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)
J U D G M E N T
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 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 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 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
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
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 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.”
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
-----------------------
19
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)
J U D G M E N T
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 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 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 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
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
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 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.”
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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