VELUGUBANTI HARI BABUversusPARVATHINI NARASIMHA RAO & ANR.

                              [2016] 3 S.C.R. 228


A                      VELUGUBANTI HARi BABU
                                       v.
                PARVATHINI NARASIMHA RAO & ANR.
                           (Civi I Appeal No.6198 of 20 I 6)
B                                JULY 13,2016
    [J. CHELAMESWAR AND ABI-IAY MANOHAR SAPRE, JJ.)
         Arbitration and Conciliation Act, 1996: s. 11 - When an
    application u/s. 11 is filed, it is for the Chief Justice or his designate
    to decide whether there is an arbitration agreement and whether
c
    the party who has made u request before him is a party to such an
    agreement - In the instant case, High Court ought to have decided
    the questions itse(f and given a finding as to whether the MoU
    dated 27.05.2013 was a vu/id and genuine document or it was a
    forged and fabricated document and then depending upon the
D   findings, appropriate directions, if necessary, should have been
    passed for disposal of the application finally - U11fortunutely. it
    was not done - Matter remitted to High Court to decide the question
    of legality, validity and genuineness of agreement/Mou in question.
        Allowing the appeal and remitting the matter to High Court,
E   the Court
         HELD: The impugned order directing the arbitrator to decide
    the question of legality and validity of the agreement/Mou is set
    aside. The appellant in reply to the respondents' petition filed
    under Section 9 of the Act specifically denied having signed or/
F   and executed such agreement/(MoU). He 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. This was
    sufficient for joining issue on the validity and genuineness of
    the MoU which was raised timely in appropriate proceedings
G   by the appellant. [Paras 25, 28, 29) [236-A, E-F)
          SBP & Co. v. Patel Engg. Ltd. 2005 (4) Suppl. SCR
          688 : (2005) 8 SCC 618; National Insurance Co. Ltd.
          v. Boghara Poly/ab (P) Ltd. 2008 (13) SCR 638: (2009)

H
                                       228
 VELUGUBANTI HARi BABU v. PARVATHINI NARASIMHA                                 229
                     RAO

      1 sec 267; Bharat Rasiklal Ashra V. Gautam Rasiklal                       A
      Ashra & Am: 2011 (10) SCR 685 : (2012) 2 SCC 144
      - relied on.
                        Case Law Reference
  2005 (4) Suppl. SCR 688         relied on                 Para 16
                                                                                B
  2008 (13) SCR 638               relied on                 Para 16
  2011 (10) SCR 685               relied on                 Para 16
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6198 of
2016.
     From the Judgment and Order dated 13.02.2015 of the High Com1
                                                                                c
of Judicature at Andhra Pradesh for the State of Telangana and the
State of Andhra Pradesh in Arbitration Application No. 79 of2014.
     V. V. S. Rao, B. Adinarayana Rao, Sr. Advs., Guntur Pramod Kumar,
Ms. Prerna Singh, Guntur Prabhakar, Ms. Vijayshree PattnaikAdvs. for
                                                                                D
the Appellant.
     Basant R., Sr. Adv., M. Rambabu, N. Eswara Rao, B. V. Rama
Rao, Mis. M. Rambabu& Co., Advs. for the Respondents.
     The Judgment of the Court was delivered by
     ABBAY MANOHAR SAPRE, J. 1. Leave granted.                                  E

     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 ofTelangana and the State of Andhra Pradesh
in Arbitration Application No. 79of2014 whereby the High Court allowed
the application filed by the respondents herein under Section 11 (5) & (6)      F
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.                                                     G
     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.
416/282 having come into possession of it in the year 1990 by way of a          H
230            SUPREME COURT REPORTS                          [2016] 3 S.C.R.



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
8     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. I crore per acre. According to the
c     respondents, as per the MoU, they paid a sum ofRs.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
D     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
 E    to decide the disputes.
           8. As the respondents did not get any response, they filed an
      application being Arbitration Application No. 79of2014 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.
 F
            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
      of2013 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
 G    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.
 H
 VELUGUBANTI HARi BABU v. PARVATHINI NARASIMHA                                   231
        RAO [ABHAY MANOHAR SAPRE, J.]

      I 0. The appellant also contested the petition filed under Section          A
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.
      I I.By impugned order dated 13.02.2015, the High Court allowed
the application by holding that the legality and validity of the MoU including    B
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.
                                                                                  c
    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        D
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          E
decide the legality and validity of the MoU along with the disputes arising
outofMoU.
      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.              F
Patel Kngg. 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 si1ch directions are not legally sustainable and are liable to be set
aside.
                                                                                  G
      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.
                                                                                  H
232             SUPREME COURT REPORTS                           [2016] 3 S.C.R.


A     (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.
B           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 arbitn1:c1r 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
c     unsustainable. In other words, submission of the learned counsel was
      that the High Court !:ad 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
D     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
E     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 patties 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.
 F        2 I. 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 Arbi"trator
 G           on taking evidence in this matter, particularly, undc1· 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 ll.
             Prakash Rao, a retired Judge of this Court as sole
H
 VELUGUBANTI HARI BABU v. PARVATHINI NARASIMHA                                233
        RAO [ABHAY MANOHAR SAPRE, J.]

      Arbitrator to adjudicate all the disputes raised by the parties.         A
      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      B
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.
                                                                               c
      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 Rasiklaf 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              D
apparently against the law laid down in these decisions.
      24. Jilstice 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              E
ratio of these decisions laid down the following proposition of law in
paras I 0 to 13 which read as under:
       "10. Therefore, the following question arises for
       consideration in this appeal:
                                                                     F
          "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 decide~ by G
          the arbitrator?"
       11. The question is covered by the decisions of this Court
       in SBP & Co. v. Patel En1u:. Ltd., (2005) 8 SCC 618 and
       National Insurance Co. Ltd. v. Bo1:liara Polyfab (P) Ltd.,
       (2009) 1 SCC 267 In SBP & Co.(supra) a Constitution Bench               H
234     SUPREME COURT REPORTS                        [2016] 3 S.C.R.


A     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
B
      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)
c
         "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
D        application under Section 11 of the Act into three
         categories, that is, (1) 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
E        Tribunal to decide.
         22.J. Tlte issues (first category) whiclt tlte Cltief Justice/
         /tis designate will have to decide are:
         (a) Whether the party making the application has
         approached the appropriate High Court.
 F
         (b) Wltetlter tltere is an arbitration agreement and wltetlter
         the party wlto has applied under Section 11 of tlte Act, is a
         party to suclt an agreement.
         22.2. The issues (second category) which the Chief
         Justice/his designate may choose to decide (or leave
G
         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 I
H        transaction by recording satisfaction of their mutual
VELUGUBANTI HARi BABU v. PARVATHINI NARASIMHA                            235
       RAO [ABHAY MANOHAR SAPRE, J.]

        rights and obligation or by receiving the final payment          A
        without objection.
        22.3. The issues (third category) which the ChiefJustice/
        his designate should leave exclusively to the Arbitral
        Tribunal are:
        (i) Whether a claim made falls within the arbitration             B
        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."
                                                                          c
                                               (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           D
      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        E
      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 i11 regard to tlte issues failing
      u11der tile second category, this Court made it clear that where
                                                                          F
      allegatio11s of forgery or fabrication are made in regard to
      tile documellls, it would be appropriate for tile Chief Justice
      or his desig11ate 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                G
      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     H
236             SUPREME COURT REPORTS                            [2016] 3 S.C.R.


A     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
B itselfand 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.
c           27. This takes us to the next argument of Mr. Basant R., learned
      senior counsei 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.
D
            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
 E    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.
 F
            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
 G    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.
            3LNo costs.
 H    Devika Gujral                                                  Appeal allowed.