Case Note & Summary
The applicant, Archetype India Construction Consultants Private Limited, filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator pursuant to an arbitration clause contained in an agreement dated 23 January 2008 with the respondent, The Bombay Dyeing and Mfg. Co. Limited. The respondent opposed the application on two grounds: first, that the agreement was vitiated by fraud and collusion between a whole-time director of the respondent and the applicant, and therefore the dispute could not be arbitrated and must be tried in a civil suit; second, that the respondent had already instituted a suit (Suit No.677 of 2009) seeking to avoid the same agreement on the ground of fraud, and the applicant, being a defendant in that suit, had filed a written statement without applying under Section 8(1) of the Act, thereby waiving its right to arbitration. The court, after considering the submissions, held that the scope of inquiry under Section 11 is limited to examining the prima facie existence of an arbitration agreement. The court noted that the arbitration clause was clear and unambiguous, and the allegations of fraud did not specifically challenge the validity of the arbitration clause itself. The court distinguished the Supreme Court's decision in N. Radhakrishnan v. Maestro Engineers, observing that subsequent decisions have clarified that fraud is not a ground to refuse reference to arbitration unless it is so serious as to vitiate the arbitration clause. The court also rejected the argument based on the filing of the written statement, as the suit was filed by the respondent, not the applicant, and the applicant's failure to apply under Section 8(1) in a suit filed by the opposite party does not constitute waiver. Accordingly, the court allowed the application and appointed a sole arbitrator to adjudicate the disputes between the parties.
Headnote
A) Arbitration Law - Appointment of Arbitrator - Section 11 of the Arbitration and Conciliation Act, 1996 - Allegations of Fraud - The court considered whether serious allegations of fraud in the formation of the agreement containing the arbitration clause would bar the appointment of an arbitrator under Section 11. The court held that the scope of inquiry under Section 11 is limited to examining the prima facie existence of an arbitration agreement. Allegations of fraud going to the validity of the main agreement do not, by themselves, preclude the court from appointing an arbitrator, as such issues can be decided by the arbitral tribunal. The court distinguished the Supreme Court's decision in N. Radhakrishnan v. Maestro Engineers, noting that subsequent decisions have clarified that fraud is not a ground to refuse reference to arbitration unless it is so serious as to vitiate the arbitration clause itself. (Paras 1-5)
Issue of Consideration
Whether an application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator can be rejected on the ground that the underlying agreement is alleged to be vitiated by fraud.
Final Decision
The court allowed the application and appointed a sole arbitrator to adjudicate the disputes between the parties.
Law Points
- Fraud allegations do not automatically oust arbitration jurisdiction
- Section 11 of the Arbitration and Conciliation Act
- 1996
- Prima facie existence of arbitration agreement
- Limited scope of Section 11 inquiry
Case Details
2012 LawText (BOM) (06) 46
Arbitration Application No.237 of 2008
Mr. Hemant Prabhulkar i/by Juris Consultus for applicant, Mr. Zal Andhyarujina i/by M/s. Crawford Bayley & Co. for respondent
Archetype India Construction Consultants Private Limited
The Bombay Dyeing and Mfg. Co. Limited
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Nature of Litigation
Application under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator.
Remedy Sought
Appointment of a sole arbitrator to adjudicate disputes arising out of an agreement dated 23 January 2008.
Filing Reason
Disputes arose between the parties under the agreement; the applicant sought reference to arbitration as per the arbitration clause.
Previous Decisions
The respondent had filed Suit No.677 of 2009 seeking to avoid the agreement on the ground of fraud; the applicant had filed a written statement in that suit but did not apply under Section 8(1).
Issues
Whether the existence of serious allegations of fraud in the formation of the agreement bars the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.
Whether the applicant's failure to file an application under Section 8(1) in the suit filed by the respondent constitutes a waiver of the right to arbitration.
Submissions/Arguments
Respondent argued that the agreement was vitiated by fraud and collusion, and therefore the dispute cannot be arbitrated and must be tried in a civil suit, relying on N. Radhakrishnan v. Maestro Engineers.
Respondent argued that the applicant, by filing a written statement in Suit No.677 of 2009 without applying under Section 8(1), waived its right to arbitration.
Applicant argued that the arbitration clause is valid and the allegations of fraud do not affect the arbitrability of the dispute; the scope under Section 11 is limited to examining the existence of an arbitration agreement.
Ratio Decidendi
The scope of inquiry under Section 11 of the Arbitration and Conciliation Act, 1996 is limited to examining the prima facie existence of an arbitration agreement. Allegations of fraud that do not specifically challenge the validity of the arbitration clause itself do not bar the appointment of an arbitrator. The court distinguished N. Radhakrishnan v. Maestro Engineers, holding that subsequent decisions have clarified that fraud is not a ground to refuse reference to arbitration unless it vitiates the arbitration clause.
Judgment Excerpts
The application under section 11 of the Arbitration and Conciliation Act, 1996 is based on an arbitration clause contained in an agreement dated 23 January 2008 entered into between the applicant and the respondent.
The principal defense is two fold. Firstly it has been submitted on the basis of the facts pleaded in the affidavit-in-reply that the agreement that was executed with the respondent, was vitiated by fraud and collusion...
The respondent has instituted a suit on the Original Side of this Court seeking, inter alia, the following reliefs...
Procedural History
The applicant filed Arbitration Application No.237 of 2008 under Section 11 of the Arbitration and Conciliation Act, 1996. The respondent filed an affidavit-in-reply opposing the application. The respondent had also instituted Suit No.677 of 2009 seeking to avoid the agreement on the ground of fraud. The court heard the application and delivered judgment on 29 June 2012.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 11, Section 8(1)
