Sai Vandana Infra Build & Another v. Baliram Prasad)
Case Details
1 Neutral Citation No. - 2024:AHC:114870 RESERVED Court No. - 2 Case :- APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 No. - 316 of 2024 Appellant :- Sai Vandana Infra Build And Another Respondent :- Baliram Prasad Counsel for Appellant :- Ajay Kumar Singh,Ashish Kumar Singh,Tejas Singh Counsel for Respondent :- Ashok Kumar Singh,Suresh Chandra Varma HON'BLE PIYUSH AGRAWAL,J. 1. Heard Shri Ajay Kumar Singh, learned counsel for the appellants and Shri Suresh Chandra Varma, learned counsel for the respondent. 2. With the consent of the learned counsel for the parties, the appeal is finally decided at the admission stage itself. 3. The instant appeal under section 37 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as, 'the Act') has been preferred against the judgement & order dated 18.03.2024 passed by the Additional District & Sessions Judge/Special Judge (Essential Commodities Act), Varanasi in Misc. Case No. 4 of 2018 (Sai Vandana Infra Build & Another Vs. Baliram Prasad); whereby, the application under section 5 read with section 8 of the
Legal Reasoning
Act has been rejected refusing to refer the parties to arbitration and to stay further proceedings in Original Suit No. 533 of 2017 (Baliram Prasad Vs. Sai Vandana Infra Build & Another). 4. The brief facts of the case are that the defendant – appellant no. 1 filed Misc. Case No. 93 of 2017 under section 9 of the Act, which was transferred to the Commercial Court, Varansi vide order dated 24.11.2017 and renumbered as Arbitration Case No. 60/2020. The respondent filed his objection on 11.04.2018. The plaintiff – respondent instituted Original Suit No. 533/2017 for a decree of permanent injunction restraining the defendant/ appellant no. 1 from raising any constructions over the land in 2 question. The Civil Judge (Junior Division), Varanasi, vide order dated 29.11.2017, granted temporary injunction restraining the defendant (appellant no. 1 herein) from raising construction over the land in question. On 04.01.2018, the defendants – appellants moved an application (paper no. 4-Ga) under section 5 read with section 8 of the Act with a prayer to refer the dispute to arbitration and to stay further proceedings of the suit, which was registered as Misc. Case No. 4 of 2018. The plaintiff – respondent filed objection to the aforesaid application on 30.08.2019, to which the appellants filed reply on 17.09.2019. Thereafter, vide impugned judgement & order dated 18.03.2024, the aforesaid application of the appellants filed under section 5 read with section 8 of the Act has been rejected by the Additional District & Sessions Judge/Special Judge (Essential Commodities Act). Hence, this appeal. 5.
Legal Reasoning
Learned counsel for the appellant submits that the appellant no. 1 entered into a developer agreement with the plaintiff – respondent on 24.09.2016, which contemplates arbitration clause. He further submits that the appellant filed Misc. Case No. 93/2017 under section 9 of the Act, which was transferred to the Commercial Court and re-numbered as Arbitration Case No. 60/2020, in which an objection was filed by the respondent. In the meantime, after filing of the aforesaid case, the plaintiff – respondent instituted Original Suit No. 533/2017 for a decree of permanent injunction, along with 6-C application, in which an interim injunction order was passed on 29.11.2017. Since there arose a dispute out of the registered developer agreement dated 24.09.2016, the present proceedings before the civil court was not maintainable. Hence, an application was moved for transferring the case to Arbitration Tribunal. He further submits that the Arbitration Tribunal is the competent to adjudicate all the disputes, even with regard to allegation of fraud. He further submits that without considering the material on record, the impugned order has been passed rejecting the claim of the appellant. He further submits that the 3 dispute sought to be raised in the suit can very well be adjudicated by the Arbitrator. In support of his submission, he has placed reliance on the judgements of the Apex Court in A. Ayyasamy Vs. A. Paramasivam [(2016) 10 SCC 386], Rashid Raza Vs. Sadaf Akhtar [(2019) 8 SCC 710], Branch Manager, Magma Leasing & Finance Limited & Another Vs. Potluri Madhavilata & Another [(2009) 10 SCC 103] and Gujarat Composite Limited Vs. A Infrastructure Limited & Others [(2023) 7 SCC 193]. Learned counsel for the appellant further submits that now, the Apex Court has held that after amendment to section 8 of the Act, the Courts are duty-bound to refer the matter to Arbitration Tribunal, if there exists some dispute. The matter will not be referred to arbitration if there exists no dispute or arbitration agreement or that is null & void. He further submits that it is not in dispute between the parties that the agreement was entered on 24.09.2016, which contemplates for referring the dispute to arbitration in case of any dispute. The said clause specifically provided in the agreement at clause no. 22. He further points out that in paragraph no. 6 of the suit filed by the respondent – plaintiff, the averment with regard to registered developer
Decision
agreement has been made. Therefore, the impugned order is bad in law. He prays for allowing the appeal. 6. Rebutting the said submissions, learned counsel for the respondent submits that serious fraud has been played upon the respondent by the appellant. He further submits that by making forged signature of the respondent, the appellant – defendant got the map sanctioned from the Varanasi Development Authority and the said fraud cannot be tried before the arbitration court and therefore, the impugned order rejecting the transfer of the case to commercial court is justified. He further submits that the matter requires leading of evidence by either side and thereafter, considering the evidence brought on record, an order can be passed and only the civil court is competent court to try and test the said serious fraud played upon the respondent. He prays for dismissal of the appeal. 4 7. After hearing learned counsel for the parties, the Court has perused the record. 8. It is not in dispute that the registered developer agreement was entered between the parties on 24.09.2016, in which clause 22 thereof, specifically provides for resolution of all dispute to be decided by the Arbitrator duly appointed by the parties to the said agreement with mutual consent. It is also not in dispute that an application under section 9 of the Act was moved on 29.11.2017 before the District Judge, which was registered as Misc. Case No. 93/2017. Thereafter, on 28.11.2017, the respondent – plaintiff filed Original Suit No. 533/2017 for permanent injunction, along with 6-C application, in which an interim injunction order was passed on 29.11.2017 restraining the defendant – appellant from raising any construction over the land in question. 9. After the amendment in section 8 of the Act, an application was moved by the appellant – defendant for transferring the case, to which an objection was filed and after hearing the parties, the impugned order has been passed. The allegation has been made by the plaintiff – respondent that the appellant – defendant got the map sanctioned from the Varansi Development Authority by playing fraud upon the respondent by putting his signature fraudulently and on the said premise, the impugned order has been passed. 10. The record reveals that allegation has been made upon the appellant for forging the signature of plaintiff – respondent for getting the map sanctioned from the development authority. The alleged fraudulently getting the signature can also be looked into by the competent court, i.e., the Arbitral Tribunal. The said allegation is not such a serious in nature, which cannot be gone into by the Arbitral Tribunal. 11. The Apex Court in the case of A. Ayyasamy (supra) has held as under:- 5 “16. …….The allegation of fraud that was levelled against the appellant was that he had signed and issued a cheque of Rs.10,00,050 on 17th June, 2010 of Hotel Arunagiri in favour of his son without the knowledge and consent of the other partners i.e. respondents. It was a mere matter of account which could be looked into and found out even by the arbitrator. The facts of the instant case however are much more complex as the materials on records disclose. This Court however does not intend to make any comments on the merits of the allegations lest it may prejudice the case of the parties in an appropriate proceeding before competent court. However, considered in totality this Court is of the firm view that the nature of the dispute involving serious allegations of fraud of complicated nature are not fit to be decided in an arbitration proceedings. The dispute may require voluminous evidence on the part of both the parties to come to a finding which can be only properly undertaken by a civil court of competent jurisdiction. 25. In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicitor 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 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 civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing 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 offraud 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 6 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 forum, 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.” 12. The Apex Court, while dealing with the issue, has categorically held that merely levelling allegation of fraud will not de-bar for referring the matter to arbitration tribunal. Similar view has been expressed by the Apex Court in the case of Rashid Raza (supra), the relevant paragraphs of which is given as follows:- “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 down in paragraph 25 are : (1) does this plea permeate theentire contract of arbitration,rendering it void, or (2) whether the allegations of fraudtouch upon the internal affairs of the parties inter se having no implication in the public domain. and above all, the agreement 5. Judged by these two tests, it is clear that this is a case which falls on the side of “simple allegations” as there is no allegation of fraud which would vitiate the partnership deed as a whole or, in particular, the arbitration clause concerned in the said deed. Secondly, all the allegations made which have been relied upon by the learned counsel appearing on behalf of the respondent, pertain to the affairs of the partnership and siphoning of funds therefrom and not to any matter in the public domain.” 13. Further, in the case of Branch Manager, Magma Leasing & Finance Limited (supra), the Apex Court has held as under:- 7 “18. Section 8 is in the form of legislative command to the court and once the pre-requisite conditions as aforestated are satisfied, the court must refer the parties to arbitration. As a matter of fact, on fulfillment of conditions of Section 8, no option is left to the court and the court has to refer the parties to arbitration. There is nothing on record that the pre- requisite conditions of Section 8 are not fully satisfied in the present case. The trial court, in the circumstances, ought to have referred the parties to arbitration as per arbitration clause 22.” 14. Recently, the Apex Court, in the case of Gujarat Composite Limited (supra) has held as under:- “35. As explained by this Court in Ameet Lalchand Shah (supra), the amendment to Section 8 after the aforesaid decision in Sukanya Holdings could be seen in the background of the recommendations of 246th Law Commission Report in which, inter alia, it was observed that as per the proposed amendment, judicial authority would not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, it would refer the dispute to arbitration and leave the existence of arbitration agreement to be finally determined by the Arbitral Tribunal.” 15. In view of the constant view taken by the Apex Court after amendment of section 8 of the Act, as referred to above, the impugned judgement & order dated 18.03.2024 passed by the Additional District & Sessions Judge/Special Judge (Essential Commodities Act), Varanasi in Misc. Case No. 4 of 2018 cannot be sustained. The same is hereby set aside. 16. The appeal is, accordingly, allowed. Order Date:-19/07/2024 Amit Mishra