Karnataka High Court
Sri Ashok S Dhariwal vs Sri Mahaveer K Ranka on 19 December, 2025
Author: V Srishananda
Bench: V Srishananda
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 19TH DAY OF DECEMBER, 2025
BEFORE
®
THE HON'BLE MR. JUSTICE V. SRISHANANDA
CIVIL REVISION PETITION No.29/2019
BETWEEN
SRI ASHOK S DHARIWAL
S/O SUGANCHAND DHARIWAL,
AGED ABOUT 63 YEARS,
RESIDING AT NO.H-8/32,
BULL TEMPLE ROAD,
BASAVANGUDI,
BANGALORE-560 004.
...PETITIONER
(BY SRI P D SURANA, ADVOCATE)
AND
SRI MAHAVEER K RANKA
S/O LATE KALURAM RANKA,
RESIDING AT NO.H-7, 30TH CROSS,
5TH MAIN ROAD,
JAYANAGAR,
BANGALORE-560011
SINCE DEAD BY HIS LRS.,
1(a) SRI AJIT RANKA,
S/O LATE MAHAVEER RANKA,
AGED ABOUT 47 YEARS,
2. SRI AKASH RANKA
S/O LATE MAHAVEER RANKA,
AGED ABOUT 39 YEARS,
2
3. SMT SAPNA KOTHARI
D/O LATE MAHAVEER RANKA,
AGED ABOUT 44 YEARS,
ALL ARE RESIDING AT
NO.H-7, 30TH CROSS,
5TH MAIN ROAD, JAYANAGAR,
BANGALORE-560011.
4. P MANJUNATH
S/O P Y SHETTY,
AGED ABOUT 52 YEARS,
RESIDING AT NO.1282,
13TH CROSS, 2ND STAGE,
INDIRANAGAR,
BANGALORE-560 038.
5. B N SATHYANARAYANA
S/O B R NANJUNDAYYA,
AGED ABOUT 81 YEARS,
R/AT NO.107, SPM ROAD,
SHIMOGA-577401
6. K A UMESH
S/O K S ASHOK KUMAR,
AGED ABOUT 36 YEARS,
R/AT NO.19, SANTHAPPA LANE,
CHICKPET CROSS,
BANGALORE-560002.
7. SRI K N GIRISH
S/O K S NAGABHUSHAN,
AGED ABOUT 36 YEARS,
R/AT NO.19, SHANTHAPPA LANE,
CHICKPET CROSS
BANGALORE-560 002.
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8. SRI K R TEJAS
S/O K S RAVINDRANATH,
AGED ABOUT 31 YEARS,
R/AT NO.19, SHANTHAPPA LANE,
CHICKPET CROSS
BANGALORE-560 002.
...RESPONDENTS
(BY SRI S.SREEVATSA, SENIOR ADVOCATE FOR
SRI S.D.N.PRASAD, ADVOCATE FOR R1(A TO C);
R2 TO R6 ARE SERVED AND UNREPRESENTED)
THIS CRP IS FILED UNDER SECTION 115 OF CODE
OF CIVIL PROCEDURE, AGAINST THE JUDGMENT DATED
24.11.2018 PASSED IN M.A.No.36/2015 ON THE FILE OF
THE III ADDITIONAL CITY CIVIL AND SESSIONS JUDGE,
BENGALURU, DISMISSING THE APPEAL FILED UNDER
SECTION 37(2) OF ARBITRATION AND CONCILIATION ACT
1996.
THIS PETITION HAVING BEEN RESERVED FOR
ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY,
THE COURT PRONOUNCED THE FOLLOWING:-
CORAM: HON'BLE MR JUSTICE V SRISHANANDA
CAV ORDER
(PER: HON'BLE MR JUSTICE V SRISHANANDA)
The present Civil Revision Petition is a classic example
of how an arbitration proceedings can be delayed even at
the very inception stage in utter disregard to the laudable
object of early resolution of civil dispute and Alternate
Dispute Resolution System and defeating the very object
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of the enactment of Arbitration and Conciliation Act, 1996.
It is often said that resolution of disputes by arbitration in
India is full of brakes and no engine. Present case is best
example for the said saying.
2. Present Civil Revision Petition is filed by the
appellant in M.A No.36 of 2015 on the file of the III
Additional City Civil and Sessions Judge, Bengaluru,(CCH-
25) challenging the validity of the said judgment dated
24.11.2018 dismissing the Appeal filed by him challenging
the order passed by the arbitrator, whereby the arbitrator
recorded a finding that the dispute between the parties is
not an arbitral dispute.
3. Facts in the nutshell which are utmost necessary for
disposal of the present Civil Revision Petition are as under:
It is alleged that petitioner, respondent Nos.1 to 4
along with other persons constituted a partnership firm in
the name and style 'M/s Paramount Vijetha Holdings'
('firm' for short) through a deed dated 24.05.2006. The
said firm was reconstituted on 15.05.2007 as the other
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partners apart from respondent Nos.1 to 4 retired from the
firm. Respondent Nos.1 to 4 continued as partners.
4. The partners decided to induct few more partners
and therefore respondent Nos.5 and 6 were also intended
to be inducted as partners with a limited interest in the
firm that the share of profits of respondent No.4 would be
shared by respondent Nos.5 and 6.
5. However, on account of legal issues, inducting
respondent Nos.5 and 6 to the firm was not finalized.
6. Material on record would reveal that firm was
engaged in Real Estate business and it ventured for
development of the agricultural land measuring 3 acres 39
guntas comprised in Sy.Nos.45/2 and 45/3 of Arakere
Village by entering into a Joint Development Agreement
('JDA' for short) with its owner Sri Krishna Reddy on
29.06.2006.
7. As per the terms of the JDA, M/s Sovern Developers
and Infrastructure Company Limited ('construction
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company' for short) was entrusted the work of
construction.
8. The revision petitioner namely Ashok S. Dhariwal is
the 'working partner' of the firm whereas first respondent
is the 'Managing Partner'.
9. There were some differences between owner of the
land i.e., Sri Krishna Reddy and the firm on account of
improper handling of the development by the first
respondent.
10. Therefore, Krishna Reddy filed an arbitration case in
A.A No.25/2008. But, at the intervention of the petitioner,
the said arbitration case ended in a compromise.
11. It is further allegation of the revision petitioner that
the first respondent was immature in handling the
business dealings and there are few misunderstanding
between the construction company and the firm.
12. As such, the construction company also filed an
arbitration case in AA No.697/2009 against the firm and
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firm also filed an arbitration case against construction
company in AA No.728/2009.
13. It is further alleged that, on account of pending
arbitration cases, the development work got delayed and
the project cost got escalated solely on account of the
conduct of the first respondent. It is also alleged by the
revision petitioner that first respondent sidelined the
revision petitioner by misusing the blank cheques signed
by the revision petitioner and transferred the amounts
from account of the firm which was opened in IDBI Bank to
a fresh account which was opened in HDFC bank by the
first respondent alone, though in the name of the firm.
14. In addition to that, the first respondent transferred
funds of the firm to his son Akash Ranka's account and
collected the cheques received from the intending
purchasers of the plots to the account of HDFC Bank.
Thereby, revision petitioner was kept aloof from the
business of the firm.
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15. It is also allegation of the revision petitioner that
there was a resolution passed against him in order to
shield their illegal acts and improper handling of the
accounts and they went to the extent of calling for books
of accounts of the firm from the revision petitioner
contending that those books are with the revision
petitioner.
16. Under such circumstances, revision petitioner was
constrained to file an arbitration case in AA No.232/2011
against respondent Nos.1 to 4 and also filed a petition in
CMP No.75/2013 on the file of the High Court of Karnataka
for appointment of a neutral arbitrator to resolve the
dispute among them.
17. High Court at Karnataka allowed the said CMP
No.75/2013 by the Order dated 06.02.2014 and appointed
Justice Ajit J. Gunjal to arbitrate the matter. However, it
is submitted that Justice Ajit J. Gunjal declined to arbitrate
the matter. By the Order dated 10.07.2014 Justice
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A.C.Kabbin was appointed as an arbitrator. From the
record it is found that Justice A.C.Kabbin also did not
choose to arbitrate the matter and ultimately Justice
V.Jagannathan was appointed as an arbitrator.
18. Revision Petitioner has laid his claim before the
arbitrator in AC No.70/2014. It is contented that learned
Arbitrator after receiving the objection statement from
respondent Nos.1 to 4, framed a preliminary issue
regarding the arbitrability of the dispute, in the light of the
averments made in the claim petition and also counter-
allegations of serious nature in the objection statement
filed by respondent Nos.1 to 4.
19. After hearing the parties at length, learned Arbitrator
having regard to the intrinsic issues involved in the claim
petition and the objection statement alleging fraud and
misrepresentation, dismissed and closed the arbitration
case in A.C.No.70/2014 that it is not an arbitral dispute, by
Order dated 22.06.2015.
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20. Being aggrieved by such a finding, an appeal in
M.A.No.36/2015 came to be filed by the revision petitioner
herein under Section 37(2) of the Arbitration and
Conciliation Act, 1996.
21. Learned Judge in the First Appellate Court issued the
notice of the appeal and after permitting the legal
representatives of the first respondent to come on record,
noting the death of first respondent, heard the arguments
of the revision petitioner alone, as first respondent failed
to file objections nor his legal representatives.
22. The learned Judge in the First Appellate Court raised
the following points for consideration and by the impugned
Order, dismissed the appeal.
(i) Whether the appellant has shown the
arbitrability of the dispute raised by him?
(ii) What Order?
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23. Being aggrieved by the same, revision petitioner has
filed the present Civil Revision Petition on the following
grounds.
The learned arbitrator erred in holding that the
dispute between the parties is not arbitrable on the
basis that the allegations made requires a detailed
trial. The arbitrator has failed to take note of the fact
that the allegations made against the respondent do
not require any trial in view of the admissions made
by the respondent himself. The arbitrator has referred
to certain averments in the petition and on the basis
of those averments he proceeds to hold that the
dispute is not arbitrable. Those averments referred by
the arbitrator are at para 38, 39 and 40. In para 45
the arbitrator refers to the fact of realization of the
amounts from sale of the flats. The error committed
by the learned arbitrator in referring those facts and
to hold that the arbitration proceedings are not
maintainable unsustainable in law for the following
reasons.
One of the statement referred to in para 38 and 39 of
the order is that the 1 respondent has transferred
Rs.1,07,75,000/- from the account of the firm to the
account of the 1st respondent's son Akash Ranka. The
said fact is not under dispute. The question of
conducting a detailed enquiry to answer the said fact
12
one way or the other does not arise at all. In fact, the
said statement of fact is made by the Petitioner in the
claim petition at para 10. The 1st respondent has filed
his statement of objections to the claim petition. The
1st respondent does not dispute in his statement of
objections about the transfer of the said amount from
the account of the firm to the account of 1st
respondent's son Akash Ranka. When there is no
dispute about the transfer of the amount made by 1
respondent in favour of his son Akash Ranka the
question of recording detailed evidence to find out the
said fact do not arise at all. Therefore when there is
no dispute about the said fact the question of referring
the parties to the civil court for adjudication of the
said fact does not arise at all. This aspect has not
been taken note of by the learned arbitrator while
passing the impugned order.
Annexure-B is the statement of objections filed by the
1st respondent. In para 17 of Annexure-B it is stated
as follows:
"These respondents submits that it is true
that the amount of Rs.1,09,75,000/- (Rs.One
Crore Nine Lakhs Seventy Five Thousand
Only) was transferred from IDBI Bank to
Akash Ranka's account at Karur Vysya Bank.
This has to be done as an interim measure to
enable the firm to pay the outstanding bills
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(which are paid on weekly basis) which were
to be paid immediately and for the smooth
progress of the work. The firm and the
majority of the partners decided that the sum
be transferred and the amount be paid
thereof, this was necessitated by the fact that
the Petitioner instead of spending time at the
project interfered with the IDBI see that the
no payments were made from the Bank to
said account. The firm could withstand such
obstructions for a short period but was
finding it extremely difficult to operate the
said account; the other partners had to
exercise their implied authority, with the
knowledge of the Petitioner which he has
acquiesced for nearly 18 months. It was that
stage the firm and the majority of the
partners authorized the 1st respondent to
open an account at HDFC Bank and operate
the same for the exclusive benefit of the firm
Paramount Vijetha Holdings. The account was
necessarily opened by the 1st respondent
since the Petitioner though informed refused
to sign the necessary papers with the
bankers, having no other alternative the
respondents 2 to 4 authorized the 1st
respondent to open the account in the name
of " Paramount Vijetha Holdings."
14
Even in the statement of objections filed before the
Arbitral Tribunal the 1st respondent in para 13 it is
stated as follows:
"The allegation that the Petitioner has noticed
that the cheques are abused by the 1st
respondent and 1st respondent has
transferred a sum of Rs.1,09,75,000/-
(Rupees One Crore Nine Lakhs Seventy Five
Thousand Only) to the account of the same is
totally false and baseless and the Petitioner is
put to strict proof of the same. It is relevant
to state here that Akash Ranka had advanced
the loan to the tune of around 1.2 Crore to
tied over the situation of payment to the
vendors who had supplied materials and the
said amount was repaid to Sri.Akash Ranka
by the firm and no amount was neither
misused or misappropriated as alleged by the
Petitioner. The allegation that the 1st
respondent has committed an act of breach
of trust is totally false and baseless."
In para 14 of the statement of objections filed by 1st
respondent before the arbitrational tribunal the 1st
respondent has stated as follows:-
"(14) The allegation made in para No.11 that
1st respondent without the knowledge of the
Petitioner had opened an account on behalf
15
of and in the name of firm is to state here:
totally false and baseless. It is relevant that
initially the firm had opened an account in
IDBI bank and Karur Vysya Bank and the
account had to be operated jointly by 1st
respondent and the Petitioner. there after the
Petitioner started hostile attitude towards the
1st respondent on account of matrimonial
dispute between his daughter with the son of
the 1st respondent and refused to sign the
cheques to make payments to the laborers,
vendors who have supplied materials for the
purpose of construction. To cause further
trouble, he filed Α.Α. 232/2011 and obtained
interim order there by stopping payments to
be made to the vendors and laborers and
exposed the firm to lot of litigation and
caused financial losses to the firm. In
addition to that the IDBI bank in which an
amount 86 Lakhs was in Account, they freeze
the account in view of the interim order
granted in A.A. No.232/2011 thereby further
exposes the firm to litigation and in
convenience. Further the cheques issued for
payment of statutory dues were also bounced
and the firm had to face financial loss and
reputation was also at stake. All these
happened only because of the hostile attitude
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of Petitioner. Hence, the Petitioner was
compelled to open an account in HDFC Bank.
Infantry Road to make payments to the
vendors and for smooth functioning of firm
operations.
In para 18 of the statement of objections Annexure-B
the 1st respondent with regard to transfer of the
amount from IDBI Bank to the account of HDFC Bank
it is stated as follows:-
"Para 12-t is denied that the Petitioner was
not aware or informed about the transfer of
amount of sum of Rs.1,06,15,000/- (Rs.One
Crore six Lakhs fifteen thousand only) from
IDBI Bank account to HDFC account or the
opening of the said account. It is because of
the defiant attitude and non co-operation of
the Petitioner at every stage was also
necessitated respondents 1 to 4 in their
capacity of partners of firm Paramount
Vijetha Holdings, having no other alternative
to constrained were transfer
Rs.1,06,15,649/- (Rs.One Crore six Lakhs
fifteen thousand six hundred forty nine only)
from IDBI Bank to HDFC account and the
financial management of the firm is being
carried out by the said HDFC account in the
best interest of the firm."
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Thus, the fact of transfer of the amount from the
account of the firm held at IDBI Bank to the new
account opened by the 1st respondent at HDFC Bank
is not in dispute. The question of conducting enquiry
on the undisputed facts requiring the trial by a civil
court is neither necessary nor the same is called for to
refer the parties to civil court.
In view of the fact that the transfer of amount as
stated by the Petitioner to the account of Akash Ranka
is not in dispute. The fact that without the consent of
the Petitioner an account of the firm is opened at
HDFC Bank is also admitted by the 1st respondent. The
fact of transferring the amount from the account of
IDBI Bank to HDFC Bank is also not in dispute. Under
the circumstances, the question of recording detailed
evidence for the purpose of finding the said fact is
neither necessary nor the same is required. Therefore
the reasoning of the learned arbitrator that detailed
evidence is to be recorded on the averments made by
the Petitioner and therefore the dispute is not
arbitrable cannot be sustained.
In view of the aforesaid facts the reasoning of
the learned Arbitrator that the dispute is not
arbitrable would not have been upheld by the
Civil Court.
The arbitrator mainly went by the fact that the
statements which have been made in the petition
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which are referred to by the arbitrator require details.
No evidence is required with regard to the statements
made in the claim petition in view of the admissions
made by the contesting respondents which are
extracted above. Even with regard to the transfer of
the amount from the IDBI Bank to HDFC Bank do not
call for any trial in view of the admissions made in
proceedings between the parties. Admitted fact has
been ignored by the arbitration tribunal by directing
the parties to approach the civil court and hence the
impugned order is vitiated and the same is
unsustainable in law. The Civil Court has not taken
note of the said fact.
The reasoning of the learned Arbitrator at para 38 and
39 that the fact of transfer of amount to the account
of Akash Ranka, the fact of opening of the account at
HDFC Bank and the fact of transfer of the amount
from IDBI Bank are presumed by the arbitrator to be
of a serious nature which requires detailed
investigation is the result of failure to take note of the
admissions made by the respondent about the said
fact. When the said facts are not in dispute, the
reasoning that a trial is required to be conducted by a
civil court is not sustainable and no trial is required
about the admitted fact. The Civil Court ought to have
noticed that having regard to the admissions made by
the Respondents which are extracted above the
question of the requirement of detailed trail is not at
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all involved. The Civil Court also failed to take note of
these facts while passing impugned order.
The arbitrational Tribunal at para 43 of the order
refers to the fact of realization of the amount by the
sale of 145 flats. The amount realized by sale of 145
flats is to be calculated on the basis of the evidence
that is placed before the tribunal. The fact that the
sale deeds are registered for a lower price than the
agreed price is not a ground to say that the dispute
between the parties cannot be arbitrated. That the
arbitrator has referred to various judgments on his
own without bringing the same to the notice of the
parties. Such a course adopted by the arbitrator is
against to the principles of natural justice. One of the
judgments relied up on by Petitioner is in the case of
SWISS TIMINGS LTD., VS Organizing Committee,
Common wealth Games reported in AIR 2014 SC
3723. The citing of said judgment is noted by the
learned arbitrator in para 32 of the order. But
unfortunately the text of the said judgment is neither
extracted nor does the arbitrator state that the said
judgment is not applicable to the facts of the case. In
fact, the said judgment is applicable to the facts of the
case. The learned arbitrator ought to have held that
the dispute is arbitrable in view of the reasons
recorded in the said judgment. Para 6(ii) of the said
judgment is as follows:
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(II) The contract stands vitiated and is void
ab-initio in view of Clauses 29, 30 and 34 of
the Agreement dated 11th March, 2010. Hence,
the Petitioner is not entitled to any payment
whatsoever in respect of the contract and is
liable to reimburse the payments already
made. Therefore, there is no basis to invoke
arbitration clause. The respondent points out
that a combined reading of clause 29 and
clause 34 would show that the Petitioner had
warranted that it will never engage in corrupt,
fraudulent, collusive or coercive practices in
connection with the agreement. The Petitioner
would be liable to identify the respondent
against all losses suffered or incurred as a
result of any breach of the agreement or any
negligence, unlawful conduct or willful
misconduct. The respondent may terminate
the agreement when it determines that the
Petitioner had engaged in any corrupt,
fraudulent, collusive or coercive practice in
connection with the agreement. The
respondent seeks to establish the aforesaid
non liability cause on the basis of registration
of Criminal Case being CC.No.22 of 2011
under Section 120-B, read with Sections 420,
427, 488 and 477 IPC and Section 13(2) read
with Section 13(1)(d) of the Prevention of
21
Corruption Act against Suresh Kalmadi, the
then Chairman of the Organizing Committee
and other officials of the respondent along with
some officials of the Petitioner, namely Mr. S.
Chianese, Sales and Marketing Manager, Mr.
Christophe Bertaud, General Manager and
Mr.J.Spiri, Multi Sports Events and Sales
Manager."
It is further the case of the respondent in that case,
that due to the pendency of the criminal proceedings
in the trial court, the present petition ought not to be
entertained. In case the arbitration proceedings
continues simultaneously with the criminal trial, there
is real danger of conflicting conclusions by the two for
a, leading to unnecessary confusion. The Hon'ble
Supreme Court has answered the above contentions
in the said judgment at para 12 which is as follows:-
"12. The second preliminary objection raised by
the respondent is on the ground that the contract
stands vitiated and is void-ab-initio in view of
Clause 29, 30 and 34 of the agreement dated
11th March, 2010. I am of the considered opinion
that the aforesaid preliminary objection is
without any substance. Under clause 29, both
sides have given a warranty not to indulge in
corrupt practices to induce execution of the
agreement, Clause 34 empowers the Organizing
22
Committee to terminate the contract after
deciding that the contract was executed in
breach of the undertaking given in clause 29 of
the contract. These are allegations which will
have to be established in a proper forum on the
basis of the oral and documentary evidence,
produced by the parties, in support of their
respective claims. The objection taken is to the
manner in which the grant of the contract was
manipulated in favour of the Petitioner. The
second ground is that the rates charged by the
Petitioner were exorbitant. Both these issues can
be taken care of in the award. Certainly if the
respondent is able to produce sufficient evidence
to show that the similar services could have been
procured for a lesser price, the arbitral tribunal
would take the same into account whist
computing the amounts payable to the Petitioner.
As a pure question of law, I am unable to accept
the very broad proposition that whenever a
contract is said to be void-ab-initio, the Courts
exercising jurisdiction under Section 8 and
Section 11 of the Arbitration Act, 1996 are
rendered powerless to refer the disputes to
arbitration."
The learned arbitrator ought to have noticed the said
observations of the Hon'ble Supreme Court and ought
to have held that the dispute is arbitrable. Instead of
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referring to the said judgment the arbitrator refers to
various judgments which are neither cited by the
Petitioner nor by the respondents. If the Arbitrator
desired to rely up on the judgment which are not
relied up on by the parties in that event he ought to
have invited the attention of the parties to have their
say in the matter. When this exercise has not been
followed the impugned order is unsustainable in law
as the same is against to the principles of natural
justice. The trail court proceed to hold that the
decision cited by the learned arbitrator were not been
known to the Petitioner's Advocate and therefore the if
the arbitrator is better informed about the judgments
of the court and the same are referred to in the orders
by the arbitrator no fault can be found on the said
aspect. It is submitted that the Petitioner would have
offered his submissions about applicability of the
judgments so cited by the arbitrator if the said
judgments were brought to the notice of Petitioner
which the arbitrator has relied upon. The manner in
which this aspect is considered by trail court is oppose
to natural justice.
The learned arbitrator failed to take note of the fact
that the transfer of the amount to the account of
Akash Ranka and transfer of amount from IDBI Bank
to HDFC Bank was not the subject matter of
adjudication at all for the reason that the claim
petition is presented before the Arbitration tribunal
24
without seeking adjudication of aforesaid facts. In
para 20 of the claim petition the number of flats which
are sold is mentioned and the cost of construction
incurred for the construction of flats is also
mentioned. The miscellaneous costs are also
mentioned and thereafter the net profit is worked. The
calculation errors which have occurred in para 20 are
explained in Re-joinder. It is based on the calculation
furnished about the amount realized from the sale of
flats. The profits has to be calculated after the
deducting the cost of the construction of the flats. The
prayer of the partition of the profits is based on the
said submissions and the calculations so made. The
other averments in the petition which are admitted
facts are the facts which gave raise to the dispute
between the parties. Under he circumstances the
prayer for sale of remaining flats is sought for by
appointing a receiver. Alternatively it is also prayed
that 10% of the remaining unsold flats be allotted to
the share of the Petitioner towards its profits which
will have the result of distributing the profits which
will accrue by the sale of the remaining flats. The
reasoning of the arbitrator that such a prayer cannot
be considered by the arbitrator is unsustainable in
law. On passing of the award the execution will be
filled before the competent civil court. The aspect of
executing of the decree will be taken care of by the
executing court and even the appointment of the
25
receiver can be undertaken in executing the decree.
The Trail Court also has erred in holding that such a
prayer cannot be granted by arbitrator. All steps
available in law are permitted to be taken by the
parties for implementing the award. The award is
executed in the same manner as the decree is
executed. The award made by arbitrator is executable
by Civil Court and therefore the reasons assigned by
Civil Court and arbitrator that such a prayer cannot be
granted is unsustainable in law. To meet the ends of
justice, a relief which a party is entitled to is to be
granted unless the same is prohibited by law.
In the course of the submissions before the arbitrator
it was made clear that no enquiry is sought for in
relation to the misrepresentation, fraud and breach of
trust. The simple prayer is of partition of the property.
Such a prayer is not outside the purview of the
arbitration proceedings.
No adjudication was sought for on the criminality of
the conduct of the 1st respondent. The tribunal erred
in holding that the case involves adjudication of
criminality of the matter.
With regard to collection of taxes and payment of
taxes are the matters of records which the parties
have to place before the court and the quantum of tax
paid can always be decided on the basis of the
evidence produced by the parties.
26
The observations of the tribunal that the sale deeds
are executed on behalf of the owner of the property
and also by the partnership firm and therefore
detailed enquiry is necessary is again an erroneous
observation made by the tribunal. It is an admitted
fact that the joint development agreement is entered
with the owner of the property. The flats are sold on
the basis of the power of attorney executed by the
owner. The price is realized by sale of flats which have
fallen to the share of the firm as a developer. On the
basis of the evidence placed by the parties the
determination has to be made of the price realized by
sale of the flats and after deducting the expenditure
incurred for construction the profit has to be arrived
and the same is to be distributed. The amount is
received by the 1st respondent and he has to disburse
the profits available in his hands. It cannot be said
that such an exercise cannot be done in the
arbitration proceedings. It is not out of place to
mention that various construction contracts provides
for arbitration and arbitration is conducted in such
matters based on the evidence which the parties may
produce before the tribunal. The exercise of
calculating the profits does not amount to adjudication
of fraud, misrepresentation or collusion. The
observation of the tribunal that several questions will
arise to ascertain the prayer of the claimant for
allotment of 10% share in the profits of the firm is
27
again an erroneous view of the arbitrator. In fact 60
agreements of sale were filed before the arbitrator.
The corresponding sale deeds were also produced
before arbitrator. The lower price mentioned in sale
deed is ascertainable at the mere look of these
documents. These aspects are not noticed by the
arbitrator and also by Civil Court.
The owner of the land Krishna Reddy need not be a
party to the arbitration proceedings as there is no
dispute which requires to be adjudicated with the said
Krishna Reddy. The observations that may questions
of law which are required to be considered and
therefore they are out side the purview of the
arbitration proceedings is again a observation made
without any basis. The sale deeds are executed. The
execution of the sale deeds is not in dispute. The firm
of Paramount Vijetha Holdings has executed the sale
deeds as a Builder. The parties to the sale deed need
not be made parties to the arbitration proceedings.
Sale deeds are only the piece of evidence evidencing
the fact that the property is sold. No other question
with regard to the sale deed does arise for
consideration. The said question does not require any
adjudication. Impleading of IDBI Bank in A.A. 232/
2011 has nothing to do with the proceedings before
the arbitrator.
28
The arbitrator erred in holding that the partners have
to seek the dissolution of the firm. The partnership
deed provides for distribution of profits. The terms of
partnership are by themselves enforceable without
seeking dissolution. A partner cannot by its overacts
force another partner to seek the dissolution. The
erring partner has tobe disciplined to respect the
rights of the other partner. The observations that the
dissolution is required to be sought for are again an
observation made by the tribunal without hearing the
parties on the said question. There is no legal bar to
maintain suit for partition of the profits amongst the
partners. The said relief does not depend on as to
whether the relief of dissolution is sought for or not.
The reasoning of Civil Court and arbitrator on these
aspects are unsustainable in law.
It is submitted that the respondents 5 and 6 are
parties to the partition deed. After execution of the
partition deed further formalities are not carried out.
There is an arbitration clause in the partnership deed.
They are governed by the said provision. In view of
the fact that there is an agreement for arbitration
binding on them they are to be treated as proper
parties to the proceedings if not necessary parties.
The observation that the sale deeds are executed on
behalf of Sri. Krishna Reddy in favour of each of the
purchasers therefore Sri. Krishna Reddy and the
29
purchasers are necessary parties is uncalled for. The
sale deeds are not under challenge. No relief is sought
for so far execution of sale deeds are concerned. The
question that arises for consideration as to whether
the sale price realized is the one mentioned in the sale
deed or larger sum is realized by sale of each flats.
The finding has to be recorded based on the evidence
which the parties may lead with regard to realization
of price. The Petitioner had produced before the
learned Arbitrator number of agreements which were
executed in favour of the purchasers of the flats. The
perusal of these agreements shows the sale price
fixed for sale of each of the flats. Under these
circumstances it is not a case of unearthing a fraud, it
is a case of finding out sale price realized. Merely
because the sale price mentioned in the sale deed is
lower than the one realized it cannot be said that the
arbitration proceedings are not maintainable.
There is no dispute which is required to be decided by
the Arbitrator which relates to any of the third parties.
The dispute is only with regard to distribution of
profits amongst the partners. Therefore the
observation that the firm is required to be made as
party is again unsustainable finding and not
contemplated by law.
The direction sought for to sell the available flats as
per the prayer made is not a reason to say that the
30
arbitration proceedings are not maintainable. The
award made by Arbitrator is to be executed before
Civil Court and if any sale of property is to be made
the same will be made by Civil Court. Under the
circumstances that the observation made by Civil
Court that the arbitration proceedings is not
maintainable in view of the prayer No.2 made in the
claim petition is not sustainable in law.
That the partners are entitled to claim the share in the
profits of the firm. Such a relief is not barred in law
and therefore the observation that dissolution of the
firm is not prayed for and therefore the arbitration
proceedings is not maintainable is unsustainable in
law.
The Hon'ble Supreme Court in the case of SBP & Co.,
V/S Patel Engineering reported in 2005 8 SCC 618 it
has been held that the power under Section 16 of
Arbitration & Conciliation Act is available to the
Arbitrator if the proceedings for arbitration has
commenced without the intervention of the Court,
where arbitration proceedings have commenced
before Arbitrator without the intervention of Court.
The power to rule its own jurisdiction under Section
16 of Arbitration & Conciliation Act is available to the
Arbitrator. This possession of law has not been
properly applied by the Civil Court. The various
reasoning given by Civil Court to say that the law laid
31
down by Supreme Court in the aforesaid judgment is
not applicable to facts of the case is unsustainable in
law. The principles laid down in said case ought to
have been followed by Civil Court and Arbitrator. The
reasons of the Civil Court to say that the said
judgment is not applicable to facts of the case is not
sustainable in law.
The judgments of Supreme Court has clarified in the
case of A.Ayyawamy V/S Paramashiva and others.
reported in (2016)10 SCC 386. That the arbitrator has
jurisdiction to decide the facts even in cases where
fraud is alleged. The manner of mentioning the price
in the sale deeds than the one agreed for sale of flats
is not a serious fraud which cannot be decided by
arbitrator. The recording of finding on such issue does
not require elaborate trail to discover the fraud. Even
with regard to transfer of funds in favor of 1st
Defendant son was an admitted fact. Under the
circumstances the order of Civil Court is unsustainable
in law and Civil Court ought to have reverse the order
of learned Arbitrator.
The Civil Court ought to have followed the judgment
of Hon'ble Supreme Court reported in AIR 2016 SC
No.4675 and judgment reported in 2005 ((8) SCC
618. The various reasoning adopted by trail court to
say that the said judgments are not applicable to the
facts of the case are unsustainable in law. The Civil
32
Court is required to apply the principle that when
arbitrator is appointed by Hon'ble High Court the
arbitrator will not have jurisdiction under Section 16
to decide his own jurisdiction. The Civil Court has not
noticed the said aspect properly.
The observation of the civil Court that the allegations
made by the Petitioner manifestly shows the
determining of criminal acts, falsification of accounts
and siphoning of funds and therefore the allegations
are of grave nature and in the absence of the version
of Krishna Reddy these allegations cannot be decided
is a erroneous reasoning adopted by trail court. The
trail court failed to see all evidences placed by parties
what was required to be ascertained is the actual price
realized by sale of flats.
The further observation of civil court that the
observation of arbitrator about the firm being not
impleaded in proceedings is questioned by Petitioner
is unsustainable in law. There is no dispute between
the firm and the partners. A firm is only a
compendious name of all the partners. When all the
partners are on record and that the dispute is inter se
among the partners the requirement of impleading the
firm does not arise at all. There is no prohibition in
law to maintain legal proceedings seeking share of
profits without seeking dissolution of firm.
33
The amendment made to Arbitration and Conciliation
Act which came into effect from 23-10-2015 is
prospective in nature. The amendment will not apply
to the proceedings which have arisen before
amendment came into existence. The Civil Court erred
in observing that the amendment is to be taken note
of for disposal of appeal is erroneous.
The judgment of Civil Court that the Respondents 5
and 6 were not inducted as partners and therefore the
proceedings are not maintainable is also erroneous in
nature. The various observations made by Civil Court
that the petitioner is seeking the relief in all forums is
erroneous in nature."
24. Sri P.D.Surana, learned counsel for the revision
petitioner, reiterating the grounds urged in the revision
petition, contended that the approach of the arbitrator that
the dispute is not capable of arbitration is incorrect as the
said point was treated as a preliminary issue.
25. He further contended that the learned arbitrator
failed to take note of the fact that allegation made against
the respondent did not require any detailed trial in view of
the admissions made by the first respondent himself. The
observations recorded by the learned Arbitrator in
34
paragraph Nos.38, 39, 40 and 45 are per se erroneous. As
such, the learned Judge in the First Appellate Court was
required to consider the appeal on merits.
26. He would also contend that statement referred to in
paragraphs 38 and 39 of the impugned order that first
respondent has transferred sum of Rs.1,09,75,000/- from
the account of the firm to the account of the son of the
first respondent namely Akash Ranka when not disputed,
question of holding a detailed enquiry to the claim made in
the arbitration case was totally unnecessary and therefore
closing the arbitration case that the dispute is not capable
of arbitration is per se incorrect.
27. He would further contend that in the statement of
objections filed by the first respondent there was a clear
admission that a sum of Rs.1,09,75,000/- was transferred
from IDBI Bank to Akash Ranka's account in Karur Vysya
Bank as an interim measure to enable the firm to pay the
outstanding bills for smooth functioning of the work.
35
28. Such an admission in the statement of objection
would be sufficient enough to hold that there was misdeed
committed by the first respondent detrimental to the
interest of the firm and thus, dispute was clearly an
arbitral dispute.
29. He also pointed out that in the statement of
objections, at paragraph No.11, it has been mentioned
that first respondent without the knowledge of the revision
petitioner had opened an account on behalf and in the
name of the firm is incorrect. But there is material on
record that first respondent opened an account in HDFC
Bank and therefore there was a clear dispute between the
parties which was capable of arbitration. Therefore, the
impugned order passed by the arbitrator confirmed by the
First Appellate Court are bad in law.
30. It is also the contention of Sri P.D.Surana that in
paragraph 43 of the impugned Order, there is a reference
that fact of realization of the amount by sale of 145 plots
36
and amount so realised is to be calculated on the basis of
the material evidence to be placed before the Tribunal.
31. Such a finding by the learned arbitrator is incorrect
inasmuch as there is a fixed value in all the 145 sale deeds
and it was only a question of mathematical calculation that
was required to be carried out and there was no other
material evidence required for required for establishing the
misdeeds committed by the first respondent.
32. He further pointed out mere citing the decision in the
case of Swiss Timings Ltd. Vs. Organising Committee,
Common Wealth Games reported in AIR 2014 SC
3723, without extracting the relevant portion and applying
the ratio decidendi of the said decision to the facts of the
case would not be sufficient to hold that the impugned
order is a valid order.
33. Sri P.D.Surana, would also contend that preliminary
objection raised by the respondent before the arbitrator
that the contract stood vitiated and is ab initio void in view
of clauses 29, 30 and 34 of the agreement dated
37
11.03.2010 is not properly addressed by the learned
arbitrator in the impugned order and mechanically held
that the dispute is incapable of arbitration.
34. He also pointed out that the observation made by
the learned arbitrator that the sale deeds are executed for
and on behalf of Krishna Reddy, the owner of the land, as
well as the firm and therefore detailed enquiry is necessary
and as such, the dispute is incapable of arbitration is per
se incorrect.
35. Sri Surana would further contend that the judgment
of the Hon'ble Apex Court in the case of A.Ayyasamy vs.
A.Paramasivam and others reported in (2016)10 SCC
386, the arbitrator did possess the jurisdiction to decide
the facts even where fraud is alleged. Therefore, the
impugned order holding that the dispute is incapable of
arbitration when there is an allegation of fraud is
misconceived and therefore sought for allowing the
revision petition.
38
36. Lastly, Sri Surana would contend that the
amendment to the Arbitration and Conciliation Act which
came into effect on and from 23.10.2015 is prospective in
nature. As such, the Civil Court erred in observing that the
amendment is to be taken note of for disposal of the
appeal in the M.A.No.36/2015 filed by the petitioner is per
se incorrect and therefore sought for allowing the revision
petition with a direction to reconsider the issue by the
Appellate Court as to the validity of the order passed by
the arbitrator.
37. Sri P.D.Surana, in support of his arguments placed
reliance on the following judgments and invited attention
of this Court to the relevant portions of the judgments
which are culled out hereunder for ready reference.
SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618
12. Section 16 of the Act only makes explicit what
is even otherwise implicit, namely, that the Arbitral
Tribunal constituted under the Act has the jurisdiction
to rule on its own jurisdiction, including ruling on
objections with respect to the existence or validity of
the arbitration agreement. Sub-section (1) also directs
that an arbitration clause which forms part of a contract
shall be treated as an agreement independent of the
39
other terms of the contract. It also clarifies that a
decision by the Arbitral Tribunal that the contract is null
and void shall not entail ipso jure the invalidity of the
arbitration clause. Sub-section (2) of Section 16 enjoins
that a party wanting to raise a plea that the Arbitral
Tribunal does not have jurisdiction, has to raise that
objection not later than the submission of the
statement of defence, and that the party shall not be
precluded from raising the plea of jurisdiction merely
because he has appointed or participated in the
appointment of an arbitrator. Sub-section (3) lays down
that a plea that the Arbitral Tribunal is exceeding the
scope of its authority, shall be raised as soon as the
matter alleged to be beyond the scope of its authority
is raised during the arbitral proceedings. When the
Tribunal decides these two questions, namely, the
question of jurisdiction and the question of exceeding
the scope of authority or either of them, the same is
open to immediate challenge in an appeal, when the
objection is upheld and only in an appeal against the
final award, when the objection is overruled. Sub-
section (5) enjoins that if the Arbitral Tribunal overrules
the objections under sub-section (2) or (3), it should
continue with the arbitral proceedings and make an
arbitral award. Sub-section (6) provides that a party
aggrieved by such an arbitral award overruling the plea
on lack of jurisdiction and the exceeding of the scope of
authority, may make an application on these grounds
for setting aside the award in accordance with Section
34 of the Act. The question, in the context of sub-
section (7) of Section 11 is, what is the scope of the
right conferred on the Arbitral Tribunal to rule upon its
own jurisdiction and the existence of the arbitration
clause, envisaged by Section 16(1), once the Chief
Justice or the person designated by him had appointed
an arbitrator after satisfying himself that the conditions
for the exercise of power to appoint an arbitrator are
40
present in the case. Prima facie, it would be difficult to
say that in spite of the finality conferred by sub-section
(7) of Section 11 of the Act, to such a decision of the
Chief Justice, the Arbitral Tribunal can still go behind
that decision and rule on its own jurisdiction or on the
existence of an arbitration clause. It also appears to us
to be incongruous to say that after the Chief Justice
had appointed an Arbitral Tribunal, the Arbitral Tribunal
can turn round and say that the Chief Justice had no
jurisdiction or authority to appoint the Tribunal, the
very creature brought into existence by the exercise of
power by its creator, the Chief Justice. The argument of
the learned Senior Counsel, Mr K.K. Venugopal that
Section 16 has full play only when an Arbitral Tribunal
is constituted without intervention under Section 11(6)
of the Act, is one way of reconciling that provision with
Section 11 of the Act, especially in the context of sub-
section (7) thereof. We are inclined to the view that the
decision of the Chief Justice on the issue of jurisdiction
and the existence of a valid arbitration agreement
would be binding on the parties when the matter goes
to the Arbitral Tribunal and at subsequent stages of the
proceeding except in an appeal in the Supreme Court in
the case of the decision being by the Chief Justice of
the High Court or by a Judge of the High Court
designated by him.
19. It is also not possible to accept the argument
that there is an exclusive conferment of jurisdiction on
the Arbitral Tribunal, to decide on the existence or
validity of the arbitration agreement. Section 8 of the
Act contemplates a judicial authority before which an
action is brought in a matter which is the subject of an
arbitration agreement, on the terms specified therein,
to refer the dispute to arbitration. A judicial authority
as such is not defined in the Act. It would certainly
include the court as defined in Section 2(e) of the Act
41
and would also, in our opinion, include other courts and
may even include a special tribunal like the Consumer
Forum (see Fair Air Engineers (P) Ltd. v. N.K.
Modi [(1996) 6 SCC 385] ). When the defendant to an
action before a judicial authority raises the plea that
there is an arbitration agreement and the subject-
matter of the claim is covered by the agreement and
the plaintiff or the person who has approached the
judicial authority for relief, disputes the same, the
judicial authority, in the absence of any restriction in
the Act, has necessarily to decide whether, in fact,
there is in existence a valid arbitration agreement and
whether the dispute that is sought to be raised before
it, is covered by the arbitration clause. It is difficult to
contemplate that the judicial authority has also to act
mechanically or has merely to see the original
arbitration agreement produced before it, and
mechanically refer the parties to an arbitration.
Similarly, Section 9 enables a court, obviously, as
defined in the Act, when approached by a party before
the commencement of an arbitral proceeding, to grant
interim relief as contemplated by the section. When a
party seeks an interim relief asserting that there was a
dispute liable to be arbitrated upon in terms of the Act,
and the opposite party disputes the existence of an
arbitration agreement as defined in the Act or raises a
plea that the dispute involved was not covered by the
arbitration clause, or that the court which was
approached had no jurisdiction to pass any order in
terms of Section 9 of the Act, that court has necessarily
to decide whether it has jurisdiction, whether there is
an arbitration agreement which is valid in law and
whether the dispute sought to be raised is covered by
that agreement. There is no indication in the Act that
the powers of the court are curtailed on these aspects.
On the other hand, Section 9 insists that once
approached in that behalf, "the court shall have the
42
same power for making orders as it has for the purpose
of and in relation to any proceeding before it". Surely,
when a matter is entrusted to a civil court in the
ordinary hierarchy of courts without anything more, the
procedure of that court would govern the adjudication
(see R.M.A.R.A. Adaikappa Chettiar v. R.
Chandrasekhara Thevar [AIR 1948 PC 12:74 IA 264] ).
20. Section 16 is said to be the recognition of the
principle of Kompetenz-Kompetenz. The fact that the
Arbitral Tribunal has the competence to rule on its own
jurisdiction and to define the contours of its jurisdiction,
only means that when such issues arise before it, the
Tribunal can, and possibly, ought to decide them. This
can happen when the parties have gone to the Arbitral
Tribunal without recourse to Section 8 or 11 of the Act.
But where the jurisdictional issues are decided under
these sections, before a reference is made, Section 16
cannot be held to empower the Arbitral Tribunal to
ignore the decision given by the judicial authority or the
Chief Justice before the reference to it was made. The
competence to decide does not enable the Arbitral
Tribunal to get over the finality conferred on an order
passed prior to its entering upon the reference by the
very statute that creates it. That is the position arising
out of Section 11(7) of the Act read with Section 16
thereof. The finality given to the order of the Chief
Justice on the matters within his competence under
Section 11 of the Act are incapable of being reopened
before the Arbitral Tribunal. In Konkan Rly. [(2002) 2
SCC 388] what is considered is only the fact that under
Section 16, the Arbitral Tribunal has the right to rule on
its own jurisdiction and any objection, with respect to
the existence or validity of the arbitration agreement.
What is the impact of Section 11(7) of the Act on the
Arbitral Tribunal constituted by an order under Section
11(6) of the Act, was not considered. Obviously, this
43
was because of the view taken in that decision that the
Chief Justice is not expected to decide anything while
entertaining a request under Section 11(6) of the Act
and is only performing an administrative function in
appointing an Arbitral Tribunal. Once it is held that
there is an adjudicatory function entrusted to the Chief
Justice by the Act, obviously, the right of the Arbitral
Tribunal to go behind the order passed by the Chief
Justice would take another hue and would be controlled
by Section 11(7) of the Act.
28. The correctness of the decision in Konkan Rly.
Corpn. Ltd. v. Mehul Construction Co. [(2000) 7 SCC
201] was doubted in Konkan Rly. Corpn. Ltd. v. Rani
Construction (P) Ltd. [(2000) 8 SCC 159] The
reconsideration was recommended on the ground that
the Act did not take away the power of the Court to
decide preliminary issues notwithstanding the
arbitrator's competence to decide such issues including
whether particular matters were "excepted matters", or
whether an arbitration agreement existed or whether
there was a dispute in terms of the agreement. It was
noticed that in other countries where UNCITRAL Model
was being followed, the court could decide such issues
judicially and need not mechanically appoint an
arbitrator. There were situations where preliminary
issues would have to be decided by the court rather
than by the arbitrator. If the order of the Chief Justice
or his nominees were to be treated as an administrative
one, it could be challenged before the Single Judge of
the High Court, then before a Division Bench and then
the Supreme Court under Article 136 of the
Constitution, a result that would cause further delay in
arbitral proceedings, something sought to be prevented
by the Act. An order under Section 11 of the Act did not
relate to the administrative functions of the Chief
Justice of the High Court or of the Chief Justice of India.
44
32. Moreover, in a case where the objection to
jurisdiction or the existence of an arbitration agreement
is overruled by the Arbitral Tribunal, the party has to
participate in the arbitration proceedings extending
over a period of time by incurring substantial
expenditure and then to come to the court with an
application under Section 34 of the Arbitration Act
seeking the setting aside of the award on the ground
that there was no arbitration agreement or that there
was nothing to be arbitrated upon when the Tribunal
was constituted. Though this may avoid intervention by
court until the award is pronounced, it does mean
considerable expenditure and time spent by the party
before the Arbitral Tribunal. On the other hand, if even
at the initial stage, the Chief Justice judicially
pronounces that he has jurisdiction to appoint an
arbitrator, that there is an arbitration agreement
between the parties, that there was a live and
subsisting dispute for being referred to arbitration and
constitutes the Tribunal as envisaged, on being satisfied
of the existence of the conditions for the exercise of his
power, ensuring that the arbitrator is a qualified
arbitrator, that will put an end to a host of disputes
between the parties, leaving the party aggrieved with a
remedy of approaching this Court under Article 136 of
the Constitution. That would give this Court, an
opportunity of scrutinising the decision of the Chief
Justice on merits and deciding whether it calls for
interference in exercise of its plenary power. Once this
Court declines to interfere with the adjudication of the
Chief Justice to the extent it is made, it becomes final.
This reasoning is also supported by sub-section (7) of
Section 11, making final, the decision of the Chief
Justice on the matters decided by him while
constituting the Arbitral Tribunal. This will leave the
Arbitral Tribunal to decide the dispute on merits
45
unhampered by preliminary and technical objections. In
the long run, especially in the context of the judicial
system in our country, this would be more conducive to
minimising judicial intervention in matters coming
under the Act. This will also avert the situation where
even the order of the Chief Justice of India could be
challenged before a Single Judge of the High Court
invoking Article 226 of the Constitution or before an
Arbitral Tribunal, consisting not necessarily of legally
trained persons and their coming to a conclusion that
their constitution by the Chief Justice was not
warranted in the absence of an arbitration agreement
or in the absence of a dispute in terms of the
agreement.
36. Going by the above test it is seen that at least
in the matter of deciding his own jurisdiction and in the
matter of deciding on the existence of an arbitration
agreement, the Chief Justice when confronted with two
points of view presented by the rival parties, is called
upon to decide between them and the decision vitally
affects the rights of the parties in that, either the claim
for appointing an Arbitral Tribunal leading to an award
is denied to a party or the claim to have an arbitration
proceeding set in motion for entertaining a claim is
facilitated by the Chief Justice. In this context, it is not
possible to say that the Chief Justice is merely
exercising an administrative function when called upon
to appoint an arbitrator and that he need not even
issue notice to the opposite side before appointing an
arbitrator.
38. It is true that finality under Section 11(7) of the
Act is attached only to a decision of the Chief Justice on
a matter entrusted by sub-section (4) or sub-section
(5) or sub-section (6) of that section. Sub-section (4)
deals with the existence of an appointment procedure
46
and the failure of a party to appoint the arbitrator
within 30 days from the receipt of a request to do so
from the other party or when the two appointed
arbitrators fail to agree on the presiding arbitrator
within 30 days of their appointment. Sub-section (5)
deals with the parties failing to agree in nominating a
sole arbitrator within 30 days of the request in that
behalf made by one of the parties to the arbitration
agreement and sub-section (6) deals with the Chief
Justice appointing an arbitrator or an Arbitral Tribunal
when the party or the two arbitrators or a person
including an institution entrusted with the function, fails
to perform the same. The finality, at first blush, could
be said to be only on the decision on these matters. But
the basic requirement for exercising his power under
Section 11(6), is the existence of an arbitration
agreement in terms of Section 7 of the Act and the
applicant before the Chief Justice being shown to be a
party to such an agreement. It would also include the
question of the existence of jurisdiction in him to
entertain the request and an enquiry whether at least a
part of the cause of action has arisen within the State
concerned. Therefore, a decision on jurisdiction and on
the existence of the arbitration agreement and of the
person making the request being a party to that
agreement and the subsistence of an arbitrable dispute
require to be decided and the decision on these aspects
is a prelude to the Chief Justice considering whether
the requirements of sub-section (4), sub-section (5) or
sub-section (6) of Section 11 are satisfied when
approached with the request for appointment of an
arbitrator. It is difficult to understand the finality
referred to in Section 11(7) as excluding the decision
on his competence and the locus standi of the party
which seeks to invoke his jurisdiction to appoint an
arbitrator. Viewed from that angle, the decision on all
these aspects rendered by the Chief Justice would
47
attain finality and it is obvious that the decision on
these aspects could be taken only after notice to the
parties and after hearing them.
44. Once we arrive at the conclusion that the
proceeding before the Chief Justice while entertaining
an application under Section 11(6) of the Act is
adjudicatory, then obviously, the outcome of that
adjudication is a judicial order. Once it is a judicial
order, the same, as far as the High Court is concerned
would be final and the only avenue open to a party
feeling aggrieved by the order of the Chief Justice
would be to approach the Supreme Court under Article
136 of the Constitution. If it were an order by the Chief
Justice of India, the party will not have any further
remedy in respect of the matters covered by the order
of the Chief Justice of India or the Judge of the
Supreme Court designated by him and he will have to
participate in the arbitration before the Tribunal only on
the merits of the claim. Obviously, the dispensation in
our country, does not contemplate any further appeal
from the decision of the Supreme Court and there
appears to be nothing objectionable in taking the view
that the order of the Chief Justice of India would be
final on the matters which are within his purview, while
called upon to exercise his jurisdiction under Section 11
of the Act. It is also necessary to notice in this context
that this conclusion of ours would really be in aid of
quick disposal of arbitration claims and would avoid
considerable delay in the process, an object that is
sought to be achieved by the Act.
ITI Ltd. v. Siemens Public Communications Network Ltd.,
AIR 2002 SC 2308
4. The principal question that arises for our
consideration is whether a revision petition under
48
Section 115 of the Civil Procedure Code ("the Code")
lies to the High Court as against an order made by a
civil court in an appeal preferred under Section 37 of
the Act. If so, whether on the facts and circumstances
of this case, such a remedy by way of revision is an
alternate and efficacious remedy or not.
8. The question still remains as to whether when a
second appeal is statutorily barred under the Act and
when the Code is not specifically made applicable, can
it be said that a right of revision before the High Court
would still be available to an aggrieved party? As
pointed out by Mr Chidambaram, this Court in the case
of Nirma Ltd. [(2002) 5 SCC 520] while dismissing an
SLP by a reasoned judgment has held: (SCC p. 521,
para 1)
"[I]n our opinion, an efficacious alternate
remedy is available to the petitioner by way
of filing a revision in the High Court under
Section 115 of the Code of Civil Procedure.
Merely because a second appeal against an
appellate order is barred by the provisions
of sub-section (3) of Section 37, the remedy
of revision does not cease to be available to
the petitioner, for the City Civil Court
deciding an appeal under sub-section (2) of
Section 37 remains a court subordinate to
the High Court within the meaning of
Section 115 CPC."
13. We also do not find much force in the argument
of learned counsel for the appellant based on Section 5
of the Act. It is to be noted that it is under this Part,
namely, Part I of the Act that Section 37(1) of the Act
is found, which provides for an appeal to a civil court.
The term "court" referred to in the said provision is
defined under Section 2(1)(e) of the Act. From the said
49
definition, it is clear that the appeal is not to any
designated person but to a civil court. In such a
situation, the proceedings before such court will have to
be controlled by the provisions of the Code, therefore,
the remedy by way of a revision under Section 115 of
the Code will not amount to a judicial intervention not
provided for by Part I of the Act. To put it in other
words, when the Act under Section 37 provided for an
appeal to the civil court and the application of the Code
not having been expressly barred, the revisional
jurisdiction of the High Court gets attracted. If that be
so, the bar under Section 5 will not be attracted
because conferment of appellate power on the civil
court in Part I of the Act attracts the provisions of the
Code also.
16. For the aforesaid reasons, while holding that
this Court in an appropriate case would entertain an
appeal directly against the judgment in first appeal, we
hold that the High Court also has the jurisdiction to
entertain a revision petition, therefore, in the facts and
circumstances of this case, we direct the appellant to
first approach the High Court. For the said reasons, this
appeal fails and the same is hereby dismissed. We,
however, make it clear that should the appellant
present a revision petition within 30 days from today,
the same will be entertained by the High Court without
going into the question of limitation, if any.
Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1
68. Statutes unfailingly have a public purpose or
policy which is the basis and purpose behind the
legislation. Application of mandatory law to the merits of
the case do not imply that the right to arbitrate is taken
away. Mandatory law may require a particular
substantive rule to be applied, but this would not
50
preclude arbitration. Implied non-arbitrability requires
prohibition against waiver of jurisdiction, which happens
when a statute gives special rights or obligations and
creates or stipulates an exclusive forum for adjudication
and enforcement. An arbitrator, like the court, is equally
bound by the public policy behind the statute while
examining the claim on merits. The public policy in case
of non-arbitrability would relate to conferment of
exclusive jurisdiction on the court or the special forum
set up by law for decision making. Non-arbitrability
question cannot be answered by examining whether the
statute has a public policy objective which invariably
every statute would have. There is a general
presumption in favour of arbitrability, which is not
excluded simply because the dispute is permeated by
applicability of mandatory law. Violation of public policy
by the arbitrator could well result in setting aside the
award on the ground of failure to follow the fundamental
policy of law in India, but not on the ground that the
subject-matter of the dispute was non-arbitrable.
69. However, the above discussion would not be a
complete answer to N. Radhakrishnan [N.
Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 :
(2010) 1 SCC (Civ) 12] that if justice demands, then
notwithstanding the arbitration clause, the dispute would
be tried in the open court. To accept this reasoning one
would have to agree that arbitration is a flawed and
compromised dispute resolution mechanism that can be
forgone when public interest or public policy demands
the dispute should be tried and decided in the court of
law. The public policy argument proceeds on the
foundation and principle that arbitration is inferior to
court adjudication as:
(i) fact-finding process in arbitration is not
equivalent to judicial fact-finding, which is far
more comprehensive and in-depth;
51
(ii) there is limited or lack of reasoning in
awards;
(iii) arbitrators enjoy and exercise
extensive and unhindered powers and
therefore are prone in making arbitrary and
despotic decisions;
(iv) there is no appeal process in
arbitration which combined with the (iii) above
and limited review of an arbitral award in
post-award court proceedings, arbitration may
have devastating consequences for the losing
party and undermines justice;
(v) arbitration proceedings are usually
private and confidential;
(vi) arbitrators are unfit to address issues
arising out of the economic power disparity or
social concerns; [ (i) to (vi) from Prof. Stavros
Brekoulakis, "On Arbitrability : Persisting
Misconceptions and New Area of Concern".]
(vii) business and industry, by adopting
and compulsorily applying arbitration process,
leave the vulnerable and weaker sections with
little or no meaningful choice but to accept
arbitration. Few people realise and understand
the importance of loss of their right to access
the court of law or public forum, which are
impartial, just and fair; [ (vii) from the
Preamble of the text of the Bill of 2007
Arbitration Fairness Act as was written by the
sponsor and submitted to the House for
consideration.] and
(viii) arbitration is expensive and costly in
comparison to court adjudication. [Union of
India v. Singh Builders Syndicate, (2009) 4
SCC 523 : (2009) 2 SCC (Civ) 246]
52
While it would not be correct to dispel the
above grounds as mere conjectures and
baseless, it would be grossly irrational and
completely wrong to mistrust and treat
arbitration as flawed and inferior adjudication
procedure unfit to deal with the public policy
aspects of a legislation.
70. Arbitrators, like the courts, are equally bound
to resolve and decide disputes in accordance with the
public policy of the law. Possibility of failure to abide
by public policy consideration in a legislation, which
otherwise does not expressly or by necessary
implication exclude arbitration, cannot form the basis
to overwrite and nullify the arbitration agreement.
This would be contrary to and defeat the legislative
intent reflected in the public policy objective behind
the Arbitration Act. Arbitration has considerable
advantages as it gives freedom to the parties to
choose an arbitrator of their choice, and it is informal,
flexible and quick. Simplicity, informality and
expedition are hallmarks of arbitration. Arbitrators are
required to be impartial and independent, adhere to
natural justice, and follow a fair and just procedure.
Arbitrators are normally experts in the subject and
perform their tasks by referring to facts, evidence,
and relevant case law.
71. Complexity is not sufficient to ward off
arbitration. In terms of the mandate of Section 89 of
the Civil Procedure Code and the object and purpose
behind the Arbitration Act and the mandatory
language of Sections 8 and 11, the mutually agreed
arbitration clauses must be enforced. The language of
Sections 8 and 11 of the Arbitration Act are
peremptory in nature. The Arbitration Act has been
enacted to promote arbitration as a transparent, fair,
53
and just alternative to court adjudication. Public policy
is to encourage and strengthen arbitration to resolve
and settle economic, commercial and civil disputes.
Amendments from time to time have addressed the
issues and corrected the inadequacies and flaws in the
arbitration procedure. It is for the stakeholders,
including the arbitrators, to assure that the arbitration
is as impartial, just, and fair as court adjudication. It
is also the duty of the courts at the post-award stage
to selectively yet effectively exercise the limited
jurisdiction, within the four corners of Section
34(2)(b)(ii) read with Explanations 1 and 2 and check
any conflict with the fundamental policy of the
applicable law. We would subsequently refer to the
"second look" [Mitsubishi Motors Corpn. v. Soler
Chrysler-Plymouth Inc., 1985 SCC OnLine US SC 203 :
87 L Ed 2d 444 : 105 S Ct 3346 : 473 US 614 (1985)
(US Supreme Court, 2-7-1985)] principle which is
applicable in three specific situations dealing with
arbitrability as per the mandate of Section 34 of the
Arbitration Act.
72. Recently, the Supreme Court of Canada
in TELUS Communications Inc. v. Avraham
Wellman [TELUS Communications Inc. v. Avraham
Wellman, 2019 SCC OnLine Can SC 25 : 2019 SCC
19] , while conceding that arbitration as a method of
dispute resolution was met with "overt hostility" for a
long time on public policy grounds as it ousts
jurisdiction of courts, observed that the new
legislation, the Arbitration Act of 1991, marks a
departure as it encourages parties to adopt arbitration
in commercial and other matters. By putting party
autonomy on a high pedestal, the Act mandates that
the parties to a valid arbitration agreement must
abide by the consensual and agreed mode of dispute
resolution. The courts must show due respect to
54
arbitration agreements particularly in commercial
settings by staying the court proceedings, unless the
legislative language is to the contrary. The principle of
party autonomy goes hand in hand with the principle
of limited court intervention, this being the
fundamental principle underlying modern arbitration
law. Party autonomy is weaker in non-negotiated
"take it or leave it" contracts and, therefore, the
legislature can through statutes shield the weakest
and vulnerable contracting parties like consumers.
This is not so in negotiated agreements or even in
adhesion contracts having an arbitration clause in
commercial settings. Virtues of commercial and civil
arbitration have been recognised and accepted and
the courts even encourage the use of arbitration.
73. A recent judgment of this Court in Avitel Post
Studioz Ltd. v. HSBC PI Holdings (Mauritius)
Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings
(Mauritius) Ltd., (2021) 4 SCC 713 : 2020 SCC OnLine
SC 656] has examined the law on invocation of "fraud
exception" in great detail and holds that N.
Radhakrishnan [N. Radhakrishnan v. Maestro
Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12]
as a precedent has no legs to stand on. We
respectfully concur with the said view and also the
observations made in para 34 of the judgment
in Avitel Post Studioz Ltd. [Avitel Post Studioz
Ltd. v. HSBC PI Holdings (Mauritius) Ltd., (2021) 4
SCC 713 : 2020 SCC OnLine SC 656] , which quotes
observations in Rashid Raza v. Sadaf Akhtar [Rashid
Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4
SCC (Civ) 503] : (Rashid Raza case [Rashid
Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4
SCC (Civ) 503] , SCC p. 712, para 4)
"4. The principles of law laid down in this
appeal make a distinction between serious
55
allegations of forgery/fabrication in support of
the 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."
to observe in Avitel Post Studioz Ltd. [Avitel
Post Studioz Ltd. v. HSBC PI Holdings
(Mauritius) Ltd., (2021) 4 SCC 713 : 2020
SCC OnLine SC 656] : (SCC para 35)
"35. ... 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 mala fide
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."
56
74. The judgment in Avitel Post Studioz Ltd. [Avitel
Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.,
(2021) 4 SCC 713 : 2020 SCC OnLine SC 656]
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.
78. In view of the aforesaid discussions, we
overrule the ratio in N. Radhakrishnan [N.
Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72
: (2010) 1 SCC (Civ) 12] 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 to 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. [HDFC Bank Ltd. v. Satpal Singh Bakshi,
2012 SCC OnLine Del 4815 : (2013) 134 DRJ 566]
which holds that the disputes which are to be
adjudicated by the DRT under the DRT Act are
arbitrable. They are non-arbitrable.
A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386
5. Seminal facts in the context in which the issue
falls for determination have already been taken note of
above. However, few more facts need to be added to
the aforesaid chronology, particularly, the nature of
plea of fraud taken in the suit filed by the respondents.
57
6. The respondents are four in number who are
brothers of the appellant. These five brothers are the
partners. Their father, A. Arunagiri was also a partner
along with them who died on 28-4-2009. These six
partners had 1/6th share each in the partnership
business. Disputes arose between the brothers after the
demise of their father. It is the allegation of the
respondents, as contained in the plaint, that the
subject-matter of the suit "Hotel Arunagiri" was
managed and administered by their father in a
disciplined manner till his death. After his death, the
appellant being the eldest brother wanted to take the
administration of "Hotel Arunagiri" with the assurance
that he will be following the footprints of his father. The
respondents had no other alternative except to accept
the said proposal in good faith. It was at that time
resolved by all the brothers that the daily collection of
money from "Hotel Arunagiri" should be deposited on
the very next day into the hotel's Current Account No.
23 maintained with Indian Overseas Bank, Tirunelveli
Junction. It was agreed that about rupees ten to fifteen
thousand may be kept as cash for urgent expenses.
The respondents reposed confidence with the appellant
and believed that his administration would never be
detrimental to the smooth running of the business. On
the aforesaid understanding, administration of the hotel
was taken over by the appellant. But he did not adhere
to the said understanding and failed to deposit day-to-
day collection into the bank account as promised.
7. It is also urged that the appellant, fraudulently,
signed and issued a cheque for Rs 10,00,050 dated 17-
6-2010 from the bank account in the name of "Hotel
Arunagiri" in favour of his son without the knowledge
and consent of the other partners and in this manner,
the money was siphoned off and misappropriated from
the common fund. It is further alleged that the
58
appellant kept the hotel account books with him and did
not show it to the respondents for their examination.
The respondents sent legal notices but it did not deter
the appellant to continue to act in the same manner by
not depositing the day-to-day collections in the
account.
8. It is also alleged that the appellant's wife's
younger brother one Dhanapalraj was a member of the
Bar Council of Tamil Nadu and was also a Vice-
Chairman of All-India Bar Council, New Delhi. In
Chennai, the Central Bureau of Investigation (CBI)
raided the houses of the said Dhanapalraj and his co-
brother Chandrasekaran and seized Rs 45,00,000 cash
from them. As Dhanapalraj was aware of the disputes
between the appellant and the respondents in respect
of "Hotel Arunagiri", a false statement has been given
by him before CBI to the effect that the seized money
of Rs 45 lakhs belonged to "Hotel Arunagiri". It is
reliably learned that the appellant had also, on receipt
of summons, appeared before CBI in New Delhi and
given a false statement as if the said seized money of
Rs 45 lakhs belonged to "Hotel Arunagiri" which was
taken to Chennai to purchase a property. This led to
the issuance of another notice dated 22-1-2011 by the
third respondent to the appellant stating that the
money seized by CBI belonged only to Dhanapalraj and
not "Hotel Arunagiri".
9. On the basis of the aforesaid allegations, which
are relevant and material for the purposes of this
appeal, the following reliefs are sought in the suit filed
by the respondents:
"(a) for a declaration that the
respondents as partners of the deed
of partnership dated 1-4-1994 are
entitled to participate in the
59
administration of Hotel Arunagiri
mentioned in the schedule and for
consequential permanent injunction
restraining the appellant from
interfering with the same;
(b) for cost of this suit; and
(c) for such other reliefs this Hon'ble
Court may deem fit and proper in
the circumstances of this case."
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 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 sidetrack 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
60
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.
26. When we apply the aforesaid principles to the
facts of this case, we find that the only allegation of
fraud that is levelled is that the appellant had signed
and issued a cheque of Rs 10,00,050 dated 17-6-2010
of "Hotel Arunagiri" in favour of his son without the
knowledge and consent of the other partners i.e. the
61
respondents. It is a mere matter of accounts which can
be looked into and found out even by the arbitrator. It
does not involve any complex issue. If such a cheque is
issued from the hotel account by the appellant in favour
of his son, it is easy to prove the same and then the
onus is upon the appellant to show as to what was the
reason for giving that amount from the partnership firm
to his son and he will have to account for the same.
Likewise, the allegation of the respondents that daily
collections are not deposited in the bank accounts is to
be proved by the respondents which is again a matter
of accounts.
28. We, therefore, are of the opinion that the
allegations of purported fraud were not so serious
which cannot be taken care of by the arbitrator. The
courts below, therefore, fell in error in rejecting the
application of the appellant under Section 8 of the Act.
Reversing these judgments, we allow these appeals and
as a consequence, application filed by the appellant
under Section 8 in the suit is allowed thereby relegating
the parties to the arbitration.
35. Ordinarily every civil or commercial dispute
whether based on contract or otherwise which is
capable of being decided by a civil court is in principle
capable of being adjudicated upon and resolved by
arbitration "subject to the dispute being governed by
the arbitration agreement" unless the jurisdiction of the
Arbitral Tribunal is excluded either expressly or by
necessary implication. In Booz Allen and Hamilton
Inc. v. SBI Home Finance Ltd. [Booz Allen & Hamilton
Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 :
(2011) 2 SCC (Civ) 781] , this Court held that (at SCC
p. 546, para 35) adjudication of certain categories of
proceedings is reserved by the legislature exclusively
for public fora as a matter of public policy. Certain
62
other categories of cases, though not exclusively
reserved for adjudication by courts and tribunals may
by necessary implication stand excluded from the
purview of private fora. This Court set down certain
examples of non-arbitrable disputes such as : (SCC pp.
546-47, para 36)
(i) disputes relating to rights and liabilities
which give rise to or arise out of criminal
offences;
(ii) matrimonial disputes relating to
divorce, judicial separation, restitution of
conjugal rights and child custody;
(iii) matters of guardianship;
(iv) insolvency and winding up;
(v) testamentary matters, such as the
grant of probate, letters of administration and
succession certificates; and
(vi) eviction or tenancy matters governed
by special statutes where a tenant enjoys
special protection against eviction and specific
courts are conferred with the exclusive
jurisdiction to deal with the dispute.
This Court held that this class of actions
operates in rem, which is a right exercisable
against the world at large as contrasted with a
right in personam which is an interest
protected against specified individuals. All
disputes relating to rights in personam are
considered to be amenable to arbitration while
rights in rem are required to be adjudicated by
courts and public tribunals. The enforcement
of a mortgage has been held to be a right in
rem for which proceedings in arbitration would
not be maintainable. In Vimal Kishor
Shah v. Jayesh Dinesh Shah [Vimal Kishor
Shah v. Jayesh Dinesh Shah, (2016) 8 SCC
63
788 : (2016) 4 SCC (Civ) 303] , this Court
added a seventh category of cases to the six
non-arbitrable categories set out in Booz
Allen [Booz Allen & Hamilton Inc. v. SBI Home
Finance Ltd., (2011) 5 SCC 532 : (2011) 2
SCC (Civ) 781] , namely, disputes relating to
trusts, trustees and beneficiaries arising out of
a trust deed and the Trust Act.
45. The position that emerges both before and after
the decision in N. Radhakrishnan [N.
Radhakrishnan v. Maestro Engineers, (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 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 [N. Radhakrishnan v. Maestro
Engineers, (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, (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
64
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, (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, (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
65
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.
46. The position as it obtains in other jurisdictions
which value arbitration as an effective form of alternate
dispute resolution is no different. In the UK, Section
24(2) of the Arbitration Act, 1950 provided that the
court could revoke the authority of a tribunal to deal
with claims involving issues of fraud and determine
those claims itself. The English Act of 1979 provided for
a stay of proceedings involving allegations of fraud.
However, under the English Arbitration Act, 1996, there
is no such restriction and the Arbitral Tribunal has
jurisdiction to consider and rule on issues of fraud.
In Fiona Trust and Holding Corpn. v. Privalov [Fiona
Trust and Holding Corpn. v. Privalov, (2007) 1 All ER
(Comm) 891 : 2007 Bus LR 686 (CA)] , the Court of
Appeal emphasised the need to make a fresh start in
imparting business efficacy to arbitral agreements. The
Court of Appeal held that : (Bus LR pp. 695 H-696 B &
F, paras 17 & 19)
"17. ... For our part we consider that the
time has now come for a line of some
66
sort to be drawn and a fresh start made
at any rate for cases arising in an
international commercial context.
Ordinary businessmen would be
surprised at the nice distinctions drawn in
the cases and the time taken up by
argument in debating whether a
particular case falls within one set of
words or another very similar set of
words. If businessmen go to the trouble
of agreeing that their disputes be heard
in the courts of a particular country or by
a tribunal of their choice they do not
expect (at any rate when they are
making the contract in the first place)
that time and expense will be taken in
lengthy argument about the nature of
particular causes of action and whether
any particular cause of action comes
within the meaning of the particular
phrase they have chosen in their
arbitration clause. If any businessman
did want to exclude disputes about the
validity of a contract, it would be
comparatively simple to say so.
***
19. One of the reasons given in the cases
for a liberal construction of an arbitration
clause is the presumption in favour of
one-stop arbitration. It is not to be
expected that any commercial man would
knowingly create a system which
required that the court should first decide
whether the contract should be rectified
or avoided or rescinded (as the case
might be) and then, if the contract is
held to be valid, required the arbitrator
67
to resolve the issues that have arisen.
This is indeed a powerful reason for a
liberal construction."
Arbitration must provide a one-stop forum for
resolution of disputes. The Court of Appeal
held that if arbitrators can decide whether a
contract is void for initial illegality, there is no
reason why they should not decide whether a
contract is procured by bribery, just as much
as they can decide whether a contract has
been vitiated by misrepresentation or non-
disclosure.
47. The judgment of the Court of Appeal [Fiona
Trust and Holding Corpn. v. Privalov, (2007) 1 All ER
(Comm) 891 : 2007 Bus LR 686 (CA)] was affirmed by
the House of Lords in Fili Shipping Co. Ltd. v. Premium
Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium
Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719
(HL)] The House of Lords held that claims of fraudulent
inducement of the underlying contract (i.e. alleged
bribery of one party's officer to accept uncommercial
terms) did not impeach the arbitration clause contained
within that contract. The Law Lords reasoned that :
(Bus LR pp. 1725 H-1725 A, para 18)
"18. ... if (as in this case) the allegation is
that the agent exceeded his authority by
entering into a main agreement in terms
which were not authorised or for improper
reasons, that is not necessarily an attack
on the arbitration agreement."
They went on to conclude that : (Bus LR p.
1725 F-G, para 17)
"17. The principle of separability ... means
that the invalidity or rescission of the main
contract does not necessarily entail the
68
invalidity or rescission of the arbitration
agreement. The arbitration must be
treated as a "distinct agreement" and can
be void or voidable only on grounds which
relate directly to the arbitration
agreement."
Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius)
Ltd., (2021) 4 SCC 713
34. In a recent judgment reported as Rashid
Raza [Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 :
(2019) 4 SCC (Civ) 503] , this Court referred to Sikri,
J.'s judgment in Ayyasamy [A. Ayyasamy v. A.
Paramasivam, (2016) 10 SCC 386 : (2017) 1 SCC (Civ)
79] and then held : (Rashid Raza case [Rashid
Raza v. Sadaf Akhtar, (2019) 8 SCC 710 : (2019) 4
SCC (Civ) 503] , SCC p. 712, para 4)
"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 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."
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
69
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 mala fide
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.
Rameswarlal Bagla v. Bezonji Barjorji Nadodwalla, AIR
1950 CALCUTTA 236
19. Here, the suit had been properly constituted at
the date of its institution, because all the necessary
parties had been impleaded. Really, the addition of the
plaintiff firm was not necessary, as all the members of
that firm were on the record either as plaintiffs or as
defendant.
26. It was contended by Mr. Sen that the judgment
of Jenkins, C.J. in the Bombay case is no longer good
law in view of O. XXX, r. 9 in the Civil Procedure Code
of 1908. That rule reads as follows:--
This Order shall apply to suits between a firm and one
or more of the partners therein and to suits between
firms having one or more partners in common: but no
execution shall be issued in such suits except by leave
of the court and, on an application for leave to issue
such execution, all such accounts and inquiries may be
directed to be taken and made and directions given as
may be just.
28. One of the original plaintiffs, Radhakissen
Bagla, is dead and it is conceded that his son,
70
Rameshwarlal, who has been substituted in his place, is
not entitled to his share of the decretal amount except
on the production of a Succession Certificate. The
appeal is allowed and the decree of Clough, J. is set
aside. There will be a decree for Rs. 2,291-6-4½ in
favour of Ramnivas Bagla. There will be a further
decree for the said sum in favour of Rameshwar Lal
Bagla, but he must produce a Succession Certificate
before the decree is finally completed. The defendant
Nadodwalla will be entitled to credit for the sum of Rs.
4,045-8-6 in the partnership accounts of Behar Mining
Co.
Suresh Kumar Sanghi v. Amrit Kumar Sanghi, AIR 1982
DELHI 131
26. That being the position, the question would
arise as to whether the plaintiff is entitled to injunct the
defendants from interfering with the management and
conduct of the business by him or creating hurdles and
obstacles in his way to the detriment of partnership
business as alleged. The learned counsel for the
defendants 1 to 4 has canvassed with considerable
fervour that the plaintiff cannot as a matter of right
saddle the defendants with personal liability under the
bank guarantee against their will, more so when the
bank guarantee has not been given by them pursuant
to any term or condition of the partnership agreement
and the have done so of their own accord in order to
facilitate and promote the smooth functioning of the
partnership business. He has further urged that an
injunction cannot I granted to prevent the breach of
contract, the performance of which will not be
specifically enforced (S. 41, Cl.(e) of Specific Relief
Act). So, according to him, a contract, which will not be
affirmatively enforced by a decree for specific
performance, will not be negatively enforced by the
71
grant of an injunction. However, this argument no
longer holds good, for there is abundant authority for
the proposition that the Court will restrain a partner
from violating the terms of his partnership contract of
acting inconsistently with his duties as a partner during
the subsistence of the partnership irrespective of the
fact whether dissolution is also sought or not. It may be
that where an agreement of partnership has not at all
been acted upon the Court may, in a proper case refuse
to decree specific performance thereof because it may
not be considered just o equitable to force partnership
on an unwilling partner. However, the position in a case
like the present where a partnership agreement has
been acted upon for several years and the partnership
is still subsisting would be altogether different.
Certainly after the commencement and during the
continuation of a partnership it will be equitable for the
Court in many a case to interpose to decree specific
performance of articles/terms of the partnership. The
necessity for such an action arises when the conduct of
a partner virtually imperils the success of partnership
enterprise and jurisdiction to enjoin a partner from
doing that which seriously interferes with the business
or which is a breach of the express terms of the
partnership agreement is now well established, even if
the suit does not seek a dissolution of the partnership.
Thus, jurisdiction to grant preventive relief may
primarily rest upon contractual obligations between the
partners, the violation of which will be prevented to
avoid irreparable injury and vexatious or interminable
litigation. Lord Lindley has stated the legal position in
his book on Law of Partnership (13th Edn.), at page
545 as follows:
"In order to prevent a partner from acting
contrary lo the agreement into which he may
have entered with his co-partners, or
contrary to the good faith which,
72
independently of any agreement, is to be
observed by one partner towards his co-
partner, it is sometimes necessary for a Court
to interfere either by granting an injunction
against the partner complained of, or by
taking the affairs of the partnership out of
the hands of all the partners, and entrusting
them to a receiver or receiver and manager
of its own appointment."
The learned author proceeds to state:--
"Whatever doubt there may formerly have
been upon the subject, it is clear that an
injunction will not be refused simply because
no dissolution of partnership is sought."
38. Per contra, Sri S.Sreevatsa, learned Senior Advocate
for respondent Nos.1(a to c) opposes the grounds of
revision by contending that the pleadings between the
parties would make it clear that subject matter of dispute
is a complicated question of law and facts which are to be
decided in the lis. Therefore, learned arbitrator was
justified in holding that the dispute is not arbitrable.
39. He would contend that when the revision petitioner
himself has made allegations of fraud and
misrepresentation which would involve complex factual
dispute requiring placing of detailed evidence, such
73
disputes are to be termed as non-arbitrable disputes.
Therefore, the finding of the learned arbitrator is just and
proper.
40. He also pointed out that the very claim petition itself
was not maintainable before the arbitrator and not capable
of arbitration in view of non-joinder of necessary parties,
inasmuch as, very partnership firm itself was not
impleaded as a party to proceedings before the arbitrator.
41. He would also contend that learned arbitrator and
learned Judge in the First Appellate Court rightly
appreciated these two aspects of the matter and thus the
order passed by the learned arbitrator confirmed by the
First Appellate Court needs no interference.
42. He would further contend that respondent Nos.5 and
6 to the claim petition were never inducted as the partners
of the firm and therefore per se they are not necessary
parties before the arbitrator and as such, the claim petition
before the arbitrator was bad for mis-joinder of parties.
74
43. It is also contention of Sri Sreevatsa that the revision
petitioner was a partner with only 10% of profit sharing
method and had no role either in the construction,
marketing, financial management or day to day affairs of
the project and did not possess any supervisory rights in
respect of the affairs of the firm. As such, the arbitrator
holding that the dispute as is raised by the revision
petitioner alleging fraud and misrepresentation is not
capable of arbitration is just and proper and thus sought
for dismissal of the revision petition.
44. Sri Sreevatsa, would further contend that the
allegations made against the first respondent that there is
misappropriation of the funds and there is breach of trust,
financial irregularities and such complicated questions
cannot be subject matter of arbitration and it requires a
detailed full-fledged trial before the competent Court and
as such the impugned order is just and proper.
45. He further argued that Bank accounts were duly
operated by proper authorization including the account at
75
HDFC Bank and the claim made by the revision petitioner
that there are huge profits are per se incorrect.
46. Sri Sreevatsa would further emphasize that because
of the interim order obtained by the revision petitioner,
constructions were delayed and there was freezing of bank
accounts resulting in cascading effect with regard to the
payment of money to the service providers, construction
workers, statutory authorities resulting in huge loss to the
firm. Payment made to the land owner and settlement
made in the wake of the aforesaid developments is thus
with bonafide and pragmatic decision in order to avoid an
intended prolonged litigation and to protect the firm from
the losses and its reputation.
47. On behalf of respondents, it is also contended that
the termination of the earlier contractor was utmost
necessary on account of poor workmanship and complaints
already received and it was in the interest of the firm and
not ill-motivated which is again the subject matter of a
76
full-fledged trial and therefore the dispute is not arbitrable
one and thus sought for dismissal of Revision Petition.
48. It is also emphasized on behalf of the respondents
that all decisions taken for and on behalf of the firm are
through the participation of majority of the partners and
through valid resolutions.
49. He also contended that despite notice, petitioner
continued his non co-operation in attending the meetings.
Therefore, such decisions cannot be the subject matter of
arbitration which has been rightly concluded by the learned
arbitrator in the impugned order which was properly re-
appreciated by the learned Judge in the First Appellate
Court.
50. It is also contention of the respondent that having
regard to the scope of the revisional jurisdiction, this Court
cannot revisit into those aspects of the matter and sought
for dismissal of the revision petition.
77
51. In the light of the arguments put forth on behalf of
the parties and keeping in background the principles of law
enunciated on behalf of the revision petitioner as referred
to supra in extenso, this Court perused the material on
record meticulously.
52. On such perusal of the material on record, it is not in
dispute about the formation of the partnership firm
comprising of the revision petitioner and four partners and
two others at the first instance. It is to be noted that even
though respondent Nos.5 and 6 are sought to be inducted
as additional partners, the said process did not materialise
and therefore respondent Nos.5 and 6 were not inducted
as partners of the firm. There was reconstitution of the
firm, wherein, petitioner and respondent Nos.1 to 4 alone
continued as partners.
53. There is no material on record like declaration made
before the Registrar of Firms etc., to establish that
respondent Nos.5 and 6 are also included as additional
partners in the firm.
78
54. Reconstitution of the firm is not in dispute. The Joint
Development Agreement entered into by the firm with
owner namely Sri Krishna Reddy is not in dispute. As per
the Joint Development Agreement, the construction was
commenced by appointing M/s Sovern Developers and
Infrastructure Company Limited as contractor for the
project.
55. However there is dispute between the revision
petitioner and the firm with regard to the termination of
the M/s Sovern Developers and Infrastructure Company
Limited to complete the project.
56. When serious disputes arose with regard to the
development project commenced, there were proceedings
in approaching the Civil Court in A.A. No.697/2009, A.A.
No.728/2009 and A.A. No.232/2011.
57. Ultimately, to resolve the dispute between the
petitioner and the other partners, a petition came to be
filed under Section 11 of the Arbitration and Conciliation
79
Act before the High Court of Karnataka in CMP
No.75/2013.
58. Learned Judge, at the first instance, appointed
Mr.Justice Ajit J.Gunjal as arbitrator. However, he declined
to accept the appointment and therefore on an application,
Justice A.C.Kabbin was appointed as arbitrator. Material
on record also shows that he also declined to arbitrate the
dispute between the parties. What were the reasons for
two of the arbitrators to decline their appointment as
arbitrator is not pleaded or not forthcoming on record.
59. Be it what it may. Finally, the High Court appointed
Justice V.Jagannathan as the arbitrator. Parties went into
arbitration before him. On behalf of the respondent,
preliminary objection was raised stating that the dispute as
is referred to in the claim petition made by the revision
petitioner is incapable of arbitration.
60. Necessary reasons were pleaded in the objection
statement to substantiate that the dispute is not capable of
arbitration.
80
61. Learned arbitrator after hearing the petitioner as well
as the respondent noted the flaw in the claim petition and
the complicated questions raised therein as well as the
objection statement, especially with regard to fraud,
misrepresentation, siphoning of the funds of the firm,
improper opening of the bank account etc ., passed the
impugned order as referred to supra, inter alia holding in
paragraph Nos.55 to 70 as under:
"55. That the claimant's case is not a simple one is also
clear from very stand taken by the claimant both in the
claim petition and in the rejoinder to which I have
already made reference. At the cost of repetition, it has
to be mentioned that it is the specific case of the
claimant that the sale price shown in the registered sale
deeds is lower than the sale price mentioned in the
agreements. The claimant has filed list of documents
containing 11 volumes and in each volume the claimant
has produced agreement for construction, agreement
for sale and certified copy of the registered sale deeds.
Just to make a reference to one such sale, it is the
claimant's case that in respect of sale of flat No.204,
the price agreed as per the agreements is
Rs.40,05,173/-. Whereas, the actual sale deed which is
registered in respect of the very same flat is
81
Rs.27,06,250/- and thus there is a huge difference of
Rs. 12,98,923/-. Like this, in respect of all the sale
deeds, certified copy of which are produced in Vol. 1 to
11 the price shown in the registered sale deed is far
lower than the price mentioned in the agreements.
56. Secondly, it is the claimant's contention in the
rejoinder that the 1st respondent has collected taxes
from each of the purchasers to be paid to the
concerned Departments and likewise, he has collected
taxes in respect of 98 flats being the owners share and
the first respondent has not paid the tax collected from
the owners to the Department. The 1st respondent has
paid service tax and VAT only on the amount reflected
in the sale deed. Added to this, from the registered sale
deeds produced by the claimant in Vol. 1 to 11, a
cursory look, reveals that both Sri Krishna Reddy and
M/s. Paramount Vijetha Holdings have been referred to
as the vendors and again M/s. Paramount Vijetha
Holdings has been referred to as the builder / promoter
and the register sale deeds mentions that the vendors
acknowledge having received the full sale
consideration.
57. Thus, the registered sale deeds produced by the
claimant himself give an indication that the owner of
the land as well as the partnership firm in question
have been referred to as the vendors. Therefore, the
matter requires a detailed examination of various
documents, accounts, Income-Tax returns and other
related investigation to ascertain as to which of the two
vendors have received how much of the sale
consideration mentioned in the registered sale deeds.
Even in the agreement to sell, both Sri Krishna Reddy
and the partnership M/s Paramount Vijetha holdings
82
have been shown as the owner and the firm has also
been shown as promoter.
58. Also, several questions of law will arise if the
claimant's prayer for 10% share in the profits of the
firm is to be ascertained. The owner of the land viz.,
Krishna Reddy is not a party to the arbitration
proceedings. Likewise, even by the admission made by
the claimant himself in the claim petition, R5 and R6
are yet to be inducted as partners. Although it is
contended by the learned counsel for the claimant that
the partnership firm is not legal entity and it is
sufficient to make all the partners, parties to the
proceedings, yet considering the stand taken in the
claim petition as well as in the rejoinder both as
regards great variation in the price between the sale
price and the price mentioned in the agreement to sell
many questions of law, which are outside the purview
of the arbitration clause are likely to arise, since the
claimant is seeking 10% of the share out of actual sale
price realised by the 1st respondent which according to
the claimant is more than ₹100 crores, Hence, a more
convenient course in the interest of Justice and equity
would be, to try the whole action in a court, which
alone can do the justice to the parties.
59. In this connection it may be useful to draw support
from the decision of the Apex Court in the case of
Tanna and Modi vs. CIT, Mumbai and others (2007) 7
SCC 434: The Hon'ble Supreme Court, dealing with a
case of fraud committed by assesse partnership firm
while making disclosure under Voluntary Disclosure of
Income 1997, has observed thus at Para 15, 16, 19 and
21 thus:
"15; There cannot be any doubt that under the
Income Tax Act, a firm whether registered or
83
not under the provisions of the Partnership
Act, is treated as a separate assessee. An
order of assessment is passed on the basis of
income derived by a person. His total income
may consist of his share of profit out of the
income of the firm.
16: It may be true that in view of the matter,
assessment of a firm and assessment of a
partner would stand on different footing.
19: It is however also well settled that fraud
vitiates all solemn acts. Fraudulent actions
shall render the act a nullity. It would be non
est in the eye of the law. Acts of a firm vis-à-
vis its partners, however, as is understood in
common parlance or in terms of the provisions
of the Partnership Act, 1932.... undr the
Partnership Act, a partner represents a firm.
He has implied authority in terms of Sec. 19
thereof, and thus any action taken by a
partner of a firm vis-à-vis the firm, unless
otherwise specified, bind the firm itself. It is
one thing to say that for the purpose of
invoking the provisions of Income Tax Act and
other Taxation laws of a firm, a firm and its
partners are treated to be separate entities.....
21: ....... But in a case of this nature where
fraud is alleged, we cannot be oblivious of the
fact that each firm acts through its partner. A
firm is a conglomeration of its partners and is
not a juristic person.
....... As the income of a firm vis-à-vis its
partners have a direct correlation, in our
opinion, while construing a statute granting
84
immunity, it should not be construed in such a
manner so as to frustrate its object.".
60. I have referred to the above said decisions of the
Hon'ble Supreme Court to indicate that in the facts and
circumstances of the case before us, having regard to
the nature of allegations made both in the claim
petition and in the rejoinder, serious questions of law
will arise which are required to be dealt by the other
competent judicial/statutory authorities.
61. Even with regard to the relief of appointment of
receiver/partition sought for by the claimant, this
Tribunal is of the view that having regard to the limited
scope of this Tribunal, the matters relating to
appointment of receiver can only be dealt by the
competent civil court. In this connection, a reference
may be made to the comments by the learned author
P.C. Markanda in his commentary on the Law of
Partnership. It has been observed at page 515 by the
learned author that appointment of a receiver being an
equitable reliefs, it can be granted only on equitable
grounds. At page 228 under the heading - Partners not
rendering accounts - the learned author has observed
thus:
"The partners are joint owners of the partnership
assets and each is only entitled to such part of
the profits as on the account would show as due
to him. One partner cannot sue another for his
share of the profits. If he desires to claim what
he alleges is due to him from the other partners
he must file a partnership suit, claim a
dissolution of partnership and an account and
payment to him of what is found due to taking
the accounts. The only sum due from one partner
85
to another is what is shown to be due to him
after taking account of all the partnership
transactions"
62. Therefore, several complex issues and questions of
law are also involved and having regard to the nature
of the prayer sought by the claimant and considering
the serious allegations made against the 1st respondent
in the claim petition as well as in the rejoinder and
respondents 5 and 6 being not inducted as partners,
the firm viz., Paramount Vijetha Holdings also being
shown as one of the vendors in the registered sale
deeds and there being great difference in the sale price
mentioned in the sale deed and the price mentioned in
the agreement, and since a detailed investigation and
examination of voluminous evidence are required, to go
into allegations made in the claim petition and as the
claimant has also made IDBI Bank as one of the parties
in AA 232 of 2011, for all these aforesaid reasons, this
Tribunal is of the view that the disputes in question are
not arbitrable in nature and it is only the competent
civil court which can effectively go in detail, into all
these aspects of the matter.
63. As regards the relief of appointment of receiver or
direction to R1 to execute partition deed is concerned,
in view of the non-arbitrable nature of the dispute
between the parties, not only this tribunal does not
have jurisdiction to adjudicate upon the matter but also
cannot issue the directions which would go beyond the
arbitration agreement. In this connection the following
paragraphs at page 800 of the book The Law & Practice
Of Arbitration And Conciliation (3rd Edition 2014) by
the learned author O.P.Malhotra requires to be taken
note of:
86
"In MD, Army Welfare Housing Organization vs
Sumangal Services Pvt.Ltd, a three-judge bench
of the Supreme Court started that under
Section 17 of the 1996 Act, the power of the
arbitrator is a limited one. It cannot issue any
direction which could go beyond the reference
or the arbitration agreement. Under Section 17
an interim order must relate to the protection of
the subject matter of the dispute; and, the
order may be addressed only to a party to the
arbitration, it cannot be addressed to other
parties. Section 17 does not confer any power
on the arbitral tribunal to enforce its order, nor
does provide it for judicial enforcement thereof.
....The arbitrator/s does not have any power to
attach any properties or bank accounts of the
parties. The arbitrator/s does not have any
power to appoint a Court receiver which in
many cases is essential for preservation of the
subject matter of the dispute, and for the
purpose of valuation of movable and immovable
properties.
In Sundaram Finance Ltd vs NEPC India Ltd, the
Supreme Court observed that orders passed by
arbitral tribunal under Section 17 cannot be
enforced as orders of a court. It is for this
reason that Section 9 confers the Court with the
power to pass interim order during the
arbitration proceedings."
64. As far as the decisions referred to by the learned
counsel for the claimant are concerned, though reliance
is placed on the decision in Swiss Timing Limited
(Commonwealth Games Case) to contend that even
cases involving allegations of fraud can be gone into by
87
the Arbitrator and it was further pointed out that the
decision of the Apex court in Radhakrishnan's case was
also taken note of to submit that the judgment in
Radhakrishnan's case does not lay down the correct
law, it is to be noted that Commonwealth Games case,
the learned single Judge, his Lordship Hon'ble Justice
Surinder Singh Nijjar of the Hon'ble Supreme Court,
taking note of the fact situation before the court, found
that the objection taken by the respondent in the said
case was that the contract stood vitiated and it void
initio in view of the clause 29, 30 and 34 of the
agreement dated 11.3.2010. The Apex Court therefore,
held that the objection taken is to the manner in which
grant of the contract was manipulated in favour of the
petitioner and as far as the second Ground was
concerned it was introspect of the rates charged by the
petitioner and these two issues can be taken care of in
the award.
65. However in the case on hand, the facts and
circumstances are entirely different and I have already
referred to the claim petition allegations as well as
allegations made in the rejoinder and the other issues
and the questions of law involved in the
aforementioned paragraphs and therefore, the decision
- in Commonwealth Games case is entirely on different
set of facts. This Tribunal has also considered the Apex
Court decision of Booz Allen and Hamilton case
rendered by a Bench of two judges of the Hon'ble
Supreme Court wherein it has been held that where
there are allegations of fraud made, the dispute will be
non arbitrable.
66. As regards the other decisions referred to by the
learned counsel for the claimant are concerned, (1999)
5 SCC 651 was referred to submit that the dispute or
differences must consists of a justiciable issue triable
88
civily and a fair test of this is whether the difference
can be compromised lawfully by way of accord and in
satisfaction.
67. In so far as the decision in AIR 1972 Mysore 209 is
concerned, reference to Order XXX, Rule 1 of CPC is
made by the learned counsel for the claimant to submit
that a suit by or in the name of a firm is thus a really a
suit by or in the name of all its partners. I have already
referred to the decision of the Apex Court Tanna and
Modi wherein the Hon'ble Supreme Court has held that
a firm is a conglomeration of its partners.
68. As regards the contention put forward by the
learned counsel for the claimant that the respondents
have sought for interim measure during the pendency
of the arbitration proceedings, as such the respondents
deemed to have waived their objections is concerned,
in the case on hand the respondents have taken plea in
the objections that the matter requires to be dealt by
the civil court and as such when a plea is taken in the
objections itself, the question of waiver does not arise.
It is also settled law that if an order is nullity for want
of jurisdiction, the same can be challenged at any
stage.
69. It is also settled law that inherent lack of
jurisdiction or want of jurisdiction renders the ultimate
decision a nullity so that it can be challenged at any
subsequent stage or even in collateral proceedings.
Such defects cannot be cured by waiver or
acquiescence of the party entitled to raise objection.
Therefore, the said ground urged by the learned
counsel for the claimant also cannot be accepted in law.
70. For all the aforesaid reasons, the decisions referred
to by the learned counsel for the claimant cannot be of
89
any assistance to the claimant with regard to the
question of the jurisdiction of this Tribunal to adjudicate
the dispute between the parties, which disputes for the
reasons mentioned above, are "non arbitrable" in
nature."
62. Learned Judge in the First Appellate Court upholding
the Order of the learned arbitrator has discussed in detail
the validity of the order of the arbitrator in paragraphs 18
to 26, as under:
"18. While arriving any finding on the submission of
the appellant one should take note of the distinction
between the reference made by a court by invoking
Section 8 of the Arbitration Act and the reference
made by the Chief Justice Designate under Section
11(6) of the Act. As I said earlier when a reference is
made or Tribunal is constituted by recourse to Section
11(6) of the Act, except considering the existence of
arbitration agreement, the existence of live dispute
and whether the party who has moved such
application is party to the arbitration agreement there
will be no other scope to examine the nature of
dispute and prayers to be made by him/them by that
court, therefore certainly it is open to the Arbitrator to
decide on his jurisdiction by recourse to Section 16 of
the Act. However when a dispute is referred under
Section 8 of the Act as already the nature and
90
substance of the said dispute will be very much
available to the court, including the reliefs prayed
therein, in the form of plaint, so if a civil court finds
that the said dispute is covered under the Arbitration
Agreement and that can be decided by a private fora,
certainly the jurisdiction of the Arbitrator to rule on his
jurisdiction under such circumstances would be
limited. This is what that has been explained in the
Booz Allen and Hamilton Inc.'s case.
19. No doubt in N.Radhakrishnan's case, Hon'ble
Court held that allegation of fraud would automatically
oust the jurisdiction of the Tribunal, but in
A.Ayyasamy's case making a slight departure from the
said observation Hon'ble Court held that unless
serious allegations of fraud and breach of trust are
leveled, the jurisdiction of the Tribunal will not get
ousted. In Rajesh Verma's case modifying the order of
Hon'ble High Court of Delhi, wherein thorough
observation was made by that court regarding the
arbitrability of the dispute, the Hon'ble Supreme Court
held that it was not open to the referral Judge to
make such thorough observation on the arbitrability of
the dispute. This reiterated its earlier view. Then at
para-10 of that Judgment Hon'ble Court held that the
jurisdiction of the court under Section 11 of the Act is
limited and confined to examine as to whether there is
an arbitration agreement between the contracting
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parties and, if so, whether any dispute has been
arisen between them out of such agreement, which
may call for appointment of Arbitrator to decide such
disputes. Once it is held that dispute has been arisen
between the parties in relation to the agreement,
which contained an arbitration clause for resolving
such disputes, the court should have made reference
to the Arbitrator, leaving the parties to approach the
Arbitrator with their claim and counter-claim, to
enable the Arbitrator to decide on all such disputes on
the basis of case set up by the parties before him.
20. Therefore I hold that there is no any ambiguity in
understanding the ratio laid down in SBP & Co.'s case
on which the appellant places heavy reliance. While
reading and understanding a decision and ratio laid
down there, one has to see the intent behind such
Judgment. It would be a travesty of justice in the
event the entire focus is thrust on only one
observation by totally neglecting the core subject
involved and other surrounding circumstances.
21. It is also important to note that the impugned
order was passed by the Tribunal on 22.06.2015 and
this appeal was filed on 29.09.2015. Whereas
amendment was effected to Section 11 of the principal
Act by Amendment Act of 2015, which came into
effect from 23.10.2015. Through that amendment
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Section (6A), (6B) were inserted in the principal Act.
As per Section (6A), notwithstanding any Judgment,
Decree or order of any court the Supreme Court or
High Court have to confine to the examination of
existence of arbitration agreement when application is
filed under Section 6(4) or under Section 6(5) of the
Act. Though the said amendment was made to the Act
subsequent to the filing of this appeal, one has to take
note of the said further development which clarifies all
the ambiguities and sets rest the possible questions
that may crop up in the mind of a disturbed person.
Therefore the contention of appellant in para-26 of her
appeal memo that nonetheless in the course of
submission before the Tribunal he clarified that no
enquiry is needed in respect of misrepresentation,
fraud and breach of trust which he alleged, it was not
taken note by the Tribunal and it proceeded to pass
the impugned order etc leading to causing of injustice
to him cannot be accepted. When a written submission
is made by the appellant not only in the claim petition,
even in his rejoinder as well as in AA No. 232/2011
and when he proceeded to take action against
respondent No.1 to 4 for violating the interim order
passed by the court, certainly those things could not
have been overlooked by the Tribunal altogether and
decide the claim petition. Invariably the said issues
will overlap when a full fledged trial is undertaken and
the said things cannot be decided in discrete.
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22. The grounds urged by the appellant manifestly
show the features of alleged commission of criminal
acts of falsification of accounts, documents and
siphoning of the unaccounted amount by the
respondents. When such grave allegations are made,
in the absence of the version of C.Krishna Reddy,
there could not have been any effective finding. The
contention of appellant in para-28 and 29 of the
appeal memo that it was a simple case of
mathematical calculation and to share the remainder
amount amongst the partners is far from truth. It is
curious that even while making such submission he
keeps aside the firm and urges that since the firm is
not a juridical person, its impleadment is unnecessary
and even he gone to the extent of questioning the
observation of the Tribunal that he ought to have
sought for dissolution of partnership.
23. During his argument Sri PDS Advocate contended
that there was no necessity for the appellant to seek
for dissolution of the firm and the observation to that
effect by the Tribunal is erroneous. I am really
surprised by the said submission. It appears that the
appellant has no intention to set rest the lingering
dispute between him and the other parties of the firm.
Unmindful of the resolution of such inchoate dispute
no Tribunal or court can proceed to pass orders and
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they cannot become a platform for recurring causes of
action. When the very confidentiality and mutual trust
amongst the partners was lost there was no meaning
in continuing with the partnership firm and in such
circumstances no Tribunal or court can go on deciding
the share of the appellant at the end of every financial
year by allowing the firm to continue. Therefore the
grounds urged in para-30 and 31 of the appeal memo
hold no water.
24. One more glaring defect in the claim petition was
that as per the appellant himself, respondent No.5 and
6 are agreed to be inducted as partners, but for want
of completion of some more formalities their induction
is still pending and they are not partners of the firm,
but he has impleaded them as formal parties. When
such being the case and when he impleads them as
parties to the claim petition and also in the appeal
memo, definitely Tribunal had no jurisdiction to look
into that dispute when they are not parties to the
arbitration agreement. His submission in para-32 of
the appeal memo itself is enough to substantiate this
observation. He calls them as "proper parties" and not
as "necessary parties. This is also one of the reason
why the Tribunal declined to arbitrate.
25. In the light of the discussion made by me in the
foregoing paragraphs by reference to CMP No.75/2013
95
and Sections 11 and 16 of Arbitration and Conciliation
Act, the grounds urged in para-33 of appeal memo are
also unsustainable.
26. Last but not the least, para-35 of the appeal
memo reveals that before filing this appeal the
appellant filed W.P.27502/2015 on the file of the
Hon'ble High Court, questioning the correctness of the
impugned order of Tribunal and having withdrawn it
on 21.08.2015 he filed MFA No.6465/2015 and it was
came to be disposed off on 22.09.2015, reserving his
liberty to move this court. Intentionally I am referring
to the said proceedings to show that in a hurry to seek
the alleged reliefs the appellant is choosing the wrong
foras again and again and instead of correcting
himself and puts blame on others."
63. Sri P.D.Surana with sufficient vehemence
emphasized that the principles of law enunciated in the
case of N.Radhakrishnan vs. Maestro Engineers
reported in (2010)1 SCC 72 is overruled by the Hon'ble
Apex Court and it is clearly held that the principles of law
enunciated in the said decision is per incuriam for having
ignored Sections 5, 8 and 16 of the Arbitration and
96
Conciliation Act, 1996 in the case of Avitel Post Studioz
Ltd., supra.
64. It is noticed from the decision of Avitel Post
Studioz Ltd., where there is a strong prima facie case of
fraud, a real risk of hiding or wastage of assets and
likelihood of restoration of arbitral proceedings, Courts are
justified in granting interim measures to secure the claim
and as such, the arbitration proceedings initiated under
Section 9 of the Arbitration and Conciliation Act, 1996 is
maintainable.
65. Drawing the analogy from the principles of law
enunciated in Avitel Post Studioz Ltd., supra, Sri Surana
would contend that same logic should follow for the main
arbitration proceedings as well and unless the alleged
fraud affects the public policy or would act as detrimental
to the interest of the public at large, mere allegations of
the fraud would not take away the power of the arbitrator
in arbitrating the dispute. As such, finding recorded by the
learned arbitrator cannot be countenanced.
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66. He also placed reliance on the principles of law
enunciated in the case of Vidya Droliya supra and
contented that scheme of the Arbitration and Conciliation
Act, 1996 reflects a strong legislative policy in favour of
arbitration and as such, unless the dispute results in a
decision in rem, all civil disputes which the Civil Court can
decide can also be arbitrated.
67. It is also the contention of Sri Surana that a fraud
simplicitor would not nullify a valid arbitration agreement
and as such refusing to refer a dispute for arbitration is per
se illegal as held in the case of A.Ayyasamy supra.
68. Now this Court would deal with these contentions
one by one in the light of the revisional grounds.
69. Firstly, in the case on hand, respondent Nos.5 and 6
have been included into arbitration proceedings who are
utter strangers to the dispute inasmuch as they are yet to
be inducted as partners.
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70. The dispute arose multifoldedly on account of the
allegation made by the first respondent that there is total
non co-operation on behalf of the revision petitioner.
71. Therefore, there were arbitration cases filed under
Section 9 as referred to supra by various parties and
ultimately all those cases were decided by settlement.
72. Admittedly there is a change of the contractor for
carrying out the development work which is objected by
the revision petitioner.
73. Pertinently, it is the revision petitioner being a
partner having 10% profit share in the partnership firm,
said to have objected for the decision taken by majority of
the partners resulting in delay in the project besides
escalation in the project costs.
74. Nextly, according to the revision petitioner, 145 flats
were sold and value thereof is not credited to partnership
account. But it was siphoned to another account in HDFC
bank, opened in the name of the partnership firm and also
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portion of the money thereof is siphoned to the account of
son of the first respondent by name Akash Ranka.
75. There was also a dispute with regard to the payment
to be made to the land owners and the same is also
resolved by the first respondent and again there was a non
co-operation on the part of the revision petitioner.
76. These aspects are complicated questions of law and
facts. In other words, recording of voluminous evidence is
necessary to appreciate and resolve the dispute between
the parties.
77. Further, it is also pertinent to note that firm is not
made as a party in the arbitration proceedings. Though no
reasons are forthcoming from the orders of the High Court
in appointing Justice Ajit J. Gunjal and subsequently
Justice. A.C.Kabbin, what can be inferred is those
arbitrators did not accept the arbitration, perhaps with the
conduct attributable to the parties.
100
78. This observation is necessary to find out as to who is
responsible for the delayed resolution of the dispute
between the parties.
79. There is an overwhelming material in the form of
pleadings of the revision petitioner, which has been
controverted by the first respondent in his objection
statement which would make out not a fraud simplicitor
but fraud and misrepresentation alleged by each of the
parties which is per se incapable of resolution unless a
thorough enquiry is made.
80. It is in that direction, as per the law existed then,
the learned arbitrator relied on N.Radhakrishnan case
supra and recorded a finding that the dispute is incapable
of arbitration.
81. Lastly, it is to be noted that subsequent judgment
rendered by the higher Courts cannot be the yardstick to
find out the validity of an Order which came to be passed
following the settled law prevailing at the time of passing
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the order, which is subsequently challenged before the
Courts.
82. In this regard, this Court gainfully places reliance on
the judgment of the Hon'ble Apex Court in the case of
Neelima Srivastava vs. State of Uttar Pradesh and
others reported in (2021)7 SCC 693, wherein, at
paragraph 29 it is held as under:
"xxx xxx xxx Mere overruling of the principles, on
which the earlier judgment was passed, by a
subsequent judgment of higher forum will not have
the effect of uprooting the final adjudication
between the parties and set it at naught. There is a
distinction between overruling a principle and
reversal of the judgment. The judgment in
question itself has to be assailed and got rid of in a
manner known to or recognised by law. Mere
overruling of the principles by a subsequent
judgment will not dilute the binding effect of the
decision inter partes."
83. As such, there cannot be any room for the revision
petitioner to contend that application of principles of law
enunciated in N.Radhakrishnan case supra has rendered
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the impugned order passed by the learned arbitrator as
illegal.
84. In the case on hand, no doubt the decision that
would be rendered either by the arbitrator or by the Court
would not result in a decision in rem.
85. However, the allegations of fraud and
misrepresentation alleged by the revision petitioner and
refuted by the respondent, if established would definitely
par take the nature of a criminal offence or little short of a
criminal offence under the provisions of Indian Penal Code.
86. There is a direct allegation by the revision petitioner
that the amount recovered from the sale of 145 flats is not
accounted in the books of the firm. But it is siphoned by
the first respondent to the account of his son. In other
words, the revision petitioner is attributing criminal
misappropriation to the first respondent.
87. Therefore, though learned counsel for the petitioner
placed reliance on A.Ayyasamy case supra, from the
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principles enunciated in said case itself, the dispute is
incapable of arbitration as the allegations would amount to
virtual criminal offence.
88. The counter-allegations levelled by the first
respondent in the objection statement attributing the
conduct, non co-operation etc. resulting in not only delay
in implementation of the project, but also affected the
financial health of the firm inasmuch as contractor was to
be removed, additional amount was to be settled to the
owners, new contractor was to be brought in and project
could be completed with escalated costs, require
adjudication by the Civil Court as the facts are complex
enough based on voluminous evidence.
89. There is also allegation by the revision petitioner that
documents were falsified and resolutions were prepared
fraudulently to suit the decisions of the first respondent.
Though the same is refuted, it is one of the parameters
which would support the decision of the learned arbitrator
in holding that the dispute is non-arbitral dispute following
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the decision of A.Ayyasamy referred to and relied on by
the revision petitioner himself.
90. Adverting to the principles Avitel Post Studioz
Ltd., and Vidya Drolia supra, their Lordships were
concerned about the immediate protection of the assets of
the disputing parties pending consideration of whether the
dispute is arbitral or not, by interim measures, by
resorting to powers under Section 9 of the Arbitration and
Conciliation Act, 1996.
91. Therefore, those principles cannot be imported to
decide the issue with regard to the non maintainability of
the claim before the arbitrator on the ground that the
dispute is not an arbitrable dispute.
92. Therefore, even though there cannot be any dispute
as to the principles of law enunciated in Avitel Post
Studioz Ltd., and Vidya Drolia supra, this Court is of the
considered opinion that the same would not advance the
case of the revision petitioner anything further insofar as
holding that the finding of the learned arbitrator that the
105
dispute is not arbitrable and confirmed by the First
Appellate Court is suffering from any legal infirmity within
the limited revisional Jurisdiction.
93. Even though Sri Sreevatsa would try to distinguish
the principles of law enunciated in Rameswarlal Bagla
and Suresh Kumar Sanghi, this Court is of the
considered opinion that the facts involved in the present
case would not warrant this Court to place further reliance
on the principles of law enunciated in those two decisions
and as such, the same is not dealt in detail.
94. Insofar as ITI Ltd. supra, this Court did not dispute
the fact that the revision petition is maintainable under
Section 115 of the Code of Civil Procedure and therefore,
no detailed discussion is necessary.
95. Insofar as SBP & Co., supra is concerned, there is
no dispute as to the power of Court in appointing an
arbitrator and a subsequent arbitrator by exercising the
power under Section 11 of the Arbitration and Conciliation
Act and therefore this Court is not venturing to take a
106
detailed discussion on that, having regard to the point that
is to be thrashed out in the revision.
96. In view of the foregoing discussion, this Court is of
the considered opinion that the finding recorded by the
learned arbitrator that the dispute is incapable of
arbitration is just and proper even after noting that the
principles of law enunciated in Radhakrishnan's case
supra is overruled in Avitel Post Studioz Ltd supra.
97. Having said thus, this Court is of considered opinion
that the right of the revision petitioner is not at jeopardy.
When the finding recorded by the learned arbitrator
confirmed by the First Appellate Court is upheld in this
revision inasmuch as the revision petitioner can always fall
back on the civil remedy by approaching the Civil Court in
a duly constituted comprehensive suit.
98. In that suit, he may also seek for all the prayers as
he has sought before the arbitrator.
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99. Obviously, the time spent before the arbitrator and
these proceedings would be excluded under Section 14 of
the Limitation Act in such intended proceedings.
100. Such an observation in this revision would quell all
the possible apprehensions of the revision petitioner as
well.
101. In view of the foregoing discussion, the following:
ORDER
(i) Civil Revision petition is dismissed.
(ii) No order as to costs.
(iii) It is made clear that the observations made by this Court, arbitrator and the First Appellate Court shall not affect the rights of the parties in the intended suit.
(iv) The dispute in the intended proceeding shall be decided by the competent Court, in accordance with law, uninfluenced by the observations made by this Court.
Sd/-
(V. SRISHANANDA) JUDGE kcm