ARBAP/1/2022 of SUMANTU VIRMANI Vs S K KAPPOOR

IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL

HON’BLE THE CHIEF JUSTICE SHRI VIPIN SANGHI6[TH]JANUARY, 2023

ARBITRATION APPLICATION No.01 of 2022

Between:

Dr. Sumantu Virmani

…… Appellant

and

Shri S.K. Kapoor and Others

…… Respondents : Mr. Arvind Vashistha, the learned Senior Counsel assisted by Mr. Hemant Mahra, learned counsel.

Counsel for the applicant

: Mr. Pankaj Miglani, the learned counsel

Counsel for the respondents

Upon hearing the learned Counsel, the Court made the following

JUDGMENT:

I have heard learned counsels and proceed to dispose of the present arbitration application preferred by the applicant under Section 11(6) of the Arbitration and Conciliation Act, 1996.

2. The applicant has preferred the present application to seek appointment of an Arbitrator to resolve the dispute between the parties arising out of the partnership deed dated 01.01.1995 entered into between the parties. Clause 18 of the Agreement produced by the applicant contains the Arbitration Agreement and the

same reads as follows:-

“18. That in case of any dispute or differences arises in future the same shall be referred to the Indian Arbitration Act.”

The case of the applicant is that the applicant

was party to the said partnership deed and he has been arrayed in the said partnership deed as party of the first part. The applicant claims that disputes have arisen between the parties to the Arbitration Agreement and consequently, the arbitration agreement was invoked on 01.12.2018 by the applicant. However, no arbitrator was appointed mutually by the parties under the said agreement. The applicant sent yet another notice invoking arbitration agreement on 23.11.2021. On this occasion, the notice was responded to by the respondents – Shri S.K. Kapoor, Dr. Satish Virmani, Smt. Shakuntla Virmani, Shri Vikram Virmani, Shri Amit Virmani, Smt. Lata Mehta and Smt. Richa Dhody.

4. The said respondents disputed the claims made by the applicant claiming that the account of the applicant had been settled upon his expulsion from the partnership. In paragraph no.12 of the reply, the said respondents stated as follows:-

“12. That still, in case you wish that the matter be amicably settled by way of arbitration, you are

requested to advise your client to suggest any suitable person as an independent and impartial arbitrator and intimate my clients so that the consensus be reached for the appointment of such person as an arbitrator.”

5. Thus, it could be seen that the said respondents did not dispute either the partnership deed dated 01.04.2005 or the fact that the applicant was party to the partnership deed. The respondents also did not dispute the fact that the partnership deed contained an arbitration agreement in Clause 18.

6. The Arbitrator was still not appointed mutually by the parties and consequently, the applicant preferred this arbitration application on or about 29.12.2021.

Upon issuance of notice, respondent nos.1 to 7

have filed their counter affidavit(s). The respondents have opposed the appointment of Arbitrator by the Court on the ground that the partnership deed produced by the applicant dated 01.04.2005 is forged and fabricated document inasmuch, as, Clause 20 of the said partnership deed as produced by the applicant is not the original term and condition.

8. The stand of the respondents is that the applicant has forged page no.5 of the partnership deed which contains part of Clause 13 and Clauses 14 to 20 of the partnership deed. According to the respondents, the

applicant has tampered with Clause 20 of the partnership deed contained on page no.5 thereof. Clause 20 of the partnership deed produced by the applicant reads as follows:-

“20. That the party of the 8[th] part namely Shri S.K. Kapoor working partner of the firm shall be paid salary Rs.7,000/- per month.”

9. original partnership deed reads as follows:-

The respondents state that Clause 20 in the

“20. That the party of the 3[rd], 6[th] and 7[th] part namely Smt. Shakuntla Devi, Smt. Lata Mehta and Smt. Richa Dhody working partners of the firm shall be paid salary Rs.10,000/- per month each.”

Therefore, the submissions of the respondents

is that since page no.5 of the agreement, which also contains Clause 18 i.e. the Arbitration Agreement, has been forged and fabricated by the applicant, unless it is determined by this Court as to which is the genuine agreement i.e. one produced by the applicant containing Clause 20 as produced by the applicant, or the partnership deed as produced by the respondents containing Clause 20 as produced by them, the matter cannot be referred to arbitration.

11. The submission of Mr. Miglani, learned counsel for the respondents is that the said issue is not an

arbitrable issue and this issue can only be decided by the Court.

12. Mr. Miglani submits that when the matter was taken up by this Court on 22.07.2022, the aforesaid submission of the respondents was noticed and in paragraph no.7 of the said order, this Court had also observed “However, the first issue, as to which is the genuine agreement between the parties, is an issue, which falls for determination by me in these proceedings” and, therefore, the said inquiry has necessarily to be carried out by me in these proceedings.

He submits that it is for this reason that while

passing the order dated 22.07.2022, the respondents were required to file an affidavit disclosing the particulars of the Income Tax authorities with whom the copy of the partnership deed is stated to have been filed so that the said records could be summoned by this Court. The respondents were also called upon to place on record the police complaint and the newspaper insertion in relation to the alleged loss of the original partnership deed by the respondents, which was stated to have lost on 18.02.2019.

14. I may observed that on 22.07.2022 the respondents had placed reliance on the judgment of the

Hon’ble Supreme Court in Velugumanti Hari Babu Vs. Parvathini Narasimha Rao and another, (2016) 14 SCC 126. However, notice of that judgment of the Supreme Court was not taken while dictating the order. On the following date i.e. 09.09.2022, learned Senior counsel for the applicant argued that reliance placed by the respondents on Velugumanti Hari Babu Vs. Parvathini Narasimha Rao and another, (2016) 14 was inappropriate inasmuch, as, in the latest decision in the case of N.N. Global Mercantile Private Limited Vs. Indo Unique Flame Limited and others, (2021) 4 SCC 379, theSupreme Court had observed that the earlier view that issues of fraud were not arbitrable was an archaic view and that there was no impediment in such issues being determined by Arbitral Tribunal.

15. The order dated 09.09.2022 passed in these proceedings reads as follows:-

“Mr. Arvind Vashisth, learned Senior Counsel for the applicant, submits that the reliance placed by the respondents on the decision of the Supreme Court in the case of Velugumanti Hari Babu vs. Parvathini Narasimha Rao and another, (2016) 14 SCC 126, Para 23, is inappropriate, inasmuch, as, in the later decision in the case of N.N. Global Mercantile Private Limited vs. Indo Unique Flame Limited and others, (2021) 4 SCC 379, the Supreme Court has observed that the earlier view that an Arbitral Tribunal cannot determine the allegations of fraud, and such disputes

are not arbitrable, is an archaic view, which has become obsolete, and deserves to be 2 discarded. He has placed reliance on Paragraphs 50 and 51 of the said decision,

which read as under:-

“50. The ground on which fraud was held to be non arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. In contemporary arbitration practice, Arbitral Tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc. The ground that allegations of fraud are not arbitrable is wholly archaic view, which has become obsolete, and deserves to be discarded. However, the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by court of law, since it may result in conviction, which is in the realm of public law. 51. In the present case, the allegations of fraud with respect to the invocation of the bank guarantee are arbitrable, since it arises out of disputes between parties inter se, and is not in the realm of public law.” non arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. In contemporary arbitration practice, Arbitral Tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc. The ground that allegations of fraud are not arbitrable is wholly archaic view, which has become obsolete, and deserves to be discarded. However, the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by court of law, since it may result in conviction, which is in the realm of public law. 51. In the present case, the allegations of fraud with respect to the invocation of the bank guarantee are arbitrable, since it arises out of disputes between parties inter se, and is not in the realm of public law.”

2. I may observe that while the decision in Vallu K Hari Babu (supra) is decision of two Hon’ble Judges of the Supreme Court, the decision in N.N. Global Mercantile Private Limited (supra) is decision of three Hon’ble Judges. It is also subsequent judgment, which considers the earlier decision of the Supreme Court, which held that the issues of fraud are not arbitrable.

3. The dispute between the parties, as arisen before me, is regarding as to which of the two agreements produced 3 before the Court-one by the applicant and the other by the opposite parties, is the correct

agreement. The difference in the two agreements is in relation to certain terms and conditions, which have bearing on the percentage of rights and profits of the partnership business. However, both the agreements contain the same Arbitration Clause. Both the parties are alleging against each other that the agreement produced by them is genuine one, and the agreement produced by the other party is forged and fabricated. 4. Learned counsel for the respondents seeks short adjournment to examine the judgment in N.N. Global Mercantile Private Limited (supra).

5. At his request, list on 30.09.2022.”

16. In the aforesaid light, the submission of Mr. Miglani is that the judgment of the Supreme Court in N.N. Global Mercantile Private Limited (supra) is of no avail for the reason that issue of fraud raised in that case was related to the performance of the contract inasmuch, as, fraud was alleged in relation to invocation of Bank Guarantee furnished under the agreement. However, the distinction in the present case is that the respondents are alleging fraud and forgery by the applicant in relation to the very agreement which contains the arbitration agreement. He, therefore, submits that the view taken by the Supreme Court in N.N. Global Mercantile Private Limited (supra) would not be attracted in the facts of this case.

17. Mr. Miglani has also submitted that the well settled legal position is that an arbitration clause is

collateral term of contract as distinguished from its substantive terms; but nonetheless it is an integral part of it; however comprehensive the terms of an arbitration clause may be, the existence of the contract is necessary condition for its operation, it perishes with the contract. In this regard, he has placed reliance on judgment of the Hon’ble Supreme Court in Union of India Vs. Kishorilal Gupta and Bros., AIR 1959 SC 1362. He submits that the issue which arises for consideration by this Court is as to which of the two partnership deeds is the genuine partnership deed, which also would have bearing on the issue as to which of the arbitration agreements is binding on the parties.

18. Mr. Miglani has also placed reliance on the judgment of the Supreme Court in Velugumanti Hari Babu Vs. Parvathini Narasimha Rao and another, (2016) 14 SCC 126. He submits that in this case, the arbitration application under Section 11(5) and 11(6) of the Arbitration and Conciliation Act was allowed by the High Court and the sole Arbitrator was appointed to decide the disputes alleged to have been arisen between the parties in relation to their MoU dated 27.05.2013 with direction to the Arbitrator to decide the legality and validity of the MoU by taking evidence.

19. The appellant before the Supreme Court had contested the petition under Section 11(5) and 11(6) on the ground that the MoU in question was forged and fabricated document and that he had never signed any such document with the respondent. It was argued before the Supreme Court by the appellant that the direction issued to the Arbitrator to decide the legality, validity and genuineness of the MoU was contrary to the law laid down by the Surpeme Court in S.B.P. & Co Vs. M/S. Patel Engineering Ltd. & Anr (2005) 8 SCC 618; National Insurance Co. Ltd. Vs. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267 and Bharat Rasiklal Ashra Vs. Gautam Rasiklal Ashra & Anr (2012) 2 SCC 144. 20. It was argued that in case where questions are raised of the nature raised in the appeal preferred before the Supreme Court i.e. whether the agreement is valid and genuine document and whether it is enforceable or not, it is the duty of the High Court to first decide such question keeping in view the law laid down in S.B.P. & Co vs M/S. Patel Engineering Ltd. & Anr (supra), National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.(supra) and Bharat Rasiklal Ashra vs Gautam Rasiklal Ashra & Anr (supra) and if the document is

held to be valid and genuine and binding then alone the application under Section 11(5) and Section 11(6) should be allowed.

21. Mr. Miglani submits that the aforesaid submission of the appellant was accepted by the Supreme Court and the order passed by the High Court appointing the Arbitrator was set aside. The case was remanded to the designated Judge to decide the question of legality, validity and genuineness of the documents/MoU in question on its merits on the basis of the evidence produced by the authorities. The relevant extract from the judgment in Velugumanti Hari Babu Vs. Parvathini Narasimha Rao and another (supra)

reads as follows:-

“19. The short question which arises for consideration in this appeal is: Whether the High Court (Designate Judge) was justified in not deciding the question as to whether the MoU, which is denied by the appellant herein in Section 11 proceedings, is valid and genuine document and whether the High Court was justified in directing the arbitrator to decide the said question?

20. The question posed by us remains no more res integra and is already answered by the Constitution Bench of this Court in SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and then in National Insurance Co. Ltd. [National Insurance Co. Ltd. v. BogharaPolyfab (P) Ltd., (2009) 1 SCC 267: (2009) 1 SCC (Civ) 117] and lastly in Bharat Rasiklal Ashra [Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra, (2012) 2 SCC 144: (2012) 1 SCC (Civ) 556]. It is really unfortunate that the learned Chief Justice while deciding the application did not take note of any of these decisions and passed the impugned order [Parvathini Narasimha Rao v. Velugubanti Hari Babu, 2015 SCC OnLineHyd 519] which is apparently against

the law laid down in these decisions.

21. Raveendran, J. speaking for the Bench in Bharat Rasiklal Ashra case [Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra, (2012) 2 SCC 144 : (2012) 1 SCC (Civ) 556] which also involved the same question, took note of the law laid down in earlier two decisions of SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and National Insurance Co. Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] and succinctly explaining the ratio of these decisions laid down the following proposition of law in paras 10 to 13 which read as under: (Bharat Rasiklal Ashra case [Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra, (2012) 2 SCC 144 : (2012) 1 SCC (Civ) 556] , SCC pp. 147-48)

“10. Therefore, the following question arises for consideration in this appeal:

‘Where the arbitration agreement between the parties is denied by the respondent, whether the Chief Justice or his designate, in exercise of power under Section 11 of the Act, can appoint an arbitrator without deciding the question whether there was an arbitration agreement between the parties, leaving it open to be decided by the arbitrator?’

11. The question is covered by the decisions of this Court in SBP & Co. v. Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] In SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] Constitution Bench of this Court held that when an application under Section 11 of the Act is filed, it is for the Chief Justice or his designate to decide whether there is an arbitration agreement, as defined in the Act and whether the party who has made request before him, is party to such an agreement. The said decision also made it clear as to which issues could be left to the decision of the arbitrator.

12. Following the decision in SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] this Court in National Insurance Co. Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] held as follows: (National Insurance Co. Ltd. case [National Insurance Co. Ltd. v. BogharaPolyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] , SCC p. 283, paras 22 & 22.1-22.3)

‘22. Where the intervention of the Court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] This Court identified and segregated the preliminary issues that may arise for consideration in

an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.

22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:

(a) Whether the party making the application has approached the appropriate High Court?

(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is party to such an agreement?

(emphasis in original)

22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:

(a) Whether the claim is dead (long-barred) claim or live claim?

(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection?

22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:

(i) Whether claim made falls within the arbitration clause (as for example, matter which is reserved for final decision of departmental authority and excepted or excluded from arbitration)?

(ii) Merits or any claim involved in the arbitration.’

13. It is clear from the said two decisions that the question whether there is an arbitration agreement has to be decided only by the Chief Justice or his designate and should not be left to the decision of the Arbitral Tribunal. This is because the question whether there is an arbitration agreement is jurisdictional issue and unless there is valid arbitration agreement, the application under Section 11 of the Act will not be maintainable and the Chief Justice or his designate will have no jurisdiction to appoint an arbitrator under Section 11 of the Act. This Court also made it clear that only in regard to the issues shown in the second category, the Chief Justice or his designate has the choice of either deciding them or leaving them to the decision of the Arbitral Tribunal. Even in regard to the issues falling under the second category, this Court made it clear that where allegations of forgery or fabrication are made in regard to the documents, it would be appropriate for the Chief Justice or his designate to decide the issue. In view of this settled position of law, the issue whether there was an arbitration agreement ought to have been decided by

the designate of the Chief Justice and only if the finding was in the affirmative, he could have proceeded to appoint the arbitrator.”

(emphasis supplied)

22. Keeping in view the law laid down in the aforementioned three cases quoted supra which does not need any more elaboration by us, we have no hesitation in setting aside the direction which directs the arbitrator to decide the question of legality and validity of the agreement/(MoU).

23. In our considered opinion, such directions issued by the High Court are plainly against the law laid down by this Court in three decisions quoted above. Indeed, the High Court ought to have decided the questions itself and recoded finding as to whether the MoU dated 27-5-2013 is valid and genuine document or it is forged and fabricated document and then depending upon the findings, appropriate directions, if necessary, should have been passed for disposal of the application finally. Unfortunately, it was not done.”

I have considered the submissions of learned

counsels and the decisions relied upon by them has taken note of hereinabove. I have also examined the records including the two partnership deeds placed on record i.e. one by the applicant and the other by the respondents both dated 01.04.2005.

23. The two partnership deeds placed on record are identically except in relation to Clause 20. The two versions of Clause 20 have also been reproduced hereinabove. What is of significance is that the Arbitration Agreement, which is the collateral term of the partnership deed is identical in both the partnership deeds which too has been reproduced hereinabove.

The dispute is as to which of the two

documents / partnership deeds produced before the Court is genuine i.e. whether one produced by the applicant containing Clause 20 whereunder only party of the 8[th]part, Shri S.K. Kapoor was to receive salary of Rs.7,000/- per month as working partner, or Clause 20 as produced in the partnership deed produced by the respondents whereunder parties of the 3[rd], 6[th] and 7[th]part, namely, Smt. Shakuntala Devi, Smt. Lata Mehta and Smt. Richa Dhody were to receive salary of Rs.10,000/- per month each as working partners. 25. The present is not case where there is complete denial by the respondents to the execution of the partnership deed. The respondents do not deny that they entered into partnership deed with the applicant on 01.04.2005. They also do not deny the fact that the partnership deed produced by the applicant is identical in all terms, except in respect of Clause 20.

26. Even the Arbitration Agreement contained in Clause 18 is identical in the two partnership deeds produced before the Court.

27. The Arbitration Agreement contained in partnership deeds produced before me are independent agreements. They are collateral term no doubt, but they stand apart from the underlying agreement.

28. The distinction sought to be made by Mr. Miglani between the present case and the case dealt with by the Supreme Court in N.N. Global Mercantile Private Limited (supra) is not material for the reason, that the ratio laid down by the Supreme Court in N.N. Global Mercantile Private Limited (supra)is that the ground on which fraud was held to be non-arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. However, in contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes. The relevant extract of paragraph no.50 of N.N. Global (supra) reads as under:-

“50…The ground that allegations of fraud are not arbitrable is wholly archaic view, which has become obsolete, and deserves to be discarded. However, the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by court of law, since it may result in conviction, which is in the realm of public law”

29. I see no impediments in leaving the determination of the issue as to which is the genuine Clause 20 in the partnership deed for determination by the Arbitral Tribunal.

30. Even if I were to conduct an inquiry myself, and to arrive at conclusion that one or the other

agreement is genuine, it would make no difference to the outcome of this petition, since an Arbitral Tribunal would still have to be constituted to resolve the disputes between the parties.

31. The Arbitration and Conciliation Act empowers and enables the Arbitral Tribunal to record evidence and it also facilitates summoning of records and witnesses before the Arbitral Tribunal. Section 27 of the Arbitration and Conciliation Act enables the Arbitral Tribunal, or party-with the approval of the Arbitral Tribunal, to apply before the Court for assistance in taking the evidence. The Court may execute the request by ordering that the evidence be produced directly to the Arbitral Tribunal, and failure to comply with such direction entails contempt of the Arbitral Tribunal during the conduct of the Arbitral proceedings.

32. For the aforesaid reasons, I am of the view that there is no prohibition in leaving the determination of the issue, whether, one or the other party has tampered with the partnership deed, open for determination by the Arbitral Tribunal.

33. Accordingly, I allow this application and appoint Mr. Justice V.K. Jain (retired), Judge, Delhi High Court Mobile No.[REDACTED], as the sole Arbitrator to decide

all the disputes between the parties arising out of the partnership deed/ agreement dated 01.01.1995.

________________ VIPIN SANGHI, C.J.

Dated: 6[th] January, 2023

Sukhbant