The Court Cannot Examine The Allegations Of Fraud/Forgery Under Section 9(3) When The Arbitral Tribunal Is Already In Seisin: Delhi High Court

The bench of Justice Chandra Dhari Singh held that once the arbitral tribunal has been constituted, the Court shall not entertain any application under Section 9 except in cases of exceptional circumstances in which the remedy before the tribunal would not be efficacious.

The Court held that the arbitral tribunal is empowered to rule on the validity of the agreement including the allegations of fraud or forgery, thus, the remedy before the tribunal is an effective remedy and within the competence of the tribunal, therefore, the application under Section 9 would not be maintainable in view of the bar under Section 9(3) of the Act.

The Court also held that Section 9 cannot be used as an appellate provision to impugn the orders passed by the tribunal under Section 17 of the Act in view of the alternate remedy available under Section 37 of the Act.

Facts

The petitioner entered into an agreement with the Chhattisgarh State Power Distribution Company Ltd. (hereinafter referred as "CSPDCL") wherein it agreed to do certain construction works. Thereafter, the petitioner sub-contracted the work to the respondent and the parties entered into a tri-partite agreement with CSPDCL dated 08.03.2019. Thereafter, the parties entered into a separate bi-partite agreement dated 20.03.2019.

A dispute arose between the parties when CSPDCL invoked the bank guarantees issued by the petitioner on the ground of incompetence of respondent in completion of works as per the contract and inability of the respondent to provide reconciliation statement of materials and documents. CSPDCL further invoked another two bank guarantees issued by the petitioner due to breach and non – compliance of the Terms of the Award Contract and Tripartite Agreement by the respondent. Accordingly, the petitioner terminated the bi-partite agreement with the respondent and also filed an application under Section 9 of the Act on which the Court appointed the arbitrator with liberty to the parties to seek interim measures before the tribunal.

However, during the pendency of the proceedings, the petitioner came to know that the agreement that respondent filed before the Court in proceedings under section 9 and also before the tribunal is a forged agreement of which one page does not match with the original agreement available with the petitioner. Accordingly, the petitioner approached the tribunal under Section 17 of the Act with it grievance regarding the invalidity and forgery of the agreement relied upon by the respondent.

However, the Court dismissed the application on the ground that the plea of forgery can only be decided after the parties have led evidence.

Aggrieved by the order of the tribunal, the petitioner filed an application under Section 9 of the Act with a prayer to either to make a fresh reference to the tribunal on the basis of the original agreement or pass a direction on the tribunal to decide the issue of validity before proceeding ahead with the matter.

Contention of the Parties

The respondent objected to the maintainability of the petition on the following grounds:

• The issue has already been decided by the tribunal, therefore, the petition is not maintainable.
• The petition is not maintainable in view of the bar under Section 9(3) as the tribunal is seized of the matter and the remedy before it is an efficacious remedy.

Analysis by the Court

Firstly, the Court referred to Section 9(3) of the Act that act as a bar on the Court to entertain applications under Section 9 once the tribunal is constituted unless the remedy before the tribunal would be inefficacious.

The Court held that the Court while exercising powers under Section 9(3) of the A&C Act cannot examine the allegations of fraud or forgery when the arbitral tribunal is already in place and seized of the matter.

The Court relied on the judgment of the Supreme Court in A.Ayyaswamy v. A. Paramasivam, (2016) 10 SCC 386 to hold that the arbitral tribunal is empowered to rule on the validity of the agreement including the allegations of fraud or forgery, thus, the remedy before the tribunal is an effective remedy and within the competence of the tribunal, therefore, the application under Section 9 would not be maintainable in view of the bar under Section 9(3) of the Act.

The Court also held that Section 9 cannot be used as an appellate provision to impugn the orders passed by the tribunal under Section 17 of the Act in view of the alternate remedy available under Section 37 of the Act, thus, the Court held that the remedy, if any, available with the petitioner aggrieved by the order of the tribunal passed on an application under Section 17 is under Section 37.

Accordingly, the Court dismissed the petition as non-maintainable.

Case Title: Fedders Electric & Engineering v. Srishthi Constructions 

Citation: 2023 LiveLaw (Del) 369

Date: 26.04.2023

Counsel for the Petitioner: Mr. Pradeep Aggarwal, Mr. Pawas Agarwal and Mr. Arjun Aggarwal

Counsel for the Respondent: Mr. Sameer Abhaynkar and Ms. Nishi Sangatni.

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