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TMI Blog2011 (1) TMI 1515X X X X Extracts X X X X X X X X Extracts X X X X ..... constructed area to third parties. The Respondent was to be entitled to receive all the gross realizations from the disposal or transfer of the constructed area so that 12% of the realization would be receivable directly from the purchasers. In this manner, 12% of the realization would belong to the Respondent while the balance representing 88% would belong to the Applicant. 3. Disputes and differences arose between the parties which led to the institution by the Respondent, of a suit on the Original Side of this Court on 4 February 2008. A criminal complaint had been instituted by the Respondent, in addition. The reliefs that are sought in the suit include: (i) A declaration that the agreement dated 2 January 1995 stands vitiated by fraud and/or stands duly determined with effect from 1 February 2008; (ii) A declaration that the Powers of Attorney executed by the Respondent stand validly revoked; (iii) An injunction restraining the Defendants from carrying out any further construction on the suit lands; (iv) A declaration that the Memorandum of Understanding/Agreements entered into by the Applicant herein with several other parties stand rescinded; (v) A decree for the removal an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chartered Accountant) (of M/s. C.C. Choksi and Co.). The decision and/or directions and/or Award of such Arbitrator, shall be final and binding on both the parties. It is clarified that such Arbitrator shall be entitled to give interim directions and/or interim Awards as may from time to time be considered by him to be necessary or proper and the same shall be carried out and complied with by the respective parties. Such Arbitrator shall have Summary Powers. The provisions of the Arbitration Act, 1940 and/or the statutory amendments and/or reenactment thereof, for the time being in force, shall apply to such Arbitration. The parties record and confirm that Mr. Aziz H. Parpia has been and continues to be the Solicitor for the parties in this and other matters and he is aware of the facts and matters set out in this Agreement. Both parties have confidence in the impartiality of Mr. Aziz H. Parpia and have selected him as sole Arbitrator. 7. Three defenses have been set forth to the application under Section 11(6), during the course of the hearing: (i) In the suit which has been instituted by the Respondent against the Applicant, serious allegations of fraud have been leveled against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction under Section 11; (iv) If an agreement stands vitiated by fraud, then the entirety of the agreement has no existence in the eyes of law and it is only a defense of that nature which can be considered in an application under Section 11. In the present case, the allegation is that the agreement dated 2 January 1995 was vitiated as a result of a fraud practiced in the implementation of the contract. This is not a situation where the agreement at its inception was vitiated by fraud. An objection of this nature cannot be a ground to refuse a reference to arbitration on an application under Section 11. 9. The rival submissions now fall for determination. 10. The power which the Chief Justice or his designate exercises under Section 11 is judicial. This is settled in view of the decision of the Supreme Court in SBP and Co. v. Patel Engineering Ltd.1 The judgment of the Supreme Court emphasizes the complementary nature of the provisions of Sections 8 and 11. The Court observed that where there is an arbitration agreement between the parties, and while a party ignoring it files an action before a judicial authority and the other party raises an objection on the ground of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the party who has moved the arbitration application, is a party to the arbitration agreement. 12. The question as to whether allegations of fraud which raise serious triable issues can appropriately be referred to arbitration has been the subject matter of several decisions both under the Act of 1940 and under the Act of 1996. In a case which involved the provisions of Section 20(4) of the Act of 1940, the submission which had been made before the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, was that serious allegations of fraud have been generally held by the Court to be a sufficient ground for not ordering an arbitration agreement to be filed 3 AIR 1962 SC 406 and for not making a reference. Reliance in that regard was placed on a decision of the Chancery Division in Russell v. Russell. That was a case where a notice for the dissolution of a partnership was issued by one of the partners upon which the other partner brought an action alleging various charges of fraud and seeking a declaration that the notice of dissolution was void. The partner who was charged with fraud sought a reference to arbitration. The Court held that in a case where fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractice were raised, the matter must be tried in a Court and an arbitrator is not competent to deal with such matters which involved an elaborate production of evidence to establish the claims relating to fraud and criminal misappropriation. The Supreme Court observed that the High Court had rightly come to the conclusion that since the case related to allegations of fraud and serious malpractices on the part of the Respondent , such a situation can only be settled in Court through furtherance of detailed evidence by either parties and such a situation cannot be properly gone into by the arbitrator. The Supreme Court cited with approval, the following statement of law contained in the judgment of the Madras High Court in Oomor Sait v. O. Aslam Sait: Power of civil court to refuse to stay of suit in view of arbitration clause on existence of certain grounds available under the 1940 Act continues to be available under the 1996 Act as well and the civil court is not prevented from proceeding with the suit despite an arbitration clause if dispute involves serious questions of law or complicated questions of fact adjudication of which would depend upon detailed oral and documentary ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract would mean a valid contract; an arbitration agreement would mean an agreement which is enforceable in law. (emphasis supplied) A similar view was taken by a Division Bench of this Court in MSM Satellite (Singapore) Pte. Ltd. v. World Sport Group (Mauritius) Ltd., (Appeal (Lodging) No. 534 of 2010 in Notice of Motion No. 1809 of 2010 in Suit No. 1828 of 2010), decided on 17 September 2010.While adverting to the decisions which were cited before the Court on behalf of the Respondent, the Division Bench held as follows: Even in the decisions that have been brought to our notice ... it has been held that in case of allegations of fraud and serious malpractices on the part of the parties, such a situation can only be settled in Court through furtherance of judicial evidence by either party and such a situation cannot be properly gone into by the Arbitrator. The reason for this appears to be obvious. The Division Bench in that case further held as follows: These decisions clearly indicate that when vital issues of fraud and public policy are raised and when interests of third parties are involved and affected, then, the choice is not left to parties. It is for the Court to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court that a Court would refuse to refer a matter to arbitration if serious questions of law or complicated questions of fact are involved or where an allegation of fraud is leveled. Now, it is necessary for the Court to emphasize that it is not every stray allegation of fraud which would lead to the consequence of a refusal on the part of the Court to refer parties to arbitration. The law certainly is not that on an isolated or stray reference to fraud without material particulars that the jurisdiction to refer parties to arbitration would stand ousted. Essentially, it is for the Court to determine whether having regard to the nature of the allegations and the context in which allegations of fraud have been leveled parties must not be referred to arbitration. The pleadings have to be scrutinized and each case must turn on a judicious exercise of power by the Designated Judge. In the suit which has been instituted by the Respondent against the Applicant, serious allegations of fraud and malpractice have been leveled. The Respondent has in the back drop of those allegations sought a declaration that the agreement dated 2 January 1995 is vitiated by fraud. Amongst the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Supreme Court in State of West Bengal v. National Builders. In the present case, parties contemplated that the disputes and differences between them should be resolved by arbitration by (i) A.H. Parpia, Solicitor; or failing him by (ii) N.V. Iyer of C.C. Choksi and Co. Both the Arbitrators declined to act, the first of them on ground of health and the second on ground relating to his professional standing. Whatever be the reasons which prompted the two Learned Arbitrators to decline to act as such, it is evident that there was no intent, express or implicit, on the part of the parties that there would be no arbitration at all if either of the Arbitrators was not ready and willing to act. Section 14 of the Arbitration and Conciliation Act, 1996, provides that the mandate of the Arbitrator shall terminate if he withdraws from his office or he becomes de jure or de facto unable to perform the functions or for other reasons fails to act without undue delay. Sub-section (2) of Section 15 provides that where the mandate of an arbitrator is terminated, a substitute Arbitrator shall be appointed according to the Rules that were applicable to the appointment of the Arbitrator being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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