The termination of an agreement does not automatically invalidate the arbitration clause, and the appointment of an arbitrator should be made without entertaining contentious issues at that stage.

Petitioner No. 1, MWC Market Services Private Limited and another, in this application under Section 11 (5) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as "the Act, 1996") sought for appointment of a sole Arbitrator on the basis of a related agreement dated 5-4-2001 by contending, inter alia, that the petitioner-company after a series of discussions with the respondent-authorities and obtaining due approval of the State Cabinet on 5-4-2001 entered into an agreement with the State Government of Manipur to install, commission, promote and market the sale of lottery tickets and operate in all respects the on-line Lottery on behalf of the State of Manipur as seen in the document marked as Annexure 3 to the petition, and after execution of the agreement dated 5-4-2001, the petitioner-company in all earnest and to fulfil and commit the obligations under the agreement started all preparations for starting the launching of the One-line Computerized lottery of the State of Manipur. The petitioner-company already spent crores of rupees in the process, i.e. for the technology, hardware, software, and for establishing the distribution networks for the sale of lottery tickets and operating, installing and commissioning of the entire networking system all over India. But, to the utter surprise and shock, the petitioner-company on 23-7-2001 received a Memorandum Notice dated 11-7-2001 for termination of the agreement dated 5-4-2001 issued by the Joint Director of Lotteries, Government of Manipur, respondent No. 3 herein as seen in the document marked Annexure 6 to the petition, and on receiving the said Memorandum/Notice dated 11-7-2001, the petitioner-company immediately sent an objection/representation on 27-7-2001 to respondents-2 and 3 stating their grievance in detail and requesting them to withdraw the said notice of termination which was not taken into consideration by the respondent-authorities, and having no other alternative, the petitioner-company immediately sent a notice on 13-10-2001 to the Government of Manipur stating therein that the petitioner-company is willing to invoke Clause XIX of the agreement dated 5-4-2001 for appointment of a sole Arbitrator as per Section 10 (2) of the Act, 1996, and the petitioner-company intimated the respondents its offer to refer all the disputes, differences, questions, and interpretations to the arbitration of a sole Arbitrator, Mr. Justice P. N. Bhagwati, retired Chief Justice of India, and the said notice was duly received by the respondent-authorities. It is also the case of the petitioner-company that being aggrieved by the action of the respondent-authorities, they filed a writ petition, being W.P.(C) 7504/2001 (Imphal Bench) challenging the validity of the impugned termination order dated 11-7-2001, and while issuing notice upon the respondents making the same returnable by 20-11-2001, this Court made an ad interim order/measure to the effect that the State of Manipur would not appoint any third party as an On-line Selling Agent until further orders of the Court and the order of termination would be subject to the outcome of the writ petition, as seen in the document marked Annexure 12 of the writ petition. As the authority concerned failed to appoint Arbitrator in terms of the related clause XIX of the agreement, the petitioner-company filed the present Arbitration petition.

2. The case of the petitioner was resisted by the State-respondents by filing counter-affidavit contending, inter alia, that though the Government had entered into a Memorandum of Understanding (for short, "MOU") on 25-1-2001; in view of the office letter dated 8-2-2001 of the Ministry of Home Affairs, the impugned termination order was issued by the authority as the Ministry of Home Affairs raised some objections to the extent that some of the conditions of the Act, 1996, have not been envisaged in the proposed agreement and the agreement was not in conformity with the Lottery