Court Can’t Enter Into Issue Of Arbitrability Or Non-Arbitrability Of Dispute In Exercise Of Supervisory Powers U/S 37 A&C Act: Gujarat HC
The Gujarat High Court observed that the Court cannot enter into the issue of arbitrability or non-arbitrability of a dispute in exercise of the supervisory powers under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Court observed thus in an appeal challenging the judgment of the Special Judge (Commercial Court) and the Additional District Judge as also the arbitral award passed by the Arbitrator.
A Division Bench of Chief Justice Sunita Agarwal and Justice Pranav Trivedi held, “As this has not been done, we find that the award passed by the learned Arbitrator suffers from patent illegality and is against the substantive law regulating the contract namely the Indian Contract Act. The award, therefore, is liable to be set aside within the limited scope of Section 37 of the Arbitration and Conciliation Act’ 1996, as it is not permissible for this Court to enter into the issue of arbitrability or non-arbitrability of the dispute in exercise of the supervisory powers under Section 37, which is akin to the revisional power of the Court of law.”
Senior Advocate Percy Kavina appeared on behalf of the appellants while Advocate Anuj K. Trivedi appeared on behalf of the respondent.
Brief Facts -
The appellants i.e., the original claimants contended that the subject property was given on lease to the respondent company namely Gujarat Metro Rail Corporation (GMRC) formally known as Metro Link Express for Gandhinagar and Ahmedabad (MEGA Company Ltd.) for the period of 5 years vide lease agreement. It was further contended that the possession of the said property was taken by the respondent in 2012 and it was agreed between the parties that the respondent shall handover the vacant possession to the claimants on the expiry of the lease period.
The rent, as agreed upon between the parties, however, was paid only till December 2013 and with effect from January 2014, the respondent stopped payment of monthly rent in breach of the agreement. Despite repeated reminders, neither rent was paid nor the possession of the property was restored to the claimants and the respondent continued to use the property in breach of the conditions of the lease agreement. The arbitration proceedings were initiated by the claimants by filing a petition under Section 11 A&C Act before the High Court wherein dispute was referred to the Arbitrator. Resultantly, the possession of the property was restored back to the claimants. Hence, the appellant approached the High Court, challenging the arbitral award.
The High Court in view of the above facts, noted, “As held in A.Ayyasamy (supra), affirmed in Rashid Raza (supra) and relied in Avitel (supra), “serious allegations of fraud” arise only if either of the two tests laid down therein are satisfied. If the first test with the plea of fraud permeate the entire contract and above all the agreement of arbitration rendering it void, is satisfied, it can be said that the arbitration clause or the agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all.”
The Court added that the second test that the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain, can be said to have made in cases in which the allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus, necessitating the hearing of the case by a court of law in the public domain, inasmuch as, they are predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.
“… it is evident that the allegations of fraud and collusion in arriving at the contract namely the lease agreement dated 14.09.2012 were required to be examined by the learned Arbitrator so as to examine the question of arbitrability or non-arbitrability of the dispute, to arrive at the conclusion as to whether the pleas of fraud permeate the entire contract and the agreement of arbitration, rendering it void”, it said.
The Court further observed that it was not permitted for the Arbitrator to ignore the lease agreement to reach at the conclusion of relegating the claimants on the question of determination of rent, issuing directions to the competent authority under the Government resolutions/circular/public policy, pressed into service by the respondent company.
“Moreover, if after due examination of the rival contentions of the averments before it, the learned Arbitrator would have reached at the conclusion that the contract itself is an outcome of fraud, practiced at the stage of entering into the contract, within the meaning of Section 17 of the Contract Act, it could have referred to the parties to avail the remedy in ordinary civil law before the Civil Court in public Fora”, it also noted.
Accordingly, the High Court disposed of the appeal and set aside the impugned judgment and award.
Cause Title- Shailesh Anilkumar Amin & Anr. v. Gujarat Metro Rail Corporation (GMRC) Ltd. (Neutral Citation: 2024:GUJHC:61788-DB)
Appearance:
Appellants: Senior Advocate Percy Kavina and Advocate Abhijit Rathod.
Respondent: Advocate Anuj K. Trivedi
