Cognizance Taken By Magistrate For Cheating And Forgery , Calcutta High Court Refuse To Refer Parties To Arbitration

The bench of Justice Krishna Rao relied on the judgment of the Supreme Court in A. Ayyasamy vs. A. Paramasiva, (2016) 10 SCC 386 and Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710 to hold that dispute would not be referred to arbitration when the allegations of fraud and forgery are serious in nature and goes to the existence of the agreement containing arbitration clause.

Facts

The plaintiff, a manufacturer of diesel generator sets, and defendant, manufacturer of D.G. Engines, entered into an arrangement in the year 2000 wherein the defendant agreed to supply D.G. Engines exclusively to the plaintiff and was appointed as Original Equipment Manufacturer (OEM)

It was agreed that the defendant would not supply the D.G. Engines to any other entity, and the plaintiff would not enter into agreements with any other D.G. Engine manufacturer.

Pursuant to this understanding, the plaintiff made investments, however, in 2012, the plaintiff discovered that the defendant was supplying D.G. Engines directly to potential buyers in Assam.

In July 2014, the defendant stopped supplying D.G. Engines to the plaintiff, leading to the closure of the plaintiff's factory. Aggrieved thereby, the plaintiff filed the civil suit, claiming damages.

Thereafter, the defendant filed an application before the High Court of Bombay seeking appointment of the arbitrator, however, existence of the agreement containing the arbitration clause was denied by the plaintiff and the petition was ultimately withdrawn. Pursuant thereto, the defendant filed a criminal complaint against the defendant for fraudulently creating an agreement. The magistrate took cognizance of the offences under Sections 418/420/406/465/468/471 of IPC.

Thereafter, the defendant filed an application under Section 8 of the A&C Act in the civil suit, seeking reference of the dispute to arbitration.

Submissions of the Parties

The defendant made the following submissions in support of the application:

• That parties have entered into an agreement in the year 2007 which contains an arbitration clause, therefore, the dispute should be referred to arbitration.
• Mere allegations of fraud or forgery would not make the dispute non-arbitrable and the Court's jurisdiction under Section 8 is limited to examination of existence of arbitration agreement.

The plaintiff made the following submissions:

• The agreement dated 02.01.2007 is a forged document since when the petition was filed before the High Court of Bombay in 2015, it did not contain the signatures of the plaintiff, however, it not contains the signatures.
• Moreover, there is a mismatch between the date of the agreement and the date of the stamp paper on which it is reduced to writing.
• The magistrate has already taken cognizance of offences of cheating and forgery.

Analysis by the Court

The Court observed the seriousness of the fraud allegations going to the making of the agreement itself, including the initiation of a criminal case against the defendant regarding the agreement and the consequent cognizance by the magistrate.

The Court also took into account the discrepancies highlighted by the plaintiff, such as the date of purchase of the stamp paper and the absence of signatures of plaintiff when the agreement was filed before the High Court of Bombay.

The Court relied on the judgment of the Supreme Court in A. Ayyasamy vs. A. Paramasiva, (2016) 10 SCC 386 and Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710 to hold that dispute would not be referred to arbitration when the allegations of fraud and forgery are serious in nature and goes to the very making of the agreement containing the arbitration agreement.

Accordingly, the Court held dismissed the application.

Case Title: United Machinery & Appliances v. Greaves Cotton Limited, CS. 2 of 2015

Date: 21.03.2024

Counsel for the Plaintiff: Mr. Jishnu Chowdhury Mr. Aritra Basu Mr. Ratul Das Mr. Dwip Raj Basu Mr. Roumyadip Saha

Counsel for the defendant/applicant: Mr. Jishnu Saha, Sr. Adv. Mr. Anirban Ray Mr. Snehashis Sen Mr. Abhishek Banerjee Mr. Danyal Ahmed

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