{"id":237995,"date":"2011-01-07T00:00:00","date_gmt":"2011-01-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ivory-properties-hotels-pvt-ltd-vs-nusli-neville-wadia-on-7-january-2011"},"modified":"2015-07-26T21:53:19","modified_gmt":"2015-07-26T16:23:19","slug":"ivory-properties-hotels-pvt-ltd-vs-nusli-neville-wadia-on-7-january-2011","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ivory-properties-hotels-pvt-ltd-vs-nusli-neville-wadia-on-7-january-2011","title":{"rendered":"Ivory Properties & Hotels Pvt. Ltd vs Nusli Neville Wadia on 7 January, 2011"},"content":{"rendered":"
Bombay High Court<\/div>\n
Ivory Properties & Hotels Pvt. Ltd vs Nusli Neville Wadia on 7 January, 2011<\/div>\n
Bench: Dr. D.Y. Chandrachud<\/div>\n
    vbc                                  1                  arbap123.08-7.1\n\n\n             IN THE HIGH COURT OF JUDICATURE AT BOMBAY\n\n\n\n\n                                                                                   \n                                      O. O.C. J.\n\n\n\n\n                                                           \n                 ARBITRATION APPLICATION NO.123 OF 2008\n\n\n    Ivory Properties & Hotels Pvt. Ltd.                ...Applicant.\n\n\n\n\n                                                          \n               Versus\n    Nusli Neville Wadia.                               ...Respondent.\n                         .......\n    Mr.I.M.Chagla,   Sr.Advocate   with   Mr.Tushad   Cooper,   Ms.Hemlata \n\n\n\n\n                                               \n    Jain, Mr.Amey Nabar, Ms.Sukhada Wagle  i\/b.M\/s.Hariani & Co.  for \n    the  Applicant.             \n    Mr.Navroz Seevai, Sr.Advocate with Mr.Venkatesh  Dhond, Mr.Rohan \n    Kelkar,   Mr.Shrikant   Doijode,   Mr.Parag   Kabadi   and   Ms.Falguni \n    Thakkar i\/b.Doijode Associates for the Respondent.\n                               \n                         ......\n                         CORAM : DR. D.Y. CHANDRACHUD, J.\n<\/pre>\n
                                       January 7,  2011.\n<\/p>\n
    ORAL JUDGMENT :\n<\/p>\n
               This   is   an   application   under   Section     11(6)   of   the <\/p>\n
    Arbitration and Conciliation Act, 1996.\n<\/p>\n
    2.         An agreement was entered into between the Applicant and <\/p>\n
    the   Respondent   on   2   January   1995.       Under   the   agreement,   the <\/p>\n
    Applicant   undertook  to  develop   certain  immovable   property   and to <\/p>\n
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\n     vbc                                     2                    arbap123.08-7.1<\/p>\n
    sell the constructed  area,  for which  the Respondent  was to receive <\/p>\n
    12% in the amount realised from the sale.   Under the agreement, a <\/p>\n
    certain amount was guaranteed as a minimum guarantee payment for <\/p>\n
    a term of ten years.  The agreement contemplates that the Applicant <\/p>\n
    would be entitled to sell or transfer units in the constructed area  to <\/p>\n
    third parties.   The Respondent was to be entitled to receive all the <\/p>\n
    gross realizations from the disposal or transfer of the constructed area <\/p>\n
    so that 12% of the realization would be receivable directly from the <\/p>\n
    purchasers.   In this manner, 12% of the realization would belong to <\/p>\n
    the Respondent while the balance representing 88% would belong to <\/p>\n
    the Applicant.\n<\/p>\n
    3.          Disputes  and differences arose  between the parties  which <\/p>\n
    led to the institution by the Respondent, of a suit on the Original Side <\/p>\n
    of this Court  on 4 February 2008.   A criminal complaint  had been <\/p>\n
    instituted by the Respondent, in addition.   The reliefs that are sought <\/p>\n
    in   the   suit   include:   (i)   A   declaration   that   the   agreement   dated   2 <\/p>\n
    January 1995 stands vitiated by fraud and\/or stands duly determined <\/p>\n
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\n     vbc                                     3                    arbap123.08-7.1<\/p>\n
    with effect from 1 February 2008; (ii) A declaration that the Powers <\/p>\n
    of Attorney executed by the Respondent stand validly revoked; (iii) <\/p>\n
    An   injunction   restraining   the   Defendants   from   carrying   out   any <\/p>\n
    further   construction   on   the   suit   lands;   (iv)   A   declaration   that   the <\/p>\n
    Memorandum   of   Understanding\/Agreements   entered   into   by   the <\/p>\n
    Applicant   herein   with   several   other   parties   stand  rescinded;     (v)   A <\/p>\n
    decree for the removal and demolition of the structures put up on the <\/p>\n
    lands; and (vi) A decree for damages in the sum of  Rs. 350.99 crores.\n<\/p>\n
    Apart   from   the   Applicant,   who   has   been   impleaded   as     the   First <\/p>\n
    Defendant to the suit, the array of parties includes thirteen Companies <\/p>\n
    alleged to be controlled by the Applicant and several other entities.\n<\/p>\n
    4.          The case of the Respondent in the suit is that the Applicant <\/p>\n
    could develop segments of the land by constructing buildings thereon <\/p>\n
    and that the constructed areas could be transferred only to genuine <\/p>\n
    third parties against the payment of a 12% share to the Respondent.\n<\/p>\n
    The   allegation   of   the   Respondent   is   that   the   Applicant   constructed <\/p>\n
    buildings on the land and paid over   12% of a notionally computed <\/p>\n
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\n     vbc                                   4                    arbap123.08-7.1<\/p>\n
    consideration and that the transfers were effected not to genuine third <\/p>\n
    parties, but by incorporating Companies such as Defendant Nos.5 to <\/p>\n
    17.  Consequently, the payment of a 12% share to the Respondent is <\/p>\n
    allegedly   not   of   the   gross     realizations   as   contemplated   by   the <\/p>\n
    agreement,   but   on   the   basis   of   a   price   pre-determined   between <\/p>\n
    related parties.   The contention of the Respondent is that a fraud has <\/p>\n
    been practiced by the Applicant in purported implementation of the <\/p>\n
    agreement dated 2 January 1995.  It is on the basis of the averments <\/p>\n
    contained   in   the   plaint,   that   the   reliefs   which   have   been   sought <\/p>\n
    include a declaration that the agreement dated 2 January 1995 stands <\/p>\n
    vitiated by the fraud of Defendant Nos.1 to 4.\n<\/p>\n
    5.          The Applicant has taken out a Notice of Motion in the suit <\/p>\n
    under Section   8 of the Arbitration and Conciliation Act, 1996.   The <\/p>\n
    motion is pending before the Learned Trial Judge.\n<\/p>\n
    6.          Clause 19 of the Agreement dated 2 January 1995 contains <\/p>\n
    an arbitration agreement which is in the following terms:\n<\/p>\n
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     vbc                                   5                     arbap123.08-7.1<\/p>\n
              “19.         If   at   any   time   hereafter   any   dispute   and\/or
\n              difference shall arise between the Owner on the one hand <\/p>\n
              and the Company on the other hand, in respect of and\/or
\n              relating   to   this   Agreement   and\/or   the   implementation <\/p>\n
              thereof   and\/or   the   respective   rights,   obligations   and\/or
\n              responsibilities   of   the   respective   parties   and\/or   regarding
\n              the construction or interpretation of any term or provision
\n              hereof and\/or any other matter arising out of, concerning <\/p>\n
              or   touching   this   Agreement   or   such   development   project,
\n              the   same   shall   be   referred   to   the   sole   Arbitration   of   (a)
\n              Mr.Aziz  H.Parpia (Solicitor) (of M\/s.A.H.Parpia & Co.) or
\n              failing   him(b)   Mr.N.V.Iyer   (Chartered-Accountant)   (of <\/p>\n
              M\/s.C.C.Choksi   &   Co.).     The   decision   and\/or   directions
\n              and\/or Award of such Arbitrator, shall be final and binding <\/p>\n
              on both the parties.  It is clarified that such Arbitrator shall
\n              be entitled to give interim directions and\/or interim Awards
\n              as   may   from   time   to   time   be   considered   by   him   to   be <\/p>\n
              necessary or proper and the same shall be carried out and
\n              complied   with   by   the   respective   parties.     Such   Arbitrator
\n              shall   have   Summary   Powers.     The   provisions   of   the
\n              Arbitration   Act,   1940   and\/or   the   statutory   amendments <\/p>\n
              and\/or   re-enactment   thereof,   for   the   time   being   in   force,
\n              shall   apply   to   such   Arbitration.     The   parties   record   and <\/p>\n
              confirm that Mr.Aziz H.Parpia has been and continues to be
\n              the Solicitor for the parties in this and other matters and he
\n              is aware of the facts and matters set out in this Agreement.\n<\/p>\n
              Both parties have confidence in the impartiality of Mr.Aziz
\n              H.Parpia and have selected him as sole Arbitrator.”\n<\/p>\n
    7.        Three defences have been set forth to the application under <\/p>\n
    Section  11(6), during the course of the hearing: (i) In the suit which <\/p>\n
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\n     vbc                                   6                    arbap123.08-7.1<\/p>\n
    has been instituted by the Respondent against the Applicant, serious <\/p>\n
    allegations of fraud have been levelled against the Applicant.  In view <\/p>\n
    of the position of law settled by the Supreme Court, where serious <\/p>\n
    triable issues relating to fraud arise between  parties, these cannot be <\/p>\n
    a subject  of a reference to arbitration; (ii) The scope of the suit which <\/p>\n
    is   instituted   by   the   Respondent   is   wider   than   the   scope   of   the <\/p>\n
    reference  that  is sought  to arbitration.    The suit  inter alia includes <\/p>\n
    several corporate entities controlled by the C.L. Raheja Group who are <\/p>\n
    not parties to the arbitration agreement.  The bifurcation of the cause <\/p>\n
    of action  which arises in the suit is impermissible, nor can there be a <\/p>\n
    piece meal reference to arbitration; and (iii) Clause 19 of the contract <\/p>\n
    which contains an arbitration agreement contemplates a reference to <\/p>\n
    arbitration by either of two named Arbitrators.  Both of them declined <\/p>\n
    to act as such.   The intention of the parties was that the arbitration <\/p>\n
    should be conducted only by one of the two named Arbitrators and, if <\/p>\n
    they were not to enter upon the reference, parties implicitly intended <\/p>\n
    that there should be no arbitration at all.\n<\/p>\n
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     vbc                                      7                     arbap123.08-7.1<\/p>\n
    8.           On behalf of the Applicant it has been submitted that: (i) <\/p>\n
    The   scope   of   proceedings   under   Section     11(6)   only   extends   to <\/p>\n
    determine (a) Whether   the application has been filed before a High <\/p>\n
    Court having jurisdiction; (b) Whether there is a valid agreement to <\/p>\n
    refer   disputes   to   arbitration;   and     (c   )   Whether   there   is   a   dispute <\/p>\n
    arising   within   the   purview   of   the   arbitration   agreement;   (ii)   The <\/p>\n
    judgments of the Supreme Court indicate that it is only in a situation <\/p>\n
    where a party against whom an allegation of fraud is made opts to <\/p>\n
    proceed to a trial in a Civil Court that an objection to a reference to <\/p>\n
    arbitration can be maintained at the behest of such a party.  In other <\/p>\n
    words, a party which levels an allegation of fraud cannot be heard to <\/p>\n
    urge that those allegations should be considered only before the Civil <\/p>\n
    Court and not in arbitration.  Such a defence is only open to a party <\/p>\n
    against   whom  an  allegation   of  fraud  is made;   (iii)  It  is  only   in  an <\/p>\n
    application under Section   8 that it would be open to the Court to <\/p>\n
    consider as to whether the allegations of  fraud are of such nature and <\/p>\n
    character that parties should not be directed to refer their disputes to <\/p>\n
    arbitration.   What   is   permissible   for   the   Court   to   consider   in   an <\/p>\n
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\n     vbc                                    8                    arbap123.08-7.1<\/p>\n
    application   under   Section     8,   would   not   be   permissible   in   an <\/p>\n
    application   under   Section   11,   considering   the   parameters   of   the <\/p>\n
    jurisdiction under Section  11; (iv) If an agreement stands vitiated by <\/p>\n
    fraud, then the entirety of the agreement has no existence in the eyes <\/p>\n
    of law and it is only a defence of that nature which can be considered <\/p>\n
    in   an   application   under   Section     11.     In   the   present   case,   the <\/p>\n
    allegation is that the agreement dated 2 January 1995 was vitiated as <\/p>\n
    a result of a fraud practiced in the implementation of the contract.\n<\/p>\n
    This   is   not   a   situation   where   the   agreement   at   its   inception   was <\/p>\n
    vitiated by fraud.  An objection of this nature cannot be a ground to <\/p>\n
    refuse a reference to arbitration on an application under Section  11.\n<\/p>\n
    9.           The rival submissions now fall for determination.\n<\/p>\n
    10.          The   power   which   the   Chief   Justice   or   his   designate <\/p>\n
    exercises under Section  11 is  judicial.  This is  settled in view of the <\/p>\n
    decision of the Supreme Court in  SBP & Co. vs. Patel Engineering <\/p>\n
    Ltd.1  The   judgment   of   the   Supreme   Court   emphasizes   the <\/p>\n
    1 (2005) 8 SCC 618<\/p>\n
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\n     vbc                                       9                     arbap123.08-7.1<\/p>\n
    complementary nature of the provisions of Sections 8 and 11.   The <\/p>\n
    Court observed that where there is an arbitration agreement between <\/p>\n
    the   parties,   and   while   a   party   ignoring   it   files   an   action   before   a <\/p>\n
    judicial   authority   and   the   other   party   raises   an   objection   on   the <\/p>\n
    ground   of   the   existence   of   an   arbitration   agreement,   the   judicial <\/p>\n
    authority   has   to   consider   the   objection.     If   it   is   found   to   be <\/p>\n
    sustainable,   the   judicial   authority   is   bound   to   refer   parties   to <\/p>\n
    arbitration.     The   judicial   authority   is   bound   to   decide   the <\/p>\n
    jurisdictional issue before making or declining to make a reference.\n<\/p>\n
    Section 11 only covers another situation.   The Supreme Court noted <\/p>\n
    that   it   would   be   anomalous   if   it   was   to   be   held   that   while   the <\/p>\n
    jurisdictional   issue   would   be   decided   under   Section     8,   that   issue <\/p>\n
    could not be determined by the Chief Justice or his designate while <\/p>\n
    dealing with an application under Section   11.     The nature of the <\/p>\n
    objection is the same and the consequence of accepting the objection <\/p>\n
    in one case and rejecting it in another would obviously be the same <\/p>\n
    namely of sending  parties to arbitration.  The scope of the jurisdiction <\/p>\n
    on an application under Section   11 was dealt with by the Supreme <\/p>\n
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\n     vbc                                   10                    arbap123.08-7.1<\/p>\n
    Court.  The Supreme Court held that the Chief Justice or his designate <\/p>\n
    has to decide his own jurisdiction in the sense as to whether the party <\/p>\n
    making the motion has approached the right High Court.   The Chief <\/p>\n
    Justice or his designate has to similarly decide whether there is an <\/p>\n
    arbitration   agreement   as   defined   under   the   Act   and   whether   the <\/p>\n
    person   who   has   decided   to   seek   arbitration   is   a   party   to   the <\/p>\n
    agreement.   The Chief Justice or his designate could also decide the <\/p>\n
    question as to whether the claim was barred by time or whether the <\/p>\n
    dispute   has   been   resolved   by   recording   satisfaction   of   the     mutual <\/p>\n
    rights and obligations between the parties.\n<\/p>\n
    11.          The scope of an application under Section   11(6) and the <\/p>\n
    judgment of seven Judges in Patel Engineering came to be revisited <\/p>\n
    in   a   subsequent   judgment   of   the   Supreme   Court   in  National <\/p>\n
    Insurance Company Ltd. vs. Boghara Polyfab Private Limited.2    In <\/p>\n
    the<\/a> subsequent judgment, the Supreme Court has divided the issues <\/p>\n
    into three categories: the first category consists of issues which  must <\/p>\n
    be decided in an application under Section  11; the second set consists <\/p>\n
    2 (2009) 1 SCC 267<\/p>\n
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\n     vbc                                      11                     arbap123.08-7.1<\/p>\n
    of issues which  may  be decided on an application under Section   11 <\/p>\n
    and   the   third   set   consists   of   issues   which   the   Chief   Justice   or   his <\/p>\n
    designate must, in the considered exercise of his discretion, leave it <\/p>\n
    open   to   the   arbitral   tribunal.     Issues   in   the   first   category   are   (i) <\/p>\n
    whether a party making a motion moved the appropriate High Court;\n<\/p>\n
    (ii) whether there is an arbitration agreement; and (iii) whether the <\/p>\n
    party   who   has   moved   the   arbitration   application,   is  a   party   to   the <\/p>\n
    arbitration agreement.\n<\/p>\n
    12.          The question as to whether allegations of fraud which raise <\/p>\n
    serious triable issues can appropriately be referred to arbitration has <\/p>\n
    been   the   subject   matter   of   several   decisions   both   under   the   Act   of <\/p>\n
    1940   and   under   the   Act   of   1996.     In   a   case   which   involved   the <\/p>\n
    provisions of Section 20(4) of the Act of 1940, the submission which <\/p>\n
    had   been   made   before   the   Supreme   Court     in  Abdul   Kadir <\/p>\n
    Shamsuddin Bubere vs. Madhav Prabhakar Oak,3<\/a>  was that serious <\/p>\n
    allegations  of fraud have been generally held by the Court  to be a <\/p>\n
    sufficient ground for not ordering an arbitration agreement to be filed <\/p>\n
    3 AIR 1962 SC 406<\/p>\n
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\n     vbc                                    12                  arbap123.08-7.1<\/p>\n
    and for not making a reference.   Reliance in that regard was placed <\/p>\n
    on a decision of the Chancery Division in Russell vs. Russell.4   That <\/p>\n
    was a case where a notice  for the dissolution of a partnership was <\/p>\n
    issued by one of the partners upon which the other partner brought <\/p>\n
    an action alleging various charges of fraud and seeking a declaration <\/p>\n
    that the notice of dissolution was void.  The partner who was charged <\/p>\n
    with fraud sought a reference to arbitration.  The Court held that in a <\/p>\n
    case where fraud is charged, the Court will in general refuse to send <\/p>\n
    the dispute to arbitration if the party charged with the fraud desires a <\/p>\n
    public enquiry.   But where the objection to arbitration is by a party <\/p>\n
    charging the fraud,   the Court will not necessarily accede to it and <\/p>\n
    would never do so unless a prima facie case of fraud was proved.   In <\/p>\n
    the context of the submission which was made before it, the Supreme <\/p>\n
    Court observed as follows:\n<\/p>\n
                 “There is no doubt that where serious allegations of fraud
\n                 are made against a party and the party who is charged with
\n                 fraud desires that the matter should be tried in open court, <\/p>\n
                 that would be a sufficient cause for the court not to order
\n                 an arbitration agreement to be filed and not to make the
\n                 reference.  But it is not every allegation imputing some kind
\n                 of   dishonesty,   particularly   in   matters   of   accounts,   which <\/p>\n
    4 (1880) 14 Ch.D. 471<\/p>\n
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\n     vbc                                     13                    arbap123.08-7.1<\/p>\n
                would be enough to dispose a court to take the matter out
\n                of the forum which the parties themselves have chosen.”  <\/p>\n
    13.         The   Supreme   Court   held   that   it   is   only   where   serious <\/p>\n
    allegations of fraud are made which it is desirable, should be tried in <\/p>\n
    open Court that the Court would be justified in refusing to make a <\/p>\n
    reference.     In   the   case   before   the  Supreme   Court,   a  civil   trial   was <\/p>\n
    opted by the party against whom allegations of fraud  were levelled.\n<\/p>\n
    The  Supreme Court has not however laid down that it is  only  at the <\/p>\n
    behest of a party against whom allegations of fraud have been made that <\/p>\n
    the Court would direct that a serious triable issue of fraud be resolved <\/p>\n
    at a trial before a Court.\n<\/p>\n
    14.         A   similar   issue   came   up   for   consideration   before   the <\/p>\n
    Supreme   Court   in   a   subsequent   decision   in  N.Radhakrishnan   vs. <\/p>\n
    Maestro Engineers.5     In that case, the Respondent had instituted a <\/p>\n
    suit   against   the   Appellant   upon   which   the   Appellant   filed   an <\/p>\n
    application under Section  8 of the Act of 1996.  The application was <\/p>\n
    5 (2010) 1 SCC 72<\/p>\n
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\n     vbc                                    14                   arbap123.08-7.1<\/p>\n
    dismissed  by the  trial  Court  which  was  affirmed  in  revision  by  the <\/p>\n
    High Court. It was urged before the Supreme Court on behalf of the <\/p>\n
    Appellant that where there is an express provision to that effect, the <\/p>\n
    Civil Court was bound to refer   disputes between the parties to an <\/p>\n
    arbitrator.  On the other hand, it was urged before the Supreme Court <\/p>\n
    by the Respondent that where a case involved   substantial questions <\/p>\n
    relating to  facts where detailed material evidence, both documentary <\/p>\n
    and oral, was needed to be produced by either parties, and serious <\/p>\n
    allegations of malpractice were raised, the matter must be tried in a <\/p>\n
    Court and an arbitrator is not competent to deal with such matters <\/p>\n
    which involved an elaborate production of evidence to establish the <\/p>\n
    claims relating to fraud and criminal misappropriation.  The Supreme <\/p>\n
    Court   observed   that   the   High   Court   had  rightly  come   to   the <\/p>\n
    conclusion   that   since   the   case   related   to   allegations   of   fraud   and <\/p>\n
    serious malpractices on the part of the Respondent , such a situation <\/p>\n
    can only be settled in Court through furtherance of  detailed evidence <\/p>\n
    by either parties and such a situation cannot be properly gone into by <\/p>\n
    the arbitrator.  The Supreme Court cited with approval, the following <\/p>\n
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\n     vbc                                     15                    arbap123.08-7.1<\/p>\n
    statement of law contained in the judgment of the Madras High Court <\/p>\n
    in Oomor Sait v. O.Aslam Sait:6 <\/p>\n
                             “Power of civil court to refuse to stay of suit in
\n                 view of arbitration clause on existence of certain grounds
\n                 available   under   the   1940   Act   continues   to   be   available
\n                 under   the   1996   Act   as   well   and   the   civil   court   is   not <\/p>\n
                 prevented   from   proceeding   with   the   suit   despite   an
\n                 arbitration   clause   if   dispute   involves   serious   questions   of
\n                 law or complicated questions of fact adjudication of which
\n                 would   depend   upon   detailed   oral   and   documentary <\/p>\n
                 evidence.\n<\/p>\n
                            The   civil   court   can   refuse   to   refer   matter   to
\n                 arbitration if complicated question of fact or law is involved
\n                 or where allegation of fraud is made.\n<\/p>\n
                            Allegations   regarding   clandestine   operation   of
\n                 business   under   some   other   name,   issue   of   bogus   bills,
\n                 manipulation   of   accounts,   carrying   on   similar   business <\/p>\n
                 without consent of other partner are serious allegations of
\n                 fraud, misrepresentations etc. and therefore, application for <\/p>\n
                 reference to arbitrator is liable to be rejected.”\n<\/p>\n
    The   Supreme   Court   has,   therefore,   specifically   affirmed   the <\/p>\n
    correctness of the statement of law contained in this judgment of the <\/p>\n
    Madras High Court. The statement of law is that the Civil Court can <\/p>\n
    refuse to refer a matter to arbitration if serious questions of law or <\/p>\n
    6 (2001)3 CTC 269 (Mad)<\/p>\n
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\n     vbc                                   16                    arbap123.08-7.1<\/p>\n
    complicated   questions   of     fact   are   involved   adjudication   of   which <\/p>\n
    would depend upon detailed oral or documentary evidence or where <\/p>\n
    allegations of fraud are made.\n<\/p>\n
    15.          In one such case in an arbitration application which arose <\/p>\n
    under  Section     11   of   the   Arbitration   and  Conciliation   Act,   1996,   a <\/p>\n
    Learned Designated Judge of the Supreme Court in India Household <\/p>\n
    and   Healthcare   Ltd.   vs.   LG   Household   and   Healthcare   Ltd.,7<\/a> <\/p>\n
    declined to refer parties to arbitration.    Before the Supreme Court,  it <\/p>\n
    was   urged   on   behalf   of   the   Petitioner   that   once   an   arbitration <\/p>\n
    agreement   was   found   to   exist,   having   regard   to   the   provisions   of <\/p>\n
    Section 5, no judicial authority could exercise any jurisdiction in the <\/p>\n
    matter   and   the   Court   should   uphold   the   arbitration   agreement <\/p>\n
    between the parties.  On the other hand, it was urged on behalf of the <\/p>\n
    Respondent that in view of the decision of the Constitution Bench in <\/p>\n
    Patel   Engineering,   the   Court   was   obligated   to   enquire   into   the <\/p>\n
    question as to whether the entire agreement is vitiated by fraud as a <\/p>\n
    result whereof no valid agreement came into being.   Moreover, it was <\/p>\n
    7 (2007) 5 SCC 510<\/p>\n
                                                               ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                  17                    arbap123.08-7.1<\/p>\n
    urged that a fraud of grave magnitude having been committed, the <\/p>\n
    entire agreement would stand vitiated.   In this context, the Learned <\/p>\n
    Designated Judge observed as follows:\n<\/p>\n
              “It   is   also   no   doubt   true   that   where   existence   of   an
\n              arbitration   agreement   can   be   found,   apart   from   the <\/p>\n
              existence   of   the   original   agreement,   the   courts   would
\n              construe the agreement in such a manner so as to uphold
\n              the arbitration agreement.   However, when a question of fraud is
\n              raised, the same has to be considered differently. Fraud, as is well known,
\n              vitiates all solemn acts. A contract would mean a valid contract; an<\/p>\n
              arbitration agreement would mean an agreement which is enforceable in law.”
\n              (emphasis supplied).\n<\/p><\/blockquote>\n
    A similar view was taken by a Division Bench of this Court in  MSM <\/p>\n
    Satellite (Singapore) Pte. Ltd. vs. World Sport Group (Mauritius) <\/p>\n
    Ltd., (Appeal (Lodging) No.534 of 2010 in Notice of Motion No.1809 <\/p>\n
    of 2010 in Suit No.1828 of 2010), decided on 17 September 2010.\n<\/p>\n
    While adverting to the decisions which were cited before the Court on <\/p>\n
    behalf of the Respondent, the Division Bench held as follows:\n<\/p>\n
              “Even   in   the   decisions   that   have   been   brought   to   our
\n              notice … it has been held that in case of allegations of fraud <\/p>\n
              and serious malpractices on the part of the parties, such a
\n              situation can only be settled in Court through furtherance
\n              of   judicial   evidence   by   either   party   and   such   a   situation
\n              cannot be properly gone into by the Arbitrator.  The reason
\n              for this appears to be obvious.”\n<\/p><\/blockquote>\n
                                                              ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span><\/p>\n
     vbc                                    18                     arbap123.08-7.1<\/p>\n
    The Division Bench in that case further held as follows:\n<\/p><\/blockquote>\n
                “These decisions clearly indicate that when vital issues of
\n                fraud   and   public   policy   are   raised   and   when   interests   of
\n                third parties are involved and affected, then, the choice is
\n                not left to parties.    It is for the Court to determine as to <\/p>\n
                whether   it   will   allow   the   matters   to   be   gone   into   by   a
\n                domestic tribunal in confidentiality or whether they are fit
\n                to be decided by a Court of law in an open trial.  Once we
\n                reach   the   conclusion   that   when   the   issues   arising   out   of <\/p>\n
                fraud as raised in the present proceedings have a bearing on
\n                the position of BCCI in the game of cricket, the involvement <\/p>\n
                of the general public in the game and the television rights
\n                which are conferred for viewing the games by them, so also
\n                presence of BCCI being necessary, then, the matter is fit for <\/p>\n
                an open public trial by a Court of law.  That cannot be left
\n                to   be   decided   by   a   tribunal   chosen   by   parties.     The
\n                repercussions of allowing such matters to be decided by a
\n                domestic tribunal chosen by parties would be serious and in <\/p>\n
                the longer run affect the judicial process itself.   If such a
\n                course   is  permitted,  that  might   run  counter  to  the  object <\/p>\n
                and purpose of inserting Sections 23 and 28 in the Indian
\n                Contract Act, 1872.   In other words, the impact of all this
\n                on Indian laws would be tremendous.  We would be failing <\/p>\n
                in   our   duty   if   we   do   not   notice   the   same   and   take
\n                appropriate corrective steps.”\n<\/p><\/blockquote>\n<\/blockquote>\n
    16.         The   submission   which   has   been   urged   on   behalf   of   the <\/p>\n
    Applicant, however, is that it is only in the context of Section 8 of the <\/p>\n
    Arbitration   and   Conciliation   Act,   1996,   that   decided   cases   indicate <\/p>\n
                                                                ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                   19                    arbap123.08-7.1<\/p>\n
    that parties have not been referred to arbitration in a situation where <\/p>\n
    a serious allegation of fraud is made.   The law which has been laid <\/p>\n
    down by the Supreme Court in the decisions to which a reference has <\/p>\n
    been   made   earlier,   cannot   be   confined   to   proceedings   only   arising <\/p>\n
    under Section  8.  The observations which were made by the Supreme <\/p>\n
    Court   in   the   decision   in  Radhakrishnan’s  case   arose   out   of <\/p>\n
    proceeding in an application under Section   8.   The principle of law <\/p>\n
    which has been enunciated by the Supreme Court, cannot be confined <\/p>\n
    to the scope of an enquiry on an application under Section  8 of the <\/p>\n
    Act.   The   rationale   for   the   principle   extends   to   the   provisions   of <\/p>\n
    Section  11 as well.    Significantly,  the Supreme Court  has observed <\/p>\n
    that where allegations of fraud or of serious malpractices are made, <\/p>\n
    such a situation can only be settled in Court after leading evidence <\/p>\n
    and   cannot   fall   for   determination   by   an   arbitral   tribunal.     The <\/p>\n
    Supreme   Court   has   categorically   affirmed   the   correctness   of   the <\/p>\n
    statement of law contained in the judgment of the Madras High Court <\/p>\n
    that a Court would refuse to refer a matter to arbitration if serious <\/p>\n
    questions   of   law   or   complicated   questions   of   fact   are   involved   or <\/p>\n
                                                               ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                     20                    arbap123.08-7.1<\/p>\n
    where an allegation of fraud is levelled.  Now, it is necessary for the <\/p>\n
    Court to emphasize that it is not  every stray allegation of fraud which <\/p>\n
    would lead to the consequence of a refusal on the part of the Court to <\/p>\n
    refer   parties   to   arbitration.     The   law   certainly   is   not   that   on   an <\/p>\n
    isolated or stray reference to fraud without material particulars that <\/p>\n
    the   jurisdiction   to   refer   parties   to   arbitration   would   stand   ousted.\n<\/p><\/blockquote>\n
    Essentially, it is for the Court to determine whether having regard to <\/p>\n
    the nature of the allegations and the context in which allegations of <\/p>\n
    fraud have been levelled  parties must not be referred to arbitration.\n<\/p>\n
    The pleadings have to be scrutinised and each case must turn on a <\/p>\n
    judicious   exercise   of   power   by   the   Designated   Judge.       In   the   suit <\/p>\n
    which has been instituted by the Respondent against the Applicant, <\/p>\n
    serious allegations of fraud and malpractice have been levelled.  The <\/p>\n
    Respondent   has   in   the   back   drop   of   those   allegations   sought   a <\/p>\n
    declaration that the agreement dated 2 January 1995 is vitiated by <\/p>\n
    fraud.  Amongst the reliefs that are sought in the suit, is a declaration <\/p>\n
    that the Powers of Attorney executed by the Respondent stand validly <\/p>\n
    revoked.   The Respondent has sought an injunction not only against <\/p>\n
                                                                 ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                     21                    arbap123.08-7.1<\/p>\n
    the Applicant, but against several other entities controlled by the C.L.\n<\/p>\n
    Raheja   Group,   who   are   parties   to   the   suit   from   carrying   out   any <\/p>\n
    further construction activity on the suit land.   Those entities are not <\/p>\n
    parties to the arbitration agreement.  Hence,   the Court must also be <\/p>\n
    mindful of the circumstance that the allegations of fraud in the suit <\/p>\n
    are   also   linked   to   thirteen   other   corporate   entities   which   are   not <\/p>\n
    parties to the arbitration agreement.  In these circumstances. it is not <\/p>\n
    possible to accept the contention of the Applicant that the allegation <\/p>\n
    of   fraud   could   at   the   highest   be   considered   only   in   an   application <\/p>\n
    under Section  8 and not in the context of an enquiry under Section <\/p>\n
    11 of the Act.   Sections 8 and 11 are complementary and it would be <\/p>\n
    anomalous to hold that while the Court before which an application <\/p>\n
    under   Section     8   is   moved,   can   decline   to   refer   the   parties   to <\/p>\n
    arbitration where there are serious allegations of fraud, such a course <\/p>\n
    would   not   be   open   to   the   Chief   Justice   or   his   designate   while <\/p>\n
    exercising the jurisdiction under Section  11.\n<\/p>\n
    17.         For   all   these   reasons,   I   am   of   the   view   that   having   due <\/p>\n
                                                                 ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                    22                   arbap123.08-7.1<\/p>\n
    regard to the seriousness and the nature of the allegations of fraud <\/p>\n
    that have been levelled in the present case, serious triable issues arise <\/p>\n
    which ought to be determined before the Civil Court.\n<\/p>\n
    18.          Before concluding, it would be necessary to briefly refer to <\/p>\n
    the submission   which  has  been urged on  behalf of  the Respondent <\/p>\n
    that the  arbitration agreement in the present case, contemplated only <\/p>\n
    a reference to two named Arbitrators and that there would be no valid <\/p>\n
    arbitration where the two named Arbitrators  declined to act.  The law <\/p>\n
    on the subject is not  res integra.   In the context of the provisions of <\/p>\n
    Section 8(1)(b) of the Arbitration Act, 1940,   the Supreme Court in <\/p>\n
    Parbhat General Agencies vs. Union of India,8<\/a>   observed that if an <\/p>\n
    agreement is silent as regards supply of a vacancy, the law presumes <\/p>\n
    that   the   parties   intended   that   the   vacancy   be   supplied.     In   other <\/p>\n
    words, unless an arbitration agreement contains a positive affirmation <\/p>\n
    of the intention of  parties not to supply a vacancy, the Court would <\/p>\n
    not   draw   such   a   presumption.     This   view   was   reiterated   in   a <\/p>\n
    subsequent decision of the Supreme Court in  State of West Bengal <\/p>\n
    8 (1971) 1 SCC 79<\/p>\n
                                                               ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                     23                    arbap123.08-7.1<\/p>\n
    vs. National Builders.9     In the present case, parties contemplated <\/p>\n
    that the disputes and differences between them should be resolved by <\/p>\n
    arbitration by (i) A.H. Parpia, Solicitor; or failing him by (ii) N.V.Iyer <\/p>\n
    of C.C. Choksi & Co.  Both the Arbitrators declined to act, the first of <\/p>\n
    them on ground of health and the second on ground relating to his <\/p>\n
    professional standing.  Whatever be the reasons which prompted the <\/p>\n
    two Learned Arbitrators to decline to act as such, it is evident that <\/p>\n
    there was no intent, express or implicit,  on the part of the parties that <\/p>\n
    there would be no arbitration at all if either of the Arbitrators was not <\/p>\n
    ready   and   willing   to   act.     Section   14   of   the   Arbitration   and <\/p>\n
    Conciliation  Act,  1996, provides that the mandate  of the Arbitrator <\/p>\n
    shall terminate if he withdraws from his office or he becomes de jure <\/p>\n
    or de facto unable to perform the functions or for other reasons fails to <\/p>\n
    act without undue delay.    Sub-section (2) of Section 15 provides that <\/p>\n
    where   the   mandate   of   an   arbitrator   is   terminated,   a   substitute <\/p>\n
    Arbitrator   shall   be   appointed   according   to   the   Rules   that   were <\/p>\n
    applicable to the appointment of the Arbitrator being replaced.  In the <\/p>\n
    circumstances,   there   is   no   merit   in   this   ground   of   defence   that   is <\/p>\n
    9 (1994) 1 SCC 235<\/p>\n
                                                                 ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>
\n     vbc                                     24                    arbap123.08-7.1<\/p>\n
    urged on behalf of the Respondent.\n<\/p>\n
    19.         For the reasons indicated earlier, and having regard to the <\/p>\n
    serious triable issues that would arise as between the parties on the <\/p>\n
    allegations  of fraud   which have been levelled in the suit, it is not <\/p>\n
    possible   to   accept   the   prayer   that   is  made   before   the   Court   in   the <\/p>\n
    Application  under Section  11.   The Arbitration  Application shall, in <\/p>\n
    the   circumstances,   stand   dismissed.     There   shall   be   no  order   as   to <\/p>\n
    costs.\n<\/p>\n
                                                       ( Dr.D.Y.Chandrachud, J.)<\/p>\n
                                                                 ::: Downloaded on – 09\/06\/2013 16:44:50 :::<\/span>\n <\/p>\n","protected":false},"excerpt":{"rendered":"
Bombay High Court Ivory Properties & Hotels Pvt. Ltd vs Nusli Neville Wadia on 7 January, 2011 Bench: Dr. D.Y. Chandrachud vbc 1 arbap123.08-7.1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O.C. J. ARBITRATION APPLICATION NO.123 OF 2008 Ivory Properties & Hotels Pvt. Ltd. …Applicant. Versus Nusli Neville Wadia. …Respondent. ……. Mr.I.M.Chagla, Sr.Advocate […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[11,8],"tags":[],"class_list":["post-237995","post","type-post","status-publish","format-standard","hentry","category-bombay-high-court","category-high-court"],"yoast_head":"\nIvory Properties & Hotels Pvt. Ltd vs Nusli Neville Wadia on 7 January, 2011 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/ivory-properties-hotels-pvt-ltd-vs-nusli-neville-wadia-on-7-january-2011\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ivory Properties & Hotels Pvt. 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