and not in Calcutta as claimed in the plaint and as
such no part of cause of action had arisen within the jurisdiction
of the High Court.

10. We are of the opinion that the learned Judges erred in
revoking leave under clause 12 of the Letters Patent in view of
the clear assertions made in the plaint, and the assertions in a
plaint must be assumed to be true for the purpose of determining
whether leave is liable to be revoked on a point of demurrer
[See Abdulla Bin Ali v. Galappa, (1985) 2 SCC 54; Roop Lal
Sathi v. Nachhattar Singh Gill, (1982) 3 SCC 487; Ritu
Sachdev v. Anita Jindal, AIR 1982 Cal 333 and Secy. of
State v. Golabrai Paliram, AIR 1932 Cal 146] . In the plaint the
jurisdiction of the High Court was claimed on the ground that:
(1) UCO Bank's branch, which was within the Court's
jurisdiction, intimated the plaintiffs that the letter of credit had
been issued by the respondent;
(2) the documents were presented by the plaintiffs to the said
branch of UCO Bank; and
(3) payment was to be received by the plaintiffs from the said
branch of UCO Bank.

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 71 of 133


11. The Division Bench could have held that what was alleged
to be a part of the cause of action did not form part of the cause
of action at all. This the Division Bench did not do. It was not
open to the Division Bench to come to a contrary factual
conclusion in respect of any of these three grounds. The appeal
is, therefore, liable to be allowed on this ground alone.

xxx xxx xxx

14. [...] What the role of UCO Bank in fact was is a mixed
question of law and fact. At present, since we have to determine
the court's jurisdiction ex facie the plaint, we cannot proceed on
the assumption that UCO Bank was not authorised to receive
the documents or that the payment under the letter of credit was
to be made, as far as the appellants are concerned, at Düsseldorf.
Ultimately it will depend upon whether UCO Bank was acting
for the respondent or the appellants. All these matters will have
to be decided on evidence and cannot be decided on an
application for revocation of leave under clause 12 of the Letters
Patent.

15. The observations of Rankin, C.J. in Secy. of
State v. Golabrai Paliram [ See Abdulla Bin Ali v. Galappa,
(1985) 2 SCC 54; Roop Lal Sathi v. Nachhattar Singh Gill,
(1982) 3 SCC 487; Ritu Sachdev v. Anita Jindal, AIR 1982 Cal
333 and Secy. of State v. Golabrai Paliram, AIR 1932 Cal 146]
correctly represents the law as to how the Court should
approach an application for revocation of leave: (AIR p. 147)

“I do really protest against questions of difficulty and
importance being dealt with by an application to
revoke the leave under clause 12 of the Letters Patent
and to take the plaint off the file. Normally it is well
settled that the proper way to plead to the jurisdiction
of the court is to take the plea in the written statement
and as a substantive part of the defence. Except in the
clearest cases that should be the course.”

16. In the circumstances, we are of the view that the learned
Single Judge was justified in rejecting the respondent's
application for revocation of leave. The Division Bench should

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not have allowed the respondent's appeal. The impugned
decision is accordingly set aside and the appeal allowed with
costs. The High Court is requested to dispose of the suit as
expeditiously as is conveniently possible. ”

(Emphasis supplied)


77. In another decision of this Court in State of Haryana v. State of
Punjab and Another reported in (2004) 12 SCC 673 , it was held that
the question whether the plaint must be rejected should be decided
on the basis of the allegations contained in the plaint and by way of
demurrer and observed as follows: -
“29. The application under Order 23 Rule 6 of the Rules is by
way of demurrer. The question whether the plaint should be
rejected must, therefore, be decided on the basis of the allegations
contained in the plaint [See D. Ramachandran v. R.V.
Janakiraman, (1999) 3 SCC 267, 271].”

(Emphasis supplied)


78. Meaning thereby, that while deciding an application for rejection of
plaint, the averments contained in the plaint must be assumed as
true.


79. In J.P. Srivastava & Sons (P) Ltd. and Others v. Gwalior Sugar Co.
Ltd. and Others reported in (2005) 1 SCC 172, this Court was
concerned with the maintainability of the petition under Sections 397
and 398 of the Companies Act, 1956 respectively alleging oppression
and mismanagement. The petition would be maintainable only if
filed by persons having a requisite percentage of shares. The
petitioner’s case was that petitioner no. 3 also represented the family
trust which held some shares, thereby fulfilling the criteria to

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 73 of 133

maintain their petition. However, the petition was dismissed as not
maintainable on the ground that the trust had not consented to the
filing of the petition on its behalf by the petitioner no.3. In this
background, this Court observed that if the objection by the
respondents to the maintainability of the petition is taken by way of
demurrer, then the Company Law Board could decide the issue on
the basis of the averments contained in the petition alone, while
accepting the pleas stated therein as correct.


80. While stating so, it was also observed in J.P. Srivastava (supra) that
when the Board had taken into consideration certain facts outside the
petition, then an opportunity must also be given to the petitioners to
support their case as stated in petition on the basis of further evidence
i.e., evidence which may have not been annexed to the petition. This
observation must, again, be understood in the right manner. When
an objection is decided by way of demurrer, and the objection
succeeds (as in J.P. Srivastava (supra) ), the matter would come to a
end, of course with the exception that the petitioner can further
appeal this decision taken by way of demurrer before an appellate
forum. Therefore, when we say the matter would come to a halt, we
mean that the suit would not progress any further. In J.P. Srivastava
(supra), what had occurred was that, the Board had taken into
consideration the allegations contained in one of the respondent’s
application as well – in essence, they did not proceed on the basis of
demurrer. Therefore, this Court had held that the unsuccessful
petitioner must not be prevented from adducing further evidence
and the issue must not be foreclosed. This observation must, by no
means, be understood as laying down the proposition of law that

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 74 of 133

when a plea of demurrer is taken by a respondent/defendant and the
court, rightly proceeding on the correct understanding of the concept
of demurrer, rejects the objection of the respondent/defendant taken
by way of demurrer, then the issue would be permanently foreclosed.
In other words, it must not be understood to mean that it is only the
petitioner who can enjoy the benefit of the issue not being foreclosed
and that this benefit would not accrue to the respondent/defendant
who takes the plea by way of demurrer.

81. The relevant observations in J.P. Srivastava (supra) are as follows:
“ 11. The hearing in the matter was concluded by CLB and
judgment reserved two days after the last affidavit was filed. [...]
However, CLB upheld the contention of Respondent 8 that the
application under Sections 397 and 398 was not maintainable
on the ground that the petitioner did not hold the requisite 10
per cent shares. CLB proceeded on the basis that the Trust held
1029 shares in the Company but that it had not consented to the
filing of the petition under Sections 397, 398 by Nini
Srivastava. [...]

xxx xxx xxx

40. Given these powers in CLB, we cannot hold that non-
compliance with one of the requirements in Sl. No. 27 in Ann.
III of Regulation 18 goes to the very root of the jurisdiction of
CLB to entertain and dispose of a petition under Sections 397,
398. All that Regulation 18 requires by way of filing of
documents, is proof that the consent of the supporting
shareholders had in fact been obtained prior to the filing of the
petition in terms of Section 399(3). It cannot be gainsaid that it
is open to the persons opposing the application under Sections
397 and 398 to question the correctness of an assertion as to
consent made by the petitioner. It is equally open to the
petitioner to provide evidence in support of the plea taken in the
petition. If of course the objection to the maintainability is taken
by way of demurrer, CLB can decide the issue on the basis of the
averments contained in the petition alone, accepting the pleas

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therein as correct. But where CLB takes into consideration facts
outside the petition as it has done in this case, it cannot foreclose
the petitioner from supporting its case in the petition on the
basis of evidence not annexed thereto. Since CLB calculated the
total shareholding of the Company including preference shares
based on the allegations contained in Respondent 8's
application, it was for CLB to determine the issue of actual prior
consent on evidence. This view finds support from Regulation
24 which says:

“24. Power of the Bench to call for further
information/evidence.—The Bench may, before
passing orders on the petition, require the parties or
any one or more of them, to produce such further
documentary or other evidence as the Bench may
consider necessary—
(a) for the purpose of satisfying itself as to the truth
of the allegations made in the petition; or
(b) for ascertaining any information which, in the
opinion of the Bench, is necessary for the purpose of
enabling it to pass orders on the petition.”

xxx xxx xxx

43. The finding of CLB and the High Court to the effect that the
petition of the appellant deserved to be rejected only because the
letters of consent had not been annexed to the petition was
therefore incorrect. What CLB and the High Court should have
done was to have satisfied themselves that the consent had in
fact been given prior to the filing of the petition. There is
nothing either in the orders of CLB or the High Court which
could even remotely be construed as a rejection of the affidavits,
resolution, etc. filed by Nini Srivastava to show that prior
consent had in fact been obtained. [...] ”

(Emphasis supplied)

ii. Deciding the issue of Limitation on demurrer and its similarity with
an application under Order VII Rule 11(d) of the CPC.


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 76 of 133

82. The decision of this Court in Ramesh B. Desai and Others v. Bipin
Vadilal Mehta and Others reported in (2006) 5 SCC 638 delved into
an in-depth analysis of whether the question of limitation can be
determined as a preliminary issue by way of demurrer or after
evidence has been led by both the parties. Therein, the application of
the respondent nos. 1 and 2 respectively, to dismiss the company
petition for being barred by limitation was allowed by the Company
Judge and also affirmed by the Division Bench of the High Court.
However, while allowing the appeal and directing the High Court to
decide the company petition afresh, this Court observed as follows: -
(i) First , attention was drawn to sub-rule (2) of Order XIV Rule 2
which provides that where issues of both law and fact arise in
the same suit, and the court is of the opinion that the case or
any part thereof may be disposed of on an issue of law only,
then it may try that issue first if it related to (a) the jurisdiction
of the court, or (b) a bar to the suit created by any law for the
time being in force. In other words, the court may postpone the
settlement of issues of fact until after the issues of law have
been determined.

(ii) Secondly , that the route as aforesaid must be adopted only
when, in the opinion of the court, the whole suit may be
disposed of on the issue of law alone. The CPC must not be
construed as conferring jurisdiction upon a court to try a suit
on mixed issues of law and fact as preliminary issues. When the
issues of law and fact in the suit are so intertwined i.e., when
the issues of law in the suit depend upon a decision on issues
of fact in the suit, trying the mixed questions of law and fact as

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 77 of 133

a preliminary issue would result in a lopsided trial of the suit,
because it is normally the duty of the court to try and decide all
issues.

The relevant observations are thus: -
“ 13. Sub-rule (2) of Order 14 Rule 2 CPC lays down that where
issues both of law and of fact arise in the same suit, and the court
is of the opinion that the case or any part thereof may be disposed
of on an issue of law only, it may try that issue first if that issue
relates to (a) the jurisdiction of the court, or (b) a bar to the suit
created by any law for the time being in force. The provisions of
this Rule came up for consideration before this Court in Major
S.S. Khanna v. Brig. F.J. Dillon [(1964) 4 SCR 409 : AIR 1964
SC 497] and it was held as under: (SCR p. 421)

“Under Order 14 Rule 2, Code of Civil Procedure
where issues both of law and of fact arise in the same
suit, and the court is of opinion that the case or any
part thereof may be disposed of on the issues of law
only, it shall try those issues first, and for that
purpose may, if it thinks fit, postpone the settlement
of the issues of fact until after the issues of law have
been determined. The jurisdiction to try issues of law
apart from the issues of fact may be exercised only
where in the opinion of the court the whole suit may
be disposed of on the issues of law alone, but the Code
confers no jurisdiction upon the court to try a suit on
mixed issues of law and fact as preliminary issues.
Normally all the issues in a suit should be tried by the
court; not to do so, especially when the decision on
issues even of law depend upon the decision of issues
of fact, would result in a lopsided trial of the suit.”

Though there has been a slight amendment in the language of
Order 14 Rule 2 CPC by the amending Act, 1976 but the
principle enunciated in the above quoted decision still holds
good and there can be no departure from the principle that the
Code confers no jurisdiction upon the court to try a suit on
mixed issues of law and fact as a preliminary issue and where

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 78 of 133

the decision on issue of law depends upon decision of fact, it
cannot be tried as a preliminary issue. ”

(Emphasis supplied)


83. What must be pointed out from the aforementioned ratio in Ramesh
B. Desai (supra) is that, while deciding an issue of law as to whether
the court has jurisdiction or whether the suit is barred by any law,
including that of limitation, the court must be convinced that it is a
pure question of law alone.


84. Thereafter, the aforementioned decision also holds that when the
issues of law and fact in the suit are so intertwined i.e., when the
issues of law in the suit depend upon a decision on issues of fact in
the suit, trying the mixed questions of law and fact as a preliminary
issue would result in a lopsided trial of the suit. This must be
understood in the right context. In Ramesh B. Desai (supra) , the
question as to whether the company petition was within limitation
was dependant on ‘when’ the petitioners obtained knowledge of the
alleged fraud as well as whether the alleged fraud was sufficiently
pleaded and could be said to have been committed in the first place.
Therefore, the question of limitation was in itself a mixed question of
law and fact while also being dependant on the decision on other
issues of law and fact. In such a scenario, it was stated that when the
issues of law and fact ‘in the entire suit’ are so intertwined, courts
must not resort to deciding the issue of limitation as a preliminary
issue. However, what if the issue of limitation is not a pure question
of law; it is a mixed question of law and fact; but it is also at the same
time divorced from other issues of fact and law? In such a situation,
could it be decided as a preliminary issue? The answer would be in

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the affirmative. But can such a preliminary issue be decided by way
of demurrer? This answer must be in the negative.


85. As elaborated previously, a preliminary issue can be decided in two
ways, (a) by way of demurrer, or (b) after the parties have lead
evidence confined to the preliminary issue. The decision in Ramesh
B. Desai (supra) elaborated on the concept of demurrer and stated
that: -
(i) First , the plea of demurrer is an act of objecting or taking
exception or a protest. It is a pleading made by one party which
assumes the truth of the matter as alleged by the opposite
party, but sets up that it is insufficient in law to sustain his
claim, or that there is some other defect in the pleadings which
constitutes a legal reason as to why the suit must not be allowed
to proceed further. In other words, that even assuming those
facts as pleaded are true, the court does not have jurisdiction as
a matter of law.
(ii) Secondly , such a plea of demurrer was equated with the
principle underlying Order VII Rule 11(d) CPC. Rule 11(d)
speaks of rejection of the plaint, if it appears from the statement
of the plaint that it is barred by any law. Disputed questions
cannot, as a matter of rule, be decided while considering an
application filed under Order VII Rule 11(d). What has to be
decided is whether on the face of it, the averments made in the
plaint, without any doubt or dispute, show that the suit is or is
not barred by limitation or any other law in force. Therefore,
the averments in the plaint are assumed to be correct, and
without looking at the pleas raised in the written statement or

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 80 of 133

any other piece of evidence, the fate of the application under
Order VII Rule 11(d) must be decided.

The relevant observations are thus: -
“ 14. The plea raised by the contesting respondents is in fact a
plea of demurrer. Demurrer is an act of objecting or taking
exception or a protest. It is a pleading by a party to a legal action
that assumes the truth of the matter alleged by the opposite
party and sets up that it is insufficient in law to sustain his
claim or that there is some other defect on the face of the
pleadings constituting a legal reason why the opposite party
should not be allowed to proceed further. In O.N.
Bhatnagar v. Rukibai Narsindas [(1982) 2 SCC 244] (SCC
para 9) it was held that the appellant having raised a plea in the
nature of demurrer, the question of jurisdiction had to be
determined with advertence to the allegations contained in the
statement of claim made by Respondent 1 under Section 91(1)
of the Act and those allegations must be taken to be true.
In Roop Lal Sathi v. Nachhattar Singh Gill [(1982) 3 SCC 487]
(SCC para 24) it was observed that a preliminary objection that
the election petition is not in conformity with Section 83(1)(a)
of the Act i.e. it does not contain the concise statement of the
material facts on which the petitioner relies, is but a plea in the
nature of demurrer and in deciding the question the Court has
to assume for this purpose that the averments contained in the
election petition are true. Reiterating the same principle
in Abdulla Bin Ali v. Galappa [(1985) 2 SCC 54] it was said
that there is no denying the fact that the allegations made in the
plaint decide the forum and the jurisdiction does not depend
upon the defence taken by the defendants in the written
statement. In Exphar SA v. Eupharma Laboratories
Ltd. [(2004) 3 SCC 688] (SCC para 9) it was ruled that where
an objection to the jurisdiction is raised by way of demurrer and
not at the trial, the objection must proceed on the basis that the
facts as pleaded by the initiator of the impugned proceedings are
true. The submission in order to succeed must show that
granted those facts the court does not have jurisdiction as a
matter of law. In this case the decision of the High Court on the
point of the jurisdiction was set aside as the High Court had

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examined the written statement filed by the respondents in
which it was claimed that the goods were not at all sold within
the territorial jurisdiction of the Delhi High Court and also that
Respondent 2 did not carry out business within the jurisdiction
of the said High Court. Following the same principle in Indian
Mineral & Chemicals Co. v. Deutsche Bank [(2004) 12 SCC
376] (SCC paras 10 and 11), it was observed that the assertions
in a plaint must be assumed to be true for the purpose of
determining whether leave is liable to be revoked on the point of
demurrer.

15. The principle underlying clause (d) of Order 7 Rule 11 is no
different. We will refer here to a recent decision of this Court
rendered in Popat and Kotecha Property v. State Bank of India
Staff Assn. [(2005) 7 SCC 510] where it was held as under in
para 10 of the report: (SCC p. 515)

“10. Clause (d) of Order 7 Rule 7 (sic) (Rule 11)
speaks of suit, as appears from the statement in the
plaint to be barred by any law. Disputed questions
cannot be decided at the time of considering an
application filed under Order 7 Rule 11 CPC. Clause
(d) of Rule 11 of Order 7 applies in those cases only
where the statement made by the plaintiff in the
plaint, without any doubt or dispute shows that the
suit is barred by any law in force.”

16. It was emphasised in para 25 of the report that the statement
in the plaint without addition or subtraction must show that it
is barred by any law to attract application of Order 7 Rule 11
CPC. The principle is, therefore, well settled that in order to
examine whether the plaint is barred by any law, as
contemplated by clause (d) of Order 7 Rule 11 CPC, the
averments made in the plaint alone have to be seen and they
have to be assumed to be correct. It is not permissible to look
into the pleas raised in the written statement or to any piece of
evidence. Applying the said principle, the plea raised by the
contesting respondents that the company petition was barred by
limitation has to be examined by looking into the averments
made in the company petition alone and any affidavit filed in
reply to the company petition or the contents of the affidavit

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 82 of 133

filed in support of Company Application No. 113 of 1995 filed
by the respondents seeking dismissal of the company petition
cannot at all be looked into. ”
(Emphasis supplied)

86. After laying down the aforesaid background and drawing parallels
between a plea of demurrer and an application made under Order
VII Rule 11(d), this Court in Ramesh B. Desai (supra) went on to
discuss the nature of a plea of limitation. It was stated that “ a plea of
limitation cannot be decided as an abstract principle of law divorced from
facts, as in every case, the starting point of limitation has to be ascertained,
which is entirely a question of fact ”. Therefore, it is reiterated that a plea
of limitation would be a mixed question of law and fact. Therefore,
more often than not, there may arise situations wherein it cannot be
decided whether the suit could be dismissed as being barred by
limitation or not without the aid of proper pleadings, the framing of
an issue of limitation and the taking of evidence. In other words, it
cannot be decided ex-facie the plaint. Therefore, it was observed that,
“ unless it becomes apparent from the reading of the company petition that
the same is barred by limitation, the petition cannot be rejected under Order
VII Rule 11(d) CPC ”. The relevant observations are thus: -
“ 19. A plea of limitation cannot be decided as an abstract
principle of law divorced from facts as in every case the starting
point of limitation has to be ascertained which is entirely a
question of fact. A plea of limitation is a mixed question of law
and fact. The question whether the words “barred by law”
occurring in Order 7 Rule 11(d) CPC would also include the
ground that it is barred by law of limitation has been recently
considered by a two-Judge Bench of this Court to which one of
us was a member (Ashok Bhan, J.) in Balasaria Construction
(P) Ltd. v. Hanuman Seva Trust [(2006) 5 SCC 658, below] it
was held: (SCC p. 661, para 8)


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“8. After hearing counsel for the parties, going
through the plaint, application under Order 7 Rule
11(d) CPC and the judgments of the trial court and
the High Court, we are of the opinion that the present
suit could not be dismissed as barred by limitation
without proper pleadings, framing of an issue of
limitation and taking of evidence. Question of
limitation is a mixed question of law and fact. Ex facie
in the present case on the reading of the plaint it
cannot be held that the suit is barred by time.”

This principle would be equally applicable to a company
petition. Therefore, unless it becomes apparent from the reading
of the company petition that the same is barred by limitation the
petition cannot be rejected under Order 7 Rule 11(d) CPC.”

(Emphasis supplied)


87. Upon such a situation arising, i.e., when a mixed question of fact and
law arises in deciding an application under Order VII Rule 11(d),
what must be the approach adopted by the court? The suit must be
allowed to proceed and the application under Order VII Rule 11(d)
must be rejected for the reason that the issue needs a more elaborate
consideration by the court and that the court is not convinced that
the matter be kicked out at the threshold. The same is borne out of
the decision of this Court in Pawan Kumar v. Babulal reported in
(2019) 4 SCC 367 which observed as follows: -
“ 13. In the present case, the controversy has arisen in an
application under Order 7 Rule 11 CPC. Whether the matter
comes within the purview of Section 4(3) of the Act is an aspect
which must be gone into on the strength of the evidence on
record. Going by the averments in the plaint, the question
whether the plea raised by the appellant is barred under Section
4 of the Act or not could not have been the subject-matter of
assessment at the stage when application under Order 7 Rule
11 CPC was taken up for consideration. The matter required

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 84 of 133

fuller and final consideration after the evidence was led by the
parties. It cannot be said that the plea of the appellant as raised
on the face of it, was barred under the Act. The approach must
be to proceed on a demurrer and see whether accepting the
averments in the plaint the suit is barred by any law or not. We
may quote the following observations of this Court in Popat and
Kotecha Property v. SBI Staff Assn. [Popat and Kotecha
Property v. SBI Staff Assn., (2005) 7 SCC 510] : (SCC p. 515,
para 10)

“10. Clause (d) of Order 7 Rule 7 speaks of suit, as
appears from the statement in the plaint to be barred
by any law. Disputed questions cannot be decided at
the time of considering an application filed under
Order 7 Rule 11 CPC. Clause (d) of Rule 11 of Order
7 applies in those cases only where the statement
made by the plaintiff in the plaint, without any doubt
or dispute shows that the suit is barred by any law in
force.”

14. We, therefore, allow this appeal, set aside the view taken by
the courts below and dismiss the application preferred by the
second defendant under Order 7 Rule 11 CPC. Since the suit
has been pending since 2006, we direct the trial court to expedite
the matter and dispose of the pending suit as early as possible
and preferably within six months from today. Needless to say
that the merits of the matter will be gone into independently by
the trial court. ”
(Emphasis supplied)


88. In Pawan Kumar (supra) , the question related to whether the suit was
barred by the provisions of Section 4(3) of the Benami Transactions
(Prohibition) Act, 1988 and it was opined that this aspect must be
gone into on the strength of the evidence on record and it cannot be
subject to assessment at the stage when an application under Order
VII Rule 11(d) CPC was taken up for consideration. The matter
required a “ fuller and final consideration ” after evidence was led.

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However, on the face of it, and proceeding on the basis of demurrer,
it was held that the suit could not be said to be barred by any law.

89. Therefore, it is inherent in the nature of a decision as regards the
rejection of a plaint that, if the court deems it fit to not reject the plaint
at the threshold upon an examination of the averments in the plaint,
the ground that the suit is still barred by any law can be taken by the
defendant in the course of the suit proceedings, after leading
evidence. This is because the defendant is not given an opportunity
to place his defence as regards the issue that the suit is barred by any
law, on record, during the Order VII Rule 11(d) stage. Even if he does,
the court would not look into the defendant’s written statements or
any evidence which he may want to adduce. Therefore, a decision
which goes against him, without giving him an opportunity to
properly defend it, must not be to his detriment. Since a plea of
demurrer is akin to an application made under Order VII Rule 11(d),
the same principles must apply.

iii. Decision of the Privy Council in Kanhaya Lal v. The National Bank
of India and that of the Calcutta High Court in Angelo Brothers.

90. The nuanced issue with which we are presently concerned has been
answered by the decision of the Privy Council in Kanhaya Lal v. The
National Bank of India Ltd. reported in 1913 SCC OnLine PC 4.
Therein, the plaintiff instituted an action claiming return of money
paid to the defendant bank under protest along with damages for the
alleged illegal acts of the bank. The bank filed certain preliminary

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 86 of 133

pleas in objection, of which, the foremost was that the plaint discloses
no cause of action. The Privy Council held that the necessary
consequence of the nature of the objection or plea raised by the
defendant bank was that it be decided by way of demurrer i.e., by
assuming, for the sake of argument, that the defendant admits to the
allegations of the plaintiff in his plaint as true in manner and form.
While the decision on the objection or the plea raised would be given
assuming as such, the Privy Council clarified that, the defendant, in
doing so, would reserve the right to show that these allegations are
either wholly or partially false in the further stages of the action,
should his objection be overruled. However, insofar as the decision
on the objection which is raised as a preliminary point is concerned,
everything stated in the plaint would be taken as true. In other
words, the Privy Council had unequivocally and clearly stated that a
decision on a mixed point of law and fact, taken by way of demurrer,
would not be foreclosed in a situation where the party taking such a
plea is unsuccessful.

91. The lucid observations made in Kanhaya Lal (supra) are as thus: -
“ In reply to the above plaint the Respondent Bank filed certain
preliminary pleas relating to the claim for the return of the
money paid under protest, of which it is only necessary to cite
the first, which was that “the suit as framed will not lie”. It is
admitted that this plea is in substance identical with the more
usual form of plea, viz., that “the plaint discloses no cause of
action.”
xxx xxx xxx

The question raised by this Appeal is therefore a pure point of
law. Both the District Judge and the Chief Court have clearly
stated that the decisions which they have given are based on the

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allegations in the plaint, and that for the purposes of such
decisions these allegations must be taken to be true in fact. This
is a necessary consequence of the nature of the plea, and the same
understanding must apply to the present judgment. In asking
the Court to decide an issue like the present (which is essentially
a demurrer by whatever name it may be called) the Defendants
must be taken to admit for the sake of argument that the
allegations of the Plaintiff in his plaint are true modo et forma.
In so doing they reserve to themselves the right to show
that these allegations are wholly or partially false in the
further stages of the action, should the preliminary point
be overruled, but so far as the decision on the preliminary
point is concerned everything contained in the plaint
must be taken to be true as stated .

xxx xxx xxx

In their Lordships' opinion, therefore, the Chief Court ought to
have given judgment in favour of the Plaintiff in his appeal
against the order of the 18th November, 1902. The consequence
of such a decision would have been that the case would have
gone back to the District Judge to be tried on the facts.

As has already been stated, the decision of this Board does not
affect or prejudice any contention of either party with regard to
the facts or any other contention of law not covered by the
present judgment. ”
(Emphasis supplied)

92. The decision of the Calcutta High Court in Angelo Brothers (supra),
further built on the position as aforementioned and stated that: -

(i) First, it cannot be stated that an application or plea by way of
demurrer constitutes an admission of the facts in the suit or the
application, whose dismissal is sought for, for all times to come.
In other words, a motion for dismissal of a plaint or a petition
on a preliminary point cannot be said to have the consequence
of such an applicant forfeiting his right to contest the case later.

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Such an assertion cannot be made by adverting to the principles
contained in Order VIII because a decision is sought for on a
point of maintainability and not on the merits of the matter.
Therefore, when the expression “demurrer” is used in
connection with an application seeking dismissal of a petition
on a preliminary or maintainability point, it shall not imply an
“automatic admission of the facts” contained therein by the
party seeking dismissal.

(ii) Secondly , reliance was placed on the decision of a Coordinate
Bench of the Calcutta High Court in Himungsu Kumar Basu v.
Sudhangsu Kumar Basu reported in AIR 2004 Cal 217 to
buttress that a point can be decided on demurrer when there is
no need for investigation of fact and it is only a point of law
that needs to be resolved.

(iii) Thirdly , the principle of Order VII Rule 11(d) would apply in
relation to such petitions and if it is found that the adjudication
of such a motion involves mixed questions of fact and law, then
the adjudication would stand deferred to be determined on
trial.

(iv) Lastly, the practice as regards the concept of demurrer which
has been followed in the United States and England has not
been accepted as a part of Indian jurisprudence. The law in
India proceeds on a different trajectory on this aspect.

The relevant observations are thus: -
“ 14. Mr. Kar in course of hearing before me has indeed taken a
stand that his application is in the nature of demurrer, but his
case is that in Indian jurisprudence, an application in the nature
of demurrer retains the characteristic of an application for

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rejection of plaint, and the import of the noun "demurrer" in
the Indian legal context cannot be given the same meaning it
has in the U.S. or English jurisdiction. His further submission
is that the provisions of Order VIII of the Code could apply only
after filing of written statement or when the defendant foregoes
the right to file written statement, but in this case his client has
assailed the recall petition on the ground of maintainability
alone and has not abandoned its right to contest the applications
on merit. On this point, he has relied on a judgment of the
Supreme Court in the case of Ramesh B. Desai & Ors. v. Bipin
Vadilal Mehta and Ors. [(2006)5 SCC 638].

xxx xxx xxx

16. In the aforesaid judgment, the Supreme Court applied the
principles of Order 7 Rule 11 in relation to the petition for
dismissal, but allowed the appeal against judgment of the High
Court by which the dismissal plea was upheld. The High Court
was directed to hear the company petition afresh. [...]

17. The point of demurrer has been used interchangeably with
motion for dismissal of a suit on preliminary issue in a
judgment of a Coordinate Bench of this Court in the case of
Himungsu Kumar Basu v. Sudhangsu Kumar Basu (AIR 2004
Cal 217). In paragraph 10 of the Report, a learned Single Judge
of this Court held:-

"... Even I have no doubt or hesitation in my mind
about such principle by whatever name it may be
called. Similarly I do believe that the explanation as
made by Mr. Bagchi in this case is not very clear. The
principal point is demurrer as a preliminary issue can
be decided as the earliest when there is no need of
investigation of fact. Such analytical aspect of the
judgment has to be appreciated. The real import is
that when there is availability of two possibilities the
point of demurrer can be taken as a point of law and
it has to be determined as a preliminary point."

18. Saleem Bhai and Ors. v. State of Maharashtra & Ors.
[(2003)1 SCC 557] is an authority for the proposition of law
that an application under Order 7 Rule 11 of the Code can be
taken out at any stage of the suit. The Bombay High Court also

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has taken the same view in P.R. Sukeshurla v. Dr. Devadatta
V.S. Kerkar (AIR 1995 Bom 227). In Ramesh B. Desai (supra),
it was held that for examining whether a plaint is barred under
law, the averments made in the plaint alone have to be seen and
they have to be assumed correct. Same view was taken by the
Supreme Court in the cases of Man Roland Druckimachinen
AG v. Multicolour Offset Ltd. & Anr. [(2004)7 SCC 447] as
also Popat and Kotecha Property (supra). In the case of ABN-
AMRO Bank v. Punjab Urban Planning and Development
Authority (AIR 2000 P & H44), a view was taken that under
Order 7 Rule 11, there is no concept of partial rejection of plaint.
Ratio of that authority is not applicable in the facts of these
proceedings. None of these authorities lay down the ratio that
an application referred to as a "demurrer" constitutes
admission of facts in the suit or application whose dismissal is
asked for. The principles contained in the aforesaid Rules of
Order VIII cannot be implanted in a case of this nature, in
which dismissal of an application is sought for on
maintainability point, without adverting to merits of the case.
Mr. Kar, on the other hand, has cited a judgment of the Bombay
High Court in the case of Globex Financial Services Ltd. v.
Bakulesh T. Shah and Ors. [2000(2) ALL MR 419]. Submission
on this very point was rejected by a learned Single Judge of the
Bombay High Court in this case, and it was held in the context
of that case that when the defendant proceeded on demurrer, it
would only mean that they are denying the contentions of the
plaintiffs as raised in the plaint and in their view assuming
without conceding that those contentions were to be gone into,
the Court did not have the pecuniary jurisdiction.

19. The opinions expressed in these authorities do not lay down
the law that a motion for dismissal of a plaint or petition on a
preliminary point in India forfeits the right of the applicant to
contest the case later or such a procedure results in admission
of facts pleaded in such plaint or petition whose dismissal is
sought for. On the other hand, in the case of Ramesh B. Desai
(supra), the Supreme Court examined an application seeking
dismissal of a company petition applying the principles of Order
7 Rule 11 of the Code. In the judgment of a Coordinate Bench
in the case of Himungsu Kumar Basu (supra), the learned Judge
has dealt with the concept of demurrer interchangeably with an

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application for rejection of plaint under Order 7 Rule 11 of the
Code. [...]

20. I accordingly hold that the expression demurrer, when used
in connection with an application seeking dismissal of a petition
on a preliminary or maintainability point shall not imply
automatic admission of facts contained in the plaint or petition
whose dismissal is sought for by opposing party. The principles
of Order 7 Rule 11 would apply in relation to such petitions,
and if it is found that adjudication of such motion involves
mixed questions of fact and law, then adjudication of that
question would stand deferred, and those points would be left to
be determined on trial. Though there does not appear to be a
clear Indian authority on this point as yet, from the decisions to
which I have referred to earlier, it is apparent that the practise
followed in England and the US had never been accepted as a
part of Indian jurisprudence. The term "demurrer" in the
Indian context has been construed to have connotation wider
than the dictionary meaning, and motions for dismissal of a
proceeding on a preliminary point has been commonly referred
to as applications "in demurrer". Otherwise, no statutory
reference to this term has been brought to my notice. The U.S.
and English principle on demurrer does not apply in the Indian
context. Law in India proceeds on a different trajectory on this
point, and I do not find any reason to adopt a different course
though such a course would be compatible with the US and the
English principles.”
(Emphasis supplied)

93. We express our agreement with the aforementioned decisions of the
Privy Council and the Calcutta High Court respectively on this
aspect.

94. The aforesaid discussion on the position of law prevailing in India
may be summarised as follows: -
(i) The plea of demurrer is an act of objecting or taking exception
or a protest. It is a pleading made by one party which
“assumes” the truth of the matter as alleged by the opposite

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party, but sets up that it is insufficient in law to sustain the
claim, or that there is some other defect in the pleadings which
constitutes a legal reason as to why the suit must not be
allowed to proceed further. In other words, that even
assuming those facts as pleaded are true, the court does not
have jurisdiction as a matter of law. The party raising the plea
challenges legal sufficiency of a complaint/plaint/action
rather than its factual accuracy.

(ii) To put it simply, a decision on demurrer has to be determined
ex-facie the plaint.
(iii) The decision of this Court in Man Roland (supra) brought to
the fore an important perspective – that only certain objections
are capable of being decided by way of demurrer. Only those
objections which do not involve questions of facts nor the
adducing of any further evidence, could be decided by way of
demurrer.
(iv) The rule that when a mixed question of law and fact is decided
on the basis of a demurrer, the issue would not be permanently
foreclosed was also inherent in the decision of this Court in
Indian Mineral & Chemical Co. (supra).

(v) This Court in Ramesh B. Desai (supra) , was directly concerned
with the issue of limitation being decided by way of demurrer
and it directed attention to the mandate under Order XIV Rule
2 which provides that only if the court is of the opinion that
the case or any part thereof may be disposed of on a pure issue
of law alone, it may try that issue first. This issue of law can
very well be whether the suit is barred by limitation or not,

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 93 of 133

but, provided that such a question of limitation is purely an
issue of law.

(vi) The parallel between an issue of limitation raised by way of
demurrer and an application for rejection of plaint under
Order VII Rule 11(d) CPC was drawn for the first time in
Ramesh B. Desai (supra). Disputed questions cannot, as a
matter of rule, be decided while considering an application
filed under Order VII Rule 11(d). What has to be decided is
whether on the face of it, the averments made in the plaint,
without any doubt or dispute, show that the suit is or is not
barred by limitation or any other law in force.

(vii) This Court in Ramesh B. Desai (supra) went on to discuss the
nature of a plea of limitation. It was stated that “ a plea of
limitation cannot be decided as an abstract principle of law divorced
from facts, as in every case, the starting point of limitation has to be
ascertained, which is entirely a question of fact ”. Therefore, it was
reiterated that, more often than not, a plea of limitation would
be a mixed question of law and fact. Therefore, there may arise
situations wherein it cannot be decided whether the suit could
be dismissed as barred by limitation or not without the aid of
proper pleadings, the framing of an issue of limitation and the
taking of evidence. In other words, it cannot be decided ex-facie
the plaint.

(viii) Therefore, it is inherent in the nature of a decision as regards
the rejection of a plaint that, if the court deems it fit to not reject
the plaint at the threshold upon an examination of the
averments in the plaint, the ground that the suit is still barred

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by any law can be taken by the defendant in the course of the
suit proceedings, after leading evidence.

(ix) This is because the defendant is not given an opportunity to
put forward his defence as regards the issue that the suit is
barred by any law, on record, during the Order VII Rule 11(d)
stage. Even if he does, the court would not look into the
defendant’s written statements or any evidence which he may
want to adduce. Therefore, a decision which goes against him,
at the preliminary stage, without giving him an opportunity to
properly defend it, must not be to his detriment. Since a plea
of demurrer is akin to an application made under Order VII
Rule 11(d), the same principles must apply.
(x) It cannot be said that at the stage of rejection of plaint, the
defendant/respondent chooses to waive his right to plead and
instead, adopts the course of only testing the sufficiency of the
plaint in law. At this stage, there is no choice between either
pleading or demurring and the defendant/respondent cannot
be taken to have elected to demur instead of pleading. This is
simply because, there exists no burden of proof on him, at that
stage, to plead. He can simply pause or wait for the plaintiff to
prove the sufficiency of his claim in law, without affecting his
right to plead or lead evidence in the future.

(xi) In Kanhaya Lal (supra), the Privy Council clarified that, while
the decision on the objection or the plea raised by way of
demurrer would be given assuming that the averments of the
plaint are true, the defendant, would simultaneously reserve
the right to show that these allegations are either wholly or

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 95 of 133

partially false in the further stages of the action, should his
objection be overruled. However, insofar as the decision on the
objection which is raised as a preliminary point is concerned,
everything stated in the plaint would be taken as true. In other
words, the Privy Council had unequivocally and clearly stated
that a decision on a mixed point of law and fact, taken by way
of demurrer, would not be foreclosed in a situation where the
party taking such a plea is unsuccessful.

(xii) The Calcutta High Court in Angelo Brothers (supra) also
buttressed that when a defendant/respondent raises a plea by
way of demurrer, it cannot be said that it constitutes an
admission of the facts in the suit or the application, whose
dismissal is sought for, for all times to come. In other words,
the assumption made while seeking a decision on a
preliminary point cannot be said to have the consequence of
such an applicant forfeiting his right to contest the case later.
Such an assertion cannot be made by adverting to the
principles contained in Order VIII because a decision herein is
sought for on a point of maintainability and not on the merits
of the matter.

95. Coming back to the facts of the present case, the arbitrator, while
passing the interim award could not have decided the issue of
limitation, on the basis of demurrer, owing to the fact that it was a
mixed question of law and fact. Even if he had chosen to do so, he
could not have foreclosed the issue permanently.


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96. The impugned decision is correct in observing that the arbitrator has
not even recorded a finding that the issue of jurisdiction in the
present facts did not “require” any evidence. In other words, he did
not state that the averments of the statement of claim and the
documents annexed thereto would be sufficient to decide the issue of
limitation in the circumstances of the present matter. If this
sufficiency had been indicated and then, the issue would have been
decided by way of demurrer, it might have been possible for us to
attribute some merit to the argument of the present petitioner that
the issue could be foreclosed. However, it is the arbitrator’s own
opinion that if further evidence was adduced or witnesses were
cross-examined, he might have leaned towards arriving at a contrary
finding. With such an apprehension weighing on his mind, the
arbitrator should not have foreclosed the issue of limitation
permanently.


97. When the parties were informed that the issue of limitation would be
decided on the basis of demurrer, there was no corresponding duty
on the respondent to adduce any evidence because it was apparent
that it is the maintainability of the claim which is being decided on
principles akin to Order VII Rule 11(d). Therefore, the argument of
the present petitioner that, the respondent was asked whether they
wanted to lead any evidence and they consciously chose not to,
would also not be of any avail to them, particularly to contend that
the decision on the issue of limitation, was final. In other words, there
would be no question of estoppel.


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 97 of 133

98. The learned arbitrator seems to have directly adopted the approach
followed in the U.S. and England, without appreciating the
differences which exist in our legal systems on the concept of
demurrer. Even assuming that such an approach could have been
directly imported, the arbitrator ought to have taken note of the fact
that it is a well-settled position even in the U.S. that questions of fact
cannot be adjudicated by way of a decision on demurrer.

99. In our opinion, the observations made by the Single Judge, which has
been affirmed by the impugned decision, must not be construed as
giving unbridled scope to the respondents to re-agitate the issue. The
specific words used by the Single Judge are that the Arbitral Tribunal
could further examine this issue on the basis of evidence and other
materials on record “if tendered and if so warranted”. Therefore, the
respondents must satisfy the Arbitral Tribunal that the issue
warrants re-visiting through cogent evidence, in the absence of
which, the arbitrator would be compelled to arrive at the same
conclusion, similar to the one arrived at while adjudicating on
demurrer. To put it simply, the respondent must successfully
discharge their burden of proof on this aspect in the course of the
proceedings. If not, any decision finally rendered on merits could not
be assailed on the basis that the respondents did not concede to the
truth of the assertions made in the statement of claim.

II. Whether the Doctrine of Party Autonomy can be utilised to adopt
a procedure which has the consequence of infringing Section 3 of
the Limitation Act, 1963?


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100. As elaborated by us previously, the issue of limitation is a mixed
question of law and fact, and goes to the root of any claim that a party
may put forward. Therefore, it is incumbent upon any Court or
Tribunal having jurisdiction over any dispute to, first, adjudicate the
question of limitation and dismiss the claim if found to be barred by
limitation, even if limitation is not set up as a defence. This comes as
a direct mandate from Section 3 of the Act, 1963 which reads thus: -
“ 3. Bar of limitation.—
(1) Subject to the provisions contained in sections 4 to 24
(inclusive), every suit instituted, appeal preferred, and
application made after the prescribed period shall be dismissed,
although limitation has not been set up as a defence.”

(Emphasis supplied)


101. Therefore, there exists a positive duty upon any forum adjudicating
any dispute to ensure that the claim is within limitation. This duty
must be reasonably and properly discharged in a manner which is
tailored to the facts and circumstances of each case. If the peculiar
facts of the matter are such that, the issue of limitation cannot be
decided sans further evidence, then the mandate of Section 3 of the
Act, 1963, must be understood to also empower the court or tribunal
to require further evidence in order to adjudicate the issue. We say
so because, the responsibility fastened upon the court or tribunal, is
not merely to decide the issue of limitation in a superficial manner
but to decide it properly and conscientiously, by adopting a
procedure which adequately, appropriately and fairly decides the
issue. Therefore, deference to this duty must not just be on the surface
level and this obligation must be not be understood in a narrow and
restricted manner.

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102. Section 43 of the Act, 1996, which makes the Act, 1963 applicable to
arbitrations explicitly states that, the Act, 1963 “shall” apply to
arbitrations as it applies to proceedings in court. This is again, a
positive mandate. Therefore, by virtue of Section 43 of the Act, 1996,
the Arbitral Tribunal would also be bound by the statutory mandate
underlying Section 3 of the Act, 1963 which requires the arbitrator to
decide the issue of limitation in a proper and reasonable manner.


103. The question which then arises is whether parties can adopt a
procedure which may have a direct impact on this positive obligation
which is cast upon the Arbitral Tribunal? In other words, can party
autonomy be exercised in a manner such that the issue of limitation
comes to be decided inadequately or superficially? The answer
would, again, be an emphatic ‘No’. To elaborate on why the answer
to the aforesaid must necessarily be in the negative, one has to first
understand the contours of the doctrine of party autonomy itself and
the breadth of its expanse. That the doctrine of party autonomy is not
limitless, although an unpopular premise, is a premise that finds
backing from an apparent reading of Section 19 of the Act, 1996
which embodies the core of doctrine of party autonomy insofar as the
determination of procedural rules are concerned. The Section reads
as thus: -
“ 19. Determination of rules of procedure. —
(1) The arbitral tribunal shall not be bound by the Code of Civil
Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872
(1 of 1872).

(2) Subject to this Part, the parties are free to agree on the
procedure to be followed by the arbitral tribunal in conducting
its proceedings.

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 100 of 133


(3) Failing any agreement referred to in sub-section (2), the
arbitral tribunal may, subject to this Part, conduct the
proceedings in the manner it considers appropriate.

(4) The power of the arbitral tribunal under sub-section (3)
includes the power to determine the admissibility, relevance,
materiality and weight of any evidence.”

(Emphasis supplied)

104. The words used at the beginning of Section 19(2) is “ Subject to this
Part ”. The very insertion of this phrase indicates that the legislature
in its wisdom wanted to circumscribe, to an extent, the undoubtedly
expansive scope which has been afforded to the doctrine of party
autonomy under the framework of arbitration. How this plays out
vis-á-vis the legislative scheme of Part I of the Act, 1996, will be dealt
with shortly. However, we can safely begin this discussion on the
boundaries of the doctrine of party autonomy, after having brought
due attention to this legislative intent.


105. It is no more res integra that parties are empowered to agree on
certain procedures which is to be followed by the Arbitral Tribunal
during the conduct of its proceedings. Such a procedure may also be
at variance compared with those traditionally adopted in the court
proceedings. In the decision of this Court in Centrotrade Minerals
and Metal Inc. v. Hindustan Copper Limited reported in (2017) 2 SCC
228 , the issue that fell for consideration was whether the parties could
have agreed to a two-tier arbitration and if the same was prohibited
by the provisions of the Act, 1996. While holding that party
autonomy could be exercised in such a manner whereby the arbitral

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 101 of 133

award rendered in India could again be reconsidered by another
arbitrator(s) by way of an appeal, this court made some observations
as regards the doctrine of party autonomy: -
(i) First, that party autonomy is virtually the backbone of
arbitrations. The parties would be free to agree on the
application of three different laws which would govern their
entire relationship i.e., the proper law of contract, the proper
law of the arbitration agreement and the proper law for the
conduct of arbitration.
(ii) Secondly , that there are four foundational pillars to an
arbitration; The first of which is the “fair, speedy and
inexpensive trial” by an Arbitral Tribunal and the second
would be the exercise party autonomy in the choice of
procedure. As a consequence of the second pillar, if a particular
procedure is prescribed in the arbitration agreement, that
procedure must generally be resorted to, owing to the fact that
the parties have agreed to it.

(iii) Thirdly, the scope of party autonomy was said to extend not
only to the choice of procedure, but to the choice of substantive
law as well. To elaborate, parties would also be free to
determine the substantive law or rules which would be
applicable to the merits of the dispute. Through this, parties
could avoid the application of an unfavourable or
inappropriate law to an international dispute. This would
mean that the choice of jurisdiction is left to the wisdom of the
contracting parties.

The relevant observations are thus: -

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 102 of 133

“ Party autonomy
38. Party autonomy is virtually the backbone of arbitrations.
This Court has expressed this view in quite a few decisions. In
two significant passages in Bharat Aluminium Co. v. Kaiser
Aluminium Technical Services Inc. [Bharat Aluminium
Co. v. Kaiser Aluminium Technical Services Inc., (2016) 4 SCC
126 : (2016) 2 SCC (Civ.) 580, Hon'ble Judges/Coram : Anil R.
Dave, Kurian Joseph and Amitava Roy, JJ.] this Court dealt
with party autonomy from the point of view of the contracting
parties and its importance in commercial contracts. In para 5 of
the Report, it was observed : (SCC p. 130)

“5. Party autonomy being the brooding and guiding
spirit in arbitration, the parties are free to agree on
application of three different laws governing their
entire contract— (1) proper law of contract, (2)
proper law of arbitration agreement, and (3) proper
law of the conduct of arbitration, which is popularly
and in legal parlance known as “curial law”. [...]

39. In Union of India v. U.P. State Bridge Corpn. Ltd. [Union
of India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 :
(2015) 1 SCC (Civ.) 732] this Court accepted the view [ O.P.
Malhotra on the Law and Practice of Arbitration and
Conciliation (3rd Edn. revised by Ms Indu Malhotra, Senior
Advocate)] that the A&C Act has four foundational pillars and
then observed in para 16 of the Report that : (SCC p. 64)

“16. First and paramount principle of the first pillar
is ‘fair, speedy and inexpensive trial by an Arbitral
Tribunal’. Unnecessary delay or expense would
frustrate the very purpose of arbitration.
Interestingly, the second principle which is
recognised in the Act is the party autonomy in the
choice of procedure. This means that if a particular
procedure is prescribed in the arbitration agreement
which the parties have agreed to, that has to be
generally resorted to.”
(emphasis supplied)

40. This is also the view taken in Law and Practice of
International Commercial Arbitration [ Chapter 6. Conduct of

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the Proceedings in Nigel Blackaby, Constantine Partasides, et
al., Redfern and Hunter on International Arbitration [Sixth
Edn., © Kluwer Law International, Oxford University Press
2015] pp. 353-414, Para 6.07] wherein it is said:

“Party autonomy is the guiding principle in
determining the procedure to be followed in an
international arbitration. It is a principle that is
endorsed not only in national laws, but also by
international arbitral institutions worldwide, as well
as by international instruments such as the New York
Convention and the Model Law.”

41. However, the authors in Comparative International
Commercial Arbitration [ Chapter 17 Determination of
Applicable Law in Julian D.M. Lew, Loukas A. Mistelis, et
al., Comparative International Commercial Arbitration (©
Kluwer Law International, Kluwer Law International 2003) pp.
411-437, Para 17-8] go a step further in that, apart from
procedure, they say that party autonomy permits parties to have
their choice of substantive law as well. It is said:

“All modern arbitration laws recognise party
autonomy, that is, parties are free to determine the
substantive law or rules applicable to the merits of the
dispute to be resolved by arbitration. Party autonomy
provides contracting parties with a mechanism of
avoiding the application of an unfavourable or
inappropriate law to an international dispute. This
choice is and should be binding on the Arbitration
Tribunal. This is also confirmed in most arbitration
rules.”
(emphasis supplied)

42. Be that as it may, the legal position as we understand it is
that the parties to an arbitration agreement have the autonomy
to decide not only on the procedural law to be followed but also
the substantive law. The choice of jurisdiction is left to the
contracting parties. In the present case, the parties have agreed
on a two-tier arbitration system through Clause 14 of the
agreement and Clause 16 of the agreement provides for the
construction of the contract as a contract made in accordance

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 104 of 133

with the laws of India. We see nothing wrong in either of the
two clauses mutually agreed upon by the parties. ”

(Emphasis supplied)


106. Some attention must be paid to the foundational pillars of arbitration
which has been alluded to in Centrotrade Minerals (supra) . The first
foundational pillar involves ensuring a “fair” trial of the dispute
whose resolution is sought through arbitration. Now, the question
arises, what if there is a conflict between the aforementioned first
pillar and the second pillar of party autonomy? To put it simply,
whether the second pillar of party autonomy in exercising an option
over choice of procedure could be used to undermine the idea
fairness which is also equally fundamental to arbitrations? The
answer must be in the negative. Moreover, the thumb rule is that the
choice of procedure agreed to by the contracting parties must
“ generally be restored to ”. Therefore, there may arise circumstances
wherein such a choice of procedure exercised by the parties would
stand detrimental to the fair resolution of the dispute itself and in
such a scenario, there would be no other choice but to place the fair
and just resolution of the dispute at the helm. Ignoring the principles
of limitation law would result in an unfair resolution of the dispute
and therefore, any procedure which enable this, even if agreed to by
the parties, must not be given any impregnable or inviolable
immunity from scrutiny.


107. One another very pertinent observation made in Centrotrade
Minerals (supra), was that the two-tier arbitration mechanism agreed
upon by the parties did not by-pass any mandatory provision of the

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 105 of 133

Act, 1996, either implicitly or explicitly. This is precisely why such an
exercise of party autonomy, i.e., to agree to a two-tier arbitration, was
held to be a valid and permissible exercise of party autonomy. The
relevant observations are as follows: -
“ 46. [...] The parties to the contract have not by-passed any
mandatory provision of the A&C Act and were aware, or at least
ought to have been aware that they could have agreed upon the
finality of an award given by the arbitration panel of the Indian
Council of Arbitration in accordance with the Rules of
Arbitration of the Indian Council of Arbitration. Yet they
voluntarily and deliberately chose to agree upon a second or
appellate arbitration in London, UK in accordance with the
Rules of Conciliation and Arbitration of the International
Chamber of Commerce. There is nothing in the A&C Act that
prohibits the contracting parties from agreeing upon a second
instance or appellate arbitration — either explicitly or
implicitly. No such prohibition or mandate can be read into the
A&C Act except by an unreasonable and awkward
misconstruction and by straining its language to a vanishing
point. We are not concerned with the reason why the parties
(including HCL) agreed to a second instance arbitration — the
fact is that they did and are bound by the agreement entered into
by them. HCL cannot wriggle out of a solemn commitment
made by it voluntarily, deliberately and with eyes wide open. ”
(Emphasis supplied)


108. Therefore, a reasonable inference which could be drawn from the
above is that, when the exercise of party autonomy is in teeth with
any mandatory provision of the Act, 1996, the same could not be said
to be proper.

109. The decision of this Court in Voestalpine Schienen GMBH v. Delhi
Metro Rail Corporation reported in (2017) 4 SCC 665 discussed the
th
246 Report of the Law Commission, more specifically in the context

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of neutrality of arbitrators and its interaction with the doctrine of
party autonomy. The relevant portions of the Law Commission
Report is reproduced as under: -
“ Neutrality of Arbitrators
53. It is universally accepted that any quasi-judicial process,
including the arbitration process, must be in accordance with
principles of natural justice. In the context of arbitration,
neutrality of arbitrators viz. their independence and
impartiality, is critical to the entire process. [...]

xxx xxx xxx

57. The balance between procedural fairness and binding nature
of these contracts, appears to have been tilted in favour of the
latter by the Supreme Court, and the Commission believes the
present position of law is far from satisfactory. Since the
principles of impartiality and independence cannot be discarded
at any stage of the proceedings, specifically at the stage of
constitution of the Arbitral Tribunal, it would be incongruous
to say that party autonomy can be exercised in complete
disregard of these principles — even if the same has been agreed
prior to the disputes having arisen between the parties. There
are certain minimum levels of independence and impartiality
that should be required of the arbitral process regardless of the
parties' apparent agreement. A sensible law cannot, for
instance, permit appointment of an arbitrator who is himself a
party to the dispute, or who is employed by (or similarly
dependent on) one party, even if this is what the parties agreed.
[...] The concept of party autonomy cannot be stretched to a
point where it negates the very basis of having impartial and
independent adjudicators for resolution of disputes. In fact,
when the party appointing an adjudicator is the State, the duty
to appoint an impartial and independent adjudicator is that
much more onerous — and the right to natural justice cannot
be said to have been waived only on the basis of a “prior”
agreement between the parties at the time of the contract and
before arising of the disputes.”
(Emphasis supplied)


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110. The Report emphasized that a delicate balance has to be maintained
between procedural fairness and giving effect to contracts wherein
the suggested arbitrator is an employee of one of the parties. It was
stressed that party autonomy cannot be exercised in complete
disregard of the principles of impartiality and independence which
is crucial to arbitrations. It was added that, there are certain
minimum levels of independence and impartiality that should be
required of the arbitral process regardless of the parties’ apparent
agreement. In this manner, the unduly expansive way in which the
concept of party autonomy was being construed was criticised and
some necessary checks and balances were deemed necessary.

111. In yet another decision of this Court in Lombardi Engineering
Limited v. Uttarakhand Jal Vidyut Nigam Limited reported in (2024)
4 SCC 341, where one of us (J.B. Pardiwala, J.), was a member of the
Bench, the counsel for the respondent sought to press the argument
that, the petitioner having consented to a pre-deposit clause, cannot
be permitted to turn around and question its validity at the stage of
Section 11(6) application because it would circumvent the principle
of party autonomy. However, such an argument was rejected on the
basis of the reasoning that, the concept of party autonomy cannot be
stretched to an extent where it violates the fundamental rights
guaranteed under the Constitution. The relevant observations are
thus: -
“ 21. It was also argued that the petitioner having consented to
the pre-deposit clause cannot be permitted to turn around and
question its validity at the stage when a petition under Section
11(6) of the 1996 Act is being considered, thereby
circumventing the principle of “party autonomy”.

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xxx xxx xxx

83. The concept of “party autonomy” as pressed into service by
the respondent cannot be stretched to an extent where it violates
the fundamental rights under the Constitution. For an
arbitration clause to be legally binding it has to be in consonance
with the “operation of law” which includes the Grundnorm i.e.
the Constitution. It is the rule of law which is supreme and
forms parts of the basic structure. The argument canvassed on
behalf of the respondent that the petitioner having consented to
the pre-deposit clause at the time of execution of the agreement,
cannot turn around and tell the Court in a Section 11(6)
petition that the same is arbitrary and falling foul of Article 14
of the Constitution is without any merit .”

(Emphasis supplied)


112. We are not in any way trying the dilute the sanctity of the doctrine of
Party Autonomy. It is undoubtedly, the bedrock of arbitration. The
general rule is always that arbitrations are to be conducted on the
basis of what the parties have agreed upon and consented to.
However, all that we are trying to convey is that, when parties wish
to adopt procedures which strike at the root of very adjudication of
the dispute and have the potential to upend any established principle
of fairness which our legal system has created and nurtured over the
years, one has to see whether such an exercise of party autonomy is
within the confines of the Act, 1996 and within the confines of the
doctrine of party autonomy envisaged by the Act, 1996.
Undoubtedly, the doctrine is quite expansive, but is it expansive
enough to strike at the most basic principles of limitation law, more
particularly Section 3 of the Act, 1963? - is the question that we are
concerned with. We, are of the opinion, that it isn’t.


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113. No doubt, Gary B. Born in his commentary on International
Commercial Arbitration, discusses party autonomy as follows: -

“One of the principal reasons that this procedural autonomy is
granted is to enable the parties and arbitrators to dispense with
the technical formalities and procedures of national court
proceedings and instead fashion procedures tailored to
particular disputes”


114. While we are in complete agreement with the afore-stated, one must
be able to distinguish when this procedural autonomy is used to
dispense with mere “technical” formalities and procedures, and
when it is wielded to dispense with certain core principles which any
method of dispute resolution must abide by. Any procedure agreed
upon by parties cannot and must not have the consequence of the
matter being decided in ignorance of settled principles of law, which
includes the principles of limitation, or have the effect of the matter
being decided in an unfair and lopsided manner. One must be able
to distinguish between instances when party autonomy is used to
dispense with mere technicalities in the pursuit of a fair and speedy
resolution of the dispute, and instances when the doctrine is being
disguised to shorthand fairness and justice itself.

115. To buttress our view, we may look at this question from one another
angle – a perspective to which we had alluded to briefly at the
beginning of our discussion on this issue. Upon a careful perusal, it
can be seen that specific words used in Section 19(2) which embodies
the doctrine of party autonomy is – “ Subject to this Part ”. Therefore,
this reinforces the idea that party autonomy cannot be wielded as a

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 110 of 133

unbridled and limitless doctrine. The same is also subject to certain
restrictions, however limited those restrictions may be.

116. It would be apposite to point out that, Section 43 of the Act, 1996
which makes the law of limitation applicable to arbitrations would
fall under the ambit of the phrase “ Subject to this Part” finding
mention under Section 19(2) of the Act, 1996 since Section 43 is also
included under Part I of the larger scheme of the Act, 1996. Therefore,
one of those few reasonable restrictions which may limit the scope of
the doctrine of party autonomy, may very well include certain
provisions of the Limitation Act as well, more particularly, Section 3
thereof. To put it simply, the elasticity of the doctrine of party
autonomy cannot be tested and pushed to the extent that it has the
consequence of being at loggerheads with the duty of the Arbitral
Tribunal which is manifest in Section 3 of the Act, 1963.

117. The counsel for the present petitioner is right insofar as submitting
that parties have the right to agree to procedures that differ from
standard court processes, such as agreeing to an award without
reasons, agreeing to a custom-made procedure for challenging the
appointment of an arbitrator and determination of bias, or agreeing
to a proceeding without oral hearings. However, what must be
noticed is all the aforesaid instances in which party autonomy can be
freely exercised are specifically laid out or delineated under some
provision falling under Part I of the Act, 1996. For instance, it is
Section 31(3) which allows the parties to dispense with the
requirement of an award with reasons, Section 13(1) which provides
the party the right to agree on a distinct procedure for challenging an

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 111 of 133

arbitrator’s appointment and Section 29B which allows parties to opt
for a fast-track procedure without the requirement of oral hearings.
Hence, the exercise of party autonomy in the aforesaid instances
would not have any conflict with the term “ Subject to this Part ”
occurring in Section 19(2). On the other hand, it would be in
consonance with it. However, the same cannot be the case when
party autonomy is exercised in a manner that conflicts with Section
43 of the self-same Act and the basic, core principles of limitation law,
especially having explained that Section 43 of the Act, 1996 is
couched in a mandatory language and is included within the scheme
of Part I of the Act, 1996.


118. Let us look at this issue from yet another angle. There are several
provisions which begin with the phrase “ unless otherwise agreed by the
parties ” throughout the scheme of Part I of the Act, 1996. In all such
provisions, the legislature in its wisdom, has given a considerable
amount to importance to party autonomy and therefore, the parties
may reasonably resile from the aspect elucidated upon in those
respective provisions and chose to adopt an alternate course by
means of an agreement with the other party. Then, there are certain
other provisions which begin with the phrase, “ the parties are free to
agree/determine ”, which, again, gives considerable priority to what the
parties may decide to agree upon with respect to what is dealt with
in those respective provisions. However, Section 19(2), with which
we are directly concerned with states – “ Subject to this Part, the parties
are free to agree on the procedure… ”. The use of the words, “ Subject to
this Part ” in Section 19(2), must therefore, be taken to understand the
doctrine of party autonomy as far as procedural matters are

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 112 of 133

concerned, in its right hue and light – as one with reasonable
restrictions.


119. What we have attempted to say in so many words is that there are
certain non-derogable provisions within the scheme of the Act, 1996
itself, which the parties cannot ignore or attempt to bypass, even by
agreement. Parties have the autonomy to decide their own procedure
including the modalities of the arbitration but within the confines of
the provisions of Part I of the Arbitration Act, 1996. This, by
extension, would also mean that the chosen procedure must align
with the underlying principles of limitation law owing to the
mandate reflected in Section 43 of the Act, 1996.

120. In view of the aforesaid, the defence of party autonomy would not be
available to the present petitioner to contend that the arbitrator was
right in finally deciding the issue of limitation, which is a mixed
question of fact and law, on the basis of demurrer and foreclosing it
permanently.


III. Whether the Interim Award warranted interference by the court
under Section 34 of the Act, 1996?

121. The law as it has evolved as regards the scope of interference with an
arbitral award under Section 34 of the Act, 1996, has been very
succinctly explained by this Court in Ssangyong (supra). The words
“public policy of India”, which had gradually adopted a wide import
was circumscribed by the 2015 Amendment Act to the Act, 1996. It
was necessarily clarified that an award would be in conflict with the

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 113 of 133

“public policy of India” only if, (a) the making of the award was
induced or affected by fraud or corruption or was in violation of
Section 75 or 81 of the Act, 1996 respectively; or (b) it is in
contravention with the fundamental policy of Indian law; or (c) it is
in conflict with the most basic notions of morality or justice.



122. The first ground or circumstance, as inserted by the 2015
Amendment Act, on the occurrence of which an award would be in
conflict with the public policy of India does not require much
clarification. It is fairly clear as to when an award could be induced
by fraud or corruption or when it would stand contrary to Sections
75 or 81 of the Act, 1996 respectively. However, the second and third
grounds are couched in such language that could prompt some
interpretational creativity and therefore, its scope was re-clarified by
this Court in Ssangyong (supra) as follows: -
(i) First, the second ground i.e., the expression “fundamental
policy of Indian law” would be relegated to its understanding
in the decision of this Court in Renusagar (supra) . The same has
been adequately expounded in paragraphs 18 and 27
respectively of the decision of this Court in Associate Builders
(supra).
(ii) Secondly, the third ground for interference i.e., an award being
in conflict with the “most basic notions of morality or justice”
must be understood in line with paragraphs 36 to 39 of the
decision of this Court in Associate Builders (supra). For this
ground to be invoked, the award sought to be set aside must
shock the conscience of the court.

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 114 of 133

(iii) Lastly, perversity would not figure as a ground either
separately or within the aforementioned two grounds
subsumed under the larger umbrella of the phrase “public
policy of India”. Such a decision which is perverse would
instead amount to a “patent illegality” appearing on the face of
the award. However, this ground of patent illegality which is
removed from the ambit of public policy of India, would only
be available for setting aside awards rendered in domestic
arbitrations.

The relevant observations are reproduced as under: -
“ 34. What is clear, therefore, is that the expression “public
policy of India”, whether contained in Section 34 or in Section
48, would now mean the “fundamental policy of Indian law” as
explained in paras 18 and 27 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204]
i.e. the fundamental policy of Indian law would be relegated to
“Renusagar” understanding of this expression. This would
necessarily mean that Western Geco [ONGC v. Western Geco
International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12]
expansion has been done away with. In short, Western
Geco [ONGC v. Western Geco International Ltd., (2014) 9
SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28
and 29 of Associate Builders [Associate Builders v. DDA,
(2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer
obtain, as under the guise of interfering with an award on the
ground that the arbitrator has not adopted a judicial approach,
the Court's intervention would be on the merits of the award,
which cannot be permitted post amendment. However, insofar
as principles of natural justice are concerned, as contained in
Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to
be grounds of challenge of an award, as is contained in para 30
of Associate Builders [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204].


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 115 of 133

35. It is important to notice that the ground for interference
insofar as it concerns “interest of India” has since been deleted,
and therefore, no longer obtains. Equally, the ground for
interference on the basis that the award is in conflict with justice
or morality is now to be understood as a conflict with the “most
basic notions of morality or justice”. This again would be in line
with paras 36 to 39 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] ,
as it is only such arbitral awards that shock the conscience of the
court that can be set aside on this ground.

36. Thus, it is clear that public policy of India is now constricted
to mean firstly, that a domestic award is contrary to the
fundamental policy of Indian law, as understood in paras 18 and
27 of Associate Builders [Associate Builders v. DDA, (2015) 3
SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such
award is against basic notions of justice or morality as
understood in paras 36 to 39 of Associate Builders [Associate
Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
[...]

xxx xxx xxx

41. What is important to note is that a decision which is
perverse, as understood in paras 31 and 32 of Associate
Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015)
2 SCC (Civ) 204], while no longer being a ground for challenge
under “public policy of India”, would certainly amount to a
patent illegality appearing on the face of the award. Thus, a
finding based on no evidence at all or an award which ignores
vital evidence in arriving at its decision would be perverse and
liable to be set aside on the ground of patent illegality.
Additionally, a finding based on documents taken behind the
back of the parties by the arbitrator would also qualify as a
decision based on no evidence inasmuch as such decision is not
based on evidence led by the parties, and therefore, would also
have to be characterised as perverse.

42. Given the fact that the amended Act will now apply, and
that the “patent illegality” ground for setting aside arbitral
awards in international commercial arbitrations will not apply,
[...] ”

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 116 of 133

(Emphasis supplied)


123. As a natural consequence of the clarification in Ssangyong (supra) , one
must advert to paragraphs 18, 27, 36, 37, 38 and 39 respectively of the
decision in Associate Builders (supra) in order to comprehend the
scope of the second and third grounds of “fundamental policy of
Indian law” and the “most basic notions of justice and morality”
respectively subsumed within the phrase “public policy of India”. In
the aforementioned paragraphs, the decision in Associate Builders
(supra), has elaborated as thus: -

(i) First, that the import of the words “public policy of India” as
explained by this Court in Renusagar (supra) would include an
award that is contrary to (a) the fundamental policy of Indian
law, (b) the interest of India and (c) justice or morality. Option
(b) relating to the “interest of India” has now been consciously
excluded by the 2015Amendment Act.

(ii) Secondly, that as far as the head “fundamental policy of Indian
law” is concerned, it is not the contravention of every statute
which could be said to be against the fundamental policy of
Indian law, for example , the recovery of compound interest on
interest, would not fall within its scope. However, if provisions
of the Foreign Exchange Regulation Act, 1973 are contravened,
the same would strike at the fundamental policy of Indian law
since the statute was enacted for national economic interest in
order to ensure that the nation does not lose foreign exchange
which is essential for the economic survival of the country.
(iii) Thirdly, that even disregarding orders passed by the superior
courts in India would fall within the ambit of “fundamental

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 117 of 133

policy of Indian law” for the purpose of setting aside an award
under Section 34 or refusing enforcement under Section 48 of
the Act, 1996.
(iv) Fourthly, insofar as the ground of “justice” was concerned, it
was stated that for an award to be against justice, it must
necessarily shock the conscience of the court. An illustration
was given to better understand the concept in a contextual
manner – i.e., in an arbitration, a claimant restricts his claim to
a sum, say X, in his statement of claim and he does not at any
point indicate that he seeks a higher amount, however, the
award ultimately grants the claimant a sum of, say X+Y,
without any acceptable reason or justification for the additional
amount of Y. In such a scenario, the award would shock the
conscience of the court and be contrary to justice itself.

(v) Lastly, as regards the expression “morality”, the same was
understood in the context of Section 23 of the Indian Contract
Act, 1872. It was stated that morality has been confined to
sexual morality under the aforesaid Section 23. However, some
leeway was given to expand the scope of morality in the context
of setting aside an award beyond sexual morality. It was stated
that the expression may also cover such agreements that are not
illegal per say but those would not be enforced in light of the
prevailing mores of the day. It was deemed appropriate, rightly
so, to not further elaborate on what the prevailing mores of the
day would be since the concept being inherently dynamic
cannot be confined to a single definition or an exhaustive list of
circumstances. However, it was cautioned that even for

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 118 of 133

invoking the ground of “morality” for the purpose of setting
aside an award, it must qualify as something which shocks the
conscience of the court.

The relevant observations are thus: -
“ 18. In Renusagar Power Co. Ltd. v. General Electric
Co. [Renusagar Power Co. Ltd. v. General Electric Co., 1994
Supp (1) SCC 644] , the Supreme Court construed Section
7(1)(b)(ii) of the Foreign Awards (Recognition and
Enforcement) Act, 1961:

“7. Conditions for enforcement of foreign awards.—
(1) A foreign award may not be enforced under this
Act—
*
(b) if the Court dealing with the case is satisfied
that—
*
(ii) the enforcement of the award will be contrary to
the public policy.”

In construing the expression “public policy” in the context of a
foreign award, the Court held that an award contrary to (i) The
fundamental policy of Indian law, (ii) The interest of India, (iii)
Justice or morality, would be set aside on the ground that it
would be contrary to the public policy of India. It went on
further to hold that a contravention of the provisions of the
Foreign Exchange Regulation Act would be contrary to the
public policy of India in that the statute is enacted for the
national economic interest to ensure that the nation does not
lose foreign exchange which is essential for the economic
survival of the nation (see SCC p. 685, para 75). Equally,
disregarding orders passed by the superior courts in India could
also be a contravention of the fundamental policy of Indian law,
but the recovery of compound interest on interest, being
contrary to statute only, would not contravene any
fundamental policy of Indian law (see SCC pp. 689 & 693, paras
85 & 95).

Fundamental Policy of Indian Law

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 119 of 133

27. Coming to each of the heads contained in Saw Pipes [(2003)
5 SCC 705 : AIR 2003 SC 2629] judgment, we will first deal
with the head “fundamental policy of Indian law”. It has already
been seen from Renusagar [Renusagar Power Co.
Ltd. v. General Electric Co., 1994 Supp (1) SCC 644] judgment
that violation of the Foreign Exchange Act and disregarding
orders of superior courts in India would be regarded as being
contrary to the fundamental policy of Indian law. To this it
could be added that the binding effect of the judgment of a
superior court being disregarded would be equally violative of
the fundamental policy of Indian law.

Justice
36. The third ground of public policy is, if an award is against
justice or morality. These are two different concepts in law. An
award can be said to be against justice only when it shocks the
conscience of the court. An illustration of this can be given. A
claimant is content with restricting his claim, let us say to Rs
30 lakhs in a statement of claim before the arbitrator and at no
point does he seek to claim anything more. The arbitral award
ultimately awards him Rs 45 lakhs without any acceptable
reason or justification. Obviously, this would shock the
conscience of the court and the arbitral award would be liable to
be set aside on the ground that it is contrary to “justice”.
Morality
37. The other ground is of “morality”. Just as the expression
“public policy” also occurs in Section 23 of the Contract Act,
1872 so does the expression “morality”. Two illustrations to the
said section are interesting for they explain to us the scope of the
expression “morality”:

“(j) A, who is B's Mukhtar, promises to exercise his
influence, as such, with B in favour of C,
and C promises to pay 1000 rupees to A. The
agreement is void, because it is immoral.

(k) A agrees to let her daughter to hire to B for
concubinage. The agreement is void, because it is
immoral, though the letting may not be punishable
under the Penal Code, 1860.”


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 120 of 133

38. In Gherulal Parakh v. Mahadeodas Maiya [1959 Supp (2)
SCR 406 : AIR 1959 SC 781] , this Court explained the concept
of “morality” thus : (SCR pp. 445-46 : AIR pp. 797-98)

“Re. Point 3 — Immorality : The argument under
this head is rather broadly stated by the learned
counsel for the appellant. The learned counsel
attempts to draw an analogy from the Hindu law
relating to the doctrine of pious obligation of sons to
discharge their father's debts and contends that what
the Hindu law considers to be immoral in that context
may appropriately be applied to a case under Section
23 of the Contract Act. Neither any authority is cited
nor any legal basis is suggested for importing the
doctrine of Hindu law into the domain of contracts.
Section 23 of the Contract Act is inspired by the
common law of England and it would be more useful
to refer to the English law than to the Hindu law texts
dealing with a different matter. Anson in his Law of
Contracts states at p. 222 thus:


‘The only aspect of immorality with which
courts of law have dealt is sexual
immorality….’

Halsbury in his Laws of England, 3rd Edn., Vol. 8,
makes a similar statement, at p. 138:

‘A contract which is made upon an
immoral consideration or for an immoral
purpose is unenforceable, and there is no
distinction in this respect between immoral
and illegal contracts. The immorality here
alluded to is sexual immorality.’

In the Law of Contract by Cheshire and Fifoot, 3rd
Edn., it is stated at p. 279:

‘Although Lord Mansfield laid it down that
a contract contra bonos mores is illegal, the
law in this connection gives no extended
meaning to morality, but concerns itself
only with what is sexually reprehensible.’

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 121 of 133


In the book on the Indian Contract Act by Pollock and
Mulla it is stated at p. 157:

‘The epithet “immoral” points, in legal
usage, to conduct or purposes which the
State, though disapproving them, is unable,
or not advised, to visit with direct
punishment.’

The learned authors confined its operation to acts
which are considered to be immoral according to the
standards of immorality approved by courts. The case
law both in England and India confines the operation
of the doctrine to sexual immorality. To cite only some
instances : settlements in consideration of
concubinage, contracts of sale or hire of things to be
used in a brothel or by a prostitute for purposes
incidental to her profession, agreements to pay money
for future illicit cohabitation, promises in regard to
marriage for consideration, or contracts facilitating
divorce are all held to be void on the ground that the
object is immoral.

The word ‘immoral’ is a very comprehensive word.
Ordinarily it takes in every aspect of personal
conduct deviating from the standard norms of life. It
may also be said that what is repugnant to good
conscience is immoral. Its varying content depends
upon time, place and the stage of civilisation of a
particular society. In short, no universal standard can
be laid down and any law based on such fluid concept
defeats its own purpose. The provisions of Section 23
of the Contract Act indicate the legislative intention
to give it a restricted meaning. Its juxtaposition with
an equally illusive concept, public policy, indicates
that it is used in a restricted sense; otherwise there
would be overlapping of the two concepts. In its wide
sense what is immoral may be against public policy,
for public policy covers political, social and economic
ground of objection. Decided cases and authoritative
textbook writers, therefore, confined it, with every

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 122 of 133

justification, only to sexual immorality. The other
limitation imposed on the word by the statute,
namely, ‘the court regards it as immoral’, brings out
the idea that it is also a branch of the common law like
the doctrine of public policy, and, therefore, should be
confined to the principles recognised and settled by
courts. Precedents confine the said concept only to
sexual immorality and no case has been brought to
our notice where it has been applied to any head other
than sexual immorality. In the circumstances, we
cannot evolve a new head so as to bring in wagers
within its fold.”

39. This Court has confined morality to sexual morality so far
as Section 23 of the Contract Act, 1872 is concerned, which in
the context of an arbitral award would mean the enforcement of
an award say for specific performance of a contract involving
prostitution. “Morality” would, if it is to go beyond sexual
morality necessarily cover such agreements as are not illegal but
would not be enforced given the prevailing mores of the day.
However, interference on this ground would also be only if
something shocks the court's conscience.”

(Emphasis supplied)


124. What is apparent from the aforesaid is that the phrase “public policy
of India” must be construed narrowly and an undue expansion of the
grounds of “fundamental policy of Indian law” and “most basic
notions of justice or morality” respectively, cannot be countenanced.


125. The learned Senior Counsel appearing for the petitioner is right
insofar as two things are concerned. First, that the ground of patent
illegality which was earlier subsumed within the expression public
policy of India, has now been removed and has instead, been granted
as a separate ground through which awards rendered in domestic

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 123 of 133

arbitrations can be assailed. The same is evident from a bare reading
of Section 34(2A) of the Act, 1996. Therefore, the ground of “patent
illegality” would not be available for setting aside awards rendered
in international commercial arbitrations. Secondly , that the ground
relating to the adoption of a ”judicial approach” or the lack thereof,
was understood to be a part of the phrase “fundamental policy of
Indian law” prior to the 2015 Amendment Act only as a result of the
decision in Western Geco (supra). It was the decision in Western Geco
(supra) that added three other distinct juristic principles which was to
be understood as a part and parcel of fundamental policy of Indian
law, which included the aspect of judicial approach. This expansion
has now been done away with since it was considered as amounting
to an intervention in the merits of the matter.


126. Therefore, we agree with the learned Senior Counsel that the non-
adoption of a “judicial approach” cannot form a valid ground for the
purpose of justifying an interference to the present interim award
under Section 34 of the Act, 1996. However, what must be noted is
that, the decision of the Single Judge was rendered before this Court
had the opportunity to clarify the scope of the 2015 Amendment Act
in relation to Section 34 of the Act, 1996, in Ssangyong (supra).


127. In Ssangyong (supra), on the aspect of “most basic notions of justice”,
this Court observed that – “ what is referred to is, substantively and
procedurally, some fundamental principle of justice which has been breached,
and which shocks the conscience of the Court.”. We are not denying that
this ground can only be attracted under very exceptional

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 124 of 133

circumstances where the conscience of the court is shocked by the
infraction of the most fundamental notions or principles of justice.

128. Having said so and having agreed with the contention that “judicial
approach” is not available as a ground for interference under Section
34, we are nevertheless of the view that the award was liable to be
partially set-aside.


129. A constitutional Bench decision of this Court in Gayatri Balasamy v.
M/s ISG Novasoft Technologies Limited reported in (2025) 7 SCC 1 ,
had the occasion to decide the question whether the power to set-
aside an award under Section 34 of the Act, 1996 also included the
power to partially set-aside the award. It was elaborated that the
power conferred on the courts under the proviso to Section 34(2)(a)(iv)
is only clarificatory in nature. In other words, that the power of
severance is inherent in the court’s jurisdiction when setting aside an
award. In this context, the doctrine of omne majus continent in se minue
i.e., “the greater power includes the lesser” was used to state that the
power to set aside would encompass the power to also set aside the
award in part, rather than in its entirety. However, it was cautioned
that such an exercise of partially setting-aside must be undertaken
only when the valid and invalid portions are not interdependent or
intertwined and are capable of being severed. To put it simply, there
must be no correlation between the valid and invalid parts. The
relevant observations of the majority opinion are reproduced
hereinbelow: -
“ II. Severability of awards


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 125 of 133

xxx xxx xxx

33. We hold that the power conferred under the proviso to
Section 34(2)(a)(iv) is clarificatory in nature. The authority to
sever the “invalid” portion of an arbitral award from the “valid”
portion, while remaining within the narrow confines of Section
34, is inherent in the Court's jurisdiction when setting aside an
award.

34. To this extent, the doctrine of omne majus continet in se
minus—the greater power includes the lesser—applies
squarely. The authority to set aside an arbitral award
necessarily encompasses the power to set it aside in part, rather
than in its entirety. This interpretation is practical and
pragmatic. It would be incongruous to hold that power to set
aside would only mean power to set aside the award in its
entirety and not in part. A contrary interpretation would not
only be inconsistent with the statutory framework but may also
result in valid determinations being unnecessarily nullified.

35. However, we must add a caveat that not all awards can be
severed or segregated into separate silos. Partial setting aside
may not be feasible when the “valid” and “invalid” portions are
legally and practically inseparable. In simpler words, the
“valid” and “invalid” portions must not be interdependent or
intrinsically intertwined. If they are, the award cannot be set
aside in part.

36. [...] Thus, the power of partial setting aside should be
exercised only when the valid and invalid parts of the award can
be clearly segregated—particularly in relation to liability and
quantum and without any corelation between valid and invalid
parts. ”
(Emphasis supplied)

130. The dissenting opinion in Gayatri Balasamy (supra) authored by one
of us, K.V. Viswanathan, J., had also conceptually clarified the scope
of the doctrine of severance and agreed that courts do possess the
power to sever and partially set-aside an award, subject to the

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 126 of 133

conditions compatible with severability being fulfilled. The
dissenting opinion elaborated as follows: -

(i) First, that the word “sever” would mean to separate or disjoin.
(ii) Secondly , it was agreed that severance as a concept was
recognised under the proviso to Section 34(2)(a)(iv) which
allows the decisions on matters submitted to arbitration to be
separated from those not submitted.
(iii) Thirdly, having said so, another question was put forth i.e.,
when several claims, all of which fall within the scope of
submission to arbitration, are decided, and if the award on a
few claims falls foul of Section 34, then, can the decision on
those claims which fall foul of Section 34 be set aside while
keeping the decision on the other claims intact? While
answering in the affirmative, it was stated that such standalone
claims can be set-aside, provided that they are capable of being
severed.

The relevant observations are reproduced hereinbelow: -

“ Severability under Section 34
239. If there was one aspect on which there was a chorus among
the rival factions, it was on the aspect of Section 34 Court
having power to sever that part of the award which fell foul of
Section 34 from the good part.

240. According to P. Ramanatha Aiyar's Advanced Law
Lexicon (3rd Edn.):

“Sever — ‘to separate; to insist upon a plea distinct
from that of other co-defendants; to disjoin and
severable — ‘capable of being separated’,”


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241 . A bare perusal of Section 34 indicates that the power to
sever an award is recognised in Section 34(2)(a)(iv) which reads
as under:

“34. (2)(a)(iv) the arbitral award deals with a dispute
not contemplated by or not falling within the terms of
the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to
arbitration:

Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so
submitted, only that part of the arbitral award which
contains decisions on matters not submitted to
arbitration may be set aside;”

242. A reading of the above sub-section reveals that where the
arbitral award deals with disputes not contemplated by or not
falling within the terms of the submission to arbitration or it
contains decision on matters beyond the scope of the submission
to arbitration, the award can be set aside.

243. However, the proviso states that if the decisions on matters
submitted to arbitration can be separated from those not so
submitted, only that part of the arbitral award which contains
decisions on matters not submitted to arbitration may be set
aside.

244. So, severance as a concept is recognised intrinsically in
Section 34 itself on the aspect mentioned hereinabove. But the
question is when there are several claims adjudicated and if
awards on a few claims fall foul of Section 34 and if each of the
claims which fall foul of Section 34 are capable of separation
could the awards on those claims be set aside? This issue was
not discussed in Hakeem [NHAI v. M. Hakeem, (2021) 9 SCC
1 : (2021) 4 SCC (Civ) 437]. However, the consistent view of
this Court has been that such standalone claims falling foul of
Section 34 can be set aside as long as they are capable of being
severed without affecting the other parts of the award. In other
words, if the claims falling foul of Section 34 are not inseparably
intertwined with the good portion of the award, the award can
be severed.

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 128 of 133


xxx xxx xxx

250. A learned Single Judge of the Delhi High Court addressing
the issue of severability in NHAI v. Trichy Thanjavur
Expressway Ltd. [NHAI v. Trichy Thanjavur Expressway
Ltd., 2023 SCC OnLine Del 5183] , set out the principle thus:
(SCC OnLine Del paras 38-42 & 87)

[…]

“L. The power to partially sever an offending part of
the award would ultimately depend on whether the
said decision is independent and distinct and whether
an annulment of that part would not disturb or
impact any other finding or declaration that may have
been returned by the AT. The question of severability
would have to be decided bearing in mind whether the
claims are interconnected or so intertwined that one
cannot be segregated from the other. This for the
obvious reason that if the part which is sought to be
set aside is not found to stand independently, it would
be legally impermissible to partially set aside the
award. A partial setting aside should not lead to a
component of the award being rendered vulnerable or
unsustainable. It is only when the award relates to a
claim which is found to stand on its own and its
setting aside would not have a cascading impact that
the Court could consider adopting the aforesaid mode.

M. The Court is thus of the firm opinion that the
power to set aside an award in part would have to
abide by the considerations aforenoted mindful of the
imperatives of walking a line which would not
dislodge or disturb another part of the award.
However, as long as the part which is proposed to be
annulled is independent and stands unattached to
any other part of the award and it could be validly
incised without affecting the other components of the
award, the recourse to partial setting aside would be
valid and justified.”


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251. The views expressed in the judgment, referred to
hereinabove, are correct and the power to set aside will include
the power to partially set aside and sever the portions of the
award which fall foul of Section 34 subject to the riders
engrafted hereinabove.”
(Emphasis supplied)


131. Therefore, when undertaking the exercise of severing an award, it
must be ascertained whether the illegality is such that it affects the
award as a whole. If not, then that portion of the award which does
not suffer from any infirmity could be upheld. While severing, the
courts must be vigilant to ensure that the good or viable part(s) of the
award is not rendered vulnerable or unsustainable as a direct
consequence of the severing. Therefore, while employing the doctrine
of severance, one must walk the tight rope of not dislodging the good
part of the award.

132. In the present facts and circumstances, the arbitrator has effectively
done two things - first , held that although his decision on the issue of
limitation would be rendered by way of demurrer, yet the same
would be final and binding and; secondly , that after a perusal of the
facts as averred in the statement of claim along with the materials
annexed thereto, the claims are within limitation. Insofar as the
second aspect i.e., the finding on demurrer is concerned, we are not
expressing any disagreement with the learned arbitrator. What the
respondents were aggrieved with, was the decision on the first aspect
i.e., that the decision on demurrer would have the consequence of
altogether foreclosing the issue of limitation forever.


Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 130 of 133

133. This observation as regards the finality of the decision rendered on
demurrer is capable of being severed from the rest of the interim
award such that the viable part is not made unsustainable or
vulnerable. Therefore, the present interim award is capable of being
partially set-aside, provided the grounds for interference under
Section 34 are made out.

134. What has occurred in the present facts and circumstances of the
matter is that the very understanding of the concept of demurrer, on
part of the arbitrator, did not align with the well-established
principles of law in India as elaborated by us in the preceding
paragraphs of this judgment. The arbitrator’s view on the concept of
demurrer cannot in any manner be justified in law. At the stage of
demurrer, it is only the statement of claim which is to be looked into
to decide whether the matter must be thrown out at the threshold or
not. The respondent is not required to put forth his version of the case
at this stage and there rests no burden on him. Therefore, there arises
no question of deciding an issue ‘finally’ on the basis of demurrer.
The fact that it was the issue of limitation which was decided as such,
causes all the more reason for alarm. The question of limitation
cannot be decided in such a manner, especially if there exists some
disputed questions of fact. In the present matter, the parties were at
logger-heads as to whether time was extended for the fulfilment of
conditions precedent or for the payment of refund i.e., there existed a
serious disputed question of fact and therefore, the finding on
demurrer was incapable of achieving finality without having looked
at further evidence in that regard. If an approach such as the one
adopted by the arbitrator is approved, a substantial miscarriage of

Special Leave Petition (C) Nos. 26660-26662 of 2025 Page 131 of 133

justice could occur because claims which may otherwise be barred by
limitation would be decided hurriedly and foreclosed, with no
recourse whatsoever to the respondent to assail it in an appropriate
manner if the decision is adverse to him. Such a procedural fallacy, in
our opinion, was fundamentally wrong and has shocked the
conscience of this Court.


135. There is no gainsaying that the Arbitral Tribunal is neither required
to conduct arbitration proceedings strictly like a civil court nor that
the provisions of the CPC and Evidence Act respectively do not apply
stricto sensu to arbitral proceedings. However, it cannot be denied that
any procedure adopted in the arbitral proceedings must subscribe to
and not be at variance with the underlying principles of justice.

136. We are not laying down a rule as to how evidence must be led or in
what manner the arbitrator is supposed to weigh the evidence
brought on record. This is clearly within the domain and wisdom of
the arbitrator who is the master of the evidence. However, all that we
are saying is that, the issue of the limitation being one of both fact and
law, could not have been ‘finally’ decided on the basis of demurrer,
at the risk of stale claims being entertained. At a stage when the
respondent is required to adduce some evidence, if they choose not
to, then the arbitral award cannot be assailed for being passed
without any evidence or with little evidence and any decision which
follows would be binding on both parties. However, this is not the
situation that we are faced with.


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137. In view of the above, the arbitrator’s decision that the finding on the
question of limitation by way demurrer would be ‘final’ and hence,
the issue would be ‘foreclosed’, has offended the most basic notions
of justice and must be set-aside. However, we must clarify that the
remaining portion of award would remain intact.


E. CONCLUSION


138. For all the foregoing reasons, we have reached the conclusion that the
interim award dated 27.08.2019 warranted interference under Section
34 of the Act, 1996 and it was rightly held that the preliminary issue
of limitation decided on the basis of demurrer could be further
examined by the Arbitral Tribunal on the basis of evidence and other
materials on record, if tendered and if so warranted.

139. The Registry shall forward one copy each of this judgment to all the
High Courts.



.................................................. J.
(J.B. PARDIWALA)


.................................................. J.
(K.V. VISWANATHAN)
New Delhi,
th
15 September, 2025.

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