Allegations Of Fraud And Time-Barred Claims Must Be Addressed By Arbitral Tribunal, Not Court: Delhi High Court

Brief Facts:

The matter pertained to a petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 which sought the reference of a dispute to arbitration. The dispute arose out of an Apartment Buyer Agreement executed between the Dr. Rahul Bhayana (Petitioner), Respondent 2 (DLF Homes Developers Ltd.), and Dr. Rohit Bhayana (Respondent 1). The Petitioner invoked Clause 55 of this agreement which provided for arbitration as a means of resolving disputes between the parties.

Respondent 1 argued that the agreement in question was a bipartite agreement involving only the Petitioner and Respondent 1 with the parties of the second part being alternatively the Petitioner and Respondent 1. He contended that the agreement was not a tripartite agreement that included DLF Homes Developers Ltd. as a party. However, a reading of the opening recital of the agreement did not support this contention, as it indicated the involvement of all three parties. The Petitioner, on the other hand, maintained that the agreement was tripartite and that Clause 55 should be invoked to refer the dispute to arbitration, as initially agreed upon by all parties involved.

Observations by the High Court:

The High Court held that all parties involved—namely the Petitioner, Respondent 1, and Respondent 2—were signatories to the Apartment Buyer Agreement. Further, the High Corut held that the question of whether each party's involvement is essential for adjudicating the dispute falls within the purview of the arbitral tribunal and not the court at the stage.

The High Court referred to the Supreme Court's recent decision in SBI General Insurance Co Ltd v Krish Spinning where the Supreme Court revisited the legal framework established by its earlier judgments, including the prominent decision in Vidya Drolia v Durga Trading Corporation.

In paragraph 114 of the SBI General Insurance judgment, the Supreme Court held that the role of the Section 11(6) court is restricted to verifying the prima facie existence of the arbitration agreement. It cannot address issues of arbitrability or other substantive disputes at this stage. This position marks a departure from earlier judgments where the court examined the issue of "accord and satisfaction" and dismissed clearly non-arbitrable or frivolous disputes.

The High Court held that under Section 11(6), the only aspect the court can assess, besides the existence of an arbitration agreement, is whether the petition is filed within three years of the notice under Section 21 of the Act.

Respondent 1 argued that the Petitioner's dispute, based on emails unrelated to the arbitration agreement and allegations of fraud, should not proceed in arbitration. He suggested that the Supreme Court's decision in SBI General Insurance Co Ltd should be considered within the specific context of accord and satisfaction. However, the High Court disagreed and held that the principles outlined in paragraphs 107 to 134 of the Supreme Court's judgment apply broadly to the scope of Section 11(6) and are not limited to cases involving accord and satisfaction. Thus, the High Court held that matters related to fraud and timeliness are for the arbitral tribunal to resolve.

Therefore, the High Court appointed Ms. Saloni Mahajan, Advocate, as the arbitrator to handle the dispute between the parties.

Case Title: Dr. Rahul Bhayana Vs Dr. Rohit Bhayana & Anr.

Citation: 2024 LiveLaw (Del) 939

Case Number: ARB.P. 809/2024

Advocate for the Petitioner: Mr. Anshu Mahajan and Mr. Vikash Aggarwal, Advs.

Advocate for the Respondent: Mr. Piyush Ahluwalia and Ms. Naina, Advs. for R-1 with R-1 in person Ms. Kanika Agnihotri, Mr. Tarun Mehta and Mr. Rohit Kumar, Advs. for R-2/DLF Ltd

Date of Judgment: 20.08.2024

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