CM(M)/606/2013 of VINAY MALANI Vs DELHI PRANTIYA MARWARI YUVA MANCH & ORS

IN THE HIGH COURT OF DELHI AT NEW DELHIDate of Decision: 30.05.2014Date of Decision: 30.05.2014+CM(M) 1067/2011, CM APPLs. 17144/2011 and 18242/2013PAWAN KUMAR GUPTA & ANR..... PetitionerThrough:Mr. Manish Kaushik, AdvocateversusPAWAN KUMAR GUPTA & ANR..... PetitionerThrough:Mr. Manish Kaushik, Advocateversus

VINAY MALANI..... RespondentThrough:Mr.KirtiUppal,SeniorAdvocate with Mr. AnshumaanSahni, Ms Aastha Dhawan, Mr.ShankerChhabraandMs.Aakriti Jain, Advs.Through:Mr.KirtiUppal,SeniorAdvocate with Mr. AnshumaanSahni, Ms Aastha Dhawan, Mr.ShankerChhabraandMs.Aakriti Jain, Advs.

+VINAY MALANIVINAY MALANI

CM(M) 606/2013, CM APPL. 9118/2013

..... PetitionerThrough:Mr.KirtiUppal,SeniorAdvocate with Mr. AnshumaanSahni, Ms Aastha Dhawan, Mr.ShankerChhabraandMs.Aakriti Jain, Advs.Advocate with Mr. AnshumaanSahni, Ms Aastha Dhawan, Mr.ShankerChhabraandMs.Aakriti Jain, Advs.

versusDELHI PRANTIYA MARWARI YUVA MANCH & ORS..... Respondent..... RespondentThrough:Mr. Manish Kaushik, Advocatefor Pawan Gupta.for Pawan Gupta.

CORAM:HON'BLE MR. JUSTICE NAJMI WAZIRI

%MR. JUSTICE NAJMI WAZIRI

1. Two petitions of two parties are being heard and decided by thiscommon judgement. Although the petitions were filed two yearsapart and in respect of two different impugned orders, the petitionswere heard together for two reasons: (a) the decision of CM(M)1067/2011 (“first petition”) is likely to have an impact CM(M)common judgement. Although the petitions were filed two yearsapart and in respect of two different impugned orders, the petitionswere heard together for two reasons: (a) the decision of CM(M)1067/2011 (“first petition”) is likely to have an impact CM(M)

606/2013 (“second petition”), and (b) the disputes all arise from thesame dispute between substantially the same parties.

Parties to the dispute

2. Given the multiplicity of parties and the diverse titles attributable tothem, for ease of reference the parties are hereinafter referred to asfollows: Mr. P is the first petitioner in the first petition; his electionhas been impugned in the suit that gave rise to both petitions; he isalso the third respondent in the second petition. Mr. S is his co-petitioner, who is also the fourth respondent in the second petition;he was the Returning Officer for the elections. Mr. V is the solerespondent in the first petition and the petitioner in the secondpetition; he initiated the suit that gave rise to both petitions. TheSociety is the first respondent in the second petition; Mr. P waselected as President to the Society. The Organisation is the secondrespondent in the second petition; the Society is regional componentof the Organisation, which functions at three levels (national, prantiya(i.e., regional), and branch). Mr. K is the fifth respondent in thesecond petition; he is the President of the Faridabad Branch of theOrganisation.them, for ease of reference the parties are hereinafter referred to asfollows: Mr. P is the first petitioner in the first petition; his electionhas been impugned in the suit that gave rise to both petitions; he isalso the third respondent in the second petition. Mr. S is his co-petitioner, who is also the fourth respondent in the second petition;he was the Returning Officer for the elections. Mr. V is the solerespondent in the first petition and the petitioner in the secondpetition; he initiated the suit that gave rise to both petitions. TheSociety is the first respondent in the second petition; Mr. P waselected as President to the Society. The Organisation is the secondrespondent in the second petition; the Society is regional componentof the Organisation, which functions at three levels (national, prantiya(i.e., regional), and branch). Mr. K is the fifth respondent in thesecond petition; he is the President of the Faridabad Branch of theOrganisation.

Proceedings

3. Although the various proceedings are not as many as the partiesinvolved, they deserve to be recounted once. suit, being Civil Suitno. 68 of 2011 (“Suit”), was filed by Mr. V in the Court of SeniorCivil Judge-cum-Rent Controller (Central), Tis Hazari Courts, Delhi(“Trial Court”) challenging Mr. P’s election to the post of theinvolved, they deserve to be recounted once. suit, being Civil Suitno. 68 of 2011 (“Suit”), was filed by Mr. V in the Court of SeniorCivil Judge-cum-Rent Controller (Central), Tis Hazari Courts, Delhi(“Trial Court”) challenging Mr. P’s election to the post of the

President of the Society. It was filed on 22[nd]July, 2011 and an interimorder was passed on 23[rd]July, 2011 (“first interim order”) grantingcertain interim relief to Mr. V. The Society, Mr. P and Mr. S filed anapplication (“Arbitration Application”) under section 8 of theArbitration and Conciliation Act, 1996 (“Act”) seeking that thematter be referred to arbitration in view of clause 31G (o) in theConstitution of the Organisation (“arbitral clause”). This wasrejected by the Trial Court by its order dated 8[th]August, 2011 (“firstimpugned order”), which was challenged in the first petition by Mr.P and Mr. S.

4. The proceedings in the Trial Court was initially stayed by this Courtin the first petition, which was later modified and only the firstimpugned order was stayed. Mr. P then preferred an applicationunder Order XXXIX rule 4 of the First Schedule to the Code of CivilProcedure, 1908 (“Code”) for vacation of the first interim order(“Mr. P’s application”). In the meanwhile, contending that Mr. Phas acted in violation of the first interim order, Mr. V filed anapplication under Order XXXIX rule 2A of the First Schedule to theCode (“Mr. V’s application”). By an order of 3[rd]March, 2012, Mr.P’s application was allowed by the Trial court and Mr. V’s applicationwas rejected and Court Observer was appointed (“second interimorder”). Mr. V challenged the second interim order in RCA no.14/12 (“first appeal”) in the Court of the Additional District Judge –06 (Central), Delhi (“Appellate Court”) and Mr. P challenged thesame in RCA no. 19/12 (“second appeal”) before the AppellateCourt. By its order dated 19[th]November, 2012 (“second impugned

order”), the Appellate Court rejected the first appeal and allowed thesecond appeal and set aside the appointment of the Court Observer.The second impugned order is the subject matter of challenge by Mr.V in the second petition.

Facts

5. The facts, apart from what is set out hereinabove, are that Mr. P waselected president to the Society by the elections held on 17[th]July,2011 (“impugned elections”). Mr. V filed the Suit challenging thesame.Apartfromallegingvariousirregularities,hisprimarycontentions have been that:elected president to the Society by the elections held on 17[th]July,2011 (“impugned elections”). Mr. V filed the Suit challenging thesame.Apartfromallegingvariousirregularities,hisprimarycontentions have been that:

5.1.Mr. P was over the prescribed age limit (40 years) as per thebye-laws and other rules made by the Organisation and couldnot have been nominated for or have run for, or have becomethe President of the Society, andbye-laws and other rules made by the Organisation and couldnot have been nominated for or have run for, or have becomethe President of the Society, and

5.2.Mr. K was over the prescribed age limit (45 years) as per thebye-laws and other rules made by the Organisation and couldnot have been member of the Faridabad Branch of theOrganisation, nor could he have nominated Mr. P for theposition of President of the Societybye-laws and other rules made by the Organisation and couldnot have been member of the Faridabad Branch of theOrganisation, nor could he have nominated Mr. P for theposition of President of the Society

6. Mr. V’s case is that both Mr. P and Mr. K have committed fraud byactively concealing their respective ages. He has further contendedthat Mr. S, who was made the Returning Officer for the impugnedelections, has failed to appropriately scrutinise Mr. P’s nomination,and is likely complicit in the fraud. On these as well as other groundsactively concealing their respective ages. He has further contendedthat Mr. S, who was made the Returning Officer for the impugnedelections, has failed to appropriately scrutinise Mr. P’s nomination,and is likely complicit in the fraud. On these as well as other grounds

of irregularities, Mr. V sought that the impugned elections and theirresults ought to be declared as null and void and that Mr. P be notallowed to become the President of the Society or take charge overfrom the erstwhile President.

7. By the first interim order, the handing over/taking over of the chargewas stayed but Mr. P was allowed to remain as the President of theSociety. As earlier recounted, the first impugned order rejected theArbitration Application, the grounds wherefor would be discussed infurther detail at more appropriate part of the judgement. As earlieroutlined, this Court, in the first petition, stayed operation of the firstimpugned order. It, however, allowed liberty to Mr. P to seekmodification of the first interim order. It was in these circumstancesthat Mr. P’s application seeking vacation of the first interim ordercame to be filed.was stayed but Mr. P was allowed to remain as the President of theSociety. As earlier recounted, the first impugned order rejected theArbitration Application, the grounds wherefor would be discussed infurther detail at more appropriate part of the judgement. As earlieroutlined, this Court, in the first petition, stayed operation of the firstimpugned order. It, however, allowed liberty to Mr. P to seekmodification of the first interim order. It was in these circumstancesthat Mr. P’s application seeking vacation of the first interim ordercame to be filed.

8. In the meanwhile, Mr. P, on 16[th]October, 2011, called for meetingof the Executive Committee of the Society. Contending thisbehaviour to be wilful contempt of the first impugned order, Mr. V’sapplications came to be filed. It was sought to be contended that byMr. P calling for the meeting, he has de facto taken charge of/acted incharge of the Society, in violation of the first interim order. By thesecond interim order, the Trial Court rejected Mr. V’s application. Itobserved that the first interim order expressly allowed for Mr. P toremain as the President of the Society and the call for the meeting isin exercise of Mr. P’s prerogative as the President of the Society. Itfurther allowed Mr. P’s application, albeit partially. It observed thatof the Executive Committee of the Society. Contending thisbehaviour to be wilful contempt of the first impugned order, Mr. V’sapplications came to be filed. It was sought to be contended that byMr. P calling for the meeting, he has de facto taken charge of/acted incharge of the Society, in violation of the first interim order. By thesecond interim order, the Trial Court rejected Mr. V’s application. Itobserved that the first interim order expressly allowed for Mr. P toremain as the President of the Society and the call for the meeting isin exercise of Mr. P’s prerogative as the President of the Society. Itfurther allowed Mr. P’s application, albeit partially. It observed thatMr. P would be unable to function as the President if he is notallowed to oversee the daily functioning of the Society. It furtherobserved that if the Suit is eventually decreed in Mr. V’s favour, thepassage of this order ought to not adversely affect his or the Society’srights. In the circumstances, it modified the first interim order to theextent of allowing Mr. P to function as President in toto. However, itappointed Court Observer regarding the affairs of the Society.

9. In these circumstances, Mr. V as well as Mr. P filed their respectiveappeals challenging the second interim order. Mr. V contended that(a) the spirit of the first interim order was that Mr. P ought to haveremained President only in title and not discharged any functions ofthe President, (b) that Mr. V has violated the first interim order inletter as well as in spirit and has thus committed contempt thereof.Mr. P as well as Mr. V challenged the appointment of the CourtObserver, contending that where there was neither any prayer for,nor any grounds for appointment of Receiver, appointment of onein the name of Court Observer is wholly inappropriate and ought tobe set aside. By the second impugned order, which will be discussedin further detail shortly, the first appeal (by Mr. V) was rejected andthe second appeal (by Mr. P) was allowed.appeals challenging the second interim order. Mr. V contended that(a) the spirit of the first interim order was that Mr. P ought to haveremained President only in title and not discharged any functions ofthe President, (b) that Mr. V has violated the first interim order inletter as well as in spirit and has thus committed contempt thereof.Mr. P as well as Mr. V challenged the appointment of the CourtObserver, contending that where there was neither any prayer for,nor any grounds for appointment of Receiver, appointment of onein the name of Court Observer is wholly inappropriate and ought tobe set aside. By the second impugned order, which will be discussedin further detail shortly, the first appeal (by Mr. V) was rejected andthe second appeal (by Mr. P) was allowed.

The impugned orders

First impugned order

10.The first impugned order, as earlier stated, rejected the ArbitrationApplication filed by Mr. P, Mr. S and the Society. Before the TrialCourt, the first objection raised by Mr. V against reference toApplication filed by Mr. P, Mr. S and the Society. Before the TrialCourt, the first objection raised by Mr. V against reference to

arbitration under section 8 of the Act was that the arbitral clauserequired the Organisation to appoint an arbitral tribunal for thepurpose of deciding the disputes and differences. This contention wasrejected by the Trial Court, which held that the arbitral tribunal wasindeed appointed by the Organisation, as evidenced from the minutesof its meeting held on 3[rd]May, 2009. This finding, having not beenchallenged in either petition, has become final now.

11.The other contention raised by Mr. V was that since there areallegations of fraud – being the active concealment of their respectiveages by Mr. P and Mr. K – the matter cannot be referred toarbitration. It was contended that an arbitral tribunal would not becompetent to consider issues of fraud and hence the matter ought tonot be referred to arbitration. Accepting Mr. V’s contention, the TrialCourt rejected the Arbitration Application reasoning that:allegations of fraud – being the active concealment of their respectiveages by Mr. P and Mr. K – the matter cannot be referred toarbitration. It was contended that an arbitral tribunal would not becompetent to consider issues of fraud and hence the matter ought tonot be referred to arbitration. Accepting Mr. V’s contention, the TrialCourt rejected the Arbitration Application reasoning that:11.1.The judgement relied in support of the contention of theapplicant-defendants that an election dispute may be referredto arbitration is distinguishable because the matter is squarely vapplicant-defendants that an election dispute may be referredto arbitration is distinguishable because the matter is squarely vcovered by the judgements in General Enterprises & Ors.Jardine Handerson Ltd.,[1]and SW Palanitkar & Ors. v State ofBihar & Ors., which were cited by Mr. V.[2]Jardine Handerson Ltd.,[1]and SW Palanitkar & Ors. v State ofBihar & Ors., which were cited by Mr. V.[2]

11.2.The allegations of fraud strike at the very root of theimpugned elections.impugned elections.

1 AIR 1978 Cal 407.

2 (2002) 1 SCC 241.

11.3.The subject matter of the dispute is not dispute at national,regional or branch level – which is arbitrable – but is of fraudcommitted by person/persons – which is not arbitrable.regional or branch level – which is arbitrable – but is of fraudcommitted by person/persons – which is not arbitrable.

11.4.The judgements in NC Padmanabhan & Ors. v S Srinivasan,[3]and Kashmiri Lal v Union of India,[4]mandate that wheneverdisputes involving fraud and misappropriation are alleged andthey are too serious to be tried by the arbitrator, stay of suitought to be refused.and Kashmiri Lal v Union of India,[4]mandate that wheneverdisputes involving fraud and misappropriation are alleged andthey are too serious to be tried by the arbitrator, stay of suitought to be refused.

12.Reasoning thus, the first impugned order refused to refer the disputeto arbitration, which has been challenged by Mr. P and Mr. S in thefirst petition herein.to arbitration, which has been challenged by Mr. P and Mr. S in thefirst petition herein.

Second impugned order

13.As earlier stated the second impugned order was considering theappeals filed by Mr. V and Mr. P against the second impugned orderand had rejected the first appeal but allowed the second appeal. It hadreasoned that:appeals filed by Mr. V and Mr. P against the second impugned orderand had rejected the first appeal but allowed the second appeal. It hadreasoned that:

13.1.The Trial Court’s specifically stated in the first interim orderthat Mr. P may remain as the President of the Society.that Mr. P may remain as the President of the Society.

13.2.The Trial Court’s has clarified to the same effect in its furtherorders, although it has not made it clear as to whether callingfor and holding meeting of the Executive Committee wouldfall within the prerogative of the President or whether itorders, although it has not made it clear as to whether callingfor and holding meeting of the Executive Committee wouldfall within the prerogative of the President or whether it

3 AIR 1967 Mad 201.

4 AIR 1966 J&K 134.

would amount to taking charge/papers over – which latteractivity is prohibited.

13.3.The Trial Court, by the second interim order, has consideredthe calling of the meeting as not amounting to violation ofthe first interim order.the calling of the meeting as not amounting to violation ofthe first interim order.

13.4.The interpretation of the first interim order by the Trial Courtis reasonable and plausible interpretation and is notcapricious, arbitrary or perverse.is reasonable and plausible interpretation and is notcapricious, arbitrary or perverse.

13.5.Given the above, there is no basis for interference with theinterim order – especially when the application under OrderXXXIX rules 1 and 2 of the Code is still pending before theTrial Court.interim order – especially when the application under OrderXXXIX rules 1 and 2 of the Code is still pending before theTrial Court.

13.6.The challenge to the second impugned order on this groundby the first appeal ought to hence be rejected.by the first appeal ought to hence be rejected.

13.7.The appointment of the Court Observer is, in effect, anappointment of Receiver under Order XL rule 1 of theCode.appointment of Receiver under Order XL rule 1 of theCode.

13.8.A Receiver/Observer may be appointed only where there is arequirement of preservation of property or subject matter ofthe Suit.requirement of preservation of property or subject matter ofthe Suit.

13.9.No allegations of misappropriation or embezzlement of funds,nor of apprehension thereof have been pleaded by theplaintiff, nor is there any prayer for appointment of aReceiver/Observer.nor of apprehension thereof have been pleaded by theplaintiff, nor is there any prayer for appointment of aReceiver/Observer.

13.10. No valid reason has been given for the appointment of aCourt Observer when Mr. P has already been allowed tofunction as President in toto.Court Observer when Mr. P has already been allowed tofunction as President in toto.

13.11. In the circumstances, the second appeal by Mr. P has to beallowed in its entirety; the appointment of the Court Observeris set aside.allowed in its entirety; the appointment of the Court Observeris set aside.

14.This order is the subject matter of challenge in the second petition.

Contentions and Analysis

As to the second impugned order

15.The second petition – filed by Mr. V – may be taken up forconsideration first, although due to what this Court will be holding inthe first petition, it need not, ordinarily, consider the second petition.consideration first, although due to what this Court will be holding inthe first petition, it need not, ordinarily, consider the second petition.

16.By the second petition, the second impugned order is challenged byMr. V before this Court. Much of what has been contended beforethe Trial Court and the Appellate Court have been reiterated here –that (i) neither could Mr. P have been nominated for nor have run forPresident of the Society; (b) Mr. K could not have been member ofthe Faridabad Branch and hence could not have nominated Mr. P forthe impugned elections; (c) that the impugned elections are vitiated bythe fraud perpetrated by Mr. P and Mr. K; (d) that there were furtherand other irregularities in the impugned elections; (e) that Mr. Pought to not have been allowed to function as the President of theSociety. Senior Advocate Mr. Kirti Uppal, appearing on behalf of Mr.V, contended that the Trial Court had failed to appreciate the spirit ofMr. V before this Court. Much of what has been contended beforethe Trial Court and the Appellate Court have been reiterated here –that (i) neither could Mr. P have been nominated for nor have run forPresident of the Society; (b) Mr. K could not have been member ofthe Faridabad Branch and hence could not have nominated Mr. P forthe impugned elections; (c) that the impugned elections are vitiated bythe fraud perpetrated by Mr. P and Mr. K; (d) that there were furtherand other irregularities in the impugned elections; (e) that Mr. Pought to not have been allowed to function as the President of theSociety. Senior Advocate Mr. Kirti Uppal, appearing on behalf of Mr.V, contended that the Trial Court had failed to appreciate the spirit ofthe first interim order when it passed the second interim order settingthe former aside. He contended that when there is prima facie doubtas to the validity of the impugned elections, the Trial Court ought tonot have allowed Mr. P to continue as President. He contended thatin any case, the Appellate Court has failed to appreciate these errors,which are apparent from the record of the Trial Court itself. He lastlycontends that the Appellate Court was incorrect in holding that theappointment of the Court Observer was contrary to the provisions ofOrder XL rule 1 and ought to not have set the same aside by thesecond impugned order.

17.Although they traverse the contentions on behalf of Mr. V, it isunnecessary to set out the contentions on behalf of Mr. P in thisregard; this Court finds no merit in the contentions on behalf of Mr.V. The limitations of this Court when it exercises supervisoryjurisdiction – especially in respect of interim and/or discretionaryorders – are well established and hardly need reiteration.[5]Thepetition, too, would be considered on this touchstone of whetherthere was an error of jurisdiction or an illegality patent, warrantinginterference with under article 227 of the Constitution of India. Theanswer, to the mind of this Court, ought to be in the negative. Thesecond impugned order, to the extent that it rejects Mr. V’s appealfrom the second interim order, is not contrary to material available onrecord. The Appellate Court has refrained from interfering with (a)the interpretation placed upon its own earlier order by the Trialunnecessary to set out the contentions on behalf of Mr. P in thisregard; this Court finds no merit in the contentions on behalf of Mr.V. The limitations of this Court when it exercises supervisoryjurisdiction – especially in respect of interim and/or discretionaryorders – are well established and hardly need reiteration.[5]Thepetition, too, would be considered on this touchstone of whetherthere was an error of jurisdiction or an illegality patent, warrantinginterference with under article 227 of the Constitution of India. Theanswer, to the mind of this Court, ought to be in the negative. Thesecond impugned order, to the extent that it rejects Mr. V’s appealfrom the second interim order, is not contrary to material available onrecord. The Appellate Court has refrained from interfering with (a)the interpretation placed upon its own earlier order by the Trial

5 Useful reference may be made to para. 38 of Surya Devi Rai v Ram Chander Rai & Ors., (2003) 6 SCC675 in this regard.675 in this regard.

Court, and (b) an interim order as well as an order on an applicationunder Order XXXIX rule 2A of the Code when the main applicationunder Order XXXIX rule 1 and 2 of the Code is still to be decidedfinally.

18.The Appellate Court has, in its discretion refused to interfere with areasonable interpretation by the Trial Court of its own order; thisexercise of discretion is not arbitrary, nor is it contrary to materialavailable on record. It is not Mr. V’s case that the first interim ordercannot be interpreted in the manner that the Trial Court did interpretit. It is not his case that the only manner it ought to be interpretedwas the one posited by him. This Court will be loath to interfere witha reasonable and plausible interpretation its own judicial order by aCourt, especially when the Appellate Court – which had jurisdictionto reappreciate evidence – found no contention by Mr. V compellingenough to warrant such interference. Further, it is not the case thatthis interim order of the Trial Court will be incapable of correction ata later stage or that the refusal to interfere with at this stage wouldresult in unnecessary prolonging of the disputes; this Court finds noreason to interfere with the second impugned order on this count.[6]reasonable interpretation by the Trial Court of its own order; thisexercise of discretion is not arbitrary, nor is it contrary to materialavailable on record. It is not Mr. V’s case that the first interim ordercannot be interpreted in the manner that the Trial Court did interpretit. It is not his case that the only manner it ought to be interpretedwas the one posited by him. This Court will be loath to interfere witha reasonable and plausible interpretation its own judicial order by aCourt, especially when the Appellate Court – which had jurisdictionto reappreciate evidence – found no contention by Mr. V compellingenough to warrant such interference. Further, it is not the case thatthis interim order of the Trial Court will be incapable of correction ata later stage or that the refusal to interfere with at this stage wouldresult in unnecessary prolonging of the disputes; this Court finds noreason to interfere with the second impugned order on this count.[6]

19.This brings us to the second count on which the second impugnedorder has been challenged: that it ought to not have interfered withthe appointment of the Court Observer. Although all that this Courthas observed in the previous paragraph would apply on all fours tothe present contention, it is being considered for one further reason.order has been challenged: that it ought to not have interfered withthe appointment of the Court Observer. Although all that this Courthas observed in the previous paragraph would apply on all fours tothe present contention, it is being considered for one further reason.

6 Ibid., at para. 38(8), p. 696.

The first appeal, copy of the memorandum whereof has been filedwith the second petition, discloses that Mr. V has himself contendedlack of consent for appointment of the Court Observer; this has alsobeen recorded in the second impugned order. Mr. V, having alreadyobjected to the appointment of the Court Observer in his appeal –which gave rise to the second impugned order – cannot be heard tocontend that the second impugned order ought to not have set asidethe appointment of the Court Observer; quod approbo non reprobo.[7]

20.On merits, the Appellate Court found that there has been no casemade out that Mr. P is embezzling or misappropriating the funds ofthe Society in his position as the President thereof, or that there is anapprehension thereof. It observed that there was no prayer on Mr.V’s behalf for appointment of Court Observer, either. On this basis,the Appellate Court set aside the appointment of the Court Observer,holding it to not be in consonance with the rigours of Order XL rule1. Mr. V has not been able to demonstrate before this Court as tohow the pleadings in the Suit can be construed as making out caseof embezzlement or of misappropriation or of apprehension thereof.This Court finds no reason to interfere with the second impugnedorder; consequently, the second petition, filed by Mr. V, is herebydismissed.made out that Mr. P is embezzling or misappropriating the funds ofthe Society in his position as the President thereof, or that there is anapprehension thereof. It observed that there was no prayer on Mr.V’s behalf for appointment of Court Observer, either. On this basis,the Appellate Court set aside the appointment of the Court Observer,holding it to not be in consonance with the rigours of Order XL rule1. Mr. V has not been able to demonstrate before this Court as tohow the pleadings in the Suit can be construed as making out caseof embezzlement or of misappropriation or of apprehension thereof.This Court finds no reason to interfere with the second impugnedorder; consequently, the second petition, filed by Mr. V, is herebydismissed.

As to the first impugned order

21.Advocate Mr. Manish Kaushik, appearing for Mr. P and Mr. S, insupport of the first petition, contended that the mandatory provisionsupport of the first petition, contended that the mandatory provision

7 Latin: That which is approved cannot be condemned.

of arbitration – the arbitral clause – will cover the present dispute,and it ought to be referred to arbitration. He contended that:

21.1.The impugned order was wrong in holding that in view of theallegations of fraud, the matter cannot be referred toarbitration.allegations of fraud, the matter cannot be referred toarbitration.

21.2.The Trial Court, once it came to the conclusion that anarbitration clause exists, and the dispute would – but for theallegation of fraud – be arbitrable, ought to not have refusedthere reference to arbitration merely because bald allegationsof fraud have been made.arbitration clause exists, and the dispute would – but for theallegation of fraud – be arbitrable, ought to not have refusedthere reference to arbitration merely because bald allegationsof fraud have been made.

21.3.The allegations of fraud were made without furnishing anyparticulars thereto and cannot form the basis of rejection ofthe Arbitration Application.particulars thereto and cannot form the basis of rejection ofthe Arbitration Application.

21.4.The fraud alleged is not of such serious nature as to be triedonly by Civil Court; the arbitral tribunal would well becompetent to try the same.only by Civil Court; the arbitral tribunal would well becompetent to try the same.

21.5.In any case, where the party against whom the fraud is allegedis willing to have the allegations of fraud tried in arbitration, inrespect of frauds of this nature – of simple active concealmentof age in elections – the arbitral clause must be given effect to.is willing to have the allegations of fraud tried in arbitration, inrespect of frauds of this nature – of simple active concealmentof age in elections – the arbitral clause must be given effect to.

22.In reply, Mr. Uppal contended that the first impugned order wasrightly passed and ought to not be interfered with. He contendedthat:rightly passed and ought to not be interfered with. He contendedthat:

22.1.The petition is not maintainable under article 227 of theConstitution of India.Constitution of India.

22.2.The Arbitration Application did not disclose the disputessought to be referred to arbitration and in the absence thereof,the application will not be maintainable.sought to be referred to arbitration and in the absence thereof,the application will not be maintainable.

22.3.Relying on the judgements in Utkarsh v Delhi Bar Association,[8]and Akshay Kapur v Rishav Kapur & Ors.,[9]he contended thatthe Suit merely sought for enforcement of mandatory termof an agreement and hence cannot be referred to arbitration.and Akshay Kapur v Rishav Kapur & Ors.,[9]he contended thatthe Suit merely sought for enforcement of mandatory termof an agreement and hence cannot be referred to arbitration.

22.4.Where prima facie case of fraud is made out, the matter oughtto not be referred to arbitration and must be tried by the CivilCourts.to not be referred to arbitration and must be tried by the CivilCourts.

23.After hearing the parties, the Court reserved the matter forconsideration. This Court, after consideration of the contentions, isof the view that the first petition ought to be allowed in thecircumstances of the case; there is much merit in the submissions onbehalf of Mr. P and Mr. S.consideration. This Court, after consideration of the contentions, isof the view that the first petition ought to be allowed in thecircumstances of the case; there is much merit in the submissions onbehalf of Mr. P and Mr. S.

24.The issue of arbitrability of disputes where fraud is alleged is not new,and has been the subject of pronouncements in the past too. An earlycase on an issue of whether parties may be referred to arbitrationalthough there are contentions of fraud is that of the Madras HighCourt in Anglo-Persian Oil Company Ltd. v PS Panchapakesa Aiyar,[10]where SCHWABE C.J. held:and has been the subject of pronouncements in the past too. An earlycase on an issue of whether parties may be referred to arbitrationalthough there are contentions of fraud is that of the Madras HighCourt in Anglo-Persian Oil Company Ltd. v PS Panchapakesa Aiyar,[10]where SCHWABE C.J. held:

8 Judgement dated 25th February, 2014 of this Court in CS(OS) no. 2625/2013.

9 105 (2003) DLT 467.

10 AIR 1924 Mad 336, at p. 337.

“As I understand the principle in England and here, the Court, where there is asubmission to arbitration, in order to refuse to stay the proceedings, must besatisfied that there is no sufficient reason why the matter should not be referred toarbitration in accordance with the submission, that is, really saying in other wordsthat the onus is on the party resisting the application for stay to show somesufficient reason why in the particular case the parties should be relieved from theobligation which they should have contracted namely that their case should gobefore the arbitrators selected by them and not before the ordinary tribunals of theland. There are certain well defined instances where court almost invariablyrefuses to stay, such as case where there are serious allegations of fraud…”(Emphasis supplied)

25.In the said case, the Court held that since no case of fraud is madeout or even pleaded, the matter ought to be referred to arbitration.Shortly thereafter, the Calcutta High Court had similar issue beforeit. The dispute was in respect of certain fraudulent misappropriationof funds by misuse of office of Managing Agency of the Maharajahof Kasisimbazar’s collieries, with the Maharajah seeking an injunction theagainst the Managing Agency from functioning as such quacollieries or decree of declaration of determination of the contractof agency. It appears that the matter involved the officers of theManaging Agencies covertly selling coal from the collieries andappropriating the funds for themselves, without the knowledge of theMaharajah. Rejecting the application under Section 19 of the IndianArbitration Act, 1899, the CC GHOSE J. held:

“… [U]nder S. 19 of the Indian Arbitration Act, the Court has discretion inthe matter of staying actions which it is bound to exercise judicially and inaccordance with certain well settled rules. The prima facie leaning of the Court isto stay the action and leave the plaintiff to the tribunal to which he has agreed butthe Court may in its discretion, after considering all the circumstances of the case,refuse stay on the ground that the matters in dispute between the parties involvethe investigation of grave charges of fraud and may hold that in such circumstancesarbitration is not the most suitable method of determining the questions raised

between the parties. Sir Benoud Mitter and Mr. SC Bose, who appeared for thedefendant company, have strongly pressed upon me the case of Russel v Russel,and have argued that where fraud is charged the Court will, in general, refuse tosend the case to arbitration if the party charged with fraud desires public enquiryand that where it is the party who is making the charge desires that the mattershould be given publicity of public trial, the Court is much less inclined to freehim from the undertaking to go to arbitration into which he has seen fit to enter. Iassent, if I may respectfully do so, to the proposition laid down in Russel v Russel,but it is to be observed that this very case virtually decides that, provided primafacie case of fraud is made out, the action will be allowed to proceed, although it isthe party alleging the fraud who desires the public enquiry. On this motion for stayof the action, I am not at liberty to offer any opinion whatsoever on the merits ofthe plaintiff’s claim, but it is permissible for me to state that I am convinced thatthe plaintiff has substantial and bona fide cause of action and that on theaffidavits sufficient prima facie case of fraud has been made out. In myjudgement, question like this should not be sent to the determination ofarbitrators, and on this ground alone, I would decline to stay the action.”[11](Emphasis supplied)

26.While upholding the refusal of the Court of Small Causes to referparties to arbitration given the allegations of fraud, the Sind Court ofJudicial Commissioner had, as early as in 1934, warned against lightlyallowing such matters to be tried by Courts. Relying on the CalcuttaHigh Court’s decision,[12]O’SULLIVAN A.J.C. observed:

“With regard to the question of forgery, when there is charge of fraud or forgery,against one of the parties to submission clause Court has discretion to refuse astay. Generally speaking where the party charged desires public inquiry, theCourt will generally refuse to send the case to arbitration but where the partymaking the charge desires that the matter should be dealt with in Court the Courtwill be less inclined to stay the suit…However, with reference to this question wedesire to sound note of warning. To ensure proper discretion in refusing to staya suit on an allegation of fraud or forgery, the Court should ascertain that there issome foundation for such charge; otherwise there will be tendency to allege fraudin any case in which party to submission clause wishes to avoid arbitration.”[13](Emphasis supplied)

11 Maharajah Sir Manindra Chandra Nandy v HV Low & Co. Ltd., AIR 1924 Cal 796, at p. 800.

12 Ibid.

13 FO Murlimal Santram v Messrs. Bansaridas & Sons & Anr., AIR 1935 Sind 62, at p. 67.

27.Relying on Russel v Russel,[14]LEACH C.J. speaking for the DivisionBench of the Madras High Court, refused to refer parties toarbitration in matter involving forgery of documents observing:Bench of the Madras High Court, refused to refer parties toarbitration in matter involving forgery of documents observing:

“We have no hesitation in holding that the discretion [to not refer parties toarbitration where fraud is alleged] which [the learned Single Judge] did exercisewas exercised wisely. The questions at issue between the appellants and therespondent involve serious allegations of fraud, and the respondent has the right toask the Court that matters which affect his honesty and integrity should be decidedin open Court.”[15]

28.The position did not appear to change much even after the enactmentof the Arbitration Act, 1940. Before the Allahabad High Court, casewas brought in appeal from an order of Civil Judge refusing stay ofa suit on grounds inter alia of serious issues of fraud having beenraised. Reversing this, the Division Bench of the Court referred with Russel v Russel[16]approval toand the Calcutta High Court’sjudgement[17]and observed:

“[4] …[U]nless prima facie case of fraud is made out, the proceedings shouldwhen an arbitration agreement exists, be stayed. If the plaintiff objects to the casebeing referred to domestic tribunal in accordance with an arbitration agreementbetween the parties he must make out substantial and bona fide case of fraud.In the present case, respondent 1 has no doubt, made serious allegations of fraudagainst the appellant. But he did not come into the witness box and the statementon oath of the appellant and the affidavit filed on his behalf stand unrebutted. Onthe other hand, the appellant has filed two affidavits sworn by respondent 1 inwhich he has denied the allegations of fraud. No doubt, it is said on behalf ofrespondent 1 that these affidavits had been obtained from him by undue influenceand misrepresentation. But, as I have said before, respondent 1 has not appearedin the witness-box to state these facts on oath and there is also no affidavit on hisbehalf in support of these allegations.”[18]

14 (1880) 14 Ch 471.

15 Laldas Lakshmi Das & Anr. v JD Italia, AIR 1938 Mad 918.

16 Supra, at n. 14.

17 Supra, at n. 11.

18 Budhu Lal v Jagan Nath, AIR 1949 All 70, at p. 72.

(Emphasis supplied)

29.In the same year, the East Punjab High Court was to consider amatter where plaintiff sued two defendants, but only the firstdefendant was party to the arbitral clause. The contention of theplaintiff was that the two defendants colluded with each other todefraud him. Refusing to refer the matter to arbitration, the Courtheld:matter where plaintiff sued two defendants, but only the firstdefendant was party to the arbitral clause. The contention of theplaintiff was that the two defendants colluded with each other todefraud him. Refusing to refer the matter to arbitration, the Courtheld:

“[39] …Although there is no legal bar to the Court proceeding with the trial ofthe suit as against defendant 2 not party to the arbitration agreement while thesuit, in so far as it affects defendant 1, who is party to arbitration agreementremains stayed, consideration of practical convenience appear to make it eminentlydesirable that the allegations of fraud and collusion against both the defendants betried in the same action and at the same time.[19](Emphasis supplied)

30.In matter involving the Union of India alleging supply ofadulterated ghee to it by the plaintiff, the Civil Judge refused stay ofthe suit inter alia in view of the plaintiff alleging fraud by former’sofficers during testing of the ghee. Refusing to interfere with the same,the Division Bench of the Allahabad High Court observed:adulterated ghee to it by the plaintiff, the Civil Judge refused stay ofthe suit inter alia in view of the plaintiff alleging fraud by former’sofficers during testing of the ghee. Refusing to interfere with the same,the Division Bench of the Allahabad High Court observed:

“[7] …[A] party to the arbitration agreement is not entitled as of right to thestay of proceedings. Whether or not the Court shall exercise the power given to itby the section [section 34 of Arbitration Act, 1940] is entirely one of discretion.This discretion, of course, must be judicially exercised. But where it has beenexercised it will not readily be interfered with, even though the tribunal which isasked to review it may feel that, if the decision had rested with them, their ownconclusion may have been different…Where parties have agreed to refer disputeto arbitration, and one of them, notwithstanding that agreement, commences anaction to have to dispute determined by Court, prima facie the leaning of theCourt is to stay the action and leave the plaintiff to the tribunal to which he hasagreed. But where the dispute referred to arbitration involves question of fraud orwhere the dispute under consideration involves charges against the character of one

19 Banwari Lal Ram Deo v Board of Trustees, Hindu College, Delhi, AIR 1949 E. Punj 165, at p. 175.

of the parties, the Court will usually permit the party against whom such chargesare made, if he so desires, to have them investigated in open Court. It is not properthat party against whom such charges are made should be without right of”[20]appeal on questions of fact…(Emphasis supplied)

31.In the oft-cited case of Abdul Kadir Shamsuddin Bubere v MadhavPrabhakar Oak & Anr.,[21]KN WANCHOO J. (as he then was), citingRussel v Russel,[22]and speaking for the Bench of three Judges:

“(17) There is no doubt that where serious allegations of fraud are made against aparty and the party who is charged with fraud desires that the matter should betried in open court, that would be sufficient cause for the court not to order anarbitration agreement to be filed and not to make the reference. But it is not everyallegation imputing some kind of dishonesty, particularly in matters of accounts,would be enough to dispose court to take the matter out of the forum which theparties themselves have chosen.

We are clearly of the opinion that merely because some allegations have been madethat accounts are not correct or that certain items are exaggerated and so on that isnot enough to induce the court to refuse to make reference to arbitration. It isonly in cases of allegation of fraud of serious nature that the court will”[23]refuse…(Emphasis supplied)

32.In the case of General Enterprises & Ors. v Jardine Handerson Ltd.,[24]afterdiscussing Russel v Russel,[25]the Calcutta High Court, after referring tothe above judgement of the Supreme Court[26]observed:

“The true ratio of that decision, in my opinion, is that where allegations of fraudare made in an action in respect of which stay is being sought, those allegations arefactors which the Court takes into consideration in exercising the discretion [togrant or refuse stay]. It was normally the practice if party charged with fraud

20 Union of India v Firm Vishydha Ghee Vyopar Mandal, AIR 1951 All 541, at p. 543.

21 AIR 1962 SC 406.

22 Supra, at n. 14.

23 Abdul Kadir Shamsuddin Bubere v Madhav Prabhakar Oak & Anr., supra, at n. 21, p. 411.

24 Supra, at n. 1 para. 16, p. 418.

25 Supra at n. 14

26 Abdul Kadir Shamsuddin Bubere v Madhav Prabhakar Oak & Anr., supra, at n. 21.

desired public and open trial in courts to refuse to grant stay even where the staywas merited. This principle grew up at time when people with dignity very oftensought vindication of honour in public. Jessel M.R. has noted that there is atendency of making false or reckless allegation and it is often tendency of thosewho make those allegation to want exposure at public forum. At the same timeit has to be borne in mind that sense of dignity is at discount in the present times,people are no longer keen for vindication of honour. People who are guilty of fraudtend to avoid public trial. Therefore, keeping this trend in mind, in my opinion,the effect of allegations of fraud in exercising the discretion of the Court should beexamined…In my opinion the fact that there are allegations of fraud is factorwhich the Court should take into consideration in considering the exercise ofdiscretion. The nature and type of the allegations are also relevant factors. If aparty charged with fraud wants public trial stay should, subject to the abovefactors, be always refused. But even if the party charged with fraud does not wantpublic trial but the party charging the fraud so wants there in appropriate cases thecourt should refuse to grant stay…”(Emphasis supplied)

33.It must be borne in mind that in the above matter, the disputeinvolved the Plaintiff’s own assistant causing it to enter into thecontract with firm which was comprised of his wife and child,which the plaintiff cited as reason inter alia to refuse to honour thecontract. Speaking for the Division Bench of the Andhra PradeshHigh Court in matter with similar facts, JAGANNADHA RAO J. (as hethen was), relied upon the said judgement to refuse reference toarbitration at the insistence of the plaintiff.[27]He also held that casesinvolving professional/occupational negligence, impropriety anddishonesty ought also to be treated in similar manner, with theperson against whom it is contended being given an opportunity tohave the matter tried in Court.[28]In subsequent case, the CalcuttaHigh Court was faced with an appeal from stay of suit in view ofserious allegations of fraud having been made. The plaintiff’s suit was

27 Muthavarapu Venkateswara Rao v N Subbarao, AIR 1984 AP 200.

28 Ibid., at para. 29, p. 206.

that the defendant-contractor colluded with its officers and presenteda false picture as to the quantum of work completed by him and thusobtained payment therefor. Reversing the order of stay, and holdingthat the actual dispute was qua the quantum of work done and not thecollusion the Division Bench held:

“43. However, mere allegation of fraud unconnected with the real point at issuewill, in our view, not operate as bar to the stay of the legal proceeding. Accordingto us, the most vital question for consideration in such matters would be whether indeciding the real dispute between the parties it would be necessary for the arbitratorto enter into the allegation of fraud involving the reputation of professional man.If it is necessary for the arbitrator to enter into such question for determining thereal point at issue between the parties, the Court will be reluctant to allow thematter to go to arbitration.”[29](Emphasis supplied)

34.Indirectly affirming the principle that consent can clothe an arbitratorwith power to consider issues of fraud, learned Single Judge of thisCourt, rejected challenge to an award based on an agreement v Bimla Devicontended as being obtained by fraud in Amir Singh JainJain.[30]In negativing the petitioner’s contention that the arbitratorought to have sent the matter back to the Courts for theirconsideration once fraud has been raised as an issue in the arbitration,the Court held:

“I have considered this aspect. In my opinion the contention of Mr. Mittal has noforce. The matter was referred by the Court for decision. No application could befiled before the Arbitrator to return the reference on the ground that allegations offraud had been pleaded. The proper remedy was to apply to the court for revocationof the authority of the arbitrator. It [sic: if] advised, the plaintiff could move the

29 West Bengal Comprehensive Area Development Corporation and Anr. v Sansanka Sekhar Banerjee, AIR 1985Cal 290.Cal 290.

30 1993 (27) DRJ 74.

court for revocation of the authority of the Arbitrator on the ground that thesubject matter of the reference contained allegations of fraud…”[31]

35.RC LAHOTI J. (as he then was), when sitting singly in this Court, hadoccasion to consider the issue in Subhash Chander Kathuria v AshokaAlloys Steels Pvt. Ltd. & Ors.,[32]where the plaintiff sought to opposethe application for stay of suit on the ground that the defendants hadcommitted fraud in inducing him to enter into the contract. Afterexamining the decisions of the Andhra Pradesh High Court,[33]Allahabad High Court’s,[34]and that of theSind Court of JudicialCommissioner,[35]the learned Judge held:

“18. I have carefully perused the several so-called false representations andpersuasions made by the defendants, according to the plaintiff. Firstly, there is adistinction between misrepresentation and fraud. case of misrepresentation isnot case of fraud. If not all, most of the false representations set out in the plaintand attributed to the defendants are such as to which the plaintiffs could havemade enquiries of their own and by exercise of sheer reasonable diligence, theycould have known the correct state of affairs of the defendants company, howsoeverheld out and falsely projected by the defendants. It would not be case of fraud…19. The allegations of fraud are against the defendants. Primarily they have theoption to have the matter decided by the civil court. They wishes [sic: wish] to havethe matter adjudicated upon by the arbitrator. If the applicability of S.34 of theArbitration is attracted the plaintiffs cannot in the facts and circumstances of thecase force upon the defendants trial by civil court to the exclusion of thearbitration clause.”[36](Emphasis supplied)

36.The position of law remains substantially unchanged subsequent tothe enactment of the Act, as well. Now it must be borne in mind thatthe 1940 Act afforded discretion to the Court before which an

31 Ibid., at p. 77.

32 1995 (35) DRJ 319.

33 Muthavarapu Venkateswara Rao v N Subbarao, supra, at n. 27.

34 Budhu Lal v Jagan Nath, supra at n. 18.

35 FO Murlimal Santram v Messrs. Bansaridas & Sons & Anr., supra, at n. 13.

36 Subhash Chander Kathuria v Ashoka Alloys Steels Pvt. Ltd. & Ors., supra at n. 32, p. 323.

application for stay of suit governed by an arbitral clause is made,whereas section 8 of the Act provides no such scope for discretion.This proposition, which was pressed into operation by the petitioner,is undeniable. The judgements of the Supreme Court in P Anand vand HindustanGajapathi Raju & Ors. PVG Raju (dead) & Ors.[37]Petroleum Corpn. Ltd. v Pinkcity Midway Petroleums,[38]squarely cover thisissue, and this Court is bound by the same. However, the position oflaw under the 1899 Act as well as the 1940 Act that in matter whereserious fraud is alleged, the arbitrability thereof may be at issue hasbeen extended in respect even of the 1996 Act.

37.In cause célèbre where the award was being challenged before theBombay High Court, the parties had agreed to the reference toarbitration even on the issue of fraud – which was accepted by theSupreme Court. Setting aside the interim award the tribunal hadpassed on preliminary issues, the learned Single Judge observed:Bombay High Court, the parties had agreed to the reference toarbitration even on the issue of fraud – which was accepted by theSupreme Court. Setting aside the interim award the tribunal hadpassed on preliminary issues, the learned Single Judge observed:

“Normally, it is difficult to the Arbitral Tribunal to decide the issue of fraud.However, in the present facts and circumstances of the case, and pursuant to theorder of the Supreme Court, parties agreed to get the issue of fraud decided by theArbitrator. Having once accepted the position, unless the same issue is decided bygiving full opportunity to the parties and specially to the Appellants, who havemade the averments about the fraud and collusion, the interim award inquestion…is unsustainable…”[39]However, in the present facts and circumstances of the case, and pursuant to theorder of the Supreme Court, parties agreed to get the issue of fraud decided by theArbitrator. Having once accepted the position, unless the same issue is decided bygiving full opportunity to the parties and specially to the Appellants, who havemade the averments about the fraud and collusion, the interim award inquestion…is unsustainable…”[39]

38.The most important judgement, however, on the Act, is NRadhakrishnan v Maestro Engineers & Ors.[40]A reading of this judgementshowsthattheSupremeCourthasdistinguisheditsearlier

37 (2000) 4 SCC 539.38 (2003) 6 SCC 503.38 (2003) 6 SCC 503.

39 Oriental Bank of Commerce v Kikabhai Premchand Trust, 2008 (3) Bom LR 0886.40 (2010) 1 SCC 72.40 (2010) 1 SCC 72.

judgements[41]and thereby continued the position of law as existedprior to the Act, in respect of the issue of arbitrability of issues offraud. It observed therein:

“20. The learned counsel for the respondents on the other hand argued that whena case involves substantial questions relating to facts where detailed materialevidence (both documentary and oral) is needed to be produced by either parties,and serious allegations pertaining to fraud and malpractices were raised, then thematter must be tried in court and the arbitrator could not be competent to dealwith such matters which involved an elaborate production of evidence to establishthe claims relating to fraud and criminal misappropriation.

21. In our opinion, the contention of the respondents relating to the jurisdiction ofthe arbitrator to decide dispute pertaining to matter of this proportion shouldbe upheld, in view of the facts and circumstances of the case. The High Court inits impugned judgment has rightly held that since the case relates to allegations offraud and serious malpractices on the part of the respondents, such situation canonly be settled in court through furtherance of detailed evidence by either partiesand such situation can not be properly gone into by the arbitrator.

23. The learned counsel appearing on behalf of the respondents on the other handcontended that the appellant had made serious allegations against the respondentsalleging that they had manipulated the accounts and defrauded the appellant bycheating the appellant of his dues, thereby warning the respondents with seriouscriminal action against them for the alleged commission of criminal offences. In thisconnection, reliance was placed on decision of this Court in Abdul KadirShamsuddin Bubere v. Madhav Prabhakar Oak [AIR 1962 SC 406] inwhich this Court under para 17 held as under: (AIR p. 411)

“17. There is no doubt that where serious allegations of fraud

are made against party and the party who is charged withfraud desires that the matter should be tried in open court, thatwould be sufficient cause for the court not to order anarbitration agreement to be filed and not to make the reference.”In our view and relying on the aforesaid observations of this Court in the aforesaiddecision and going by the ratio of the abovementioned case, the facts of the presentcase do not warrant the matter to be tried and decided by the arbitrator, rather forthe furtherance of justice, it should be tried in court of law which would be morecompetent and have the means to decide such complicated matter involvingvarious questions and issues raised in the present dispute.”[42]

41 P Anand Gajapathi Raju & Ors. v PVG Raju (dead) & Ors., (2000) 4 SCC 539; Hindustan PetroleumCorpn. Ltd. v Pinkcity Midway Petroleums, (2003) 6 SCC 503.Corpn. Ltd. v Pinkcity Midway Petroleums, (2003) 6 SCC 503.

42 N Radhakrishnan v Maestro Engineers & Ors., supra, at n. 40, pp. 76-77.

39.A review of the authorities cited, to the mind of this Court, makes thefollowing obvious:following obvious:

39.1.Under section 8 of the Act, where an arbitration agreement isshown to exist, the Court is bound to refer parties anddisputes to arbitration.shown to exist, the Court is bound to refer parties anddisputes to arbitration.

39.2.The mandate of section 8 of the Act extends only to matterswhere the disputes are arbitrable in nature.where the disputes are arbitrable in nature.

39.3.A matter involves fraud only when:

39.3.1. clear and unambiguous case of fraud – either activeconcealment or active misrepresentation with intent tomake wrongful gain or create wrongful loss – is madeout.concealment or active misrepresentation with intent tomake wrongful gain or create wrongful loss – is madeout.

39.3.2. The case of fraud is supported by sufficient particularsto arrive at prima facie conclusion of existence of acase of fraud.to arrive at prima facie conclusion of existence of acase of fraud.

39.3.3. The fraud either vitiates the arbitral agreement (andnot the agreement containing the arbitral agreement,which is separate agreement in itself), or goes to theroot of the dispute itself, as opposed to the subject matter.not the agreement containing the arbitral agreement,which is separate agreement in itself), or goes to theroot of the dispute itself, as opposed to the subject matter.of the dispute

39.3.4. The dispute cannot be tried without trying the issue offraud.fraud.

39.4.Matters involving fraud include matters where allegations ofprofessional/occupationalnegligence,improprietyanddishonesty or such other allegations as amount to animputation adverse to their personal or professional character.professional/occupationalnegligence,improprietyanddishonesty or such other allegations as amount to animputation adverse to their personal or professional character.

39.5.Matters involving fraud are per se arbitrable, subject to thefollowing.following.

39.6.The party against whom fraud is alleged has an option – butnot right – to demand that the matter be tried in open courtand not in arbitration.not right – to demand that the matter be tried in open courtand not in arbitration.

39.7.The party alleging fraud or such other allegations has anoption – but not right – to demand that the matter be triedin open court and not in arbitration.option – but not right – to demand that the matter be triedin open court and not in arbitration.

39.8.The Court, when considering the an application under section8 of the Act in matter where fraud has been alleged:8 of the Act in matter where fraud has been alleged:

39.8.1. If the party against whom it is so alleged has prayedthat it be heard in open court in regular trial, oughtto ordinarilyreject the application.that it be heard in open court in regular trial, oughtto ordinarilyreject the application.

39.8.2. if the party by whom it is so alleged has prayed that itbe heard in open court in regular trial, ought toordinarilyallow the application, unless it deems itnecessary and in the interest of justice and expediencythat the matter be heard in Court.be heard in open court in regular trial, ought toordinarilyallow the application, unless it deems itnecessary and in the interest of justice and expediencythat the matter be heard in Court.

39.8.3. If neither party makes prayer that it be heard in opencourt in regular trial, ought to ordinarilyallow theapplication.court in regular trial, ought to ordinarilyallow theapplication.

39.9.In extraordinary circumstances, the Court may exercise itsdiscretion in view of the special circumstances, to either allowor reject the application contrary to what is set out in para.38.6 hereinabove.discretion in view of the special circumstances, to either allowor reject the application contrary to what is set out in para.38.6 hereinabove.

39.10. An allegation of fraud will be considered as an allegation ofserious fraud when it is of grievous, aggravated or egregiousnature as would warrant (a) the Court trying the matter itselfto ensure proper trial of the allegation, (b) the findings offacts in respect thereof is likely to so adversely affect either orboth parties that they ought to have right of appeal from thefindings, or (c) the allegations are of such nature that, iffound on, it is likely to affect persons other than the parties tothe dispute.serious fraud when it is of grievous, aggravated or egregiousnature as would warrant (a) the Court trying the matter itselfto ensure proper trial of the allegation, (b) the findings offacts in respect thereof is likely to so adversely affect either orboth parties that they ought to have right of appeal from thefindings, or (c) the allegations are of such nature that, iffound on, it is likely to affect persons other than the parties tothe dispute.

39.11. Matters involving serious fraud are ordinarily not arbitrable.39.12. The Court, when considering the application under section 8of the Act in matter where serious fraud has been alleged, hasto ordinarilyreject the application.39.12. The Court, when considering the application under section 8of the Act in matter where serious fraud has been alleged, hasto ordinarilyreject the application.

thisCourtcannotenvision39.13. Althoughanyexceptionalcircumstance that would warrant referring to arbitration amatter involving allegations of serious fraud, the discretion ofthe Court in such cases is not adversely affected.circumstance that would warrant referring to arbitration amatter involving allegations of serious fraud, the discretion ofthe Court in such cases is not adversely affected.

40.Mr. V has, in this matter, contended that Mr. P and Mr. K havecommitted fraud by actively concealing their respective ages andthereby attempting to make wrongful gain for themselves. Given thefindings above, this Court is of the view that this allegation does notaffect the arbitrability of the dispute for the following reasons:committed fraud by actively concealing their respective ages andthereby attempting to make wrongful gain for themselves. Given thefindings above, this Court is of the view that this allegation does notaffect the arbitrability of the dispute for the following reasons:

40.1.The real dispute is as to whether Mr. P was over the maximumage limit when he was nominated for, and he ran for thePresident of the Society.age limit when he was nominated for, and he ran for thePresident of the Society.

40.2.The real dispute is as to whether Mr. K was over themaximum age limit when he nominated Mr. P for contestingthe impugned elections.maximum age limit when he nominated Mr. P for contestingthe impugned elections.

40.3.The arbitral tribunal, should this matter be referred toarbitration, may not need to consider the issue of fraud tocome to conclusion as to the main dispute – whether Mr. Pmay be/remain President of the Society.arbitration, may not need to consider the issue of fraud tocome to conclusion as to the main dispute – whether Mr. Pmay be/remain President of the Society.

40.4.Even if the issue of fraud is necessary for deciding the dispute,the same is not case of serious fraud, only of simple case offraud.the same is not case of serious fraud, only of simple case offraud.

40.5.Mr. P and Mr. S, against whom the fraud has been alleged,have expressed their willingness to have the matter referred toarbitration.have expressed their willingness to have the matter referred toarbitration.

40.6.There is no reason for the matter being tried in Court, it is aprivate dispute between members of private Society inrespect of its elections, with no basis for believing that anyserious fraud has been or is being committed.private dispute between members of private Society inrespect of its elections, with no basis for believing that anyserious fraud has been or is being committed.

41.In the circumstances, the first petition has to succeed; the firstimpugned order is hereby set aside. All disputes and differencesbetween the parties are referred to arbitration before the arbitraltribunal of the Organisation, constituted under the arbitral clause. Allrights and contentions of the parties are left open. The arbitraltribunal shall consider the reference without being affected by anyobservations in this order or any of the orders of the Trial Court orAppellate court. Mr. V shall take necessary steps to communicate thisorder to the arbitral tribunal and initiate appropriate proceedings asimpugned order is hereby set aside. All disputes and differencesbetween the parties are referred to arbitration before the arbitraltribunal of the Organisation, constituted under the arbitral clause. Allrights and contentions of the parties are left open. The arbitraltribunal shall consider the reference without being affected by anyobservations in this order or any of the orders of the Trial Court orAppellate court. Mr. V shall take necessary steps to communicate thisorder to the arbitral tribunal and initiate appropriate proceedings as

necessary in respect thereof, as he may be advised. copy of thisorder shall be sent to the Trial Court. The parties shall bear their owncosts.

NAJMI WAZIRI(JUDGE)

MAY 30, 2014