Calcutta High Court
M/S. Rangali Agrotech Pvt. Ltd. & Ors vs Smt. Gayatri Devi Poddar & Ors on 24 August, 2016
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
BEFORE:
The Hon'ble JUSTICE SOUMEN SEN
AP No.1221 of 2014
M/S. RANGALI AGROTECH PVT. LTD. & ORS.
VERSUS
SMT. GAYATRI DEVI PODDAR & ORS.
For the petitioners : Mr. Sarbapriya Mukherjee,
Mr. Amal Kumar Saha.
For the respondents : Mr. Rudradeb Chaudhuri,
Mr. Biswabrata Basu Mallick, Mr. Khagendra Nath Jana.
Heard on : 26.07.2016, 04.08.2016, 18.08.2016 Judgment on : 24th August, 2016
Soumen Sen, J.:- The petitioner has filed this application for setting aside of an award dated 8th May, 2014 passed by a sole Arbitrator.
The award was passed in favour of the respondents.
The principal grievance of the petitioners against the award appears to be that the award was passed on the basis of an agreement which is manufactured and forged. The said alleged agreement contains an arbitration clause. The petitioners never intended to enter into any arbitration agreement. The award passed is an unreasoned award. The Arbitrator appointed at the instance of the respondents was regularly representing the respondents in various proceedings.
The petitioners admit to have received a notice of arbitration on 3rd October, 2013 from the named Arbitrator. The petitioners alleged that the petitioners did not receive any copy of the statement of facts. The petitioners alleged that although they have received letters dated 3rd October, 2013 and 30th September, 2013 but the petitioners could not remember and or trace out any other letter wherefrom it could be ascertained that the statement of claim or minutes of the proceeding were communicated to the petitioners. The petitioners alleged that the agreement and the cheques relied upon by the respondents in the proceeding were issued in consideration of stock of paddy to be supplied to the petitioners by the respondents. The petitioners alleged that the respondents are supplier of paddy. The petitioner no.2 signed some cheques in the month of March 2013 with the object of handing over the same to one Mr. Manoj Kumar Patni and Sandip Kumar Patni being the suppliers and traders of the paddy in connection with an agreement arrived at between the petitioners and the persons named aforesaid. The petitioner no.2 signed few cheques with the intent to hand over the said cheques to Manoj and Sandip on 1st March, 2013 but they refused to receive those cheques on the ground that they had no stock of paddy as required by the petitioners at the relevant point of time and they assured the petitioners to receive those cheques subsequently as and when required amount of paddy was available with them. Thereafter, the said cheques were kept under lock and key in an almirah lying at the petitioners' office at Kharupetia. However, in the month of November, 2013 and subsequently in January and February, 2014 the petitioners received letters dated 19th November, 2013, 20th January, 2014 and 25th February, 2014 calling upon the petitioners to attend arbitration proceeding but for alleged non-supply of documents, the petitioners did not participate in the said proceeding. It is alleged that the respondents have initiated arbitration proceeding by practicing fraud upon the petitioners as also upon the Arbitrator by falsely representing that the petitioners are the investors of the company. The petitioners alleged that the petitioners had no business dealings with Ratan Lal Poddar.
The award holder on the other hand contends that the petitioners were aware of the existence of the agreement and have deliberately avoided the arbitration proceeding and at this stage the petitioners could not be heard to contend that there is no valid arbitration agreement. In the supplementary affidavit filed by the respondents, documents have been disclosed to show that letter of demand followed by the notice under Section 21 of the Arbitration and Conciliation Act, 1996, were issued and duly served upon the petitioners and it could not be contended at this stage that the petitioners had no notice of the said proceeding or that the agreement is forged. The letter of demand and the notice under Section 21 of the Act specifically refers to the agreement which is now sought to be challenged.
Mr. Sarbapriya Mukherjee, learned Counsel appearing on behalf of the petitioner submits that in a proceeding for setting aside of the award, the petitioner can question the existence of the arbitration agreement and/or the agreement containing the arbitration clause. It is submitted that if the document is forged and fabricated it becomes an unenforceable agreement and any award passed on the basis of such document is void ab initio. It is submitted that the arbitrator is a creature of the agreement and having regard to the fact that the said agreement is forged and fabricated, the arbitrator could not have assumed jurisdiction on the basis of the said document and, accordingly, the said award is a nullity. According to the learned Counsel it matters little as to whether the petitioners have appeared before the Arbitral Tribunal and questioned its jurisdiction to arbitrate the dispute on the basis of the forged document and the right to question the validity of the agreement in this proceeding on the ground of fraud is not lost merely on the ground of non- appearance before the Arbitration. It is submitted that the document on which reliance was placed by the award holder refers to various cheques which are all "self" drawn cheques alleged to have been given as a security against the deposits. It is extremely unusual that "self" drawn cheques would be given by the petitioners as securities for alleged loan. The learned Counsel in support of the aforesaid submission has relied upon the following decisions:-
i) Prasun Roy Vs. Calcutta Metropolitan Development Authority & Anr. reported at (1987) 4 SCC 217;
ii) Inder Sain Mittal Vs. Housing Board, Haryana & Ors. reported at (2002) 3 SCC 175 Paragraph 12;
iii) Surendra Kapoor Vs. Prabir Kumar reported at 2007 (3) Arb. LR 97 (Bom) Paragraphs 5 and 6;
iv) Mohinder Pal Singh VS. Northern Railway, reported at 2008 (1) Arb. LR 363 (Del) Paragraphs 17 and 18;
v) Drishticon Properties (P) Ltd. VS. Chopra Marketing Pvt. Ltd. & Ors. reported at 2009(1) Arb. LR 353 (Del);
vi) Union of India Vs. Pam Development Pvt. Ltd. reported at 2008 CWN (112) Page 162;
vii) Centrotrade Minerals & Metals Inc. Vs. Hindustan Copper Ltd.
reported at (2006) 11 SCC 245;
viii) Great Eastern Energy Corporation Ltd. VS. Jain Irrigation Systems Ltd. reported at 2012(1) CHN (Cal) 34;
The learned Counsel has submitted that in a proceeding for setting aside of the award, the Court can look into the document and if required to determine the said issue by trial on evidence. It is submitted that the element of fraud goes to the root of the matter and vitiates the proceeding. The arbitrator has no jurisdiction to decide the issue relating to fraud and the Civil Court can only decide such issue. It is submitted that even if the petitioners may not have appeared before the Arbitral Tribunal but it is incumbent upon the Arbitral Tribunal to apply its mind and consider the evidence before arriving at a finding. The Tribunal has failed to take into consideration the unusual features of the said agreement and, accordingly, has completely misdirected its mind in passing an award in favour of the respondents. It is submitted that mere non- participation of the petitioners before the Arbitral Tribunal could not be constituted as waiver of right to question the existence of the arbitration agreement and in this regard the petitioner has relied upon the decision of the Hon'ble Supreme Court in Krishna Bahadur Vs. Purna Theatre & Ors. reported at 2004 (8) SCC 229.
Per contra, Mr. Rudradeb Chaudhuri, learned Counsel appearing on behalf of the respondents submits that the petitioner at this stage cannot question the validity and existence of the said arbitration agreement after having failed to appear and raise objection with regard to the constitution of the Arbitral Tribunal under Section 16 of the Arbitration and Conciliation Act, 1996. The learned Counsel has referred to Section 16(2) of the Arbitration and Conciliation Act, 1996 and submitted that a party can raise an objection as to the jurisdiction of the Arbitral Tribunal not later than the submission of statement of defence and having regard to the fact that enough opportunities were given to the petitioner to appear and contest the proceeding which the petitioners deliberately avoided, at this stage, the jurisdiction of the arbitration cannot be questioned. It is submitted that the award would show that notices were issued to the petitioners to appear before the Tribunal and the matter was adjourned from time to time in order to enable the petitioners to appear and contest the proceeding. The petitioners do not deny that the petitioners did not receive such notices. The letter of demand and the notice issued under Section 21 of the Act specifically refers to the agreement whose existence is now being denied. The respondent having not raised the plea that the contract is null and void and/or has been fraudulently obtained could not at this stage raise objection with regard to the existence of the arbitration clause. In this regard, the learned Counsel has referred to the decision in Home Bank Investment Inc & Anr. Vs. MMTC Limited & Anr. reported at 2008 (1) Arb. LR 263 (Del).
In the award the learned Arbitrator has referred to various communications made to the petitioners and ultimately proceeded ex parte as the petitioners had failed to appear. The claimant adduced evidence by way of an affidavit in chief and has exhibited various documents. The arbitrator on the basis of the examination of record and documents and on consideration of the materials on record passed an award. The Arbitrator has referred to the documents in details and has given his reasons for arriving at the conclusion. At this stage, the petitioners are now seeking to question the existence of the arbitration agreement despite not raising such objection when the petitioners were made aware of the arbitral reference being taken up. The affidavit in opposition as well as the supplementary affidavit would clearly show and establish that the notice of demand and notice under Section 21 were duly served upon the petitioners and the petitioners were fully aware of the initiation of proceeding before the Arbitral Tribunal. The petitioners also had due notice of the arbitration proceedings.
It is pertinent to note that the petitioners did not reply to any of the notices although it was open to the petitioners to urge that the agreement was forged and unenforceable. Even during the pendency of the proceeding no such plea was raised. The petitioners did not even make a communication to the arbitrator alleging that the agreement is forged. The first time, such plea was raised after the award was communicated to the petitioners. The award was made and published on 8th May, 2014. The petitioners after receiving the award addressed a letter to the Arbitrator dated June 30, 2014 with a copy to the respondents alleging for the first time that the agreement is forged. The arbitrator after having passed the award has become functus officio. It is also important to note that FIR was lodged in respect of the cheques with the concerned Police Station on June 14, 2014 after the communication of the award. The petitioner is not a rustic or illiterate person. The petitioner No.1 is a juristic entity. The Arbitration and Conciliation Act is a complete code. The Act empowers an arbitrator to decide its jurisdiction. Nothing prevented the petitioner to object to the jurisdiction of the Arbitral Tribunal before the commencement of the Arbitration proceeding or during the pendency of the said proceeding. The petitioners were aware and conscious of the proceeding pending against the petitioners and the consequences likely to follow due to non-appearance. The party who allows his right to slip by cannot turn around and ventilate grievance that his right is being prejudiced. The petitioners stand by and offer no protest with regard to the initiation and continuation of the arbitration proceeding. The petitioners were aware that a proceeding is pending and an adverse order could be passed in the said proceeding, in the event the petitioners are not represented. The tribunal was never communicated with the plea that the document is forged. The jurisdiction of the Arbitral Tribunal to decide the issue relating to allegations of fraud has been considered by the Hon'ble Supreme Court in Swiss Timing Limited Vs. Commonwealth Games, 2010 Organizing Committee reported at 2014 (6) SCC 677 and it was held that Arbitral Tribunal is competent to rule on its own jurisdiction including ruling on any objection with regard to existence or validity of the arbitration agreement. There cannot be any dispute that if the agreement is vitiated by fraud then it goes to the very root of the matter. The arbitration is consensual. A claim founded on the agreement containing arbitration clause if it is a product on fraud vitiates the contract and an award passed on the basis of such fraud contract is nullity. However, the Court in an application for setting aside of the award cannot go into the question as it was open to the petitioners to question the existence of the arbitration agreement before the arbitrator and the arbitrator would have been the competent authority to decide such issue. If the argument of the petitioners is accepted that under Section 34 of the Arbitration and Conciliation Act, 1996 the Court would go into the question of fraud notwithstanding the fact that such plea was never raised before the arbitrator it would completely render Section 16 of the Arbitration and Conciliation Act, 1996 otiose.
The decisions relied upon by the petitioners are not applicable as none of the decisions decide the issue involved in this proceeding, namely, raising a plea of fraud for the first time in an application for setting aside of the award. There cannot be any dispute that a decision rendered by a Tribunal which lacks inherent jurisdiction is a nullity.
The argument of the petitioners proceeds on the basis that it is always open to a party who denies that the tribunal has jurisdiction to ignore the arbitration proceedings altogether and resist enforcement of any award. Under the English Act, namely, Section 72(2)(a) of the Arbitration and Conciliation Act, 1996 specifically confers on a party who takes no part in the proceedings the same right to challenge an award for lack of jurisdiction as is given to a party to the reference.
An award can be challenged on the ground of lack of jurisdiction by a party who has not participated in the proceeding provided the dispute is non- arbitrable. The Hon'ble Supreme Court in Booz Allen And Hamilton Inc. Vs. SBI Home Finance Ltd & Ors. reported at (2011) 5 SCC 532 has given examples of non-arbitrable disputes which are:-
"36. The well-recognized examples of non-arbitrable disputes are: (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, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and
(vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes."
However, in the instant case the objection as to jurisdiction of the arbitration is based on a plea that the agreement is forged. It is not per se non- arbitrable. The said objection was raised after the award was passed. It is for the arbitrator to decide any dispute with regard to existence of arbitration agreement.
The petitioners at this stage cannot be allowed to reopen the said issue on a specious plea that the arbitration agreement is a product of fraud. The petitioners had the opportunity to raise such issue before the Arbitrator and despite being aware of the said proceeding the petitioners have failed to question the jurisdiction of the Arbitrator to decide the dispute. Enough opportunities were given to the petitioners to appear before the arbitrator. The plea of fraud has to be raised before the Tribunal. Even in a proceeding under Section 8 or 11 of the Act if such plea is not raised, it has to be assumed that the party has not objected to the jurisdiction of the Tribunal to decide the matter on merits. A party having the opportunity to raise such objection having failed to do so cannot after finality of proceeding is reached could be allowed to raise such plea. If a party chooses not to raise the objection under Section 16(2) of the Act before the Arbitral Tribunal then there will be deemed waiver of such objection under Section 4 of the Act. The conduct of the petitioners warrants an inference of the relinquishment of a known right. If the right to object to the existence or validity of the agreement is not raised and exercised properly and in time, the right is lost for ever and is an impediment to avail the right to recourse to court against an award in a proceeding under Section 34 of the Act.
Frank and Edna Elkouri in 'How Arbitration Works' write thus, "Especially common in arbitration is that species of 'waiver' known in law as 'acquiescence'. This term denotes a 'waiver' which arises by tacit consent or by failure of a person for an unreasonable length of time to act upon rights of which he has full knowledge."
The petitioners had knowledge of the proceeding and for an unreasonable length of time kept quiet until they were communicated with the award.
The arbitrator followed the procedure as laid down in Section 25(b) of the Act and required the respondents to prove its claim.
At this stage, objection to jurisdiction of the Arbitrator to decide the matter could not be gone into as in my view the petitioners have waived their rights to object to the jurisdiction of the Arbitrator to decide the dispute.
The application fails. However, there shall be no order as to costs. Urgent Xerox certified copy of this judgment, if applied for, be supplied to the parties on an usual undertaking.
(Soumen Sen, J.)