Bharat Rasiklal Ashra
Vs. Gautam Rasiklal Ashra & ANR
J U D G M E N T
R.V.RAVEENDRAN, J.
1.
Leave
granted. Heard.
2.
The
appellant and first respondent is 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 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.
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.
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 5another 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 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 : "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 8designate
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 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 10the 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.
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 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)
.................................J.(A
K Patnaik)
New
Delhi;
August
25, 2011
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