Justice Lahoti was appointed as sole arbitrator by the Chief Justice of Punjab and Haryana High Court and has since retired.
The contract for constructing a shopping mall was awarded to the respondent M/S Today Homes and Infrastucture Pvt Ltd, who were supposed to pay Rs 371.12 crore to Ludhiana Improvement Trust for construction of the city centre on an area of 25.59 acres and the land was handed over to the company on May 24, 2005.
According to the agreemment, the entire money received from the bookings of the area to be sold, would be deposited in an Escrow account with the HDFC Bank, out of which 30 per cent was to go to the account of the trust and remaning 70 per cent was to be received by the respondent, namely Today Homes, for the development of the City Centre.
Later on, there were allegations of underhand dealings and that 70 per cent of the amount was being received in cash.
The Chief Justice of Punjab and Haryana High Court, relying on the constitution bench judgement, in Konkan Railway case, appointed Justice Lahoti as the sole arbitrator to settle all disputes between the parties.
The allegations were that the main agreement was fraudulently obtained in violation of Rule 94 of the Punjab Town Improvement Trust Rule 1939.
A bench, comprising Justice Altamas Kabir and Markandey Katju, set aside the appointment of Justice Lahoti as arbitrator on the grounds that the five-judge constitution bench judgement in Konkan Railway case has already been overruled by seven judges' bench in Patel Engineering case.
The apex court, in its judgement, said, ''We have, therefore, no option but to set aside the order of the Chief Justice and remit the matter for a fresh decision in keeping with the decision of the seven-judge bench in SBP and Company v/s Patel Engineering Ltd.'' UNI SC SKB RP HT1957