Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7334 OF 2011
[Arising out of SLP [C] No.15286/2011]
Bharat Rasiklal Ashra ... Appellant
Vs.
Gautam Rasiklal Ashra & Anr. ... Respondents
J U D G M E N T
R.V.RAVEENDRAN, J.
Leave granted. Heard.
2. The appellant and first respondent are brothers. A deed of partnership
dated 12.6.1988 was entered among Mr. Kanji Pitamber Ashra and his two
grandsons (appellant and first respondent) to carry on the business under the
name and style of M/s. Kanji Pitamber & Co., their shares being 40%, 30%
and 30% respectively. Clause 10 provided that death of any partner shall not
dissolve the partnership firm as to the surviving partners. Clause 11 of the
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said agreement provided that all disputes between the partners regarding the
rights and liabilities of partners or in regard to the transactions or accounts of
the partnership shall be referred to arbitration.
3. The appellant is permanent resident of United States of America.
Kanji Pitamber Ashra died on 4.9.1991. According to appellant, the
appellant and first respondent continued the business of M/s. Kanji Pitamber
& Co., (second respondent firm), by increasing their profit and loss ratio
from 30% to 50% each. The appellant alleges that in or about 2008 he came
to know that the first respondent was claiming that fresh partnership deeds
were executed by the parties on 6.9.1991 and 19.5.2000. The appellant
claims that he did not execute any such deeds. He claims that the firm's
bankers by their letter dated 7.7.2008 have confirmed that the only
partnership deed of the firm held by them was the deed dated 12.6.1988. He
also claims that the first respondent, as partner of the second respondent firm
had sent a letter dated 1.7.2008 to the Foreign Exchange Brokers
Association of India (of which the second respondent is a member)
confirming that the appellant and first respondent were the partners as per
the deed dated 12.6.1988 and there was no change in the said partnership
deed.
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4. According to the first respondent, immediately after the death of their
grandfather, a fresh partnership deed was executed on 6.9.1991 and again
another deed was executed on 19.5.2000 by the appellant and first
respondent; that under deed dated 6.9.1991, the share of the appellant was
reduced from 50% to 25% and under the deed dated 19.5.2000, the share of
the appellant was reduced from 25% to 10% with a further condition that if
the appellant did not attend to the business on account of his commitments
elsewhere, the entire profit and loss of the business shall belong to or borne
by the first respondent. The first respondent by letter dated 19.8.2010 stated
that the shares of appellant and first respondent in the firm were 10% and
90% respectively; that the appellant had abandoned his interest in the firm
and showed no inclination to participate in its business; that several issues
relating to the firm had arisen; and that it was necessary to sort out those
disputes by arbitration. The first respondent therefore appointed his
arbitrator and called upon the appellant to appoint his arbitrator. The
appellant sent a reply dated 7.9.2010 stating that he had not signed the
partnership deeds dated 6.9.1991 or 19.5.2010 and the said documents were
forged documents and not binding and therefore the question of appointing
an arbitrator in terms of the said documents did not arise.
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5. The first respondent filed an application under section 11 of the
Arbitration and Conciliation Act, 1996 (`Act' for short) alleging that
disputes had arisen between appellant and first respondent, who were the
partners of the second respondent firm governed by partnership deed dated
19.5.2000; and that clause 12 thereof provided for settlement of disputes by
arbitration. He therefore prayed that the person named in his notice dated
19.8.2010, as his arbitrator, be appointed as the sole arbitrator in terms of the
arbitration agreement contained in the partnership deed dated 19.5.2000. The
appellant resisted the said petition by filing detailed objections denying the
existence of the partnership deeds dated 6.9.1991 and 19.5.2000. The
appellant asserted that they were governed by the partnership deed dated
12.6.1988 and therefore question of appointment of arbitrator in terms of the
arbitration clause contained in the alleged partnership deed dated 19.5.2000
did not arise.
6. The learned designate of the Chief Justice made an order dated
11.2.2011 for appointing a Commissioner for recording the evidence of
parties as it was necessary to decide whether said two partnership deeds
dated 6.9.1991 and 19.5.2000 were valid or not, before a reference could be
made in terms of an arbitration clause contained in the deed dated 19.5.2000.
However, when the application subsequently came up for hearing before
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another designate of the Chief Justice, the earlier order for recording
evidence was ignored and by order dated 31.3.2011, the application under
section 11 of the Act was allowed and Mr. Ketan Parekh, Advocate, was
appointed as arbitrator. The learned designate held that a dispute raised by
Vijayaben Kanji Ashra, grandmother of the parties, claiming a share in the
second respondent firm as the legal heir of Kanji Pitamber Ashra, was the
subject matter of an application under section 11 of the Act in Arbitration
Application No.161/2010 and in that petition, by consent of all parties, Mr.
Ketan Parekh had already been appointed as arbitrator; and that therefore, it
will be appropriate to appoint the said Mr. Ketan Parekh as the Arbitrator
and leave open the question whether the two subsequent partnership deeds
had been executed by the appellant or not, for the decision of the arbitrator.
7. The said order is challenged in this appeal by special leave. The
appellant submitted that this Court has repeatedly held that the the Chief
Justice or his designate will have to decide the issue relating to the existence
of an arbitration agreement before referring the dispute between the parties;
and that where serious questions of fraud, forgery and fabrication of
documents have been made out, the Chief Justice or his designate should not
appoint an arbitrator. Learned counsel for the appellant made it clear that if
the first respondent wanted appointment of an arbitrator as per the arbitration
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clause contained in the partnership deed dated 12.6.1988 and wanted the
disputes to be resolved in terms of the said partnership deed, the appellant
would not have any objection for appointment of an arbitrator. He submitted
that appellant's objection was to appoint an arbitrator under clause 12 of a
forged and fabricated deed dated 19.5.2000 execution of which had been
denied by him. 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?"
8. The question is covered by the decisions of this Court in S.B.P. & Co.
vs. Patel Engineering Ltd. [2005 (8) SCC 618] and National Insurance Co.
Ltd. vs. Boghara Polyfab Pvt. Ltd. [2009 (1) SCC 267]. In S.B.P.& Co., 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. Following the decision in S.B.P. & Co.,
this court in National Insurance Co. Ltd. held as follows :
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"17. 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.
17.1) The issues (first category) which 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.
17.2) 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.
17.3) 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)
9. 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
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designate and should not be left to the decision of the arbitral tribunal. This
is because the question whether there is 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.
10. Learned counsel for the first respondent submitted that the appellant
has already agreed for the appointment of Mr. Ketan Parekh as the arbitrator
in the application filed by their grandmother under section 11 of the Act,
with respect to her claim for a share in the firm; and the dispute between the
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two brothers also being in regard to the extent of the shares in the firm, it
would be proper to have it decided by the same arbitrator. Disagreeing with
the said submission, learned counsel for the appellant submitted that his
grandmother's claim was with reference to the partnership deed dated
12.6.1988 and as the said deed contained an arbitration agreement, he had
agreed for appointment of an arbitrator. He submitted that merely because he
had consented for appointment of an arbitrator in regard to the deed dated
12.6.1988, and had expressed confidence in the arbitrator, it does not mean
that he should agree for arbitration even where arbitration was claimed in
pursuance of a provision contained in a forged and fabricated document,
which was materially different from the deed dated 12.6.1988.
11. It is well settled that an arbitrator can be appointed only if there is an
arbitration agreement in regard to the contract in question. If there is an
arbitration agreement in regard to contract A and no arbitration agreement in
regard to contract B, obviously a dispute relating to contract B cannot be
referred to arbitration on the ground that contract A has an arbitration
agreement. Therefore, where there is an arbitration agreement in the
partnership deed dated 12.6.1988, but the dispute is raised and an
appointment of arbitrator is sought not with reference to the said partnership
deed, but with reference to another partnership deed dated 19.5.2000, unless
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the party filing the application under section 11 of the Act is able to make
out that there is a valid arbitration clause as per the contract dated 19.5.2000,
there can be no appointment of an arbitrator.
12. The learned counsel for the first respondent next submitted that if the
Chief Justice or his designate is required to examine the allegations of
fabrication and forgery made by a party in regard to the contract containing
the arbitration agreement, before appointing an arbitrator under section 11 of
the Act, the proceedings under the said section will cease to be a summary
proceedings, and become cumbersome and protracted, necessitating
recording of evidence, thereby defeating the object of the Act. In our
considered view this apprehension has no relevance or merit. Existence of a
valid and enforceable arbitration agreement is a condition precedent before
an arbitrator can be appointed under section 11 of the Act. When serious
allegations of fraud and fabrication are made, it is not possible for the Court
to proceed to appoint an arbitrator without deciding the said issue which
relates to the very validity of the arbitration agreement. Therefore the fact
that the allegations of fraud, forgery and fabrication are likely to involve
recording of evidence or involve some delay in disposal, are not grounds for
refusing to consider the existence of a valid arbitration agreement.
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13. The apprehension that such contentions are likely to be raised
frequently to protract the proceedings under section 11 of the Act or to delay
the arbitration process, thereby defeating the purpose of section 11 of the
Act is also without basis. Where agreements have been performed in part,
such a contention will not be entertained. It is only in a very few cases,
where an agreement which had not seen the light of the day is suddenly
propounded, or where the agreement had never been acted upon or where
sufficient circumstances exist to doubt the genuineness of the agreement, the
Chief Justice of his designate will examine this issue. This course has
repeatedly held that on the ground of termination, performance or frustration
of the contract, arbitration agreement cannot be avoided. The legislature has
entrusted the power of appointment of an arbitrator to the holders of high
judicial offices like the Chief Justice or Judge of the Supreme Court/High
Court, with a view that they can identify and effectively deal with false or
vexatious claims made only to protract the proceedings or defeat arbitration.
If a party is found to have falsely contended that the contract was
forged/fabricated, the Chief Justice or his designate may subject such part to
heavy costs so that such false claims are discouraged. Be that as it may.
14. We therefore allow this appeal, set aside the order of the High Court
appointing an arbitrator and remit the matter to the High Court for deciding
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the questions whether the deed dated 19.5.2000 was forged or fabricated and
whether there is a valid and enforceable arbitration agreement between the
parties. Nothing stated herein shall be construed as expression of any
opinion on the merits of the case.
...................................J.
(R V Raveendran)
New Delhi; .................................J.
August 25, 2011. (A K Patnaik)
