R.F.NARIMAN.J. - (1.) The hearing in this appeal followed in the wake of the hearing in Civil Appeal Nos. 5145 of 2016, 5158 of 2016, and 9820 of 2016. The brief facts necessary to appreciate the controversy in this appeal are as follows: i. By an agreement dated 22.07.2004 between the Appellant, Deccan Paper Mills Co. Ltd. [hereinafter referred to as "Deccan"] and the Respondent No. 2 company, M/s Ashray Premises Pvt. Ltd. [hereinafter referred to as "Ashray"], Deccan, being the owner of approximately 80,200 sq. meters of land bearing Survey Nos. 96B, 96C, and 96D at village Mundhwa, District Pune, decided to develop a portion of the said land, i.e., 32,659 sq.meters. It is not necessary to enter into the nitty-gritty of the said agreement. However, it is enough to note that this agreement contained clause 7(m), in which it is stated : "7. The Owner and the Developer hereto covenant that upon the execution of these presents: xxx xxx xxx m. The Owner shall have no objection if at any stage during the continuance of this agreement the Developer assigns, delegates the rights, under this agreement or the Power of Attorney/writings executed in furtherance hereof to any other person, firm or party without violating or disturbing any of the terms and conditions of this agreement." ii. This agreement did not contain any arbitration clause. Pursuant to clause 7(m), on 20.05.2006, an agreement was entered into between Respondent No. 2 - Ashray, and Respondent No.1 -Regency Mahavir Properties, a partnership firm [hereinafter referred to as "Regency"], by which Ashray assigned the execution of the agreement dated 22.07.2004 to Regency. The aforesaid agreement contained an arbitration clause, which is set out as follows: "14. If during the continuance of the said Agreement/these presents or at any time afterwards any difference shall arise between the parties herein and the heirs, executors or administrators of the other of them or between their respective heirs, executors or administrators in regard to the construction of any of the articles herein contained or to any division (..illegible) thing to be made or done in pursuance hereto or to any other matter or thing relating to the said Agreement/these presents the same shall be forthwith referred to one arbitrator if the parties agree or otherwise to two arbitrators, one to be appointed by each party to the reference or to an Umpire to be chosen by the Arbiters before entering upon the reference and every such reference shall be deemed to be an Arbitration in accordance with and subject to the provisions of The Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force." iii. A deed of confirmation dated 13.07.2006 followed, by which it was stated that this deed was to be treated as part of the 20.05.2006 agreement, in which the assignment by Ashray to Regency was reaffirmed. According to Deccan, a fraud had been played by one Mr. Atul Chordia, Respondent No.3 herein (Defendant No. 3 in the suit filed by Deccan), which is pleaded in Special Civil Suit No. 1400 of 2010, which was filed on 13.07.2010, as follows: "6. In the year 2006 or thereabout, the Defendant No.3 approached directors of the Plaintiff Company and represented to them that for diverse reasons, he intends to develop the said property through a partnership firm by name Regency Mahavir Properties. The Defendant No.3 further assured Plaintiff Company that he will be one of the leading partners of the said M/s Regency Mahavir Properties i.e. the Defendant No.1 and the development of the said property and the same shall be carried out as quickly as possible. The directors of Plaintiff Company, relying on the strength of assurance given by Mr. Atul Chordia agreed to be joined a Consenting Party to a formal agreement of assignment to be executed between Defendant No.1 and Defendant No.2. It is pertinent to note that Defendant No.3 holding out to be an authorized partner of Defendant No.1 has signed the said agreement. The directors of Plaintiff Company under a bonafide belief that the said agreement of assignment was formal and Defendant No.3 will be responsible for development of the said property. Now directors of Plaintiff Company realize that Defendant No. 3 had different intentions." xxx xxx xxx "8. Recently, the director of Plaintiff Company approached Mr. Dilip R. Jain, one of the partners of Defendant No. 1. Directors of Plaintiff Company inquired with Mr. Jain about the delay in progress of construction and informed Mr. Jain that they will hold Defendant No.3 responsible for the deal. Mr. Jain, to the shock and surprise of directors of Plaintiff Company informed them that Mr. Chordia was no more responsible for development of the said property, since he has assigned development rights in respect thereof, way back in the year 2006 itself. Directors of Plaintiff Company took the said shock and approached Defendant No.3 and inquired with him about the aforesaid state of affairs. The Defendant No.3 avoided giving any explanation. The Directors of Plaintiff Company, took a search in the office of Registrar of Firms and for the first time came to know that the Defendant No.3 had opted to retire from business of Defendant No.1 with effect from 30.05.2006. It is pertinent to note that the Defendant No. 3 representing himself to be authorized partner of Defendant No.1 has signed deed of Confirmation dated 13.07.2006, confirming the terms and conditions of agreement dated 20.05.2006, executed between Defendant No.1 and 2 in respect of development of the suit property. 9. As stated earlier, Directors of Plaintiff Company have granted development rights in respect of the said property to Defendant No.2, only because Defendant No.3 was its leading Director. The Plaintiff Company has joined the agreement of assignment dated 20.05.2006 and Deed of Confirmation dated 13.07.2006 executed by Defendant No.2 in favour of Defendant No.1 with understanding that Defendant No.3 was its partner. Directors of Plaintiff Company therefore say that Defendant No.1 in collusion with Defendant No.2 and in active concealment of material fact, by misrepresenting Plaintiff Company and by practicing fraud upon the Plaintiff Company have obtained consent of Plaintiff Company on the agreement of assignment and Deed of Confirmation. Directors of Plaintiff Company therefore say that said agreement of assignment and Deed of Confirmation being tainted with fraud are ab initio null and void and not binding on Plaintiff Company. Since the Plaintiff Company has recently come to know the aforesaid fraud, they have decided to inform the Defendant that the agreement dated 20.05.2006 and the Deed of Confirmation dated 13.07.2006 in respect of the said property are not binding upon the Plaintiff Company and hence Defendant No.1 has no legal right to continue with further development of the said property. 10. Directors of Plaintiff Company, from reliable sources, have come to know that Defendant No.1 has no intention to develop the said property, further and hence Defendant No.1, again in collusion with Defendant No.3 is negotiating to transfer/assign development rights in respect of the said property to third person. Since the agreement of assignment dated 20.05.2006 and Deed of Confirmation dated 13.07.2006 are illegal and void, Defendant No.1 has no right to deal with the suit property. Inspite of such position, if Defendant No.1 attempts to transfer such rights, the same shall be illegal and in any case shall not be binding upon Plaintiff Company." As a result of the fraud played, it was then stated: "12. The cause of action for this suit first arose on or about 22.07.2004 when the Defendant No.1 obtained agreement for development of the suit property, it further arose when the Defendant No.1 and 2 obtained agreement of assignment dated 20.05.2006 and Deed of Confirmation dated 17.07.2006. It further arose, in the month of April/May 2010, when the Plaintiff for the first time came to know that the Defendant No.3 is no more partner of the Defendant No.1 and that the Defendants have committed fraud upon the Plaintiff. The cause of action also arose, when the Defendants failed to comply with the demands made in notice dated 10.07.2010. 13. The present suit, being suit for declaration and cancellation, is properly valued as per the provisions of Section 6(4)(h-a) of Bombay Court Fee Act, 1959 and maximum court fee of Rs.3,00,000/- is paid. 14. The suit property is situated at Pune. The cause of action for the present suit has arisen at Pune and therefore this Honourable Court has got jurisdiction to entertain, try and decide this suit. 15. It is therefore prayed that: A. It be declared that the Agreement dated 22.07.2004 and Agreement dated 20.05.2006 and Deed of Confirmation dated 13.07.2006 are obtained by fraud and hence they are ab initio null, void and not binding upon the Plaintiff. B. It be declared that the Agreement dated 22.07.2004 and Agreement dated 20.05.2006 and Deed of Confirmation dated 13.07.2006 are illegal. C. The Defendants, by order of mandatory injunction directed to execute and register Deed of Cancellation of Agreement dated 22.07.2004 and Agreement dated 20.05.2006 and Deed of Confirmation dated 13.07.2006. D. The Defendants may be restrained by an order of perpetual injunction from carrying out any further development activity in the said property or to enter the same or remain therein, either by themselves or through any person claiming through it, or to create any third party interests therein or to deal with the same in any manner whatsoever. E. Interim orders in terms of Clause C above may be passed. F. Costs of the suit may be awarded to the Plaintiff from the Defendants. G. Any other just and other equitable orders in the interest of justice may be pleased to be passed." It is important to note that Defendant No. 3 did not file any written statement in the said suit. iv. Almost immediately thereafter, by an application dated 19.07.2010 under section 8 of the Arbitration and Conciliation Act, 1996 [hereinafter referred to as the "1996 Act"] on behalf of Regency, the arbitration clause in the agreement dated 20.05.2006 was set out and the Civil Judge (Senior Division), Pune was asked to refer the parties to arbitration. The reply to the said application on behalf of the plaintiff, Deccan, stated: "2. The averments in para 1 of the application to the extent of reproduction of clause No.14 of agreement dated 20.05.2006, being matter of record are not disputed for the purpose of this reply. The plaintiff shall rely upon and explain the true effect and interpretation of the said clause at the proper time. It is pertinent to note Defendant Nos.1 and 2 have avoided to make any comment with regard to merits of their defense. 3. It is submitted that while considering the application u/s 8 of Arbitration and Conciliation Act, 1996, the court has to consider an issue that whether there exists any Arbitration Agreement between the parties. Such right is certainly vested in Civil Court. The Plaintiff is challenging the legality of agreement dated 20.05.2006 on the ground that the same is obtained by fraud and is therefore seeking further declaration that the said agreement is null and ab initio void. As such, the very Arbitration clause as contained in the said agreement is not enforceable. In spite of the fact that Section 16 of the said Act empowers the Arbitral Tribunal to decide its own jurisdiction in view of particular circumstances narrated in the plaint, the present application deserves to be rejected." v. By a judgment dated 19.07.2011, the Additional Judge, Small Causes Court, Pune, after hearing both sides, held as follows: "11. After perusing the above mentioned cited cases, it shows that when there is a clause of arbitration it is mandated on the Civil Court to refer the dispute and parties for arbitration as per agreement. In present case the plaintiffs have materially contention about playing fraud by Defendant No.3 but there is no any contents in agreement as alleged by plaintiff in plaint about keeping faith on Defendant No.3. It shows about signing by Defendant No.3 for agreement dated 20.05.2006 and he was also party to said agreement. The plaintiff alleged about playing fraud after resigning by Defendant No.3 from partnership firm of Defendant No.1 and signing the confirmation deed dated 13.07.2006 but as per Partnership Act remedy is provided. Moreover, from the documents, it shows that the confirmation deed dated 13.07.2007 was executed by Defendant No.3 as Authorized Partner of M/s Regency Mahavir Properties and another partner Dilip Jain. The fraud alleged by the plaintiff is in respect of the documents for which the remedy is also provided. After considering the arbitration clause I find that the application is to be allowed and the disputes have to be referred for arbitration. Hence, I pass the following order: 1) Application is allowed. 2) The plaintiff is directed to get the alleged dispute resolved through the process of arbitration by referring the plaintiff to invoke the process of arbitration as per the arbitration clause 14 mentioned in the agreement dated 20.05.2006." Finding thus, the learned Judge referred the parties to arbitration. vi. A writ petition filed by Deccan in the Bombay High Court was then disposed of by the impugned judgment dated 18.03.2015, in which it was held, following the judgment of the Single Judge in Swiss Timing Ltd. vs. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677 [hereinafter referred to as "Swiss Timing"] that the decision in N. Radhakrishnan vs. Maestro Engineers, (2010) 1 SCC 72 [hereinafter referred to as "N. Radhakrishnan"] being per incuriam, it would not be possible to follow the same, as a result of which the "fraud exception" was rejected. It was then held that there is no conflict between the Division Bench judgment in Avitel Post Studioz Limited and Ors. vs. HSBC PI Holding (Mauritius) Ltd., Appeal No. 196 of 2014 in Arbitration Petition No. 1062 of 2012 (which is the judgment under appeal in Civil Appeal Nos. 5145 and 5158 of 2016) and another judgment in Satish Sood vs. Gujarat Tele Links Pvt. Ltd., 2014 (1) AIR Bom R 27 [hereinafter referred to as "Satish Sood"]. The Court felt that it would not be possible to follow the decision of the Division Bench in the case of Satish Sood (supra) as it was rendered prior to the judgment of the learned Single Judge of the Supreme Court in Swiss Timing (supra). This beingso, the writ petition was then dismissed, with the result that the parties stood referred to arbitration.
(2.) Smt. Meena Doshi, learned advocate appearing on behalf of the Appellant, has taken us through the record and argued on the basis of N. Radhakrishnan (supra) that when it comes to serious allegations of fraud, an arbitrator's jurisdiction gets ousted and reading the pleadings in the Special Civil Suit, it is obvious that serious allegations of fraud being raised in the present case, the dispute is thus rendered non-arbitrable. She then referred to section 8 of the 1996 Act, as amended by the Arbitration and Conciliation (Amendment) Act, 2015 [hereinafter referred to as the "2015 Amendment Act"] to further argue that both the District Judge as well as the High Court did not look into the requirements of the amended section 8, and that the aforesaid judgments are infirm on this count alone. She also argued, basing herself on the seven-Judge Bench judgment in S.B.P. and Co. vs. Patel Engg. Ltd., (2005) 8 SCC 618 that the correct application of section 8 is not a mere mechanical incantation of the section, the Court having to apply its mind as to whether there exists an arbitration agreement at all, which would include whether the subject matter of the proceeding is at all arbitrable. She also argued that the original agreement between Deccan and Ashray did not contain an arbitration clause, and since the suit was to set aside that agreement as well, the dispute could not be decided piecemeal, and on this ground also, ought not to have been referred to arbitration. She then relied heavily upon section 31 of the Specific Relief Act, 1963 and stated that a reading of the plaint and the prayers in the suit would show that the suit is one for cancellation of three "written instruments". This being so, and the proceeding under section 31 being a proceeding in rem, would fall within one of the exceptions made out in Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd., (2011) 5 SCC 532 [hereinafter referred to as "Booz Allen"]. For this purpose, she relied heavily upon a judgment of the High Court of Judicature at Hyderabad for Telangana and Andhra Pradesh in Aliens Developers Pvt. Ltd. vs. M. Janardhan Reddy, (2016) 1 ALT 194 (DB) [hereinafter referred to as "Aliens Developers"]. On all these grounds, therefore, the cryptic judgment of the Bombay High Court ought to be set aside and the suit should be set down for hearing, to be disposed of within a short timeframe.
(3.) Shri Vinay Navre, learned Senior Advocate appearing on behalf of Respondent No.1, referred us to the case law on the "fraud exception" and stated that after the judgment in Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710 (see paragraph 4), this exception would only apply if it can be stated that the agreement itself was never executed, in which case the arbitration clause itself would fall, but not otherwise. Also, since there are no public ramifications in the present proceeding, and in particular, no ramifications of a criminal nature, neither of the conditions precedent for the application of the "fraud exception" being present in this case, it is clear that the judgments of the Courts below were correct in law. When it came to section 31 of the Specific Relief Act, Shri Navre stated that a correct reading of the section would show that the Court's jurisdiction, being discretionary and for the benefit of the party interested in setting aside a written instrument, the proceeding would have to be considered to be one in personam. According to him, the judgment in Aliens Developers (supra) does not lay down the law correctly and should be overruled by us. In answer to the argument that the agreement dated 22.07.2004, which did not contain an arbitration clause, was also sought to be cancelled in the suit, he argued that this was inserted only in the prayer clause in order to camouflage the suit so as to get out of arbitration. If the body of the suit were to be seen, it is clear that what was sought to be impugned was only the latter two agreements, the first being of historical significance only. This being the case, it is clear that the dispute is arbitrable. Further, all that is to be seen under section 8 of the 1996 Act after its amendment is that prima facie, a valid arbitration agreement exists. Here, as a matter of fact, it was admitted, according to Shri Navre, in the affidavit filed in reply to the section 8 application that the agreement between the parties did exist, but was vitiated on account of fraud, which only made it voidable.;