2014 (5) TMI 372 - SC - Companies Law

Supreme Court sets aside arbitrator appointment, emphasizes need for valid arbitration agreement

Bharat Rasiklal Ashra Versus Gautam Rasiklal Ashra and another

The Supreme Court allowed the appeal, set aside the High Court's order appointing an arbitrator, and remitted the matter to the High Court to decide on ... Appointment of arbitrator - Subsequent partnership deed executed between parties - Appellant contends that subsequent partnership deed was forged and fraudulent - High Court appointed arbitrator - Held that:- 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 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. - 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 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 - Decided in favour of appellant. Issues Involved:1. Validity of the partnership deeds dated 6.9.1991 and 19.5.2000.2. Existence of a valid arbitration agreement.3. Jurisdiction of the Chief Justice or his designate under section 11 of the Arbitration and Conciliation Act, 1996.4. Appointment of an arbitrator in the presence of allegations of forgery and fabrication.Detailed Analysis:1. Validity of the Partnership Deeds Dated 6.9.1991 and 19.5.2000:The appellant contended that he did not execute the partnership deeds dated 6.9.1991 and 19.5.2000, alleging these documents were forged. He claimed that the only valid partnership deed was dated 12.6.1988, as confirmed by the firm's bankers and the first respondent's letter to the Foreign Exchange Brokers Association of India. Conversely, the first respondent asserted that fresh partnership deeds were executed after the death of their grandfather, reducing the appellant's share progressively to 10% by the deed dated 19.5.2000. The court emphasized that the validity of these deeds must be determined before any arbitration could proceed under the disputed partnership deeds.2. Existence of a Valid Arbitration Agreement:The primary legal question was whether an arbitration agreement existed between the parties. The court referenced the decisions in S.B.P. & Co. vs. Patel Engineering Ltd. and National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd., which established that the Chief Justice or his designate must decide the existence of an arbitration agreement before appointing an arbitrator. This is a jurisdictional issue, and without a valid arbitration agreement, the application under section 11 of the Act is not maintainable.3. Jurisdiction of the Chief Justice or His Designate under Section 11 of the Arbitration and Conciliation Act, 1996:The court reiterated that the Chief Justice or his designate is required to decide whether there is an arbitration agreement and whether the party requesting arbitration is a party to such an agreement. The court clarified that issues of forgery and fabrication should be decided by the Chief Justice or his designate and not left to the arbitrator, as these are fundamental to the jurisdiction to appoint an arbitrator.4. Appointment of an Arbitrator in the Presence of Allegations of Forgery and Fabrication:The appellant objected to the appointment of an arbitrator under the allegedly forged partnership deed dated 19.5.2000. The court held that serious allegations of fraud and fabrication necessitate a preliminary judicial determination before referring the matter to arbitration. The court dismissed the first respondent's argument that such a process would defeat the summary nature of section 11 proceedings, emphasizing the necessity of verifying the existence of a valid arbitration agreement.Conclusion:The Supreme Court allowed the appeal, set aside the High Court's order appointing an arbitrator, and remitted the matter to the High Court to decide on the authenticity of the partnership deed dated 19.5.2000 and the existence of a valid arbitration agreement. The court underscored that an arbitrator could only be appointed if a valid arbitration agreement exists, and allegations of forgery must be resolved judicially before proceeding to arbitration.