Allegations Of Fraudulent Signatures On Arbitration Agreements Must Be Decided By Arbitrator, Not Court Under Section 11: Calcutta High Court
The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held that allegations of a party's signature on an arbitration agreement being obtained through fraud or misrepresentation are matters that can be decided by the arbitrator and can't be resolved by the court under Section 11 of the Arbitration and Conciliation Act, 1996. The bench further observed that the...
The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held that allegations of a party's signature on an arbitration agreement being obtained through fraud or misrepresentation are matters that can be decided by the arbitrator and can't be resolved by the court under Section 11 of the Arbitration and Conciliation Act, 1996.
The bench further observed that the arbitral tribunal, similar to a civil court, has the authority to appoint experts when complex issues, such as those involving fraud or misrepresentation, require expert opinion.
Brief Facts:
Ranajit Guha Roy and Anr (Petitioners) filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 and sought the resolution of disputes arising from a development agreement entered into between the Petitioners, who are developers, and Sankar Kumar Halder (Respondent), who is the landowner. The Petitioners' argued that several clauses within the agreement clearly stated that any disputes should be referred to arbitration. They argued that the Respondent relied on the development agreement dated June 24, 2020. This notice, along with others, acknowledged the existence of the arbitration clause within the agreement. The Petitioners' pointed out that the Respondent repeatedly admitted to the existence of the development agreement in various complaints filed before different forums. Based on this, it was argued that the Respondent's stance, opposing arbitration, is contrary to his earlier admissions.
On the other hand, the Respondent contested the maintainability of the petition under Section 11 of the Arbitration Act The Respondent argued that, under Section 2(e) read with Section 11(3A) of the Arbitration Act, the term "Court" refers to the court with original territorial jurisdiction over the area where the subject matter of the dispute is located. The Respondent contended that the dispute fell outside the territorial jurisdiction of the Court where the application was filed, and thus, the High Court does not have the authority to hear the matter. Further, the Respondent, belonging to a Scheduled Caste, filed several cases before different forums, including the Scheduled Caste Commission, and raised objections before various municipal authorities and criminal forums. The Respondent argued that these disputes were not subject to arbitration. The Respondent further contended that the development agreement in question was obtained through misrepresentation and fraud taking advantage of the Respondent's marginalized social status.
Observations by the High Court:
The High Court found the contentions raised by the Respondent to be untenable for several reasons. Regarding the issue of jurisdiction, the High Court clarified that there is a distinct difference between the term "court" as defined under Section 2(1)(e) of the Arbitration Act and the terms "High Court" and "Supreme Court" as mentioned in Section 11 of the Arbitration Act. While most provisions of the Arbitration Act, such as Sections 9, 34, 36, and 37, refer to "Court" as the principal Original Civil Court having jurisdiction, the High Court held that Section 11 refers to the Supreme Court or the High Court. The High Court observed that, in the State of West Bengal, there is only one High Court, and as such, the bench, designated by the Chief Justice, has the authority to hear matters under Section 11.
The High Court further addressed the Respondent's concerns about pending criminal cases, cases before municipal authorities, the Scheduled Caste Commission, or other courts/forums under special statutes. The High Court noted that the dispute, which arose from a development agreement between the parties, is essentially a civil dispute. The High Court held that the resolution of any pending criminal or other special statute cases would be determined by the appropriate forums with jurisdiction in law and that these cases bear no connection to the civil dispute currently being referred to arbitration.
Regarding the third objection raised by the Respondent, which concerned the allegation that the Respondent's signature was obtained through fraud or misrepresentation, the High Court held that such issues could be properly decided by the arbitrator. It noted that the arbitral tribunal, much like a civil court, is empowered under the Arbitration Act to appoint experts when intricate questions requiring expert opinion arise, including issues of fraud or misrepresentation. However, the High Court held that such concerns could not prevent the matter from being referred to arbitration at this stage. The High Court, under Section 11 of the 1996 Act, does not function as an adjudicatory forum but operates in a role just above an administrative forum. It held that the court's mandate does not extend to adjudicating the merits of disputes based on allegations of fraud or misrepresentation. Any challenge to the validity of the agreement containing the arbitration clause on such grounds involves a determination on merits after considering evidence, a task best suited for the arbitral tribunal.
The High Court also addressed the Respondent's argument regarding the perceived absurdity of certain provisions within the agreement. The High Court noted that the Respondent is entitled to raise these issues before the arbitrator, who, once appointed, would have the authority to resolve such disputes. Nonetheless, the High Court held that none of the objections raised by the Respondent undermined the civil nature of the dispute, which clearly fell within the scope of the arbitration clause of the agreement between the parties.
Consequently, the High Court appointed Mr. Shounak Mukhopadhyay, a member of the Bar Library Club, as the sole arbitrator to resolve the disputes between the parties.
Case Title: Ranajit Guha Roy and Anr. vs Sankar Kumar Halder
Case Number: AP/861/2023
Advocate for the Petitioner: Mr. Rabindra Kumar Mitra, Adv. Mr. Sourjya Das, Adv Ms. Poulami Bhowmick, Adv. …for the petitioners
Advocate for the Respondent: Mr. Swapan Kr. Mazumdar, Adv. Mr. Saptarshi Mazumdar, Adv. Mr. Nikhil Kr. Roy, Adv. Mr. Abhik Chitta Kundu, Adv. …for the respondent
Date of Judgment: 27th August, 2024