In CIVIL APPEAL NO. 1359 OF 2023-SC- All jurisdictional issues including existence and validity of arbitration clause can be gone into by Arbitral Tribunal, rules Top Court
Justice Aniruddha Bose & Justice Sudhanshu Dhulia [15-12-2023]

Read Order: SUSHMA SHIVKUMAR DAGA & ANR v. MADHURKUMAR RAMKRISHNAJI BAJAJ & ORS

Tulip Kanth

New Delhi, December 18, 2023: While observing that the Arbitral Tribunal is competent to decide on its own competence, the Supreme Court has dismissed a challenge against a Trial Court’s order whereby the matter pertaining to a conveyance deed was referred to arbitration.

The factual scenario of this case was that the M/s Emerald Acres Private Limited (respondent no. 2) was incorporated by Late Mr. Shivkumar Daga and his wife, Mrs. Sushma Shivkumar Daga (appellant no.1) to carry on the business of real-estate development. Subsequently, two Tripartite Agreements were signed between Shivkumar Daga (SD), Madhurkumar Ramakrishnaji Bajaj & Ors. (MB) and M/s. Emerald Acres Private Limited (EAPL) to develop, trade, and deal with the property and also to acquire such further properties as may be mutually agreed between the parties. Both the Tripartite Agreements dated 31.03.2007 and 25.07.2008 contained an arbitration clause.

After the death of Shivkumar Daga, the appellants i.e., SD’s wife and his son then filed a suit seeking, inter alia, a declaration that the Deed of Conveyance dated 17.12.2019 be declared null and void, and that the Development Agreements entered into pursuant to the two Tripartite Agreements be declared validly terminated.

The Conveyance Deed dated 17.12.2019 sought to be declared void and the five Development Agreements dated 17.09.2007, 20.11.2007, 30.11.2007, 03.12.2007 and 27.02.2008 sought to be declared as validly terminated by the appellants, all had their source in the two Tripartite Agreements.

The respondents/defendants moved an application under Section 8 of the Arbitration & Conciliation Act, for referring the matter to arbitration by relying upon the arbitral clause in the two agreements dated 31.03.2007 and 25.07.2008.

It was contended that the aforesaid agreements formed the basis of the Conveyance Deed and the Development Agreements which were the subject matter of the suit. The Trial Court allowed the application of the defendant and referred the matter for arbitration. This order was challenged in Writ Petition by the appellants / plaintiffs before the Bombay High Court, which was dismissed. Aggrieved by these two orders, the appellants / plaintiffs approached the Top Court.

The core question before the Division Bench of Justice Aniruddha Bose & Justice Sudhanshu Dhulia was whether the Trial Court and the High Court had rightly referred the matter to arbitration or the dispute was of such a nature that it was not liable to be referred to arbitration, as there was no arbitration clause in the Conveyance Deed dated 17.12.2019 or if there was, yet the matter was not arbitrable.

“All jurisdictional issues including the existence and the validity of an arbitration clause can be gone into by the Arbitral Tribunal”, the Bench said while further addin    g, “The Arbitral Tribunal is competent to decide on its own competence.”

Noting that after the 2015 amendment, primarily the court only has to see whether a valid arbitration agreement exists, the Bench also referred to Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Other, in order to clarify that the clear non-arbitrability of cases, such as where a party to the agreement is statutorily protected, such as a consumer “has also to be seen by the Court”. Short of the narrow field stated above, the scope of judicial scrutiny at the stage of Section 11 (6) or Section 8 is extremely limited, the Bench further added.

Another objection pertained to the fact that the suit filed by the appellants was for cancellation of a document relating to immovable property i.e. land and it therefore amounted to an action in rem and hence arbitration was not the remedy. Relying upon Deccan Paper Mills v. Regency Mahavir Properties, the Bench observed that an elaborate analysis on this issue was done therein and it was held that whether it is a suit for cancellation of a deed or a declaration of rights rising from the deed, it would only be an action in personam and not in rem

On the issue of fraud, the Bench opined that the plea of fraud raised by the appellants in their objection to the Section 8 application had never been substantiated and except for making a bald allegation of fraud there was nothing else.

Reiterating that a plea of fraud must be serious in nature in order to oust the jurisdiction of an Arbitrator, the Bench also referred to Rashid Raza v. Sadaf Akhtar, wherein the Top Court has mentioned two conditions which must be satisfied before the Court can refuse to refer the matter to the Arbitrator. The first is whether the plea permeates the entire contract and above all, the arbitration agreement, rendering it void or secondly, whether the allegation of fraud touches upon the internal affairs of the parties inter se having no implication in the public domain

Noting that in the present case, there was absolutely no ambiguity that both the Tripartite Agreements contained an arbitration clause, which formed the basis of all subsequent agreements including the agreements sought to be declared as validly terminated by the appellants and the conveyance deed sought to be declared as null and void, the Bench came to the conclusion that both the trial court as well as the High Court had given a correct finding on facts as well as on law.

Thus, finding no scope for interference in the matter, the Bench dismissed the appeal.