Calcutta High Court
Srei Equipment Finance Limited vs Whitefield Papermills Ltd And Anr on 24 February, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD -17
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
AP-COM/369/2024
[Old Case No. AP/680/2023]
SREI EQUIPMENT FINANCE LIMITED
VS
WHITEFIELD PAPERMILLS LTD AND ANR.
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date: 24th February, 2025.
Appearance:
Mr. JishnuSaha,Sr.Adv.
Mr. Swatarup Banerjee, Adv.
Mr. Shaunak Ghosh, Adv.
Mr. RajibMullick, Adv.
.... for the petitioner
Mr. Snubhav Sinha,Adv.
Mr.SubhasisDey, Adv.
Mr. Saswat Acharya, Adv.
Mr. Abhijit Agarwal, Adv.
Ms. Shruti Shaw, Adv.
...for the respondents
The Court:1. This is an application for appointment of an arbitrator.
Clause 17 of the loan agreement dated July 1, 2019, contains an arbitration
clause. Mr. Saha, learned senior advocate submits that the dispute between
the parties should be referred to arbitration on the strength of the said clause.
Clause 17 of the said agreement is quoted below:-
"17. LEGAL REMEDIES FOR RECOVERY OF DUES :
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"In the event of any dispute or differences arising under this
Agreement including any dispute as to any amount outstanding, the
real meaning or purport hereof ("Dispute"), such dispute shall be
finally resolved by arbitration. Such arbitration shall be conducted in
accordance with the provisions of the Indian Arbitration and
Conciliation Act, 1996 and rules framed thereunder and/or any
amendment and/or re-enactment thereof from time to time, by a
single named arbitrator to be appointed solely by the Lender. The
venue of arbitration shall be Kolkata and the arbitration shall be
conducted in English language. The Borrower and/or all the owner
and/or the mortgagor of the property confirms to abide by the
arbitration clause and shall always be bound and abide by the award
and/or orders of the Arbitrator.
Further it is stated and mutually agreed between the Parties
that in the event of any dispute and differences and/or any Event of
Default arising out of this agreement and its connected documents
including the mortgage of the security/property and/or other
securities, Srei has the discretion and option to avail any other civil
and/or criminal remedies and/or legal relief in Courts, Tribunals,
statutory reliefs in accordance with law and as permitted in prevailing
laws, Acts and Rules framed thereunder including Insolvency and
Bankruptcy laws act and rules and/or SARFAESI Act and Rules and
as amended from time to time and file any mortgage suit and/or do
auction for the purpose of sale and recovery of its dues and claims
and accordingly enforce the mortgage and sell the mortgaged property
and/or other securities in accordance with law and appropriate the
sale proceeds as recovery of dues along with interest and other
charges accruing thereon."
2. Clause 20 of the agreement is quoted below, and the same mentions the
chosen jurisdiction.The same is quoted below:-
"20. GOVERNING LAW AND JURISDICTION :
This Agreement shall be governed by and construed in all respects
with the Laws in India and any matter or issues arising or any
dispute hereunder shall, at the option/discretion of the Lender, with
the exclusive jurisdiction of the Courts of the City of Kolkata. This
shall not however limit the rights of the Lender to file/take
proceedings in any other Court of Law or Tribunal of Competent
Jurisdiction and the Lender is also fully entitled to avail any
provisions of the Law and/or any
amendments/govt.orders/circulars/notifications/statutory rights as
and when applicable to the Lender in accordance with Law."
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3. The mechanism prescribed under the arbitration clause is that, the
lender will appoint the sole arbitrator,to arbitrate upon the dispute between the
parties.In view of the change of law and the subsequent decisions of the
Hon'ble Apex Court, the mechanism prescribed fails.The lender cannot appoint
the learned arbitrator, unilaterally. Hence, the petitioner has approached this
Court with this application when the respondents did not reply to the notice
invoking arbitration dated May 25, 2023. The respondents denied the nature of
the dispute.
4. Mr. Saha, learned senior Advocate for the petitioner submits that the
contentions and objections raised by the respondents in the affidavit-in-
opposition are triable issues.The scope of the referral court is restricted to the
examination of the existence of an arbitration clause and invocation thereof.
Mr. Sinha, learned advocate for the respondents has vehemently opposed this
application and urges this Court to reject the application on the following
grounds:-
(a) The Reserve Bank of India, in its application before the learned
National Company Law Tribunal, Kolkata Bench indicated that the
transaction between the petitioner and the respondents was a
fraudulent one.
(b) The agreement was induced by fraud. Fraud vitiates all. It goes to
the very root of the agreement.
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(c) Fraud being a complicated issue involving elaborate appreciation of
evidence,should be adjudicated by the Civil Court and not by an
arbitrator.
(d) The referral Court, upon perusal of the application of the Reserve
Bank of India and all the bank transactions which have been
annexed to the affidavit-in-opposition, should refrain from referring
the disputes to arbitration. The petitioner must be relegated to a civil
suit.
(e) The notice invoking arbitration is defective as an incorrect clause
has been mentioned.
(f) The arbitration agreement is not properly certified.
5. Reliance has been placed on the decisions of Rashid Raza vs. Sadaf
Akhtar reported in (2019) 8 SCC 710 and A. Ayyasamy vs. A. Paramasivam
and Ors.,reported in (2016) 10 SCC 386.
6. According to Mr. Sinha, if the referral court upon, prima facie,
appreciation of the documents arrives at a conclusion that the allegation of
fraud is serious and issues are triable under the criminal laws, the prayer for
reference should be rejected. According to Mr. Sinha, fraud vitiates all,
including the agreement. Moreover, not only were the transactions between the
parties fraudulent, but the execution of the document was also an act of fraud.
The respondents' signature was induced by fraud and misrepresentation.
Accordingly, the decision in A. Ayyasamy (supra) is relied upon by Mr. Sinha
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in support of his further contention that, when there are allegations of fraud,
the referral court while adjudicating the application under Section 11, should
conduct the twin tests, i.e., (a) whether the plea of fraud permeates the entire
contract (b) whether the allegation of fraud touches upon the internal affairs of
the parties inter se, having no implication in the public domain. Mr. Sinha
submits that the very fact that, the Reserve Bank of India approached the
NCLT, Kolkata Bench with the allegations that fraudulent activities were being
indulged in by the petitioner, which also involved the transactions with the
respondents, was indication of the adverse effect on the public exchequer. The
respondents has also filed a supplementary affidavit to bring on record that, a
notice of invocation of pledged shares had been issued by the petitioner, which
indicated that the dispute and difference, arose out of a loan agreement of
2017 and not the subject agreement dated July 1, 2019. It is submitted that
the impugned loan was utilized to round trip an amount of INR 66 crores to the
respondents, to enable the petitioner to repay an existing loan of SEFL and
ultimately, the amount was ultimately received by SEFL. Further, mortgage of
properties which were situated within the Special Economic Zone could not
have been created. Moreover, allocation of those properties were also cancelled
by the Andhra Pradesh Government which proved that the transactions were
completely fraudulent and illegal. The disbursements were made to the
respondents with an ulterior motive.
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7. Heard the parties. This is a referral Court. The jurisdiction of the referral
Court is restricted to the satisfaction of existence of an arbitration agreement
and whether the arbitration clause had been invoked or not. The existence of
the arbitration agreement is not in dispute. Mr. Sinha has addressed the Court
today, on the issue that the same was induced by fraud. In the affidavit in
opposition the advancement of the loan and execution agreement are expected.
Relevant paragraphs are quoted below:-
"a) The respondents company had incurred heavy financial losses due to
certain arbitrary decisions by the Government of Andhra Pradesh and
the same have been contested for over the last 6 years. The steps taken
by the Government of Andhra Pradesh have, in fact, been stayed by the
High Court of Judicature at Hyderabad by way of an order dated 26th
October, 2017. A copy of the said order is annexed hereto and marked
"A".
b) The respondents company was in dire need of financial
accommodation due to a stoppage of the SEZ Project, as indicated
hereinabove, and approached the petitioner company. The petitioner
company was going with a superior bargaining power at that juncture.
By way of the present agreement, a sum of Rs. 15 Crores was forwarded,
in tranches by the petitioner company to the respondents company. The
respondents also returned the same money in separate tranches and at
present, has returned the entire sum of Rs. 15 Crores.
The Reserve Bank of India, in its application being IA No. 408/2022 in
C.P. (IB) / 294/KB/2021 before the Ld. NCLT, Kolkata Bench, has
indicated that the entire transaction was fraudulent in nature. Copies of
the banking documents and the application filed by the Reserve Bank of
India are annexed hereto and collectively marked "B". The petitioner
company has participated in the alleged grievous fraud as per its own
stand, and as such, the instant application is also liable to be dismissed
in limine. At this juncture it is important to point out that the Petitioner
is taking divergent stands and the same is not permissible in the eyes of
law.
d) The instant Agreement is with respect to creation of mortgage and/or
encumbrance over immovable property. As such, the same is registrable.
The instant Agreement is, however, not been registered and as such, the
same cannot be considered for appointment of an arbitrator."
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9. The execution of the agreement is accepted. The receipt of the notice of
invocation is also accepted. Now, whether the agreement was induced by fraud
or misrepresentation etc. will require a detailed enquiry and consideration of
the evidence to be led by the parties. These issues cannot be decided by the
referral Court. Srei Infrastructure Private Limited and Srei Equipment Finance
Limited had undergone a Corporate Insolvency Resolution Process. However,
the company has come out of the resolution process. The petitioner company is
now managed by a different entity. The change of management is the outcome
of a successful insolvency resolution.
10. In the entire affidavit-in-opposition, the only averment of fraud is that,
the Reserve Bank of India had pointed out to the NCLT, Kolkata that the
transaction between the petitioner and the respondents was fraudulent. The
reasons have also been mentioned in the annexures. However, Mr. Saha
submits that the application under Section 66 of the Insolvency and
Bankruptcy Code was not filed by the Reserve Bank of India, but by the
resolution professional. The same is still pending. In my view, whether the loan
was utilized to round-trip an amount of INR 66 crores through Whitefield or
whether the money was disbursed to Whitefield for ulterior motive and for Srei
Equipment Finance Limited to pay off its existing loan, which was detrimental
to public interest, are again matters of evidence which are required to be gone
into by the learned Arbitrator.
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11. In the decision of A. Ayyasamy (supra), the Hon'ble Apex Court held
that an application under Section 8 of the Arbitration and Conciliation Act can
be rejected only when the allegation of forgery and fabrication of documents in
support of the plea of fraud permitted through the entire contract, including
the arbitration agreement, thereby raising a serious question with regard to the
validity of the contract itself. Such issues required elaborate evidence to be
adduced by the parties and the civil court should reject such application and
proceed with the suit.
12. However, the reverse position was also discussed in the said decision
which stated that where there were simple allegations of fraud touching upon
the internal affairs of the parties, inter se and it had no implication in the
public domain, the arbitration clause need not be avoided and the parties
should be relegated to arbitration.
13. In the case in hand, the issue with regard to the proceeding initiated by
the Reserve Bank of India and the impact of the said loan agreement, are
matters of evidence. The loan agreement before this Court, does not indicate
prima facie, that the same was a product of fraud. The respondents, in its reply
to the notice invoking arbitration, has accepted that the said agreement had
been entered into in good faith and the respondents to comply with the terms
and conditions of the same. For the referral Court to probe deeper into such
issue, will be contrary to the principle of competence.
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14. Reference is made to the decision of SBI General Insurance Co. Ltd. vs
Krish Spinning reported in 2024 SCC Online SC 1754, the relevant
paragraphs are quoted below:-
""91. The justification given in NTPC v. SPML (supra) for allowing the
scrutiny of arbitrability at the stage of Section 11 petition was that the
referral court is under a duty to protect the parties from being forced to
arbitrate when the matter is demonstrably non-arbitrable, and any
interference by the referral court preventing such ex-facie meritless
arbitration could be termed as legitimate. It was observed thus:
"28. The limited scrutiny, through the eye of the needle, is necessary and
compelling. It is intertwined with the duty of the Referral Court to protect
the parties from being forced to arbitrate when the matter is
demonstrably non-arbitrable. It has been termed as a legitimate
interference by Courts to refuse reference in order to prevent wastage of
public and private resources [Vidya Drolia v. Durga Trading
Corpn., (2021) 2 SCC 1, para 139 : (2021) 1 SCC (Civ) 549]. Further, as
noted in Vidya Drolia [Vidya Drolia v. Durga Trading Corpn., (2021) 2
SCC 1 : (2021) 1 SCC (Civ) 549], if this duty within the limited compass
is not exercised, and the Court becomes too reluctant to intervene, it may
undermine the effectiveness of both, arbitration and the Court [Vidya
Drolia v. Durga Trading Corpn., (2021) 2 SCC 1, para 139 : (2021) 1 SCC
(Civ) 549]. Therefore, this Court or a High Court, as the case may be,
while exercising jurisdiction under Section 11(6) of the Act, is not
expected to act mechanically merely to deliver a purported dispute raised
by an applicant at the doors of the chosen arbitrator, as explained
in DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd. [DLF Home
Developers Ltd. v. Rajapura Homes (P) Ltd., (2021) 16 SCC 743, paras
22, 26]"
92. The position that emerges from the aforesaid discussion of law on the
subject as undertaken by us can be summarised as follows:--
i. There were two conflicting views which occupied the field under
the Arbitration Act, 1940. While the decisions in Damodar Valley (supra)
and Amar Nath (supra) took the view that the disputes pertaining to
"accord and satisfaction" should be left to the arbitrator to decide, the
view taken in P.K. Ramaiah (supra) and Nathani Steels (supra) was that
once a "full and final settlement" is entered into between the parties, no
arbitrable disputes subsist and therefore reference to arbitration must
not be allowed.
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ii. Under the Act, 1996, the power under Section 11 was characterised as
an administrative one as acknowledged in the decision in Konkan
Railway (supra) and this continued till the decision of a seven-Judge
Bench in SBP & Co. (supra) overruled it and significantly expanded the
scope of judicial interference under Sections 8 and 11 respectively of the
Act, 1996. The decision in Jayesh Engineering (supra) adopted this
approach in the context of "accord and satisfaction" cases and held that
the issue whether the contract had been fully worked out and whether
payments had been made in full and final settlement of the claims are
issues which should be left for the arbitrator to adjudicate upon.
iii. The decision in SBP & Co. (supra) was applied in Boghara
Polyfab (supra) and it was held by this Court that the Chief Justice or his
designate, in exercise of the powers available to them under Section 11 of
the Act, 1996, can either look into the question of "accord and
satisfaction" or leave it for the decision of the arbitrator. However, it also
specified that in cases where the Chief Justice was satisfied that there
was indeed "accord and satisfaction", he could reject the application for
appointment of arbitrator. The prima facie standard of scrutiny was also
expounded, stating that the party seeking arbitration would have
to prima facie establish that there was fraud or coercion involved in the
signing of the discharge certificate. The position elaborated in Boghara
Polyfab (supra) was adopted in a number of subsequent decisions,
wherein it was held that a mere bald plea of fraud or coercion was not
sufficient for a party to seek reference to arbitration and prima
facie evidence for the same was required to be provided, even at the stage
of the Section 11 petition.
iv. The view taken by SBP & Co. (supra) and Boghara Polyfab (supra) was
seen by the legislature as causing delays in the disposal of Section 11
petitions, and with a view to overcome the same, Section 11(6-A) was
introduced in the Act, 1996 to limit the scope of enquiry under Section
11 only to the extent of determining the "existence" of an arbitration
agreement. This intention was acknowledged and given effect to by this
Court in the decision in Duro Felguera (supra) wherein it was held that
the enquiry under Section 11 only entailed an examination whether an
arbitration agreement existed between the parties or not and "nothing
more or nothing less".
v. Despite the introduction of Section 11(6-A) and the decision in Duro
Felguera (supra), there have been diverging views of this Court on
whether the scope of referral court under Section 11 of the Act, 1996
includes the power to go into the question of "accord and satisfaction".
In Antique Art (supra) it was held that unless some prima facie proof of
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duress or coercion is adduced by the claimant, there could not be a
referral of the disputes to arbitration. This view, however, was overruled
in Mayavati Trading (supra) which reiterated the view taken in Duro
Felguera (supra) and held that post the 2015 amendment to the Act,
1996, it was no more open to the Court while exercising its power under
Section 11 of the Act, 1996 to go into the question of whether "accord
and satisfaction" had taken place.
vi. The decision in Vidya Drolia (supra) although adopted the view taken
in Mayawati Trading (supra) yet it provided that in exceptional cases,
where it was manifest that the claims were exfacie time barred and
deadwood, the Court could interfere and refuse reference to arbitration.
Recently, this view in the context of "accord and satisfaction" was
adopted in NTPC v. SPML (supra) wherein the "eye of the needle" test was
elaborated. It permits the referral court to reject arbitration in such
exceptional cases where the plea of fraud or coercion appears to be ex-
facie frivolous and devoid of merit.
93. Thus, the position after the decisions in Mayavati Trading (supra)
and Vidya Drolia (supra) is that ordinarily, the Court while acting in
exercise of its powers under Section 11 of the Act, 1996, will only look
into the existence of the arbitration agreement and would refuse
arbitration only as a demurrer when the claims are ex-facie frivolous and
non-arbitrable.
iii. What is the effect of the decision of this Court in In Re : Interplay
Between Arbitration Agreements under the Arbitration and Conciliation
Act, 1966 and the Indian Stamp Act 1899 on the scope of powers of the
referral court under Section 11 of the Act, 1996?
94. A seven-Judge Bench of this Court, in In Re : Interplay Between
Arbitration Agreements under the Arbitration and Conciliation Act, 1966
and the Indian Stamp Act, 1899 reported in 2023 INSC 1066, speaking
eruditely through one of us, Dr Dhananjaya Y. Chandrachud, Chief
Justice of India, undertook a comprehensive analysis of Sections 8 and
11 respectively of the Act, 1996 and, inter alia, made poignant
observations about the nature of the power vested in the Courts insofar
as the aspect of appointment of arbitrator is concerned. Some of the
relevant observations made by this Court in In Re : Interplay (supra) are
extracted hereinbelow:
"179. [...] However, the effect of the principle of competence-competence
is that the arbitral tribunal is vested with the power and authority to
determine its enforceability. The question of enforceability survives,
pending the curing of the defect which renders the instrument
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inadmissible. By appointing a tribunal or its members, this Court (or the
High Courts, as the case may be) is merely giving effect to the principle
enshrined in Section 16. The appointment of an arbitral tribunal does
not necessarily mean that the agreement in which the arbitration clause
is contained as well as the arbitration agreement itself are enforceable.
The arbitral tribunal will answer precisely these questions.
xxx xxx xxx
185. The corollary of the doctrine of competence-competence is that
courts may only examine whether an arbitration agreement exists on the
basis of the prima facie standard of review. The nature of objections to
the jurisdiction of an arbitral tribunal on the basis that stamp-duty has
not been paid or is inadequate is such as cannot be decided on a prima
facie basis. Objections of this kind will require a detailed consideration of
evidence and submissions and a finding as to the law as well as the
facts. Obligating the court to decide issues of stamping at the Section 8
or Section 11 stage will defeat the legislative intent underlying the
Arbitration Act.
186. The purpose of vesting courts with certain powers under Sections 8
and 11 of the Arbitration Act is to facilitate and enable arbitration as well
as to ensure that parties comply with arbitration agreements. The
disputes which have arisen between them remain the domain of the
arbitral tribunal (subject to the scope of its jurisdiction as defined by the
arbitration clause). The exercise of the jurisdiction of the courts of the
country over the substantive dispute between the parties is only possible
at two stages:
a. If an application for interim measures is filed under Section 9 of the
Arbitration Act; or
b. If the award is challenged under Section 34.
Issues which concern the payment of stamp-duty fall within the remit of
the arbitral tribunal. The discussion in the preceding segments also
make it evident that courts are not required to deal with the issue of
stamping at the stage of granting interim measures under Section 9."
15.In the matter of A. Ayyasamy v. A. Paramasivam, reported in(2016) 10
SCC 386, the Hon'ble Apex Court held as follows:-
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45.2. Allegations of fraud are not alien to ordinary civil courts.
Generations of judges have dealt with such allegations in the context of
civil and commercial disputes. If an allegation of fraud can be
adjudicated upon in the course of a trial before an ordinary civil court,
there is no reason or justification to exclude such disputes from the
ambit and purview of a claim in arbitration. The parties who enter into
commercial dealings and agree to a resolution of disputes by an arbitral
forum exercise an option and express a choice of a preferred mode for the
resolution of their disputes. The parties in choosing arbitration place
priority upon the speed, flexibility and expertise inherent in arbitral
adjudication. Once parties have agreed to refer disputes to arbitration,
the court must plainly discourage and discountenance litigative
strategies designed to avoid recourse to arbitration. Any other approach
would seriously place in uncertainty the institutional efficacy of
arbitration. Such a consequence must be eschewed.
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 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
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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 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.
50. Lord Hoffmann held that if this is the purpose underlying an agreement to arbitrate, it would be inconceivable that parties would have intended that some, amongst their disputes should first be resolved by a court before they proceed to arbitration : (Premium Nafta Products case [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)] , Bus LR pp. 1723 D-E, para 7) 15 "7. If one accepts that this is the purpose of an arbitration clause, its construction must be influenced by whether the parties, as rational businessmen, were likely to have intended that only some of the questions arising out of their relationship were to be submitted to arbitration and others were to be decided by national courts. Could they have intended that the question of whether the contract was repudiated should be decided by arbitration but the question of whether it was induced by misrepresentation should be decided by a court? If, as appears to be generally accepted, there is no rational basis upon which businessmen would be likely to wish to have questions of the validity or enforceability of the contract decided by one tribunal and questions about its performance decided by another, one would need to find very clear language before deciding that they must have had such an intention."
51. While affirming the judgment of the Court of Appeal, the House of Lords held : (Premium Nafta Products case [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)] , Bus LR p. 1725 A-B & D-E, paras 13 & 15) "13. In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator's jurisdiction. As Longmore, L.J. remarked, at para 17:
'if any businessmen did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so.' ***
15. If one adopts this approach, the language of Clause 41 of Shelltime 4 contains nothing to exclude disputes about the validity of the contract, whether on the grounds that it was procured by fraud, bribery, 16 misrepresentation or anything else. In my opinion it therefore applies to the present dispute."
This principle should guide the approach when a defence of fraud is raised before a judicial authority to oppose a reference to arbitration. The arbitration agreement between the parties stands distinct from the contract in which it is contained, as a matter of law and consequence. Even the invalidity of the main agreement does not ipso jure result in the invalidity of the arbitration agreement. The parties having agreed to refer disputes to arbitration, the plain meaning and effect of Section 8 must ensue.
55. Similarly, Redfern and Hunter on International Arbitration [ 6thEdn., para 2.154] contains the following statement of legal position in relation to arbitrability of matters involving fraud:
"(vi) Fraud Where allegations of fraud in the procurement or performance of a contract are alleged, there appears to be no reason for the Arbitral Tribunal to decline jurisdiction. Indeed, in the heat of battle, such allegations are frequently made, although much less frequently proven."
16.In the matter of Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., reported in (2021) 4 SCC 713, the Hon'ble Apex Court held as follows:-
"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 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."
1717. The Arbitration and Conciliation Act imposes an affirmative obligation that, every judiciary must follow to uphold and make operative the agreement.
Unless it is prima facie available from the record that, the agreement is null and void and/or inoperative or incapable of being performed on account of fraud, the referral Court should not indulge into a roving investigation, which is within the domain of the learned arbitrator. With regard to the notice invoking arbitration, this Court finds that the jurisdiction clause has been mentioned instead of the arbitration clause, but the notice communicates the intention to arbitrate and the disputes have been enumerated. The respondents responded to the same. A strict and technical interpretation of that notice is not required. It is also not the respondents' case that the notice was not received. The respondents replied to the same.
18. With regard to non-filing of a certified copy of the original agreement, this Court finds that the application is authenticated by a notary. A notarized document is considered to be a document with higher degree of authenticity, in which a notary public has verified the identity of the signatories and witnessed their signatures, essentially creating a presumption that the document is genuine and executed by the individuals named on it. Reference is made to the decision of the Hon'ble Apex Court inJugraj Singh v. Jaswant Singh reported in AIR 1971 SC 761. The petitioner shall file a certified copy when the occasion demands.
1819. The issues raised by Mr. Sinha shall be available before the learned Arbitrator. This Court has not expressed any opinion on the merits. The observations made hereinabove are tentative, and for the purpose of disposal of this application.
20. Under such circumstances, the application is allowed by referring the matter to arbitration by appointing Hon'ble Justice Girish Chandra Gupta, former Chief Justice of this Court as the sole arbitrator, to arbitrate upon the disputes. The learned Arbitrator shall comply with the provisions of Section 12 of the Arbitration and Conciliation Act, 1996. The learned Arbitrator shall be at liberty to fix his remuneration as per the schedule of Arbitration and Conciliation Act, 1996.
(SHAMPA SARKAR, J.) TR/