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Parvathini Narasimha Rao v. Velugubanti Hari Babu
Factual and Procedural Background
This application for appointment of an Arbitrator arises from a dispute between parties to a Memorandum of Understanding (MoU) dated 27.5.2013. The MoU involved an agreement for the sale of immovable property subject to specified terms and conditions. The applicants allege that the respondent failed to perform his obligations under the MoU, leading to disputes. Clause 10 of the MoU contains an arbitration agreement requiring disputes to be resolved by an arbitrator appointed by mutual consent under the Arbitration and Conciliation Act, 1996. Despite the applicants' request, the respondent did not agree to appoint an arbitrator, prompting this application. The respondent filed a counter affidavit claiming the MoU is forged and invalid, thus negating the arbitration agreement. The applicants rely on a prior ruling in an application under Section 9 of the Arbitration Act where the plea of forgery was rejected and no appeal was filed.
Legal Issues Presented
- Whether the Memorandum of Understanding and the arbitration agreement contained therein are valid and enforceable.
- Whether the Court should appoint an arbitrator despite the respondent's refusal to consent to an appointment.
- Whether the question of validity and legality of the MoU and arbitration agreement can be adjudicated at this stage or should be left for the arbitrator.
Arguments of the Parties
Applicants' Arguments
- The MoU constitutes a valid agreement under which the respondent agreed to sell immovable property.
- The disputes arising under the MoU are subject to arbitration as per Clause 10.
- The respondent failed to cooperate in appointing an arbitrator as required.
- A prior application under Section 9 of the Arbitration Act rejected the respondent's plea that the MoU was forged, and no appeal was filed, thus barring the respondent from raising the issue again.
Respondent's Arguments
- The MoU is forged and fabricated, rendering it invalid.
- Consequently, the arbitration agreement contained in the MoU is also invalid.
- The previous ruling under Section 9 was interlocutory, and the substantial issue of validity should be adjudicated in the present proceedings.
- The Court should refrain from appointing an arbitrator until the validity of the MoU and arbitration agreement is conclusively determined.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court considered the submissions and held that the legality and validity of the Memorandum of Understanding and the arbitration agreement are matters that can be examined by the arbitrator under Section 16 of the Arbitration and Conciliation Act, 1996. The Court found that it could not conclusively adjudicate these issues at this stage based on prima facie material. Therefore, it was appropriate to appoint an arbitrator to determine all disputes, including challenges to the existence and validity of the MoU and the arbitration agreement. The Court also directed that the arbitrator fix his remuneration in consultation with the parties, and that costs of arbitration proceedings be borne equally. The arbitrator was instructed to complete the proceedings and publish the award within five months from the date of reference.
Holding and Implications
The application for appointment of an arbitrator is disposed of by appointing Mr. Justice B. Prakash Rao as sole arbitrator.
The direct consequence is that all disputes arising out of the MoU, including challenges to its validity and the arbitration agreement, shall be adjudicated by the appointed arbitrator. The Court did not set any new precedent but clarified that preliminary challenges to validity are to be determined by the arbitrator under the Act. Each party will bear arbitration costs equally, and the proceedings are to be completed within five months.
Kalyan Jyoti Sengupta, C.J.:— This application for appointment of an Arbitrator has been taken out on the strength of the Memorandum of Understanding in writing dated 27.5.2013. The Memorandum of the Undertaking was executed by and between the parties.
2. It is stated by the applicants that by the aforesaid Memorandum of Understanding, the first party therein, agreed to sell immovable property subject to terms and conditions contained therein. According to the applicants, in spite of the above, the respondent failed and neglected to perform his part. As such, disputes have arisen. Such disputes are required to be resolved by arbitration agreement within Clause 10 of the Memorandum of Understanding, which reads as follows:
“Both parties agreed if any dispute arises in connection with the enforcement of the terms of Memorandum of Understanding, thus entered today, shall be resolved through an Arbitrator, who can be appointed by both the parties with their mutual consent under the provisions of the Arbitration and Conciliation Act, 1996.”
3. In spite of the applicants' demand for agreement on mutually appointed Arbitrator, the respondent has not responded to such demand. As such, the present application has been taken out.
4. Counter affidavit has been filed wherein it has been alleged that the said Memorandum of Understanding is forged and fabricated and it is not a valid agreement. Therefore, the Arbitration Agreement is also not valid.
5. It is contended by the learned counsel for the applicants that identical plea was taken before the appropriate Court on the application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’) and such plea was over-ruled by the learned Court. No appeal has been preferred therefrom. Under the circumstances, he contends that it is no longer open for the respondent to agitate on this issue.
6. Mr. S. Niranjan Reddy, learned counsel for the respondent, on the other hand, submits that whatever may be the findings of the learned judge in the application under Section 9, that was at the interlocutory stage and this plea of legality and validity of the Memorandum of Understanding together with the Arbitration Agreement are substantial in nature and this is required to be adjudicated in the present proceedings. Under the circumstances, he submits that the Court should not pass any order on this application.
7. I have considered the respective submissions.
8. 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 Arbitrator on taking evidence in this matter, particularly, under 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 B. Prakash Rao, a retired Judge of this Court as sole 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.
9. The learned Arbitrator shall fix his remuneration upon deliberation and consultation with the parties. The costs and expenses of the secretarial assistance of the arbitration proceedings shall also be determined by the learned Arbitrator. Each party will bear the expenses of the arbitration proceedings in all respects in equal share. I desire that the learned Arbitrator shall complete the arbitration proceedings by making publication of Award within a period of five months from the date of entering upon reference.
10. The arbitration application is accordingly disposed of. No costs.
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