IMPORTANT POINT
Question of existence of an arbitration agreement is a jurisdictional issue. Unless there is a valid arbitration agreement, application u/s 11 will not be maintainable. In absence of arbitration agreement Chief Justice or his designate will have no jurisdiction to appoint an arbitrator. Therefore, the question has to be decided only by the Chief Justice or his designate and it cannot be left to decision of the Arbitral Tribunal.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 11 – Question of existence of an arbitration agreement is a jurisdictional issue – Unless there is a valid arbitration agreement, application u/s 11 will not be maintainable – In absence of arbitration agreement Chief Justice or his designate will have no jurisdiction to appoint an arbitrator – Therefore, the question has to be decided only by the Chief Justice or his designate – Question cannot be left to decision of the Arbitral Tribunal. (Para 25)
       (2005) 8 SCC 618; (2009) 1 SCC 267; (2012) 2 SCC 144 – Relied upon
       (b) Arbitration and Conciliation Act, 1996 – Section 11 – Appellant consistently denying existence of MOU between appellant and respondent – Sufficient for joining issue on the validity and genuineness of the MoU in proceedings u/s 11. (Para 28, 29)
       Facts of the case:
       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, 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.
       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.
       In view of disputes arising between the appellant and the respondents, the respondents appointed an arbitrator.
       Appellants did not give any response.
       Respondents before the High Court for appointment of an arbitrator.
       During the pendency of the arbitration application before the High Court, the respondents also filed a petition before the Principal Sessions Judge, Rajahmundry for grant of injunction restraining the appellant herein from alienating the property which was the subject matter of MoU. The Principal Sessions Judge allowed the petition.
       The High Court allowed the application filed by the respondents and a sole arbitrator to adjudicate all the disputes raised by the parties including to decide the question regarding legality and genuineness of MoU.
       Finding of the Court:
       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.
       Result: Appeal allowed.

JUDGMENT :

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

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2016 Supreme(SC) 542

SUPREME COURT OF INDIAJ. CHELAMESWAR, ABHAY MANOHAR SAPRE, JJ.Velugubanti Hari Babu – AppellantVersusParvathini Narasimha Rao & Anr. – RespondentsCivil Appeal No. 6198 of 2016 (Arising out of SLP (C) No. 25473/2015)Decided On : 13-07-2016

Cases Referred (3)

SUPREME COURT OF INDIA
J. CHELAMESWAR, ABHAY MANOHAR SAPRE, JJ.
Velugubanti Hari Babu – Appellant
Versus
Parvathini Narasimha Rao & Anr. – Respondents
Civil Appeal No. 6198 of 2016 (Arising out of SLP (C) No. 25473/2015)
Decided On : 13-07-2016