Reportable IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7334 OF 2011 [Arising out of SLP [C] No.15286/2011]

Bharat Rasiklal Ashra … Appellant

Vs.

Gautam Rasiklal Ashra & Anr. … Respondents

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted. Heard.

2. The appellant and first respondent are 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.  

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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.

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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  

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another  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  

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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 :

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“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  

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designate 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  

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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  

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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.

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.  

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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  

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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)

New Delhi; ……………………………J. August 25, 2011. (A K Patnaik)

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