Whether The Arbitration Agreement Is Vitiated By Fraud Should Be Left To The Wisdom Of The Arbitrator: Delhi High Court Reiterates

The bench of Justice Rekha Palli held that merely because a criminal complaint has been lodged against the petitioner for the alleged fraud is not a ground to refer the parties to arbitration when the dispute is squarely and undisputedly covered by the arbitration clause.

The Court also held that once the respondent had itself appointed an arbitrator but the appointment was bad in law for being unilateral in nature, it cannot later object to the appointment of the neutral arbitrator by the court citing fraud in the execution of the agreement unless the same is evident or established.

Facts

The parties entered into an agreement dated 14.12.2021. Clause 76 of the GCC provided for resolution of dispute by way of arbitration. A dispute arose between the parties, accordingly, the petitioner invoked the arbitration clause.

Thereafter, the respondent unilaterally appointed the arbitrator. Aggrieved by the unilateral appointment of the arbitrator, the petitioner filed an application under Section 11 of the Act praying the Court to appoint the arbitrator. However, subsequently, the respondent filed a criminal complaint with the Assistant Commissioner of Police, Economic Offence Wing against the petitioner for furnishing a fake experience certificate at the time of the execution of the agreement.

Contention of the Parties

The respondent objected to the appointment of the arbitrator on the following grounds:

• The agreement was obtained by the petitioner by playing a fraud on the respondent as it had given a fake experience certificate, therefore, the agreement was void ab initio as vitiated by fraud.
• The respondent has already filed a criminal complaint with the economic wing of the police department and the investigation into the alleged offence is pending, therefore, the dispute is non-arbitrable.
• The claims raised by the petitioner are based on violation of criminal law and thus non-arbitrable.

The petitioner made the following counter-arguments:

• The criminal complaint filed by the respondent is a mere afterthought as the same has been lodged only after the filing of the petition for the appointment of the arbitrator.
• The respondent had itself admitted that the dispute is arbitrable and in fact unilaterally appointed the arbitrator, therefore, now it cannot resile from its earlier stand and contend that the dispute is non-arbitrable.
• The dispute between the parties is evenly covered by the arbitration clause and is purely private in nature, ergo, it should not be characterised as non-arbitrable.

Analysis by the Court

The Court observed that the respondent has not disputed the existence of the arbitration agreement or the dispute being governed by the clause and has merely contested the petition citing fraud in the execution of the agreement.

The Court observed that the respondent had itself appointed the arbitrator and it is only when the petitioner approached the Court for the appointment of the arbitrator that the respondent filed the criminal complaint.

The Court held that a question as to whether the arbitration agreement is vitiated by fraud should be left to the wisdom of the arbitrator who will be free to decide the same on the basis of the evidence and the Court exercising power under Section 11 of the A&C Act should not get into such a finding.

The Court held that merely because a criminal complaint has been lodged against the petitioner for the alleged fraud is not a ground to refer the parties to arbitration when the dispute is squarely and undisputedly covered by the arbitration clause.

The Court also held that once the respondent had itself appointed an arbitrator but the appointment was bad in law for being unilateral in nature, it cannot later object to the appointment of the neutral arbitrator by the court citing fraud in the execution of the agreement unless the same is evident or established.

Accordingly, the Court allowed the petition and appointed a sole arbitrator to adjudicate the dispute between the parties.

Case Title: JRA INFRATECH v. ENGINEERING PROJECTS (INDIA) LIMITED

Citation: 2023 LiveLaw (Del) 872

Date: 11.09.2023

Counsel for the Petitioner: Mr. Akshat Bajpai, Ms. Ishanee Sharma and Mr. Shobit Trehan

Counsel for the Respondent: Mr. Debarshi Bhadra

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