A Party Cannot Dispute The Jurisdiction On Account Of Non-Existence Of The Arbitration Agreement After Submitting Of The Jurisdiction Of The Arbitrator: Delhi High Court

The Single Bench of Justice Vibhu Bakhru held that generally, the arbitration clause contained in the main agreement would also fall when the validity of the main agreement is challenged and the dispute would be non-arbitrable.

However, when a party agrees to refer the dispute to arbitration and chooses to dispute only the main agreement without laying any challenge to the arbitration clause, it is deemed to have waived its objections qua the arbitration clause and it cannot contend that the arbitrator had no jurisdiction to decide the dispute.

The Court held that the Court can have a 'second look' at the issue of arbitrability, however, it must be within the four corners of the limited grounds of interference under Section 34 of the A&C Act.

Facts

The parties entered into an agreement to sell (agreement) on 07.08.2014 whereby the petitioner agreed to sell a property to respondent for a consideration of Rs. 11 Crores. The agreement was entered into by Mr. Suninder Chawla (Respondent No. 2) on behalf of Respondent No. 1 who claimed to have witnessed the execution of the agreement via an online video call.

The respondents via a letter dated 24.01.2017 called upon the petitioner to execute a Conveyance Deed in its favour. The petitioner replied to the said letter and denied the execution of any such agreement.

The petitioner also filed a complaint with the police accusing the respondents of forging and fabricating documents in its name. Thereafter, the respondent invoked the arbitration clause and issued a Section 21 notice. The petitioner replied to the said notice and demanded a few documents and stated that if the arbitration was to proceed, it should be before a former judge of a High Court.

The Court passed an interim order in a Section 9 application preferred by the respondent restraining the petitioner from creating any third-party interest in the subject property. The Court also appointed an arbitrator in an application preferred by the respondent.

The respondent filed its claim before the arbitrator and prayed for specific performance of the contract, injunction against the respondent from acting contrary to the terms of the agreement and Interest on the advance payment along with litigation cost.

The respondent contested the claims of the petitioner and contended that its signature on the agreement to sell is forged and disputed its existence. However, it did not prefer any counter-claims.

The Award

The parties led extensive evidences and examined witnesses in support of their claims. After evaluating the material on record the arbitral tribunal allowed the claim of the respondent for specific performance of the agreement along with litigation cost.

The Grounds For Challenge

The petitioner challenged the award on the following grounds:

• The arbitral tribunal had no jurisdiction to decide the dispute as it involved serious questions of fraud and forgery. The petitioner had already filed an FIR pursuant to which a chargesheet is also filed, therefore, the dispute was non-arbitrable.
• That there were material contradictions in the version of the respondent.
• That in terms of the agreement the Conveyance Deed was to be executed within one year from the date of execution of the agreement, however, the respondent did not make any such request for three years which indicates that the agreement was forged and it was never executed.
• The value of the property is 55 Crores and it is impossible to assume that petitioner agreed to sell it for 11 Crores.
• The sum of Rs. 11 Crores was taken as a loan and as the parties had regular financial dealings no document of the same is available with the petitioner.

Analysis By The Court

The Court reiterated that merely because an FIR is filed would not make the dispute non-arbitrable.

The Court referred to the various decision of the Supreme Court to observe that it is only in cases where the existence of the arbitration agreement itself is challenged on the ground of fraud or forgery that the dispute would be non-arbitrable.

The Court held that it was open for the petitioner to resist the reference to arbitration. However, the petitioner participated in the appointment of the arbitrator and restricted its challenge to the principal agreement only. Therefore, the petitioner has waived its right to impeach the arbitration agreement by agreeing to proceed with the arbitration.

The Court held that by proceeding with the arbitration, the petitioner had submitted itself to the jurisdiction of the arbitral tribunal. Accordingly, the Court rejected the contention of the petitioner that the award is passed without jurisdiction since there was no arbitration agreement. The Court applied the doctrine of separability to observe that although the arbitration is contained as a clause in the main agreement it still exists on its own as a separate agreement.

The Court also referred to the Statement of Defence of the petitioner to observe that it had definitely submitted to the jurisdiction of the arbitrator as it only challenged the main agreement and had also claimed cost from the arbitrator.

The Court held that the contention of the petitioner regarding the non-existence of the arbitration agreement is inconsistent with its conduct.

The Court held that the Court can have a 'second look' at the issue of arbitrability, however, it must be within the four corners of the limited grounds of interference under Section 34 of the A&C Act.

The Court held that the finding of the arbitrator is based on the appreciation of the evidence. The tribunal accepted the report of the handwriting expert examined on behalf of the respondent to conclude that the petitioner had two patterns of signatures with natural and minor variations. The report of the hand expert was based on the signatures of the petitioner on several other documents. The tribunal rejected the report of the handwriting expert examined on behalf of the petitioner for the reason that it had several lacunas. Moreover, the respondent had examined both the witnesses to the agreement.

The Court rejected the argument of the petitioner that the sum of Rs. 11 Crores was received as a loan from the respondent. The Court had that the petitioner had neither paid any interest to the respondent nor deducted any income tax (TDS), which would have been necessary if the petitioner had paid or recognized his liability to pay any interest.

Accordingly, the Court dismissed the petition.

Case Title: Amrish Gupta v. Gurchait Singh Chima, O.M.P. (COMM) 68 of 2021

Citation: 2022 LiveLaw (Del) 512

Counsel for the Petitioner: Mr Samrat Nigam, Advocate with Mr Ashutosh Gupta, Mr Gaurav Rana, Mr Harshit Garg, Mr Saurabh Arora, Ms Lubhanshi Rai, Advocates.

Counsel for the Respondent: Mr Kanhaiya Singhal, Advocate and Mr Prasanna, Advocate

Click Here To Read/Download Order