VELUGUBANTI HARI BABU versus PARVATHINI NARASIMHA RAO & ANR.
[2016] 3 S.C.R. 228, Supreme Court of India, 2016
Outcome: Appeal(s) allowed (Granted)
Segment: Arguments
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[2016] 3 S.C.R. 228 
VELUGUBANTI HARi BABU 
v. 
PARVATHINI NARASIMHA RAO & ANR. 
(Civi I Appeal No.6198 of 20 I 6) 
JULY 13,2016 
[J. CHELAMESWAR AND ABI-IAY MANOHAR SAPRE, JJ.) 
Arbitration and Conciliation Act, 1996: s. 11 - When an 
application u/s. 11 is filed, it is for the Chief Justice or his designate 
to decide whether there is an arbitration agreement and whether 
the party who has made u request before him is a party to such an 
agreement - In the instant case, High Court ought to have decided 
the questions itse(f and given a finding as to whether the MoU 
dated 27.05.2013 was a vu/id and genuine document or it was a 
forged and fabricated document and then depending upon the 
findings, appropriate directions, if necessary, should have been 
passed for disposal of the application finally - U11fortunutely. it 
was not done - Matter remitted to High Court to decide the question 
of legality, validity and genuineness of agreement/Mou in question. 
Allowing the appeal and remitting the matter to High Court, 
the Court 
HELD: The impugned order directing the arbitrator to decide 
the question of legality and validity of the agreement/Mou is set 
aside. The appellant in reply to the respondents' petition filed 
under Section 9 of the Act specifically denied having signed or/ 
and executed such agreement/(MoU). He also contended therein 
that it is a bogus and fabricated MoU. The appellant again in 
his reply to application filed by the
respondents under Section 
11 of the Act denied the very existence of MoU. This was 
sufficient for joining issue on the validity and genuineness of 
the MoU which was raised timely in appropriate proceedings 
by the appellant. [Paras 25, 28, 29) [236-A, E-F) 
SBP & Co. v. Patel Engg. Ltd. 2005 (4) Suppl. SCR 
688 : (2005) 8 SCC 618; National Insurance Co. Ltd. 
v. Boghara Poly/ab (P) Ltd. 2008 (13) SCR 638: (2009) 
228
VELUGUBANTI HARi BABU v. PARVATHINI NARASIMHA 
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RAO 
1 sec 267; Bharat Rasiklal Ashra V. Gautam Rasiklal 
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Ashra & Am: 2011 (10) SCR 685 : (2012) 2 SCC 144 
- relied on. 
Case Law Reference 
2005 (4) Suppl. SCR 688 
relied on 
2008 (13) SCR 638 
relied on 
2011 (10) SCR 685 
relied on 
Para 16 
Para 16 
Para 16 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6198 of 
2016. 
From the Judgment and Order dated 13.02.2015 of the High Com1 
of Judicature at Andhra Pradesh for the State of Telangana and the 
State of Andhra Pradesh in Arbitration Application No. 79 of2014. 
V. V. S. Rao, B. Adinarayana Rao, Sr. Advs., Guntur Pramod Kumar, 
Ms. Prerna Singh, Guntur Prabhakar, Ms. Vijayshree PattnaikAdvs. for 
the Appellant. 
Basant R., Sr. Adv., M. Rambabu, N. Eswara Rao, B. V. Rama 
Rao, Mis. M. Rambabu& Co., Advs. for the Respondents. 
The Judgment of the Court was delivered by 
ABBAY MANOHAR SAPRE, J. 1. Leave granted. 
2. This appeal is filed by the appellant against the final judgment 
and order dated 13.02.2015 passed by the High Court of Judicature at 
Hyderabad for the State ofTelangana and the State of Andhra Pradesh 
in Arbitration Application No. 79of2014 whereby the High Court allowed 
the application filed by the respondents herein under Section 11 (5) & (6) 
of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 
"the Act") and appointed the sole arbitrator to decide the disputes alleged 
to have arisen between the parties in relation to MoU
dated 27.05.2013 
and further directed the arbitrator to decide the legality and validity of 
the MoU by taking evidence. 
3. Facts of the case lie in a narrow compass. They, however, need 
mention in brief to appreciate the short controversy involved in the appeal. 
4. The appellant (who was respondent before the High Court) is 
the owner of the plot of land measuring 15.53 acres situated in Sy. No. 
416/282 having come into possession of it in the year 1990 by way of a 
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registered gift deed. He is since then enjoying peaceful possession of 
the said land. 
5. According to the respondents, the appellant and the respondents 
entered into Memorandum of Understanding (MoU) dated 27.05.2013. 
The MoU, inter alia. provided that the respondents will resolve certain 
disputes that are pending between the appellant and certain other persons, 
namely, Mattaparthi Sivayya, Mattaparthi Satyanarayana and Mattaparthi 
Srinu, sons of late Appa Rao and another dispsute with Kanchumarthi 
Venkata Ramachandra Rao s/o Seetarama Rao, with respect to the land 
in question and, in return, the appellant will sell 50% of the land to the 
respondents at the rate of Rs. I crore per acre. According to the 
respondents, as per the MoU, they paid a sum ofRs.7,00,000/- as token 
money to the appellant. 
6. In terms of the MoU, both parties agreed that if any dispute 
arises in connection with the enforcement of the terms of the MoU, that 
shall be resolved through an Arbitrator, who would be appointed by both 
the parties with their mutual consent under the provisions of the Act. 
7. On 11.12.2013, the respondents sent a letter to the appellant. In 
the letter, it was alleged that since disputes have arisen between them in 
relation to execution of MoU and hence the respondents, in terms of 
MoU, appoint one Sanyasi Rao - retired District Judge as an arbitrator 
to decide the disputes. 
8. As the
respondents did not get any response, they filed an 
application being Arbitration Application No. 79of2014 before the High 
Court under Section 11 (5) and 11 (6) of the Act for appointment of an 
arbitrator out of which this appeal by special leave arises. 
9. During the pendency of the arbitration application before the 
High Court, the respondents also filed a petition being A.A.O.P. No. 41 
of2013 before the Principal Sessions Judge, Rajahmundry under Section . 
9 of the Act for grant of injunction restraining the appellant herein from 
alienating the property which was the subject matter of MoU. The 
appellant contested the application and denied the very execution of 
MoU by him. It was alleged that the so called MoU relied on by the 
respondents in their application is forged and fabricated document and 
that he has never signed any such MoU. It was, therefore, not binding 
on the appellant. By order dated 20.06.2014, the Principal Sessions 
Judge allowed the petition.
VELUGUBANTI HARi BABU v. PARVATHINI NARASIMHA 
RAO [ABHAY MANOHAR SAPRE, J.] 
I 0. The appellant also contested the petition filed under Section 
11 (5) & (6) and filed a counter affidavit therein stating, inter alia, that 
the MoU in question is forged and fabricated document and that he 
never signed any such document with the respondents. 
I I.By impugned order dated 13.02.2015, the High Court allowed 
the application by holding that the legality and validity of the MoU including 
arbitration agreement can be examined by the Arbitrator on taking 
evidence and accordingly appointed Mr. B. Prakash Rao, a retired High 
Court Judge as the sole arbitrator to adjudicate all the disputes raised by 
the parties including to decide the question regarding legality and 
genuineness of MoU. 
12. Challenging the said order, the appellant has filed this appeal by 
way of special leave before this Court. 
13. Heard Mr. V.V.S. Rao, learned senior counsel for the appellant 
and Mr. Basant R., learned senior counsel for the respondents. 
14. Mr. V.V.S Rao, learned senior counsel appearing for the appellant 
while assailing the legality and correctness of the impugned order argued 
two points. 
15. In the first place, learned counsel urged that the High Court 
erred in allowing the application filed by the respondents under Section 
11 (5) & (6) of the Act and further erred in directing the arbitrator to 
decide the legality and validity of the MoU along with the disputes arising 
outofMoU.
16. In the second place, learned counsel urged that the directions 
issued to the arbitrator to decide the legality and genuineness of the 
MoU are contrary to the law laid down by this Court in SBP & Co. vs. 
Patel Kngg. Ltd., (2005) 8 SCC 618, National Insurance Co. Ltd. 
Vs. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 and Bharat Rasiklal 
Ashra vs. Gautam Rasiklal Ashra & Anr., (2012) 2 SCC 144 and 
hence si1ch directions are not legally sustainable and are liable to be set 
aside. 
17. Learned counsel further submitted that in a case of this nature 
where the question arises before the High Court in Section 11 proceedings 
as to whether the agreement/Mou is a valid and genuine document and 
whether it is enforceable or not, it is the duty of the High Court to first 
decide such questions keeping in view the law laid down in SBP & Co. 
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(supra), National Insurance Co. Ltd., (supra) and Bharat Rasiklal 
Ashra (supra) and if it is held to be a valid and genuine document then 
whether it is binding on the parties and depending upon the outcome of 
the findings on such question, appropriate orders as required under 
Sections 11 (5) and (6) of the Act has to be passed. 
18. Learned counsel further urged that since in this case, the High 
Court instead of deciding these questions on their merits, which had 
admittedly arisen on the basis of pleadings, straightaway proceeded to 
appoint the arbitn1:c1r and directed the arbitrator to decide the validity 
and genuineness of the MoU, such exercise of power by the High Court 
was wholly without jurisdiction and renders the impugned order legally 
unsustainable. In other words, submission of the learned counsel was 
that the High Court !:ad the jurisdiction under Section 11 of the Act to 
decide the question of validity and genuineness of MoU one way or 
other on merits as held by this Court in abovementioned three decisions 
whereas it had no jurisdiction to ask the arbitrator to decide such question 
and, therefore, non-deciding the question amounts to failure to exercise 
jurisdiction vested in it by law and renders the impugned order bad in 
law. 
19. In reply, Mr. Basant R., learned senior counsel appearing for 
the respondents while elaborating his submissions supported the reasoning 
and the
conclusion arrived at by the learned Chief Justice and contended 
that no interference is called for in the impugned order. 
20. Having heard the learned counsel for the patties and on perusal 
of the record of the case, we find force in the submissions of the learned 
counsel for the appellant, which deserve acceptance. 
2 I. This is how the learned Chief Justice dealt with the matter in 
hand and held as under : 
"I am of the view that the legality and validity of the 
Memorandum of Understanding and also the Arbitration 
Agreement can also be examined by the learned Arbi"trator 
on taking evidence in this matter, particularly, undc1· Section 
16 of the said Act. As I notice and taking prima facie 
material, such question cannot be adjudicated conclusively 
by me effectively and it would be proper for the learned 
Arbitrator to do so. I, therefore, appoint Mr. Justice ll. 
Prakash Rao, a retired Judge of this Court as sole
VELUGUBANTI HARI BABU v. PARVATHINI NARASIMHA 
RAO [ABHAY MANOHAR SAPRE, J.] 
Arbitrator to adjudicate all the disputes raised by the parties. 
If the plea of existence and validity of the aforesaid 
Memorandum of Understanding is taken on any ground and 
so also the Arbitration Agreement, such pleas have to be 
adjudicated together with other pleas." 
22. The short question which arises for consideration in this appeal 
is whether the High Court (Designate Judge) was justified in not deciding 
the question as to whether MoU, which is denied by the appellant herein 
in Section 11 proceedings, is valid and genuine document and whether 
the High Court was justified in directing the arbitrator to decide the said 
question. 
23. The question posed by us remains no more res integra and is 
already answered by the Constitution Bench of this Court in SBP & 
Co. (supra) and then in National Insurance Co. Ltd. (supra) and 
lastly in Bharat Rasiklaf Ashra (supra). It is really unfortunate that 
the learned Chief Justice while deciding the application did not take note 
of any of these decisions and passed the impugned -order which is 
apparently against the law laid down in these decisions. 
24. Jilstice Raveendran, speaking for the Bench in Bharat Rasiklal 
Ashra's case (supra) which also involved the same question, took note 
of law laid down in earlier two decisions of SBP & Co. (Supra) and 
National Insurance Co. Ltd. (supra) and succinctly explaining the 
ratio of these decisions
laid down the following proposition of law in 
paras I 0 to 13 which read as under: 
"10. 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 decide~ by 
the arbitrator?" 
11. The question is covered by the decisions of this Court 
in SBP & Co. v. Patel En1u:. Ltd., (2005) 8 SCC 618 and 
National Insurance Co. Ltd. v. Bo1:liara Polyfab (P) Ltd., 
(2009) 1 SCC 267 In SBP & Co.(supra) a Constitution Bench 
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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. 
12. Following the decision in SBP & Co.(supra) this Court 
in National Insurance Co. Ltd.(supra) held as follows: 
(National Insurance Co. Ltd. Case (supra), SCC p. 283, paras 
22 & 22.1-22.3) 
"22. 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, (1) 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. 
22.J. Tlte issues (first category) whiclt tlte Cltief Justice/ 
/tis designate will have to decide are: 
(a) Whether the party making the application has 
approached the appropriate High Court. 
(b) Wltetlter tltere is an arbitration
agreement and wltetlter 
the party wlto has applied under Section 11 of tlte Act, is a 
party to suclt an agreement. 
22.2. 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 I 
transaction by recording satisfaction of their mutual
VELUGUBANTI HARi BABU v. PARVATHINI NARASIMHA 
RAO [ABHAY MANOHAR SAPRE, J.] 
rights and obligation or by receiving the final payment 
without objection. 
22.3. The issues (third category) which the ChiefJustice/ 
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) 
13. 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 designate and should not 
be left to the decision of the Arbitral Tribunal. This is 
because the question whether there is an 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 i11 regard to tlte issues failing 
u11der tile second category, this Court made it clear that where 
allegatio11s of forgery
or fabrication are made in regard to 
tile documellls, it would be appropriate for tile Chief Justice 
or his desig11ate 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." 
(emphasis supplied) 
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25. Keeping in view the law laid down in the aforementioned three 
cases quoted supra which does not need any more elaboration by us, we 
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[2016] 3 S.C.R. 
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have no hesitation in setting aside the direction which directs the arbitrator 
to decide the question of legality and validity of the agreement/(MoU). 
26. In our considered opinion, such directions issued by the High 
· Court are plainly against the law laid down by this Court in three decisions 
quoted above. Indeed, the High Court ought to have decided the questions 
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itselfand recoded a finding as to whether the MoU dated 27.05.2013 is 
a valid and genuine document or it is a forged and fabricated document 
and then depending upon the findings, appropriate directions, if necessary, 
should have been passed for disposal of the application finally. 
Unfortunately, it was not done. 
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27. This takes us to the next argument of Mr. Basant R., learned 
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senior counsei for the respondents. It was argued that since the appellant 
failed to give reply to the notice given by the respondents for appointment 
of an arbitrator, the appellant should not be allowed to raise such plea at 
a belated stage in Section 11 proceedings. We do not agree with the 
submission. 
28. We find that the appellant in reply to the respondents' petition 
filed under Section 9 of the Act has specifically denied having signed or/ 
and executed such agreement/(MoU). He has also contended therein 
that it is a bogus and fabricated MoU. The appellant again in his reply to 
application filed by the respondents under Section 11 of the Act denied
the very existence of MoU. 
29. In our opinion, this was sufficient for joining issue on the validity 
and genuineness of the MoU which was raised timely in appropriate 
proceedings by the appellant. The submission of·Mr. Basant R. is, 
therefore, wholly devoid of merit and is accordingly rejected. 
30. In view' of foregoing discussion, the appeal succeeds and is 
allowed. The impugned order is set aside. The case is remanded to the 
learned designate Judge to decide the question of legality, validity and 
genuineness of the agreement/(MoU) in question on its merits on the 
basis of pleadings and. evidence of the parties keeping in view the law 
laid down by this Court in three decisions referred supra. Depending 
upon the findings on the question, appropriate orders including the order 
for appointment of arbitrator, if occasion arises, be passed for final disposal 
of the application filed under Section 11 of the Act. 
3LNo costs. 
H 
Devika Gujral 
Appeal allowed.