Plea Of Fraud Must Be Serious In Nature To Oust Arbitrator's Jurisdiction: Supreme Court

The Supreme Court reiterated that a plea of fraud must be serious in nature in order to oust the jurisdiction of an Arbitrator.

The Court was dealing with an appeal seeking declaration that the Conveyance Deed be declared null and void and the registered Development Agreements stand validly terminated.

The two-Judge Bench of Justice Aniruddha Bose and Justice Sudhanshu Dhulia said, “The plea of fraud raised by the appellants in their objection to the Section 8 application has never been substantiated. Except for making a bald allegation of fraud there is nothing else. This Court has consistently held that a plea of fraud must be serious in nature in order to oust the jurisdiction of an Arbitrator."

The Court also said that all jurisdictional issues including the existence and the validity of an arbitration clause can be gone into by the Arbitral Tribunal which means it is competent to decide on its own competence.

Advocate Devansh Mohta represented the appellants while Advocate E. C. Agrawala represented the respondents.

Brief Facts -

The appellants were the plaintiffs in a civil suit, filed in the year 2021 and the respondents i.e., the defendants moved an application under Section 8 of the Arbitration & Conciliation Act, 1996 (A&C Act) for referring the matter to arbitration by relying upon the arbitral clause in the two agreements. It was contended that the said agreements formed the basis of the Conveyance Deed and the Development Agreements which were subject matter of the suit. The Trial Court allowed the application of the defendants and referred the matter for arbitration.

The aforesaid order was challenged by the plaintiffs before the Bombay High Court, which was dismissed. Aggrieved by these two orders, the plaintiffs were therefore, before the Supreme Court. The only question to be decided by the court was whether the Trial Court and the High Court rightly referred the matter to arbitration or the dispute was of such a nature that it was not liable to be referred to arbitration, as there was no arbitration clause in the Conveyance Deed or if there was, yet the matter in any case was such that it was not arbitrable.

The Apex Court in view of the above facts of the case observed, “The purpose behind giving these powers to the Arbitral Tribunal is to minimise judicial interference in arbitration matters. In Weatherford Oil Tool Middle East Ltd. v. Baker Hughes Singapore PTE 2022 SCC OnLine SC 1464, this court had observed that a bare perusal of Section 16 of the Arbitration Act would indicate that the arbitration clause in a contract would be an independent agreement in itself and the arbitrator is empowered to decide upon its existence and validity.”

The Court referred to the case of Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 in which two conditions were laid down which must be satisfied before the Court can refuse to refer the matter to the Arbitrator, a forum consciously decided by parties in an agreement. The first was whether the plea permeates the entire contract and above all, the arbitration agreement, rendering it void or secondly, whether the allegation of fraud touches upon the internal affairs of the parties inter se having no implication in the public domain.

“The allegations must have some implication in public domain to oust the jurisdiction of an Arbitrator, if an allegation of fraud exists strictly between the parties concerned, the same will not be termed to be as a serious nature of fraud and hence would not be barred for arbitration. … In the present case, therefore there is absolutely no ambiguity that both the Tripartite Agreements dated 31.03.2007 and 25.07.2008 contain an arbitration clause, which forms the basis of all subsequent agreements including the agreements sought to be declared as validly terminated by the appellants and the conveyance deed sought to be declared as null and void”, added the Court.

Accordingly, the Supreme Court dismissed the appeal and refused to interfere in the matter.

Cause Title- Sushma Shivkumar Daga & Anr. v. Madhurkumar Ramkrishnaji Bajaj & Ors. (Neutral Citation: 2023 INSC 1081)

Appearance:

Appellants: AOR Shirish K. Deshpande, Advocates Rucha Pravin Mundlik, Harsimran Kaur Rai, Gaurangi Patil, Mohit Gautam, and Apoorv Sharma.

Respondents: AOR Tishampati Sen, Advocates Riddhi Sancheti, Anurag Anand, Himanshu Kaushal, and Mukul Kulhari.

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