* THE HON’BLE MR. JUSTICE R. KANTHA RAO + C.R.P.No. 3274 of 2008 % Dated 30.10.2009 # Asset Recovery Management Yard Pvt.Ltd. (Army), Narayanaguda,Hyderabad rep. By its Authorised Signatory Sri K.Hanumanth Rao .....Petitioner AND $ Smt.M.V.I.D. Bharathi .....RESPONDENT ! Counsel for the petitioner: Mr.D.V.Seetharama Murthy ^ Counsel for the Respondent : Mr.D.Prakash Reddy <GIST: > HEAD NOTE: ? Cases referred [1] (2005) 8 SCC 618 THE HON’BLE MR JUSTICE B.PRAKASH RAO AND THE HON’BLE MR JUSTICE R. KANTHA RAO C.R.P.No. 3274 OF 2008 Date:30.10.2009 Between: Asset Recovery Management Yard Pvt.Ltd. (Army), Narayanaguda,Hyderabad rep. By its Authorised Signatory Sri K.Hanumanth Rao .....Petitioner AND Smt.M.V.I.D. Bharathi .....RESPONDENT THE HON’BLE MR JUSTICE B.PRAKASH RAO AND THE HON’BLE MR JUSTICE R. KANTHA RAO C.R.P.No. 3274 OF 2008 JUDGMENT: (Per Hon'ble Sri Justice R.Kantha Rao,J) This civil revision petition is directed against the order, dated 24.03.2008 passed by the II Additional Senior Civil Judge, Ranga Reddy in I.A.No. 2098 of 2006 in O.S.No.1905 of 2006. 2. The revision petitioner herein is the petitioner/defendant before the learned trial Court. 3. The respondent/plaintiff filed O.S.No.1905 of 2006 against the revision petitioner/defendant seeking cancellation of agreement of sale-cum-G.P.A. No.3782, dated 28.03.2003 on the ground that the respondent executed the same under the impression that it was only a G.P.A. and also that the said document was obtained by fraud and undue influence. 4. In the said suit, the revision petitioner filed a petition under Section 8 of the Arbitration and Conciliation Act, 1996 seeking the Court to refer the dispute between the parties to arbitration in terms of the arbitration clause in the registered agreement of sale-cum-G.P.A. dated 28.03.2003. It was contended by the revision petitioner that in as much as the agreement of sale containing an arbitration clause whereunder both parties mutually agreed that for rendering speedy justice with least intervention of Courts, any dispute, difference, controversy or claim arising out of or in connection with the agreement or the breach, termination or invalidity thereof, it shall be referred to Quick Justice of India (for short ‘QJI’) a Public Charitable Trust, situated at Narayanaguda, Hyderabad for resolution of such dispute through arbitration. 5. The petition was opposed by the respondent contending that in view of the fact that the suit filed by the respondent itself is for cancellation impugned registered agreement of sale cum-GPA basing on the ground that the petitioner obtained the said document by fraud and undue influence, the said question can be decided only by a civil Court of competent jurisdiction but not by the Arbitral Tribunal though the agreement cum GPA contains the arbitration clause. 6. Adverting to the rival contentions, the learned trial Court repelling the contention urged by the revision petitioner that the dispute shall necessarily be referred to Arbitral Tribunal in view of the existence of arbitration clause held that in as much as the fraud and undue influence have allegedly been played in obtaining the impugned registered agreement of sale cum GPA, the Civil Court alone can decide the crucial issue as to whether the impugned agreement cum GPA can be cancelled or not and consequently dismissed the petition filed by the revision petitioner. 7. The subject matter of the challenge in this revision therefore is the order impugned, passed by the learned Additional Senior Civil Judge declining to refer the dispute to the Arbitral Tribunal. 8. The background facts relevant for considering the contentious issue in the revision petition may be stated as follows: 9. The respondent/plaintiff agreed to sell an extent of Ac.2.00 of land at Mankala village, Maheshwaram mandal in Ranga Reddy District to the petitioner/defendant and executed a registered agreement of sale cum GPA dated 28.03.2003 and the respondent received the entire sale consideration from the petitioner company. According to the petitioner company, the respondent also handed over the original title deeds relating to the schedule mentioned land and delivered possession of the said land. Admittedly, there is an arbitration clause in the impugned agreement according to which any dispute shall be referred to the named arbitral Tribunal. 10. However, it is the contention of the respondent that one Mr.C.Pradeep Kumar, an advocate represents the petitioner company, he was also the counsel for the respondent in several cases and that he fraudulently obtained the impugned agreement of sale cum GPA, that the respondent never delivered the possession of the schedule mentioned land to the petitioner company and did not hand over the title deeds relating to the said property but the said C.Pradeep Kumar who is also the counsel for the respondent obtained the return of the said documents which were filed in O.A.No.194 of 2000 on the file of the Debt Recovery Tribunal, Hyderabad on behalf of the respondent. 11. It is also the contention of the respondent that as per the arbitration clause in the agreement of sale, the dispute has to be referred to QJI, which is managed by C.Pradeep Kumar, Advocate, referring the dispute to QJI, the named arbitral Tribunal is nothing but enabling Mr.C.Pradeep Kumar to adjudicate upon his own cause and thus, the petition was stoutly opposed by the respondent. 12. Acceding to the contentions urged by the respondent, the learned trial Court passed the impugned order, the legality and correctness of which is now challenged in this revision before us. 13. The short, but interesting question arises for consideration in the present revision petition is where there is an arbitration clause in the agreement to refer any dispute between the parties to the named Arbitral Tribunal and the said agreement was sought to be cancelled by filing a civil suit by invoking the jurisdiction under Section 9 of the C.P.C. on the ground that it was obtained by fraud and undue influence, is it imperative for the judicial authority to refer the dispute to the Arbitral Tribunal by virtue of the provisions of Section 8 of the Arbitration and Conciliation Act, 1996? 14. We have heard Sri D.V.Seetharama Murthy, the learned Advocate General appearing for the petitioner and Sri D.Prakash Reddy, learned Senior Counsel appearing for the respondent. 15. It has been contended by the learned Advocate General that the word used in sub-section (1) of Section 8 is “shall”, it is, therefore, mandatory for the judicial authority to refer the matter to arbitration when there is an arbitration clause in the agreement. It has further been submitted that under sub-section 3 of Section 8, even though an application is made under sub-section 1 of Section 8, when an issue is pending before the judicial authority, an arbitration may be commenced or continued and an award be made, it necessarily implies that when once there is an arbitration agreement, the judicial authority shall refer the parties to arbitration since they have been bound by arbitration agreement. 16. According to the learned Advocate General the litigant public always will try to take advantage and protract the litigation by instituting suit, appeal, revision or other proceedings questioning the validity or otherwise of the arbitration agreement without reference to arbitration, resultantly, the very purpose, for which the arbitration agreement came into effect will be frustrated if the validity of agreement is to be considered at the threshold by the judicial authority. It is also his submission that in order to meet the situation, a specific provision is made in Section 16 where the arbitral tribunal has the power to rule on any objection with respect to the validity or existence of the arbitration agreement and it is competent to rule on its own jurisdiction and therefore, the question of deciding the nature of the agreement in an application under Section 8 has no foundation in law. 17. Thus, the essence of the submission made by the learned Advocate General is when once there is an arbitration clause in the agreement and if the application is made under Section 8(1) of the Act by a party to refer the dispute for arbitration, the judicial authority has no option except to refer the parties to arbitration. 18. On the other hand, Sri D.Prakash Reddy, learned Senior Counsel appearing for the respondent would submit that when the suit itself is filed to cancel the impugned agreement on the ground of bringing it into existence the said agreement by playing fraud and using undue influence, the civil Court which entertained the suit has power to go into the question as to the validity of the agreement and it has the discretion whether to refer the parties to arbitration or not in a suit pending before it and having regard to the facts and circumstances of the present case, the Court below has rightly declined to refer the matter to arbitration and the said decision being perfectly legal and justified, cannot be interfered with in this revision. 19. Reliance is placed by the learned counsel appearing for the respondent on SBP & CO. v. PATEL ENGINEERING LTD. AND ANOTHER[1] “wherein a seven Judge Bench of the Apex Court by majority of 6:1, rendered the judgment on the disputed question, which was followed by the learned trial Court. Though some judgments have been relied upon by the learned Advocate General appearing for the petitioner, they need not be adverted to, because the judgment of the seven Judge Bench of the Apex Court rules the field and thus, we intend to examine the fact situation in the instant case in the light of the above judgment relied upon by the learned Senior Counsel appearing for the respondent. In the decision referred above in the case of SBP & CO. referring to the powers exercised by the Chief Justice of High Court or Chief Justice of India under Section 11(6) and (8), it is held as follows: “Once a statute creates an authority, confers on it power to adjudicate, and makes its decision final on matters to be decided by it, normally that decision cannot be said to be purely administrative decision. It is really a decision on its own jurisdiction for the exercise of the power conferred by the statute or to perform the duties imposed by the statute. Unless the authority satisfies itself that the conditions for exercise of its power exist, it could not accede to a request made to it for the exercise of the conferred power. While exercising the power or performing the duty under Section 11(6) of the Act, the Chief Justice has to consider whether the conditions laid down by the section for the exercise of that power or the performance of that duty, exist. Therefore, unaided by authorities and going by general principles, it appears that while functioning under Section 11(6) of the Act, a Chief Justice or the person or institution designated by him, is bound to decide whether he has jurisdiction to entertain the request, in the sense, whether the party making the motion has approached the right High Court, whether there is a valid arbitration agreement in terms of Section 7 of the Act and whether the person before him with the request is a party to the arbitration agreement or whether there was no dispute subsisting which was capable of being arbitrated upon – these are all adjudications which affect the rights of parties. He cannot constitute an Arbitral Tribunal without considering these questions. If he could do so such a function would not be entrusted to a high judicial authority like the Chief Justice. It cannot be said that when the Chief Justice decides the above questions, he is not adjudicating on the rights of the party, which is raising these objections. Merely because the main purpose under Section 11(6) of the Act is the constitution of an Arbitral Tribunal, it cannot be taken that the existence of power therein is an administrative power. It is also not correct to say that by mere constitution of an Arbitral Tribunal the rights of the parties are not affected. Dragging a party to an arbitration when there existed no arbitration agreement or when there existed no arbitral dispute can certainly affect the right of that party and even on monetary terms imposed on him, a serious liability for meeting the expenses of the arbitration, even if it be the preliminary expenses and his objection is upheld by the Arbitral Tribunal. Therefore, it is not possible to accept the position that no adjudication is involved in the constitution of an Arbitral Tribunal.” We may at this stage notice the complementary nature of Sections 8 and 11. Where there is an arbitration agreement between the parties and one of the parties, ignoring it, files an action before a judicial authority and the other party raises the objection that there is an arbitration clause, the judicial authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The expression used in this Section is 'shall' and this Court in P. Anand Gajapathi Raju Vs. P.V. G. Raju [(2000) 4 SCC 539 and in Hindustan Petroleum Corporation Ltd. Vs. Pink City Midway Petroleum [(2003) 6 SCC 503] has held that the judicial authority is bound to refer the matter to arbitration once the existence of a valid arbitration clause is established. Thus, the judicial authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining to make a reference. Section 11 only covers another situation. Where one of the parties has refused to act in terms of the arbitration agreement, the other party moves the Chief Justice under Section 11 of the Act to have an arbitrator appointed and the first party objects, it would be incongruous to hold that the Chief Justice cannot decide the question of his own jurisdiction to appoint an arbitrator when in a parallel situation, the judicial authority can do so. Obviously, the highest judicial authority has to decide that question and his competence to decide cannot be questioned. If it is held that the Chief Justice has no right or duty to decide the question or cannot decide the question, it will lead to an anomalous situation in that a judicial authority under Section 8 can decide, but not a Chief Justice under Section 11, though the nature of the objection is the same and the consequence of accepting the objection in one case and rejecting it in the other, is also the same, namely, sending the parties to arbitration. The interpretation of Section 11 that we have adopted would not give room for such an anomaly. It is also not possible to accept the argument that there is an exclusive conferment of jurisdiction on the arbitral tribunal, to decide on the existence or validity of the arbitration agreement. Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter, which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2(e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum (See Fair Air Engineers (P) Ltd. and another vs. N.K. Modi (1996 (6) SCC 385). When the defendant to an action before a judicial authority raises the plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial authority for relief, disputes the same, the judicial authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact, there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. It is difficult to contemplate that the judicial authority has also to act mechanically or has merely to see the original arbitration agreement produced before it, and mechanically refer the parties to an arbitration. Section 16 is said to be the recognition of the principle of Kompetenz-Kompetenz. The fact that the arbitral tribunal has the competence to rule on its own jurisdiction and to define the contours of its jurisdiction, only means that when such issue arise before it, the Tribunal can and possibly, ought to decide hem. This can happen when the parties have gone to the Arbitral Tribunal without recourse to Section 8 or 11 of the Act. But where the jurisdictional issues are decided under these Sections, before a reference is made, Section 16 cannot be held to empower the arbitral tribunal to ignore the decision given by the judicial authority or the Chief Justice before the reference to it was made. The competence to decide does not enable the arbitral tribunal to get over the finality conferred on an order passed prior to its entering upon the reference by the very statute that creates it.” 20. Now we shall examine the facts of the present case in the light of the above stated ratio laid down by the Apex Court. Before examining the contentious issue, we may state that, we cannot deny the submission made by the learned Advocate General that the litigant public always will try to take advantage and protract the litigation by instituting the suit, appeal, revision or other proceedings and thereby try to frustrate the arbitration agreement. Nevertheless, we are also conscious of the fact that there will be cases wherein the arbitration agreement itself is brought into existence by playing fraud or using undue inference or by employing some unethical methods. In such an event, we cannot ignore the difficulties faced by a party being subjected to huge unnecessary expenses by resorting to arbitration process despite the fact that the arbitration agreement itself is a creature of fraud. 21. The undisputed facts in the instant case are that Mr.C.Pradeep Kumar, Advocate who represents the petitioner company was also the counsel for the respondent in several cases on the crucial date of obtaining the impugned agreement of sale-cum-GPA. Further, according to the arbitration clause, the dispute has to be referred to QJI, which is managed by the very same Advocate Mr.C.Pradeep Kumar. In the given situation, therefore, we have to necessarily accept the contention of the respondent that if at all the arbitral dispute is referred to QJI, it is nothing but enabling Mr.C.Pradeep Kumar, Advocate to adjudicate upon his own cause. Thus, from the fact situation prevailing on the date of impugned agreement of sale-cum-GPA and also from the clause in the said agreement that any dispute has to necessarily be referred to QJI, we have to necessarily arrive at a definite and positive opinion that the respondent could be able to demonstrate before the learned trial Court that there exists a strong prima facie case in support of the contention of fraud and undue influence urged by the respondent. 22. It is true that under Section 16 of the Act, the Arbitral Tribunal has the power to decide whether there is a valid arbitral agreement between the parties and it has also the power to rule on its own jurisdiction. But, the Arbitral Tribunal can invoke the said power only when the matter is referred for arbitration by the judicial authority and the question of either its jurisdiction or the validity of the arbitral agreement is raised before it. The existence of power to decide the said questions in the Arbitral Tribunal conferred by the statute does not take away the right of the civil Court to examine whether the arbitral agreement itself is a creature of fraud and undue influence. As per the ratio laid down in the case of SBP and Company referred supra, before making a decision to refer the dispute to the arbitrator, the judicial authority can examine the question whether the arbitral agreement was in fact obtained by playing fraud and using undue influence on the respondent. We are unable to accept the contention that construing the power of judicial authority under Section 8 of the Act in such a way, amounts to frustrating the arbitral agreement by empowering the judicial authority to hold it null and void at the threshold. 23. The judicial authority under Section 8 of the Act in the present case is a civil Court invested with the power to decide all disputes of civil nature which are not either expressly or impliedly barred and the said power is not taken away by the Arbitration and Conciliation Act, 1996 either explicitly or by necessary implication. If it is to be held that the judicial authority has no such power, it will lead to anomalous situation, which drives the parties to face the expensive and unending process of arbitration, even in cases where the making or obtaining the arbitral agreement itself is fraudulent. The learned trial Court in our view properly understood the ratio laid down by the Apex Court in the case of SBP and Company referred supra and rightly applied the ratio to the facts of the present case and perfectly justified in declining to refer the matter to the named arbitral Tribunal for adjudication of the dispute. 24. In view of the law laid down by the Apex Court in the case of SBP and Company referred supra, the learned trial Court has, in our view, the power to adjudicate upon the question of fraud in making the arbitral agreement before arriving at a decision as to whether the matter can be referred to the named Arbitral Tribunal or not. Such power being rightly exercised by the learned trial Court, we do not find any error of jurisdiction or irregularity committed by it and therefore, we see no reason to interfere with the order passed by the learned trial Court. However, while disposing of this revision, we wish to state that the learned trial Court has to decide the contentious questions relating to fraud and undue influence allegedly occurred in bringing it into existence the arbitral agreement without being influenced by any of the observations made by us in this revision petition. 25. For what all stated hereinabove, we confirm the order passed by the trial Court and dismiss the revision petition, without any order as to costs. ________________ B. PRAKASH RAO,J _______________ Date:30.10.2009. R. KANTHA RAO, J Note: L.R. copy to be marked. B/O ccm [1] (2005) 8 SCC 618