allegations are relating to nonpayment of the balance
consideration by defendants 1 to 3. It is not in dispute that total
consideration agreed between the parties as 42 Lakhs and that
the plaintiffs have received Rs. 28,55,200/- (almost 2/3rd). The
plaintiffs have not paid remaining consideration of
Rs.13,44,800/-. Thus, the main grievance of the plaintiffs is
breach of contract. The other grievance is that the defendants
have allegedly purchased the suit property at throwaway price.
Perusal of the entire plaint shows that the subject matter of the
dispute has imminently civil profile as held by the Division Bench
in the case of Avitel Post Studioz Ltd. In my opinion, having
regard to the nature of the allegations of fraud made by the
plaintiffs in the suit, it does not involve serious charges
requiring parties to lead heavy documentary and oral evidence.
Applying the tests laid down in the above Judgments as also in
the light of the decisions of the Apex Court in the case of P.
Anand Gajapathi Raju (supra), in my opinion, the learned trial
Judge committed serious error in dismissing the application
without examining the allegations of fraud made in the Plaint.
The impugned order, therefore, cannot be sustained and
deserves to be set aside. Hence, Civil Revision Application is
allowed. The impugned order is set aside and the application at
Exh.19 is allowed. The suit is disposed of and the matter is
referred to arbitration in terms of clause 29 of the Agreement of
Sale dated 12.11.2010.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 9598 OF 2014
M/s VBHC, Mumbai Value Homes
Pvt Ltd
Vs
Shri Laxman Bhoir and Ors .. Respondents
CORAM : R.G.KETKAR,J.
PRONOUNCED ON: 03/07/2015
Citation; 2015 (6) MHLJ 385
1. Heard Mr. Tulzapurkar, learned senior counsel for the
petitioner and Mr. Deepak Natu, learned counsel for
respondents no.1 to 3 at length. Mr. Tulzapurkar orally applies for
deleting the names of respondents no.4 and 5 as no relief is
claimed against them. On the Motion made by Mr. Tulzapurkar,
leave to delete respondents no.4 and 5 is granted. Amendment
shall be carried out forthwith.
2. Mr. Natu raised preliminary objection that having regard to
the prayers made in Application at Exhibit-19, the Petition
instituted under Article 227 is not maintainable and the petitioner
has to invoke revisional jurisdiction under Section 115 of C.P.C. In
view thereof, leave to convert this Petition into Civil Revision
Application is granted. Amendment shall be carried out forthwith.
3. Rule. Mr. Natu waives service on behalf of the respondents.
At the request and by consent of the parties, Rule is made
returnable forthwith and the Petition is taken up finally.
4. By this Petition under Article 227 of the Constitution of
India, original defendant no.1 has challenged the Judgment and
order dated 20.8.2014 passed by the learned Second Joint Civil
Judge, Senior Division, Kalyan below Exhibit 19 in special Civil
Suit No.73 of 2014. By that order, the learned trial Judge rejected
the application filed by the petitioner under Section 8 of the
Arbitration and Conciliation Act, 1996 (for short, “Act”) for
referring dispute to arbitration. The parties shall, hereinafter, be
referred to as per their status in the trial Court. The relevant and
material facts, giving rise to filing of the present Petition, briefly
stated, are as under.
5. Respondents no.1 to 3, hereinafter referred to as 'plaintiffs',
instituted suit for declaration that the registered Agreements of
Sale dated 12.11.2010 and 17.2.2011 executed by the plaintiffs
in favour of the petitioner-defendant no.1 in respect of Survey
No.29, Hissa No.4, admeasuring H-0-R-27-00, Survey No.29, Hissa
No.8 (out of), H-0-R-08-00 and Survey No.29, Hissa No.9B, H-0-R-
06-05, situate at village Vadavali, Taluka Kalyan, Dist. Thane
admeasuring 4146.05 sq.meters (for short, 'suit property') are
sham, bogus, illegal, void and not binding on the plaintiffs and
may be cancelled with further declaration that the same may be
quashed and set aside under Section 34 of the Specific Relief Act,
1963. The plaintiffs also sought perpetual injunction against the
defendant not to invade in the peaceful possession in respect of
the suit property. In the agreement of sale dated 12.11.2010
there is a specific clause, namely, clause no.29. Clause 29 lays
down that in case there being any dispute with respect to the suit
property by and between the parties, then for resolving the said
dispute under the provisions of the Act, an Arbitrator shall be
appointed by consent of both the parties and the said dispute
shall be resolved through Arbitrator. During the pendency of the
suit, defendant no.1 filed application under Section 8 of the Act
praying that the matter may be referred to arbitration and the
suit may be disposed of.
6. The plaintiffs resisted the application by filing detailed reply
dated 25.6.2015. By the impugned order, the learned trial Judge
rejected the application. It is against this decision, defendant
no.1 has instituted the present Petition.
7. In support of this Petition, Mr. Tulzapurkar submitted that in
the agreement of sale dated 12.11.2010, there is an arbitration
clause. Clause 29 reads as under :
“29. First Party and Second Party herein admits that in case
of dispute between the parties, shall be settled by arbitrator
with the consent of both parties under the provisions of the
Arbitration and Conciliation Act,1996 which is agreed by both
parties.”
He submitted that the learned trial Judge rejected the application
only on the ground that the averments of the Plaint disclosed
that the plaintiffs are alleging commission of fraud by defendant
no.1. The plaintiffs are questioning legality of documents of
agreement of sale which contains arbitration clause. The learned
trial Judge held that when entire document is put into doubt, such
type of dispute cannot be left to the decision of the arbitration.
When agreement itself is in question, and the declaration,
cancellation in respect of the said agreement is sought, such type
of dispute cannot be termed as arbitrable dispute.
8. Mr. Tulzapurkar submitted that without considering
averments regarding alleged fraud, the learned trial Judge has
rejected the application. He submitted that it depends upon the
nature of allegations of fraud made in the suit. He submitted that
if the subject matter of the dispute has imminently civil profit,
then it may not be proper to conclude that subject matter of
dispute is incapable of settlement by arbitration merely because
fraud has been alleged as one of the grounds for questioning the
contract. As a general rule, it cannot be said that moment
allegations of fraud are made in the context of a contract, subject
matter of the dispute is rendered incapable of resolution by
arbitration. In support of his submissions, he relied upon
following decisions:-
1. HSBC PI Holdings (Mauritius) Limited Vs. Avitel Post Studioz
Limited and Ors, Arbitration petition No.1062 of 2012
decided on 6.12.2013 (Coram : R.D.Dhanuka, J.);
2. Avitel Post Studioz Ltd. and Ors Vs. HSBC PI Holdings
(Mauritius ) Ltd, Appeal No.196 of 2014 in Arbitration
Petition No.1062 of 2012, decided on 31.7.2014 (Coram :
Mohit S. Shah,C.J. & M.S.Sonak,J.) which upheld the
decision of learned Single Judge at Sr.No.1;
3. Lotus Refineries Private Limited Vs. National Spot exchange
Limited, Notice of Motion (L) No.2036 of 2013 in Suit (L)
No.870 of 2013 decided on 10.9.2014 (Coram:
S.J.Kathawalla, J.);
4. N. Radhakrishnan Vs. Maestro Engineers and Ors, (2010) 1
Supreme Court Cases 72;
5. Swiss Timing Limited Vs. Commonwealth Games, 2010
Organizing Committee, (2014) 6 SCC 677;
6. P. Anand Gajapathi Raju Vs. P.V.G.Raju (dead) and Ors,
(2000) 4 Supreme Court Cases 539.
9. On the other hand, Mr Natu supported the impugned order.
He submitted that the suit properties are khalsa lands as is
evident from extract of village Form No.8A. He relied upon the
second proviso to Section 5(3)(b) of the Bombay Inferiorlages
Watans Abolition Act, 1958 as also Section 4 of the Maharashtra
Pragana And Kulkarni Watans (Abolition. He further submitted
that mandate of Section 7 of the Act has to be complied. Mr
Natu further submitted that allegations of fraud are of serious
nature requiring leading of evidence by the parties. Arbitrator
will not be in a position to decide a complicated matter involving
various questions and issues raised in the suit. For all these
reasons, he submitted that the learned trial Judge was fully
justified in dismissing the application. In support of this
submission, he relied upon decision of the Apex Court in the case
of Booz Allen And Hamilton Vs. SBI Home Finance Ltd, AIR 2011
SC 2507.
10. I have considered the rival submissions made by the
learned counsel appearing for the parties. I have also perused
the material on record. While dismissing the application, the
learned trial Judge has noted in paragraph 3 that execution of the
agreement as well as existence of clause 29 relating to the
decision of the dispute between the parties by the arbitration is
not in dispute. The learned trial Judge has further observed in
paragraph 6 that the averments in the Plaint disclose that the
plaintiff is alleging fraud by the defendants. The plaintiff is
questioning legality of documents of agreements of sale which
contains arbitration clause. When the entire document is put into
doubt, such type of disputes cannot be left to the decision of
arbitration. Mr, Tulzapurkar submitted that the learned trial Judge
failed to consider Section 16(1)(a) of the Act which lays down
that the arbitral tribunal may rule on its own jurisdiction,
including ruling on any objections with respect to the existence or
validity of the arbitration agreement, and for that purpose (a) an
arbitration clause which forms part of a contract shall be treated
as an agreement independent of the other terms of the contract.
11. Merely because the allegations of fraud are made, it will not
preclude civil court from referring the parties to the arbitration
unless those allegations are examined. In the case of HSBC PI
Holdings (Mauritius) Limited (supra), the learned Single Judge has
considered the decisions of the Apex Court as also various High
Courts. In paragraph 83, the decision of the Apex Court in the
case of N. Radhakrishnan (supra) was considered. In that case,
after considering the submissions advanced on behalf of the
respondents that when a case involves substantially questions
relating to facts where detailed evidence are needed to be
produced by either parties and serious allegations pertaining to
malpractices were made, it was held that the matter must be
tried in a court and Arbitrator could not be competent to deal
with such matter which involves elaborate production of
evidence to establish fraud and criminal misappropriation.
12. In paragraph 84, the learned Single Judge considered the
decision of Calcutta High Court in the case of Ram Kishan Mimani
Vs. Goverdhan Das Mimani, Arbitration Petition No.126 of 2010
decided on 7.4.2010, wherein decision of the Apex Court in the
case of N. Radhakrishnan was considered. It was observed that
N. Radhakrishnan has to be read to imply that an exception may
be made to general rule when it appears to Court that a matter
involving serious charges with heavy documentary and oral
evidence may not be referred to arbitration notwithstanding the
dispute being covered thereby. It was held that even if a serious
allegations of fraud or malpractices have been made and it is
only the exceptional cases which are required to be retained in
Court and not sent to arbitration on the reasoning contained in
N. Radhakrishnan case that “it cannot be properly dealt with by
the arbitrator”.
13. In paragraph 85, the learned Single Judge accepted the
submission made on behalf of the petitioner that the case of N.
Rradhakrishna is not an authority on the proposition that as soon
as allegations of fraud is made by any party, no such matter can
be referred to arbitration at all. The learned Single Judge
concurred with the view taken by Calcutta High Court.
14. In paragraph 88, the learned Single Judge dealt with the
decision of the Apex Court in Booz Allen and Hamilton (supra)
and observed that the decision has carved out category of
dispute which are not arbitral, i.e. such as dispute relating to
rights and liability giving rise to or arising out of criminal
offences, matrimonial disputes, child custody, guardianship
matters, insolvency and winding up matters, testamentary
matters, eviction or tenancy matters. The learned Single Judge
observed that the Court has to decide whether such allegations
made by the party can be referred to arbitration or it would be
more appropriate and convenient to decide such allegations by
the Court itself though arbitration agreement exists.
15. The decision of the learned Single Judge was upheld by the
Division Bench in Avitel Post Studioz Ltd. (supra). After
considering various decisions, the Division Bench observed in
paragraphs 30, 31 and 33 thus:
“30. Having considered the aforesaid submissions and
having perused the decisions as aforesaid, we are of the
opinion, that said judgments do not lay down any general or
peremptory rule that allegations of fraud, in all cases, are
incapable of settlement by arbitration under the law of
India. There is a real though subtle difference between
'suitability' and 'arbitrability' in the context of subject
matter of disputes. In order to be conscious of this
difference, regard shall have to be had to the nature of
allegations, the context in which the same are made and
the ultimate relief which is being applied for on basis of
such allegations. If the subject matter of dispute has an
eminently civil profile, then it may not be proper to
conclude that the subject matter of dispute is incapable of
settlement by arbitration, merely because fraud or
misrepresentation as defined under Section 17 and 18 of
the Indian Contract Act, 1872 may have been alleged as
one of the grounds for questioning the contract.”
“31. In the context of provisions of Contract Act 1872, fraud
and misrepresentation are some of the well accepted
grounds for questioning validity of a contract by the entity,
upon whom the same are alleged to have been practiced.
Section 10 of the Contract Act, 1872 provides that all
agreements are contracts, if they are made by free consent
of the parties, competent to contract, for lawful
consideration, with lawful object which is not expressly
declared to be void. Therefore, 'free consent' is one of the
essential ingredients for a valid contract under the Contract
Act. Section 13 of the Contract Act provides that two or
more persons are said to consent, when they agree upon the
same thing in the same sense. Section 14 of the Contract
Act provides that a consent is said to be 'free' when it is not
caused, inter alia by 'fraud' as defined under section 17 or
'misrepresentation' as defined under section 18 of the
Contract Act. Sections 17 and 18 of the Contract Act define
in great details, the expressions 'fraud' and
'misrepresentation'. The principle difference between fraud
and misrepresentation is that in cases of fraud the person,
who makes the representation does not himself believe it to
be true, whilst in cases of misrepresentation, the person
himself believes it to be true. Thus, 'fraud' and
'misrepresentation' as defined under sections 17 and 18 of
the Contract Act are well accepted grounds which would
vitiate 'free consent' and consequently the contract itself.
Therefore, as a general rule, it cannot be said that the
moment allegations of fraud and misrepresentation are
made in the context of a contract, the subject matter of the
dispute is rendered incapable of resolution by arbitration.”
“33. In paragraph 23 of the decision in N. Radhakrishnan
(supra), the Supreme Court has held that the facts of the
said case do not warrant the matter to be tried and decided
by the arbitrator, rather, for furtherance of justice, it should
be tried in a court of law which would be more competent
and have the means to decide such complicated matters
involving various questions and issues raised in the dispute.
Similarly, in paragraph 26, the Supreme Court after noticing
the allegation made, has held that the disputes cannot be
'properly' dealt with by the arbitrator. It does appear
therefore, that the Supreme Court was concerned with the
issue of 'suitability' rather than 'arbitrability' of the
disputes.”
16. In paragraph 34, the Division Bench considered the
decision of the Apex Court in Swiss Timing Limited (supra),
wherein after analysing the decision of N. Radhkrishnan case it
was held that N. Radhakrishnan Judgment is 'per incuriam' on two
grounds. Firstly, decision in Hindustan Petroleum corporation Ltd
Vs. Pink City Midway Petroleums, (2003) 6 SCC 503, though was
referred, was not distinguished and also not followed. The
decision in P. Anand Gajapathi Raju Vs. P.V.G. Raju (dead), (2000)
4 SCC 539 was not even brought to the notice. Secondly, the
provision contained in Section 16 of the Act was also not brought
to the notice of the Court.
17. In the case of Lotus Refineries Pvt Ltd (supra), the learned
Single Judge also considered the decision of HSBC V Avitel
(supra). In para 109 it was observed thus :
“109. In this context, it seems to me that the rationale
underlying decisions like N. Radhakrishnan is that Indian
courts may refuse to refer a matter to arbitration under
Section 8 of the Act, if satisfied that there is a sufficient
reason why the matter should not be referred to arbitration.
In my view, there would be sufficient reason, in a dispute
involving allegations of fraud, only where a detailed
investigation of the fraud as a whole is required to decide
the dispute between the parties. The reason is that such an
investigation may involve the interests and concerns of third
parties to the dispute, or of the general public, which cannot
be represented in the private process of arbitration. Again, if
an investigating authority is in the midst of an investigation
at the time of a dispute, and it is expected that certain
directions may have to be issued to such authority as
regards the investigation, in order to resolve the dispute
between the parties and/or decide the question of fraud, it
would be sufficient reason for the Court to refuse to refer
the matter to arbitration, bearing in mind that the arbitral
tribunal would not have the power to issue such directions
to an investigating authority. It is pertinent to mention in
this context that in a recent decision of the Hon'ble Supreme
Court in Swiss Timing Ltd. v. Organising Committee,
Commonwealth Games 2010, Delhi2 the Hon'ble Court
observed that there is no inherent risk to the parties in
permitting arbitration to proceed, even with criminal
proceedings running simultaneously.”
18. In the light of the principles laid down in the above
decisions and with the assistance of learned counsel appearing
for the parties, I have carefully perused the averments made by
the plaintiff in the suit as regards fraud. In paragraph 13, 14 and
16 the plaintiff has alleged thus :
“13. The plaintiffs further state that inspite of the aforesaid
visits paid by the plaintiff nos 1 and 2 to the office of the
defendants to fulfill the condition of Annexure 'H' (Colly), the
defendants have miserably failed to comply with the terms
and conditions of the Annexure 'H' (Colly), therefore, in view
of the aforesaid facts it is evident that the defendants are
not interested to go ahead with the suit lands and violated
the terms and conditions which they agreed with an
intention to create a fraud on the plaintiffs knowing fully well
that the suit lands were purchased from the plaintiffs in the
year 2011 under the Agreement to Sale at Annexure 'H'
(Colly) at a dustbin throw price that too not paid in time,
therefore, the plaintiffs have suffered irreparable loss and
injury which cannot be compensated in terms of money. …” .
“14. … .. It is further submitted that the Agreement to
Sale executed by defendants with the plaintiffs is not
binding on the plaintiffs because the defendants have
miserably failed to follow the terms and conditions as
mentioned in Annexure 'H' (Colly) at the time of execution of
Annexure 'H' (Colly) the same was executed on 12.11.2010
and the document was registered on 17.2.2011 that means
after a gap of two months, it is important to note here that
the defendants are not in a position to comply the terms and
conditions as set out in the Agreement to Sale at Annexure
'H' (Colly) as the cheques given by them at Annexure '11'
and '13' was bounced, this clearly shows that they are not
financially sound and to create fraud on the plaintiffs, they
have executed an Agreement to Sale at Annexure 'H' (Colly)
and failed to pay proper consideration within time and
therefore they have committed a breach of contract and
therefore the plaintiffs have no option but to file the present
suit for cancellation of Annexure 'H' (colly) so that the
defendants should not create any third party interest in
respect of the suit lands, the defendants have violated the
terms and conditions of Agreement to Sale at Annexure 'H'
(Colly), therefore they are not entitled to take benefits in
view of non followance of terms and conditions of Annexure
'H' (Colly), therefore, Agreement to Sale executed between
the plaintiffs and defendants being illegal, void ab-initio and
therefore the same is liable to be declared as not binding on
the plaintiffs, therefore the same are liable to be declared as
null and void, not binding, cancelled and liable to quashed
and set aside.
“16. … .. … it is further submitted that the Agreement to
Sale at Annexure 'H' (Colly) executed by defendants and are
not binding on the plaitniffs because the defendant 4 for and
on behalf of defendant no.3 and defendant no.6 for and on
behalf of defendant no.5 are being party to the document ie
the Agreement to Sale at Annexure 'H' (Colly) have
miserably failed to provide any documentary evidence viz
Income Tax registration Certificate, Banking details,
authorization letter Partnership Certificate in respect of
defendant nos 5 and 6 as to whether it is really registered or
not under the provisions of The Indian Partnership Act, 1932,
certified copy of the resolution if any, whether the
Partnership firm is still in existence or it is dissolved by an
order of the Court or by the Will of the Partners, Income Tax
Returns, other necessary details authorizing these
defendants to enter as a confirming party, it is also
important to note here that the resolution submitted by
defendant no.2 for and on behalf of defendant no.1 at
Annexure “H” (Colly), the kind attention of this Hon'ble Court
is invited towards internal page nos 27 and 28 which is
being a certified copy of defendant no.1's company
resolution, however, at the last page i.e. at internal page
no.28 there is no date mentioned as to when it was certified
by the Company Secretary, the certified copy of resolution
book of the company i.e. defendant no.1 is not produced,
the documentary evidence categorically suggest that the
defendants have created a fraud on the plaintiffs by
executing an Agreement to Sale at a dustbin throw price, it
is also important to note here that the role of defendant nos
3 to 6 are not mentioned or there is no documentary
evidence and/or Memorandum of Understanding or any type
of mutual agreement executed between them as to why
these persons were brought at the time of execution of
Agreement to Sale at Annexure 'H' (Colly) and what are their
shares in respect of development of suit lands in future,
from the conduct of the defendants it may be revealed that
the defendants might have developed a modus operandi to
execute an Agreement to Sale at a dustbin throw price and
by registering it on payment of half of the consideration and
then in future after waiting for 3 to 4 years the same land
can be sold out at a higher price so that they may gain
higher profits by paying less to the plaintiffs, the defendants
knowing fully well that the plaintiffs being a rustic villagers,
they were fooled and misguided, misrepresented and fraud
has been created upon them which is a violation of mandate
of the Indian Contract Act, 1872 and the Transfer of Property
Act, 1882.”
19. Perusal of the averments clearly shows that all these
allegations are relating to nonpayment of the balance
consideration by defendants 1 to 3. It is not in dispute that total
consideration agreed between the parties as 42 Lakhs and that
the plaintiffs have received Rs. 28,55,200/- (almost 2/3rd). The
plaintiffs have not paid remaining consideration of
Rs.13,44,800/-. Thus, the main grievance of the plaintiffs is
breach of contract. The other grievance is that the defendants
have allegedly purchased the suit property at throwaway price.
Perusal of the entire plaint shows that the subject matter of the
dispute has imminently civil profile as held by the Division Bench
in the case of Avitel Post Studioz Ltd. In my opinion, having
regard to the nature of the allegations of fraud made by the
plaintiffs in the suit, it does not involve serious charges
requiring parties to lead heavy documentary and oral evidence.
Applying the tests laid down in the above Judgments as also in
the light of the decisions of the Apex Court in the case of P.
Anand Gajapathi Raju (supra), in my opinion, the learned trial
Judge committed serious error in dismissing the application
without examining the allegations of fraud made in the Plaint.
The impugned order, therefore, cannot be sustained and
deserves to be set aside. Hence, Civil Revision Application is
allowed. The impugned order is set aside and the application at
Exh.19 is allowed. The suit is disposed of and the matter is
referred to arbitration in terms of clause 29 of the Agreement of
Sale dated 12.11.2010. In the circumstances of the case, there
shall be no order as to costs.
(R.G.KETKAR, J.)
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