Final Order 1

Order Details: Notice of Motion
Pdf Text: 1 N.M NO.742/2018
MHCC010027272018
IN THE BOMBAY CITY CIVIL COURT AT MUMBAI.
NOTICE OF MOTION NO. 742 OF 2018
IN
S.C. SUIT No. 1321 OF 2016
1. Madhukar Krishna Mhatre
2. Ramakant Madhukar Mhatre ...Plaintiffs
VERSUS
1. M/s. Indu Enterprise
Through its partners
a) Shri Anish Joshi
b) Shri Mandar Dattatraya Vaidya
2. Ramchandra Krishan Mhatre
3. Vishnu Krishna Mhatre
4. Chetan Anant Mhatre
5. Sunil Baburao Pawar
6. Bhalesh Ramchandra Mhatre
7. Sandip Vishnu Mhatre ...Defendants
Appearance
Advocate Mr. Mayuresh Modgi for the plaintiffs.
Advocates Mr. Nitin Menon, Simran Nagi, Nandkishor Supal i/b. Divya
Shah & Associates for defendant No.1
CORAM : HHJ Rajesh A. Sasne
(C.R.NO.62)
Date : 16th December, 2022
O R D E R
This notice of motion is taken out by defendant No.1
requesting to refer the dispute contained in this suit to the arbitrator
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under the provisions of The Arbitration and Conciliation Act, 1996.
2. It is the contention of the defendant No.1 that plaintiffs
have filed this suit for declaration that the memorandum of
understanding (MOU) dated 21.09.2012 executed between the plaintiff
No.1 alongwith defendant Nos.2 to 5 on one hand and defendant No.1
on other hand is illegal, null and void. The declaration is also sought
that the deed of conveyance dated 12.10.2013 executed between
defendant No.1 and defendant Nos.2 to 5 is illegal and not binding
upon the plaintiffs to the extent of 1/5th share.
3. It is further contention of the defendant No.1 that on
21.09.2012, the plaintiff No.1 alongwith defendant Nos.2 to 5 had
entered into memorandum of understanding with defendant No.1. In
furtherance to the said memorandum of understanding, on 12.10.2013,
defendant Nos.2 to 5 have executed deed of conveyance with defendant
No.1. However, plaintiff No.1 has refused to sign and execute the deed
of conveyance. In spite of several requests, the plaintiffs failed and
neglected to sign the deed of conveyance with defendant No.1.
4. According to the first defendant, the dispute raised in the
plaint is squarely covered by Arbitration agreement contained in clause
21 of the memorandum of understanding. Said clause specifically
provides that any disputes arising between the parties in respect of any
of the terms and conditions of said agreement shall be referred to the
Arbitrator for adjudication. It is further contention of the defendant
No.1 that they have filed Arbitration Petition No.836/2015 in the
Hon'ble High Court relying on clause21 of memorandum of
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understanding. In the Arbitration Petition No.836/2015 the Hon'ble
Bombay High Court was pleased to grant an adinterim relief against
plaintiff No.1. With these contentions defendant No.1 requested to refer
the dispute contained in the present suit to the Arbitrator.
5. The plaintiffs by filing reply opposed this motion. It is their
contention that defendant No.1 has filed two arbitration applications
which are pending in the Hon'ble High Court. Out of which defendant
No.1 has mentioned only about the Arbitration Petition No.836/2015
and has deliberately not mentioned about Arbitration application
No.234/2015 in which said memorandum of understanding is
impounded by the Hon'ble High Court by order dated 14.08.2017 and
the said memorandum of understanding was sent to Collector of Stamp.
The Hon'ble High Court has already ceased with the dispute in
Arbitration Application No.234/2015 filed under section 11 of the
Arbitration Act, in which same prayer of appointment of arbitrator is
made. Arbitration Application No.234/2015 is pending. Defendant
No.1 has concealed the said material fact about the proceeding
impounding of memorandum of understanding.
6. It is further contention of the plaintiffs that Arbitration
petition No.836/2015 is under section 9 of the Arbitration Act, only for
interim relief. Same has been granted therefore, it has no bearing on
the trial of the suit. It is further contention of the plaintiffs that the suit
is on the ground that fraud has been practiced by defendant No.1 upon
the plaintiffs in collusion with other joint owners. Said issue is required
to be tried by Civil Court. Issue of fraud is outside the scope of authority
of the arbitrator. As fraud vitiates all the acts, the document containing
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clause of arbitration is also vitiated and therefore, the provision of the
Arbitration Act, 1996 will not be applicable. With these contentions the
plaintiffs have prayed to dismiss the motion.
7. The first defendant filed affidavitinrejoinder. They denied
the contentions raised in the reply of the plaintiff. It is their contention
that the Hon’ble High Court in arbitration application No.234 of 2015
has given liberty to apply for hearing of the said arbitration application
after making payment of stamp duty and penalty if any. Said arbitration
application No.234 of 2015 is still pending. First defendant prays to
allow this motion.
8. Defendant No.1 also filed additional affidavit in support of
the motion stating that arbitration application No.234 of 2015 filed by
the plaintiff was heard and disposed of by order dated 10.04.2019. In
the said order it is held that since the adjudication of dispute
concerning the reference of the dispute to arbitration falls within the
scope of present notice of motion and is seized with this Court, which is
still pending for consideration, it will be proper and prudent to
adjudicate the issue of referring the dispute to the arbitration in the
present notice of motion. Accordingly while disposing the said
arbitration application, the defendant No.1 was given liberty to
subsequently file an application under Section 11 if need arises after
adjudication of this motion.
9. Heard the learned Advocate for defendant No.1 and the
learned Advocate for the plaintiffs. Read the written notes of
arguments. Read the rejoinder filed by defendant No.1.
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10. It is admitted fact that memorandum of understanding
dated 21.09.2012 was executed. However, it is the contention of the
plaintiffs that, it was without first plaintiff's free consent, executed
under coercion, undue influence, misrepresentation and therefore, it is
fraudulent. Accordingly, the plaintiffs they have filed this suit seeking
relief of declaration that said memorandum of understanding is illegal,
void and not binding upon the plaintiff No.1. It is admitted fact that
based on memorandum of understanding dated 21.09.2012, defendant
Nos. 2 to 5 have executed deed of conveyance in favour of defendant
No.1 on 12.10.2013. The plaintiffs have also sought relief to declare this
deed of conveyance as not binding on them.
11. Copy of memorandum of understanding is at ExhibitJ to
the plaint. Clause No.21 of the same reads as follows:
21. “In case of any disputes, doubts, or differences arising between the
parties hereto, in respect of the any of the terms and conditions of this
agreement or in respect of interpretation of any of the terms and conditions
of this presents or in respect of any other matter, cause or thing whatsoever
not contained herein otherwise provided for, the same shall be referred to
adjudication to the Arbitration subject to the provisions of Arbitration and
Conciliation Act, 1996 or any statutory modifications or reenactment
thereof for the time being in force, and each party shall appoint one
arbitrator and such arbitrators shall elect one umpire and decision of the
said Arbitrators shall be binding upon the parties”.
12. Relying on the aforesaid clause in the memorandum of
understanding, it is the contention of the first defendant that as the
agreement contains arbitration clause, the present dispute is arbitrable.
Whereas, according to the plaintiffs, there are allegations as to fraud,
misrepresentation and therefore, when the basic agreement is under
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shadow of doubt, the arbitration clause cannot come into play and
therefore, the dispute is not arbitrable. Before going to the merit of the
issue, it will be proper to refer the various judgments cited by both
parties.
13. The learned Advocate for the defendant relied on
judgment in Avitel Post Studioz Limited and Others V/s. HSBC PI
Holdings (Mauritius) Limited (2021) 4 Supreme Court Cases 713,
wherein it is held as follows :
“In the light of the aforesaid judgments, paragraph 27(vi) of Afcons
(supra) and paragraph 36(i) of Booz Allen (supra), must now be read
subject to the rider that the same set of facts may lead to civil and
criminal proceedings and if it is clear that a civil dispute involves
questions of fraud, misrepresentation, etc. which can be the subject
matter of such proceeding under section 17 of the Contract Act, and/or
the tort of deceit, the mere fact that criminal proceedings can or have
been instituted in respect of the same subject matter would not lead to
the conclusion that a dispute which is otherwise arbitrable, ceases to be
so.”
“This is further made clear by Sections 10, 14 and 19, which have already
been referred to here in above, all of which deal with “fraud” at the stage
of entering into the contract. Even Section 17(5) which speaks of “any
such act or omission as the law specially deals to be fraudulent” must
mean such act or omission under such law at the stage of entering into
the contract. Thus, fraud that is practiced outside of Section 17 of the
Contract Act i.e. in the performance of the contract, may be governed by
the tort of deceit, which would lead to damages, but not rescission of the
contact itself. Both kinds of fraud are subsumed within the expression
“fraud” when it comes to arbitrability of an agreement which contains an
arbitration clause.
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14. The first defendant also relied on Swiss Timing Limited
V/s. Common wealth Games 2010 Organising Committee (2014) 6
Supreme Court Case 676 wherein it is held that, when there is
arbitration clause in the agreement, it is mandatory to refer the dispute
to the Arbitrator. It is also held that criminal case on the ground of
fraud, corruption, collusion is not absolute bar to refer the dispute to
the arbitrator. It is also observed that Arbitral Tribunal can rule on its
own jurisdiction. Arbitration clause is an independent agreement. In
paragraph No.16 it is specifically held that, as a pure question of law, I
am unable to accept the very broad proposition that whenever a
contract is said to be void ab initio, the courts exercising jurisdiction
under Section 8 and Section 11 of the Arbitration Act, 1996 are
rendered powerless to refer the dispute to arbitration.
15. The first defendant also relied on judgment in Ruchi India
Ltd., V/s. V. Customers Services India Pvt. Ltd.,
(MANU/DE/2854/2009) wherein it is held that arbitration clause is an
independent contract. Objection as to non registration or unstamped
document cannot be ground to reject to refer the dispute to the
arbitration. It is also held that if there is arbitration agreement the court
has to refer the parties to arbitration.
16. The first defendant further relied on judgment in N.N.
Global Mercantile Private Limited V/s. Indo Unique Flame Ltd. And
Others, (2021 SCC OnLine SC 13). In this judgment the Hon'ble
Supreme Court considered the doctrine of separability and kompetenz.
The point for consideration was whether the non payment of Stamp
Duty on the Work Order, would render the arbitration clause invalid,
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non existent, or unenforceable in law, till the stamp duty is paid on the
substantive commercial contract? It was held that the arbitration
agreement would not be rendered invalid, unenforceable or non
existent, even if the substantive contract is not admissible in evidence or
cannot be acted upon on account of nonpayment of stamp duty. It is
further observed that, the arbitration agreement is separate and distinct
agreement from the underline commercial contract and would survive
independent of the substantive contract. In this judgment the judgment
of Ayyasamy, Raza V/s. Sadaf, Booz Allen and Avitel were referred. In
N.N.Global’s case there was question whether the fraudulent invocation
of the bank guarantee is arbitrable ? It was observed that allegations of
fraud are simple and which do not in the normal course constitute any
criminal offence, nor are the allegations so complex in nature which
would entail extensive evidence being led, hence the dispute could be
resolved through arbitration. In paragraph No.100 it was observed that
mere allegations of fraud simplicitor are not sufficient ground to decline
reference to arbitration. The Hon’ble Supreme Court also referred twin
test laid down in Rashid Raza V/s. Sadaf Akhtar. Said twin test is (i)
does the plea of fraud permeate the entire contract and above all, the
agreement of arbitration, rendering it void, or (ii) whether the
allegations of fraud touch upon the internal affairs of the parties interse
having no implication in the public domain. The judgment of Avitel Post
Studioz Limited is also referred, wherein the issue of arbitrability of
fraud arose for consideration wherein it is held that same set of facts
may have civil as well as criminal consequences. If it is clear that a civil
dispute involves questions of fraud, misrepresentation, etc. which can
be the subject matter of a proceeding under Section 17 of the Indian
Contract, 1872, and/or the tort of deceit, the mere fact that criminal
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proceedings can or have been instituted in respect of the same subject
matter, would not lead to the conclusion that a dispute which is
otherwise arbitrable, ceases to be so.
17. Defendant No.1 also relied on the judgment of A.
Ayyasamy V/s. A. Paramsivam and Ors., (MANU/SC/1179/2016). In
this judgment, the judgment of Swiss Timing Ltd, and Booz Allen and
Hamilton Inc. are also referred and it was held that a mere allegation of
fraud is not sufficient to detract from the obligation of the parties to
submit their dispute to arbitration. It is also observed that a fresh line
must be drawn to ensure the fulfillment of the intent of Parliament in
enacting the Act of 1996 and towards supporting commercial
understandings grounded in the faith in arbitration.
18. Defendant No.1 further relied on judgment in Ankit
Vijaykumar Khandelwal V/s. Aarti Rajkumar Khandelwal (Civil
Revision Application No.83 of 2020) (Hon’ble Bombay High Court)
wherein the dispute relates to noncompliance of one of the clause of
partnership deed. It was held that there is valid arbitration agreement
and therefore, the dispute is required to be referred to the arbitration.
19. The plaintiffs relied on judgment in Ivory Properties &
Hotels Pvt., Ltd., (2011 (2) Bom. C.R.559) wherein it is held that
serious triable issues ought to be determined before Civil Court.
20. Learned Advocate for the plaintiffs submits that the
plaintiff terminated the memorandum of understanding on 26.11.2013
and this motion is filed on 22.02.2018 therefore, it is not within
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limitation. It is required to be noted that the defendant has filed
arbitration application before the Hon'ble High Court. Therefore, it is
not correct to say that the issue for reference of dispute to the arbitrator
is raised after the limitation.
21. From the aforesaid various judgments, it is required to see
whether allegations of fraud made in the plaint are of serious nature or
whether they are simple. As aforesaid, it is the contention of the
plaintiff that the memorandum of understanding dated 21.09.2012 was
executed without valid consent of the first plaintiff and it was executed
under coercion, misrepresentation and undue influence. After reading
the plaint, it is noticed that the plaintiffs admit that plaintiff No.1 has
signed said memorandum of understanding on 21.09.2012. It is not the
fact that his signature was obtained on the blank document. After
going through the pleadings in the plaint minutely, it is revealed that
according to the plaintiffs they were invited at the office of defendant
No.1. Other defendants were also present there. It is stated by the
plaintiffs that defendant No.1 directly started reading out the
documents prepared by defendant No.1 and tried to translate in
Marathi and asked the plaintiffs to sign the document. It is admitted by
plaintiff No.1 that his son plaintiff No.2 accompanied him for the
execution of said memorandum of understanding. Therefore, at the
time of executing and signing of the memorandum of understanding,
plaintiff No.2 was with plaintiff No.1, he could have raised objection for
non agreeable terms in the memorandum of understanding but that was
not done. Therefore, prima facie the allegations as to mis
representation, coercion and fraud appears to be not the serious
allegations of fraud.
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22. The pleadings in the plaint further shows that, initially
plaintiff No.1 did not accept the advance payment of consideration but
later on he accepted it and deposited the cheque issued for the same.
Plaintiff No.2 who is son of plaintiff No.1 has signed the said
memorandum of understanding as witness therefore, there is no case of
coercion. After accepting another cheque, the plaintiffs issued notice on
16.11.2013 nearly after one year of the execution of memorandum of
understanding and disputed the legality of said document. The plaintiffs
alongwith said notice dated 13.11.2013 attached cheque in favour of
defendant No.1 to refund the amount which they have already
accepted. This fact itself shows that the action of the plaintiff is after
thought. The plaintiffs' allegation for reasons regarding coercion, undue
influence and free consent are after thought and cannot be a ground of
serious fraud.
23. There is no case that any blank document was produced for
signature and the plaintiffs' signatures were obtained thereon. It is also
not the case that the first plaintiff's signature is forged. There is no case
of any threat for the execution of memorandum of agreement. There
was ample opportunity available with the plaintiff to raise the dispute
immediately after the execution of memorandum of understanding
dated 21.09.2012. The facts show that after execution of memorandum
of understanding dated 21.09.2012, the plaintiffs on 26.11.2013 issued
notice raising objection regarding the memorandum of understanding.
The facts further show that on 12.10.2013 the deed of conveyance has
been executed by defendant Nos. 2 to 6 in favour of defendant No.1.
Thereafter, on 26.11.2013, the plaintiffs issued notice for cancellation
of memorandum of understanding. By considering these facts in
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sequence, one can read the gap between the lines. The things appears to
be after thought and there is no allegation as to serious fraud. Grounds
raised by the plaintiffs are the grounds available in the Contract Act,
1872 which can be considered and decided by the Arbitrator. As held in
Avitel case, N.N. Global’s case, A. Ayyasamy’s case, for such nature of
dispute case cannot be considered as nonarbitrable.
24. As held in N.N. Global’s case supra arbitration agreement
would not be rendered invalid, unenforceable or non existent, even if
the substantive contract is not admissible in evidence or cannot be acted
upon on account of nonpayment of stamp duty. Therefore, the
plaintiff’s objection regarding the stamp duty in respect of
memorandum of agreement is not acceptable. As held in N.N. Global’s
case supra the arbitration agreement is separate and distinct agreement
from the underline commercial contract and would survive independent
of the substantive contract. Therefore, arbitration agreement to be read
independently and due to which the plaintiffs are bound by the same.
25. In view of the twin test laid down in Avitel and N.N.
Global, it is required to see (i) does the plea of fraud permeate the
entire contract and above all, the agreement of arbitration, rendering it
void, or (ii) whether the allegations of fraud touch upon the internal
affairs of the parties interse having no implication in the public domain.
In Avitel case supra it is observed that serious allegations of fraud arise
only if either of the two tests laid down are satisfied, and not otherwise.
The first test satisfied only when it can be said that the arbitration
clause or agreement itself cannot be said to exist in a clear case in
which the court finds that the party against whom breach is alleged
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cannot be said to have entered into the agreement relating to
arbitration at all. The second test can be said to have been met in cases
in which allegations are made against the State or its instrumentalities
or arbitrary, fraudulent, or mala fide conduct thus necessitating the
hearing of the case by a writ court in which questions are raised which
are not predominantly questions arising from the contract itself or
breach thereof, but questions arising in the public law domain.
26. In case before me there is no question related with public
domain and therefore, second test fails. In respect of first test,
admittedly, the plaintiff No.1 has signed the memorandum of
understanding which contain the clause of arbitration. It is not the case
of the plaintiffs that the document was signed blank or his signature is
forged. In view of my aforesaid observations, I find that the plaintiffs'
allegations regarding the coercion, misrepresentation and fraud are
appears to be made after thought. The first plaintiff has accepted the
cheque of payment, deposited it in his account and after thought by
issuing notice disputed the contract. The conduct of the plaintiffs itself
shows that there is no serious allegation of fraud. Even otherwise the
allegations in respect of free consent, coercion, undue influence, mis
representation can be dealt with by the arbitrator. Hence, I am of the
view that in view of the arbitration clause in the memorandum of
understanding dted 21.09.2012, the present dispute is arbitrable. For
these reasons, notice of motion is required to be allowed. In the result I
pass following order:
ORDER
1. Notice of Motion no. 742 of 2018 is allowed.
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2. The dispute contained in the present suit is subject
matter of an arbitration agreement, therefore it is
arbitrable. The parties in the present suit to refer their
dispute in the present suit to the arbitration in terms
of arbitration clause 21 of memorandum of agreement
dated 21/09/2012.
3. As the dispute is arbitrable, this Court has no
jurisdiction to try this suit in view said arbitration
clause in the memorandum of agreement dated
21/09/2012.
4. In the result suit is disposed off. Parties may appear
before arbitrator to be appointed by them.
(Rajesh A. Sasne)
Date : 16.12.2022 Judge,
Dictated on : 16/12/2022 City Civil Court,
transcribed on : 19/12/2022 Mumbai.
Signed on : 23 /12/2022
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CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL SIGNED
JUDGMENT/ORDER”
23.12.2022 at 5.45 p.m. Mr. S.S. Bathe
UPLOAD DATE AND TIME NAME OF STENOGRAPHER
Name of the Judge(with CR No.) HHJ SHRI. R.A. SASNE (C.R.No.62)
Date of pronouncement of Order 16/12/2022
Order signed by P.O. on 23/12/2022
Order uploaded on 23/12/2022
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