Rajesh Verma v. Ashwani Kumar Khanna
Background
The appellant, a shop landlord, and the respondent, his longtime tenant, entered into an agreement under which the appellant would demolish and rebuild the shop and then sell it to the respondent, with an arbitration clause for disputes. When disputes arose, the respondent approached the Delhi High Court under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator. The Single Judge allowed the petition, appointed an arbitrator, but also went into and recorded detailed findings on the merits of the underlying factual dispute, and separately dismissed the appellant's application to change the named arbitrator.
Decision Breakdown
The Supreme Court held that a court's jurisdiction under Section 11 is limited to examining whether an arbitration agreement exists and whether a dispute has arisen under it: it should not go on to decide the merits of the underlying controversy. Finding that the Single Judge had exceeded this limited jurisdiction by elaborately discussing merits-related issues, the Court directed that the arbitrator should not be influenced by, or even refer to, those findings while deciding the dispute. Taking into account the appellant's reservations about the previously named advocate-arbitrator, the Court substituted the arbitration with a retired judge, Justice M.L. Mehta, as sole arbitrator, and directed that arbitration proceed expeditiously. The appeal was accordingly allowed in part, modifying the High Court's order to this extent.
Lesson Learnt
When a court is only asked to appoint an arbitrator under Section 11 of the Arbitration Act, it should confine itself to checking that a valid arbitration agreement and a genuine dispute exist: any observations it makes on the actual merits of the dispute are not binding and should be disregarded by the arbitrator who actually decides the case.