Delhi High Court
M/S K R Impex vs M/S Punj Lloyd Ltd on 11 October, 2017
Author: Mukta Gupta
Bench: Mukta Gupta
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Decided on: 11th October, 2017
+ CS(COMM) 646/2016
M/S K R IMPEX ..... Plaintiff
Represented by: Mr. Medhanshu Tripathi, Ms.
Garima Tripathi and Mr. Harish
Sharma, Advocates.
versus
M/S PUNJ LLOYD LTD ..... Defendant
Represented by: Mr. Shambhu Sharan and Ms.
Divya Krishnan, Advocates.
CORAM:
HON'BLE MS. JUSTICE MUKTA GUPTA
MUKTA GUPTA, J. (ORAL)
I.A. No. 13472/2016 (under Section 5 and 8 of Arbitration and Conciliation Act by defendant)
1. Plaintiff filed the present suit for recovery of sum of ₹2,96,57,573/- along with interest pendent lite and future claiming that the plaintiff was the sub-contractor of the defendant and in this regard agreements were entered into between the parties. Based on the agreement/work order between the parties, plaintiff completed the work and job completion certificate was issued to the plaintiff, debt notes accepted by the defendant and TDS deducted. Since despite demands, the defendant failed to pay the dues of the plaintiff, plaintiff issued a statutory notice under Sections 433/434 of the Companies Act which was duly served on the defendant and thereafter filed a Company Petition No. 561/2013. After three months of service of the notice in the company petition, the defendant filed a complaint against the CS(COMM) 646/2016 Page 1 of 9 proprietor/CEO of the plaintiff company and its ex-employee resulting in registration of a First Information Report (FIR) at Police Station Kalkaji. Investigation on the said FIR was carried out resulting in filing of a closure report. Thus the plaintiff filed the present suit for recovery as noted above based on various causes of action mentioned in para 33 of the plaint.
2. On service of summons, defendant filed the present application seeking reference of the dispute to arbitration as the work order between the parties provided for an arbitration clause and thereafter filed the written statement wherein this preliminary objection was also raised.
3. Learned counsel for the plaintiff submits that in the written statement and the application, the defendant itself pleads that the claim of the plaintiff is based on forged and doctored documents and for the same it filed the FIR against the plaintiff. Thus fraud having been alleged against the plaintiff the subject matter of dispute between the parties cannot be decided by arbitration and has to be decided by a judicial forum/Court.
4. Countering the arguments of learned counsel for the plaintiff, learned counsel for the defendant submits that Section 8 of the Arbitration and Conciliation Act, 1996 envisages the Court to look into the subject matter of dispute and once the subject matter of the dispute is within the domain of arbitration, the parties have to be referred to arbitration, the only exception being a finding of no valid agreement by the Court.
5. Clause 22.7 of the work order/agreement between the parties provide for arbitration as under:-
"22.7 ARBITRATION 22.7.1 Any dispute or difference or claim arising out of or in relation to this contract, including the construction, validity, CS(COMM) 646/2016 Page 2 of 9 performance or breach thereof, shall be settled and decided by arbitration, by three arbitrators duly appointed in accordance with the rules of Arbitration under Arbitration & Conciliation Act, 1996 and the award made in pursuance thereof shall be binding on the parties. Either party shall give at least 30 days notice in writing to other in case arbitration is to be initiated.
22.7.2 The provisions of this Sub-Article 22.7 shall be binding on the Parties, notwithstanding that any other provision of this Subcontract may be held or declared to be invalid, illegal or unenforceable. The provisions of this Sub-Article 22.7 shall survive and bind the Parties, notwithstanding any expiration or termination of this Subcontract whether by way of the exercise of rights of termination, passage of time or otherwise.
22.7.3 Arbitration shall take place in Delhi according to aforesaid Rules and shall be conducted and recorded in English Language.
22.7.4 Any award decree of the sole arbitration shall set forth the reasons for such award. The arbitration award shall be final and binding on the parties.
22.7.5 All expenses of the arbitration including the single arbitrator's fees and expenses shall be equally shared by the Parties during the Arbitration proceedings and thereafter as determined by such Award."
6. There is no dispute between the parties in relation to the fact that the subject matter of the dispute falls within the domain of the arbitration agreement, however, the dispute is whether in view of one of the grounds of the defendant challenging the claim of the plaintiff being based on forged, fabricated and doctored document, the matter can be referred to arbitration. In this regard it would be appropriate to note Para 7 of the written statement filed by the defendant as under :-
CS(COMM) 646/2016 Page 3 of 9"7. That in any case the present suit has been filed on the basis of a forged and doctored document, i.e. the Job Completion Certificate which was never authorized or issued by the defendant. The purported signatures on the said certificate are merely in the form initials of one Mr. M.P. Ranawat, who was the Project Manager of the Defendant. The signatures thereon are not the correct signatures of Mr. M.P. Ranawat. The completion certificate is a false and fabricated document."
7. The facts showing that the document is forged and fabricated have been elaborated in Para 8 of the written statement. Thus one of the major claims of the defendant to challenge the subject matter of dispute between the parties is that the completion certificate was a forged, fabricated, and doctored document.
8. Supreme Court in the decision reported as 2016 (10) SCC 386 A. Ayyasamy vs. A. Paramasivam & Ors. considered the issue as to disputes which cannot be referred to arbitration despite a valid arbitration agreement and held:
14. In the instant case, there is no dispute about the arbitration agreement inasmuch as there is a specific arbitration clause in the partnership deed. However, the question is as to whether the dispute raised by the respondent in the suit is incapable of settlement through arbitration. As pointed out above, the Act does not make any provision excluding any category of disputes treating them as non-
arbitrable. Notwithstanding the above, the courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. The following categories of disputes are generally CS(COMM) 646/2016 Page 4 of 9 treated as non-arbitrable [ See O.P. Malhotra on 'The Law and Practice of Arbitration and Conciliation', 3rd Edn., authored by Indu Malhotra. See also note 10 ibid.] :
(i) patent, trade marks and copyright;
(ii) anti-trust/competition laws;
(iii) insolvency/winding up;
(iv) bribery/corruption;
(v) fraud;
(vi) criminal matters.
Fraud is one such category spelled out by the decisions of this Court where disputes would be considered as non-arbitrable.
15. "Fraud" is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Fraud can be of different forms and hues. Its ingredients are an intention to deceive, use of unfair means, deliberate concealment of material facts, or abuse of position of confidence. The Black's Law Dictionary defines "fraud" as a concealment or false representation through a statement or conduct that injures another who relies on it [ See Ramesh Kumar v. Furu Ram, (2011) 8 SCC 613 : (2011) 4 SCC (Civ) 303 (a decision rendered under the Arbitration Act, 1940).] . However, the moot question here which has to be addressed would be as to whether mere allegation of fraud by one party against the other would be sufficient to exclude the subject- matter of dispute from arbitration and decision thereof necessary by the civil court.
16. In Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406], serious allegations of fraud were held by the Court to be a sufficient ground for not making a reference to arbitration. Reliance in that regard was placed by the Court on a decision of the Chancery Division in Russell v. Russell [Russell v. Russell, (1880) LR 14 Ch D 471] . That was a case where a notice for the dissolution of a partnership was issued by one of the partners, upon which the CS(COMM) 646/2016 Page 5 of 9 other partner brought an action alleging various charges of fraud, and sought a declaration that the notice of dissolution was void. The partner who was charged with fraud sought reference of the disputes to arbitration. The Court held that in a case where fraud is charged, the Court will in general refuse to send the dispute to arbitration. But where the objection to arbitration is by a party charging the fraud, the Court will not necessarily accede to it and would never do so unless a prima facie case of fraud is proved.
17. The aforesaid judgment was followed by this Court in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72: (2010) 1 SCC (Civ) 12] while considering the matter under the present Act. In that case, the respondent had instituted a suit against the appellant, upon which the appellant filed an application under Section 8 of the Act. The applicant made serious allegations against the respondents of having committed malpractices in the account books, and manipulation of the finances of the partnership firm. This Court held that such a case cannot be properly dealt with by the arbitrator, and ought to be settled by the Court, through detailed evidence led by both parties.
18. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demands extensive evidence for which the civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil CS(COMM) 646/2016 Page 6 of 9 court. The judgment in N. Radhakrishnan [N. Radhakrishnanv. Maestro Engineers, (2010) 1 SCC 72: (2010) 1 SCC (Civ) 12] does not touch upon this aspect and the said decision is rendered after finding that allegations of fraud were of serious nature.
9. Thus the Supreme Court laid down that a mere allegation of fraud in the pleading is not sufficient to deny reference of the parties to arbitration and the allegations should be so serious in nature requiring extensive evidence which can be conducted by a Civil Court only. Therefore, it has to be seen whether the allegations in the present case are serious in nature, requiring extensive evidence. The plaintiff has based its claim on the job completion certificate which according to the defendant is a forged and fabricated document. It is claimed that the purported signatures are not of the alleged signatory. This allegation would require the parties to lead evidence and if necessary examination of the document by a forensic expert. Thus the claim of the plaintiff in view of the defence of the defendant and the law laid down by the Supreme Court cannot be referred to arbitration.
10. Faced with this situation, learned counsel for the defendant submits that in the present case it is not the allegation of the plaintiff that the document is forged and fabricated but of the defendant and that this is one of the grounds of challenge to the claim of the plaintiff. It is also stated that the defendant has number of other grounds to disapprove the claim of the plaintiff which can be adjudicated in arbitration. Whether it is the allegation of the plaintiff or the defendant that the document relied upon is forged and fabricated document is not material as for the decision of the claim of the plaintiff, if referred to arbitration, the authority will have to adjudicate on the genuineness and authenticity of the document which would require CS(COMM) 646/2016 Page 7 of 9 extensive evidence as noted above. Further, it is not the case where the defendant is giving up his ground of challenge to the document on forgery and fabrication and basing his defence on other grounds. It is trite law that no piecemeal adjudication of the issues can be done by different authorities and the matter has to be decided by one authority or forum which can decide all the issues. Thus in the facts of the present case the Civil Court is the appropriate forum to decide subject matter of dispute between the parties.
11. For the discussion aforesaid the present application is dismissed. CS(COMM) 646/2016
1. Admission/denial of documents is complete.
2. On perusal of the record and with consent of learned counsel for the parties the following issues are settled:-
i. Whether the plaintiff is competent to initiate the legal proceedings against the defendant? OPD ii. Whether the suit is barred by limitation? OPD iii. Whether the suit is liable to be returned for want of territorial jurisdiction of this Court? OPD iv. Whether the suit filed by the plaintiff is based on forged, fabricated and doctored document? OPD v. Whether the plaintiff is entitled to a decree of recovery as per prayer A in the plaint? OPP vi. Whether the plaintiff is entitled to interest pendent lite and future? If yes, at what rate and from which date? OPP vii. Relief.
3. List of witnesses be filed by the parties within three weeks. Evidence by way of affidavit of plaintiff's witnesses be filed within three weeks CS(COMM) 646/2016 Page 8 of 9 thereafter.
4. List before the learned Joint Registrar for examining the plaintiff's witnesses on 27th November, 2017.
(MUKTA GUPTA) JUDGE OCTOBER 11, 2017 'yo' CS(COMM) 646/2016 Page 9 of 9