2003 (10) TMI 679 - HC - Indian Laws

Summary

Issues Involved:
1. Whether the court can inquire into the existence or validity of an Arbitration Agreement under Section 8 read with Section 5 of the Arbitration and Conciliation Act, 1996.
2. Whether the Memorandum of Understanding (MOU) dated 2nd July 2003, containing the Arbitration Clause, was obtained under duress and is void ab initio.
3. Whether the court should refer the parties to arbitration under Section 8 of the Act.
4. Whether the subject matter of the suit falls within the scope of the Arbitration Agreement.
5. Whether the court can appoint an independent arbitrator in place of the named arbitrator.

Detailed Analysis:

1. Inquiry into the Existence or Validity of Arbitration Agreement:
The main question raised was whether the court can inquire into the existence or validity of an Arbitration Agreement in light of Section 16 of the Arbitration and Conciliation Act, 1996. The defendant argued that only the arbitrator could determine the validity and existence of the Arbitration Agreement, citing various judgments that support minimal judicial intervention in arbitral proceedings. Conversely, the plaintiff argued that under Section 8, the court exercises judicial discretion and can decide on the validity of the Arbitration Agreement.

2. Validity of the MOU Dated 2nd July 2003:
The plaintiff claimed that the MOU, which included an Arbitration Clause, was signed under duress, coercion, and undue influence while he was in police custody. The court examined the circumstances under which the MOU was signed and found that the plaintiff was under significant pressure and threats, which led him to sign the MOU involuntarily. The court held that the MOU was obtained under coercion and was void ab initio.

3. Referral to Arbitration under Section 8 of the Act:
The defendant argued that the court must refer the parties to arbitration if an Arbitration Agreement exists, as per Section 8 of the Act. However, the court noted that while Section 8 mandates referral to arbitration, it does not preclude the court from examining whether a valid Arbitration Agreement exists. The court emphasized that in exceptional cases where the Arbitration Agreement appears manipulated or invalid, the court can decline to refer the parties to arbitration.

4. Scope of the Arbitration Agreement:
The court found that the subject matter of the suit was not fully covered by the Arbitration Agreement. The plaintiff sought a declaration that the MOU was void and claimed damages for his illegal arrest and duress, which were beyond the scope of the Arbitration Agreement. Additionally, the parties to the suit and the Arbitration Agreement were different, further complicating the referral to arbitration.

5. Appointment of an Independent Arbitrator:
The court suggested appointing an independent arbitrator instead of the named arbitrator to ensure impartiality. The plaintiff agreed to this suggestion, but the defendants opposed it, insisting on the named arbitrator. The court noted that the defendants' insistence on the named arbitrator raised doubts about the impartiality of the arbitration process.

Conclusion:
The court dismissed the defendants' application under Section 8 read with Section 5 of the Arbitration and Conciliation Act, 1996, and decided not to refer the parties to arbitration. The court emphasized that in exceptional cases where the Arbitration Agreement is manipulated or invalid, it can decline to refer the parties to arbitration. The court also highlighted that the subject matter of the suit was not fully covered by the Arbitration Agreement and that the plaintiff's claims for damages were beyond the arbitrator's jurisdiction. The court's observations were limited to the application under consideration and did not express any opinion on the merits of the pending suit.