Karnataka High Court
Shri Ashwin Digmabar Raikar vs Shri. Pyaro Baig on 29 January, 2024
Author: S.R.Krishna Kumar
Bench: S.R.Krishna Kumar
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NC: 2024:KHC:3757
CMP No. 22 of 2023
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF JANUARY, 2024
BEFORE
THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR
CIVIL MISC. PETITION NO. 22 OF 2023
BETWEEN:
SHRI. ASHWIN DIGMABAR RAIKAR,
S/O SHRI. DIGAMBAR NAGAPPA RAIKAR,
AGED ABOUT 43 YEARS,
R/O NO.B-1003, 'POORVA HEIGHTS',
BILAKEHALLI, BANNERGHATTA ROAD,
BENGALURU - 560 076.
...PETITIONER
(BY SRI. L.M. CHIDANANDAYYA, ADVOCATE)
AND:
1. SHRI. PYARO BAIG,
S/O LATE ABBAS BAIG,
AGED ABOUT 62 YEARS,
Digitally signed by
VANDANA S
Location: High
2. SHRI. SARDAR BAIG,
Court of Karnataka S/O LATE ABBAS BAIG,
AGED ABOUT 50 YEARS,
3. SHRI. AMEER BAIG,
S/O LATE ABBAS BAIG,
AGED ABOUT 55 YEARS,
4. SHRI. NAYEEM BAIG,
S/O LATE ABBAS BAIG,
AGED ABOUT 49 YEARS,
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NC: 2024:KHC:3757
CMP No. 22 of 2023
ALL ARE RESIDENTS OF NO.116
MOOGABALA HOSAHALLI,
JADAGENAHALLI HOBLI, HOSKOTE TALUK,
BENGALURU RURAL DIST - 560 077.
...RESPONDENTS
(BY SRI. A.G. NAGARAJA, ADVOCATE)
THIS CIVIL MISC. PETITION IS FILED UNDER SEC.11(6) OF
THE ARBITRATION AND CONCILIATION ACT, 1996 PRAYING TO (I)
APPOINT AN ARBITRATOR FOR ADJUDICATION OF THE DISPUTE
RAISED BY THE PARTIES AS PER CLAUSE-19 OF AGREEMENT OF
SALE DATED 07.10.2013 VIDE ANNEXURE-A AND ETC.,.
THIS PETITION COMING ON FOR ORDERS, THIS DAY, THE
COURT MADE THE FOLLOWING:
ORDER
This petition under Section 11(6) of the Arbitration and Conciliation act, 1996 (for short 'the said Act of 1996') is filed seeking appointment of a sole arbitrator to resolve the dispute between the parties and refer the dispute to the arbitration.
2. The material on record discloses that there exists a sale agreement between the parties entered on 07.10.2013 at Annexure-A. This agreement contained an arbitration clause at clause No. 19, which reads as under:-
19. Any controversy or claim arising out of or in relation to the terms of this Deed including the interpretation thereof during the subsistence of this Agreement or conclusion thereof shall be referred to Arbitration in -3- NC: 2024:KHC:3757 CMP No. 22 of 2023 accordance with the provisions of the Arbitration and Conciliation Act, 1996 or any replacement or statutory modifications thereof. The parties shall mutually appoint the Sole Arbitrator and the Arbitrator shall have the right to decide the procedure to be followed. All proceedings shall be in English language and the Courts in Bangalore shall have jurisdiction.
3. The material on record discloses that pursuant to the disputes having arisen between the parties, the petitioner got issued an arbitration notice dated 02.07.2022 followed by CMP No.727/2022 filed by the petitioner which was disposed of on 05.12.2022 reserving liberty in favour of the petitioner to file a fresh petition after issuing one more notice. Thereafter, the petitioner issued one more arbitration notice dated 17.12.2022, to which the respondent sent a reply dated 24.12.2022 denying the claim of the petitioner, who is before this Court by way of the present petition.
4. Heard learned counsel for the petitioner and learned counsel for the respondent and perused the material on record.
5. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned counsel for the petitioner submits that there exists a valid and binding -4- NC: 2024:KHC:3757 CMP No. 22 of 2023 arbitration agreement between the parties contained in the arbitration clause No.19, going by which, the dispute arising out of the sale agreement dated 07.10.2013 is to be referred to the sole arbitrator to be appointed by this Court.
6. Per contra, learned counsel for the respondent submits that the respondent has categorically denied the execution, genuineness, legality, validity, correctness etc., of the sale agreement dated 07.10.2013 relied upon by the petitioner. It is further submitted that the alleged thumb impression of the respondent on the alleged agreement are not identified by the witnesses. So also, the alleged agreement has been created and forged only for the purpose of filing of this petition. Learned counsel for the respondent would also allege the serious allegations of fraud and forgery on the part of the petitioner and submits that there is no merit in the petition and that the same is liable to be dismissed, since the dispute raised by the petitioner is incapable of being referred to arbitration under Section 11 of the said Act of 1996.
7. Before adverting to the rival contentions, it is important at this juncture to examine the scope of adjudication of a referral court -5- NC: 2024:KHC:3757 CMP No. 22 of 2023 under Section 11 of the Act. The Apex Court in the case of NTPC Ltd. Vs. M/S SPML Infra Ltd1, while interpreting the scope of enquiry under Section 11 of the Act, held that -
'25. Eye of the Needle: The above-referred precedents crystallize the position of law that the pre- referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement.These are matters which require a thorough examination by the referral court. The secondary inquiry that may arise at the reference stage itself is with respect to the non arbitrability of the dispute.'
8. The Apex court in the case of Magic Eye Developers Pvt. Ltd. vs. M/S. Green Edge Infrastructure Pvt. Ltd. &Ors.Etc2 taking reference of the legal principles laid down in NTPC's case (supra), further held that -
'5.3 At this stage, it is required to be noted that as per the settled position of law, pre-referral jurisdiction of the court under Section 11(6) of the Arbitration Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an 1 NTPC LTD. v. M/S SPML INFRA LTD. [2023] 2 S.C.R. 846. 2 Magic Eye Developers Pvt. Ltd. v. M/S. Green Edge Infrastructure Pvt. Ltd. &Ors. Etc. [2023] 5 S.C.R. 401.
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NC: 2024:KHC:3757 CMP No. 22 of 2023 arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. The said matter requires a thorough examination by the referral court. [paragraph 25 of the decision in the case of NTPC Ltd. (supra)]. The Secondary inquiry that may arise at the reference stage itself is with respect to the non- arbitrability of the dispute. Both are different and distinct. So far as the first issue with respect to the existence and the validity of an arbitration agreement is concerned, as the same goes to the root of the matter, the same has to be to conclusively decided by the referral court at the referral stage itself. Now, so far as the non-arbitrability of the dispute is concerned, even as per the law laid-down by this Court in the case of Vidya Drolia (supra), the court at pre-referral stage and while examining the jurisdiction under Section 11(6) of the Act may even consider prima facie examining the arbitrability of claims. As observed, the prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. However, so far as the dispute with respect to the existence an validity of an arbitration agreement is concerned and when the same is raised at pre-referral stage, the referral court has to decide the said issue conclusively and finally and should not leave the said issue to be determined by the arbitral tribunal. The reason is that the issue -7- NC: 2024:KHC:3757 CMP No. 22 of 2023 with respect to the existence and validity of an arbitration agreement goes to the root of the matter. As observed by the Constitution Bench in the case of N.N. Global Mercantile Pvt. Ltd. (supra) Sans an agreement, there cannot be any reference to the arbitration. In the said decision this Court has also specifically observed and held that the intention behind the insertion of Section 11(6A) in the Act was to confine the Court, acting under Section 11, to examine and ascertain about the existence of an arbitration agreement.
We are of the opinion that therefore, if the dispute/issue with respect to the existence and validity of an arbitration agreement is not conclusively and finally decided by the referral court while exercising the pre-referral jurisdiction under Section 11(6) and it is left to the arbitral tribunal, it will be contrary to Section 11(6A) of the Arbitration Act. It is the duty of the referral court to decide the said issue first conclusively to protect the parties from being forced to arbitrate when there does not exist any arbitration agreement and/or when there is no valid arbitration agreement at all'.
9. In the recent judgment of the Apex Court in Cox and Kings v. SAP Pvt Ltd.3, it is held as under:-
'157. When deciding the referral issue, the scope of reference under both Sections 8 and 11 is limited.3
Cox and Kings v. SAP Pvt Ltd., 2023 SCC OnLine SC 1634.-8-
NC: 2024:KHC:3757 CMP No. 22 of 2023 Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the court's jurisdiction to the existence of the examination of an arbitration agreement.'
10. A perusal of the material on record will indicate that it is evident that at the earliest point in time, the respondent has not only categorically denied the execution, legality, validity and the correctness of the alleged sale agreement containing the arbitration clause but the respondent has also taken up a plea of fraud and forgery and contended that the sale agreement is a concocted and fabricated document. The said stance of the respondent is reiterated subsequently and also in the statement of objections filed to the present petition. The Hon'ble Supreme Court has clearly examined the duties of the referral court when there is an allegation of fraud. In A. Ayyasamy v. A. Paramasivam and Ors.4, the Apex Court held as under:-
'In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration 4 A. Ayyasamy v. A. Paramasivam and Ors. (2016) 10 SCC 386.-9-
NC: 2024:KHC:3757 CMP No. 22 of 2023 agreement between the parties. It is only in those cases where the Court, while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essentialthat such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of
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NC: 2024:KHC:3757 CMP No. 22 of 2023 the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public for a are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone
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NC: 2024:KHC:3757 CMP No. 22 of 2023 such an application under Section 8 should be rejected.'
11. The Apex Court has applied the aforesaid principles laid down in A. Ayyasamy's case (supra) for a referral of dispute to the arbitration under Section 11 of the Act in Rashid Raza v. Sadaf Akhtar5, in which, the Apex Court held as under:-
'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 paragraph 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.'
12. A perusal of the aforesaid judgments of the Apex Court, it is clear that if there is a serious allegation of fraud which leads to vitiating the agreement, needs voluminous evidence to prove the allegation and renders the arbitration agreement void, the matter has to be referred to the civil court and not the arbitral tribunal.
13. In view of the aforesaid facts and circumstances, I am of the considered opinion that there is a serious allegation of fraud as 5 Rashid Raza v. Sadaf Akhtar, (2019) 12 S.C.R. 460
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NC: 2024:KHC:3757 CMP No. 22 of 2023 firstly, there is an allegation that the agreement containing the arbitration clause is unregistered and not duly stamped; secondly, it is alleged that there are no witnesses to the agreement and no witnesses have identified the alleged thumb impressions and thirdly, the thumb impressions are alleged as being forged and concocted. These disputed facts would indicate that the plea of fraud permeates the entire contract and would have the effect of rendering the entire contract including arbitration clause void, which would be subject to scrutiny only by the civil court and not by the arbitral tribunal. In other words, the various contentious issues and disputed/ complicated / complex questions of fact and voluminous evidence warranting a full-fledged trial would be permissible only before the civil court and the question of this Court exercising its jurisdiction under Section 11 of the said Act of 1996 and referring the dispute to arbitration would not arise in the facts and circumstances of this case.
14. In the result, I pass the following:-
ORDER
(i) Petition is hereby dismissed.
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NC: 2024:KHC:3757 CMP No. 22 of 2023
(ii) The parties are at liberty to file civil suit and all rival contentions, claims, etc., of both parties including contentions regarding allegations of fraud are left / kept open to be decided by the civil court and no opinion is expressed on the same.
(iii) It is however made clear that in the civil suit to be instituted by the petitioner, the respondent would not be able to seek reference to arbitration or file an application under Section 8 of the Arbitration and Conciliation Act, 1996.
SD/-
JUDGE NMS/SRL