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Velugubanti Hari Babu v. Parvathini Narasimha Rao & Anr.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 6198 of 2016)Decided 13 Jul 2016
Civil Appeal No. 6198 of 2016
Justice J. Chelameswar · Justice Abhay Manohar Sapre

Background

The appellant, owner of a 15.53-acre plot of land, was said by the respondents to have entered into a Memorandum of Understanding (MoU) in 2013 under which the respondents would help resolve the appellant's land disputes in exchange for 50% of the land. The appellant denied ever signing the MoU, calling it forged. When a dispute arose, the respondents asked the High Court to appoint an arbitrator under Section 11 of the Arbitration Act, and the High Court did so, directing the arbitrator himself to decide whether the MoU was even genuine.

Decision Breakdown

The Supreme Court held that this was legally wrong: under settled Constitution Bench law (SBP & Co. v. Patel Engg. Ltd. and later decisions), whether a valid arbitration agreement exists at all is a threshold jurisdictional question that the High Court (or its designate) must decide itself before appointing an arbitrator: it cannot hand that question off to the arbitrator, especially where forgery is alleged. Since the appellant had consistently and timely denied signing the MoU, the High Court should have resolved that genuineness question first. The Court set aside the High Court's order and sent the matter back to the High Court's designate judge to decide the genuineness and validity of the MoU on the merits, with the question of appointing an arbitrator to follow only once that threshold issue is resolved.

Lesson Learnt

When one party denies ever signing an agreement containing an arbitration clause, a court asked to appoint an arbitrator must first decide for itself whether a valid agreement exists: it cannot outsource that foundational question to the very arbitrator it is being asked to appoint.

Official source (sci.gov.in)View Judgment (PDF)

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