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2025 (8) TMI 485
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.... SLP (C) No. 11126 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10921 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10466 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11397 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11141 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10873 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11127 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11086 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10839 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11217 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11083 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11576 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10831 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10952 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 11092 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10819 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10869 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING....
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....F 2025 ARISING OUT OF SLP (C) No. 10922 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10750 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10748 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10835 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10540 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10499 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10772 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10842 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10521 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10517 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10549 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10574 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10840 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10742 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10802 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10573 OF 2020 WITH CIVIL APPEAL NO. OF 2025 ARISING OUT OF SLP (C) No. 10836 OF 2020 WITH CIVIL APPEA....
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....e centred around the issue of arbitrability in cases of serious fraud. We have considered this issue and laid down the principles that govern this issue. We have also considered the stage at which such questions are to be raised while considering an application under Section 11 of the Arbitration and Conciliation Act. Before we deal with these issues the necessary facts are as follows. II. Facts. 3. The appellant, Bihar State Food and Civil Supplies Corporation Hereinafter referred to as the 'Corporation', undertook the work of procurement of paddy from the farmers in the State of Bihar under a scheme evolved by the Food Corporation of India Hereinafter referred to as the 'FCI'. The scheme provided that the paddy procured by the Corporation from the farmers has to be converted into rice and the rice shall in turn be purchased by the FCI for distribution under PDS schemes. In furtherance of the scheme the appellant entered into agreements with various rice millers across the state for custom milling of paddy procured from the farmers. As per the agreement various quantities of paddy were allotted to the rice millers and they were to deliver rice quantified at 67% of the paddy supp....
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....on, i.e. Clause-15, the agreements contained Clauses 16 that provided for conciliation or Arbitration. It reads as under:- 16. In case of disputes both parties agree to settle the issue(s) on mutual discussion. Failure to reach agreement the matter will be referred to Arbitrator. It has been also agreed that the Arbitrator will be District Collector of the concerned District whose decision shall be final, concerning the dispute referred to him. From a perusal of this, it becomes clear that if there exists the dispute between the parties, the recourse must be had to conciliation, as a first step and, if that does not fructify, the steps need to be taken to get the dispute resolved through Arbitration. It is a different matter that the Collector is the named Arbitrator in all these cases. Once the parties have agreed to a particular mode of resolution of dispute, that too, those covered by Arbitration and Conciliation Act, 1996, the question of entertaining the writ petition, in relation to that very dispute, does not arise. The plea of the appellants that the arbitration by the Collector may not be effective, can be certainly agitated before the proper forum, but not in the....
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....acy and heavy damage is caused to the governmental amount. At the same time, up to date of recovery at the rate of 8 % the amount of interest is also recoverable." 9. Upon completion of investigation, chargesheets came to be filed in the year 2016, whereunder the respondents were charged for committing offences under Sections 420 and 409, IPC. The relevant portion from one such chargesheet is extracted hereinbelow for ready reference: Final Report, Chief Judicial Magistrate, Kaimur Bhabua, Bihar (18.12.2016) "This informant Shahnawaz Ahmed Niyazi son of Md. Niyazuddin resident of Anand Bazar, Cantt Patna present District Manager, Kaimur State Food Corporation, vide office number 577 dated 7.06.2016 on this basis, F.I.R against M/s Shiv Shanti Rice Mill through its proprietor namely Abhishek Kumar son of Shiv Prasahan Ray village - Panchpokhari P.S.- Kudra, District -kaimur on charges of fraudulently embezzling government rice worth Rs 67,83,705.40. found accused, the investigation so far into the case to be true based on the statement of informant, supervision, and available evidences near the incident site. This case has been found true under section 420/409 IPC against the ac....
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....heir work, any other work may be assigned to the said officers. 4.6. The authorities concerned will be at liberty to encash the bank guarantee(s) after holding that there is a breach of terms of the agreement which decision will be subject to appropriate remedies of the parties. 4.7. If not otherwise encashed, the bank guarantee will be kept alive till the trial is over. However, deposits/furnishing of bank guarantees will be abide by further orders of the trial court, interim or final. 4.8. If any amount is deposited by the accused, the said amount will be adjusted in the amount of the bank guarantee, which is to be furnished by the accused. 4.9. The accused will surrender their passports to the respective courts within a period of four weeks from today and will not leave the country without prior permission from the court concerned." 11. It is evident from the above that this Court recorded that the PDS scam in the State of Bihar involves misappropriation of more than a thousand crores by the accused rice-millers, against whom some 600 FIRs have been filed. Having considered the matter in detail, this Court passed orders in certain bail applications and further dire....
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....e basis. Being of the view that misappropriation of this magnitude Involving more than one thousand crores (nearly 1500 crores) in one financial year could not have taken place simultaneously, through different transactions, throughout the State of Bihar, without there being a larger conspiracy at some higher level, by order, dated 08,02.2017, I had observed that investigation into all the cases should be monitored under the guidance of the Additional Director General, Criminal Investigation Department, Bihar, Mr. Binay Kumar. In the said order, dated 08.02.2017, the Additional Director General, C.I.D. was asked to report to this Court to suggest a tentative team, which he would like to constitute for carrying out the exercise of monitoring all investigations in all such cases, so that it could be convenient for the Court to pass appropriate order constituting Special Investigation Team for the said limited purpose. 5. In compliance with the said order, dated 15.02.2017, Mr. Binay Kumar, Additional Director General, C.I.D, Bihar has filed a detailed affidavit. From the said affidavit it is evident that out of said 1202 cases at least 9 involve misappropriation of Government prop....
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....ere entered into freely by both the parties. At the outset, the High Court considered and rejected the argument of limitation advanced by appellant on the ground that while cause of action commenced from the issuance of a demand notice under the Recovery Act in 2015, arbitration was invoked only in the year 2019. The High Court relied on one of its previous orders passed in the case of other rice-millers titled Sadhna Kumari v. State of Bihar, to reject the argument. The High Court also noted that its previous order appointing arbitrator was affirmed by this Court vide its order dated 29.01.2018 in Bihar State Food & Civil Supplies Corporation Ltd v. Sadhna Kumari. In the impugned order, the High Court reiterated the same position and held that detailed arguments on limitation can be looked into by the arbitrator. 17. As regards the objection of non-arbitrability of dispute due to allegations of criminality, the Court felt the allegations are simple accusations as against serious allegation of forgery or fabrication and as such there is no bar. The High Court also held that arbitration as a remedy cannot be foreclosed due to the pendency of proceedings under the Recovery Act as th....
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....in Sadhna Kumari v. Bihar State Food & Civil Supplies Corporation Ltd, against which SLP was dismissed. V. Whether the decision in the order of Bihar Public Works Contracts Disputes Arbitration Tribunal operates as res judicata. VI. Whether issues no. 1 to 5 should be left to the arbitral tribunal to decide in view of sub-section (6A) of Section 11 of the Act. IV. Submissions. 20. Mr. Ranjit Kumar and Mr. Amit Sibal have extensively argued on the issue of arbitrability, rather on non-arbitrability of the disputes as contended by Mr. Ranjit Kumar. They referred to a number of precedents on the issue of fraud or serious fraud involved in the dispute and also the subject matter for arbitration. V. Principles governing arbitrability in cases involving allegations of serious fraud. 21. In view of our decision, it is unnecessary to delve deep on this issue, but sufficient to restate the law on the subject. The position of law as it applies to initiation of arbitral proceedings in the teeth of allegations of criminality involved in the dispute, where criminal proceedings are either pending or to be initiated is considered in several decisions of this Court. Abdul Kadir Shamsuddi....
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....he Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are carved out by the courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, i.e. public fora are better suited than a private forum of arbitration..." See Para 25 Ayyasamy (supra) Disputes that shall not be submitted to arbitration have been recognized in a large number of decisions of this Court. Booz-Allen & Hamilton Inc v. SBI Home Finance Ltd., 2011 (5) SCC 532; Vidya Drolia v. Durga Trading Corpn. (2021) 2 SCC 1; and National Insurance Co. Ltd. v. M/s Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267 Of these, for the present purpose we are concerned with disputes which shall not be submitted to arbitration due to application and operation of criminal laws to the dispute in question. III. Same set of facts may lead to civil and criminal proceedings. A civil dispute could involve questions of coercion (section 15 of Contract Act), undue influence (section 16 of Contract Act), fraud (section 17 of C....
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....dinary" fraud are arbitrable. The Indian approach, although undesirable from a policy perspective and out-ofstep with that of most national courts, is arguable consistent with the Convention's treatment of the nonarbitrability doctrine" See Gary B. Born, International Commercial Arbitration Volume 1, § 6.04 (O) (3rd edn, Kluwer Law International B.V., 2021).. Disputes involving serious fraud may not be submitted to arbitration as explained, to some extent in Ayyasamy (supra) as they, "are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by the civil court on the appreciation of the voluminous evidence that needs to be produced, the court can sidetrack the agreement by dismissing the application under Section 8 and proceed with the suit on merits [...]" VI. "Serious allegations of fraud" is to be understood in the context of facts. In Rashid Raza (supra) (2019) 8 SCC 710, para 4; as subsequently affirmed in Avitel Post Studioz Ltd & Ors. v. HSBC PI Holdings (Mauritius) Ltd; (2021) 4 SCC 713, para 35 at pg. 753. "35. ....
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....ioz Limited v. HSBC PI Holdings (Mauritius) Limited, (2021) 4 SCC 713, para 35. VIII. Arbitral Tribunal will be within its jurisdiction to consider allegations of fraud even with respect to the specific terms or clauses in the contract as an arbitration agreement stands independent of the contract and continue to bind and govern the parties even if the contract is terminated or challenged and this question is no more res integra. There is however an exception, the following is its articulation Interplay Between Arbitration Agreements; (2024) 6 SCC 1.. IX. However, the allegations of fraud with respect to the arbitration agreement itself stand on a different footing. This position is generally recognized as a dispute which is in the realm of non-arbitrability Ayyasamy (supra), para 25; It is explained that the Court can do so in cases "where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract i....
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....e seven judges bench decision, this Court considered in detail the separability of the arbitration agreement from the contract, the empowerment of the arbitral tribunal to examine its own competence and finally the limits of referral courts scrutiny. The relevant portions are as under: "165. The legislature confined the scope of reference under Section 11(6-A) to the examination of the existence of an arbitration agreement. The use of the term "examination" in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a selfcontained code, the requirement of "existence" of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764], this Court held that the Referral Courts only need to consider one aspect to determine the existence of an arbitration agreement - whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6-A) should b....