Bombay High Court
Bholashankar Ramsuresh Dubey vs Dinesh Narayan Tiwari And Ors on 17 April, 2025
Author: N. J. Jamadar
Bench: N. J. Jamadar
2025:BHC-AS:17495
-WP-17174-2024.DOC
Arun Sankpal
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 17174 OF 2024
Bholashankar Ramsuresh Dubey, ..Petitioner
Age: 64 Years, Occ: Business,
R/at B-11, 2nd Floor, Sainath CHS Ltd,
Kalyan, Hanuman Nagar Road,
Katemanivali, Kalyan (East).
Versus
1. Dinesh Narayan Tiwari
Age:49 Years, Occ: Business
2. Yogesh Narayan Tiwari
Age: 46i Years, Occ: Business
Both R/at Varadvinayak Kunj, Manda,
Titwala (E), Taluka: Kalyan.
3. Rakesh Sukhdev Tiwari,
ARUN
RAMCHANDRA
Age: 51 Years, Occ: Business,
SANKPAL
Both R/at Varadvinayak Kunj,
Digitally signed
by ARUN
Manda, Titwala (E), Kalyan.
RAMCHANDRA
SANKPAL
Date: 2025.04.17
21:55:29 +0530
4. M/s Tiwari Enterprises,
A Partnership Firm duly registered
Under the provisions of Partnership
Act 1932.
Having Registered Office at, 104-B,
Gokul Park, 1st Floor, Vasundri Road, ...Respondents
Manda, Titwala (West), Dist. Thane.
Mr. Abhay S. Khandeparkar, Senior Advocate, with Rushikesh Bhagat,
Rohit P Mahadik, Farhan Shaikh, Apoorva Khandeparkar,
Vaibhav Kulkarni and Sudarshan Bhilare, i/b Khandeparkar &
Associates, for the Petitioner.
Mr. Sumedh S. Modak, for the Respondent.
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CORAM: N. J. JAMADAR, J.
JUDGMENT RESERVED ON: 13TH JANUARY 2025
JUDGMENT PRONOUNCED ON: 17TH APRIL 2025
JUDGMENT:
1. Rule. Rule made returnable forthwith and with the consent of the
learned counsel for the parties, heard finally.
2. This Petition under Article 227 of the Constitution of India assails
the legality, propriety and correctness of a judgment and order dated 4 th
September 2024 passed by the learned District Judge, Kalyan, in MCA
No. 4 of 2024 whereby the Appeal preferred by the Petitioner-original
Defendant No.2 against an order passed by the Trial Court refusing to
refer the parties to Arbitration under Section 8 of the Arbitration and
Conciliation Act 1996 (“the Act of 1996”) came to be dismissed.
3. Shorn of superfluities, the background facts can be stated as
under:
3.1 The Petitioner-Defendant No.2, Respondent No.3-Defendant No.3
and Narayan Tiwari, the predecessor-in-tile of Respondent Nos. 1 and 2-
Plaintiffs, had entered into a partnership under the name and style of
M/s Tiwari Enterprises. The firm was engaged in the business of builders
and developers and other allied activities. They had agreed to share the
profits in the ratio of 50%, 25% and 25%, respectively. The partnership
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was at will. The partnership firm-Defendant No.1 did develop certain
properties.
3.2 The Plaintiffs asserted Narayan Tiwari, their father, was unwell
since the year 2012. Defendant No.2 took undue advantage of the said
situation and usurped the control of the said firm and thereby caused
prejudice to Narayan Tiwari. On 27th May 2017, Narayan Tiwari passed
away. After the demise of Narayan Tiwari, the Plaintiffs called upon
Defendant No.2 to determine the share of late Narayan Tiwari. However,
the Defendants did not pay head to the request of the Plaintiffs. Instead
the Defendant No.2 in collusion with his Son, Yogesh Narayan Tiwari,
prepared fraudulent and forged documents to falsely claim that Yogesh
Tiwari came to be inducted as a partner of the firm. Hence the Suit for
rendition of accounts and determination of the share of late Narayan
Tiwari in the firm.
3.3 Defendant No.2 filed an Application under Section 8 of the Act of
1996, contending that the Plaintiffs were in custody of the original Deed
of Partnership dated 31st January 2003. The partnership agreement
contains an arbitration clause. It was, therefore, necessary to refer the
parties to Arbitration.
3.4 The Application was resisted by the Plaintiffs.
3.5 By an order dated 19th December 2023, the learned Civil Judge,
Senior Division, Kalyan declined to refer the parties to Arbitration
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observing, inter alia, that the Plaintiffs had made allegations of fraud
and preparation of false documents. Consequently, Arbitrator would not
be in a position to decide those issues.
3.6 Aggrieved, Defendant No.2 preferred an Appeal under Section 37
of the Act of 1996. By the impugned order, the learned District Judge,
dismissed the Appeal on a different ground, namely, Defendant No.2 was
not admitting the existence or enforcement of the Partnership Deed
which contains arbitration clause, as Defendant No.2 had set up a Deed
of Reconstitution of the partnership firm under which late Narayan
Tiwari and Rakesh Tiwari retired from the firm and Yogesh Tiwari, son
of Defendant No.2, allegedly came to be inducted in the firm.
3.7 Being aggrieved, Defendant No.2 has approached this Court.
4. I have heard Mr. Abhay S. Khandeparkar, the learned Senior
Advocate, for the Petitioner and Mr. Sumedh Modak, the learned
Counsel for the Respondents-Plaintiffs. With the assistance of the
learned Counsel for the parties, I have perused the pleadings and
documents on record.
5. Mr. Khandeparkar, the learned Senior Advocate for the Petitioner,
submitted that the learned Civil Judge as well as the learned District
Judge were clearly in error in refusing to refer the parties to Arbitration
in the face of an explicit arbitration clause. All the prerequisites to refer
the parties to Arbitration under Section 8 of the Act of 1996 were
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fulfilled. The Trial Court declined to refer the parties to Arbitration on
the ground that allegations of fraud were made. With the development
in law, where party autonomy is to be respected, mere allegations of
fraud cannot be used as a refuge to decline to refer the parties to
Arbitration as that would defeat the very object of the Act of 1996.
6. The learned District Judge though correctly recorded that the
Trial Court could not have refused to refer the parties to Arbitration on
the said count, fell in error in refusing to refer the parties to Arbitration
on the count that the Defendant No.2 did not admit the existence of the
partnership. In the process, Mr. Khandeparkar would urge, the learned
District Judge completely misconstrued the resistance sought to be put
forth by Defendant No.2. The contention that after the partnership firm
commenced business there was subsequent change in the constitution of
the firm and Narayan Tiwari, the predecessor-in-tile of the Plaintiffs, and
Rakesh Tiwari, Defendant No.3, retired from the firm and Yogesh Tiwari
was inducted as a partner in the firm does not imply that Defendant
No.2 has denied the existence of the partnership much less the
Partnership Agreement.
7. Mr. Khandeparkar strenuously submitted that Clause 17 of the
Partnership Agreement contains an arbitration clause which not only
binds the parties but their legal representatives. Even in the Deed of
Reconstitution of partnership, there is a clear recital that the terms and
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conditions of Partnership Deed dated 31 st January 2003 shall be valid
except the one modified by the said Deed of Reconstitution. The learned
District Judge thus could not have refused to refer the parties to
Arbitration on the ground that Defendant No.2 did not admit the
existence of Partnership Deed.
8. Mr. Modak, the learned Counsel for the Respondent-Plaintiff,
however, supported the impugned order. It was submitted that the
Plaintiffs who are the legal representatives of Narayan Tiwari, the
deceased partner, cannot be bound by the Arbitration Agreement
contained in the Partnership Deed. Laying emphasis on the distinction in
the terminology used in Section 2(1)(h) which defines the term “party”
and Section 7(1) which refers to, “Parties”, Mr. Modak would urge that
the expression, “Party” means only a party to an Arbitration Agreement.
It does not include a person claiming through or under a party. Under
Section 8 of the Act of 1996, only parties to the Arbitration Agreement
can be referred to Arbitration and none else.
9. To buttress this submission, Mr. Modak placed a very strong
reliance on the Constitution Bench judgment of the Supreme Court in
the case of Cox and Kings Limited Vs SAP India Private Limited & Anr.1
10. Mr. Khandeparkar joined the issue by canvassing a submission
that the decision in the case of Cox and Kings Limited (Supra) does not
support the submission sought to be canvassed on behalf of the
1 (2024) 4 SCC 1.
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Plaintiffs. As the provision contained in Section 8 of the Act of 1996 is
peremptory in nature, the myriad objections sought to be raised on
behalf of the Plaintiffs before the Trial Court, learned District Judge and
this Court, do not merit countenance. Therefore, the parties deserve to
be referred to Arbitration, submitted Mr. Khandeparkar.
11. To start with, it is necessary to note that the jural relationship
between Narayan Tiwari, the father of the Plaintiffs, and Defendant Nos.
2 and 3, is not much in contest. Incontrovertibly, under the Deed of
Partnership dated 31st January 2003, late Narayan Tiwari and Defendant
Nos 2 and 3 had entered into a partnership. Nor there is much dispute
about the relationship between the Plaintiffs and late Narayan Tiwari.
The parties are at issue over the fact as to whether late Narayan Tiwari
continued to be a partner of Defendant No.1 firm till he passed away on
27th May 2017 and whether the Plaintiffs are entitled to rendition of
accounts and distribution of the share of late Narayan Tiwari.
12. In the context of aforesaid nature of the dispute between the
parties, few clauses of the Deed of Partnership deserve to be noted.
Clauses 12, 14 and 17 are material and hence extracted below.
“12. Death, retirement or insolvency of any partner
shall not dissolve the firm, the remaining partners shall
be entitled to continue the business of the firm as
before subject to the determination of shares of the
deceased, retired or insolvent partner as the case may
be.
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14. On dissolution of the partnership firm, a full and
general account shall be taken of all money, stock in
trade, debts and effects that belonging or due to the
partnership and of all liabilities of the partnership
including capital. Such account shall be made up within
six months from the date of dissolution and the amount
payable to each partner shall be paid to him.
17. In case of any disputes, doubts, or differences
arising between the parties hereto, in respect of the
conduct of the business of partnership or in respect of
interpretation, operation or enforcement of any of the
terms or conditions of this deed or in respect of any
other matter, cause or thing whatsoever not contained
herein otherwise provided for, the same shall be
referred to adjudication to the Arbitration subject to the
provisions of the Indian Arbitration Act, 1996 or any
statutory modifications or reenactment thereof for the
time being in force, whose decision shall be binding on
the parties and their legal representatives.”
13. Under Clause 12, the parties had agreed that the death,
retirement or insolvency of any partner would not dissolve the firm and
remaining partners would continue the business of the firm, subject to
the determination of the share of deceased, retired or insolvent partner.
Under Clause 14, upon dissolution of the firm, a full and general
account was agreed to be taken within six months of the date of
dissolution and assets distributed. Clause 17 contains an arbitration
clause. The parties agreed to arbitrate the disputes in accordance with
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the provisions of Act of 1996. The decision of the Arbitrator was to bind
all the parties as well as their legal representatives.
14. There is a dispute over the execution of Deed of Reconstitution of
partnership dated 2nd March 2015. The Plaintiff alleged that the said
Deed of Reconstitution is forged and fabricated. Under the said Deed of
Reconstitution, Yogesh Tiwari, the son of Defendant No.2 was
purportedly inducted as a partner in the firm and deceased Narayan
Tiwari and Rakesh Tiwari, Defendant No.3, stood retired from the firm.
Clause 7 of the purported Deed of Reconstitution is relevant and reads
as under.
“7. The terms and condition of the Deed of Partnership
dated 31.01.2003 shall be valid except in so far as the
same are modified by this agreement, continue in full and
effect.”
15. In the wake of the allegations of fraud and, especially, forgery of
the said Deed of Reconstitution of the partnership firm, the learned Civil
Judge was dissuaded from referring the parties to Arbitration.
16. In the face of the development in law, the learned Civil Judge was
clearly in error. The jurisdiction of the Court under Section 8 of the
Arbitration Act 1996 is extremely limited and restricted. The
development of law can be traced as under:
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17. In Afcons Infrastructure Ltd. V/s. Cherian Varkey Construction
Co. (P) Ltd.2, the Supreme Court enunciated the categories of cases
which are not considered suitable for ADR process having regard to their
nature. The relevant part of the observations in paragraph 27 reads as
under :
“27. The following categories of cases are normally
considered to be not suitable for ADR process having
regard to their nature :
(iv) Cases involving serious and specific allegations of
fraud, fabrication of documents, forgery, impersonation,
coercion etc.
(v) Cases involving prosecution for criminal
offences.”
18. In the case of Booz Allen & Hamilton Inc. V SBI Home Finance
Ltd.3 it was again reiterated that the disputes relating to rights and
liabilities which give rise to or arise out of criminal offences, are non-
arbitrable disputes.
19. In the context of allegations of fraud and serious malpratices on
the part of the Respondents, in the case of N. Radhakrishnan V. Maestro
Engineers4, it was interalia observed in para No.23, as under :
“23. The learned Counsel appearing on behalf of the
Respondents on the other hand contended that the
appellant had made serious allegations against the
respondents alleging that they had manipulated the
accounts and defrauded the appellant by cheating the2(2010) 8 SCC 24
3(2011) 5 SCC 532
4(2010) 1 SCC 72
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appellant of his dues, thereby warning the respondents
with serious criminal action against them for the
alleged commission of criminal offences. In this
connection, reliance was placed on a decision of this
Court in Abdul Kadir Shamsuddin Bubere V. Madhav
Prabhakar Oak5 in which this Court under para 17 held
as under :
“17. Three is no doubt that were serious allegations
of fraud are made against a party and the party who is
charged with fraud desires that the matter should be
tried in open court, that would be a sufficient cause for
the court not to order an arbitration agreement to be
filed and not to make the reference.
In our view and relying on the aforesaid observations of
this Court in the aforesaid decision and going by the
ratio of the abovementioned case, the facts of the
present case do not warrant the matter to be tried and
decided by the arbitrator, rather for the furtherance of
justice, it should be tried in a court of law which would
be more competent and have the means to decide such
a complicated matter involving various questions and
issues raised in the present dispute.”
20. These judgments were referred to in the case of A. Ayyasamy V. A.
Paramasivam6. A distinction was made in the case of A. Ayyasamy (supra) in
the potency of the defence of fraud, namely serious allegations of fraud and
allegations simplicitor for the sake of resistance to reference to an arbitration.
In paragraph 23, the Supreme Court (speaking through Hon’ble Shri Justice
Sikri) ruled as under :
5AIR 1962 SC 406
6(2016) 10 SCC 386
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“23. A perusal of the aforesaid two paragraphs brings into
fore that the Law Commission has recognized that in cases
of serious fraud, courts have entertained civil suits.
Secondly, it has tried to make a distinction in cases where
there are allegations of serious fraud and fraud simplicitor.
It, thus, follows that those cases were there are serious
allegations of fraud, they are to be treated as non-
arbitrable and it is only the civil Court which should decide
such matters. However, were there are allegations of fraud
simplicitor and such allegations are merely alleged, we are
of the opinion that it may not be necessary to nullify the
effect of the arbitration agreement between the parties as
such issues can be determined by the Arbitral Tribunal.”
25.In view of our aforesaid discussions, we are of the
opinion that mere allegation of fraud simpliciter may not
be a ground to nullify the effect of arbitration agreement
between the parties. It is only in those cases where the
court, while dealing with Section 8 of the Act, finds that
there are very serious allegations of fraud which make a
virtual case of criminal offence or where allegations of
fraud are so complicated that it becomes absolutely
essential that such complex issues can be decided only by
the civil court on the appreciation of the voluminous
evidence that needs to be produced, the court can side-
track the agreement by dismissing the application under
Section 8 and proceed with the suit on merits. It can be so
done also in those cases where there are serious allegations
of forgery/fabrication of documents in support of the plea
of fraud or where fraud is alleged against the arbitration
provision itself or is of such a nature that permeates the
entire contract, including the agreement to arbitrate,
meaning thereby in those cases where fraud goes to the
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validity of the contract itself of the entire contract which
contains the arbitration clause or the validity of the
arbitration clause itself. Reverse position thereof would be
that where there are simple allegations of fraud touching
upon the internal affairs of the party inter se and it has no
implication in the public domain, the arbitration clause
need not be avoided and the parties can be relegated to
arbitration. While dealing with such an issue in an
application under Section 8 of the Act, the focus of the
court has to be on the question as to whether jurisdiction
of the court has been ousted instead of focusing on the
issue as to whether the court has jurisdiction or not. It has
to be kept in mind that insofar as the statutory scheme of
the Act is concerned, it does not specifically exclude any
category of cases as non-arbitrable. Such categories of non-
arbitrable subjects are carved out by the courts, keeping in
mind the principle of common law that certain disputes
which are of public nature, etc. are not capable of
adjudication and settlement by arbitration and for
resolution of such disputes, courts i.e. public fora, are
better suited than a private forum of arbitration. Therefore,
the inquiry of the Court, while dealing with an application
under Section 8 of the Act, should be on the aforesaid
aspect viz. whether the nature of dispute is such that it
cannot be referred to arbitration, even if there is an
arbitration agreement between the parties. When the case
of fraud is set up by one of the parties and on that basis
that party wants to wriggle out of that arbitration
agreement, a strict and meticulous inquiry into the
allegations of fraud is needed and only when the Court is
satisfied that the allegations are of serious and complicated
nature that it would be more appropriate for the Court to
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deal with the subject-matter rather than relegating the
parties to arbitration, then alone such an application under
Section 8 should be rejected.”
21. In paragraph No.45, the Supreme Court (speaking through
Hon’ble Justice Dr. Chandrachud) cautioned against the use of N.
Radhakrishnan case (supra) as a precedent and distinguished the same
as under :
“45. The position that emerges both before and after the
decision in N. Radhakrishnan (supra) is that successive decisions
of this Court have given effect to the binding precept
incorporated in Section 8. Once there is an arbitration
agreement between the parties, a judicial authority before
whom an action is brought covering the subject-matter of the
arbitration agreement is under a positive obligation to refer
parties to arbitration by enforcing the terms of the contract.
There is no element of discretion left in the court or judicial
authority to obviate the legislative mandate of compelling
parties to seek recourse to arbitration. The judgment in N.
Radhakrishnan (supra) has, however, been utilised by parties
seeking a convenient ruse to avoid arbitration to raise a defence
of fraud :
45.1. First and foremost, it is necessary to emphasis that the
judgment in N. Radhakrishnan (supra) does not subscribe to the
broad proposition that a mere allegation of fraud is ground
enough not to compel parties to abide by their agreement to
refer disputes to arbitration. More often than not, a bogey of
fraud is set forth if only to plead that the dispute cannot be
arbitrated upon. To allow such a plea would be a plain
misreading of the judgment in N. Radhakrishnan (supra). As I
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filed an application under Section 8 faced with a suit on a
dispute in partnership had raised serious issues of criminal
wrongdoing, misappropriation of funds and malpractice on the
part of the respondent. It was in this background that this Court
accepted the submission of the respondent that the arbitrator
would not be competent to deal with matters “which involved
an elaborate production of evidence to establish the claims
relating to fraud and criminal misappropriation”. Hence, it is
necessary to emphasise that as a matter of first principle, this
Court has not held that a mere allegation of fraud will exclude
arbitrability. The burden must lie heavily on a party which
avoids compliance with the obligation assumed by it to submit
disputes to arbitration to establish the dispute is not arbitrable
under the law for the time being in force. In each such case
where an objection on the ground of fraud and criminal
wrongdoing is raised, it is for the judicial authority to carefully
sift through the materials for the purpose of determining
whether the defence is merely a pretext to avoid arbitration. It is
only where there is a serious issue of fraud involving criminal
wrongdoing that the exception to arbitrability carved out in N.
Radhakrishnan (supra) may come into existence.
45.2. Allegations of fraud are not alien to ordinary civil courts.
Generations of judges have dealt with such allegations in the
context of civil and commercial disputes. If an allegation of
fraud can be adjudicated upon in the course of a trial before an
ordinary civil court, there is no reason or justification to exclude
such disputes from the ambit and purview of a claim in
arbitration. The parties who enter into commercial dealings and
agree to a resolution of disputes by an arbitral forum exercise an
option and express a choice of a preferred mode for the
resolution of their disputes. The parties in choosing arbitration
place priority upon the speed, flexibility and expertise inherent
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in arbitral adjudication. Once parties have agreed to refer
disputes to arbitration, the court must plainly discourage and
discountenance litigative strategies designed to avoid recourse
to arbitration. Any other approach would seriously place in
uncertainty the institutional efficacy of arbitration. Such a
consequence must be eschewed.”
22. In the case of Rashid Raza V. Sadaf Akhtar7 after following A.
Ayyasamy (supra), the Supreme Court enunciated the twin test for
considering the issue of non-arbitrability in the backdrop of the
allegation of fraud.
“4. The principles of law laid down in this appeal make a
distinction between serious allegations of forgery/fabrication in
support of the plea of fraud as opposed to “simple allegations”.
Two working tests laid won in para 25 are : (1) does this plea
permeate the entire contract and above all, the agreement of
arbitration, rendering it void, or (2) whether the allegations of
fraud touch upon the internal affairs of the parties inter se
having no implication in the public domain.”
23. The entire law on the aspect of fraud, in the context of the
resistance for reference to arbitration, was revisited by the Supreme
Court in the case of Avitel Post Studioz Ltd. V/s. HSBC PI Holdings
(Mauritius) Ltd.8. The Supreme Court postulated the tests to be applied
in assessing the plea of fraud as under :
35. After these judgments, it is clear that “serious allegations of
fraud” arise only if either of the two tests laid down are satisfied,7(2019) 8 SCC 710
8(2021) 4 SCC 713
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and not otherwise. The first test is satisfied only when it can be
said that the arbitration clause or 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 second test
can be said to have been met in cases in which allegations are
made against the State or its instrumentalities of arbitrary,
fraudulent, or malafide conduct, thus necessitating the hearing of
the case by a writ court in which questions are raised which are
not predominantly questions arising from the contract itself or
breach thereof, but questions arising in the public law domain.”
24. The Supreme Court expressly observed that N. Radhakrishnan
(supra) lacks in precedential value and further explained the rider
subject to which the decisions in Afcons Infrastructure Ltd. (supra) and
Booz Allen (supra) are required to be read. Paragraph No.43 of Avitel
(supra) reads thus :
“43. In the light of the aforesaid judgments, paragraph
27(vi) of Afcons (supra) and paragraph 36(i) of Booz
Allen (supra), must now be read subject to the rider
that the same set of facts may lead to civil and criminal
proceedings and if it is clear that a civil dispute involves
questions of fraud, misrepresentation, etc. which can be
the subject matter of such proceeding under section 17
of the Contract Act, and/or the tort of deceit, the mere
fact that criminal proceedings can or have been
instituted in respect of the same subject matter would
not lead to the conclusion that a dispute which is
otherwise arbitrable, ceases to be so.”
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25. Following the aforesaid pronouncement in the case of Avitel
(supra), the Supreme Court explained the aspect of non-arbitrability in
the context of fraud in the case of Vidya Drolia and Ors Vs Durga
Trading Corporation9 as under :
“74. The judgment in Avitel Post (supra) interprets
Section 17 of the Contract Act to hold that Section 17 would
apply if the contract itself is obtained by fraud or cheating.
Thereby, a distinction is made between a contract obtained by
fraud and post contract fraud and cheating. The latter would
fall outside Section 17 of the Contract Act and, therefore, the
remedy for damages would be available and not the remedy for
treating the contract itself as void.
78. In view of the aforesaid discussions, we overrule the ratio
in N. Radhakrishnan (supra) inter alia observing that
allegations of fraud can (sic cannot) be made a subject matter
of arbitration when they relate to a civil dispute. This is subject
to the caveat that fraud, which would vitiate and invalidate the
arbitration clause, is an aspect relating to non-arbitrability. We
have also set aside the Full Bench decision of the Delhi High
Court in HDFC Bank Ltd. V/s. Satpal Singh Bakshi 10 which
holds that the disputes which are to be adjudicated by the DRT
under the DRT Act are arbitrable. They are non-arbitrable.”
26. In view of the aforesaid pronouncements, the progressive
development in law, in the context of the resistance to reference to
arbitration on the basis of the allegations of fraud, forgery and the like
vitiating factors, can be traced as under :
9 (2021) 2 SCC 1.
10 2012 SCC Online Del 4815
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Initially, the judicial opinion favoured determination of the
allegations of fraud by the Court. Thus, where there were serious and
specific allegations of fraud, forgery and fabrication of documents, it
was considered that the Arbitrator was not equipped to determine such
allegations and a court of law would be more competent and have the
means to decide those questions. In keeping with the principle of
minimal judicial interference in the matter of arbitration and respecting
the party autonomy, where the parties have exercised the option to
resolve the disputes in a swift and inexpensive manner through a forum
of choice, the non-arbitrability of the dispute for the mere reason that
the adversary made allegations of fraud, gave way to a more balanced
approach. A distinction has, therefore, been made between the cases
involving serious allegations of fraud and allegations of fraud
‘simplicitor’. Lest, it would give a long leash to a party to obviate the
dispute resolution mechanism of choice, simply by making the
allegations of fraud with a view to derail the resolution.
27. The non-arbitrability of the dispute, in the backdrop of the
allegations of fraud, has also been subjected to two tests. First, whether
the alleged fraud affects the underlying contract, rendering it void. Two,
whether the fraud is restricted to the affairs of the parties, inter se,
without any implication in the public domain. To put it in other words,
the civil aspect of fraud may legitimately form a subject matter of
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arbitration. However, the criminal aspect of fraud, which entails penal
consequences, can only be adjudicated by a court of law. In
contemporary arbitration, the broad proposition that the allegations of
fraud are non-arbitrable is not favoured. If an allegation of fraud can be
adjudicated upon before a civil court, there is no justifiable reason to
exclude such disputes from being resolved through arbitration.
28. Reverting to the facts of the case, on the aforesaid touchstone, it
becomes abundantly clear that the allegations of fraud are in relation to
the execution of Deed of Reconstitution of the firm and not in relation to
the Deed of Partnership which contains the arbitration clause. It also
does not appear that the allegations of fraud in the instant case have any
implications in the public domain. Primarily, the allegations of fraud
revolve around civil aspect. Consequently, the civil aspect of fraud can
legitimately form a subject matter of Arbitration. Therefore, the learned
Civil Judge was clearly in error in declining to refer the disputes to
Arbitration on the ground that there were allegations of fraud and
preparation of false documents.
29. The learned District Judge refused to refer the parties to
Arbitration on a completely different ground. It was observed that
Defendant No.2 did not acknowledge the existence of the Partnership
Deed and thus the parties could not be referred to Arbitration.
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30. Having considered the material on record, the view of the learned
District Judge is equally infirm. What Defendant No.2 contended was
that the original partnership stood reconstituted under the Deed of
Reconstitution dated 2nd March 2015 of the firm. It was nowhere the
case of Defendant No.2 that there was no partnership as such between
Defendant No.2, Defendant No.3 and late Narayan Tiwari. Nor the
execution of Partnership Deed was ever contested. In fact, as noted
above, Clause 7 of the Deed of Reconstitution of firm explicitly states
that subject to the modifications brought about by the reconstitution of
the firm all other stipulations in the Deed of Partnership would govern
the rights and liabilities of the partners. It defies comprehension as to
how Defendant No.2 can be said to have denied the existence of the
Deed of Partnership containing the arbitration clause.
31. The learned District Judge lost sight of the fact that the basis of
the Plaintiffs suit for rendition of account and distribution of assets was
the Deed of Partnership which contains an arbitration clause. Without
disputing the existence of the partnership or for that matter the Deed of
Partnership, Defendant No.2 contended that the partnership firm
incorporated under the Deed of Partnership dated 31st January 2003,
stood reconstituted under Deed of Reconstitution dated 2 nd March 2015.
In that view of the matter, refusal to refer the parties to Arbitration on
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the ground that Defendant No.2 did not admit the existence of the
partnership was clearly erroneous.
32. This leads me to the submission of Mr Modak that only the
parties to Arbitration Agreement can be referred to Arbitration and not
the person who claim through or under such a party. The sheetanchor of
the submission of Mr. Modak is the judgment of the Constitution Bench
in the case of Cox And Kings Limited (Supra). In the said case, the
Constitution Bench was called upon to determine the validity of the
“Group of companies” in the jurisprudence of the Indian Arbitration, as
propounded in the case of Chloro Controls India (P) Ltd Vs Severn Trent
Water Purification.11 After an elaborate analysis, the Constitution Bench
answered the reference as under:
“170. In view of the discussion above, we arrive at the
following conclusions:
170.1 The definition of “parties” under Section 2(1)(h) read
with Section 7 of the Arbitration Act includes both the signatory as
well as non-signatory parties;
170.2 Conduct of the non-signatory parties could be an
indicator of their consent to be bound by the arbitration
agreement;
170.3 The requirement of a written arbitration agreement
under Section 7 does not exclude the possibility of binding non-
signatory parties;
170.4 Under the Arbitration Act, the concept of a “party” is
distinct and different from the concept of “persons claiming
through or under” a party to the arbitration agreement;
11 (2021) 3 SCC (Civ) 307.
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170.5 The underlying basis for the application of the group
of companies doctrine rests on maintaining the corporate
separateness of the group companies while determining the
common intention of the parties to bind the non-signatory party to
the arbitration agreement;
170.6 The principle of alter ego or piercing the corporate veil
cannot be the basis for the application of the group of companies
doctrine;
170.7 The group of companies doctrine has an independent
existence as a principle of law which stems from a harmonious
reading of Section 2(1)(h) along with Section 7 of the Arbitration
Act;
170.8 To apply the group of companies doctrine, the courts
or tribunals, as the case may be, have to consider all the
cumulative factors laid down in Discovery Enterprises. Resultantly,
the principle of single economic unit cannot be the sole basis for
invoking the group of companies doctrine;
170.9 The persons “claiming through or under” can only
assert a right in a derivative capacity;
170.10 The approach of this Court in Chloro Controls (supra)
to the extent that it traced the group of companies doctrine to the
phrase “claiming through or under” is erroneous and against the
well-established principles of contract law and corporate law;
170.11 The group of companies doctrine should be retained in
the Indian arbitration jurisprudence considering its utility in
determining the intention of the parties in the context of complex
transactions involving multiple parties and multiple agreements;
170.12 At the referral stage, the referral court should leave it
for the arbitral tribunal to decide whether the non-signatory is
bound by the arbitration agreement; and
170.13 In the course of this judgment, any authoritative
determination given by this Court pertaining to the group of
companies doctrine should not be interpreted to exclude the
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application of other doctrines and principles for binding non-
signatories to the arbitration agreement.”
33. The Supreme Court highlighted that the term “Party” and “the
person claiming through or under” are different. The phrase claiming
through or under has not been used in either in Section 2(1)(h) or
Section 7 of the Act of 1996. Therefore, a person claiming through or
under cannot be a party to an arbitration agreement on its own terms
because it only stands in the shoes of the original party.
34. I am afraid, the issue sought to be raised in this Petition by Mr.
Modak would be governed by the aforesaid pronouncement in the case
of Cox And Kings Limited (Supra). As noted above, the controversy
arose over the use of group of companies doctrine to refer the parties to
Arbitration who were not the signatories to the Arbitration Agreement.
The binding efficacy to such Arbitration Agreement on the parties who
were purportedly claiming through or under the parties to the
Agreement was at the heart of the controversy.
35. In the case at hand, the Plaintiffs are the legal representatives of
the deceased partner. The Partnership Deed contains a clear and explicit
Arbitration Agreement. The decision of the Arbitrator would bind not
only the partners but their legal representatives. Thus, the analogy of
theory of group of companies and binding efficacy of the Arbitration
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Agreement to non-signatories to the Arbitration Agreement cannot be
readily imported to a case of the present nature.
36. The issue need not be obfuscated as the provisions of the Act of
1996 provide a complete answer to the controversy sought to be raised
by Mr. Modak. Sub-section (1) of Section 40 provides in clear and
explicit terms that an arbitration agreement shall not be discharged by
the death of any party thereto either as respects the deceased or as
respects any other party, but shall in such event be enforceable by or
against the legal representative of the deceased.
37. Resultantly, I am not inclined to accede to the submission of Mr.
Modak.
38. Hence the following order:
:ORDER:
(i) Petition stands allowed.
(ii) The impugned orders passed by the learned
District Judge as well as the Trial Court stand
quashed and set aside.
(iii) The parties are referred to Arbitration.
(iv) With the consent of the Counsel for the
parties, Advocate Vishal Kanade, is appointed as a
sole Arbitrator to decide the disputes and
differences between the parties.
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(v) The details of Advocate Vishal Kanade are as
under:
Address: 1st Floor, Gundecha
Chambers, Nagindas Master Road,
Kala Ghoda, Fort, Mumbai 400 001,
Email Id: [email protected],
Mob No: 9819668711,
(vi) The learned Arbitrator is requested to file his
disclosure statement under Section 11(8) read with
Section 12(1) of the Act, 1996 within two weeks
with the Prothonotary and Senior Master and
provide copies to the parties.
(vii) Parties to appear before the Sole Arbitrator on
a date to be fixed by him at his earliest
convenience.
(viii) Fees payable to the Sole Arbitrator will be in
accordance with the Bombay High Court (Fee
Payable to Arbitrators) Rules, 2018.
[N. J. JAMADAR, J.]
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