2016 Supreme(SC) 816

SUPREME COURT OF INDIA
A.K. SIKRI, D.Y. CHANDRACHUD, JJ.
A. Ayyasamy – Appellant
Versus
A. Paramasivam & Ors. – Respondents
Civil Appeal Nos. 8245-8246 of 2016 [Arising out of SLP(C) Nos. 16250-16251 of 2015]
Decided On : 04-10-2016

IMPORTANT POINTS
A mere allegation of fraud in the present case was not sufficient to detract from the obligation of the parties to submit their disputes to arbitration.
In application filed u/s 8 the court has to pronounce upon arbitrability or non-arbitrability of the disputes.
Judgment u/s 11, though judicial, does not have precedential value.
Nothing is as destructive of legitimate commercial expectations than a state of unsettled legal precept.
Disputes relating to rights in rem are not arbitrable. Disputes relating to rights in personam are amenable to arbitration.
If an arbitration agreement exists, the judicial authority is under a positive obligation to refer parties to arbitration. There is no element of discretion left in the court or judicial authority to refuse recourse to arbitration.
Commercial entities and persons of business enter into arbitration agreement with knowledge of efficacy of the arbitral process. Duty of the court is to impart to that commercial understanding a sense of business efficacy.

Headnote:Per A.K. Sikri, J.

       (a) Arbitration and Conciliation Act, 1996 – Sections 5, 16 and 34 – Section 5 bars judicial intervention scuttling the arbitration proceedings – Section 6 provides that all disputes including jurisdictional shall be adjudicated by the tribunal – Any party to the dispute is not allowed to rush to the Court for adjudication – Recourse to section 34 becomes available only after final adjudication by the tribunal. (Para 7)

       (2012) 5 SCC 214 – Relied upon

       (b) Arbitration and Conciliation Act, 1996 – Section 8 – Suit filed by plaintiff – Defendant questioning maintainability of the suit on the ground of arbitration clause – Court has to pronounce upon arbitrability or non-arbitrability of the disputes. (Para 8)

       (c) Arbitration law – Non arbitrable disputes – Arbitration and Conciliation Act not categorising any dispute as non-arbitrable – However, Courts have held certain types of disputes as non-arbitrable – Fraud is one such category – Where fraud is charged, generally reference to arbitration will be refused – But where the objection to arbitration is by a party charging the fraud, the Court will not necessarily accede to it unless a prima facie case of fraud is proved – However mere allegation of fraud in the pleadings by one party against the other cannot be a ground to refuse arbitration. (Para 10, 11, 13, 20)

       (2010) 1 SCC 72; (2011) 8 SCC 613; AIR 1962 SC 406; (1880) 14 Ch D 471; (2000) 4 SCC 539; (2003) 6 SCC 503; (2011) 5 SCC 532 – Relied upon

       (d) Arbitration and Conciliation Act, 1996 – Section 11 – Judgment under section 11, though judicial, does not have precedential value – Hence Swiss Timing Ltd. cannot be deemed to overrule N. Radhakrishnan. (Para 19)

       (2015) 1 SCC 32; (2005) 8 SCC 618 – Relied upon

       (2010) 1 SCC 72; (2014) 6 SCC 677 – Referred

       (e) Arbitration and Conciliation Act, 1996 – Section 8 – Instantly the allegations of fraud levelled are that the appellant had signed and issued a cheque of Rs. 10,00,050/-dated 17.06.2010 of 'Hotel Arunagiri' in favour of his son without the knowledge and consent of the other partners i.e. the respondents; and daily collections are not deposited in the bank accounts – These are mere matter of accounts which can be looked into and found out even by the arbitrator – It does not involve any complex issue – Application u/s 8 ought not have been rejected. (Para 21, 22)

       Per D.Y. Chandrachud, J. (concurring)

       (f) Administration of Justice – Need for finality of legal issues – Issues of fraud in regard to abitrability of disputes needs to be resolved conclusively – Nothing is as destructive of legitimate commercial expectations than a state of unsettled legal precept. (Para 2)

       (g) Administration of Justice – Arbitrability of disputes – Disputes relating to rights in rem are not arbitrable – Disputes relating to rights in personam are amenable to arbitration – Generally a dispute capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration – However, if the jurisdiction of an ordinary civil court is excluded by conferring exclusive jurisdiction on a specified court or tribunal, such a dispute would not be capable of resolution by arbitration. (Para 6, 9)

       (2011) 5 SCC 532; (2016) SCC OnLine SC 825; (1981) 2 SCR 466; (2000) 5 SCC 294; (2012) 2 SCC 506; (2015) 1 WBLR (SC) 385 – Relied upon

       (h) Arbitration and Conciliation Act, 1996 – Section 8 – If an arbitration agreement exists, the judicial authority is under a positive obligation to refer parties to arbitration – There is no element of discretion left in the court or judicial authority to refuse recourse to arbitration. (Para 14)

       (i) Arbitration and Conciliation Act, 1996 – Section 8 – Fraud – Mere allegation of fraud will not exclude arbitrability – Serious issue of fraud involving criminal wrongdoing would, however, exclude arbitrability. (Para 14)

       (2010) 1 SCC 72; (2000) 4 SCC 539; (2003) 6 SCC 503; AIR 2015 SC 1303; (2009) 10 SCC 103 – Relied upon

       [2007] 1 All E R (COMM) 891 – Referred

       (j) Arbitration law – Arbitration agreement – Commercial entities and persons of business enter into arbitration agreement with knowledge of efficacy of the arbitral process – Duty of the court is to impart to that commercial understanding a sense of business efficacy. (Para 16)

       546 U.S. 440 (U.S.S.Ct.2006); 388 US 395 (U.S. S.Ct. 1967); 465 U.S. 1 (1984) – Referred

       Facts of the case:

       The parties to this lis, who are brothers, had entered into a deed of partnership dated 01.04.1994 for carrying on hotel business and this partnership firm has been running a hotel with the name 'Hotel Arunagiri' located at Tirunelveli, Tamil Nadu. Some disputes arose out of the said partnership deed between the parties. Partnership Deed contains an arbitration clause i.e. Clause (8) which stipulates resolution of disputes by means of arbitration.

       Notwithstanding the same, the respondents herein have filed a civil suit seeking a declaration that as partners they are entitled to participate in the administration of the said hotel. Relief of permanent injunction restraining the defendant (appellant herein) from interfering with their right to participate in the administration of the hotel has also been sought.

       The appellant, after receiving the summons in the said suit, moved the application under Section 8 of the Arbitration and Conciliation Act, 1996 raising an objection to the maintainability of the suit in view of arbitration agreement between the parties as contained in clause (8) of the Partnership Deed.

       The trial court dismissed the application of the appellant herein relying upon the judgment in N. Radhakrishnan.

       The appellant preferred revision petition before the High Court which was dismissed following the dicta in the case of N. Radhakrishnan.

       Whether the aforesaid view of the High Court in following the dicta laid down in the case of N. Radhakrishnan, in the facts of this case, is correct or not, is the question that needs determination in the instant appeal.

       Finding of the Court:

       A mere allegation of fraud in the present case was not sufficient to detract from the obligation of the parties to submit their disputes to arbitration.

       Result:

       Appeal allowed.