Calcutta High Court
Twamev Construction And … vs The Kolkata Municipal Corporation And … on 12 August, 2025
2025:CHC-OS:147
IN THE HIGH COURT AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
ORIGINAL SIDE
WPO/1444/2021
Twamev Construction and Infrastructure Limited
-Versus-
The Kolkata Municipal Corporation and Ors.
Present :
The Hon'ble Justice Shampa Dutt (Paul)
For the Petitioner : Mr. Satarup Banerjee, Adv.
Mr. Avishek Guha, Adv.
Sk. Sariful Haque, Adv.
Mr. Ankush Majumdar, Adv.
For the KMC : Mr. Alak Kumar Ghosh, Adv.
Mr. Gopal Chandra Das, Adv.
Hearing concluded on : 22.07.2025
Judgment on : 12.08.2025
SHAMPA DUTT (PAUL), J. :-
1. The writ application has been preferred praying for a direction upon the
Kolkata Environmental Improvement Investment Program (KEIPP) being
the respondent No.2 herein to refund/reimburse the extra amount of
Rs.5,46,10,108/- withheld by the respondent no.2 along with interest
accrued thereof to the petitioner.
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2. The petitioner’s case is that by a tender dated 25th March, 2016, Kolkata
Environmental Improvement Investment Program by a publication in a
local newspaper invited bid for a project for sewerage and drainage
network in Rania Box Catchment (Part of ward 111, 112, & 113) in
Borough XI, Contract Package No.KEIIP/NCB/TR-2/SD10/2015-16, for
an amount of Rs.76,02,79,999.80. The petitioner being eligible for such
projects and adhering to the guidelines of the said tender, submitted its
financial proposal on 17th October, 2016.
3. The respondent no.2 being the project director, by letter dated 17th
October, 2016 accepted the bid and/or financial proposal dated 25th
March, 2016 for execution of the sewerage and drainage network in
Rania Box Catchment (Part of ward 111, 112, & 113) in Borough XI,
Contract Package No.KEIIP/NCB/TR-2/SD10/2015-16 thereafter
requested the petitioner to provide performance security in accordance of
the clause 42.1 of Instruction of Bidders (ITB).
4. Thereafter as per the course of action to start the project the petitioner
engaged its team at the project site initiating the project as soon as
possible after receiving the notice to proceed dated 25th January, 2017
and infused an amount of Rs.37,13,022/- for mobilization of the project,
moreover the petitioner deposited an amount of Rs.10,31,395/- as
retention money with the respondent no.2 and also furnished a Bank
Guarantee dated 25th November, 2016 valid till 22nd November, 2020 for
an amount of Rs.7,60,28,000/- to the respondent no.2.
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5. The petitioner’s further case is that during a joint inspection conducted
on 27th December, 2017 the respondents were satisfied with the quality
of work, but subsequently there was some delay in implementation of the
project and, as such, several letters were exchanged between the
petitioner and the respondent no.2 in regard to the progress of the work,
quality of work and delay in execution the work. In the meantime, an
application under Insolvency and Bankruptcy Code, 2016 was filed
before the National Company Law Tribunal (NCLT) Kolkata Bench by
State Bank of India and others for initiation of corporate insolvency
resolution process in the year 2018. Subsequently, by an order date 13th
March, 2019 the NCLT, Kolkata was pleased to admit the corporate
debtor i.e., the petitioner herein in the corporate insolvency resolution
process and accordingly an interim resolution professional was
appointed, thereafter the company’s new committee of creditors was
formed and subsequently, on 24th February, 2020, EDCL Infrastructure
Limited and US Constructions Pvt. Ltd. was confirmed as successful
resolution applicant.
6. Without any notice to the petitioner, the respondent no.2 illegally
invoked the Bank Guarantee provided by the petitioner of
Rs.7,60,28,000/- on 21st August, 2018.
7. It is submitted that that at the time of termination, an amount of
Rs.1,84,62,208.37 was due and payable by the respondent in regard to
the work done till the purported termination of the contract by the
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respondent no.1 being bill no.RA-3 amounting to Rs.1,81,95,818.60 and
bill No.RA-4, amounting to Rs.2,66,389.77.
8. Being aggrieved and dissatisfied with the action of the respondent
authorities, the petitioner approached the High Court for unjust and
unfair act.
9. On hearing the learned counsels for the parties and on perusal of the
materials on record, the petitioner was granted leave to file a
supplementary affidavit annexing documents which were relevant for
adjudication in the present case.
10. It appears that admittedly there is a document of contract between
the parties for execution of the work which was given to the
petitioner and conditions of contract has been clearly laid down in
the said contract. Clause 20 of the Procedural Rules of the Contract
relates to claims, disputes and arbitration. Clause 20.1 lays down the
provision for contractor’s claim. Clause 20.2 provides for appointment of
Dispute Board. Clause 20.6 provides ‘any dispute between the parties
arising out of or in connection with the contract not settled
amicably in accordance with sub-clause 20.5 and in respect of which
the DB’s decision (if any) has not become final and binding, shall be
finally settled by arbitration.
11. Admittedly, the parties in this case have neither approached for
appointment of Dispute Board nor proceeded for arbitration.
12. Both parties have filed their written notes along with judgments relied
upon.
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13. The petitioner has relied on the following judgments:-
a. (2011) 5 SCC 697 (Union of India & Ors. vs. Tantia
Construction Pvt. Ltd.);
b. (2021) 6 SCC 15 (Uttar Pradesh Power Transmission
Corporation Ltd. vs. CG Power and Industrial Solution Ltd. &
Anr.); and
c. (2022) 8 SCC 384 (New Delhi Municipal Council vs. Minosha
India Ltd.).
14. Mr. Alok Kumar Ghosh, learned senior counsel appearing for the Kolkata
Municipal Corporation (KMC) submitted that the writ petition has been
presented solely for monetary relief. The prayer for monetary claim has
been made in the grab of refund/reimbursement of the extra amount of
Rs.5 ,46,10,108/- allegedly held by KEIIP.
15. It is further submitted on behalf of the respondents that the petitioner
has not challenged any actions or decisions of the authority concerned.
The contract as granted in favour of the petitioner was terminated by a
letter dated 21.08.2018 (termination effected from 04.09.2018).
Undisputedly the termination of contract was not challenged rather
accepted. The monetary claim as raised in the writ petition is not a
consequential/incidental relief. Hence, the writ petition cannot be
maintained solely for monetary relief.
16. It is further stated that the monetary claim had become time barred
by efflux of time and as such the petitioner cannot avail of the writ
jurisdiction to revive the barred remedy. Since the contract
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agreement provided for a clause for redressal of any dispute by way
of arbitration, the petitioner cannot invoke the writ jurisdiction for
redressal of such alleged dispute.
17. It is further submitted that the respondents have acted as per the terms
and conditions in the contract and there has been no violation of the
terms and conditions therein.
18. In support of his submission, Mr. Ghosh has relied upon the following
judgments:-
i. (2011) 2 SCC 439 (Godavari Sugar Mills Ltd. vs. State of
Maharashtra & Ors.);
ii. (1989) 2 SCC 116 (Bareilly Development Authority & Anr. vs.
Ajay Paul Singh);
iii. (1996) 6 SCC 22 (State of U.P. & Ors. vs. Bridge & Roof Co. &
Ors.);
iv. (1981) 3 SCC 238 (Divisional Forest Officer vs. Biswanath Tea
& Co. Ltd.);
v. (2008) 8 SCC 172 (Pimpri Chinchwad Municipal Corporation &
Ors. vs. Gayatri Construction Co. & Anr.);
vi. AIR 1961 SC 1506 (A.V. Venkateswaram vs. Ramchand
Sobhraj);
vii. (2011) 1 CHN 182 (Cal. Electric Supply Corpn. Ltd. & Anr. vs.
Kalavanti Doshi Trust & Ors.);
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viii. Judgment of the Hon’ble Single Bench dated 22nd December,
2022 passed in APO/155/2023 (Heritage Infra Solution Pvt.
19. In A. Ayyasamy Vs A. Paramasivam & Ors., AIR 2016 SC 4675,
decided on 4th October, 2016, the Supreme Court held:-
“The two courts below have preferred to adopt the
dicta laid down in N. Radhakrishnan while
dismissing the application of the appellant
under Section 8 of the Act holding that as there are
serious allegations as to fraud and malpractices
committed by the appellant in respect of the finances
of the partnership firm and the case does not
warrant to be tried and decided by the arbitrator
and a civil court would be more competent which has
the requisite means to decide such complicated
matter. In this backdrop, it would be appropriate to
revisit the law on this aspect before adverting to the
question as to whether the approach of the High
Court was correct in following the judgment in N.
Radhakrishnan in the instant case.
In this behalf, we have to begin our discussion with
the pertinent observation that insofar as
the Arbitration and Conciliation Act, 1996 is
concerned, it does not make any specific
provision excluding any category of disputes
terming them to be non-arbitrable. Number of
pronouncements have been rendered laying
down the scope of judicial intervention, in
cases where there is an arbitration clause, with
clear and unambiguous message that in such
an event judicial intervention would be very
limited and minimal. However, the Act contains
provisions for challenging the arbitral awards. These
provisions are Section 34 and Section 48 of the
Act. Section 34(2)(b) and Section 48(2) of the Act,
inter alia, provide that an arbitral award may be set
aside if the Court finds that the ‘subject matter of the
dispute is not capable of settlement by arbitration
under the law for the time being in force.’ Even when
such a provision is interpreted, what is to be shown
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2025:CHC-OS:147is that there is a law which makes subject matter of
a dispute incapable of settlement by arbitration. The
aforesaid position in law has been culled out from
the combined readings of Sections
5, 16 and 34 of the Act. When arbitration
proceedings are triggered by one of the parties
because of the existence of an arbitration agreement
between them, Section 5 of the Act, by a non-
obstante clause, provides a clear message that there
should not be any judicial intervention at that stage
scuttling the arbitration proceedings. Even if the
other party has objection to initiation of such
arbitration proceedings on the ground that there is
no arbitration agreement or validity of the arbitration
clause or the competence of the Arbitral Tribunal is
challenged, Section 16, in clear terms, stipulates
that such objections are to be raised before the
Arbitral Tribunal itself which is to decide, in the
first instance, whether there is any substance in
questioning the validity of the arbitration
proceedings on any of the aforesaid grounds. It
follows that the party is not allowed to rush to
the Court for an adjudication. Even after the
Arbitral Tribunal rules on its jurisdiction and decides
that arbitration clause is valid or the Arbitral
Tribunal is legally constituted, the aggrieved party
has to wait till the final award is pronounced and
only at that stage the aggrieved party is allowed to
raise such objection before the Court in proceedings
under Section 34 of the Act while challenging the
arbitral award. The aforesaid scheme of the Act is
succinctly brought out in the following discussion by
this Court in Kvaerner Cementation India Ltd. v.
Bajranglal Agarwal & Anr.[3]:
“3. There cannot be any dispute that in the absence
of any arbitration clause in the agreement, no
dispute could be referred for arbitration to an
Arbitral Tribunal. But, bearing in mind the very
object with which the Arbitration and Conciliation
Act, 1996 has been enacted and the provisions
thereof contained in Section 16 conferring the
power on the Arbitral Tribunal to rule on its own
jurisdiction, including ruling on any objection with
respect to existence or validity of the arbitration
agreement, we have no doubt in our mind that the
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question.
4. A bare reading of Section 16 makes it explicitly
clear that the Arbitral Tribunal has the power to rule
on its own jurisdiction even when any objection with
respect to existence or validity of the arbitration
agreement is raised, and a conjoint reading of sub-
sections (2), (4) and (6) of Section 16 would make it
clear that such a decision would be amenable to be
assailed within the ambit of Section 34 of the Act.
5. In this view of the matter, we see no infirmity in
the impugned order so as to be interfered with by
this Court. The petitioner, who is a party to the
arbitral proceedings may raise the question of
jurisdiction of the arbitrator as well as the objection
on the ground of non-existence of any arbitration
agreement in the so-called dispute in question, and
on such an objection being raised, the arbitrator
would do well in disposing of the same as a
preliminary issue so that it may not be necessary to
go into the entire gamut of arbitration proceedings.”
Aforesaid is the position when Arbitral Tribunal is
constituted at the instance of one of the parties and
other party takes up the position that such
proceedings are not valid in law.
What would be the position in case a suit is filed by
the plaintiff and in the said suit the defendant files
an application under Section 8 of the Act
questioning the maintainability of the suit on the
ground that parties had agreed to settle the disputes
through the means of arbitration having regard to the
existence of an arbitration agreement between them?
Obviously, in such a case, the Court is to pronounce
upon arbitrability or non-arbitrability of the disputes.
In the instant case, there is no dispute about
the arbitration agreement inasmuch as there is
a specific arbitration clause in the partnership
deed. However, the question is as to whether
the dispute raised by the respondent in the suit
is incapable of settlement through arbitration.
As pointed out above, the Act does not make any
provision excluding any category of disputes treating
them as non-arbitrable. Notwithstanding the above,
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the Courts have held that certain kinds of disputes
may not be capable of adjudication through the
means of arbitration. The Courts have held that
certain disputes like criminal offences of a public
nature, disputes arising out of illegal agreements
and disputes relating to status, such as divorce,
cannot be referred to arbitration. Following
categories of disputes are generally treated as non-
arbitrable[4]:
(i) patent, trademarks and copyright;
(ii) anti-trust/competition laws;
(iii) insolvency/winding up;
(iv) bribery/corruption;
(v) fraud;
(vi) criminal matters.
Fraud is one such category spelled out by the
decisions of this Court where disputes would be
considered as non-arbitrable.
‘Fraud’ is a knowing misrepresentation of the truth or
concealment of a material fact to induce another to
act to his detriment. Fraud can be of diffeent forms
and hues. Its ingredients are an intention to deceive,
use of unfair means, deliberate concealment of
material facts, or abuse of position of confidence. The
Black’s Law Dictionary defines ‘fraud’ as a
concealment or false representation through a
statement or conduct that injures another who relies
on it[5]. However, the moot question here which has
to be addressed would be as to whether mere
allegation of fraud by one party against the other
would be sufficient to exclude the subject matter of
dispute from arbitration and decision thereof
necessary by the civil court.
In Abdul Kadir Shamsuddin Bubere v. Madhav
Prabhakar Oak[6], serious allegations of fraud were
held by the Court to be a sufficient ground for not
making a reference to arbitration. Reliance in that
regard was placed by the Court on a decision of the
Chancery Division in Russell v. Russell[7]. That was
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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 sought a declaration
that the notice of dissolution was void. The partner
who was charged with fraud sought reference of the
disputes to arbitration. The Court held that in a case
where fraud is charged, the Court will in general
refuse to send the dispute to arbitration. But where
the objection to arbitration is by a party charging the
fraud, the Court will not necessarily accede to it and
would never do so unless a prima facie case of fraud
is proved.
The aforesaid judgment was followed by this Court
in N. Radhakrishnan while considering the matter
under the present Act. In that case, the respondent
had instituted a suit against the appellant, upon
which the appellant filed an application
under Section 8 of the Act. The applicant made
serious allegations against the respondents of
having committed malpractices in the account books,
and manipulation of the finances of the partnership
firm. This Court held that such a case cannot be
properly dealt with by the arbitrator, and ought to be
settled by the Court, through detailed evidence led
by both parties.
When the case involves serious allegations of fraud,
the dicta contained in the aforesaid judgments
would be understandable. However, at the same
time, mere allegation of fraud in the pleadings by
one party against the other cannot be a ground to
hold that the matter is incapable of settlement by
arbitration and should be decided by the civil court.
The allegations of fraud should be such that not only
these allegations are serious that in normal course
these may even constitute criminal offence, they are
also complex in nature and the decision on these
issues demand extensive evidence for which civil
court should appear to be more appropriate forum
than the Arbitral Tribunal. Otherwise, it may become
a convenient mode of avoiding the process of
arbitration by simply using the device of making
allegations of fraud and pleading that issue of fraud
needs to be decided by the civil court. The judgment
in N. Radhakrishnan does not touch upon this aspect
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and said decision is rendered after finding that
allegations of fraud were of serious nature.
As noted above, in Swiss Timing Ltd. case, single
Judge of this Court while dealing with the same
issue in an application under Section 11 of the Act
treated the judgment in N. Radhakrishnan as per
incuriam by referring to the other judgments in the
case of P. Anand Gajapathi Raju v. P.V.G. Raju[8]
and Hindustan Petroleum Corpn. Ltd. v. Pinkcity
Midway Petroleums[9]. Two reasons were given in
support which can be found in para 21 of the
judgment which makes the following reading:
“21. This judgment was not even brought to the note
of the Court in N. Radhakrishnan’s case. In my
opinion, judgment in N. Radhakrishnan’s case is per
incuriam on two grounds; Firstly, the judgment in
Hindustan Petroleum Corpn. Ltd., though referred
has not been distinguished but at the same time is
not followed also. The judgment in P. Anand
Gajapathi Raju & Ors. Was not even brought to the
notice of this Court. Therefore, the same has neither
been followed nor considered. Secondly, the
provision contained in Section 16 of the Arbitration
Act, 1996 were also not brought to the notice by this
Court. Therefore, in my opinion, the judgment in N.
Radhakrishnan does not lay down the correct law
and cannot be relied upon.” We shall revert to the
question of per incuriam at a later stage. At this
juncture, we may point out that the issue has been
revisited by another Division Bench of this Court
in Booz Allen & Hamilton Inc. v. SBI Home Finance
Limited and others[10]. In this case, one of the
questions that had arisen for determination was, in
the context of Section 8 of the Act, as to whether the
subject matter of the suit was ‘arbitrable’ i.e. capable
of being adjudicated by a private forum (Arbitral
Tribunal). In this context, the Court carried out
detailed discussion on the term ‘arbitrability’ by
pointing out three facets thereof, viz.:
1) whether the disputes are capable of
adjudication and settlement by arbitration?
2) whether the disputes are covered by the
arbitration agreement?
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3) whether the parties have referred the disputes to
arbitration?
As we are concerned with the first facet of the
arbitrability of dispute, on this aspect the Court
pointed out that in those cases where the subject
matter falls exclusively within the domain of public
fora, viz. the Courts, such disputes would be non-
arbitrable and cannot be decided by the Arbitral
Tribunal but by the Courts alone. The justification
and rationale given for adjudicating such disputes
through the process of Courts, i.e. public fora, and
not by Arbitral Tribunals, which is a private forum, is
given by the court in the following manner:
“35. The Arbitral Tribunals are private fora
chosen voluntarily by the parties to the
dispute, to adjudicate their disputes in place of
courts and tribunals which are public fora
constituted under the laws of the country.
Every civil or commercial dispute, either contractual
or non-contractual, which can be decided by a court,
is in principle capable of being adjudicated and
resolved by arbitration unless the jurisdiction of the
Arbitral Tribunals is excluded either expressly or by
necessary implication. Adjudication of certain
categories of proceedings are reserved by the
legislature exclusively for public fora as a
matter of public policy. Certain other categories of
cases, though not expressly reserved for
adjudication by public fora (courts and tribunals),
may by necessary implication stand excluded from
the purview of private fora. Consequently, where the
cause/dispute is inarbitrable, the court where a suit
is pending, will refuse to refer the parties to
arbitration, under Section 8 of the Act, even if the
parties might have agreed upon arbitration as the
forum for settlement of such disputes.
36. The well-recognised examples of non-arbitrable
disputes are: (i) disputes relating to rights and
liabilities which give rise to or arise out of criminal
offences; (ii) matrimonial disputes relating to divorce,
judicial separation, restitution of conjugal rights,
child custody; (iii) guardianship matters; (iv)
insolvency and winding-up matters; (v) testamentary
matters (grant of probate, letters of administration
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tenancy matters governed by special statutes where
the tenant enjoys statutory protection against
eviction and only the specified courts are conferred
jurisdiction to grant eviction or decide the disputes.
37. It may be noticed that the cases referred to
above relate to actions in rem. A right in rem is a
right exercisable against the world at large, as
contrasted from a right in personam which is an
interest protected solely against specific individuals.
Actions in personam refer to actions determining the
rights and interests of the parties themselves in the
subject-matter of the case, whereas actions in rem
refer to actions determining the title to property and
the rights of the parties, not merely among
themselves but also against all persons at any time
claiming an interest in that property.
Correspondingly, a judgment in personam refers to a
judgment against a person as distinguished from a
judgment against a thing, right or status and a
judgment in rem refers to a judgment that
determines the status or condition of property which
operates directly on the property itself. (Vide Black’s
Law Dictionary.)
38. Generally and traditionally all disputes
relating to rights in personam are considered
to be amenable to arbitration; and all disputes
relating to rights in rem are required to be
adjudicated by courts and public tribunals,
being unsuited for private arbitration. This is
not however a rigid or inflexible rule. Disputes
relating to subordinate rights in personam arising
from rights in rem have always been considered to
be arbitrable.” The Law Commission has taken note
of the fact that there is divergence of views between
the different High Courts where two views have been
expressed, one is in favor of the civil court having
jurisdiction in cases of serious fraud and the other
view encompasses that even in cases of serious
fraud, the Arbitral Tribunal will rule on its own
jurisdiction. It may be pertinent here to reproduce the
observations of the Law Commission as contained in
paragraphs 50 & 51 of the 246th Law Commission
Report, which are as under:
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“”50. The issue of arbitrability of fraud has arisen on
numerous occasions and there exist conflicting
decisions of the Apex Court on this issue. While it
has been held in Bharat Rasiklalv. Gautam Rasiklal,
(2012) 2 SCC 144 that when fraud is of such a
nature that it vitiates the arbitration agreement, it is
for the Court to decide on the validity of the
arbitration agreement by determining the issue of
fraud, there exists two parallel lines of judgments on
the issue of whether an issue of fraud is arbitrable.
In this context, a 2 judge bench of the Supreme
Court, while adjudicating on an application
under section 8 of the Act, in Radhakrishnan v.
Maestro Engineers, 2010 1 SCC 72 held that an
issue of 28 fraud is not arbitrable. This decision
was ostensibly based on the decision of the three
judge bench of the Supreme Court in Abdul Qadir v.
Madhav Prabhakar, AIR 1962 SC 406. However, the
said 3 judge bench decision (which was based on
the finding in Russel v. Russel [1880 14 Ch.D 471])
is only an authority for the proposition that a party
against whom an allegation of fraud is made in a
public forum, has a right to defend himself in that
public forum. Yet, following Radhakrishnan, it
appears that issues of fraud are not arbitrable.
51. A distinction has also been made by certain High
Courts between a serious issue of fraud and a mere
allegation of fraud and the former has been held to
be not arbitrable (SeeIvory Properties and Hotels
Private Ltd v. Nusli Neville Wadia, 2011 (2) Arb LR
479 (Bom); CS Ravishankar v. CK Ravishankar,
2011 (6) Kar LJ 417). The Supreme Court in Meguin
GMBH v. Nandan Petrochem Ltd., 2007 (5) R.A.J 239
(SC), in the context of an application filed
under section 11 has gone ahead and appointed an
arbitrator even though issues of fraud were
involved. Recently, the Supreme Court in its
judgment in Swiss Timing Ltd v. Organising
Committee, Arb. Pet. No. 34/2013 dated 28.05.2014,
in a similar case of exercising jurisdiction
under section 11, held that the judgment in
Radhakrishnan is per incuriam and, therefore, not
good law.” A perusal of the aforesaid two
paragraphs brings into fore that the Law
Commission has recognized that in cases of serious
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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 where
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, where
there are allegations of fraud simplicitor and such
allegations are merely alleged, we are of the opinion
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.
Before we apply the aforesaid test to the facts of the
present case, a word on the observations in Swiss
Timing Ltd.‘s case to the effect that judgment of N.
Radhakrishnan was per incuriam, is warranted. In
fact, we do not have to labour on this aspect as this
task is already undertaken by this Court in State of
West Bengal & Ors. v. Associated Contractors[11]. It
has been clarified in the aforesaid case that Swiss
Timings Ltd. was a judgment rendered while dealing
with Section 11(6) of the Act and Section
11 essentially confers power on the Chief Judge of
India or the Chief Justice of the High Court as a
designate to appoint an arbitrator, which power has
been exercised by another Hon’ble Judge as a
delegate of the Chief Justice. This power of
appointment of an arbitrator under Section 11 by
the Court, notwithstanding the fact that it has been
held in SBP & Co. v. Patel Engineering Ltd. &
Anr.[12] as a judicial power, cannot be deemed to
have precedential value and, therefore, it cannot be
deemed to have overruled the proposition of law laid
down in N.Radhakrishnan.
In view of our aforesaid discussions, we are of the
opinion that mere allegation of fraud simplicitor 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 civil
court on the appreciation of the voluminous evidence
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that needs to be produced, the Court can sidetrack
the agreement by dismissing 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 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 for a, 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
deal with the subject matter rather than relegating
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the parties to arbitration, then alone such an
application under Section 8 should be rejected.
When we apply the aforesaid principles to the facts
of this case, we find that the only allegation of fraud
that is levelled is that the appellant had signed and
issued a cheque of Rs. 10,00,050/- dated
17.06.2010 of ‘Hotel Arunagiri’ in favour of his son
without the knowledge and consent of the other
partners i.e. the respondents. It is a mere matter of
accounts which can be looked into and found out
even by the arbitrator. It does not involve any
complex issue. If such a cheque is issued from the
hotel account by the appellant in favour of his son, it
is easy to prove the same and then the onus is upon
the appellant to show as to what was the reason for
giving that amount from the partnership firm to his
son and he will have to account for the same.
Likewise, the allegation of the respondents that daily
collections are not deposited in the bank accounts is
to be proved by the respondents which is again a
matter of accounts.”
20. In the present case as there is a valid contract/agreement with a clear
and unambiguous arbitration clause, judicial intervention is to be very
limited (A. Ayyasamy Vs A. Paramasivam & Ors., (Supra)).
21. When parties have agreed to an arbitration clause in a contract, they are
bound to resolve their disputes through arbitration and not through
courts.
22. Courts encourage minimal judicial intervention in matters where
arbitration is agreed upon. The Supreme Court of India and various
High Courts have repeatedly held that if a valid arbitration clause
exists, parties must honor it. This principle ensures party autonomy
and promotes alternative dispute resolution in accordance with the
Arbitration and Conciliation Act, 1996.
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23. The dispute herein is not incapable of settlement through arbitration,
but is ‘arbitrable’ as:-
i. The dispute is in respect of payment against a contract and as
such is capable of adjudication and settled by arbitration.
ii. The dispute herein is covered by the arbitration agreement
(contract) with a valid arbitration clause.
24. As such the parties herein should be relegated to arbitration, when they
themselves have voluntarily agreed to arbitration in the contract (clause
20).
25. The writ petition is accordingly disposed of with liberty granted to the
parties herein, to invoke clause 20 of the contract (agreement) for the
reliefs prayed for herein.
26. It is made clear that this Court has not gone into the merits of the case
while disposing the writ application.
27. All connected applications, if any, stand disposed of.
28. Interim order, if any, stands vacated.
29. Urgent certified website copy of this judgment, if applied for, be supplied
expeditiously after complying with all, necessary legal formalities.
(SHAMPA DUTT (PAUL), J.)