In a key judgment in Velugubanti Hari Babu v Parvathini Narasimha Rao & Anr, the Supreme Court has held that where in proceedings before the high court under section 11 of the Arbitration and Conciliation Act, 1996, questions arise as to the validity, genuineness and enforceability of the agreement or memorandum of understanding (MoU), it is the high court’s duty to decide such questions and they cannot be referred to the arbitrator.
Disputes between the parties arose during a project involving joint development of land. Rao petitioned for the appointment of an arbitrator on the basis of an MoU. Babu contended that the MoU was fabricated and his signature was forged.
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”2″ ]
Andhra Pradesh High Court allowed the application and appointed a retired high court judge as the sole arbitrator to adjudicate all the disputes between the parties, holding that the legality and validity of the MoU including the arbitration agreement could be examined by the arbitrator on taking evidence. Challenging this order, Babu filed the appeal before Supreme Court.
The Supreme Court held that the high court was not justified in directing the arbitrator to decide the question of whether the MoU was valid and genuine. Referring to its earlier decisions in SBP & Co v Patel Engineering Ltd (2005), National Insurance Co Ltd v Boghara Polyfab (P) Ltd (2008) and Bharat Rasiklal Ashra v Gautam Rasiklal Ashra & Anr (2011), the Supreme Court held that the high court must decide questions arising before it in section 11 proceedings as to whether the agreement/MoU is valid, genuine and enforceable. This is because whether there is an arbitration agreement is a jurisdictional issue and unless there is a valid arbitration agreement, the application under section 11 will not be maintainable and the high court will have no jurisdiction to appoint an arbitrator.
[/ihc-hide-content]
