Paragraph numbers below are the court’s original numbering, recovered from the source text.
26. Amendment to Section 8 by the Act, 2015 are to be seen in the background of the recommendations set out in the 246th Law Commission Report. In its 246th Report, Law Commission, while recommending the amendment to Section 8, made the following observation/comment:- “LC Comment: The words “such of the parties…. to the arbitration agreement” and proviso (i) of the amendment have been proposed in the context of the decision of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC 531, – in cases where all the parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action – and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreement. Proviso (ii) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof or a copy accompanied by an affidavit calling upon the other party to produce the original arbitration agreement or duly certified thereof in circumstances where the original arbitration agreement or duly certified copy is retained only by the other party. LC Comment: In many transactions involving Government bodies and smaller market players, the original/duly certified copy of the arbitration agreement is only retained by the former. This amendment would ensure that the latter class is not prejudiced in any manner by virtue of the same” (Ref: 246th Law Commission Report, Government of India)
27. The language of amendment to Section 8 of the Act is clear that the amendment to Section 8(1) of the Act would apply notwithstanding any prayer, judgment, decree or order of the Supreme Court or any other Court. The High Court laid emphasis upon the word “…..unless it finds that prima-facie no valid agreement exists”. The High Court observed that there is no arbitration agreement between Astonfield and Rishabh. After referring to Sukanya Holdings and the amended Section 8 and Section 45 of the Act, the High Court pointed out the difference in language of Section 8 and Section 45 of the Act. The High Court distinguished between Sukanya Holdings andChloro Controls, and observed that Sukanya Holdings was not overruled by Chloro Controls. In para (23) of the impugned judgment, it was held as under:- “23. ……The change in Section 8 is that the Court is to – in cases where arbitration agreements are relied on- to refer the disputes in the suit, to arbitration, “notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists”. The Court is of opinion that Sukanyais not per se overruled, because the exercise of whether an arbitration agreement exists between the parties, in relation to the disputes that are the subject matter of the suit, has to be carried out. If AMEET LALCHAND SHAH v. RISHABH ENTERPRISES [R. BANUMATHI, J.] there are causes of action that cannot be subjected to arbitration, or the suit involves adjudication of the role played by parties who are not signatories to the arbitration agreement, it has to continue because “prima facie no valid arbitration agreement exists” between such non parties and others, who are parties.”
28. Re: contention: allegations of fraud disable an arbitration:- Yet another ground based on which the High Court declined to refer the parties to arbitration is the allegations of fraud levelled by respondents/plaintiffs in their plaint against Astonfield and appellant no.1. The High Court held that the respondents levelled allegations of fraud against the appellants which raise serious triable issues of fraud and hence, the matter cannot be referred to arbitration.
29. According to the respondents, it is not a case where “fraud is alleged merely to disable an arbitration”. Mr. Sibal, learned senior counsel for respondents contended that the plaint is based on the averments that from inception, the intention of appellants/defendants was to cheat the respondents and the respondents were made to part with large sums of money on the basis of the misrepresentation made by the appellants. It was submitted that alternative prayer in the plaint will not convert the fraud suit to a regulatory suit because of alternative prayer since alternative prayer – ‘lease rental’ has been projected only as an alternative remedy. Placing reliance upon Arundhati Mishra (Smt) v. Sri Ram Charitra Pandey (1994) 2 SCC 29, it was submitted that it is settled law that it is open to the parties to raise mutually inconsistent pleas and the relief could be granted on the alternative plea so raised.
30. Refuting the above contentions, Mr. Shanti Bhushan, learned senior counsel for the appellants placed reliance upon Ayyasamy case to contend that there are no serious allegations in the plaint to decline reference of the matter to arbitration. It was submitted that mere allegations of fraud were not sufficient to detract from the performance of the obligation of the parties in terms of the agreement and refer the matter to arbitration.
31. Under the Act, an arbitration agreement means an agreement which is enforceable in law and the jurisdiction of the arbitrator is on the basis of an arbitration clause contained in the arbitration agreement. However, in a case where the parties alleged that the arbitration agreement is vitiated on account of fraud, the Court may refuse to refer the parties to arbitration. In Ayyasamy case, this Court held that mere allegation of fraud is not a ground to nullify the effect of arbitration agreement between the parties and arbitration clause need not be avoided and parties can be relegated to arbitration where merely simple allegations of fraud touched upon internal affairs of parties is levelled. Justice A.K. Sikri observed that it is only in those cases where the Court finds that there are serious allegations of fraud which make a virtual case of criminal offence and where there are complicated allegations of fraud then it becomes necessary that such complex issues can be decided only by the civil court on the appreciation of evidence that needs to be produced. In para (25) of Ayyasamy case, Justice Sikri held as under:- “25…..Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject- matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected.”
32. While concurring with Justice Sikri, Justice D.Y. Chandrachud pointed out that the duty of the Court is to impart “sense of business efficacy” to the commercial transactions pointing out that mere allegations of fraud were not sufficient to decline to refer the parties to arbitration. In para (48) of Ayyasamy case, Justice D.Y. Chandrachud held as under:- “48. The basic principle which must guide judicial decision-making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to AMEET LALCHAND SHAH v. RISHABH ENTERPRISES [R. BANUMATHI, J.] that commercial understanding a sense of business efficacy.” (Underlining added)
33. When we apply the aforesaid principles to the facts of the present case, as discussed earlier, both parties have consciously proceeded with the commercial transactions to commission the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P. The first respondent has proceeded to procure the materials, entered into agreement with Juwi India for engineering, installation and commissioning and the sale and purchase agreement with Astonfield, were all the conscious steps taken in the commercial understanding to commission the Solar Plant at Dongri, Raksa, District Jhansi, U.P. Even though Juwi India and Astonfield are not parties to the main agreement – Equipment Lease Agreement (14.03.2012), all the agreements/contracts contain clauses referring to the main agreement. It is the duty of the Court to impart the commercial understanding with a “sense of business efficacy” and not by the mere averments made in the plaint. The High Court was not right in refusing to refer the parties on the ground of the allegations of fraud levelled in the plaint.
34. It is only where serious questions of fraud are involved, the arbitration can be refused. In this case, as contended by the appellants there were no serious allegations of fraud; the allegations levelled against Astonfield is that appellant no.1 – Ameet Lalchand Shah misrepresented by inducing the respondents to pay higher price for the purchase of the equipments. There is, of course, a criminal case registered against the appellants in FIR No.30 of 2015 dated 05.03.2015 before the Economic Offences Wing, Delhi. The appellant no.1 – Ameet Lalchand Shah has filed Criminal Writ Petition No.619 of 2016 before the High Court of Delhi for quashing the said FIR. The said writ petition is stated to be pending and therefore, we do not propose to express any views in this regard, lest, it would prejudice the parties. Suffice to say that the allegations cannot be said to be so serious to refuse to refer the parties to arbitration. In any event, the Arbitrator appointed can very well examine the allegations regarding fraud.
35. Main agreement – Equipment Lease Agreement (14.03.2012) for leasing and commissioning of Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh contains arbitration clause (Clause 29). As discussed earlier, other three agreements – two agreements between Rishabh and Juwi India (01.02.2012) and Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield are integrally connected with the commercial understanding of commissioning the Solar Project at Dongri, Raksa, District Jhansi, Uttar Pradesh and to resolve the dispute between the parties, they are to be referred to arbitration. The order of the High Court declining to refer the parties to arbitration cannot be sustained and is liable to be set aside. The four agreements namely:- (i) Equipment and Material Supply Contract (01.02.2012) between Rishabh and Juwi India; (ii) Engineering, Installation and Commissioning Contract (01.02.2012) between Rishabh and Juwi India; (iii) Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield; and (iv) Equipment Lease Agreement (14.03.2012) between Rishabh and Dante Energy and the parties thereon are referred to arbitration.
36. As per the terms of Equipment Lease Agreement (14.03.2012), appellant No.3 – Dante Energy has to pay lease rentals of Rs.13,67,500/ – for the month of March, 2012 and with effect from April, 2012 to pay lease rentals of Rs.28,26,000/- per month for a period of fifteen years. Learned Senior Counsel for respondents, Mr. Sibal has submitted that appellant No.3 – Dante Energy has not paid the rentals as per the terms and conditions of Equipment Lease Agreement. Mr. Sibal has also drawn our attention that Astonfield Solar Rajasthan Pvt. Ltd. has transferred 99.99% of its shares to ARRL (Mauritius) Ltd. (Holding Company) and Ameet Lalchand Shah has only one share (0.01%). Our attention was also drawn to Astonfield Solar Gujarat Pvt. Ltd., which has also transferred 99.99% of its shares to ARRL (Mauritius) Ltd. (Holding Company) and that Ameet Lalchand Shah has only one share (0.01%). It was also submitted that the appellant No.1 – Ameet Lalchand Shah was subsequently removed from the Board of Directors of Astonfield Solar Gujarat Pvt. Ltd. by the shareholders by EGM dated 17.12.2016. We do not propose to go into the merits of this contention; however, keeping in view that Astonfield has transferred its shareholdings qua Rajasthan and Gujarat Solar Power units, in our view, the interest of the respondents is to be protected till the matter is resolved by the arbitrator by directing the appellants to pay the arrears of lease rent and also to pay the future lease rent for the equipments at the rate of Rs.28,26,000/- per month.
37. The impugned order of the High Court is set aside and this appeal is allowed. All the aforesaid four agreements and the parties thereon are referred to arbitration. By notice dated 13.02.2016, appellants have nominated Justice Sujata Manohar, former Judge of the Supreme AMEET LALCHAND SHAH v. RISHABH ENTERPRISES [R. BANUMATHI, J.] Court of India as their Arbitrator. We leave it open to the parties as to the choice of the Arbitrator. If the parties are not in a position to arrive at consensus as to the Arbitrator, the parties shall approach the appropriate High Court for appointment of the Arbitrator. Appellants are jointly and severely liable to pay the arrears of lease rent and also to pay the future lease rent for the equipments of the PV Solar Power Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh at the rate of Rs.28,26,000/- per month till the disposal of the arbitration proceedings. Such payment of lease rent shall be without prejudice to the contentions of both parties and shall be subject to the final outcome of arbitration proceedings. Since parties are referred to arbitration, commercial Suit No.85 of 2017 filed by the respondents on the file of Delhi High Court shall stand disposed of. No cost. Ankit Gyan Appeal allowed.