Bangalore District Court
Sri. Kalpesh V Mehta vs Sri. Mitesh C Shah on 29 November, 2021
1
Com.A.S.125/2016
IN THE Court OF LXXXVII ADDL.CITY CIVIL &
SESSIONS JUDGE, (EXCLUSIVE DEDICATED
COMMERCIAL COURT)
AT BENGALURU (CCH.88)
THIS THE 30th DAY OF NOVEMBER 2021
PRESENT:
SRI.CHANDRASHEKHAR U., B.Sc., LL.M.,
LXXXVII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.125/2016
APPELLANT/ Sri. Kalpesh V Mehta,
CLAIMANT: S/o Vijay Kumar R. Mehta,
Aged about 37 years,
Ex-partner, M/s Star Soft,
C-51, Industrial Estate,
Yadavagiri,
Mysore - 570 020.
(Reptd by MSB -Adv)
AND
RESPONDENT : Sri. Mitesh C Shah,
S/o Chandrakant P.Shah,
Aged about 37 years,
Ex-partnr, M/s Star Soft,
No.39, 'Paras', 1st Cross,
Jayalakshmipuram,
Mysore - 570 012.
(Reptd by SSN- Adv)
Date of Institution of the 02.09.2016
suit
2
Com.A.S.125/2016
Nature of the suit (suit on
pronote, suit for declaration
& Possession, Suit for Arbitration Suit
injunction etc.)
Date of commencement of -
recording of evidence
Date on which judgment
was pronounced 30.11.2021
Total Duration Year/s Month/s Day/s
05 02 28
(CHANDRASHEKHAR U),
LXXXVII Addl.City Civil & Sessions Judge,
(Exclusive dedicated Commercial Court)
Bengaluru.
JUDGMENT
The appellant/claimant has filed a petition under Section 34 of the Arbitration & Conciliation Act, 1996, (hereinafter called as 'the Act') for setting aside the Arbitration Award, dated 09.06.2016, passed by the Arbitral Tribunal in A.C. No.39/2015.
3
Com.A.S.125/2016
2. The brief facts of the case of the appellant/claimant are as hereunder:-
The appellant/claimant and the respondent entered into a partnership business, initially under a deed of partnership, dated 5.4.2000. Thereafter, one Sri. K.R. Gopalakrishna and Sri. K Deepak Kumar were inducted as partners to the said firm, who retired from the business with effect from 31.1.2003. Thereafter, the partnership business was reconstituted, under a deed of partnership, dated 17.2.2013, to run a business in the name and style M/s Starsoft. It is further case of the appellant that the clause No.1 of the partnership deed, the partnership is deemed to have commenced on and from 1.2.2003. As per clause No.2, the place of business shall be at C-51, Industrial Estate, Yadavagiri, Mysore and as per clause No.3, the name of the firm shall be M/s Starsoft. The said partnership firm business involves software development, buying and selling of computers and other business-related information technology, etc., Clause No.5 provides that the 4 Com.A.S.125/2016 existing balance in each of their Capital Account. As per the partnership deed, they are entitled to monthly salary and there is no designated Managing Partner and both the partners are involved in the management and conduct of the partnership business. As per clause No.7, the partners can raise capital, additional funds by way of loans, deposits, etc., in the name of the firm only and interest paid on such borrowing shall be charged to the profit and loss account before arriving at the divisible profits or losses. Clause No.8 provides for proper and complete accounts of the partnership business shall be maintained and they shall be kept at places where partners have free for its inspection. As per clause No.10, net profits and losses arising out of the partnership business, after charging all expenses, shall be apportioned amongst the partners in equal proportion i.e., 50:50. Clause No. 14 of the partnership deed, provides for dissolution of the firm. It is agreed that upon dissolution, the parties shall cause a full and accurate inventory be prepared of the affairs of the 5 Com.A.S.125/2016 partnership, taking into account all the assets of the firm, including goodwill, if any, of the partnership and all the liabilities of the firm, including the contingent liabilities, if any. It is further provided that in settling the accounts, any losses, including deficiency of capital shall be first paid out of profits, next out of capital and lastly, if necessary, by partners individually equally. It is further provided that the balance, if any, after payment of debts of the firm, advances made by the partners and capital contributed by each of them, shall also be divided equally. It is further mandated that each partner shall execute all such deeds or documents and to do all such things as would be necessary for speedy winding up of the affairs of the partnership. As per clause No.1, the duration of partnership is a Partnership at Will and it was also provided for opening of the Bank accounts, etc. It is further stated that the said firm was mainly carrying on its banking activities with the Mysore Merchants Co-operative Bank Ltd., Mysore. The claimant, on 6.10.2004, had requested the said Bank to 6 Com.A.S.125/2016 provide for an Over Draft facility to the said firm to the tune of Rs.4,50,000/- as against which the deposits standing in the name of the appellant is given as security. Though, the appellant had applied for Over Draft facility in the name and on behalf of the said firm, the said Bank had sanctioned the Over Draft Facility and opened O.D.D. A/c No. 351 in the name of Kalpesh V Mehta, partner, Star Soft. The said A/c is being maintained since, 2004 and the OD limit is increased from time to time. It is further stated that on 6.10.2004, the appellant instructed the Bank to credit the cheques, DDs drawn in favour of the firm in the said Over Draft Account. It was done with the concurrence of the respondent and in the interest of the firm. Further, the Books of Accounts of the firm is being audited every year including annual income tax returns, financial statements, such as Profit and Loss account, balance sheet etc., since 2008 and in the said account, the Over Draft A/c No. 351 with the above said Co-operative Bank is shown as account belonging to the said firm, since 2004. 7
Com.A.S.125/2016 The balance sheet of ODD A/c No. 351 to the tune of Rs.10,13,268.10 is the outstanding loan as on 31.3.2013. Since, there was huge outstanding balance in OD account, the appellant has cleared the same by crediting portion of the Fixed deposits belonging to the firm. It was done with the concurrence of the respondent and in the interest of the firm as such credits would reduce the liabilities, outstanding dues by repaying the total sum of Rs.41,29,655/- on 20.9.2014. Then, the remuneration, salaries of the staff, interest etc., were paid out of the F.D account belonging to the firm. M/s Starsoft was getting projects from M/s Star Knowledge Technology Alliance Team, Florida, United States of America. The said M/s Star Knowledge, USA, had also given advance amount to the said firm, in respect of the said projects, which has to be implemented by the firm. However, by letter, dated 30.8.2014, M/s Star Knowledge, USA cancelled the project and the amounts were to be returned by deducting cancellation fee and therefore, after deducting cancellation 8 Com.A.S.125/2016 fee, the remaining amount paid by the Star Knowledge, USA was credited to M/s Star Knowledge, Mysore with the consent of the respondent. As per instruction of M/s Star knowledge, USA, the appellant has transferred an amount of Rs.1,10,00,000/- to M/s Star Knowledge, Mysore, after retaining an amount of Rs.9,15,000/- in the credit of the said firm. The firm has made a profit to the extent of Rs.9,15,000/- out of the said business. M/s Star Soft initially had opening balance of Rs.2,16,74,813/- in its Fixed Deposits A/c and after transferring the above amount along with Rs.37,00,000/- and clearing the other outstanding liabilities, a sum of Rs.7,69,417/- is still in credit as on today. The respondent has also filed his individual income tax returns and also filed income tax returns on behalf of the said firm and the appellant and the respondent have also filed their personal income tax returns for the assessment year 2014-15. The Chartered Accountants of the firm, by letter dated 7.9.2013, called upon the firm, to explain the Fixed Deposits being done 9 Com.A.S.125/2016 away by transferring the funds from Over Draft a/c No.
351. The respondent along with the appellant have jointly replied that Rs.1,90,60,900/- as on 31.3.2013 is shown in the Books of Accounts of the firm and the said certificates are kept in the name of the claimant, only for operational convenience. The respondent started making baseless and reckless allegations against him and also lodged a complaint before Devaraja Police Station, Mysore, for alleging fraud, etc., for which, a case was registered against him in Crime No. 186/2014, which ended in filing 'B' report. As per the auditor's report and the statement of account of the firm, the firm had land and other assets as shown in para No.4.20 and Statement of Affairs submitted to the concerned department. The respondent had not made any investment towards capital of the firm and the respondent has already drawn a sum of Rs.21,00,000/-
from Over Draft A/c No. 351, as on 25.5.2010. Thereafter, the accumulated profits are transferred and accumulated in the capital account of the respondent. The appellant in 10 Com.A.S.125/2016 accordance with clause No.18 of the Partnership Deed, dated 17.2.2003, issued a statutory notice to constitute an Arbitral Tribunal to resolve the dispute, but, respondent having received the same, has sent untenable reply denying the contentions raised by the appellant and accordingly, by approaching the Hon'ble High Court of Karnataka in CMP No.1/2015, Hon'ble Arbitral Tribunal was constituted headed by Justice Jagannathan and the Arbitral Tribunal has received the claim petition and objection and framing of issues and recording evidence partly, instead of answering the issues to decide Interlocutory application filed and held that the dispute is not maintainable and Arbitral Tribunal has no jurisdiction to decide the dispute, relating to the fraud etc., by relying upon the decision in the case of N. Radhakrishnan Vs. Mastero Engineers, reported in 2010 (1) SCC 72.
3. Being aggrieved by the said Award, the present Appeal is filed on the ground that the Hon'ble Arbitrator 11 Com.A.S.125/2016 without giving findings on the various issues framed, after recording of evidence in the guise of dismissal of the matter held by raising points regarding jurisdiction of the tribunal, which is against the settled law. The respondent having accepted the account only at the time of filing objection to the claim petition, has come with various allegation, which is not concerned with any public domain and therefore, the observation of the learned Arbitrator that Tribunal has no jurisdiction regarding dissolution of the firm on account of the alleged fraud said to have been committed by the appellant is incorrect. Further, having raised issues that whether the dispute between the parties is capable of being adjudicated by this Arbitral Tribunal in the face of the issues No. 11 to 13, 15 to 24 and ultimately by relying upon the said Judgment has held that the Arbitral Tribunal has no jurisdiction to try upon the matter. Though, it was brought to the notice of learned Arbitrator about subsequent decision in the case of Swiss Timing Ltd., Vs. Commonwealth Games 2010 Organising Committee, 12 Com.A.S.125/2016 reported in (2014) 6 SCC 677, which has held in earlier decision in Radhakrishnan case as per-incurium and having held that in case of fraud against public domain or writ large, then, said dispute cannot be decided by the Arbitral Tribunal, otherwise, the allegation against one of the partners, about the fraud committed by him is not one against the public domain and therefore, tribunal has got jurisdiction to try the case. This is the main grievance of the appellant in the present appeal/petition. Accordingly, he has prayed for allowing the application.
4. The respondent has filed objection admitting formation of partnership firm and contribution made by them and contention raised in clause No.18 and other clauses relating to business, sharing of profits and opening of Over Draft account, etc. It is stated that the appellant, without knowledge and know-how of the respondent started diverting all the business of the firm to another firm/proprietorship concern named as M/s Star 13 Com.A.S.125/2016 Knowledge, which is in the name of wife of the appellant. Therefore, the business of the firm started draining up and the reasons for the same remained a mystery to the respondent. Thereafter, the respondent started making enquiries about the loss of business and found that it is appellant who with the help of staffs belonging to firm allotted the work to M/s Star Knowledge, Mysore, which is being run by his wife, against the terms of the contract and therefore, there was misunderstanding between them. Further, the appellant diverted huge fund belonging to the firm by encashing the FDs and remitted the same to the firm belonging to his wife, stating that it is the amount belonging to Star Knowledge USA, which entrusted the work of development of software, but cancelled the same. The alleging company from USA is a company and only created for the purposes of diverting the funds. The appellant has also been the proprietor of M/s Process Global India with M/s LL Corpus Gogere, INC and the documents established the conflict of interest of the 14 Com.A.S.125/2016 appellant and the modus operandi of the appellant used to divert the funds belonging to the partnership firm. Thereafter, when the respondent has become suspicious, the appellant on 20.9.2014, in great hurry proceeded to encash all the Fixed Deposits, which stood in the a/c of the firm and transferred all the proceeds to his personal accounts. The appellant on 11.9.2014, transferred Rs.70 lakhs to M/s Star Knowledge, Mysore and by pre-closing the FD receipts amounting to Rs.2,12,49,736/- and all the proceeds credited to the said personal ODD account No. 351 and thereafter, it was transferred to the account of M/s Star Knowledge, Mysore. In total, the appellant has closed 38 FDs, between 20.9.2014 to 29.9.2014, which was absolutely not necessary under the circumstances. The conduct of the appellant in encashing the FDs belonging to the firm, is against the interest of the firm and he has issued arbitration notice and got balance sheet hurriedly. The appellant had committed fraud and misrepresentation. Accordingly, the complaint was lodged before Devaraja 15 Com.A.S.125/2016 Mohalla Police Station. He has committed fraud to the tune of Rs.2,14,69,049/-, which pertains to the FDs held in the account of M/s Star Soft. Apart from that, the appellant has cheated the respondent more than Rs.5 crores by fabricating documents, bills by way of diverting the orders. The appellant's conduct has been detrimental to the interests of the firm as the appellant has always been making merry of the money and clients belonging to the firm by diverting them to his personal accounts and to his wife's company, rather than, acting in the interest of the firm. Now, the firm M/s Star Soft stands dissolved without settling the accounts of the respondent and without following the statutory obligations, thereby inviting trouble from various authorities. Further, the accounts for the period 2013-14, 2014-15 have not yet been audited and until the same is not in place, there cannot be resolution of the dispute on hand. It is just and necessary that audit of the accounts for the period 2013-14, 2014-15 and re-audit of the books of accounts for the period 2009 to 2013 be 16 Com.A.S.125/2016 done in order to equitably adjudicate the dispute on hand. Mr. Kevin O'Sullivan has no authority to direct to M/s Star Soft seeking transfer of the funds to another entity, which is a bogus act of the appellant. Further, appellant without consent of the respondent, has illegally used the firm, Star Knowledge Company Inc USA, of which Mr. Kevin M. O'Sullivan, is the founder of the said company and started the said company i.e., Star Knowledge Technology Alliance Team, LLC. The appellant has diverted a sum of Rs. 1,01,48,184/-, which is the amount receivable by Starsoft for the projects carried out during the period from April 2014 to November 2014 to the account of Star Knowledge, Mysore, which amounts to misappropriation by the appellant. This is a violation of FEMA, for which the appellant is to be wholly held responsible for any proposed action by RBI. M/s Star Knowledge, Mysore could not have received payment of amount within a short period, which goes to show that it is the high-handed act of the appellant. Appellant has misused the Bank account of the 17 Com.A.S.125/2016 firm as well as had done lot of personal transaction transfer of huge amount to his personal account. When he obtained all particulars from the concerned Bank and with the firm, he came to know about the fraud played by the appellant and transfer of the amount from OD account to his wife's account in the guise of getting work from Star Knowledge USA, etc. In fact, all the amounts should have been credited to the firm's current account No.1539, instead of ODD A/c No. 351, which is in the personal name of Kalpesh V. Mehta, the appellant, which is blatant violation of RBI Banking Rules under Negotiable Instruments Act. Since, the appellant has committed breach of trust and misappropriation, the account of the firm has to be re-audited, then only, the dissolution of the firm can be considered. Further, in view of the fraud, not only against the firm and partners, but, also against third party, therefore, the dispute is not arbitrarable. The documents produced by the respondent reveal the payment made to various persons from the account and besides that 18 Com.A.S.125/2016 the appellant has made use of the stock of the firm used in the proprietorship firm of the wife of the appellant. The appellant has made payment to Smt. Kalapana Nalige, Varsha S Gurlahosur, Shraddha V. Mehta, Sri. Shivakumar, Sri. Kempegowda Jayaram, Sri. Tanish Rakshath, Mr. Goldwin Sughison, Sri.Srinivas G and Smt. Sheetal K Mehta, which are against the firm and without consent of the respondent. Further, the fraud has no limitation and fraud and misappropriation can be alleged at any time and there is no limitation for that. Accordingly, he has prayed for dismissal of the appeal.
5. Heard learned counsel for the claimant and respondent.
6. Now, the points that arise for my consideration are:-
1. Whether the observation of learned Arbitrator that Arbitral Tribunal has no jurisdiction to decide the dispute by relying upon the decision in N. Radhakrishnan case is against the 19 Com.A.S.125/2016 subsequent decisions of the Apex Court, as such, it amounts to an error apparent on the face of law, as such it is liable to be set aside?
2. What Order ?
7. My findings on the above Points are as under:
Point No.1 :- In the Affirmative.
Point No.2 :- As per the final Order for the following reasons.
REASONS
8. POINT NO.1 : Learned counsel for the claimant would argue that learned Arbitrator after recording of evidence in the guise of disposing of IA 1 and 2 filed for directing for auditing of the accounts of the firm up to the year 2013 - 14 and also diverting of Fixed Deposits of the firm in the name of M/s Star Knowledge, which is being run by the wife of the claimant. Both the applications were filed by the respondent herein, and learned Arbitrator after recording evidence partly, proceeded to decide the IAs and 20 Com.A.S.125/2016 in the meantime by dismissing IA Nos.1 and 2, has held that the Arbitral Tribunal has no jurisdiction to adjudicate upon the issues framed as there is allegation of misrepresentation, misappropriation of the funds by one of the partners i.e., the claimant and also fraud. After referring to the orders passed by learned Arbitrator, he took the Court to Ex.C1, which is the partnership deed. Clause No.6, which deals with management and conduct of business of the firm and partners shall be faithful to each other and shall execute true and correct information confirming the partnership business by virtue as partners they shall work diligently for common consent of the partnership etc. Clause No.18 deals with the Arbitration clause that in the event of any dispute arise amongst the partners, in respect of the interpretation, operation, or enforcement of any of the above terms and conditions or any other matter, called or seen, not hereunder, otherwise provided for the same shall be settled through adjudication by arbitrators appointed by common consent and that the 21 Com.A.S.125/2016 decision of the Arbitrator shall be final and binding on the partners hereto. So, with the help of this arbitration clause, he would argue that when there is a clause regarding arbitration relating to dispute in respect of interpretation, etc., then, the Arbitral Tribunal gets jurisdiction and parties will have to work out their remedies by appointing Arbitrator. Further, he took the Court to Ex.C 17 notice, dated 27.9.2014 issued by the respondent herein to the claimant stating about the amount siphoned by the claimant and also the amount diverted to the account of M/s Green Buds Agro Farms Limited to the extent of Rs.11,46,615/- and the respondent has stated about the transfer of amount to the tune of Rs.2,17,50,055/- and transfer to the account of his wife and sought for particulars of the account and the amount which was transferred to M/s Green Buds Agro Farms Limited has been transferred to M/s Process Global India and respondent sought for information regarding the same and sought for referring the matter to the arbitration and 22 Com.A.S.125/2016 in the said notice, there is no allegation of fraud, but, only it has been stated that amount has been transferred without his consent and he has sought for explanation regarding transfer of funds from the firms account to the account of his wife or to the account of one M/s Process Global India. Thereafter, the claimant issued notice as per Ex.C17 calling upon the respondent to come and join for meeting to discuss about the allegation made in Ex. C17 and meeting was fixed on 26 th October 2014. Similarly, another letter was issued on 3.11.2014, calling upon the respondent to attend for the meeting, but, the respondent did not attend. So, according to him, though, the claimant came forward to discuss about issue, which was raised in Ex.C17 notice, issued by the respondent, the respondent did not turn up. On the other hand, he files a complaint before Devaraja Mohalla Police station, Mysore against the claimant for the offence under Section 403, 409, 420 of IPC, with the allegation that the claimant has transferred the amount to his wife's account. However, the 23 Com.A.S.125/2016 Investigating Officer filed 'B' report in the above case and same came to be challenged by the respondent herein and Hon'ble III ACJ & CJM, Mysore, vide order dated 13.3.2018 dismissed the complaint. Though, the respondent has filed Criminal Revision Petition No.361/2018, no stay has been granted and as such, as on today there is no any criminal case pending against the claimant in respect to the alleged fraud or misappropriation of the fund. Thereafter, the claimant got issued a notice, dated 24.11.2014 as per Ex.C24 intimating the respondent that the firm was dissolved with effect from 30 th November 2014 as per clause No.14 of the partnership deed and sought for settlement of account of the firm. Since, there was no consent for appointment of Arbitrator, the claimant by approaching the Hon'ble High Court in CMP 1/2015 sought for appointment of Arbitrator and after mutual consent the Hon'ble High Court appointed the present Arbitrator to deal with a case. Since, the respondent had consented for appointment of the Arbitrator for the purpose 24 Com.A.S.125/2016 of dissolution of the firm as well as account of the income of the firm along with profit and loss, now, the respondent cannot contend that the Arbitral Tribunal has no jurisdiction and the fact that the parties have led evidence after framing of issues instead of disposing of the matter on merits, learned Arbitrator has held while disposing of IA-1 and 2 that the Arbitral Tribunal has no jurisdiction to decide the case on the basis of the Judgment in N.Radhakrishnan case and before learned Arbitral Tribunal the claimant sought for declaration that the registered partnership firm M/s Starsoft stands dissolved with effect from 30.11.2014 and further sought for accounts of the firm. The respondent filed objection along with counter claim and also filed IA-1 for auditing of the accounts of the firm for the year 2013 to 2015 and also to find out the diverting of the amounts of the firm to the tune of Rs.2,14,69,049/- and under IA-2, he has sought for allegation about diverting of F.D amount of the firm. The Hon'ble Tribunal, after framing as many as 24 issues, 25 Com.A.S.125/2016 framed certain preliminary issues regarding jurisdiction and they filed written argument. It is specifically contended in the written argument that the decision in the case of N. Radhakrishnan Vs. Mastero Engineers reported in 2010 (1) SCC 72 is no more good law, in view of the subsequent decision in the case of Swiss Timing Ltd., Vs. Commonwealth Games 2010 Organising Committee reported in (2014) 6 SCC 677. The subsequent decision of the Apex Court held the decision rendered in N Radhakrishnan case as per-incurium on the ground that the fraud must be against public domain and no interse between the partners and the allegation that one of the partners has siphoned the amount belonging to the firm and or diverted the same, etc., would not come within the definition of fraud at large and therefore, the observation of the Arbitral Tribunal is highly incorrect. After contending the same, he refers to ink page No.58 and running page 8 of the objection filed by the respondent, wherein, the respondent has stated that the account of the firm needs to 26 Com.A.S.125/2016 be settled and mislead by the petitioner need to be brought to book, not only the outstanding amount, but the accounts, which the petitioner has siphoned and cheated the respondent of his dues and also needs to be settled. The respondent submits that act of fraud, misappropriation have been committed in the matter of the same, the same cannot be resolved by way of arbitration under Arbitration and Conciliation Act. This para No.19 of the objection statement is for the first time taken by the respondent and having consented for appointment of the Arbitrator before the Hon'ble High Court, is estopped from contending otherwise. The orders in CMP 1/2015 at para No.5, it is specifically stated that the parties have agreed for dissolution of the partnership firm and resolution of the dispute through arbitration. So, having consented for the appointment of the Arbitrator, now, contending that Arbitral Tribunal has no jurisdiction, etc., on account of alleged fraud cannot be considered and learned arbitrator has gone wrong in relying upon the decision which held to 27 Com.A.S.125/2016 be per-incurium and no more good law in view of subsequent decisions. In the written statement filed by the respondent, at ink page No.196, i.e., page No.35 of the written statement, the respondent has sought for re- auditing of the account of the firm and to correct the account relating to profit and loss by including the amount of Rs.3,18,98,239/- held by way of FDs, current account balance and receivables during the period from April 2014 to November 2014 and learned Arbitrator, while passing orders on IA 1 to 3, has framed the preliminary issue stating that whether the dispute between the parties is capable of being adjudicated by this Arbitral Tribunal in the face of issues No.7, 8, 9 and 10, and issue Nos.7 and 8 deals with, Will, purported to have been executed by Smt. Taramati R Mehta and Issue No.8 deals with genuineness of the will, Issue No. 9 and 10 deals with fabricating and forging of documents and embezzlement and misappropriation of funds by the claimant herein. So, with this background, the Court has to analyse, whether the 28 Com.A.S.125/2016 allegation made by the respondent regarding fraud, misappropriation, etc., do come within the purview of the fraud as defined under the Contract Act. Learned Arbitrator, while dealing with the Arbitration Case No. 39/2015, restricted to the extent of holding that IA 1 and 2 are not maintainable and the Arbitral Tribunal has no jurisdiction, by relying upon the decision in the case of N Radhakrishnan and law of Partnership in India 5th Edition by author J C Gupta. To deal with re-opening of the account submitted before the Arbitral Tribunal and to what extent, it can be relied upon, and further regarding fraud, etc., learned Arbitrator mainly relies upon the decision in N Radhakrishnan case, particularly, at para No.26, dealt with allegation of bogus bills, fabrication of accounts, misappropriation, fabrication of bills, etc., and according to learned Arbitrator, these issues cannot be decided by the Arbitral Tribunal. Accordingly, IA 1 and 2 came to be dismissed and it was held that Arbitral Tribunal has no jurisdiction. According to learned counsel for the 29 Com.A.S.125/2016 claimants, the observation of the learned arbitrator that the arbitrator has no jurisdiction to deal with the case, wherein, there is allegation of fraud, misappropriation, etc. He straightaway took the Court to the decision in the case of N. Radhakrishnan Vs. Maestro Engineers reported in (2010) 1 SCC 72, wherein, their lordships have held at page 16 para No.23 that:
23. "The learned counsel appearing on behalf of the respondents on the other hand contended that the appellant had made serious allegations against the respondents alleging that they had manipulated the accounts and defrauded the appellant by cheating the appellant of his dues, thereby warning the respondents with serious criminal action against them for the alleged commission of criminal offences".
9. By referring to the decision in the case of Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar Oak and held that:
17. "There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter 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".30
Com.A.S.125/2016
10. So, by relying upon the above decision, their lordships were of the viewe that when there is an allegation of fraud, etc., then the Civil Court would be more competent to decide the same and not by the Arbitrator. However, according to learned counsel for the claimant, the said observation of the Apex Court held per-incurium in subsequent decision in the case of Swiss Timing Ltd., Vs. Commonwealth Games 2010 Organising Committee reported in (2014) 6 SCC 677. Prior to that, it is contended that when there is an arbitration clause, then, it is mandatory on the part of the Court to refer the dispute to Arbitrator and not by entertaining a suit. In the said regard, learned counsel for the plaintiff cited the decision in the case of Hindustan Petroleum Corporation Ltd., Vs. Pinkcity Midway Petroleums reported in (2003) 6 SCC 503, wherein, it is elaborately discussed about the role of the Arbitral Tribunal and Civil Court and when the dispute can be referred to the Arbitrator. Now, coming to the 31 Com.A.S.125/2016 decision in the case of Swiss Timing Ltd., Vs. Commonwealth Games 2010 Organising Committee, wherein, it is specifically held in para No.28 and 29 that:
28. "To shut out arbitration at the initial stage would destroy the very purpose for which the parties had entered into arbitration. Furthermore, there is no inherent risk of prejudice to any of the parties in permitting arbitration to proceed simultaneously to the criminal proceedings. In an eventuality where ultimately an award is rendered by arbitral tribunal, and the criminal proceedings result in conviction rendering the underlying contract void, necessary plea can be taken on the basis of the conviction to resist the execution/enforcement of the award.
Conversely, if the matter is not referred to arbitration and the criminal proceedings result in an acquittal and thus leaving little or no ground for claiming that the underlying contract is void or voidable, it would have the wholly undesirable result of delaying the arbitration. Therefore, I am of the opinion that the Court ought to act with caution and circumspection whilst examining the plea that the main contract is void or voidable. The Court ought to decline reference to arbitration only where the Court can reach the conclusion that the contract is void on a meaningful reading of the contract document itself without the requirement of any further proof".
29. "In the present case, it is pleaded that the manner in which the contract was made between the petitioner and the respondent was investigated by the CBI. As a part of the investigation, the CBI had 32 Com.A.S.125/2016 seized all the original documents and the record from the office of the respondent. After investigation, the criminal case CC No.22 of 2011 has been registered, as noticed earlier. It is claimed that in the event the Chairman of the Organising Committee and the other officials who manipulated the grant of contract in favour of the respondent are found guilty in the criminal trial, no amount would be payable to the petitioner. Therefore, it would be appropriate to await the decision of the criminal proceedings before the arbitral tribunal is constituted to go into the alleged disputes between the parties. I am unable to accept the aforesaid submission made by the learned counsel for the respondents, for the reasons stated in the previous paragraphs. The balance of convenience is tilted more in favour of permitting the arbitration proceedings to continue rather than to bring the same to a grinding halt".
11. So, when we peruse the above decision, there is no dispute about partnership deed and arbitration clause mentioned therein, as per clause No.18 and there is no dispute that a contract is void or the parties to be contracted are trying to create a void contract by entering into the arbitration agreement, then, such thing cannot be entertained by the Arbitrator. But, in the present case, the allegation made by the respondent is that the claimant has 33 Com.A.S.125/2016 diverted the funds pertaining to the firm to the account of his wife and credited the amount given to some other companies to some other company as contended in the written statement and that a criminal case has been registered against the claimant and therefore, the Arbitral Tribunal cannot decide the question of fraud, etc. Here, even, if the amount is diverted by one of the partners, against the interest of the firm or there is any misappropriation, which led to filing of a criminal complaint or handing over the matter to CBI will not come in the way to the Arbitral Tribunal to decide the case. The fraud must be against the public domain and not between the partners and it is general that generally, there will be allegation of fraud, misappropriation and siphoning of funds of the firm and just because certain allegations are made or complaints are lodged, but, it does not take away the jurisdiction of the Arbitral Tribunal, unless, the very contract itself is void. His lordship, while referring to the decision in the case of N Radhakrishnan, has categorically 34 Com.A.S.125/2016 held that it is mandatory for Court to refer the dispute to arbitration, if agreement between the parties, provides for reference to the arbitration. Thus, registering of criminal case, as to execution of said contract is not an absolute bar to refer the dispute to arbitration. It is further held that there is no inherent prohibition or prejudice to any party in an arbitration to proceed simultaneously with criminal proceedings, since, findings recorded by the Arbitral Tribunal are not binding in criminal proceedings. In an eventuality, where ultimately an award is rendered by Arbitral Tribunal and criminal proceedings result in conviction, rendering the underling contract void, as provided for in the contract, necessary plea can be taken on the basis of the conviction to resist the execution/ enforcement of the Award. The decision is in the case of N Radhakrishnan has been distinguished by their lordships in the above case. One more decision is in the case of A Ayyasamy Vs. A. Paramasivam and others, reported in (2016) 10 SCC 386, wherein, their lordships have clarified 35 Com.A.S.125/2016 the view taken in the case of N. Radhakrishnan by Apex Court bench of the same strength and it is held at para No.19 that the single Judge of this Court, while dealing with the same issue in an application under Section 11 of the Act treated the Judgment in N. Radhakrishnan as per- incurium by referring to the other judgments in P. Anand Gajapathi Raju Vs. P.V.G. Raju and Hindustan Petroleum Corporation Ltd., Vs. Pinkcity Midway Petroleums and after referring to the above decisions along with the decision in N.Radhakrishnan case and Booz Allen & Hamilton Inc., Vs. SBI Home Finance Ltd., reported in (2011) 5 SCC 532 at para No.24 has held that:
24. "Before we apply the aforesaid decision to the facts of the present case a word on the observation in the Swiss Timing Ltd., case to the effect that the Judgment of N. Radhakrishnan was per-incurium is warranted. In fact, we do not have to labour on this aspect, as this task is already undertaken by this Court in the State of West Bengal Vs. Associated Contractor reported in (2015) 1 SCC 32, it has been clarified in the above said case that, Swiss Timings Ltd., was a Judgment rendered by dealing with the Section 11(6) of the Act and Section 11 essentially confirms power on the 36 Com.A.S.125/2016 Chief Justice of India or the Chief Justice of High Court as a designate to appoint an Arbitrator, which power has been exercised by another Hon'ble Judge as a delegate to Chief Justice. This power of appointment of an Arbitrator under Section 11 by the Court, notwithstanding the fact that it has been held in the case of SPB & company Vs. Patel Engineering Ltd., reported in (2005) 8 SCC 618, as a judicial power cannot be deemed to have precedential value and therefore, it cannot be deemed to have overruled the proposition of law laid down in N Radhakrishnan case, at para No.25, 26, 27, 28.
25. In view of our aforesaid discussion, we are of the opinion that mere allegation of fraud simpliciter may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases, where the Court while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud, which make a virtual case of a criminal offence or where allegations of fraud are so complicated that it become absolutely essential that such complex issues can be decided only by civil Court on the appreciation of voluminous evidence, that needs to be produced, the court can side track the agreement by dismissing the application under Section 8 and proceed with suit on merits.
26. "When we apply the aforesaid principles to the facts of this case, we find that the only allegation of fraud that is levelled is that the appellant had signed and issued a cheue of Rs.10,00,050 dated 17.6.2010 of "Hotel Arunagiri" in favour of his son without the knowledge and consent of the other partners i.e., the respondents. It is a mere matter of accounts which can be looked into and found out even 37 Com.A.S.125/2016 by the arbitrator. It does not involve any complex issue. If such a cheque is issued from the hotel account by the appellant in favour of his son, it is easy to prove the same and then the onus is upon the appellant to show as to what was the reason for giving that amount from the partnership firm to his son and he will have to account for the same. Likewise, the allegationof the respondents that daily collections are not deposited in the bank accounts is to be proved by the respondents which is again a matter of accounts."
27. "Other allegation, which appears to be serious, is about the CBI raid at the house of Dhanapalraj from where cash in the sum of Rs.45 lakhs was seized. Interestingly, though the appellant has taken the position that this cash belongs to "Hotel Arunagiri", they are the respondents who have themselves alleged that the money belonged to Dhamapalraj and not to "Hotel Arunagiri". In view of the aforesaid stand taken by the respondent-plaintiffs themselves, this issue does not fall for consideration and, therefore, is not to be gone into by the Arbitral Tribunal."
28. "We, therefore, are of the opinion that the allegations of purported fraud were not so serious which cannot be taken care of by the arbitrator. The courts below, therefore, fell in error in rejecting the application of the appellant under Section 8 of the Act. Reversing these judgments, we allow these appeals and as a consequence, application filed by the appellant under Section 8 in the suit is allowed thereby relegating the parties to the arbitration." 38
Com.A.S.125/2016
12. So, when we read the above paras, one thing is very clear that if the allegation of fraud perpetrated, is not so serious, which cannot be taken care of by the Arbitrator, then, holding that Arbitral Tribunal has no jurisdiction, even after framing issues is not correct, according to learned counsel for the claimant and it requires interference. Ofcourse, view expressed in the case of A. Ayyasamy has been subsequently referred to in the latest decision in the case of Rashid Raza Vs. Sadaf Akhtar, reported in 2019 (8) SCC 710, wherein, their lordships of the larger bench by referring to the decision in the case of A. Ayyasamy, has held in para No.4, 5 and 6 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: (1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain. 39
Com.A.S.125/2016
5. "Judged by these two tests, it is clear that this is a case which falls on the side of "simple allegations" as there is no allegation of fraud which would vitiate the partnership deed as a whole or, in particular, the arbitration clause concerned in the said deed. Secondly, all the allegations made which have been relied upon by the learned counsel appearing on behalf of the respondent, pertain to the affairs of the partnership and siphoning off of funds therefrom and not to any matter in the public domain.
6. "This being the case, we are of the view that the disputes raised between the parties are arbitrable and, hence, a Section 11 application under the Arbitration Act would be maintainable"
13. The above decision rendered by the larger bench has confirmed the observation made in A.Ayyasamy's case and unless and until the fraud is against public domain or writ large, then, allegation of fraud, misappropriation, siphoning of funds, etc. cannot be the grounds to oust the jurisdiction of Arbitral Tribunal.
14. The decision in the case of Vidya Drolia and others Vs. Durga Trading Corporation, reported in (2021) 2 SCC 1, the larger bench of the Apex Court has held by 40 Com.A.S.125/2016 referring to the decision in Avitel Post Studioz Limited and Others Vs. HSBC PI Holdings (Mauritius) Limited and others, reported in (2021) 4 SCC 713, that the observation made in N Radhakrishnan as a precedent has no legs to stand on(underline is mine). We respectfully concur with the said view and also the observation made in para No.34 of Judgment in Avitel Post Studioz Limited, which quote the observation made in Rashid Raza Vs. Sadaf Akhtar stated supra, their lordships have referred to the para No. 35 of the Judgment in the case of Avitel Post Studioz Limited, which reads as:
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 instrumentality of arbitrary, fraudulent, or malafide 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". 41
Com.A.S.125/2016
15. It is clear that "serious allegation of fraud" arises only if either of two tests laid down are satisfied, or otherwise. Two tests are (1) Two working tests laid down in the para 25 are (1) does this plea permeate, the entire contract and above all, the agreement of the 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". (emphasis by me). So, the decision in the case of Avitel Post Studioz Limited has been held to be a correct view by their lordships in the above case, which makes it very clear that an allegation of mere fraud or siphoning of fund, does not oust the jurisdiction of the Arbitral Tribunal. Their lordships have also referred to the decision in the case of Deccan Paper Mills Company Ltd., Vs. Regency Mahavir Propriety, reported in (2021) 4 SCC 786 to the same effect and learned counsel for the claimant has cited all the decisions to come to a conclusion that an allegation of the 42 Com.A.S.125/2016 simple fraud, siphoning of fund by one of the partners is not sufficient to oust the jurisdiction and the observation made by the learned Arbitrator wrongly relying upon the decision in the case of N Radhakrishnan is incorrect and therefore, according to him, it amounts to an incorrect view and it is an error apparent on the face of law and non- application of the decision laid down by the Apex Court also amounts to against public policy. Learned counsel for the plaintiff has similarly cited the decision in the case of Avitel Post Studioz Limited and Others Vs. HSBC PI Holdings (Mauritius) Limited and others, and N.N. Global Mercantile Pvt. Ltd., Vs. Indo Unique Flame Limited and others reported in 2021 SCC OnLine SC 13. Now, the court has to see whether non-application of the decision of the Apex Court would amount to against public policy.
16. Per contra, learned counsel for the respondent would argue that encashment of FDs without the consent of the other partner is nothing, but, the fraud and claimant 43 Com.A.S.125/2016 has deposited the certain amount with the Bank and subsequent to the order of the court and the same has been freezed and he refers to Ex.C1 at page No.80, wherein, the place of business is shown as C-51, Industrial Estate, Yadavgiri, Mysore-20. This place of business may be extended or changed as the parties hereto may mutually agree upon from time to time. Further, at clause No.4 of Ex.C1, which deals with the partnership business shall continue to be that of development of software, buying and selling of computers and its peripherals and other businesses relating to information technology, etc. The firm may also carry on any additional or other business or businesses as the partners may mutually decide from time to time. After referring to the said document, he refers to the Ex.C2 i.e., the loan borrowed by the claimant from Mysore Merchants Co-operative Bank Ltd., under OD A/c No.351 to the tune of Rs.4,50,000/- on the pledge of FDs held by the said Co-operative Bank and it is specifically stated that the said OD account was opened and been 44 Com.A.S.125/2016 managed by the claimant and those FD receipts were subsequently encashed pre-maturely and transferred to his personal account. Ex.C 5 is the Balance sheet as on 31 st March 2013, which discloses the amount lying and capital and liabilities and also the assets and properties and cash and Bank balance is shown as Rs.2,26,57,380.69 and further a sum of Rs.11,46,615/- was deposited with M/s Green Bud Agro Ltd., and the said amount was taken back and remitted to Service Global ltd., without the consent of the respondent. Therefore, the claimant has played fraud and all the FDs amount were credited to his personal account and thereafter, transferred to the account of his wife. The Income Tax returns for the year 2011-12, it is shown that the tax amount was shown to have paid without actual payment and Income Tax authorities are now conducting investigation. Therefore, the payment to Green Buds Agro Ltd., and transfer of amount to some other account and transfer of the maturity amount or pre- mature encashment were credited to his personal account, 45 Com.A.S.125/2016 which amounts to fraud and misappropriation and that too, without the consent. Thereafter, he refers to Ex.C15, which is the letter written by the Chartered Accountant to the firm, wherein, it is stated that a sum of Rs.1,90,60,900/- has been deposited with the Mysore Merchants Co- Operative Bank Ltd., by way of cash certificates and these payment have been made by transferring funds from the Mysore Merchants Co-Operative Bank Ltd., OD A/c No. 351, which goes to show that the amount which was lying with OD A/c after pre-matured encashment were again transferred to other Bank to the tune of Rs.1,90,60,900/-, which is per-se fraud played by the claimant. Ex. C16 is according to learned counsel for the respondent is very important, which is explanation given by the claimant, which discloses that, as on 31.3.2013, the firm M/s Starsoft has deposited an amount of Rs.1,90,60,900/- by way of Cash certificates with the Mysore Merchants Co- Operative Bank Ltd., and shown in firm's books of accounts and ledger account of MMC Bank Ltd., Mysore and those 46 Com.A.S.125/2016 receipts were kept in the name of claimant only for operational convenience and nothing else, but the claimant has transferred the amount to his wife's account. Ex.C 17, which is the letter written by the respondent to the claimant, which also discloses the amount transferred to the account of M/s Green Buds Agro Ltd., and subsequent transfer to M/s Process Global India, is nothing, but, misappropriation of the funds and also fraud played by him. After referring to the documents produced by the plaintiff, he refers to the documents produced by him, i.e., Ex.R24, which is the account extract pertaining to the OD A/c No.351 stands in the name of Kalpesh V. Mehta, which discloses pre-mature withdrawal of Term Deposits on various dates and a sum of Rs.40,00,000/- was transferred to the account of M/s Star Knowledge, in the month of September 2014 and again in the month of October 2014 Rs.37,94,709/- was transferred to the account of M/s Star Knowledge headed by his wife, that could be seen from the account extract at Ex.R25. Ex.R26 47 Com.A.S.125/2016 is the acknowledgment for return of Income Tax, wherein, it is shown that a sum of Rs.8,32,002/- was shown as tax paid. But, no tax was paid on behalf of the firm and it is nothing, but, fraud played by the plaintiff and it is stated in the objection statement filed by the respondent, but, no income tax was paid. Therefore, it is nothing but, fraud played by him against the Bank and the Income Tax department. Further, the department of Commercial Tax by its letter, dated 11.1.2016 has registered a case under Section 9(2) of the Act, against the claimant stating that the claimant has not shown the proper sale of intellectual property, for which, a letter was addressed on 7.1.2016 by M/s Starsoft partner, stating that the same has been furnished and they will do the needful. So, there is no proper furnishing of account to the Commercial Tax department and it is stated that they will abide by the guidelines issued by the RBI regarding export of the software technology. Ex.R2 is letter written to the Regional Provident Fund Commissioner, regarding submission of 48 Com.A.S.125/2016 authorised signatory information, which discloses that the claimant has undertaken to remit the GPF contribution of the employees and since, there was dispute regarding payment of contribution, an appeal was filed before the EPF Appellate Tribunal, New Delhi, by the claimant seeking waiver of deposit of 75% of the assessed amount for preferring appeal etc.. So, according to him, the claimant not only cheated the respondent, but, also the various departments. Therefore, it is a fraud at large. The professional profile of claimant is produced at page No.56, which shows that he is the Chief Technology Officer of LL Corpus George, former President and CEO Starsoft India and CEO of Star Knowledge Technology LLC, which discloses that though, the partnership firm was constituted for the purpose of development of software and its sale, the claimant by utilising the employees of the partnership firm, made profit by investing in different entity without the consent, which is nothing, but, betrayal of trust reposed on him. The claimant has deceitfully transferred the amount 49 Com.A.S.125/2016 and though the protection petition came to be dismissed, Criminal Revision Petition filed against the said order is pending. Therefore, according to learned counsel for the respondent, it is a fraud not only against the partner, but on various departments and therefore, learned Arbitrator has rightly held that Arbitral Tribunal has no jurisdiction to consider.
17. Per contra, as a reply to the above argument, learned counsel for the plaintiff/claimant would argue by referring to clause Nos. 17, 18 and also the letter written by the respondent alleging fraud and his intention to go for arbitration. If the fraud is committed against the partners of the firm, and if there is siphoning of the funds belonging to the firm, then, it can be accounted. The criminal case, ended with filing 'B' report after investigation and statement given by the claimant before the Police, dated 27.1.2015 also discloses about transfer of fund to Star Knowledge Mysore on the instruction of Principal Star Knowledge USA, to the tune of Rs.1,10,00,000/- as they 50 Com.A.S.125/2016 failed to complete the project given by Star Knowledge USA and it discloses the amount withdrawn and payment made to consultant, staff, closure of account, etc., and on the basis of that, the 'B' report came to be filed. Further, inspite of issue of notice, the respondent has not attended the meeting to sort out the problem. Therefore, there is no question of any fraud as alleged by the respondent. The account is given to the tune of Rs.1,10,00,000/- and the letter written by the Police to Mr. Kevin O'Sulivan Star Knowledge Technology USA to submit about money received etc., by way of registered post and the Star Knowledge USA has answered the queries raised by the police and also acknowledged the receipt of the amount, which was paid by it to Star Knowledge Mysore, after deduction of cancellation fee to the tune of US $ 115000. So, based upon this, the 'B' report came to be filed and therefore, there is no question of committing fraud against public and if there is any mistake or siphoning of the funds, same has to be accounted either by seeking for re- 51
Com.A.S.125/2016 auditing or agreeing for the accounts already filed. So, when the fraud is not against public domain, there is no question of holding that Arbitral Tribunal has no jurisdiction. As far as Income Tax return is concerned, they are all computer-generated statement for the purpose of payment of tax and no action is taken so far by the said department against the claimant. So, in view of the above fact, the observation of the learned Arbitrator is incorrect and error apparent on the record.
18. I have gone through the order passed by learned Arbitrator, which mainly depends upon the Judgment rendered by the Apex Court, in N Radhakrishnan's case and the said Judgment held to be no more good law, in view of subsequent judgments in the cases of Booz Allen & Hamilton Inc., Vs. SBI Home Finance Ltd., Swiss Timing Ltd., Vs. Commonwealth Games 2010 Organising Committee, A Ayyasamy Vs. A. Paramasivam and others, Rashid Raza Vs. Sadaf Akhtar, Vidya Drolia and others Vs. Durga Trading Corporation, Avitel Post 52 Com.A.S.125/2016 Studioz Limited and Others Vs. HSBC PI Holdings (Mauritius) Limited and others, and lastly, N.N. Global Mercantile Pvt. Ltd., Vs. Indo Unique Flame Limited and others. When the decision in the case of N Radhakrishnan and other cases are read, it is very clear that in order to oust the jurisdiction of the arbitral Tribunal, the fraud must be against the public domain and mere filing of criminal case, siphoning of funds or irregular maintaining of account, etc., cannot be termed as fraud or misappropriation committed by the partners. I find a considerable force in the argument canvased by learned counsel for the claimant with reference to the above said decisions and I find that it is an error apparent on record and learned arbitrator has failed to consider the decision of the Apex Court though cited before him by learned counsel for the plaintiff/claimant, particularly, in the case of Swiss Timings Ltd., and A Ayaswamy. In a situation like this, whether award can be set aside has been held in the cases of Associated Builders Vs. Delhi Development authority 53 Com.A.S.125/2016 reported in 2015 (3) SCC 49, Ssangyong Engineering & Construction Company Ltd., Vs. National Highway Authority of India, reported in 2019 (15) SCC 131, Patel Engineering Limited Vs. Northeastern Electric Power Corporation Limited, reported 2020 (7) SCC 167 and the decision in the case of Associate Builders deals with each and every aspects, what is fundamental policy of India, justice and morality and patent illegality. In para No.14, wherein, it is held that, if the Court fails to comply with statute or jurisdictional precedents or violates the principles of judicial approach, then, it would become acting against fundamental policy of Indian law. Similarly, in the case of Ssangyong Engineering & Construction Company Ltd., Vs. National Highway Authority of India, reported in 2019 (15) SCC 131, it is held at para No. 37 that:
37. "Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34. Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to 54 Com.A.S.125/2016 the root of the matter, but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality."
19. In the case of SPB & company Vs. Patel Engineering Ltd., similarly held about when the award is against the fundamental policy of Indian law. So, when we read the above three Judgments along with the award passed by learned Arbitrator, which fails to consider the Judgment in Booz Allen and Hamilton, Swiss Timings Ltd., and A Ayaswamy cases, then, I am of the view that it is against public policy of Indian law and it is an error apparent on record, which can be cured only by setting aside the award. The parties are always at liberty to urge their case before the same Arbitrator or any other Arbitrator, if they are so advised. In view of the above fact, I am of the view that the order passed by learned Arbitrator on IA Nos.1 and 2 and holding that the Arbitral Tribunal 55 Com.A.S.125/2016 has no jurisdiction to adjudicate upon the dispute is hereby set aside. Hence, I answer point No.1 in the Affirmative.
20. Point No.2 :- For the aforesaid reasons, I proceed to pass the following Order.
ORDER
The suit/petition filed by the
appellant/claimant under Section 34 of
Arbitration & Conciliation Act, 1996 is hereby allowed.
Consequently, the order passed on IA Nos. 1and 2 and holding that Arbitral Tribunal has no jurisdiction, is hereby set aside.
The claimant is at liberty to urge his case before the same Arbitrator or any other Arbitrator in accordance with the law.
(Dictated to the Stenographer, typed by him, corrected and then pronounced by me in open Court on this the 30th day of November, 2021).
(CHANDRASHEKHAR U), LXXXVII Addl.City Civil & Sessions Judge, (Exclusive dedicated commercial Court) Bengaluru.