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High Court Of Delhi
VIJAY VISHWANATH TALWAR - Appellant
Versus
MASHREQ BANK, PSC - Respondent
L.A. 8013 of 2003
Decided On : 10/17/2003
Arbitration Agreement - Validity - Arbitration and Conciliation Act, 1996 - Section 16, Section 8, Section 5 - Konkan Railway Corporation Ltd. v. Rani Construction Pvt, Ltd., Union of India v. M/s. Popular Construction Co., A G. Vaitra v. State Trading Corporation, Olympus Super Structure Pvt. Ltd. v. Meena Vijay khaitan, M/s. Harike Rice Mills v. State of Punjab, Punjab State Co-operative Supply and marketing Federation v. M/s. Shiv Rice and General Mills, Sita Holiday Resorts Ltd. v. Mohan Lal Harbans Lal Bhayana and Co., Kalpana Kothari v. Sudha Yadav, P. Anand Gajapati Raju v. P. V. G. Raju, Hindustan petroleun Corpn. Ltd. v. Pinkcity Midway Petroleums, Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and anr., ITI Ltd. v. Siemens Public Communications Network Ltd., Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. - The court discussed the validity and existence of the Arbitration Agreement between the parties in light of Section 16, Section 8, and Section 5 of the Arbitration and Conciliation Act, 1996. The court considered various judgments and emphasized the distinction between the powers vested in a Civil Court under section 8 and those under Section 11 of the Act. It held that while a Civil Court must ordinarily refer the parties to Arbitrator, in certain rare and exceptional cases, it may decline to refer the parties to Arbitrator if it finds that the arbitration Agreement is forged, fabricated, or invalid. The court also highlighted that the subject matter of the suit was not fully covered by the arbitration Agreement, and the Arbitrator would have no jurisdiction to adjudicate all the controversies. The court dismissed the application under Section 8 read with Section 5 of the Act and declined to refer the parties to Arbitration.
Fact of the Case:
The plaintiff filed a suit seeking a declaration that the Memorandum of Understanding dated 2nd July, 2003, containing an arbitration Clause, was obtained under duress and coercion. The plaintiff also claimed damages and injunctions against the defendants. The defendants contended that the suit should be stayed as the Memorandum of Understanding contained an Arbitration Clause.
Finding of the Court:
The court found that the Memorandum of Understanding was obtained from the plaintiff under pressure, coercion, and duress, and the subject matter of the suit was not fully covered by the arbitration Agreement. The court dismissed the application under Section 8 read with Section 5 of the Act and declined to refer the parties to Arbitration.
Issues: Validity and existence of the Arbitration Agreement, jurisdiction of the Civil Court, and the scope of disputes covered by the arbitration Agreement.
Ratio Decidendi: The court emphasized that while a Civil Court must ordinarily refer the parties to Arbitrator, in certain rare and exceptional cases, it may decline to refer the parties to Arbitrator if it finds that the arbitration Agreement is forged, fabricated, or invalid. The court also highlighted that the subject matter of the suit was not fully covered by the arbitration Agreement, and the Arbitrator would have no jurisdiction to adjudicate all the controversies.
Final Decision: The court dismissed the application under Section 8 read with Section 5 of the Act and declined to refer the parties to Arbitration.
( 1 ) IN this application under Section 8 read with Section 5 of the arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act only), the main question raised before the Court is as to whether in the face of Section 16 of the act, this Court can embark upon or not an inquiry into the existence or validity of an Arbitration Agreement between the parties.
( 2 ) THE facts relevant for the disposal of this application, briefly stated, are that the plaintiff has filed a suit for a declaration that the Memorandum or Understanding dated 2nd July, 2003, between him and defendant No. 1, which contains an arbitration Clause, is void ab initio and honest. Besides declaration, the plaintiff claims damages also from all the three defendants and a permanent injunction against defendant No. 1 to restrain it from presenting the post-dated cheques for encashment. He also claims mandatory injunction commanding defendant No. 1 to return the post-dated cheques to the plaintiff, According to the plaintiff, the aforesaid Memorandum of Understanding as well as post-dated cheques were obtained from him by the defendants in furtherance of a conspiracy under which the plaintiff was got arrested from his house on 2nd July, 2003 and thereafter confined at Police Station Connaught Place, New Delhi, in pursuance of non- bailable warrants obtained against him by defendant No. 1, from the Court of CJM, ahmednagar, Maharashtra. It is pleaded that under threats of incarceration, removal to Ahmednagar in custody and confining him in jail for long, the plaintiff was forced to agree to pay to defendant No. 1 a sum of Rs. 60 lacs in full and final settlement of the alleged claims of defendant No. 1 and was also compelled to sign the aforesaid Memorandum of Understanding and deliver a Pay Order of Rs. 5 lacs in favour of defendant No. 1. The plaintiff alleged that the atmosphere of the police station, the tone and tenor of the threats held out by defendant No. 2, who was acting on the instructions of defendant No. 1, the fear of loss of social and business reputation and apprehension of bodily and mental injury, compelled him to do whatever the defendants were asking for. According to him, the Memorandum of understanding dated 2nd July, 2003, was already typed and ready, and he had no opportunity to read, understand or appreciate its contents before putting his signatures thereon because mentally and physically he was fully under the control and domination of the defendants. In the plaint, details were given as to how after the signing of the aforesaid Memorandum of Understanding, issuance of a Pay order and eight post-dated cheques, the defendant No. 2 agreed before the Court of ACMM, New Delhi as well as CJM, Ahmednagar, to release the plaintiff on bail in criminal case in which non-bailable warrants had been obtained from the Court of CJM, Ahmednagar.
( 3 ) IN the application under consideration, moved by the defendant Nos. 1 and 2, the allegations made by the plaintiff have been controverted and it is asserted that the plaintiff, who had run away from UAE after obtaining a loan from defendant no. 1 /bank had signed the aforesaid Memorandum of Understanding voluntarily and out of his free volition and since the said Memorandum of Understanding contains an Arbitration Clause also the proceedings in the present suit are liable to be stayed. In the course of arguments, it was pointed out that the defendant No. 1 had already appointed the named Arbitrator who had entered upon the reference.
( 4 ) 1 have heard learned Counsel for applicant/defendant Nos. 1 and 2 and learned Counsel for the plaintiff. I have gone through the records.
( 5 ) LEARNED Counsel for defendant Nos. 1 and 2 has contended that in view of section 16 of the Act. The Arbitrator alone can determine questions relating to validity and existence of the Arbitration Agreement between the parties. Referring to Section 5 of the Act, he has argued that this Court must no
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