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2020 Supreme(SC) 727

N.V.RAMANA, SANJIV KHANNA, KRISHNA MURARI
Vidya Drolia – Appellant
Versus
Durga Trading Corporation – Respondent


Advocates Appeared:
For the Appellant(s) : Mr. Manoj Swarup, Sr.Adv. Mr. Ajay Kumar, Adv. Mr. Sunit Shah, Adv. Mr. Pinakin M. Raval, Adv. Mr. Neel, Adv. Ms. Vidisha Swarup, Adv. Mr. Debajyoti Basu, Adv. Ms. Soumya Dutta, AOR Mr. Pankaj Jain, Adv. Mr. Ashok Kumar Jain, Adv. Mr. Bijoy Kumar Jain, AOR
For the Respondent(s): Mr. Nakul Dewan, Sr.Adv. Mr. Pradhuman Gohil, Adv. Ms. Taruna Singh Gohil, AOR Ms. Ranu Purohit, Adv. Ms. Tanya Srivastava, Adv. Ms. Jasleen Bindra, Adv. Mr. Sambit Nanda, Adv. Mr. Rohan Naik, Adv. Mr. Maninder Singh, Sr.Adv. Mr. Bijal H. Chhatrapati, Adv. Mr. Anjali Anchayil, Adv. Ms. Avni Sharma, Adv. Mr. Prabhas Bajaj, Adv. Mr. Dheeraj Nair, AOR Mr. T. R. B. Sivakumar, AOR

Judgement Key Points

Suggested Argument: Fraud Allegations Do Not Automatically Exclude Arbitration

Your Honor, mere allegations of fraud raised by the opposing party do not render the dispute non-arbitrable or invalidate the arbitration agreement. (!) A simple plea of fraud is insufficient; it must rise to the level of a virtual criminal offense, involve complex issues requiring voluminous evidence in a civil court, include serious forgery or fabrication of documents, target the arbitration provision itself, or permeate the entire contract such that the arbitration agreement is void. (!) Absent such exceptional circumstances, the dispute remains arbitrable, and the tribunal is competent to adjudicate. [1000735580046]

Even serious fraud claims must be tested against specific criteria: whether the plea undermines the entire contract and arbitration agreement, rendering it void ab initio, or merely concerns internal disputes between parties without broader public implications. (!) (!) Distinguish between fraud inducing the contract (potentially void under contract law principles) and post-formation fraud, which does not vitiate the agreement. (!)

The tribunal, like a court, is bound by public policy and mandatory law, ensuring robust resolution without preempting arbitration. [1000735580040] At this prima facie stage, absent clear evidence vitiating the arbitration clause itself, refer the matter to arbitration to uphold party autonomy and efficiency. (!) [1000735580046]


JUDGMENT :

SANJIV KHANNA, J.

This judgment decides the reference to three Judges made vide order dated 28th February, 2019 in Civil Appeal No. 2402 of 2019 titled Vidya Drolia and Others v. Durga Trading Corporation, 2019 SCC OnLine SC 358, as it doubts the legal ratio expressed in Himangni Enterprises v. Kamaljeet Singh Ahluwalia, (2017) 10 SCC 706 that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882, are not arbitrable as this would be contrary to public policy.

2. A deeper consideration of the order of reference reveals that the issues required to be answered relate to two aspects that are distinct and yet interconnected, namely:

    (i) meaning of non-arbitrability and when the subject matter of the dispute is not capable of being resolved through arbitration; and

    (ii) the conundrum – “who decides” – whether the court at the reference stage or the arbitral tribunal in the arbitration proceedings would decide the question of non-arbitrability.

The second aspect also relates to the scope and ambit of jurisdiction of the court at the referr


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