Yogesh Kumar Agarwal vs A.M.N. Infra And Realty Private Limited
2024 Latest Caselaw 2853 Tel

Telangana High Court

Yogesh Kumar Agarwal vs A.M.N. Infra And Realty Private Limited on 26 July, 2024

Author: T. Vinod Kumar

Bench: T. Vinod Kumar

      THE HON'BLE SRI JUSTICE T. VINOD KUMAR

       ARBITRATION APPLICATION No. 200 of 2022

ORDER:

1. This Arbitration Application is filed under Section 11(5)

&(6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the

Act, 1996') for appointment of an arbitrator to resolve the disputes

between the parties.

2. Heard learned counsel for the Applicant and learned counsel

for Respondents No.1 and 2. Despite service of notice none

appeared for the respondents No. 3 to 6.

3. The applicant herein contends that he had entered into an

agreement of sale dated 26.04.2018 with the respondents herein for

purchase of Flat No. 203, admeasuring 4681 sq. feets in First Floor,

in Plot No. 129/40/D2, 129/49/D3 and House bearing Municipal

Nos. 8-2-685/P@, 8-2-685/P3, 8-2-685/P4 situated at Road No. 12,

Banjara Hills, Hyderabad together with car parking and amenities

(for short 'subject property') for a total sale consideration of

Rs.2,20,71,000/- (Rupees Two Crore Twenty Lakhs Seventy One

Thousand only).

4. Thereafter, the respondent No.1 herein had issued a letter of

extension dated 14.06.2018 extending the Agreement of Sale dated

26.04.2018, by appending additional terms and conditions.

5. It is contended that disputes have arisen between the parties

as the respondents herein failed to execute a registered sale deed

despite delivering possession to the petitioner herein in the year

2018. Thus, the applicant herein had issued legal notices dated

19.07.2021 and 28.08.2021 calling forward the respondents to

fulfil their obligations under the agreement of sale dated

26.04.2018 and to accept the balance sale consideration of Rs.

1,00,71,000/- (Rupees One Crore and Seventy One Thousand

Only).

6. Since, there was no reply from the respondents the applicant

herein had issued arbitration notice dated 03.09.2022 proposing to

nominate Mr. Vinod Kumar Vasireddy, Advocate, to act as an

arbitrator for resolution of disputes. It is contended that the present

arbitration application is filed seeking appointment of a sole

arbitrator since the respondents herein had failed to reply to the

notice dated 03.09.2022.

7. Per contra, learned counsel appearing for respondents No. 1

and 2 contends that, the present arbitration application is not

maintainable since the agreement of sale dated 26.04.2018 is a

fabricated and fraudulent document created for knocking away the

property of the respondent No.1 herein; that the said agreement of

sale dated 26.04.2018 was executed by one Mr. Naveen Kumar

Goyal, who was not an authorized signatory of the respondent No.1

as he had resigned from the company on 12.04.2018, and the said

resignation was also accepted by the board of directors of the

respondent No.1 on 20.04.2018 before the date of the alleged

agreement of sale dated 26.08.2018. It is further submitted that the

other two persons i.e., Mr. Mahender Kumar Agarwal and Mr.

Laxmi Narayan Agarwal, who were arrayed as representatives of

the respondent No.1 herein in the agreement of sale dated

26.04.2018, had also resigned from the company on 12.04.2018;

and that their resignations were also accepted by the board of

directors of the company on 20.04.2018. Therefore, it is contended

that the arbitration agreement contained in the agreement of sale

dated 26.04.2018 does not bind the respondent No.1 herein.

8. In so far as, the amounts deposited by the applicant herein is

concerned, it is contended that the applicant herein being the son of

Mr. Laxmi Narayan Agarwal, who was the ex-director of

Respondent No. 1 herein, had deposited the said amount towards

internal transactions with the respondent No.1 herein; and that the

same was not paid in furtherance of the agreement of sale dated

26.04.2018.

9. It is finally contended that there cannot be an agreement of

sale between the parties, as the subject property was mortgaged to

the Greater Hyderabad Municipal Corporation.

10. At the outset, it is relevant to note that the role of High Court

under Section 11 of the Arbitration and Conciliation Act, 1996 is

extremely limited. The Court has to only see whether prima facie

an arbitration agreement exists. The Supreme Court in Vidya

Drolia v. Durga Trading Corpn1, held as under:

244. Before we part, the conclusions reached, with respect to Question 1, are:

244.1. Sections 8 and 11 of the Act have the same ambit with respect to judicial interference.

(2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549

244.2. Usually, subject-matter arbitrability cannot be decided at the stage of Section 8 or 11 of the Act, unless it is a clear case of deadwood.

244.3. The court, under Sections 8 and 11, has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of non-existence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.

244.4. 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 i.e. "when in doubt, do refer".

244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only:

244.5.1. Whether the arbitration agreement was in writing? or

244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.?

244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled?

244.5.4. On rare occasions, whether the subject-matter of dispute is arbitrable?

(Emphasis supplied)

11. The Hon'ble Supreme Court in Afcons Infrastructure Ltd.

v. Cherian Varkey Construction Co. (P) Ltd.2,while discussing

non arbitrability of disputes held that cases involving serious and

specific allegations of fraud, fabrication of documents, forgery,

(2010) 8 SCC 24

impersonation, coercion, etc. are not suitable to be decided through

arbitration.

12. The governing principle with respect to arbitrability of fraud,

is that the Court will in general refuse to send a dispute to

arbitration if the party charged with fraud desires a public inquiry,

however, where fraud is alleged as an objection to arbitration the

Court need not accept the same, unless a prima facie case of fraud

is proved (See: Russel v. Russel 3).

13. The Hon'ble Supreme Court in A. Ayyasamy v. A.

Paramasivam 4,held that only when the Court is satisfied that the

allegations of fraud are serious and complex in nature which can

only be adjudicated by a competent civil court, reference to

arbitration ought to be denied. The Apex Court further held that a

party cannot wriggle out of an agreement merely by alleging fraud.

The relevant observations are as under:

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

[1880] 14 Ch D 471

(2016) 10 SCC 386

cases where the court, while dealing with Section 8 of the Act, finds that there are very 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 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.

43. Hence, the allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve a dispute arising out of a civil or contractual

relationship on the basis of the jurisdiction conferred by the arbitration agreement.

45 . The position that emerges both before and after the decision in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, MANU/SC/1758/2009 : (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] 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 arbitrationagreement 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 [N. Radhakrishnan v. Maestro Engineers, MANU/SC/1758/2009 : (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] 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 emphasise that the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, MANU/SC/1758/2009 : (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] 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 [N. Radhakrishnan v.

Maestro Engineers, MANU/SC/1758/2009 : (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12]. 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, 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 [N. Radhakrishnan v. Maestro Engineers, MANU/SC/1758/2009 : (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] 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.

(emphasis supplied)

14. The Hon'ble Supreme Court in Avitel Post Studioz Limited

and Ors. Vs. HSBC PI Holdings (Mauritius) Limited and

Ors5,had reiterated the two-prong test laid down in Rashid Raza v.

Sadaf Akhtar 6,to distinguish serious allegation of fraudfrom

simple fraud. The relevant observations are as under:

"14. In a recent judgment reported as Rashid Raza (supra), this Court referred to Sikri, J.'s judgment in Ayyasamy (supra) and then held:

4. The principles of law laid down in this appeal make a distinction between serious allegations of forgery/fabrication in support of the

(2021)4SCC713

(2019) 8 SCC 710

plea of fraud as opposed to "simple allegations". Two working tests laid down 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.

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 or breach thereof, but questions arising in the public law domain."

(emphasis supplied)

15. This Court in KomirishettyShravani Vs. Indana Geetha and

Ors7,while discussing arbitrability of serious allegations of fraud

held that the conduct of the party alleging serious fraud becomes

relevant to decide whether such fraud threatens the existence of the

entire agreement. The relevant observations are as under:

8. Coming to the facts of the case, this Court cannot accept the contentions of the Respondent that serious allegations of fraud exist which make the dispute non- arbitrable. It is relevant to note that mere allegations of serious fraud cannot stop the court from appointing an Arbitrator. According to this Court, the party alleging serious fraud has to prima facie establish that facts constituting such fraud exist.

No party can avoid arbitral proceedings by a merely alleging serious fraud, including serious.

2022(6)ALD474 : 2022(6)ALT204

9. The Courts while deciding whether the existence of the agreement is marred by serious fraud has to see the conduct of the party alleging such fraud. For instance, it may be relevant to see if the party acted in furtherance of the alleged contract or not. If the party alleging serious fraud acted in furtherance of the contract, it cannot allege serious fraud which threatens the existence of the agreement itself. Further, the courts may also look into the conduct of the party after discovery of the fraud. In other words, the subsequent steps taken by the party alleging fraud against the party playing the alleged fraud may be relevant. If the court finds that fraud was discovered but no action was taken against it, the court may draw an inference against the existence of serious fraud. However, this Court makes it clear that there can be no straight-jacket formula to ascertain whether serious allegations of fraud exist or not. Every case is to be decided based on the relevant facts."

                                                           (emphasis supplied)

It      is    of    relevance      to        note   that     the    facts        in

KomirishettyShravani'scase (supra) are identical to the facts at

hand.

16. Reverting to the facts at hand, though the respondent No.1

herein contends that Mr. Naveen Kumar Goyal was not an

authorized signatory of the respondent No.1 company on the date

of execution of the agreement of sale, it is to be seen that no

evidence to that effect is placed on record. Further, though it is

contended that Mr. Naveen Kumar Goyal who had executed the

agreement of sale dated 26.04.2018 had tendered his resignation on

12.04.2018, which was accepted by the board of directors of the

respondent No.1 on 20.04.2018, and as such the agreement of sale

dated 26.04.2018, was a fraudulent and fabricated document, it is

to be seen that:

16.1 Firstly, the possession of the subject property was delivered

to the applicant herein in the year 2018, and that the applicant had

also completed construction of the interior of the subject property.

Thereafter, no communication made by the respondent No.1 herein

is placed before this Court, to establish that the respondent No.1

had disputed the applicant's possession of the subject property.

16.2 Secondly, though it is contended that the payment made by

the applicant herein is in lieu of the amounts advanced by the

respondent No.1 to the applicant and his father, who was an ex-

director of the respondent No.1 herein, no documentary proofs are

placed before this Court to substantiate such earlier 'internal'

transactions between the applicant and the company.

16.3 Thirdly, it is not shown to this Court that the respondent No.

1 herein had initiated any legal action to either take action against

Mr. Naveen Kumar Goel for executing the agreement of sale dated

26.04.2018, or to declare the agreement of sale dated 26.04.2018 as

not binding on the respondent No.1 herein.

16.4 Fourthly, it is not shown to this Court that the respondent

No.1 herein had initiated any steps against the applicant herein for

recovery of possession.

17. Therefore, this Court is of the prima facie view that merely

alleging serious fraud, in light of the aforesaid conduct of the

respondent No.1 herein, prima facie does not threaten the existence

and execution of the agreement of sale dated 26.04.2018. Thus, the

contention of the respondent No. 1 herein that the disputes are not

arbitrable cannot be accepted.

18. Therefore, since the disputes are prima facie arbitrable and

within limitation, this Court deems it appropriate to refer them to

arbitration.

19. However, without any prejudice to the prima facie views

expressed by this Court, the parties are at liberty to raise all pleas

available to them under the law before the learned arbitrator.

20. Accordingly, arbitration application is allowed. I hereby

appoint Hon'ble Sri. Justice C. Praveen Kumar, Former Judge of

the High Court of Andhra Pradesh, Plot No.149B, M.P. &

M.L.A.Colony, Road No.10C, Jubilee Hills, Hyderabad - 500033

as sole arbitrator to resolve the disputes between the Applicant and

the Respondents. The learned arbitrator shall make necessary

disclosure in terms of the provisions of the Act and shall be entitled

to charge fees as per the Act, 1996.

21. Pending miscellaneous petitions if any shall stand closed. No

costs.

___________________ T. VINOD KUMAR, J

26th July, 2024.

vsv/mrkr