Serious allegations of fraud and malpractice may lead to the refusal to refer parties to arbitration, and such issues should be determined before the Civil Court.

ORAL JUDGMENT: This is an application under Section 11(6) of the Arbitration and Conciliation Act, 1996.

2. An agreement was entered into between the Applicant and the Respondent on 2 January 1995. Under the agreement, the Applicant undertook to develop certain immovable property and to sell the constructed area, for which the Respondent was to receive 12% in the amount realised from the sale. Under the agreement, a certain amount was guaranteed as a minimum guarantee payment for a term of ten years. The agreement contemplates that the Applicant would be entitled to sell or transfer units in the constructed area to third parties. The Respondent was to be entitled to receive all the gross realizations from the disposal or transfer of the constructed area so that 12% of the realization would be receivable directly from the purchasers. In this manner, 12% of the realization would belong to the Respondent while the balance representing 88% would belong to the Applicant.

3. Disputes and differences arose between the parties which led to the institution by the Respondent, of a suit on the Original Side of this Court on 4 February 2008. A criminal complaint had been instituted by the Respondent, in addition. The reliefs that are sought in the suit include: (i) A declaration that the agreement dated 2 January 1995 stands vitiated by fraud and/or stands duly determined with effect from 1 February 2008; (ii) A declaration that the Powers of Attorney executed by the Respondent stand validly revoked; (iii) An injunction restraining the Defendants from carrying out any further construction on the suit lands; (iv) A declaration that the Memorandum of Understanding/Agreements entered into by the Applicant herein with several other parties stand rescinded; (v) A decree for the removal and demolition of the structures put up on the lands; and (vi) A decree for damages in the sum of Rs. 350.99 crores. Apart from the Applicant, who has been impleaded as the First Defendant to the suit, the array of parties includes thirteen Companies alleged to be controlled by the Applicant and several other entities.

4. The case of the Respondent in the suit is that the Applicant could develop segments of the land by constructing buildings thereon and that the constructed areas could be transferred only to genuine third parties against the payment of a 12% share to the Respondent. The allegation of the Respondent is that the Applicant constructed buildings on the land and paid over 12% of a notionally computed consideration and that the transfers were effected not to genuine third parties, but by incorporating Companies such as Defendant Nos.5 to 17. Consequently, the payment of a 12% share to the Respondent is allegedly not of the gross realizations as contemplated by the agreement, but on the basis of a price predetermined between related parties. The contention of the Respondent is that a fraud has been practiced by the Applicant in purported implementation of the agreement dated 2 January 1995. It is on the basis of the averments contained in the plaint, that the reliefs which have been sought include a declaration that the agreement dated 2 January 1995 stands vitiated by the fraud of Defendant Nos.1 to 4.

5. The Applicant has taken out a Notice of Motion in the suit under Section 8 of the Arbitration and Conciliation Act, 1996. The motion is pending before the Learned Trial Judge.

6. Clause 19 of the Agreement dated 2 January 1995 contains an arbitration agreement which is in the following terms: “19. If at any time hereafter any dispute and/or difference shall arise between the Owner on the one hand and the Company on the other hand, in respect of and/or relating to this Agreement and/or the implementation thereof and/or the respective rights, obligations and/or responsibilities of the respective parties and/or regarding the construction or interpretation of any term or provision hereof and/or any other matter arising out of, concerning or tou