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Judgment
Photo copy of the plaint in Title Suit No. 93 of 2007 is taken on record.Â
Petitioner is aggrieved of order dated 28.09.2007 passed in Title Suit No. 93 of 2007 by which application under Section 8 of the Arbitration and
Conciliation Act, 1996 for referring the dispute for arbitration has been declined. Â
Contending that the trial Judge on an erroneous assumption in law that the arbitration clause in the development agreement would not subsist if the
development agreement is held bad has dismissed the application under Section 8, Mr. Siddharth Roy, the learned counsel for the petitioner, submits
that mere allegation of fraud in the plaint is not sufficient to refuse the application under Section 8 of the Arbitration and Conciliation Act, 1996. It is
contended that the allegation of fraud, which is an after-thought which would become apparent on a reading of the legal notice dated 11.09.2006 in
which no such allegation has been made by the plaintiffs, may very well be adjudicated by the Arbitral Tribunal and while so, merely observing that
there is an allegation of fraud in the plaint the application under Section 8 of the Arbitration and Conciliation Act, 1996 cannot be refused. The learned
counsel for the petitioner has relied on the following judgments; (i) “A. Ayyasamy Vs. Paramasivam and Others†reported in AIR 2016 SC 4675,
(ii) “Booz Allen and Hamilton Inc Vs. SBI Home Finance Ltd. and Others†reported in AIR 2011 SC 2507, (iii) “Hindustan Petroleum Corpn.
Ltd. Vs. M/s. Pinkcity Midway Petroleums†reported in AIR 2003 SC 2881, (iv) “Rashtriya Ispat Nigam Ltd. and Another Vs.  M/s. Verma
Transport Company†reported in AIR 2006 SC 2800 and (v) “P. Anand Gajapathi Raju and Others Vs. P.V.G. Raju (died) and Others†reported
in AIR 2000 SC 1886. Â
As against the above, referring to the plaint averments and proceeding in Title Suit No. 93 of 2007 which would indicate that the defendants were
permitted to file written statement on a concession from the plaintiffs and they intended to contest the suit on merits, Mrs. Abha Verma, the learned
counsel for the respondents, submits that the allegation of fraud played by the defendants in getting the development agreement executed on
25.02.2005 goes to the root of the matter and the dispute between the parties is such that it cannot be adjudicated by the Arbitral Tribunal.
The issue involved in this case is whether the allegation of fraud as pleaded by the plaintiff would denude the Arbitral Tribunal of its jurisdiction
under the arbitration clause to arbitrate the dispute between the parties and whether the application under Section 8 of the Arbitration and Conciliation
Act, 1996 was maintainable.
Law on the subject since “Abdul Kadir Shamsuddin Bubere Vs. Madhav Prabhakar Oak and Another†reported in AIR 1962 SC 406, in which
serious allegation of fraud was held by the Court a sufficient ground for not referring the dispute to arbitration in an application under Section 8 of
the    Arbitration Act, 1940, has developed over the years and now it is well-settled that certain disputes, such as; (i) disputes relating to rights
and liabilities which give rise to or arise out of criminal offences, (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal
rights and child custody, (iii) matters of guardianship, (iv) insolvency and winding up, (v) testamentary matters, such as the grant of probate, letters of
administration and succession certificates, and (vi) Eviction or tenancy matters governed by special statutes where a tenant enjoys special protection
against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute, are not arbitrable.
In A. Ayyasamay, the Supreme Court has observed that as a matter of first principle the Court has not held that a mere allegation of fraud will
exclude arbitrability. It has been held that in those cases, where the Court finds that the allegations of fraud are so complicated that it becomes
necessary that such complex issues are decided by the civil court or where fraud is alleged against the arbitration provision itself or is of such a nature
that permeates the entire contract, the dispute between the parties cannot be referred to arbitration. Another example is the cases where there is
allegation that the contract itself is vitiated on account of fraud played by other party to the contract. The judgment in           A.
Ayyasamy does not overrule decision of the Supreme Court in “N. Radhakrishnan Vs. Maestro Engineers and Others†reported in (2010) 1 SCC
72. By this judgment the Supreme Court has clarified that mere allegation of fraud is not sufficient to oust jurisdiction of the arbitrator, an issue
which was not raised in N. Radhakrishnan. It has been held by the Supreme Court ;
“13. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the
same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement
by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in
normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive
evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode
of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by
the civil court. The judgment in N. Radhakrishnan (AIR 2010 SC (Supp) 307) does not touch upon this aspect and said decision is rendered after
finding that allegations of fraud were of serious nature.â€
Petitioner is the defendant no.1 in Title Suit No. 93 of 2007 and the plaintiff nos. 2 and 3 are the constituted agent and attorney for the plaintiff no.1.
The suit was instituted by Govind Lal Sahu, Dr. Nand Lal Sahu and Madan Lal Sahu, all sons of late Siyaram Lakhan Sahu for a decree for
declaration that the development agreement for the suit schedule property was fraudulently got executed by the defendant no. 1 by obtaining signature
of plaintiff nos. 2 and 3 and for a declaration that the said development agreement has been validly cancelled through legal notice dated 11.09.2006.
The plaintiffs have pleaded that on a representation of defendant no.1 they agreed to execute a development agreement in respect of the lands
admeasuring about 13 kathas comprised under Municipal Survey Plot No. 211 which is part of    Holding No. 3, Ward No. II (Old) in Ranchi
Municipal Corporation. Besides 9 kathas 6 chhatak in M.S. Plot No. 239, the suit property was allotted to the plaintiffs’ father in the final decree
prepared in Partition Suit No. 27 of 1960. After the death of their father in the year 1994 physical possession of the suit property and other lands
was given to the plaintiffs in Execution Case No. 12 of 1999 and they have averred that they are in exclusive possession over the suit property since
07.11.2003. Alleging that signature on the development agreement, which was prepared in duplicate but not given to them, was fraudulently obtained
on 25.02.2005, the plaintiffs have asserted that when they were given a copy of the said development agreement they found that the defendants have
incorporated such terms in the development agreement which are different from what were agreed between the parties. The plaintiffs have pleaded
that they have informed the defendants of cancellation of the development agreement through legal notice dated 11.09.2006 and the said cancellation
was published in the newspaper on 13.09.2006. The plaintiffs have also submitted an application before RRDA on 16.09.2006 about cancellation of
the development agreement dated 25.02.2005 and their claim on subsisting right, title and interest over the suit schedule property. In the pending suit
an application under Section 8 of the Arbitration and Conciliation Act, 1996 was filed on 03.05.2007 by the defendants for referring the dispute
between the parties to an Arbitral Tribunal in terms of the arbitration clause (at page16 of the development agreement dated 25.02.2005). This
application has been dismissed.Â
The plaint averments in Title Suit No. 93 of 2007 would indicate that the plaintiffs have not only alleged fraud in execution of the development
agreement dated 25.02.2005, a copy of which was initially not given to them, they have also pleaded that the understanding between the parties under
which the defendants were under a duty to get the mutation and building plan sanctioned were also materially changed in the development agreement.
It is pleaded that the plaintiff nos. 2 and 3, in good faith, believing the representation and assurance of defendant no.1 have signed the development
agreement, and that the defendants have failed to perform their part as agreed between the parties. The plaint averments disclose a foundation for
challenging the validity of development agreement on the ground of fraud and misrepresentation by the defendants, more particularly defendant no.1.
In paragraph no. 27 of the plaint the plaintiffs have disclosed cause of action for instituting the suit, as under :
“27. That the cause of action of the suit arose within the jurisdiction of this court in the second week of February 2005 when the defendant no.1
approached the plaintiff nos. 2 and 3 and offer to develop the suit property as a multi storied commercial building complex, on several dates thereafter
when defendant no.1 during negotiations assured that he will complete the development project within 18 months and will persue and get orders
passed on the plaintiffs’ pending application for mutation, on 25.02.2005 when defendant no. 1 obtained signatures of plaintiff nos.2 and 3 on two
copies of development agreement typed on stamp papers and such signatures were obtained by not allowing plaintiff nos. 2 and 3 to read the
documents and by assuring that the terms and conditions agreed by the parties during negotiations have been correctly incorporated though in fact by
practicing fraud defendant no. 1 had made fraudulent changes regarding computation of the time from which the period of 18 months for completion
of the project was to be calculated and by also making fraudulent incorporation of grace period and responsibility of mutation on plaintiffs, on
08.03.2005 when a copy of development agreement was handed over to plaintiff nos. 2 and 3, on several dates thereafter when inspite of demands,
defendants neither prepared building plan nor furnished information regarding mutation order already passed by the revenue authorities, on 11.09.2006
when by legal notice the development agreement dated 25.02.2005 was cancelled by the plaintiffs, on 13.09.2006 when the newspaper notice was
published in daily newspaper Hindustan, on 16.09.2006 when information of cancellation of development agreement was intimated to RRDA, on
11.02.2007 when defendant no. 1 tried to take forcible possession of the suit property, on 21.02.2007 when a restraint order under section 144 of
Cr.P.C. was passed against the defendants and on several dates thereafter when inspite of restraint order defendants were adamant to take forcible
possession of the suit property and the cause of action is still subsisting.â€Â
During pendency of the suit the defendants did not appear and in the first instance they were debarred from filing written statement. The trial
Judge in the impugned order dated 28.09.2007 has recorded that though the application under Section 8 was filed on 03.05.2007, it was not pressed by
the defendants and only on 30.07.2007 they filed written statement. The suit proceeded exparte and the said order was recalled with consent of the
plaintiffs on 11.09.2007. It was only on 13.09.2007 when the suit was fixed for hearing under Order X Rule 1, 2, and 3 C.P.C, application under
Section 8 of the Arbitration and Conciliation Act, 1996 was pressed by the defendants. Leaving aside the aforesaid aspect, I find that the issue
raised in the present proceeding has now been conclusively decided by decision of the Supreme Court in  “A. Ayyasamy Vs. Paramasivam and
Others†reported in AIR 2016 SC 4675. On a bare reading of the plaint averments in Title Suit No. 93 of 2007 it becomes apparent that it is not
merely a bald allegation of fraud which is pleaded by the plaintiffs rather, there are serious allegations in different paragraphs of the plaint touching
upon very foundation of the development agreement. Allegations in paragraph nos.13, 14 and 15 of the plaint are not simple allegations of fraud and
misrepresentation which can be adjudicated by the Arbitral Tribunal.      Â
There is another aspect of the matter which is weighing heavily against the petitioner. The development agreement contains an arbitration clause
which is reproduced below :
  “That if any dispute or differences arise out of these presents and/or any interpretation of the terms and conditions of these presents, then the
same shall be referred by the OWNER’S and another by the DEVELOPER. The Arbitrators so appointed may jointly nominate a third arbitrator
and they jointly act as arbitral committee and their decision shall be final and binding on the parties. The Provisions of the Arbitration and Conciliation
Act, 1966 (Act No. XXVI of 1996) shall be applicable to such arbitration proceeding.â€Â
A bare reading of the arbitration clause in development agreement dated 25.02.2005 would disclose that a dispute or difference arising out of the
development agreement and interpretation of the term and conditions of the development agreement can be referred to the Arbitral Tribunal. Plea that
the development agreement dated 25.02.2005 has been got executed by playing fraud is not a dispute arising out of the development agreement dated
25.02.2005 and it also cannot be said that the plea of fraud as set up by the plaintiff involves any interpretation of the term and conditions under the
development agreement dated 25.02.2005. Contention that the plaint averments in Title Suit No. 93 of 2007 are after-thought is not a ground on which
the application under Section 8 of the Arbitration and Conciliation Act, 1996 can be allowed. May be there is no specific allegation of fraud and
misrepresentation in the legal notice dated 11.09.2006, the plea sought to be raised by the petitioner in the application under Section 8 of the Arbitration
and Conciliation Act, 1996 can only be raised during the trial of Title Suit No. 93 of 2007.
In the above facts and considering law on the subject, it is not enough that the trial Judge has recorded a wrong reason while dismissing the
application under Section 8 of the Arbitration and Conciliation Act, 1996. On merits once it is found that the ultimate decision in the matter was
correct, the High Court would not interfere with an otherwise not so perfect order.Â
Considering the facts pleaded by the parties, I am not inclined to interfere with the impugned order dated 28.09.2007 and accordingly, the writ
petition is dismissed. Â
I.A No. 259 of 2008 for stay stands dismissed. Â
Interim order dated 29.07.2008 stands vacated.Â
Let a copy of the order be transmitted to the trial court through FAX.Â
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