Source: Calcutta High Court

Why in News?

Recently, the Calcutta High Court in the matter of United Machinery & Appliances v. Greaves Cotton Limited has held that dispute would not be referred to arbitration when the allegations of cheating and forgery are serious in nature and the cognizance of the same is taken by the magistrate.

What was the Background of United Machinery & Appliances v. Greaves Cotton Limited Case?

• In this case, the plaintiff is a manufacturer of diesel generator sets and also carries on allied businesses.
• The defendant is a manufacturer of diesel engines including diesel generator engines.
• The plaintiff and respondent entered into an arrangement in the year 2000 wherein the defendant agreed to supply engines exclusively to the plaintiff.
• It was agreed that the defendant would not supply the engines to any other entity, and the plaintiff would not enter into agreements with any other manufacturer.
• Pursuant to this understanding, the plaintiff made investments, however, in 2012, the plaintiff discovered that the defendant was supplying engines directly to potential buyers in Assam.
• Aggrieved thereby, the plaintiff filed the civil suit, claiming damages.
• Thereafter, before the Calcutta High Court the defendant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (A & C Act) seeking to refer the dispute between the parties to Arbitration.
• The application was later dismissed by the High Court.

What were the Court’s Observations?

• The bench of Justice Krishna Rao observed that to hold that dispute would not be referred to arbitration when the allegations of cheating and forgery are serious in nature and goes to the existence of the agreement containing arbitration clause.

What are the Relevant Legal Provisions Involved in it?

Cheating

• Section 415 of the Indian Penal Code, 1860 (IPC) deals with the offence of cheating.
• It states that whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.
• Explanation to this Section states that a dishonest concealment of facts is a deception within the meaning of this section.
• Section 417 of IPC deals with the punishment for cheating. It states that whoever cheats shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both.

Forgery

• Section 463 contained in Chapter XVIII of IPC defines the offence of Forgery.
• This Section states that whoever makes any false documents or false electronic record or part of a document or electronic record, with intent to cause damage or injury, to the public or to any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery.
• Section 465 of IPC deals with the punishment for forgery and states that whoever commits forgery shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.

Section 8 of A & C Act

• This section deals with the power to refer parties to arbitration where there is an arbitration agreement. It states that -

(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, 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.

(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:

Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued, and an arbitral award made.