Following the decision in SBP & Co.
(supra) this Court in National Insurance Co.
Ltd.(supra) held as follows: (National
Insurance Co. Ltd. Case (supra), SCC p. 283,
paras 22 & 22.1-22.3)
“22. Where the intervention of
the court is sought for
appointment of an Arbitral
Tribunal under Section 11, the
duty of the Chief Justice or his
designate is defined in SBP & Co.
This Court identified and
segregated the preliminary issues
that may arise for consideration
in an application under Section
11 of the Act into three
categories, that is, (i) issues
which the Chief Justice or his
designate is bound to decide; (ii)
issues which he can also decide,
that is, issues which he may
choose to decide; and (iii) issues
which should be left to the
Arbitral Tribunal to decide.
22.1. The issues (first category)
which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the
application has approached the
appropriate High Court.
(b) Whether there is an
arbitration agreement and
whether the party who has
applied under Section 11 of the
Act, is a party to such an
agreement.
22.2. The issues (second category)
which the Chief Justice/his
designate may choose to decide
(or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead
(long-barred) claim or a live claim.
(b) Whether the parties have
concluded the contract
/transaction by recording
satisfaction of their mutual rights
and obligation or by receiving the
final payment without objection.
22.3. The issues (third category)
which the Chief Justice/his
designate should leave exclusively
to the Arbitral Tribunal are:
(i) Whether a claim made falls
within the arbitration clause (as
for example, a matter which is
reserved for final decision of a
departmental authority and
excepted or excluded from
arbitration).
(ii) Merits or any claim involved
in the arbitration.”
(emphasis supplied)
13. It is clear from the said two decisions
that the question whether there is an
arbitration agreement has to be decided only
by the Chief Justice or his designate and
should not be left to the decision of the
Arbitral Tribunal. This is because the
question whether there is an arbitration
agreement is a jurisdictional issue and unless
there is a valid arbitration agreement, the
application under Section 11 of the Act will
not be maintainable and the Chief Justice or
his designate will have no jurisdiction to
appoint an arbitrator under Section 11 of the
Act. This Court also made it clear that only
in regard to the issues shown in the second
category, the Chief Justice or his designate
has the choice of either deciding them or
leaving them to the decision of the Arbitral
Tribunal. Even in regard to the issues falling
under the second category, this Court made
it clear that where allegations of forgery or
fabrication are made in regard to the
documents, it would be appropriate for the
Chief Justice or his designate to decide the
issue. In view of this settled position of law,
the issue whether there was an arbitration
agreement ought to have been decided by the
designate of the Chief Justice and only if the
finding was in the affirmative, he could have
proceeded to appoint the arbitrator.”
(emphasis supplied)
25. Keeping in view the law laid down in the
aforementioned three cases quoted supra which
does not need any more elaboration by us, we have
no hesitation in setting aside the direction which
directs the arbitrator to decide the question of
legality and validity of the agreement/(MoU).
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 6198 OF 2016
(ARISING OUT OF SLP (C) No. 25473/2015)
Velugubanti Hari Babu …….Appellant(s)
VERSUS
Parvathini Narasimha Rao & Anr. ……Respondent(s)
Citation: AIR 2016 SC 3285
Abhay Manohar Sapre, J.
1. Leave granted.
2. This appeal is filed by the appellant against the
final judgment and order dated 13.02.2015 passed
by the High Court of Judicature at Hyderabad for
the State of Telangana and the State of Andhra
Pradesh in Arbitration Application No. 79 of 2014
whereby the High Court allowed the application filed
by the respondents herein under Section 11(5) & (6)
of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”) and appointed
the sole arbitrator to decide the disputes alleged to
have arisen between the parties in relation to MoU
dated 27.05.2013 and further directed the
arbitrator to decide the legality and validity of the
MoU by taking evidence.
3. Facts of the case lie in a narrow compass.
They, however, need mention in brief to appreciate
the short controversy involved in the appeal.
4. The appellant (who was respondent before the
High Court) is the owner of the plot of land
measuring 15.53 acres situated in Sy. No. 416/2B2
having come into possession of it in the year 1990
by way of a registered gift deed. He is since then
enjoying peaceful possession of the said land.
5. According to the respondents, the appellant
and the respondents entered into Memorandum of
Understanding (MoU) dated 27.05.2013. The MoU,
inter alia, provided that the respondents will resolve
certain disputes that are pending between the
appellant and certain other persons, namely,
Mattaparthi Sivayya, Mattaparthi Satyanarayana
and Mattaparthi Srinu, sons of late Appa Rao and
another dispsute with Kanchumarthi Venkata
Ramachandra Rao s/o Seetarama Rao, with respect
to the land in question and, in return, the appellant
will sell 50% of the land to the respondents at the
rate of Rs.1 crore per acre. According to the
respondents, as per the MoU, they paid a sum of
Rs.7,00,000/- as token money to the appellant.
6. In terms of the MoU, both parties agreed that if
any dispute arises in connection with the
enforcement of the terms of the MoU, that shall be
resolved through an Arbitrator, who would be
appointed by both the parties with their mutual
consent under the provisions of the Act.
7. On 11.12.2013, the respondents sent a letter
to the appellant. In the letter, it was alleged that
since disputes have arisen between them in relation
to execution of MoU and hence the respondents, in
terms of MoU, appoint one Sanyasi Rao – retired
District Judge as an arbitrator to decide the
disputes.
8. As the respondents did not get any response,
they filed an application being Arbitration
Application No. 79 of 2014 before the High Court
under Section 11(5) and 11(6) of the Act for
appointment of an arbitrator out of which this
appeal by special leave arises.
9. During the pendency of the arbitration
4Page 5
application before the High Court, the respondents
also filed a petition being A.A.O.P. No. 41 of 2013
before the Principal Sessions Judge, Rajahmundry
under Section 9 of the Act for grant of injunction
restraining the appellant herein from alienating the
property which was the subject matter of MoU. The
appellant contested the application and denied the
very execution of MoU by him. It was alleged that
the so called MoU relied on by the respondents in
their application is forged and fabricated document
and that he has never signed any such MoU. It
was, therefore, not binding on the appellant. By
order dated 20.06.2014, the Principal Sessions
Judge allowed the petition.
10. The appellant also contested the petition filed
under Section 11(5) & (6) and filed a counter
affidavit therein stating, inter alia, that the MoU in
question is forged and fabricated document and
5Page 6
that he never signed any such document with the
respondents.
11. By impugned order dated 13.02.2015, the High
Court allowed the application by holding that the
legality and validity of the MoU including arbitration
agreement can be examined by the Arbitrator on
taking evidence and accordingly appointed Mr. B.
Prakash Rao, a retired High Court Judge as the sole
arbitrator to adjudicate all the disputes raised by
the parties including to decide the question
regarding legality and genuineness of MoU.
12. Challenging the said order, the appellant has
filed this appeal by way of special leave before this
Court.
13. Heard Mr. V.V.S. Rao, learned senior counsel
for the appellant and Mr. Basant R., learned senior
counsel for the respondents.
14. Mr. V.V.S Rao, learned senior counsel
6Page 7
appearing for the appellant while assailing the
legality and correctness of the impugned order
argued two points.
15. In the first place, learned counsel urged that
the High Court erred in allowing the application
filed by the respondents under Section 11(5) & (6) of
the Act and further erred in directing the arbitrator
to decide the legality and validity of the MoU along
with the disputes arising out of MoU.
16. In the second place, learned counsel urged
that the directions issued to the arbitrator to decide
the legality and genuineness of the MoU are
contrary to the law laid down by this Court in SBP
& Co. vs. Patel Engg. Ltd., (2005) 8 SCC 618,
National Insurance Co. Ltd. Vs. Boghara Polyfab
(P) Ltd., (2009) 1 SCC 267 and Bharat Rasiklal
Ashra vs. Gautam Rasiklal Ashra & Anr., (2012) 2
SCC 144 and hence such directions are not legally
7Page 8
sustainable and are liable to be set aside.
17. Learned counsel further submitted that in a
case of this nature where the question arises before
the High Court in Section 11 proceedings as to
whether the agreement/MoU is a valid and genuine
document and whether it is enforceable or not, it is
the duty of the High Court to first decide such
questions keeping in view the law laid down in SBP
& Co. (supra), National Insurance Co. Ltd.,
(supra) and Bharat Rasiklal Ashra (supra) and if it
is held to be a valid and genuine document then
whether it is binding on the parties and depending
upon the outcome of the findings on such question,
appropriate orders as required under Sections 11(5)
and (6) of the Act has to be passed.
18. Learned counsel further urged that since in
this case, the High Court instead of deciding these
questions on their merits, which had admittedly
8Page 9
arisen on the basis of pleadings, straightaway
proceeded to appoint the arbitrator and directed the
arbitrator to decide the validity and genuineness of
the MoU, such exercise of power by the High Court
was wholly without jurisdiction and renders the
impugned order legally unsustainable. In other
words, submission of the learned counsel was that
the High Court had the jurisdiction under Section
11 of the Act to decide the question of validity and
genuineness of MoU one way or other on merits as
held by this Court in abovementioned three
decisions whereas it had no jurisdiction to ask the
arbitrator to decide such question and, therefore,
non-deciding the question amounts to failure to
exercise jurisdiction vested in it by law and renders
the impugned order bad in law.
19. In reply, Mr. Basant R., learned senior counsel
appearing for the respondents while elaborating his
9Page 10
submissions supported the reasoning and the
conclusion arrived at by the learned Chief Justice
and contended that no interference is called for in
the impugned order.
20. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
find force in the submissions of the learned counsel
for the appellant, which deserve acceptance.
21. This is how the learned Chief Justice dealt
with the matter in hand and held as under :
“I am of the view that the legality and
validity of the Memorandum of
Understanding and also the Arbitration
Agreement can also be examined by the
learned Arbitrator on taking evidence in this
matter, particularly, under Section 16 of the
said Act. As I notice and taking prima facie
material, such question cannot be
adjudicated conclusively by me effectively
and it would be proper for the learned
Arbitrator to do so. I, therefore, appoint Mr.
Justice B. Prakash Rao, a retired Judge of
this Court as sole Arbitrator to adjudicate all
the disputes raised by the parties. If the plea
of existence and validity of the aforesaid
Memorandum of Understanding is taken on
any ground and so also the Arbitration
Agreement, such pleas have to be adjudicated
together with other pleas.”
10Page 11
22. The short question which arises for
consideration in this appeal is whether the High
Court (Designate Judge) was justified in not
deciding the question as to whether MoU, which is
denied by the appellant herein in Section 11
proceedings, is valid and genuine document and
whether the High Court was justified in directing
the arbitrator to decide the said question.
23. The question posed by us remains no more res
integra and is already answered by the Constitution
Bench of this Court in SBP & Co. (supra) and then
in National Insurance Co. Ltd. (supra) and lastly
in Bharat Rasiklal Ashra (supra). It is really
unfortunate that the learned Chief Justice while
deciding the application did not take note of any of
these decisions and passed the impugned order
which is apparently against the law laid down in
these decisions.
24. Justice Raveendran, speaking for the Bench in
Bharat Rasiklal Ashra’s case (supra) which also
involved the same question, took note of law laid
down in earlier two decisions of SBP & Co. (Supra)
and National Insurance Co. Ltd. (supra) and
succinctly explaining the ratio of these decisions
laid down the following proposition of law in paras
10 to 13 which read as under:
“10. Therefore, the following question arises
for consideration in this appeal:
“Where the arbitration agreement
between the parties is denied by
the respondent, whether the Chief
Justice or his designate, in
exercise of power under Section
11 of the Act, can appoint an
arbitrator without deciding the
question whether there was an
arbitration agreement between
the parties, leaving it open to be
decided by the arbitrator?”
11. The question is covered by the decisions
of this Court in SBP & Co. v. Patel Engg.
Ltd., (2005) 8 SCC 618 and National
Insurance Co. Ltd. v. Boghara Polyfab (P)
Ltd., (2009) 1 SCC 267 In SBP & Co.(supra) a
Constitution Bench of this Court held that
when an application under Section 11 of the
Act is filed, it is for the Chief Justice or his
designate to decide whether there is an
arbitration agreement, as defined in the Act
and whether the party who has made a
request before him, is a party to such an
agreement. The said decision also made it
clear as to which issues could be left to the
decision of the arbitrator.
12. Following the decision in SBP & Co.
(supra) this Court in National Insurance Co.
Ltd.(supra) held as follows: (National
Insurance Co. Ltd. Case (supra), SCC p. 283,
paras 22 & 22.1-22.3)
“22. Where the intervention of
the court is sought for
appointment of an Arbitral
Tribunal under Section 11, the
duty of the Chief Justice or his
designate is defined in SBP & Co.
This Court identified and
segregated the preliminary issues
that may arise for consideration
in an application under Section
11 of the Act into three
categories, that is, (i) issues
which the Chief Justice or his
designate is bound to decide; (ii)
issues which he can also decide,
that is, issues which he may
choose to decide; and (iii) issues
which should be left to the
Arbitral Tribunal to decide.
22.1. The issues (first category)
which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the
application has approached the
appropriate High Court.
(b) Whether there is an
arbitration agreement and
whether the party who has
applied under Section 11 of the
Act, is a party to such an
agreement.
22.2. The issues (second category)
which the Chief Justice/his
designate may choose to decide
(or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead
(long-barred) claim or a live claim.
(b) Whether the parties have
concluded the contract
/transaction by recording
satisfaction of their mutual rights
and obligation or by receiving the
final payment without objection.
22.3. The issues (third category)
which the Chief Justice/his
designate should leave exclusively
to the Arbitral Tribunal are:
(i) Whether a claim made falls
within the arbitration clause (as
for example, a matter which is
reserved for final decision of a
departmental authority and
excepted or excluded from
arbitration).
(ii) Merits or any claim involved
in the arbitration.”
(emphasis supplied)
13. It is clear from the said two decisions
that the question whether there is an
arbitration agreement has to be decided only
by the Chief Justice or his designate and
should not be left to the decision of the
Arbitral Tribunal. This is because the
question whether there is an arbitration
agreement is a jurisdictional issue and unless
there is a valid arbitration agreement, the
application under Section 11 of the Act will
not be maintainable and the Chief Justice or
his designate will have no jurisdiction to
appoint an arbitrator under Section 11 of the
Act. This Court also made it clear that only
in regard to the issues shown in the second
category, the Chief Justice or his designate
has the choice of either deciding them or
leaving them to the decision of the Arbitral
Tribunal. Even in regard to the issues falling
under the second category, this Court made
it clear that where allegations of forgery or
fabrication are made in regard to the
documents, it would be appropriate for the
Chief Justice or his designate to decide the
issue. In view of this settled position of law,
the issue whether there was an arbitration
agreement ought to have been decided by the
designate of the Chief Justice and only if the
finding was in the affirmative, he could have
proceeded to appoint the arbitrator.”
(emphasis supplied)
25. Keeping in view the law laid down in the
aforementioned three cases quoted supra which
does not need any more elaboration by us, we have
no hesitation in setting aside the direction which
directs the arbitrator to decide the question of
legality and validity of the agreement/(MoU).
26. In our considered opinion, such directions
issued by the High Court are plainly against the law
laid down by this Court in three decisions quoted
above. Indeed, the High Court ought to have
decided the questions itself and recoded a finding as
to whether the MoU dated 27.05.2013 is a valid and
genuine document or it is a forged and fabricated
document and then depending upon the findings,
appropriate directions, if necessary, should have
been passed for disposal of the application finally.
Unfortunately, it was not done.
27. This takes us to the next argument of Mr.
Basant R., learned senior counsel for the
respondents. It was argued that since the appellant
failed to give reply to the notice given by the
respondents for appointment of an arbitrator, the
appellant should not be allowed to raise such plea
at a belated stage in Section 11 proceedings. We do
not agree with the submission.
28. We find that the appellant in reply to the
respondents’ petition filed under Section 9 of the
Act has specifically denied having signed or/and
executed such agreement/(MoU). He has also
contended therein that it is a bogus and fabricated
MoU. The appellant again in his reply to application
filed by the respondents under Section 11 of the Act
denied the very existence of MoU.
29. In our opinion, this was sufficient for joining
issue on the validity and genuineness of the MoU
which was raised timely in appropriate proceedings
by the appellant. The submission of Mr. Basant R.
is, therefore, wholly devoid of merit and is
accordingly rejected.
30. In view of foregoing discussion, the appeal
succeeds and is allowed. The impugned order is set
aside. The case is remanded to the learned
designate Judge to decide the question of legality,
validity and genuineness of the agreement/(MoU) in
question on its merits on the basis of pleadings and
evidence of the parties keeping in view the law laid
down by this Court in three decisions referred
supra. Depending upon the findings on the
question, appropriate orders including the order for
appointment of arbitrator, if occasion arises, be
passed for final disposal of the application filed
under Section 11 of the Act.
31. No costs.
………...................................J.
[J. CHELAMESWAR]
…...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
July 13, 2016
Print Page
(supra) this Court in National Insurance Co.
Ltd.(supra) held as follows: (National
Insurance Co. Ltd. Case (supra), SCC p. 283,
paras 22 & 22.1-22.3)
“22. Where the intervention of
the court is sought for
appointment of an Arbitral
Tribunal under Section 11, the
duty of the Chief Justice or his
designate is defined in SBP & Co.
This Court identified and
segregated the preliminary issues
that may arise for consideration
in an application under Section
11 of the Act into three
categories, that is, (i) issues
which the Chief Justice or his
designate is bound to decide; (ii)
issues which he can also decide,
that is, issues which he may
choose to decide; and (iii) issues
which should be left to the
Arbitral Tribunal to decide.
22.1. The issues (first category)
which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the
application has approached the
appropriate High Court.
(b) Whether there is an
arbitration agreement and
whether the party who has
applied under Section 11 of the
Act, is a party to such an
agreement.
22.2. The issues (second category)
which the Chief Justice/his
designate may choose to decide
(or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead
(long-barred) claim or a live claim.
(b) Whether the parties have
concluded the contract
/transaction by recording
satisfaction of their mutual rights
and obligation or by receiving the
final payment without objection.
22.3. The issues (third category)
which the Chief Justice/his
designate should leave exclusively
to the Arbitral Tribunal are:
(i) Whether a claim made falls
within the arbitration clause (as
for example, a matter which is
reserved for final decision of a
departmental authority and
excepted or excluded from
arbitration).
(ii) Merits or any claim involved
in the arbitration.”
(emphasis supplied)
13. It is clear from the said two decisions
that the question whether there is an
arbitration agreement has to be decided only
by the Chief Justice or his designate and
should not be left to the decision of the
Arbitral Tribunal. This is because the
question whether there is an arbitration
agreement is a jurisdictional issue and unless
there is a valid arbitration agreement, the
application under Section 11 of the Act will
not be maintainable and the Chief Justice or
his designate will have no jurisdiction to
appoint an arbitrator under Section 11 of the
Act. This Court also made it clear that only
in regard to the issues shown in the second
category, the Chief Justice or his designate
has the choice of either deciding them or
leaving them to the decision of the Arbitral
Tribunal. Even in regard to the issues falling
under the second category, this Court made
it clear that where allegations of forgery or
fabrication are made in regard to the
documents, it would be appropriate for the
Chief Justice or his designate to decide the
issue. In view of this settled position of law,
the issue whether there was an arbitration
agreement ought to have been decided by the
designate of the Chief Justice and only if the
finding was in the affirmative, he could have
proceeded to appoint the arbitrator.”
(emphasis supplied)
25. Keeping in view the law laid down in the
aforementioned three cases quoted supra which
does not need any more elaboration by us, we have
no hesitation in setting aside the direction which
directs the arbitrator to decide the question of
legality and validity of the agreement/(MoU).
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 6198 OF 2016
(ARISING OUT OF SLP (C) No. 25473/2015)
Velugubanti Hari Babu …….Appellant(s)
VERSUS
Parvathini Narasimha Rao & Anr. ……Respondent(s)
Citation: AIR 2016 SC 3285
Abhay Manohar Sapre, J.
1. Leave granted.
2. This appeal is filed by the appellant against the
final judgment and order dated 13.02.2015 passed
by the High Court of Judicature at Hyderabad for
the State of Telangana and the State of Andhra
Pradesh in Arbitration Application No. 79 of 2014
whereby the High Court allowed the application filed
by the respondents herein under Section 11(5) & (6)
of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”) and appointed
the sole arbitrator to decide the disputes alleged to
have arisen between the parties in relation to MoU
dated 27.05.2013 and further directed the
arbitrator to decide the legality and validity of the
MoU by taking evidence.
3. Facts of the case lie in a narrow compass.
They, however, need mention in brief to appreciate
the short controversy involved in the appeal.
4. The appellant (who was respondent before the
High Court) is the owner of the plot of land
measuring 15.53 acres situated in Sy. No. 416/2B2
having come into possession of it in the year 1990
by way of a registered gift deed. He is since then
enjoying peaceful possession of the said land.
5. According to the respondents, the appellant
and the respondents entered into Memorandum of
Understanding (MoU) dated 27.05.2013. The MoU,
inter alia, provided that the respondents will resolve
certain disputes that are pending between the
appellant and certain other persons, namely,
Mattaparthi Sivayya, Mattaparthi Satyanarayana
and Mattaparthi Srinu, sons of late Appa Rao and
another dispsute with Kanchumarthi Venkata
Ramachandra Rao s/o Seetarama Rao, with respect
to the land in question and, in return, the appellant
will sell 50% of the land to the respondents at the
rate of Rs.1 crore per acre. According to the
respondents, as per the MoU, they paid a sum of
Rs.7,00,000/- as token money to the appellant.
6. In terms of the MoU, both parties agreed that if
any dispute arises in connection with the
enforcement of the terms of the MoU, that shall be
resolved through an Arbitrator, who would be
appointed by both the parties with their mutual
consent under the provisions of the Act.
7. On 11.12.2013, the respondents sent a letter
to the appellant. In the letter, it was alleged that
since disputes have arisen between them in relation
to execution of MoU and hence the respondents, in
terms of MoU, appoint one Sanyasi Rao – retired
District Judge as an arbitrator to decide the
disputes.
8. As the respondents did not get any response,
they filed an application being Arbitration
Application No. 79 of 2014 before the High Court
under Section 11(5) and 11(6) of the Act for
appointment of an arbitrator out of which this
appeal by special leave arises.
9. During the pendency of the arbitration
4Page 5
application before the High Court, the respondents
also filed a petition being A.A.O.P. No. 41 of 2013
before the Principal Sessions Judge, Rajahmundry
under Section 9 of the Act for grant of injunction
restraining the appellant herein from alienating the
property which was the subject matter of MoU. The
appellant contested the application and denied the
very execution of MoU by him. It was alleged that
the so called MoU relied on by the respondents in
their application is forged and fabricated document
and that he has never signed any such MoU. It
was, therefore, not binding on the appellant. By
order dated 20.06.2014, the Principal Sessions
Judge allowed the petition.
10. The appellant also contested the petition filed
under Section 11(5) & (6) and filed a counter
affidavit therein stating, inter alia, that the MoU in
question is forged and fabricated document and
5Page 6
that he never signed any such document with the
respondents.
11. By impugned order dated 13.02.2015, the High
Court allowed the application by holding that the
legality and validity of the MoU including arbitration
agreement can be examined by the Arbitrator on
taking evidence and accordingly appointed Mr. B.
Prakash Rao, a retired High Court Judge as the sole
arbitrator to adjudicate all the disputes raised by
the parties including to decide the question
regarding legality and genuineness of MoU.
12. Challenging the said order, the appellant has
filed this appeal by way of special leave before this
Court.
13. Heard Mr. V.V.S. Rao, learned senior counsel
for the appellant and Mr. Basant R., learned senior
counsel for the respondents.
14. Mr. V.V.S Rao, learned senior counsel
6Page 7
appearing for the appellant while assailing the
legality and correctness of the impugned order
argued two points.
15. In the first place, learned counsel urged that
the High Court erred in allowing the application
filed by the respondents under Section 11(5) & (6) of
the Act and further erred in directing the arbitrator
to decide the legality and validity of the MoU along
with the disputes arising out of MoU.
16. In the second place, learned counsel urged
that the directions issued to the arbitrator to decide
the legality and genuineness of the MoU are
contrary to the law laid down by this Court in SBP
& Co. vs. Patel Engg. Ltd., (2005) 8 SCC 618,
National Insurance Co. Ltd. Vs. Boghara Polyfab
(P) Ltd., (2009) 1 SCC 267 and Bharat Rasiklal
Ashra vs. Gautam Rasiklal Ashra & Anr., (2012) 2
SCC 144 and hence such directions are not legally
7Page 8
sustainable and are liable to be set aside.
17. Learned counsel further submitted that in a
case of this nature where the question arises before
the High Court in Section 11 proceedings as to
whether the agreement/MoU is a valid and genuine
document and whether it is enforceable or not, it is
the duty of the High Court to first decide such
questions keeping in view the law laid down in SBP
& Co. (supra), National Insurance Co. Ltd.,
(supra) and Bharat Rasiklal Ashra (supra) and if it
is held to be a valid and genuine document then
whether it is binding on the parties and depending
upon the outcome of the findings on such question,
appropriate orders as required under Sections 11(5)
and (6) of the Act has to be passed.
18. Learned counsel further urged that since in
this case, the High Court instead of deciding these
questions on their merits, which had admittedly
8Page 9
arisen on the basis of pleadings, straightaway
proceeded to appoint the arbitrator and directed the
arbitrator to decide the validity and genuineness of
the MoU, such exercise of power by the High Court
was wholly without jurisdiction and renders the
impugned order legally unsustainable. In other
words, submission of the learned counsel was that
the High Court had the jurisdiction under Section
11 of the Act to decide the question of validity and
genuineness of MoU one way or other on merits as
held by this Court in abovementioned three
decisions whereas it had no jurisdiction to ask the
arbitrator to decide such question and, therefore,
non-deciding the question amounts to failure to
exercise jurisdiction vested in it by law and renders
the impugned order bad in law.
19. In reply, Mr. Basant R., learned senior counsel
appearing for the respondents while elaborating his
9Page 10
submissions supported the reasoning and the
conclusion arrived at by the learned Chief Justice
and contended that no interference is called for in
the impugned order.
20. Having heard the learned counsel for the
parties and on perusal of the record of the case, we
find force in the submissions of the learned counsel
for the appellant, which deserve acceptance.
21. This is how the learned Chief Justice dealt
with the matter in hand and held as under :
“I am of the view that the legality and
validity of the Memorandum of
Understanding and also the Arbitration
Agreement can also be examined by the
learned Arbitrator on taking evidence in this
matter, particularly, under Section 16 of the
said Act. As I notice and taking prima facie
material, such question cannot be
adjudicated conclusively by me effectively
and it would be proper for the learned
Arbitrator to do so. I, therefore, appoint Mr.
Justice B. Prakash Rao, a retired Judge of
this Court as sole Arbitrator to adjudicate all
the disputes raised by the parties. If the plea
of existence and validity of the aforesaid
Memorandum of Understanding is taken on
any ground and so also the Arbitration
Agreement, such pleas have to be adjudicated
together with other pleas.”
10Page 11
22. The short question which arises for
consideration in this appeal is whether the High
Court (Designate Judge) was justified in not
deciding the question as to whether MoU, which is
denied by the appellant herein in Section 11
proceedings, is valid and genuine document and
whether the High Court was justified in directing
the arbitrator to decide the said question.
23. The question posed by us remains no more res
integra and is already answered by the Constitution
Bench of this Court in SBP & Co. (supra) and then
in National Insurance Co. Ltd. (supra) and lastly
in Bharat Rasiklal Ashra (supra). It is really
unfortunate that the learned Chief Justice while
deciding the application did not take note of any of
these decisions and passed the impugned order
which is apparently against the law laid down in
these decisions.
24. Justice Raveendran, speaking for the Bench in
Bharat Rasiklal Ashra’s case (supra) which also
involved the same question, took note of law laid
down in earlier two decisions of SBP & Co. (Supra)
and National Insurance Co. Ltd. (supra) and
succinctly explaining the ratio of these decisions
laid down the following proposition of law in paras
10 to 13 which read as under:
“10. Therefore, the following question arises
for consideration in this appeal:
“Where the arbitration agreement
between the parties is denied by
the respondent, whether the Chief
Justice or his designate, in
exercise of power under Section
11 of the Act, can appoint an
arbitrator without deciding the
question whether there was an
arbitration agreement between
the parties, leaving it open to be
decided by the arbitrator?”
11. The question is covered by the decisions
of this Court in SBP & Co. v. Patel Engg.
Ltd., (2005) 8 SCC 618 and National
Insurance Co. Ltd. v. Boghara Polyfab (P)
Ltd., (2009) 1 SCC 267 In SBP & Co.(supra) a
Constitution Bench of this Court held that
when an application under Section 11 of the
Act is filed, it is for the Chief Justice or his
designate to decide whether there is an
arbitration agreement, as defined in the Act
and whether the party who has made a
request before him, is a party to such an
agreement. The said decision also made it
clear as to which issues could be left to the
decision of the arbitrator.
12. Following the decision in SBP & Co.
(supra) this Court in National Insurance Co.
Ltd.(supra) held as follows: (National
Insurance Co. Ltd. Case (supra), SCC p. 283,
paras 22 & 22.1-22.3)
“22. Where the intervention of
the court is sought for
appointment of an Arbitral
Tribunal under Section 11, the
duty of the Chief Justice or his
designate is defined in SBP & Co.
This Court identified and
segregated the preliminary issues
that may arise for consideration
in an application under Section
11 of the Act into three
categories, that is, (i) issues
which the Chief Justice or his
designate is bound to decide; (ii)
issues which he can also decide,
that is, issues which he may
choose to decide; and (iii) issues
which should be left to the
Arbitral Tribunal to decide.
22.1. The issues (first category)
which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the
application has approached the
appropriate High Court.
(b) Whether there is an
arbitration agreement and
whether the party who has
applied under Section 11 of the
Act, is a party to such an
agreement.
22.2. The issues (second category)
which the Chief Justice/his
designate may choose to decide
(or leave them to the decision of
the Arbitral Tribunal) are:
(a) Whether the claim is a dead
(long-barred) claim or a live claim.
(b) Whether the parties have
concluded the contract
/transaction by recording
satisfaction of their mutual rights
and obligation or by receiving the
final payment without objection.
22.3. The issues (third category)
which the Chief Justice/his
designate should leave exclusively
to the Arbitral Tribunal are:
(i) Whether a claim made falls
within the arbitration clause (as
for example, a matter which is
reserved for final decision of a
departmental authority and
excepted or excluded from
arbitration).
(ii) Merits or any claim involved
in the arbitration.”
(emphasis supplied)
13. It is clear from the said two decisions
that the question whether there is an
arbitration agreement has to be decided only
by the Chief Justice or his designate and
should not be left to the decision of the
Arbitral Tribunal. This is because the
question whether there is an arbitration
agreement is a jurisdictional issue and unless
there is a valid arbitration agreement, the
application under Section 11 of the Act will
not be maintainable and the Chief Justice or
his designate will have no jurisdiction to
appoint an arbitrator under Section 11 of the
Act. This Court also made it clear that only
in regard to the issues shown in the second
category, the Chief Justice or his designate
has the choice of either deciding them or
leaving them to the decision of the Arbitral
Tribunal. Even in regard to the issues falling
under the second category, this Court made
it clear that where allegations of forgery or
fabrication are made in regard to the
documents, it would be appropriate for the
Chief Justice or his designate to decide the
issue. In view of this settled position of law,
the issue whether there was an arbitration
agreement ought to have been decided by the
designate of the Chief Justice and only if the
finding was in the affirmative, he could have
proceeded to appoint the arbitrator.”
(emphasis supplied)
25. Keeping in view the law laid down in the
aforementioned three cases quoted supra which
does not need any more elaboration by us, we have
no hesitation in setting aside the direction which
directs the arbitrator to decide the question of
legality and validity of the agreement/(MoU).
26. In our considered opinion, such directions
issued by the High Court are plainly against the law
laid down by this Court in three decisions quoted
above. Indeed, the High Court ought to have
decided the questions itself and recoded a finding as
to whether the MoU dated 27.05.2013 is a valid and
genuine document or it is a forged and fabricated
document and then depending upon the findings,
appropriate directions, if necessary, should have
been passed for disposal of the application finally.
Unfortunately, it was not done.
27. This takes us to the next argument of Mr.
Basant R., learned senior counsel for the
respondents. It was argued that since the appellant
failed to give reply to the notice given by the
respondents for appointment of an arbitrator, the
appellant should not be allowed to raise such plea
at a belated stage in Section 11 proceedings. We do
not agree with the submission.
28. We find that the appellant in reply to the
respondents’ petition filed under Section 9 of the
Act has specifically denied having signed or/and
executed such agreement/(MoU). He has also
contended therein that it is a bogus and fabricated
MoU. The appellant again in his reply to application
filed by the respondents under Section 11 of the Act
denied the very existence of MoU.
29. In our opinion, this was sufficient for joining
issue on the validity and genuineness of the MoU
which was raised timely in appropriate proceedings
by the appellant. The submission of Mr. Basant R.
is, therefore, wholly devoid of merit and is
accordingly rejected.
30. In view of foregoing discussion, the appeal
succeeds and is allowed. The impugned order is set
aside. The case is remanded to the learned
designate Judge to decide the question of legality,
validity and genuineness of the agreement/(MoU) in
question on its merits on the basis of pleadings and
evidence of the parties keeping in view the law laid
down by this Court in three decisions referred
supra. Depending upon the findings on the
question, appropriate orders including the order for
appointment of arbitrator, if occasion arises, be
passed for final disposal of the application filed
under Section 11 of the Act.
31. No costs.
………...................................J.
[J. CHELAMESWAR]
…...……..................................J.
[ABHAY MANOHAR SAPRE]
New Delhi;
July 13, 2016
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