Bombay High Court
Atul And Arkade Realty vs I.A.And I.C. Private Ltd. And 2 Ors on 6 May, 2022
Bench: N. J. Jamadar
Digitally signed by
SWAROOP SWAROOP
SHARAD SHARAD PHADKE
PHADKE Date: 2022.05.07
18:46:56 +0530 arbap 72 of 2013.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO.72 OF 2013
M/s. Atul & Arkade Realty,
(Previously known as Atul Real Estate Holding),
a Partnership Firm registered under the Partnership
Act, 1908, having its Office at 501-503, Trade
Avenue, Off. Western Express Highway, Suren
Road, Andheri (East), Mumbai - 400 093
acting through its partner viz. Atul N. Patel ... APPLICANT
VERSUS
1. I.A. & I.C. Private Limited,
A company registered under the
Companies Act, 1956 and having its
Registered Office at 16, Gundecha
Chambers, Nagindas Master Road,
Fort, Mumbai - 400 023
2. Shah Pratap Industries Pvt. Ltd.
A Company registered under the
Companies Act, 1956, and having its
Registered Office at 16, Gundecha
Chambers, Nagindas Master Road,
Fort, Mumbai - 400 023.
3. J.I.K. Industries Limited,
A company registered under the
Companies Act, 1956 and having its
registered Office at Pada No.3, Balkum,
Thane - 400 608 ... RESPONDENTS
Mr. Aspi Chinoy, Senior Advocate with Mr. Rohaan Cama, Mr. Pranav Dessai, Mr.
Krishna Balaji Moorthy, Mr. Shekhar Bishnoi i/by Wadia Ghandy and Co., for
Applicant/Petitioner.
Ms. Mamta Sadh i/by Mr. S.G.Lakhani, for Respondents.
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CORAM : N.J.JAMADAR, J.
RESERVED ON : 21st MARCH, 2022
PRONOUNCED ON : 6th MAY, 2022
JUDGMENT :
1. This Application under Section 11 of the Arbitration and Conciliation
Act, 1996 ('the Act') is filed to appoint a retired Supreme Court or High Court Judge
or any other person as a sole arbitrator to arbitrate all the disputes which have arisen in
relation to a Joint Venture Agreement dated 28th March, 2007.
2. This Application has remained pending before this Court on account
peculiar facts and is taken up for hearing and disposal in view of the Order passed by
the Supreme Court in Special Leave Petition (Civil) Diary No.24275 of 2021 dated
25th October, 2021.
3. The background facts necessary for the determination of this
Application are as under :
The Applicant is a Partnership firm. It is engaged in the business of real
estate development in Mumbai. The Respondent No.3 is a company registered under
the Companies Act, 1956. Respondent Nos.1 and 2 are the subsidiary companies of
Respondent No.3. Respondent Nos.1 and 2 collectively owned the lands admeasuring
22358.48 sq. meters with super structures thereon at Village Balkum, Dist. Thane
('the subject property'). The Respondent Nos.1 and 2 had leased the subject property
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to Respondent No.3 for a period upto 4 th April, 2007. Respondent No.3 had
expressed its unwillingness to renew the lease.
4. In the year 2007, the Respondent No.3 was declared a sick company by
the Board for Industrial Finance and Reconstruction (BIFR). The Respondent No.3
owed a sum of Rs.69.85 Crores to the banks and financial institutions. The creditors
agreed to accept a sum of Rs.23 Crores under the One Time Settlement scheme in full
and final settlement of their dues and claims, if the said amount was paid by 31 st
March, 2007. Negotiations were held between Shri Rajendra Parikh, the then
Managing Director of Respondent No.3, and the Applicant. Pursuant to the
negotiations, the Applicant agreed to bring in the said sum of Rs.23 Crores with the
understanding that the Applicant and Respondents would enter into a joint venture
agreement for the development of the subject property. Accordingly, a joint venture
agreement dated 28th March, 2007 came to be executed between the Applicant as a
developer, Respondent Nos.1 and 2 as the owners and the Respondent No.3 as a
confirming party / lessee, whereunder Respondent Nos.1 and 2 granted rights to the
Applicant to develop the subject property.
5. The material terms of the joint venture agreement, according to the
Applicant, were : (i) Respondent Nos.1 and 2 agreed to discharge the liabilities of
Respondent No.3 to the banks / financial institutions to the extent of Rs.23 Crores so
as to clear the encumbrances on the subject property. (ii) The Applicant agreed to
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provide the Respondent Nos.1 and 2 with the funds of Rs.23 Crores as and by way of
interest free security deposit for its onward remittance to the creditors of Respondent
No.3 in full and final discharge of their claims and dues. (iii) The Applicant was to
develop the subject property at its costs/expenses. (iv) The said amount of Rs.23
Crores was to be repaid to the Applicant by the Respondents from the profits of the
joint venture. (v) The net sale proceeds, after deducting all expenses including costs
of constructions etc., were to be shared by the Applicant and Respondents in the ratio
of 61:39. (vi) The Respondent No.3 would remove its plant, machinery and employees
from the subject property and obtain all necessary regulatory permissions.
6. The joint venture agreement also contained a mechanism for resolution
of the disputes through arbitration in accordance with the Act of 1996.
7. The Applicant claimed that pursuant to the joint venture
agreement, the Applicant paid a sum of Rs.19,27,06,000/- on 28 th March, 2007 to the
Stressed Assets Stabilization Fund (SASF). Further payment of Rs.31,74,000/- was
made to SASF on 3rd May, 2007. On 29th March, 2007 the Applicant claimed to have
paid a sum of Rs.41,20,000/- to the Canara Bank and Rs.31,74,000/- to the State Bank
of Bikaner. A further sum of Rs.3 Crores wad paid by the Applicant to SASF on 3 rd
May, 2007. The Respondent No.3, in turn, stopped all its operations at the subject
property. The Applicant was put in possession thereof. The Applicant made
arrangements for securing the subject property by appointing security guards.
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8. According to the Applicant after the Applicant parted with the
consideration of Rs.23 Crores under the terms of the joint Venture Agreement and it
was put in possession of the subject property in the month of May, 2012, disputes
arose between the Applicant and Respondents. The Applicant asserts that the
Respondents attempted to renege from the terms of the joint venture agreement as
there was escalation in the prices of the immovable properties in the area where the
subject property was situate. The Respondents allegedly made an attempt to
dispossess the Applicant from the subject property. Thus, the Applicant claimed to
have invoked arbitration by a notice dated 4th September, 2012.
9. Initially, the Applicant filed a Petition under Section 9 of the Act,
seeking the interim measures. By orders dated 26 th September, 2012 and 6th April,
2015 the statement made on behalf of the Respondents that the Respondents would
not sell, alienate, and create third party rights in respect of the subject property
without giving two weeks prior notice to the Applicant, came to be accepted and
continued till further orders. Subsequently, the Applicant preferred the instant
Application for appointment of an Arbitrator.
10. The Respondents resisted the Applications on two principal grounds :
(1) The joint venture agreement being not adequately stamped in accordance with the
provisions contained in the Maharashtra Stamp Act, 1952, the same cannot be acted
upon. (2) The joint venture agreement is a false, forged and fabricated document.
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11. By an order dated 27th March, 2014, this Court ruled that it is only after
the examination is complete and the issues as to the existence and chargeability are
decided by the Court, that the Court will act upon the document by passing an
injunctive relief under Section 9 of the Act or by appointing an Arbitrator under
Section 11 of the Act, and, thus, passed the following order :
"8. In that view of the matter, the following order is passed :
(i) The parties are directed to lead evidence on the execution of the
purported agreement, namely the joint venture agreement of 28.03.2007.
(ii) The Petitioner to submit its affidavit of documents together with a
compilation of documents within a period of four weeks from today.
(iii) The process of inspection and admission and denial of documents will be
completed within a period of two weeks thereafter.
(iv) The Affidavit of evidence by way of examination-in-chief, if any, may be
filed within a period of two weeks after the completion of admission and
denial of documents.
(v) Till the document, namely, the joint venture agreement, is proved, the
document may be marked for identification and the question of its admission
may be considered later at the hearing of the matter.
(vi) In the meantime within a period of two weeks from today, the Petitioner
to deposit in this Court a sum of Rs.1 Crore towards the differential stamp
duty and penalty payable in respect of the document. It is made clear that
this is only a tentative figure and does not in any way represent determination
by the Court of the differential stamp duty or penalty payable on the
document;
(vii)Both the Applications to be placed on board for directions on 9 th June,
2014."
12. The Applicant avers that following the directions for full fledged pre
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arbitration trial, pleadings were filed. Recording of evidence of Shri Atul Nathalal
Patel, partner of the firm, was commenced. The Applicant asserts that Shri Atul
Nathalal Patel was subjected to a lengthy and intensive cross-examination, in which
1133 questions have been asked. The pre-arbitration trial directed by an order dated
27th March, 2014 is yet not concluded even after a lapse of more than 7 years.
13. In the meanwhile, in view of the development in law, post the
Arbitration and Conciliation Amendment Act, 2015 and the judicial pronouncements,
which have taken the view that at the stage of reference under Section 11 of the Act,
the Court is required to confine its enquiry to the existence of the arbitration
agreement, the Applicant claimed to have been constrained to approach the Supreme
Court assailing the order passed by this Court dated 27 th March, 2014.
14. In a Special Leave Petition (Civil) No.24275 of 2021, after noting the
submissions on behalf of the Applicant, the Supreme Court passed the following
Order :
"The Court is convened through Video Conferencing.
Delay in filing the Special Leave Petitions is condoned. Exemptions are
allowed.
Heard Learned Senior Counsel appearing for the Petitioner and carefully
perused the material available on record.
The main grievance of the Petitioner in these Special Leave Petitions is that
the application filed by them under Section 9 of the Arbitration and
Conciliation Act, seeking interim relief as also under Section 11 of the said
Act seeking appointment of Arbitrator, are pending adjudication before the
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High Court of Judicature at Bombay, for a considerable period of time.
Learned Senior Counsel submits that the subsequent Judgments passed by
this Court, i.e., (i) Vidya Drolia and Ors. V/s. Durga Trading Corporation
(2021) 2 SCC 1, (ii) N.N.Global Mercantile Pvt. Limited V/s. Indo Unique
Flame Limited and ors., (2021) 4 SCC 379 and (iii) Pravin Electricals Pvt.
Ltd. V/s. Galaxy Infra Engineering Pvt. Ltd. (2021) 5 SCC 671, squarely
cover the issues raised in these Special Leave Petitions or those pending
before the High Court.
In view of the above, we request the High Court to dispose of matters,
pending adjudication before it, within a period of three months from the
date of communication of this order, taking into consideration the legal
position as of today.
The Petitioner would be at liberty to cite the aforesaid Judgments before the
High Court at the time of hearing of the matters.
Before parting with these mattes, we make it clear that we have not
expressed any opinion on the merits of the case and the High Court shall
deal and decide the cases independently on its own merits and in accordance
with law."
15. Pursuant to the aforesaid order, the Applicant has filed an
additional Affidavit in support of the prayer for the appointment of the Arbitrator.
The Applicant has referred to the prolonged period for which the pre trial arbitration
is pending. Certain allegations are made against the Respondents for allegedly
adopting dilatory tactics. The Applicant has, thereafter, adverted to the development
in law in the context of the inadequacy of the stamp duty which contains the
arbitration clause as well as the scope of enquiry under Section 11 of the Act. The
Applicant affirms that the Court can reject the prayer for appointment of an
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Arbitrator only when it is manifestly and ex-facie certain that the arbitration agreement
is non-existent. In case of doubt, the rule is to refer.
16. The resistance on behalf of the Respondents, in the case at hand,
according to the Applicant is, at best, in the realm of controversy warranting
adjudication. Therefore, the Application deserve to be allowed by appointing the
Arbitrator and leaving all the questions including the legality and validity of the joint
venture agreement to be decided by the arbitral tribunal.
17. An Affidavit in Reply is filed on behalf of the Respondents. At the
outset, the Respondents contend that the Applicant had surreptitiously moved before
the Supreme Court without giving notice to the Respondents. The order passed by
the Supreme Court, according to the Respondents, does not affect the validity of the
order passed by this Court on 27 th March, 2014, whereby the Court ordered the parties
to lead evidence to establish the existence of the agreement. The order dated 27 th
March, 2014, thus, holds the field. Therefore, according to the Respondents, there is
no propriety in again reviewing the order passed by this court on 27 th March, 2014.
18. The Respondents made an endeavour to demonstrate that the delay in
proceedings with pre trial arbitration is attributable to the Applicant. On the merits of
the matter, the Respondents have adverted to the developments in the intervening
period in the nature of lodging of a complaint against the Applicant for forgery. The
learned Magistrate by an order dated 25th January, 2017 was persuaded to issue the
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process against the Applicant and the co-accused. During the course of investigation,
the police have subjected the joint venture agreement to forensic examination and
found that the thumb impressions of Mr. Rajendra Parekh, director of the Respondent
on the instrument in question are forged. Even the thumb impression of Mr. Atul
Nathalal Patel of the Applicant, is not found genuine. Moreover, the Respondents
have obtained opinion of two forensic experts. It is opined that the thumb impressions
of Mr. Rajendra Parekh on the instrument are forged. The Respondents, thus,
contend that the alleged joint venture agreement is false, fabricated and forged and no
such agreement was ever executed by the Respondents. They have banked upon the
intrinsic evidence of the joint venture agreement to buttress the aforesaid defense.
19. That since there exists no valid and subsisting joint venture agreement
between the parties, at this juncture, especially in the backdrop of the fact that the pre
trial arbitration process is underway, there is no justification for appointment of an
arbitrator, contended the Respondents.
20. In the light of the aforesaid history of the litigation, the original
pleadings, the directions of the Supreme Court and the further pleadings pursuant to
the orders passed by the Supreme Court, I have heard Mr. Aspi Chinoy, Learned
Senior Advocate appearing for the Applicant and Ms. Mamta Sadh, learned Counsel
appearing for the Respondents at length. Learned Counsel have taken me through the
pleadings and the documents on record including the reports of the forensic experts.
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21. Mr. Chinoy, Learned Senior Advocate, commenced his submissions
with an emphatic statement that the order passed by this Court on 27 th March, 2014
was impeccable at that point of time. However, with the change in law, brought about
by the Amendment Act, 2015 and the paradigm shift in the judicial opinion, as regards
the scope of enquiry under Section 11, post the amendments introduced by the
Amendment Act, 2015, the order passed by this Court on 27 th March, 2014 does not
hold the field. The said order, according to Mr. Chinoy, must yield to the declaration
of law by the Supreme Court restricting the scope of enquiry at the stage of reference
of the dispute to arbitration. Mr. Chinoy urged with a degree of vehemence that the
Order passed by the Supreme Court on 25th October, 2021, extracted above, is
required to read and construed, keeping in view the spirit of the order, liberty to the
Petitioner to cite the subsequent judgments passed by the Supreme Court in (i) Vidya
Drolia and Ors. V/s. Durga Trading Corporation 1, (ii) N.N.Global Mercantile
Pvt. Limited V/s. Indo Unique Flame Limited and ors. 2, and (iii) Pravin
Electricals Pvt. Ltd. V/s. Galaxy Infra Engineering Pvt. Ltd. 3, before this Court
and the further directions to dispose the matters pending adjudication before the High
Court taking into consideration the legal position as of today.
22. Mr. Chinoy would urge that the Court is now required to consider the
question of existence of the arbitration agreement in the light of the tests enunciated in
1 (2021) 2 SCC 1
2 (20221) 4 SCC 379
3 (2021) 5 SCC 671
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the aforesaid judgments, without being influenced by the observations made in the
Order dated 27th March, 2014. The fact that the Supreme Court has not interfered
with the Order passed by this Court dated 27 th March, 2014 is not decisive as the
Supreme Court has directed this Court to decide the issue afresh and dispose of the
matters. A formal setting aside of the Order dated 27 th March, 2014, is, in the
circumstances of the case, according to Mr. Chinoy, cannot be insisted upon.
23. Laying the emphasis on the enunciation of law in the aforecited
judgments, Mr. Chinoy would urge that on the anvil of the tests postulated in the
aforesaid judgments, it is only in those cases where the Court can conclude without
any risk of controvertion that the arbitration agreement does not exist, or for that
matter, dispute sought to be raised is non-existent and a deadwood, the Court would
be justified in declining to make a reference. In rest of the cases, the principal "when
in doubt, do refer" must be given play in full measure. Mr. Chinoy further submitted
that the fact that Section 6(A) of the Act, 1996, which explicitly mandated the Court to
confine to the examination of the existence of the arbitration agreement, came to be
subsequently omitted by an Act of 2019, is also of no consequence. Firstly, the said
amendment has not been brought into force. Secondly, by the process of
interpretation, it has been postulated that despite the omission of sub-section 6(A) of
Section 11 of the Act, the position in law remains that the scope of enquiry under
Section 11 of the Act is restricted to the examination of existence of the arbitration
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agreement, as the legislative policy is to restrict judicial interference to the minimum
and permit party autonomy in the matter of resolution of the disputes.
24. Mr. Chinoy, taking the Court through the documents on record, would
further urge that the issue as to whether the joint venture agreement is a forged
document is at best debateable. The material on record does not equip the Court to
draw a positive conclusion that the joint venture agreement is indeed forged one. In
this view of the matter, the dispute is required to be referred to arbitration, especially
in view of the fact that there is no denial of the fact that the Applicant parted with the
valuable consideration of Rs.23 Crores and the Respondents still hold the said amount.
25. Per contra, Ms. Mamta Sadh, learned Counsel for the Respondents
would urge that the Applicant cannot draw much mileage from the order passed by the
Supreme Court as the Order passed by this Court dated 27 th March, 2014 still holds
the field. Since the Supreme Court has not expressly set aside the order passed by
this Court, at this juncture, there is no propriety in revisiting the issue of existence of
the arbitration agreement for the purpose of Section 11 of the Act, 1996. Secondly, the
provisions contained in Section 11(6)(A) of the Act do not govern the transaction in
question as the Application was preferred much before the introduction of Section
11(6)(A) of the Act and even the Order was passed by this Court before the 2015
Amendment. Thirdly, Ms. Sadh urged, with a degree of vehemence, the case at hand
is one of egregious fraud. The contention of the Respondents that the joint venture
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agreement was not at all executed by the Respondents and it is a fraudulent document,
is not for the sake of allegations, but it is substantiated by the expert opinion of
unimpeachable evidentiary value.
26. Taking the Court through the reports of the Finger Print/Thumb
Impression Bureau, CID, Mumbai dated 1st April, 2014, the report of a private forensic
expert Ms. Nisha Menon dated 20 th July, 2012 and the report of Truth Labs dated 18 th
August, 2012, Ms. Sadh would urge that there is ample expert evidence on record to
demonstrate that the finger prints of both Mr. Atul N. Patel, Applicant herein and Mr.
Rajendra Parekh, Director of Respondent No.3, were not identical to the specimen
thumb prints. In addition, the report dated 3 rd February, 2014 of the Director of
Forensic Science Laboratory, State of Maharashtra, which was obtained in the
complaint, lodged by the Applicant itself, indicates that all the rubber stamps and the
circular embossed stamps appearing on the document in question do not tally with the
common seal and rubber stamps of the Respondents. Ms. Sadh made a pain-staking
effort to take the Court through the documents in question to demonstrate that the
documents are not genuine by laying emphasis on their intrinsic evidence.
27. In the face of such overwhelming material, according to Ms. Sadh, at
this length of time, the mini trial ordered by this Court, does not deserve to be
interdicted . It would be in the fitness of things to allow the mini trial to be completed
and, only thereafter, a legitimate finding can be recorded regarding the existence of the
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arbitration agreement. Ms. Sadh placed reliance on the judgments of the Supreme
Court in the cases of SBP and Co. V/s. Patel Engineering and Anr. 4 and Pravin
Electricals Pvt. Ltd. V/s. Galaxy Infra and Engineering Pvt. Ltd. (supra) to bolster up
her submissions.
28. To start with, it may be apposite to note that in adherence to the
directions of the Supreme Court, the prayer for reference of the dispute to arbitration
under Section 11 of the Act, is required to be considered in the light of the judgments
of the Supreme Court in the cases of Vidya Drolia and Ors. V/s. Durga Trading
Corporation (supra), (ii) N.N.Global Mercantile Pvt. Limited V/s. Indo Unique
Flame Limited and ors. (supra) and (iii) Pravin Electricals Pvt. Ltd. V/s. Galaxy
Infra Engineering Pvt. Ltd. (supra), which the Supreme Court has explicitly ordered
to be brought to the notice of this Court and thereupon to be considered by this Court.
29. The preliminary challenge on behalf of the Respondents that the order
passed by this Court on 27th March, 2014 still holds the field, as it has not been
interfered with by the Supreme Court, does not merit countenance as the Supreme
Court has made it explicitly clear that the Application is required to be determined
afresh in the light of the development in law. The fact that the Supreme Court had
not either set aside or commented upon the legality and correctness of the Order
passed by this Court dated 27th March, 2014, therefore, does not constitute an
4 SCC 2005 (8) 618
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impediment in considering the prayer for reference under Section 11 of the Act.
30. At this stage, it may be appropriate to note that the challenge based on
insufficiency of the stamp duty on the Joint Venture Agreement, with the development
in law, does not any more constitute a hindrance in the reference of the dispute to
arbitration. It would be suffice to note that in the case of N.N.Global (supra), a three
judge bench of the Supreme Court, ruled in no uncertain terms that there is no legal
impediment to the enforceability of the arbitration agreement, pending payment of
stamp duty on the substantive contract. The adjudication of the rights and obligations
under the work order or substantive commercial contract, would, however, not
proceed before complying with the mandatory provisions of the Stamp Act.
Therefore, in the facts of the case, the ground of inadequacy of the stamp duty on the
instrument in question, may not detain the Court from exercising jurisdiction under
Section 11 of the Act, 1996. Moreover, in the case at hand, the Court has already
secured deposit of Rs.1 Crore towards the differential stamp duty and penalty, if any,
and the said deposit would abide eventual order that may be passed.
31. Since the Supreme Court has directed that the Application be decided
in the light of the law enunciated in the aforementioned cases, it may be appropriate to
note the legal position expounded therein. As N.N.Global Mercantile Pvt. Limited
V/s. Indo Unique Flame Limited and ors. (supra) and Pravin Electricals Pvt. Ltd.
V/s. Galaxy Infra Engineering Pvt. Ltd. (supra) deal with particular facets of the
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reference to arbitration and Vidya Drolia and Ors. V/s. Durga Trading
Corporation (supra) considers the core issues as to 'non-arbitrability' and when the
subject matter of the dispute is not capable of being resolved through arbitration, and
the conundrum 'who decides the arbitrability', it may be expedient to first consider the
exposition of law in the case of Vidya Drolia and Ors. V/s. Durga Trading
Corporation (supra).
32. In para No.2 of the judgment, the Supreme Court framed the issues
which warranted consideration :
"2. A deeper consideration of the order of reference 5 reveals that the issues
required to be answered relate to two aspects that are distinct and yet
interconnected, namely :
2.1. (i) Meaning of non-arbitrability and when the subject matter of the
dispute is not capable of being resolved through arbitration.
2.2 (ii) The conundrum - "who decides" - whether the Court at the
reference stage or the Arbitral Tribunal in the arbitration proceedings would
decide the question of non-arbitrability.
2.3 The second aspect also relates to the scope and ambit of jurisdiction of
the Court at the referral stage when an objection of non-arbitrability is raised
to an application under Section 8 or 11 of the Arbitration and Conciliation
Act, 1996 ( for short "the Arbitration Act").
33. After an elaborate analysis of historical context, legal provisions and the
precedents, the first question was answered in para 76 as under :
76. In view of the above discussion, we would like to propound a fourfold test
5 (2019) 20 SCC 406
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for determining when the subject matter of a dispute in an arbitration
agreement is not arbitrable :
76.1 (1) When cause of action and subject matter of the dispute relates to
actions in rem, that do not pertain to subordinate rights in personam that arise
from rights in red.
76.2 (2) When cause of action and subject matter of the dispute affects third
party rights; have erga omnes effect; require centralized adjudication, and
mutual adjudication would not be appropriate and enforceable.
76.3 (3) When cause of action and subject matter of the dispute relates to
inalienable sovereign and public interest functions of the State and hence
mutual adjudication would be unenforceable.
76.4 (4) When the subject matter of the dispute is expressly or by necessary
implication non-arbitrable as per mandatory statute(s).
76.5 These tests are not waterlight compartments; they dovetail and overlap,
albeit when applied holistically and pragmatically will help and assist in
determining and ascertaining with great degree of certainty when as per law in
India, a dispute or subject matter is non-arbitrable. Only when the answer is
affirmative that the subject matter of the dispute would be non-arbitrable.
76.6 However, the aforesaid principles have to be applied with care and
caution as observed in Olympus Superstructures (P) Ltd. V/s. Meena Vijay
Khetan6 : (SCC p. 669 para 35)
"35. ....... Reference is made there to certain disputes like criminal
offences of a public nature, disputes arising out of illegal agreements and disputes
relating to status, such as divorce, which cannot be referred to arbitration. It has,
however, been held that if in respect of facts relating to a criminal matter, say,
physical injury, if there is a right to damages for personal injury, then such a dispute
can be referred to arbitration (Keir v. Leeman 7). Similarly, it has been held that a
husband and a wife may refer to arbitration the terms on which they shall separate,
because they can make a valid agreement between themselves on that matter
6 (1999) 5 SCC 651
7 (1846) 9 QB 371
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(Solleux V. Herbst8, Wilson V Wilson9, and Cahill V Cahill10)"
34. The discussion on the second issue as to "who decides arbitrability"
was concluded as under :
"154. Discussion under the heading "who Decides Arbitrability?" can be
crystalised as under :
154.1 Ration of the decision in Patel Engg. Ltd. 11 on the scope of judicial
review by the court while deciding an application under Sections 8 or 11 of the
Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective
effect from 23-10-2015) and even post the amendments vide Act 33 of 2019
(with effect from 9-8-2019, is no longer applicable.
154.2 Scope of judicial review and jurisdiction of the court under
Sections 8 and 11 of the Arbitration Act, is identical but extremely limited and
restricted.
154.3 The general rule and principle, in view of the legislative mandate
clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability
and competence-competence is that the Arbitral Tribunal is the preferred first
authority to determine and decide all questions of non-arbitrability. The
court has been conferred power of "second look" on aspects of non-
arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section
34(2)(a) or sub clause (i) of Section 34(2)(b) of the Arbitration Act.
154.4 Rarely as a demurrer the court may interfere at Section 8 or 11
stage when it is manifestly and ex facie certain that the arbitration agreement
is non-existent, invalid or the disputes are non-arbitrable, though the nature
and facet of non-arbitrability would, to some extent, determine the level and
nature of judicial scrutiny. The restricted and limited review is to check and
protect parties from being forced to arbitrate when the matter is demonstrably
8 (1801) 2 Bos. & P 444
9 (1848) 1 HL Cas 538
10 (1853) LR 7 AC 420 (HL)
11 SBP & Co. V. Patel Engg. Ltd. (2005) 8 SCC 618
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"non-arbitrable" and to cut off the deadwood. The court by default would
refer the matter when contentions relating to non-arbitrability are plainly
arguable; when consideration in summary proceedings would be insufficient
and inconclusive; when facts are contested; when the party opposing
arbitration adopts delaying tactics or impairs conduct or arbitration
proceedings. This is not the stage for the court to enter into a mini trial or
elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to
affirm and uphold integrity and efficacy of arbitration as an alternative dispute
resolution mechanism.
155. Reference is, accordingly, answered."
35. The observations in paragraph Nos.233, 234 and 238 are also instructive
and hence extracted below :
233. From the aforesaid discussion, we can conclude that the respondent-
defendant has to establish a prima facie case of non-existence of valid
arbitration agreement, wherein it is to be summarily portayed that a party is
entitled to such a finding. If a party cannot satisfy the court of the same on
the basis of documents produced, and rather requires extensive examination
of oral and documentary production, then the matter has to be necessarily
referred to the tribunal for full trial. Such limited jurisdiction vested with the
court, is necessary at the pre-reference stage to appropriately balance the
power of the tribunal with judicial interference.
234. The amendment to the aforesaid provision was meant to cut the
deadwood in extremely limited circumstances, wherein the respondent is able
to ex facie portray non-existence of valid arbitration agreement, on the
documents and the pleadings produced by the parties. The prima facie view,
which started its existence under Section 45 through Shin Etsu case12 has been
explicitly accommodated even under domestic arbitration by the 2015
Amendment with appropriate modifications.
12 Shin-Etsu Chemical Co. Ltd. V Aksh Optifibre Ltd. (2005) 7 SCC 234
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238. At the cost of repetition, we note that Section 8 of the Act mandates that
a matter should not (sic) be referred to an arbitration by a court of law unless it
finds that prima facie there is no valid arbitration agreement. The negative
language used in the section is required to be taken into consideration, while
analysing the section. The Court should refer a matter if the validity of the
arbitration agreement cannot be determined on a prima facie basis, as laid
down above. Therefore, the rule for the court is "when in doubt, do refer".
36. In the light of the aforesaid enunciation of law, the controversy at hand,
which now essentially centers upon the allegations of fraud and forgery in bringing
about the joint venture agreement, is required to be determined. The pronouncement
in the case of Vidya Drolia (supra) also deals with the issue of non-arbitrability in the
context of the allegations of fraud and forgery. I deem it appropriate to advert to the
discussion in the case of Vidya Drolia (supra) on the aspect of fraud a little later, as
the evolution of the approach while considering the allegations of fraud, can be better
appreciated if reference is made to few previous pronouncements of the Supreme
Court on the said aspect.
37. In Afcons Infrastructure Ltd. V/s. Cherian Varkey Construction
Co. (P) Ltd.13, the Supreme Court enunciated the categories of cases which are not
considered suitable for ADR process having regard to their nature. The relevant part
of the observations in paragraph 27 reads as under :
"27. The following categories of cases are normally considered to be not
suitable for ADR process having regard to their nature :
13 (2010) 8 SCC 24
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(iv) Cases involving serious and specific allegations of fraud,
fabrication of documents, forgery, impersonation, coercion etc.
(v) Cases involving prosecution for criminal offences."
38. In the case of Booz Allen & Hamilton Inc. V SBI Home Finance
Ltd.14 it was again reiterated that the disputes relating to rights and liabilities which
give rise to or arise out of criminal offences, are non-arbitrable disputes.
39. In the context of allegations of fraud and serious malpratices on the part
of the Respondents, in the case of N. Radhakrishnan V. Maestro Engineers15, it was
interalia observed in para No.23, as under :
"23. The learned Counsel appearing on behalf of the Respondents on
the other hand contended that the appellant had made serious
allegations against the respondents alleging that they had manipulated
the accounts and defrauded the appellant by cheating the appellant of his
dues, thereby warning the respondents with serious criminal action
against them for the alleged commission of criminal offences. In this
connection, reliance was placed on a decision of this Court in Abdul
Kadir Shamsuddin Bubere V. Madhav Prabhakar Oak 16 in which this
Court under para 17 held as under :
"17. Three is no doubt that were serious allegations of fraud are
made against a party and the party who is charged with fraud desires that the
matter should be tried in open court, that would be a sufficient cause for the
court not to order an arbitration agreement to be filed and not to make the
reference.
In our view and relying on the aforesaid observations of this
14 (2011) 5 SCC 532
15 (2010) 1 SCC 72
16 AIR 1962 SC 406
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Court in the aforesaid decision and going by the ratio of the
abovementioned case, the facts of the present case do not warrant the
matter to be tried and decided by the arbitrator, rather for the
furtherance of justice, it should be tried in a court of law which would be
more competent and have the means to decide such a complicated
matter involving various questions and issues raised in the present
dispute."
40. These judgments were referred to in the case of A. Ayyasamy V. A.
Paramasivam17. A distinction was made in the case of A. Ayyasamy (supra) in the
potency of the defence of fraud, namely serious allegations of fraud and allegations
simplicitor for the sake of resistance to reference to an arbitration. In paragraph 23,
the Supreme Court (speaking through Hon'ble Shri Justice Sikri) ruled as under :
"23. A perusal of the aforesaid two paragraphs brings into fore that the Law
Commission has recognized that in cases of serious fraud, courts have
entertained civil suits. Secondly, it has tried to make a distinction in cases
where there are allegations of serious fraud and fraud simplicitor. It, thus,
follows that those cases were there are serious allegations of fraud, they are to
be treated as non-arbitrable and it is only the civil Court which should decide
such matters. However, were there are allegations of fraud simplicitor and
such allegations are merely alleged, we are of the opinion that it may not be
necessary to nullify the effect of the arbitration agreement between the
parties as such issues can be determined by the Arbitral Tribunal."
25. In view of our aforesaid discussions, we are of the opinion that mere
allegation of fraud simpliciter may not be a ground to nullify the effect of
arbitration agreement between the parties. It is only in those cases where the
court, while dealing with Section 8 of the Act, finds that there are very
17 (2016) 10 SCC 386
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serious allegations of fraud which make a virtual case of criminal offence or
where allegations of fraud are so complicated that it becomes absolutely
essential that such complex issues can be decided only by the civil court on
the appreciation of the voluminous evidence that needs to be produced, the
court can side-track the agreement by dismissing the application under
Section 8 and proceed with the suit on merits. It can be so done also in those
cases where there are serious allegations of forgery/fabrication of documents
in support of the plea of fraud or where fraud is alleged against the arbitration
provision itself or is of such a nature that permeates the entire contract,
including the agreement to arbitrate, meaning thereby in those cases where
fraud goes to the validity of the contract itself of the entire contract which
contains the arbitration clause or the validity of the arbitration clause itself.
Reverse position thereof would be that where there are simple allegations of
fraud touching upon the internal affairs of the party inter se and it has no
implication in the public domain, the arbitration clause need not be avoided
and the parties can be relegated to arbitration. While dealing with such an
issue in an application under Section 8 of the Act, the focus of the court has
to be on the question as to whether jurisdiction of the court has been ousted
instead of focusing on the issue as to whether the court has jurisdiction or
not. It has to be kept in mind that insofar as the statutory scheme of the Act is
concerned, it does not specifically exclude any category of cases as non-
arbitrable. Such categories of non-arbitrable subjects are carved out by the
courts, keeping in mind the principle of common law that certain disputes
which are of public nature, etc. are not capable of adjudication and settlement
by arbitration and for resolution of such disputes, courts i.e. public fora, are
better suited than a private forum of arbitration. Therefore, the inquiry of the
Court, while dealing with an application under Section 8 of the Act, should
be on the aforesaid aspect viz. whether the nature of dispute is such that it
cannot be referred to arbitration, even if there is an arbitration agreement
between the parties. When the case of fraud is set up by one of the parties and
on that basis that party wants to wriggle out of that arbitration agreement, a
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strict and meticulous inquiry into the allegations of fraud is needed and only
when the Court is satisfied that the allegations are of serious and complicated
nature that it would be more appropriate for the Court to deal with the
subject-matter rather than relegating the parties to arbitration, then alone
such an application under Section 8 should be rejected."
41. In paragraph No.45, the Supreme Court (speaking through Hon'ble
Justice Dr. Chandrachud) cautioned against the use of N. Radhakrishnan case (supra)
as a precedent and distinguished the same as under :
"45. The position that emerges both before and after the decision in
N. Radhakrishnan (supra) is that successive decisions of this Court have
given effect to the binding precept incorporated in Section 8. Once there is
an arbitration agreement between the parties, a judicial authority before
whom an action is brought covering the subject-matter of the arbitration
agreement is under a positive obligation to refer parties to arbitration by
enforcing the terms of the contract. There is no element of discretion left in
the court or judicial authority to obviate the legislative mandate of
compelling parties to seek recourse to arbitration. The judgment in N.
Radhakrishnan (supra) has, however, been utilised by parties seeking a
convenient ruse to avoid arbitration to raise a defence of fraud :
45.1. First and foremost, it is necessary to emphasis that the judgment in N.
Radhakrishnan (supra) does not subscribe to the broad proposition that a
mere allegation of fraud is ground enough not to compel parties to abide by
their agreement to refer disputes to arbitration. More often than not, a bogey
of fraud is set forth if only to plead that the dispute cannot be arbitrated
upon. To allow such a plea would be a plain misreading of the judgment in
N. Radhakrishnan (supra). As I have noted earlier, that was a case where the
appellant who had filed an application under Section 8 faced with a suit on a
dispute in partnership had raised serious issues of criminal wrongdoing,
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misappropriation of funds and malpractice on the part of the respondent. It
was in this background that this Court accepted the submission of the
respondent that the arbitrator would not be competent to deal with matters
"which involved an elaborate production of evidence to establish the claims
relating to fraud and criminal misappropriation". Hence, it is necessary to
emphasise that as a matter of first principle, this Court has not held that a
mere allegation of fraud will exclude arbitrability. The burden must lie
heavily on a party which avoids compliance with the obligation assumed by
it to submit disputes to arbitration to establish the dispute is not arbitrable
under the law for the time being in force. In each such case where an
objection on the ground of fraud and criminal wrongdoing is raised, it is for
the judicial authority to carefully sift through the materials for the purpose
of determining whether the defence is merely a pretext to avoid arbitration.
It is only where there is a serious issue of fraud involving criminal
wrongdoing that the exception to arbitrability carved out in N.
Radhakrishnan (supra) may come into existence.
45.2. Allegations of fraud are not alien to ordinary civil courts. Generations
of judges have dealt with such allegations in the context of civil and
commercial disputes. If an allegation of fraud can be adjudicated upon in the
course of a trial before an ordinary civil court, there is no reason or
justification to exclude such disputes from the ambit and purview of a claim
in arbitration. The parties who enter into commercial dealings and agree to a
resolution of disputes by an arbitral forum exercise an option and express a
choice of a preferred mode for the resolution of their disputes. The parties
in choosing arbitration place priority upon the speed, flexibility and
expertise inherent in arbitral adjudication. Once parties have agreed to refer
disputes to arbitration, the court must plainly discourage and
discountenance litigative strategies designed to avoid recourse to arbitration.
Any other approach would seriously place in uncertainty the institutional
efficacy of arbitration. Such a consequence must be eschewed."
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42. In the case of Rashid Raza V. Sadaf Akhtar 18 after following A.
Ayyasamy (supra), the Supreme Court enunciated the twin test for considering the
issue of non-arbitrability in the backdrop of the allegation of fraud.
"4. The principles of law laid down in this appeal make a distinction
between serious allegations of forgery/fabrication in support of the plea of
fraud as opposed to "simple allegations". Two working tests laid won in para
25 are : (1) does this plea permeate the entire contract and above all, the
agreement of arbitration, rendering it void, or (2) whether the allegations of
fraud touch upon the internal affairs of the parties inter se having no
implication in the public domain."
43. The entire law on the aspect of fraud, in the context of the resistance for
reference to arbitration, was revisited by the Supreme Court in the case of Avitel Post
Studioz Ltd. V/s. HSBC PI Holdings (Mauritius) Ltd. 19. The Supreme Court
postulated the tests to be applied in assessing the plea of fraud as under :
"35. After these judgments, it is clear that "serious allegations of fraud" arise
only if either of the two tests laid down are satisfied, and not otherwise. The
first test is satisfied only when it can be said that the arbitration clause or
agreement itself cannot be said to exist in a clear case in which the court finds
that the party against whom breach is alleged cannot be said to have entered
into the agreement relating to arbitration at all. The second test can be said to
have been met in cases in which allegations are made against the State or its
instrumentalities of arbitrary, fraudulent, or malafide conduct, thus
necessitating the hearing of the case by a writ court in which questions are
raised which are not predominantly questions arising from the contract itself
18 (2019) 8 SCC 710
19 (2021) 4 SCC 713
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or breach thereof, but questions arising in the public law domain."
44. The Supreme Court expressly observed that N. Radhakrishnan
(supra) lacks in precedential value and further explained the rider subject to which the
decisions in Afcons Infrastructure Ltd. (supra) and Booz Allen (supra) are required
to be read. Paragraph No.43 of Avitel (supra) reads thus :
"43. In the light of the aforesaid judgments, paragraph 27(vi) of Afcons
(supra) and paragraph 36(i) of Booz Allen (supra), must now be read subject
to the rider that the same set of facts may lead to civil and criminal
proceedings and if it is clear that a civil dispute involves questions of fraud,
misrepresentation, etc. which can be the subject matter of such proceeding
under section 17 of the Contract Act, and/or the tort of deceit, the mere fact
that criminal proceedings can or have been instituted in respect of the same
subject matter would not lead to the conclusion that a dispute which is
otherwise arbitrable, ceases to be so."
45. Following the aforesaid pronouncement in the case of Avitel (supra),
the Supreme Court explained the aspect of non-arbitrability in the context of fraud in
the case of Vidya Drolia (supra) as under :
"74. The judgment in Avitel Post (supra) interprets Section 17 of the
Contract Act to hold that Section 17 would apply if the contract itself is
obtained by fraud or cheating. Thereby, a distinction is made between a
contract obtained by fraud and post contract fraud and cheating. The latter
would fall outside Section 17 of the Contract Act and, therefore, the remedy
for damages would be available and not the remedy for treating the contract
itself as void.
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78. In view of the aforesaid discussions, we overrule the ratio in N.
Radhakrishnan (supra) inter alia observing that allegations of fraud can (sic
cannot) be made a subject matter of arbitration when they relate to a civil
dispute. This is subject ot the caveat that fraud, which would vitiate and
invalidate the arbitration clause, is an aspect relating to non-arbitrability. We
have also set aside the Full Bench decision of the Delhi High Court in HDFC
Bank Ltd. V/s. Satpal Singh Bakshi 20 which holds that the disputes which are
to be adjudicated by the DRT under the DRT Act are arbitrable. They are
non-arbitrable."
46. In the case of N.N.Global (supra), a three Judge Bench of the
Supreme Court again considered all the previous pronouncements including A.
Ayyasamy (supra), Avital Post (supra) and Vidya Drolia (supra) and illuminatingly
postulated the law in the following words :
"45. The civil aspect of fraud is considered to be arbitrable in contemporary
arbitration jurisprudence, with the only exception being where the allegation
is that the arbitration agreement itself is vitiated by fraud or fraudulent
inducement, or the fraud goes to the validity of the underlying contract, and
impeaches the arbitration clause itself.........
50. The ground on which fraud was held to be non-arbitrable earlier was that
it would entail voluminous and extensive evidence, and would be too
complicated to be decided in arbitration. In contemporary arbitration
practice, Arbitral Tribunals are required to traverse through volumes of
material in various kinds of disputes such as oil, natural gas, construction
industry, etc. The ground that allegations of fraud are not arbitrable is a
wholly archaic view, which has become obsolete, and deserves to be
discarded. However, the criminal aspect of fraud, forgery, or fabrication,
which would be visited with penal consequences and criminal sanctions can
20 2012 SCC Online Del 4815
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be adjudicated only by a court of law, since it may result in a conviction,
which is the realm of public law."
47. In the case of Pravin Electricals (supra), another three Judge Bench of
the Supreme Court was again confronted with resistance to arbitration rooted in the
allegations of fraud. In the facts of the said case, where the issue of genuineness of the
signatures on the instrument in question was referred to CFSL and the latter did not
express any definite opinion, yet there were attendant circumstances which rendered it
difficult to record positive finding that there existed an arbitration agreement, the
Supreme Court adopted the 'prima facie review test' and directed that the
determination as to whether the arbitration exists, must be left to be decided by the
arbitrator.
The observations in paragraph Nos.29 and 30 read as under :
"29..... Given the inconclusive nature of the finding by CFSL together with
the signing of the agreement in Haryana by parties whose registered Offices
are at Bombay and Bihar qua works to be executed in Bihar; given the fact that
the Notary who signed the agreement was not authorized to do so and various
other conundrums that arise on the facts of this case, it is unsafe to conclude,
one way or the other, that an arbitration agreement exists between the parties.
The prima facie review spoken of in Vidya Drolia (supra) can lead to only one
conclusion on the facts of this case - that a deeper consideration of whether
an arbitration agreement exists between the parties must be left to an
arbitrator who is to examine the documentary evidence produced before him
in detail after witnesses are cross-examined on the same.
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30. For all these reasons, we set aside the impugned judgment 21 of the Delhi
High Court insofar as it conclusively finds that there is an arbitration
agreement between the parties. However, we uphold the ultimate order
appointing Justice G.S.Sistani, a retired Delhi High Court Judge as a sole
arbitrator. The learned Judge will first determine as a preliminary issue as to
whether an arbitration agreement exists between the parties, and go on to
decide the merits of the case only if it is first found that such an agreement
exists. It is clarified that all issues will be decided without being influenced by
the observations made by this Court which are only prima facie in nature.
The Appeal is allowed in the aforesaid terms."
48. In view of the aforesaid pronouncement, the progressive development
in law, in the context of the resistance to reference to arbitration on the basis of the
allegations of fraud, forgery and the like vitiating factors, can be traced as under :
Initially, the judicial opinion favoured determination of the allegations
of fraud by the Court. Thus, where there were serious and specific allegations of
fraud, forgery and fabrication of documents, it was considered that the Arbitrator was
not equipped to determine such allegations and a court of law would be more
competent and have the means to decide those questions. In keeping with the
principle of minimal judicial interference in the matter of arbitration and respecting
the party autonomy, where the parties have exercised the option to resolve the
disputes in a swift and inexpensive manner through a forum of choice, the non-
arbitrability of the dispute for the mere reason that the adversary made allegations of
21 Galaxy Infra & Engg. (P) Ltd. V/s. Pravin Electricals (P) Ltd., 2002 SCC Online Del. 1722
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fraud, gave way to a more balanced approach. A distinction has, therefore, been made
between the cases involving serious allegations of fraud and allegations of fraud
'simplicitor'. Lest, it would give a long leash to a party to obviate the dispute
resolution mechanism of choice, simply by making the allegations of fraud with a view
to derail the resolution.
49. The non-arbitrability of the dispute, in the backdrop of the allegations
of fraud, has also been subjected to two tests. First, whether the alleged fraud affects
the underlying contract, rendering it void. Two, whether the fraud is restricted to the
affairs of the parties, inter se, without any implication in the public domain. To put it
in other words, the civil aspect of fraud may legitimately form a subject matter of
arbitration. However, the criminal aspect of fraud, which entails penal consequences,
can only be adjudicated by a court of law. In contemporary arbitration, the broad
proposition that the allegations of fraud are non-arbitrable is not favoured. If an
allegation of fraud can be adjudicated upon before a civil court, there is no justifiable
reason to exclude such disputes from being resolved through arbitration.
50. On the aforesaid touchstone, readverting to the facts of the case, the
following issues bear upon the determination. Are there specific allegations of fraud;
do the allegations have an element of spontaneity; are the allegations grave and potent;
whether the allegations relate to, and undermine, the validity of underlying contract or
they pertain to the transactions pursuant to the contract; is there any public law
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element involved; what is the nature of the material in support of the allegations; and
whether in the context of the allegations and attendant facts and circumstances, the
ground of fraud is such that it must be determined by the Court and the determination
by the arbitrator, would be inefficacious and prejudicial to public interest.
51. In the reply dated 3rd October, 2012 to the notice invoking arbitration,
the Respondents made a categorical statement that the alleged Joint Venture
Agreement dated 28th March, 2007 relied upon by the Applicant, was a forged,
fabricated and got up document and, thus, denied the execution of the said agreement.
This stand of the Respondents, in the reply to the notice, indicates that the
Respondents alleged fraud and forgery at the first possible opportunity. A specific
defence of fraud in relation to, and forgery of, the Joint Venture Agreement dated 28 th
March, 2007 was raised and the said allegation had an element of spontaneity as well.
52. This propels me to the nature and potency of the allegation of
fraud. Whether it is a case of mere allegation, for the sake of allegation. The material
on record would indicate that the Respondents alleged that the signatures of Mr.
Rajendra Parekh on the instrument in question were forged, the thumb impressions of
Mr. Rajendra Parekh were also forged. In addition, it is the case of the Respondents
that the rubber stamp and common seals appearing on the agreement in question and
the power of attorney, were also not genuine. This nature of the allegations cannot be
termed as allegation 'simplicitor'. The Respondents have disputed the execution of
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the instrument, in all facets, by asserting that not only the signatures and thumb
impressions of Mr. Rajendra Parekh, are forged, but even the rubber stamps and
circular embossed seals of the entities are fabricated.
53. The allegations pertain to the very execution of the underlying
agreement. The agreement is not genuine, it is vitiated by fraud and forgery, contend
the Respondents. The allegations, thus, fall in the realm of a contract 'brought about
by practicing fraud' and not fraudulent act or conduct of the Applicant, post execution
of a lawful contract. In other words, the allegations are of such a nature that, if proved,
they would negate the very existence of the agreement containing the arbitration
clause.
54. Now the nature of material pressed into service on behalf of the
Respondents to buttress the allegations of fraud. The Respondents have banked upon
the reports of the forensic experts. First, the report dated 1 st April, 2014 is submitted
by the Director (Superintendent of Police) (FP), Finger Prints Bureau, CID, Mumbai,
in MECR No.7/12 registered at MIDC Police Station for the offences punishable
under Sections 409, 420 read with 34 of the Indian Penal Code. The finger print
expert has opined that the questioned finger prints on the joint venture agreement are
not identical with specimen finger prints of Mr. Rajendra Parekh and Mr. Atul Patel,
the Applicant. It would be contextually relevant to note that MECR No.7 / 12 was
registered at the instance of the Applicant. Second, the report dated 20 th July, 2012
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submitted by Ms. Nisha Menon, hand writing and finger print expert, opines that the
disputed finger prints (D-1) on the joint venture agreement is not matching with the
specimen finger prints of Mr. Rajendra Parekh. Another private finger prints expert -
Truth Foundation, has examined the disputed finger prints on the agreement in
question and opined that the said thumb impression is not identical with any of the
thumb/finger impressions on the specimen finger print sheet of Mr. Rajendra Parekh.
The report dated 3rd February, 2014 issued by the Directorate of Forensic Science
Laboratories in connection with C.R.No.7/12 records that the rubber stamp and
circular embossed seal, which appear on the documents in question, do not tally with
the specimen rubber stamp and circular embossed seal.
55. Ms. Nisha Menon, in another report dated 15th October, 2012, has
further opined that the six disputed signatures purportedly made by Mr. Rajendra
Parekh on page Nos.48 and 49 of the Joint Venture Agreement dated 28 th March, 2007
are not from the source of the admitted signatures and the specimen signatures of Mr.
Rajendra Parekh. At this juncture, it would be necessary to immediately notice that in
respect of the very same disputed signatures, the Additional Chief State Examiner of
Documents, CID, Mumbai, has opined on 26 th June, 2013 that the person who wrote
the enclosed specimen signature, also wrote the disputed signatures (i.e. Mr. Rajendra
Parekh).
56. In addition to the aforesaid reports, Ms. Sadh, the Counsel for the
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Respondents, laid emphasis on the intrinsic evidence of the documents like the copy
of the Records of Right annexed to the Joint Venture Agreement, was issued on 21 st
April, 2007, though the agreement was purportedly executed on 28 th March, 2007.
Secondly, the receipt allegedly executed by the Respondents on 3 rd May, 2007, bears
continuation pagination, despite having been executed much later. This justifies an
inference that all the documents were printed on one and the same day and exemplifies
the fraud perpetrated by the Applicant.
57. The situation which thus obtains is that there are reports of the finger
print experts, which suggest that finger prints affixed on the agreement in question, do
not tally with the finger prints of Mr. Rajendra Parekh and Mr. Atul Patel, who have
purportedly affixed those thumb impressions. The expert has also opined that the
rubber stamps and circular embossed seals of the entities, on whose behalf the Joint
Venture Agreement and the power of attorney were executed, do not tally with the
specimen rubber stamp and circular embossed seals. Whereas, as regards the
execution of the Joint Venture Agreement by Mr. Rajendra Parekh, by putting the
signatures thereon, there is a duality of opinion. The State Examiner of Documents
has opined that the disputed signatures appear to have been written by the person who
wrote the specimen signatures. Ms. Nisha Menon, private expert, opined to the
contrary.
58. The aforesaid material is required to be appreciated in the context of the
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claim of the Applicant as regards the affixing of the thumb impressions, rubber stamps
and common seal of the Respondents. In paragraphs 3.9 and 3.10 of the Application,
the Applicant avers that after the Joint Venture Agreement was executed (signed) by
the executants as well as the witnesses and the signatures were attested, the original
agreement was retained by the Applicant and the counter-part thereof was handed
over to Mr. Rajendra Parekh. It is the case of the Applicant that the thumb
impressions and rubber stamp and common seal of the Respondents were not affixed
at that point of time. On the next date i.e. 29 th March, 2007, the broker Mr. Yogesh
Desai collected the Joint Venture Agreement and represented that he would obtain the
thumb impressions, common seal and rubber stamp of the respective entities on the
original Joint Venture Agreement. Thereupon, the Applicant claimed to have handed
over the Joint Venture Agreement and bankers cheque to the said broker Mr. Yogesh
Desai with instructions to handover the same to Mr. Rajendra Parekh.
59. The aforesaid stand of the Applicant is, in a sense, compatible with two
diverse possibilities. One, it may lend credence to the defence of the Respondents that
the thumb impression, rubber stamp and circular embossed seal, were not affixed on
the Joint Venture Agreement by Mr. Rajendra Parekh and the Respondent Companies,
as alleged by the Applicant. Two, it may explain away the allegations of fraud in the
sense that the Joint Venture Agreement was indeed executed on 28 th March, 2007 and,
thereafter, the thumb impressions, seals and the stamps were impressed thereon.
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Which of the two is preponderately probable is a matter for adjudication.
60. Either way, the issue revolves around the execution of the Joint Venture
Agreement.
61. It is imperative note that the allegations of fraud do not pertain to the
acts to be performed by the public authorities or the record to be maintained by the
public authorities. They are essentially in the context of the execution of the Joint
Venture Agreement. It would be necessary to note, at this juncture, that criminal
proceedings alleging offences having been committed in the course of the transaction,
including in respect of the agreement in question, have already been initiated by the
Applicant and the Respondents. The criminal aspect of fraud, forgery and fabrication
would, thus, be adjudicated in the proceedings which have already been initiated.
62. This leads me to the pivotal question as to 'who should decide'
the arbitrability where the existence of arbitration agreement itself is allegedly vitiated
by fraud. Whether the fraud alleged in the execution of the Joint Venture Agreement,
is of such a nature that it must be decided by the Court. Upon a careful consideration
of the material on record, as indicated above, the fraud and forgery alleged by the
Respondents, are rooted in the execution of the Joint Venture Agreement. Applying
the test of prima facie review, where the issue lies in the corridor of uncertainty and
the Court not being equipped to record a finding with certainty that the Joint Venture
Agreement is completely vitiated by fraud can, at this stage, a reference to arbitration
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is warranted ?
63. The pronouncement of the Supreme Court in the case of Pravin
Electricals (supra) provides a legitimate answer. In the case of Pravin Electricals
(supra), the situation was converse; in the sense that the report of the CFSL was
inconclusive. In the case at hand, there are conflicting opinions as regards the
signatures of Mr Rajendra Parekh on the Joint Venture Agreement. Secondly, the issue
of affixing of the thumb impression, stamps and circular embossed seal of the entities,
is again a matter which requires determination in the light of the averments in the
Application referred to above. In the ultimate analysis, the question which crops up is,
whether the Joint Venture Agreement is legal and valid.
64. In such circumstances, the course adopted by the Supreme Court in the
case of Pravin Electricals (Supra) by directing the Arbitrator to first determine as to
whether the arbitration agreement exists between the parties in the light of the defence
rooted in the fraud and forgery, as a preliminary issue, appears expedient. The context
can be lost sight of. The Application is preferred in the year 2013. A mini-trial
envisaged by the order of this Court dated 27 th March, 2014 has not progressed beyond
the cross-examination of the Applicant's first witness, despite lapse of eight years. An
inquiry as whom of the parties is to blame, would not advance the cause of expeditious
resolution of the dispute.
65. On the contrary, in my considered view, the cause of expeditious
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resolution of the dispute would be subserved by making a reference to the Arbitrator
to decide the question of existence of the agreement in the light of the challenge to the
execution of the agreement and, if a finding is recorded that the arbitration agreement
exists, decide the respective claims/counter claims of the parties on merits. The
evidence which has been recorded till date, during the course of mini-trial, can very
well be considered by the Arbitrator in arriving at a decision.
66. For the foregoing reasons, the Application deserves to be allowed.
Hence, the following order :
ORDER
(i) The Application stands allowed.
(ii) Shri Justice R.G.Ketkar, a former Judge of this Court, is
appointed as a Sole Arbitrator to decide all the disputes and differences between the
Applicant and the Respondents arising out of the Joint Venture Agreement dated 28 th
March, 2007.
(iii) The Arbitrator shall first decide, as a preliminary issue, as to
whether the Joint Venture Agreement is a legal and valid instrument and whether the
arbitration agreement exists between the parties.
(iv) The entire record and proceedings in the mini-trial including the
depositions of the witness/es and the documents tendered be transmitted to the
learned Arbitrator.
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(v) The evidence recorded and the documents tendered in this
Application during the mini-trial, shall be read as evidence in the arbitration
proceedings.
(vi) Only after the learned Arbitrator finds that the Arbitration
Agreement exists, the learned Arbitrator shall adjudicate upon the claims and counter
claims, if any, and/or all the disputes which arise out of the Joint Venture Agreement
dated 28th March, 2007.
(vii) In the event the aforesaid preliminary issue is answered in the
negative, the mandate of the Arbitrator would stand terminated.
(viii) The learned Arbitrator is requested to file his disclosure
statement under Section 11(8) read with Section 12(1) of the Act, 1996 within two
weeks with the Prothonotary and Senior Master and provide copies to the parties.
(ix) Parties to appear before the Sole Arbitrator on a date to be fixed
by him at his earliest convenience.
(x) Fees payable to the Sole Arbitrator will be in accordance with the
Bombay High Court (Fee Payable to Arbitrators) Rules, 2018.
(xi) In the circumstances of the case, no order as to costs.
(xii) By way of abundant caution, it is clarified that the learned
Arbitrator shall not be influenced by any of the observations made hereinabove, as
they are confined to determine the issue of exercise of jurisdiction under Section 11 of
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the Act.
( N.J.JAMADAR, J. )
67. At this stage, the learned Counsel for the Respondents seeks stay
to the execution and operation of this judgment.
68. Since the questions of law have arisen in this Application and the
Court is deviating from the earlier order of mini trial, albeit in view of the
development in law, it may be appropriate to stay the execution and operation of this
judgment for a period of 8 weeks from today.
69. Hence, the execution and operation of the judgment is stayed for
a period of 8 weeks from today.
( N.J.JAMADAR, J. )
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