Gauhati High Court
Arb.P./47/2020 on 2 September, 2021
Author: N. Kotiswar Singh
Bench: N. Kotiswar Singh
GAHC010174562020 1
IN THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Arb.P. 47 of 2020
M/s. Brahmaputra Infrastructure Ltd.,
a company duly incorporated and registered under the Companies Act,
1956 with their Registered Office at A-7, Mahipalpur, New Delhi-110037
and Regional Office at Royal Plaza, 4th Floor, G.S. Road, Christian Basti,
Guwahati, Pincode-781005, Assam, India, represented by Mr. Rajesh
Gupta.
...... Petitioner
-VERSUS-
1. M/s Assam Vegetable & Oil Products Ltd.,
a Company incorporated under the provisions of the Companies Act,
1956 having its registered office at G.S. Road, Guwahati- 781005.
2. M/s Sati Oil Udyog Ltd.
a Company incorporated under the provisions of the Companies Act,
1956 having its registered office at G.S. Road, Guwahti- 781005.
.....Respondents
For the Petitioner : Mr. D. Baruah, Advocate.
: Mr. S. Khound, Advocate.
: Ms. N. Upadhyay, Advocate.
For the Respondents : Mr. K.N. Choudhury, Senior Advocate.
: Mr. A.K. Rai, Advocate
: Mr. N. Alam, Advocate.
Date of Hearing : 09.08.2021 & 13.08.2021.
Arb.P. No. 47 of 2020
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Date of Judgment : 02.09.2021
:: BEFORE ::
HON'BLE MR. JUSTICE N. KOTISWAR SINGH
JUDGMENT & ORDER
Heard Mr. D. Baruah, learned counsel assisted by Ms. N. Upadhyay and Mr.
S. Khound, learned counsel for the petitioner. Also heard Mr. K.N. Choudhury,
learned Senior Counsel assisted by Mr. A.K. Rai and Mr. N. Alam, learned counsel
for the respondents.
2. The present petition has been filed under Section 11 of the Arbitration and
Conciliation Act, 1996 for appointment of an arbitrator for resolution of the
disputes which according to the petitioner had arisen with the respondents, which
however, has been contested by the respondents on the ground that the disputes
are not arbitrable.
3. As per the law as it stands today, reference to arbitration is the norm and
adjudication by the court/tribunal, the exception.
4. However, before we proceed to examine the matter on merit as to the
arbitrability or non arbitrability of the disputes in the present case in the light of
the law which has been laid down, it would be necessary to refer to the facts of
the case briefly.
PLEA OF THE PETITIONER
5. The petitioner is a company incorporated and registered under the
Companies Act, 1956 having its registered office at New Delhi and its regional
office at Guwahati. Both the respondents No.1 and 2 are also companies
incorporated and registered under the Companies Act, 1956 having their
registered offices at Guwahati.
Arb.P. No. 47 of 2020
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6. The Respondents No. 1 and 2 are joint owners, with 67.29% and 32.71%
shares, of a plot of land measuring 9 (nine) Bighas 3 (three) Kathas and 3 (three)
Lechas located in Guwahati. The petitioner and the two respondents had entered
into a contractual arrangement for development of the property/plot of land
owned by the respondents by executing a Joint Development Agreement (JDA) on
09.12.2009. As per the JDA, the petitioner, inter alia, was to develop a
commercial-cum-office complex over the said property owned by the respondents,
comprising of shopping mall, offices, multiplexes, residential complex and
multistoried parking space on a turnkey basis with a plan duly approved by the
competent authorities. Clause 1.2 of the JDA provided that as regards the
completed constructed area and all the saleable and non saleable portions, the
share of the Developer, the petitioner was 52.40% and the respondents as the
owners was 47.60%.
7. It is the case of the petitioner that after the execution of the JDA, the
petitioner company diligently undertook all steps, including surveying, designing,
planning, getting the plan approved from the local authorities, financial
arrangement as well as marketing of the project.
8. It is also the case of the petitioner that after execution of the JDA, it came
to light that the respondents had certain ongoing legal disputes relating to the
same property pertaining to which the JDA was executed, with one M/s Avani
Projects and Infrastructure Ltd., which was not disclosed to the petitioner by the
respondents. Because of the aforesaid legal disputes, the progress of the project
was severely hampered. Resultantly, the petitioner had to execute a
Supplementary Agreement on 04.03.2012 with the respondents as an offshoot of
the JDA to mitigate time essence, conditions of squaring of liability of the company
M/s Avani and Infrastructure Ltd. and other attending issues, under which, the
period of completion of the project was revised and the petitioner was compelled
to bear additional liabilities for payment to the said M/s Avani and Infrastructure
Ltd., as per the Supplementary Agreement. The residential portion of the project
was also converted into shopping/commercial units which entailed more expenses.
Thus, the petitioner had to bear additional costs for completing the project which
Arb.P. No. 47 of 2020
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necessitated arranging funds from the banks/financial institutions and the
borrowing limit was enlarged by the Supplementary Agreement.
9. The petitioner contended that subsequently, however, the project work
could not be completed for various reasons not attributable to the petitioner and
with the lapse of time, the bankers insisted for repayment of the loan.
Accordingly, after having discussion the parties hereto entered into loan
agreement dated 02.04.2018, wherein in essence it was agreed that the amount
payable to the respondents would be deposited in the loan accounts of the bank
and alternatively the petitioner would repay the loan amount to the respondents
along with agreed sum as interest/penal interest with the right being given to the
respondents to sale out the constructed space as per the scheduled mentioned in
the agreement, in the event the petitioner fails to discharge the loan amount of
the respondents.
10. According to the petitioner company, on the other hand, the respondents
rather than cooperating with the petitioner deviated from the agreed terms and
conditions of the contract since mid 2019, raising various issues detrimental to the
interests of both the stakeholders, including the issue of the location of leased out
space and space lying vacant and payment of consideration payable in terms of
the sale agreement.
11. This, according to the petitioner, resulted in exchange of a series of
correspondences between the parties to resolve the issues. According to the
petitioner, ultimately, because of the uncooperative attitude of the respondents,
the petitioner formally wrote to the respondents vide letter dated 18.09.2020
seeking amicable settlement of the issues/claims arising out of and in relation to
the aforesaid agreements between the parties under Clause 11 of the JDA and
claiming an amount of Rs.61,20,98,339.00.
12. Clause 11 of the JDA containing the arbitration clause invoked by the
petitioner for referring the disputes for arbitration reads as follows.
"11. ARBITRATION
Any disputes or differences arising out of or relating to this Agreement shall
be tried to be settled at the first instance amicably and in the event of failure
Arb.P. No. 47 of 2020
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of such an attempt, the matter shall be referred for arbitration to a common
arbitrator to be appointed with the mutual consent of the Owners and the
Developer. The arbitration shall be in accordance with the provisions of
Arbitration & Conciliation Act, 1996 or any amendments thereto. The
venue of arbitration shall be at Guwahati and its verdict shall be final and
binding on the Parties hereto. The language of arbitration shall be English.
Arbitration proceedings will not hamper progress of construction and
development, i.e. except construction any other matter can be issued of
Arbitration."
13. The claims raised by the petitioner may be briefly stated as below.
SL NOMENCLATURE OF THE TOTAL AMOUNT SHARE OF OWNER
CLAIM (i.e. 47.60%),
IF ANY
Claim Execution of sale deeds in Declaratory Issue/Claim
No.1 favour of shop owner
with whom the
agreements to sale have
been executed
Claim Sharing of additional cost Rs.22,62,39,142.00 Rs.10,76,89,832.00
No.2 incurred for additional
work due to revision of
the plan, specification
beyond JDA and
additional demand of
Anchor Shops specially
PVR, Time Zone,
Shoppers Stop etc
beyond the scope of JDA.
Claim Sharing of statutory Rs.8,74,15,782.00 Rs.4,16,09,912.00
No.3 liability and brokerage
and commission as per
JDA.
Claim Sharing of additional cost Rs.9,96,89,282.00 Rs.4,74,52,098.00
No.4 after completion of the (up to31.10.2019) (up to 31.10.2019)
project.
Claim Financial charges due to Rs.2,76,08,180.00 Rs.2,76,08,180.00
No.5 delay in execution of sale
deeds.
Claim Compensation by owners Rs.37,18,43,646.00 Rs.37,18,43,646.00
No.6 on account of increased
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raw material cost
incurred by developer
due to prolongation of
the project
Claim Compensation on account Rs.4,97,34,562.00 Rs.4,97,34,562.00
No.7 of loss of market
goodwill.
Claim Refund of amount paid to Rs.1,71,00,000.00 Rs.1,71,00,000.00
No.8 M/s. Avani projects and
infrastructures Ltd.
Claim Additional Interest paid to Rs.23,84,25,655.00 Rs.23,84,25,655.00
No.9 bank on account of extra
borrowing from Rs. 15 Cr
to Rs.60 Cr due change
of scope from Residential
to Commercial and
increase in project cost
due to delay.
Claim Payment of interest Detailed out in Para 11 below
No.10
A) Total Claim Rs.90,14,63,885.00
[Claim 2 to Claim 9
above]
B) Total of Respondents Rs.38,74,15,546.00
share of sale proceeds on
execution of sale deed,
C) Less: Sale proceeds Rs. 9,80,50,000.00
already paid by Petitioner
to Respondents
D) Amount adjustable with Rs.28,93,65,546.00
Petitioner due [B-C]
E) Net amount payable to Rs.61,20,98,339.00
Petitioner by
Respondents
companies after
adjustment of
Respondents dues
[A-D]
14. By the aforesaid letter dated 18.09.2020, the petitioner called upon the
respondents to resolve the claims/dispute amicably within 15(fifteen) days of the
said letter by bringing the matter before the management of the respondents,
failing which, it was informed that it will be understood that the matter can be
Arb.P. No. 47 of 2020
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resolved only through arbitration for which the petitioner will take appropriate
further action for constitution of arbitration tribunal.
15. According to the petitioner, the respondents without referring to the notice
dated 18.09.2020, but referring to an earlier email dated 21.07.2020 sent by the
petitioner, made contra allegations against the petitioner vide their email dated
23.09.2020, thus showing lack of interest in settling the dispute amicably.
Thereafter, by an email dated 26.09.2020, the petitioner company replied
to the aforesaid email dated 23.09.2020 of the respondents by stating that
considering the conduct of the respondents, it appeared that they were not
interested in an amicable settlement and as such the matter should be referred for
arbitration.
16. Accordingly, the petitioner vide letter dated 01.10.2020 invoked the
arbitration clause as provided under Clause 11 of the JDA.
PLEA OF THE RESPONDENTS
17. The respondents by their email dated 04.10.2020 on the other hand,
charged the petitioner of not giving any scope for amicable settlement by waiting
response to the email dated 18.09.2020, at the same time denying the allegations
and claims made in the email dated 18.09.2020 and also charged the petitioner of
defrauding the respondents and by contending that these are bogus claims and
outside the scope of the agreement. In the said email dated 04.10.2020, the
respondents also made clear that the said reply shall not be construed as consent
for appointment of an arbitrator or reply to the email dated 01.10.2020.
18. The respondents vide their letter dated 30.10.2020 reiterated allegations of
fraud and forgery by the petitioner and informed the petitioner that because of
these fraudulent acts of the petitioner which involved criminal offence, there is no
scope for referring to an arbitrator.
19. Thus, the petitioner sent a legal notice to the respondents on 19.10.2020
asking the respondents to refrain from spoiling the good will of the petitioner
Arb.P. No. 47 of 2020
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company, to which the respondents responded on 19.10.2020 and 25.10.2020
denying the claims made in the legal notice.
The respondents then wrote to the petitioner on 30.10.2020 in response to
the email dated 01.10.2020 by stating that there is no scope for resolution of the
disputes by an Arbitrator.
20. Thus, after a series of correspondences between the contesting parties, the
petitioner filed the instant petition on 24.11.2020 under Section 11 of the
Arbitration and Conciliation Act, 1996 for appointment of an Arbitrator.
21. As regards the specific claims made by the petitioner referred to above,
the stand of the respondents are as follows.
Relating to Claim No.1, the respondents did not raise any dispute
regarding the execution of sale deeds for which the respondents had signed
agreements for sale subject to fulfilment of requirement in detail given in email
dated 17.03.2020 and 23.09.2020 of the respondents. However, it was contended
that dispute regarding non execution of sale deeds is not arising out of or is part
of Agreement dated 09.12.2009 and as such, is beyond the scope of agreement
dated 09.12.2009. Further, it was contended that it involves question of right in
rem, of third party and as such, the claim is not arbitrable.
It was also contended that the sale deeds executed by the petitioner
involve fraud, cheating as mentioned in the email dated 26.09.2020 as the
petitioner did not have authority to execute the sale agreements and consideration
amount shown is less than the market value. It was also contended that
moreover, Clause 3.9 of the Agreement dated 09.12.2009 mandates written
approval from the respondents for any such sale, which was not obtained by the
petitioner.
As regards Claim Nos.2 and 4, the claims have been denied by the
respondents as being outside of scope of agreement dated 09.12.2009.
As regards Claim No.3, it has been stated that the same is vague, evasive
and without details. Further, it was contended that the commission claimed is
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outside the scope of the agreement. Similarly, as regards brokerage, it was stated
that the petitioner has to furnish the details and unless documents are shared
transparently, the respondents are not liable in any manner.
As regards Claim No.5, the respondents contended the same to be
baseless, vague and thus, was denied. It has been also claimed that it is outside
the scope of agreement dated 09.12.2009 and it involves questions of right in
rem.
As regards Claim Nos.6, 7 and 9, these have been also dismissed as
baseless, vague and accordingly, denied by the respondents. It has been also
contended that these claims are non-arbitrable.
As regards Claim No.8, it has been also alleged to be vague, baseless and
outside the scope of the agreement dated 09.12.2009.
From the above, it is clear that the respondents have raised 3(three)
basic objections to the application of the petitioner for reference to arbitration, i.e.
(i) Some of the claims are beyond the scope of agreement dated
09.12.2009, and
(ii) Some of the claims involve interest of third party thus, relates to
action in rem and as such, non-arbitrable,
(iii) Some of the claims involve serious fraudulent acts by the petitioner
involving criminal offences, thus, plainly are not arbitrable.
22. The law relating to arbitrability of dispute and scope of the court in
deciding arbitrability had been discussed exhaustively by a three-judge Bench of
the Supreme Court in Vidya Drolia Vs. Durga Trading Corporation, (2021) 2
SCC 1, hereinafter referred to as Vidya Drolia (2021, supra) and crystallised,
while deciding a reference to clarify the correct legal position in view of the
conflicting views expressed in two Judge Bench decisions in Vidya Drolia Vs.
Durga Trading Corporation, (2019) 20 SCC 406 and Himangni
Enterprises VS. Kamaljeet Singh Ahluwalia, (2017)10 SCC 706.
Arb.P. No. 47 of 2020
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In Himangni Enterprises (supra), it was held that even in cases of
tenancy governed by the Transfer of Property Act, the dispute would be triable by
the civil court and not by the arbitrator as it involves actions in rem.
On the other hand, in a two Judges Bench decision in Vidya Drolia (2019,
supra), it was held that at the referral stage, the court is to merely examine
"existence of an arbitration agreement" and not the validity of the arbitration
agreement and did not agree with the ratio in Himangini Enterprises (supra).
23. While deciding the reference, the Hon'ble Supreme Court traced the
evolution of law relating to arbitrability of disputes by referring to amendments
made in the Arbitration Act, 1940 and new Arbitration and Conciliation Act, 1996
and amendments made therein by Amendment Act 3 of 2016 and Amendment Act
33 of 2019. The Supreme Court has now adopted the current universal trend
based on UNCITRAL Model Law on International Commercial Arbitration 1985
(Model Law) advocating minimal judicial intervention and referring to arbitration
for enhancing ease of business in commercial transactions.
In doing so, the Supreme Court in Vidya Drolia (2021, supra) dealt with
various phases of development of law of arbitration as regards the issue of
arbitrability of which, a brief reference may be made.
(i) The first phase identified was since enforcement of Arbitration Act, 1940 till
the decision of the Constitution Bench of seven Judges in SBP & Co. Vs. Patel
Engg. Ltd., (2005) 8 SCC 618 on 26.10.2005.
The Supreme Court noted that in this first phase lasting for nearly ten
years, the ratio expressed in Konkan Railway Corpn. Ltd. Vs. Mehul
Construction Co., (2000) 7 SCC 201 affirmed by the Constitution Bench of five
Judges in Konkan Railway Corpn. Ltd. Vs. Rani Construction (P) Ltd.,
(2002) 2 SCC 388 had prevailed, where the court would refrain from examining
various issues relating to arbitration, except for nominating an arbitrator, which
was considered to be essentially an administrative act, and neither judicial or
quasi judicial.
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(ii) The second phase identified by the Supreme Court commenced with the
decision in Patel Engg. Ltd. (supra) till legislative amendments were made for
reducing the role of court substantially by overruling the legal effect of Patel
Engg. Ltd. (supra) by enacting Amendment Act 3 of 2016 with retrospective
effect from 23.10.2015.
In Patel Engineering (supra) the scope of examination of the court in an
application made under Section 11 of the Arbitration Act was enlarged, including
examining whether the applicant had fulfilled the conditions for appointment of an
arbitrator under Section 11(6) of the Act for which the Chief Justice can examine
the documents filed and even taken evidence as may be required for the said
purpose. Thus, it was held that the consideration by the Chief Justice was not
merely an administrative act but a judicial act.
The relevant portion of the decision in Patel Engineering (supra) reads as
follows,
"39. It is necessary to define what exactly the Chief Justice, approached with an
application under Section 11 of the Act, is to decide at that stage. Obviously, he has
to decide his own jurisdiction in the sense whether the party making the motion has
approached the right High Court. He has to decide whether there is an arbitration
agreement, as defined in the Act and whether the person who has made the request
before him, is a party to such an agreement. It is necessary to indicate that he can
also decide the question whether the claim was a dead one; or a long-barred claim
that was sought to be resurrected and whether the parties have concluded the
transaction by recording satisfaction of their mutual rights and obligations or by
receiving the final payment without objection. It may not be possible at that stage,
to decide whether a live claim made, is one which comes within the purview of the
arbitration clause. It will be appropriate to leave that question to be decided by the
Arbitral Tribunal on taking evidence, along with the merits of the claims involved
in the arbitration. The Chief Justice has to decide whether the applicant has
satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act.
For the purpose of taking a decision on these aspects, the Chief Justice can either
proceed on the basis of affidavits and the documents produced or take such
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evidence or get such evidence recorded, as may be necessary. We think that
adoption of this procedure in the context of the Act would best serve the purpose
sought to be achieved by the Act of expediting the process of arbitration, without
too many approaches to the court at various stages of the proceedings before the
Arbitral Tribunal."
(iii) The third phase commenced with effect from 23.10.2015 and continued till
enactment of Amendment Act 33 of 2019 with effect from 09.08.2019 and
thereafter, fourth phase commenced after enactment of Amendment Act 33 of
2019 with the clear intent to promote instutionalised arbitration where the role of
the court has been the minimal, by legislative intervention.
24. The reduced role of the court in the light of the amendments brought in
has been clarified by the 3 Judge Bench decision in Vidya Drolia (2021, supra).
While doing so, the Hon'ble Supreme Court in Vidya Drolia (2021, supra)
examined how to determine whether any subject matter of dispute is not
arbitrable and, when and which authority shall decide it.
In that regard, the Hon'ble Supreme Court propounded a fourfold test for
determining when the subject matter of dispute in any arbitration agreement is
not arbitrable, in the following paragraphs:
"76. In view of the above discussion, we would like to propound a
fourfold test for determining when the subject-matter of a dispute in an arbitration
agreement is not arbitrable:
76.1. (1) When cause of action and subject-matter of the dispute relates to
actions in rem, that do not pertain to subordinate rights in personam that arise from
rights in rem.
76.2(2) When cause of action and subject-matter of the dispute affects third
-party rights; have erga omnes effect; require centralised adjudication, and mutual
adjudication would not be appropriate and enforceable.
76.3(3) When cause of action and subject-matter of the dispute relates to
inalienable sovereign and public interest functions of the State and hence mutual
adjudication would be unenforceable.
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76.4.(4) When the subject-matter of the dispute is expressly or by necessary
implication non-arbitrable as per mandatory statue(s).
76.5(5) These tests are not watertight compartments; they dovetail and
overlap, albeit when applied holistically and pragmatically will help and assist in
determining and ascertaining with great degree of certainty when as per law in
India, a dispute or subject-matter of the dispute would be non-arbitrable.
76.6 (6) However, the aforesaid principles have to be applied with care and
caution as observed in Olympus Superstructures (P) Ltd.7 : (SCC p. 669, para 35)
"35......Reference is made there to certain disputes like criminal
offences of a public nature, disputes arising out of illegal agreements and
disputes relating to status, such as divorce, which cannot be referred to
arbitration. It has, however, been held that if in respect of facts relating to a
criminal matter, say, physical injury, if there is a right to damages for
personal injury, then such a dispute can be referred to arbitration (Keir v.
Leeman50). Similarly, it has been held that a husband and a wife may refer
to arbitration the terms on which they shall separate, because they can make
a valid agreement between themselves on that matter (Soilleux v. Herbst51,
Wilson v.Winson52 and Cahill v. Cahill53)."
25. After having laid down the principles to decide non-arbitrability of the
disputes in issue, the Supreme Court proceeded to examine as to when the issue
of non-arbitrability can be decided.
_________________________________________________________________
7 : Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan,
(1999) 5 SCC 651
50 : (1846) 9 QB 371 : 115 ER 1315
51 : (1801) 2 Bos & P 444: 126 ER 1376
52 : (1848) 1 HL Cas 538
53 : (1883) LR 8 AC 420 (HL)
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The Supreme Court held that the issue of non-arbitrability can be raised at
three stages as held in para 82 of Vidya Drolia (2021, supra), which is
reproduced hereinbelow,
"82. Issue of non-arbitralibility can be raised at three stages. First, before the
court on an application for reference under Section 11 or for stay of pending
judicial proceedings and reference under Section 8 of the Arbitration Act; secondly,
before the Arbitral Tribunal during the course of the arbitration proceedings; or
thirdly, before the court at the stage of the challenge to the award of its
enforcement. Therefore, the question -"Who decides non-arbitrability?" and, in
particular, the jurisdiction of the court at the first look stage, that is, the referral
stage."
After having discussed the stage in which the issue of non-arbitrability can
be raised as mentioned above, the Hon'ble Supreme Court proceeded to examine
as to which authority, the court or the Arbitral Tribunal, will decide the non-
arbitrability.
26. The Supreme Court after discussing the earlier decisions, summed up the
legal position as regards the issue as to whether, the court or the Arbitral Tribunal
decides the non-arbitrability in para 154 of Vidya Drolia (2021, supra) as
follows,
"154. Discussion under the heading "Who Decides Arbitrability?" can be
crystallised as under:
154.1 Ratio of the decision in Patel Engg. Ltd16 on the scope of judicial
review by the court while deciding an application under Sections 8 or 11 of the
Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect
from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect
from 9-8-2019), is no longer applicable.
154.2 Scope of judicial review and jurisdiction of the court under Sections
8 and 11 of the Arbitration Act is identical but extremely limited and restricted.
__________________________________________________________
16 : . SBP & CO. v. Patel Engg. Ltd., (2005) 8 SCC 618
Arb.P. No. 47 of 2020
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154.3 The general rule and principle, in view of the legislative mandate
clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and
competence-competence, is that the Arbitral Tribunal is the preferred first authority
to determine and decide all questions of non-arbitrability. The court has been
conferred power of "second look" on aspects of non-arbitrability post the award in
terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section
34(2)(b) of the Arbitration Act.
154.4 Rarely as a demurrer the court may interfere at Section 8 or 11 stage
when it is manifestly and ex facie certain that the arbitration agreement is non-
existent, invalid or the disputes are non-arbitrable, though the nature and facet of
non-arbitrability would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect parties from
being forced to arbitrate when the matter is demonstrably "non-arbitrable" and to
cut off the deadwood. The court by default would refer the matter when contentions
relating to non-arbitrability are plainly arguable; when consideration in summary
proceedings would be insufficient and inconclusive; when facts are contested; when
the party opposing arbitration adopts delaying tactics or impairs conduct of
arbitration proceedings. This is not the stage for the court to enter into a mini trial
or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to
affirm and uphold integrity and efficacy of arbitration as an alternative dispute
resolution mechanism."
27. As far as the stage of deciding the arbitrability is concerned in this case,
there is no pending judicial proceeding between the parties to attract the
provisions of Section 8 of the Arbitration Act. Here the petitioner has filed an
application under Section 11 of the Arbitration and Conciliation Act, 1996 for
appointment of an arbitrator and as such our focus will be mainly concentrated on
the issue as to whether the disputes raised by the petitioner, which is contested
by the respondents are arbitrable or not and if so, whether this Court can appoint
an Arbitrator. In other words, this Court has to decide whether in the light of the
law discussed above, the disputes raised by the petitioner which are objected by
the respondents, are arbitrable or not and consequently, whether an Arbitrator will
Arb.P. No. 47 of 2020
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be required to be appointed in terms of the agreement as well as keeping in mind
the provisions of the Arbitration and Conciliation Act, 1996.
28. As mentioned above, the objection of the respondents to this application
for appointment of an Arbitrator is threefold.
Firstly, many of the claims are beyond the scope of agreement dated
09.12.2009 and Supplementary Agreement dated 04.03.2012 and hence, are not
arbitrable.
Secondly, some of the claims involve interest of third party and amount to
action in rem and as such, these are not arbitrable.
Thirdly, some of these claims involve serious fraud which would attract
punishable offence under the Indian Penal Code and hence, are not arbitrable.
Of course, the respondents have also raised a preliminary objection that the
present application is pre-mature and not maintainable, as the condition precedent
for invoking the arbitration clause had not been satisfied as there was no attempt
for amicable settlement.
29. This Court is of the view that before dealing with these three fold
objections on merit, it would be appropriate to deal with the preliminary objection
first.
The respondents have submitted that the application is premature and not
maintainable for the reason that though the Arbitration Clause provides for
amicable settlement at the first instance amongst the parties and only in the event
of failure of such initial exercise, the matter shall be referred to arbitration, the
petitioner instead of making an endeavour to settle the issues amicably at the first
instance, has proceeded for appointment of an Arbitrator by approaching this
Court under Section 11 of the Arbitration and Conciliation Act.
Arbitration Clause 11 as quoted above, specifically provides that any
dispute or differences arising out of or relating to this agreement shall be tried to
Arb.P. No. 47 of 2020
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be settled at the first instance amicably and in the event of failure of such
attempt, the matter shall be referred for arbitration.
Thus, according to the respondents, an Arbitrator can be appointed only on
the failure of an endeavour to settle amicably and as such, without going through
the first stage of making an attempt to settle the disputes amicably, the dispute
cannot be straightway referred to arbitration.
It has been submitted by the respondents that the petitioner vide letter
dated 18.09.2020 had requested the respondents to convey their response within
15(fifteen) days for amicable settlement of the issues but vide letter dated
01.10.2020 without waiting for 15 (fifteen) days, the petitioner invoked the
Arbitration clause, which is against the letter and spirit of Clause 11 (Arbitration
Clause).
The respondents contend that in fact, the respondents had sought for
certain information and documents for settlement of the issues but the petitioner
never cooperated with the respondents for the same and instead the petitioner
had gone ahead for appointment of an arbitrator without waiting for the
15(fifteen) days cooling period. Thus, it has been contended that the application is
premature and hence, liable to be dismissed.
30. In this connection, this Court has noted the contention of the petitioner that
an initial attempt was made to resolve the disputes amongst the parties before
referring to arbitration for which the petitioner had offered 15(fifteen) days time
to the respondents for amicable settlement, but the respondents did not respond
to the said offer. There appears to be certain differences of opinion in this aspect.
However, this Court has also noted that the respondents after the initial letter of
the petitioner dated 18.09.2020, continued to send correspondences to the
petitioner making claims and counter-claims which indicate that there was no
serious attempt on the part of either parties to resolve the claim/dispute amicably
within 15 (fifteen) days as provided under Clause 11.
Arb.P. No. 47 of 2020
18
Though it is correct that the letter dated 01.10.2020 sent by the petitioner
to the respondents invoking the arbitration clause for appointment of an arbitrator
was sent before lapse of 15(fifteen) days of the earlier letter dated 18.09.2020 of
the petitioner, the fact also remains that till the filing of this application, there
appears to be no serious attempt made by the parties to seek resolution of the
claims by amicable settlement. The acrimonious exchange of correspondence
between the petitioner and the respondents referred to above rather indicates the
combative stand of the parties which indicates a remote possibility of any amicable
settlement contemplated under the Arbitration Clause 11.
Under the circumstances, it appears that the parties have not really made
sincere endeavours to get the disputes settled amicably. However, this issue itself
as to whether the condition precedent for invoking the arbitration clause had been
fulfilled can be examined by the Arbitrator for which it may not be necessary for
this Court to delve further into the matter.
31. Coming to the first objection on merit raised by the respondents that some
of the claims are beyond the scope of agreement dated 09.12.2009, in the opinion
of this Court, this issue involves factual aspects, for which a detail examination
would be necessary as to whether the claims made by the petitioner are beyond
the scope of agreement and unless any of the claims is ex facie not covered by
the agreement dated 09.12.2009 or to use the expression of the Supreme Court
"to cut off deadwood", this is an aspect which ought to be examined by the
Arbitrator rather than by this Court at this referral stage.
If this Court, at this referral stage, has to examine that a particular claim is
beyond the scope of agreement, this Court has to make an exhaustive
examination of the claims and counter claims which would in fact frustrate the
whole purpose of appointment of Arbitrator for a speedy resolution of disputes.
The respondents have repudiated the Claims No. 1, 2, 3, 4, 5 and 8 of the
petitioner as beyond the scope of arbitration agreement. But the perusal of the
said claims would indicate that the claims have some nexus with the agreement
Arb.P. No. 47 of 2020
19
between the petitioner and the respondents. Therefore, it cannot be said that
these are ex-facie outside the scope of the agreement.
Claim No.1 relates to execution of sale deeds, which is permissible under
certain conditions under the agreement.
Claims No.2 and 4 relate to sharing of additional cost which the petitioner
claims to have incurred because of revision of the plan specification beyond the
original Joint Development Agreement (JDA) but nevertheless, related to the
conversion of the residential complex to commercial complex, for which the
Supplementary Agreement was executed on 04.03.2012.
Similarly, Claim No.3 relates to brokerage and commission which the
petitioner claims to be part of the JDA, which of course is denied by the
respondents.
Claim No.5 deals with financial charges due to delay in execution of sale
deeds. Sale by the petitioner is contemplated under the agreement.
Claim No.6 relates to compensation claimed by the owners on account of
increased raw materials cost incurred by the developer due to prolongation of the
project.
Claim No.7 relates to compensation on account of loss of market good will.
Claim No.8 relates to refund of amount paid to M/s Avani Projects and
Infrastructure Ltd.
Claim No.9 relates to additional interest paid to bank on account of extra
borrowing because of change of plan from residential to commercial and increase
in project cost and Claim No.10 relates to payment of interest.
All these claims arise out of or are relatable to the contract under the JDA
in some way or other, directly or indirectly. The arbitration clause itself mentions
that " Any dispute or differences arising out of or relating to this Agreement shall
be ............... referred for arbitration......." On minute examination of the claims
and counter claims it may ultimately be shown that some of the claims may
actually be outside the scope of the agreement. But if this Court proceeds to
Arb.P. No. 47 of 2020
20
undertake the exercise, it would virtually negate the speedy and expeditious
resolution of the disputes.
32. This Court is of the view that these are issues which can be looked into by
the Arbitrator as to whether any of the claims raised is beyond the scope of
arbitration or not. It goes without saying that the Arbitrator, if finds that any of
the claims is beyond the scope of arbitration, certainly cannot under law give any
award in respect of such claim, which does not arise out of the contract. But this
issue raised by the respondents will not come in the way of referring to
arbitration, at this referral stage.
33. As held by the Hon'ble Supreme Court in Vidya Drolia (2021, supra), the
Court at the referral stage either under Section 8 or 11 of the Arbitration Act
exercises judicial function, but essentially to make a prima facie examination of
the disputes primarily to weed out manifestly and ex-facie non-existent and invalid
arbitration agreement and non arbitrable disputes. In this context, it may be
apposite to reproduce para Nos. 132, 133 and 134 of the decision in Vidya Drolia
(2021, supra).
"132. The courts at the referral stage do not perform ministerial functions. They
exercise and perform judicial functions when they decide objections in terms of
Section 8 and 11 of the Arbitration Act. Section 8 prescribes the courts to refer the
parties to arbitration, if the action brought is the subject of an arbitration agreement,
unless it finds that prima facie no valid arbitration agreement exists. Examining the
term " prima facie", in Nirmala J. Jhala v. State of Gujarat82, this Court had noted:
(SCCp.320, para 48)
"48. „27.... A prima facie case does not mean a case proved to the
hilt but a case which can be said to be established if the evidence which is
led in support of the case were [to be] believed. While determining whether
a prima facie case had been made out or not the relevant consideration is
whether on the evidence led it was possible to arrive at the conclusion in
question and not whether that was the only conclusion which could be
arrived at on that evidence.‟**"
_______________________________________________________
82 : (2013) 4 SCC301: (2013) 2 SCC (L&S) 270
* : Ed.: As observed in Martin Burn Ltd. v. R. N. Banerjee, AIR 1958 SC 79, p.85,
para 27.
Arb.P. No. 47 of 2020
21
133. Prima facie case in the context of Section 8 is not to be confused
with the merits of the case put up by the parties which has to be established before
the Arbitral Tribunal. It is restricted to the subject-matter of the suit being prima
facie arbitrable under a valid arbitration agreement. Prima facie case means that the
assertions on these aspects are bona fide. When read with the principles of
separation and competence-competence and Section 34 of the Arbitration Act, the
referral court without getting bogged down would compel the parties to abide
unless there are good and substantial reasons to the contrary.83
134. Prima facie examination is not full review but a primary first review
to weed out manifestly and ex facie non-existent and invalid arbitration agreements
and non-arbitrable disputes. The prima facie review at the reference stage is to cut
the deadwood and trim off the side branches in straightforward cases where
dismissal is barefaced and pellucid and when on the facts and law the litigation
must stop at the first stage. Only when the court is certain that no valid arbitration
agreement exists or the disputes/subject-matter are not arbitrable, the application
under Section 8 would be rejected. At this stage, the court should not get lost in
thickets and decide debatable questions of facts. Referral proceedings are
preliminary and summary and not a mini trial. This necessarily reflects on the
nature of the jurisdiction exercised by the court and in this context, the observations
of B.N. Srikrishna, J. of "Plainly arguable" case in Shin-Estu Chemical Co. Ltd.60
are of importance and relevance. Similar views are expressed by this Court in
Vimal Kishor Shah8 wherein the test applied at the pre-arbitration stage was
whether there is a "good arguable case" for the existence of an arbitration
agreement.
_____________________________________________________
83: The European Convention on International Commercial Arbitration appears to
recognise the prima facie test in Article VI(3):
"VI (3) Where either party to an arbitration agreement has initiated arbitration
proceeds before any resort is had to a court, courts of contracting States
subsequently asked to deal with the same subject-matter between the same parties or
with the question whether the arbitration agreement was non-existent or null and
void or had lapsed, shall stay their ruling on the arbitrator‟s jurisdiction until the
arbitral award is made, unless they have good and substantial reasons to the
contrary."
60 : Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. (2005) 7 SCC 234
8 : Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4 SCC (Civ) 303
Arb.P. No. 47 of 2020
22
34. The Supreme Court also held that where it appears that prima facie review
would be inconclusive or the matter would require a detail examination, the
matter should be left to the arbitrator to decide as held in para 140 of Vidya
Drolia (2021, supra) as follows:
"140. Accordingly, when it appears that prima facie review would be
inconclusive, or on consideration inadequate as it requires detailed examination, the
matter should be left for final determination by the Arbitral Tribunal selected by the
parties by consent. The underlying rationale being not to delay or defer and to
discourage parties from using referral proceeding as a ruse delay and obstruct. In
such cases a full review by the courts at this stage would encroach on the
jurisdiction of the Arbitral Tribunal and violate the legislative scheme allocating
jurisdiction between the courts and the Arbitral Tribunal. Centralisation of
litigation with the Arbitral Tribunal as the primary and first adjudicator is
beneficent as it helps in quicker and efficient resolution of disputes."
35. The Supreme Court also cautioned the court of delaying tactics that may be
adopted by the party opposing arbitration in the following words,
"141. The Court would exercise discretion and refer the disputes to
arbitration when it is satisfied that the contest requires the arbitral tribunal should
first decide the disputes and rule on non- arbitrability. Similarly, discretion should
be exercised when the party opposing arbitration is adopting delaying tactics and
impairing the referral proceedings. Appropriate in this regard, are observations of
the Supreme Court of Canada in Dell Computer Corporation v. Union des
Consommateurs & Olivier Dumoulin,87 which read: (SCC OnLine Can SC paras
85-86)
"85. If the challenge requires the production and review of factual
evidence, the court should normally refer the case to arbitration, as
arbitrators have, for this purpose, the same resources and expertise as
courts. Where questions of mixed law and fact are concerned, the court
hearing the referral application must refer the case to arbitration unless the
questions of fact require only superficial consideration of the documentary
evidence in the record.
_______________________________________________________
87 : 2007 SCC OnLine Can SC 34 : (2007) 2 SCR 801 : 2007 SCC 34
Arb.P. No. 47 of 2020
23
86. Before departing from the general rule of referral, the court must
be satisfied that the challenge to the arbitrator‟s jurisdiction is not a
delaying tactic and that it will not unduly impair the conduct of the
arbitration proceeding. This means that even when considering one of the
exceptions, the court might decide that to allow the arbitrator to rule first on
his or her competence would be best for the arbitration process."
36. The Supreme Court further held that in cases of debatable and disputable
facts, good reasonable arguable case etc., the court would force the parties to
abide by the arbitration agreement as held in para 153, which reads as follows,
[Vidya Drolia, 2021 (supra)]
"153. Accordingly, we hold that the expression „existence of an arbitration
agreement‟ in Section 11 of the Arbitration Act, would include aspect of validity of
an arbitration agreement, albeit the court at the referral stage would apply the prima
facie test on the basis of principles set out in this judgment. In cases of debatable
and disputable facts, and good reasonable arguable case, etc., the court would force
the parties to abide by the arbitration agreement as the arbitral tribunal has primary
jurisdiction and authority to decide the disputes including the question of
jurisdiction and non-arbitrability."
37. The Supreme Court accordingly, summed up the legal position of the role
and jurisdiction of the court in dealing non-arbitrability at the referral stage in the
following words,
"154.3. The general rule and principle, in view of the legislative mandate clear
from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and
competence-competence, is that the arbitral tribunal is the preferred first authority
to determine and decide all questions of non-arbitrability. The court has been
conferred power of "second look" on aspects of non-arbitrability post the award in
terms of sub-clauses (i),(ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section
34(2)(b) of the Arbitration Act.
154.4 Rarely as a demurrer the court may interfere at the Section 8 or 11 stage
when it is manifestly and ex facie certain that the arbitration agreement is non-
Arb.P. No. 47 of 2020
24
existent, invalid or the disputes are non-arbitrable, though the nature and facet of
non-arbitrability would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect parties from
being forced to arbitrate when the matter is demonstrably „non-arbitrable‟ and to
cut off the deadwood. The court by default would refer the matter when contentions
relating to non-arbitrability are plainly arguable; when consideration in summary
proceedings would be insufficient and inconclusive; when facts are contested; when
the party opposing arbitration adopts delaying tactics or impairs conduct of
arbitration proceedings. This is not the stage for the court to enter into a mini trial
or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but
to affirm and uphold integrity and efficacy of arbitration as an alternative dispute
resolution mechanism."
38. In the light of above, the issue whether some of the claims of the petitioner
are beyond the scope of arbitration can be decided by the arbitrator, and ought
not be decided by the court at this referral stage.
39. The next issue raised is that, as some of the claims involve interest of third
party and these are related to action in rem, these claims are non-arbitrable.
In this regard, the respondents have emphasised on the claim made by the
petitioner under Claim No.1 which relates to execution of sale deeds in favour of
shop owners by the petitioner, which could not be finalised allegedly due to non-
issuance of No Objection Certificate by the respondents.
It has been submitted by the respondents that by entering into such
agreements with the vendees, certain rights of third party get involved, who are
not party to the contract under the JDA and as such, there could not be any
arbitration relating to these claims which involve third party interest.
It has thus been submitted on behalf of the respondents that the present
dispute is not merely between the petitioner and the respondents simplicitor, but
involves action in rem as it involves the interest of the world at large including the
prospective purchasers who are not a party to this agreement/contract.
Arb.P. No. 47 of 2020
25
In this regard, it may be noted that the dispute is essentially between the
petitioner and the respondents as regards furnishing of "No Objection Certificate"
for execution of certain sale deeds by the petitioner in favour of some purchasers
who are not parties to the agreement. However, it is to be noted that the claim
does not relate to dispute between the petitioner and the purchasers under the
sale deeds which the petitioner is entitled to sell subject to certain conditions
mentioned in the contract. If there be any issue with the purchasers, the
purchasers would be at liberty to proceed against the petitioner.
40. As per the terms and conditions of JDA, the petitioner and the respondents
have rights to sell the properties to the extent of 52.40% by the petitioner and
46.60% by the respondents. But since the land belongs to the respondents, before
any agreement of sale can be completed in respect of such sale executed by the
petitioner, the respondents have to give "No Objection Certificate". Thus, the
dispute, though it appears to involve third parties, i.e. vendees, is essentially
between the petitioner and the respondents relating to issue of "No Objection
Certificate". At this stage, the purchasers have not raised any dispute with either
the petitioner or the respondents.
As regards the sale, both the petitioner and the respondents have the
authority to that extent of share mentioned above.
The claim made by the petitioner seeking "No Objection Certificate" from
the respondents is the subject matter of Claim No.1.
Further, if there be any issue that the sale consideration is much less than
the actual cost, as alleged by the respondents, it is again the concern of the
petitioner whether he sells it cheap or not unless any ceiling has been agreed
upon by the contesting parties. Thus, it cannot be said that it involves interest of
third party.
As to how the petitioner has to deal with those purchasers is an issue which
can be independently determined/decided but certainly the Arbitrator can examine
the relationship of the petitioner and the respondents regarding the action of sale
Arb.P. No. 47 of 2020
26
by the petitioner under the agreement, as regards issuance of "No Objection
Certificate". At the same time, the Arbitrator cannot make any award which,
otherwise, would affect the right of the purchasers. However, this apprehension
that it may affect the right of the third party-purchasers cannot be a ground for
refusing to refer to arbitration at this referral stage, as the third party has not
raised any dispute with the respondents or the petitioner regarding the said sale
deeds.
41. Third submission advanced by the respondents is that the petitioner had
engaged in a number of fraudulent acts by cheating and fabrication of documents
etc., and they have committed criminal offences which are punishable under
Section 463 IPC etc., and as such, in view of serious fraud allegedly practised by
the petitioner these disputes cannot be examined by way of arbitration.
As regards the issue of fraud and manipulation which will make the subject
matter of dispute non-arbitrable, it had been discussed in detail by the Hon'ble
Supreme Court in Vidya Drolia (2021, supra).
42. Before formulating the fourfold test in Vidya Drolia (2021, supra) as
discussed above, the Hon'ble Supreme Court analysed numerous earlier decisions
deciding non arbitrability of disputes involving rights in rem, criminal offences,
matrimonial disputes, guardianship, insolvency, testamentary matters, tenancy
related matters, matters involving specific performance.
43. The Supreme Court while examining the law relating to non-arbitrability
when allegations of fraud have been raised by one of the parties, referred to the
decision in N. Radhakrishnan Vs. Maestro Engineers, (2010) 1 SCC 72,
which relied on the observations made in Abdul Kadir Shamsuddin Bubere Vs.
Madhav Prabhakar Oak and Anr. (AIR 1962 SC 406), which is reproduced
hereinbelow.
"17. There is no doubt that where serious allegations of fraud are made
against a party and the party who is charged with the fraud desires that the matter
Arb.P. No. 47 of 2020
27
should be tried in open court, that would be a sufficient cause for the court not to
order an arbitration agreement to be filed and not to make the reference."
Thus, in N. Radhakrishnan (supra), it was held that where allegations of
fraud and manipulations of finances in partnership firm are raised, it would be
desirable that such disputes are decided by the court of law which are more
competent to decide complicated matters.
44. However, the Supreme Court also referred to another decision in A.
Ayyasamy Vs. A. Paramasivam, (2016) 10 SCC 386, which took a more
nuanced view by holding that fraud is one such category where the dispute would
be considered as non-arbitrable, but further clarifying that mere allegation of fraud
is not enough, and it should be of such a nature that it virtually amounts to a
criminal offence.
It would be apposite to quote Dr. A. K. Sikri, J. in the aforesaid case, on the
issue of non arbitrability of disputes where allegations of fraud are raised as
follows, (A. Ayyasami, 2016)
"25... finds that there are very serious allegations of fraud which make a
virtual case of criminal offense 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...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
Arb.P. No. 47 of 2020
28
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."
45. Dr. D. Y. Chandrachud, J, while taking a concurring view however,
impressed upon the importance of arbitration as the more preferred method for
resolving disputes arising out of civil or contractual relationship based on mutually
agreed contract in the following words (in Ayyasami case 2016),
"43. Hence, the allegations of criminal wrongdoing or of statutory
violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve
a dispute arising out of a civil or contractual relationship on the basis of the
jurisdiction conferred by the arbitration agreement."
......................................................................................................
...................................................................................................
"53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle."
46. The Supreme Court in Vidya Drolia (2021, supra) examined the issue of fraud also by referring to the decision in Avitel Post Studioz Ltd. Vs. HSBC PI Holdings (Mauritius) Ltd., [(2021) 4 SCC 713], which took a different view opposed to as expressed in N. Radhakrishnan (supra).
In Avitel Post Studioz Ltd. (supra), the Hon'ble Supreme Court relied on an earlier decision in Rashid Raza Vs. Sadaf Akhtar, [(2019) 8 SCC 710] wherein it was held that, "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: (I) does this plea permeate the entire contract and above all, the agreement of Arb.P. No. 47 of 2020 29 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."
Thereafter, it was held in Avitel Post Studioz Ltd. (supra) as follows:
"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."
47. The view taken in Avitel Post Studioz Ltd. (supra) thus, was that only when serious allegations of fraud are raised because of which the arbitration clause or agreement itself cannot be said to exist or when such serious allegations are made against the State or the instrumentalities of the State, that arbitration would not be the proper method to resolve the dispute.
48. The Hon'ble Supreme Court in Vidya Drolia (2021, supra) endorsed the aforesaid view taken in Avitel Post Studioz Ltd. (supra) and overruled the decision in N. Radhakrishnan (supra) by holding as follows, "78. In view of the aforesaid discussions, we overrule the ratio in N. Radhakrishnan, [(2010) 1 SCC 72] 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 the case of HDFC Bank Ltd. which holds that the disputes which are to be adjudicated by the DRT under the DRT Act are arbitrable. They are non-arbitrable."
Arb.P. No. 47 of 2020 3049. In this case, it has been noted that though allegations of serious fraud has been alleged by the respondents, these arise out of essentially of a civil dispute. Further, nowhere it is on record that the respondents have filed any criminal cases against the petitioner for invoking any provision of Indian Penal Code.
It goes without saying that if the petitioner is found to be involved in any serious criminal offence for which no process has yet been initiated, any of the aggrieved parties would be at liberty to proceed against the petitioner under the criminal justice system which would not come in the way of arbitration of the disputes even if elements of criminality is involved there.
In the present case, it is not the case of respondents that the Arbitration Clause itself is vitiated or rendered otiose because of the alleged fraudulent acts of the petitioner, but the fraud alleged appears to be about the post-agreement. It is also not the case that this allegation of forgery permeates entire contract including the agreement to arbitrate, where the fraud goes to the validity of the contract itself.
In fact, the fraud alleged by the respondents have been disputed by the petitioner. Further, it appears though fraud has been challenged, the dispute essentially arises out of a civil dispute between the petitioner and the respondents qua the JDA and Supplementary Agreement.
It may be also noted that the Supreme Court in Vidya Drolia (2021, supra) had observed that in case of debatable and disputable facts, and good reasonable arguable cases, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has the primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability.
50. Thus, in the present case, in the light of the law and reasons as discussed above, this Court is of the view that the issue of non-arbitrability raised by the respondents on the ground that some of the claims are beyond the scope of JDA, some involve interest of third parties and actions in rem, and some claims involve Arb.P. No. 47 of 2020 31 serious frauds/contract offence under the Indian Penal Code will not come in the way of appointment of an Arbitrator to deal with the claims.
51. This Court, having considered the submission advanced by the learned counsel for the petitioner and respondents accordingly, appoints Hon'ble Mr. Justice Amitava Roy, Retired Judge of the Supreme Court of India as the sole Arbitrator to decide the disputes amongst the parties. The respondents would be at liberty to raise all such issues as they deem appropriate before the Arbitrator which will be dealt with by the Arbitrator in accordance with law.
As discussed above, the Court has been conferred with the power of "second look" on aspects of non-arbitrability of post the award in terms of sub- clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act and as such, all the issues raised about arbitrability of any issue can be examined the Court post award stage.
52. The appointment of Mr. Justice Amitava Roy, Retired Judge of the Supreme Court of India, however, is subject to his willingness and disclosures to be made in writing by him under Section 12(2) of the Arbitration and Conciliation Act, 1996, for any consequential action, if necessity arises.
The Registry is accordingly, directed to inform Hon'ble Mr. Justice Amitava Roy, Retired Judge of the Supreme Court of India of this order passed for doing the needful. Parties are also at liberty to inform Hon'ble Mr. Justice Amitava Roy, Retired Judge of the Supreme Court of India.
53. The petition is accordingly, disposed of.
JUDGE Comparing Assistant Arb.P. No. 47 of 2020