Fake Arbitration In 'Film Shooting Set' Court Room, Madras High Court Cancels Award Directing Execution Of Sale Deed In Respect Of Stranger's Property

Before the Division Bench of Justice P.N Prakash and Justice S. Srimathy, the contentious matter was a sale deed on a property earlier given as security, registered in favour of the lender (Rajendran) for a 4 lakh rupees loan. The borrower was a local politician and upon a fabricated dispute, the parties resorted to the arbitration clause in the loan agreement.

Based on the findings and inferences made by the Court, the arbitration proceedings by the appointment of Advocate K. Rajaram was fake since it was the result of collusion between the parties. In the said arbitral proceedings at a 'make believe court room' in Dharmapuri with Government of India emblem, an arbitral award regarding the property of a stranger (K.S.Jagannathan's land measuring 8 acres and 16 cents), to which none of the parties before the tribunal had a lawful claim.

The writ petition was filed challenging the registration of said sale deed by K.S Jagannathan. Since K.S Jagannathan died during the pendency of the writ petition, his legal heirs were impleaded as petitioners.

"On a conspectus of the facts obtaining in this case, we find that a wholesale fraud has been committed in respect of K.S.Jagannathan's property… The arbitration proceedings appears to have been conducted by A.R.Chandran [A8], who was running an Arbitration Centre in the name of 'Asia - Pacific Arbitration Centre' with Government of India Emblem in Dharmapuri District, where Paneerselvam [A7] acted as bailiff. A.R.Chandran [A8] had with him two other accused, Kumar [A9] and Raja [A11], as his personal gunmen and they were given air gun to give credibility to their work… Thus, for perpetrating such huge frauds, these accused have established a make believe Court room in Dharmapuri District with Government of India emblem and other paraphernalia. In that film shooting set Court room, Rajaram [A4], Advocate, has sat as an arbitrator on the petition filed by Nagaraj [A1] and Rajendran [A2] and has passed an award on a totally stranger's [K.S.Jagannathan's] properties", the court said.

While holding the award and transaction as fraudulent and ab initio void, the court was also surprised that the Registrar, in May 2017, failed to check the fact that K.S.Jagannathan has registered the decree in respect of the very same property earlier. This is because K.S Jagannathan was declared as the absolute owner of 25 Acres land against Nagaraj [A1] and six other rival claimants in 2016, while also granting him permanent injunction in respect of the property covered by the fake arbitration award in question. K.S Jagannathan registered the decree with respect to the same property in the first month of 2017.

Relying on Meghmala and others v. G.Narasimha Reddy & Ors., (2010) 8 SCC 383, wherein the apex court disc used in detail about definition and preconditions to be met to constitute fraud, the bench observed as follows:

"In our opinion, when fraud is writ large in these transactions, the true owner of the property cannot be made to run from pillar to post. Extraordinary cases require extraordinary remedies… We consider this as one of the extraordinary cases inasmuch as an arbitration centre has been established in Dharmapuri to make ordinary people to believe that it is a regular Court and in that premises, an award has been passed in respect of the property of K.S.Jagannathan in an alleged money dispute between Nagaraj [A1] and Rajendran [A2]."

Accordingly, the writ petition was allowed, and therefore, the court directed the sub-registrar to cancel the sale deed in favour of Rajendran [A2], executed in May 2017. The sub registrar was also instructed to make appropriate entries in the encumbrance register so that the cancellation towards sale deed appears therein.

Case Title: K. J Sumathy,W/o.Late K.S.Jagannathan & Ors v. The District Registrar, Dharmapuri Registration District & Ors.

Case No: W.P No.27120 of 2018, W.M.P.Nos.12915 of 2020 and 31527 of 2018

Citation: 2022 LiveLaw (Mad) 21

Appearance: For Petitioners: Advocate A.Ilaya Perumal

For Respondents: Advocate V. Nanmaran Government Advocate [R1 & R2] Advocate R.Rajaramani [R3] Advocate M.Gnanasekar [R4]