2011 (1) TMI 1515 - HC - Companies Law

Summary

Issues Involved:
1. Application u/s 11(6) of the Arbitration and Conciliation Act, 1996.
2. Allegations of fraud and their impact on arbitration.
3. Scope of arbitration agreement and appointment of arbitrators.

Summary:

1. Application u/s 11(6) of the Arbitration and Conciliation Act, 1996:
The Applicant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator based on an agreement dated 2 January 1995, which contained an arbitration clause.

2. Allegations of fraud and their impact on arbitration:
The Respondent instituted a suit alleging that the agreement was vitiated by fraud, seeking various reliefs including declarations, injunctions, and damages. The Respondent argued that serious allegations of fraud cannot be referred to arbitration, citing Supreme Court precedents. The Applicant contended that the scope of proceedings under Section 11(6) is limited to determining the existence of a valid arbitration agreement and whether disputes fall within its purview. The Court noted that serious allegations of fraud, which require detailed evidence, should be tried in open court and not by an arbitrator.

3. Scope of arbitration agreement and appointment of arbitrators:
Clause 19 of the agreement specified two named arbitrators. Both declined to act, leading the Respondent to argue that no arbitration should occur. The Court referred to Supreme Court rulings, stating that unless an agreement explicitly negates the appointment of substitute arbitrators, the law presumes the parties intended to supply a vacancy. Section 14 and 15 of the Arbitration and Conciliation Act, 1996, support appointing substitute arbitrators if the original ones are unable to act.

Conclusion:
The Court dismissed the application under Section 11, emphasizing that serious triable issues of fraud should be resolved in civil court. The arbitration application was dismissed with no order as to costs.