Mere 'Criminal Overtones' Or Claimed 'Public Overtones' Do Not Make Dispute Non-Arbitrable: Bombay High Court

The Bombay High Court has held that a dispute does not become non-arbitrable merely because one side alleges fraud or claims that it has criminal or public overtones.

Referring a dispute between television production company Shashisumeet Production Pvt. Ltd. and investor Kuresh R. Kushesh to arbitration, the Court said such allegations, by themselves, do not take the matter outside the jurisdiction of an arbitral tribunal.

"Merely on the ground that there are “criminal overtones” or because a party claims that there are “public overtones”, the dispute would not become non-arbitrable. The Agreement having been signed by both, the Plaintiffs as well as the Defendant, and that instrument having an arbitration clause, allother contentions about the evidentiary value of facts in relation to the existence of the bargain in the Agreement squarely fall in the domain of the Arbitral Tribunal.," Justice Somasekhar Sundaresan held.

The dispute arose from a proposed investment under which Kushesh was to invest ₹8.25 crore in the company in return for a 15% equity stake.

The parties first entered into a Memorandum of Understanding on November 23, 2016. A Share Subscription-cum-Shareholders Agreement followed on December 21, 2016.

According to the company's own case, it received ₹60 lakh in cash and about ₹1.4 crore by cheque towards the proposed investment.

In 2017, Shashisumeet Production and its promoters approached the High Court seeking declarations that the MOU and the agreement were void, illegal, and not binding on them. They also sought cancellation of the documents and recovery of ₹3 crore along with interest, contending that no concluded agreement had ever come into existence.

Kushesh, on the other hand, sought to have the dispute decided through arbitration under a clause contained in the agreement. He also informed the court that he would withdraw a separate suit filed by him in 2021, in which he had sought declarations regarding the validity and specific performance of the agreement.

Resisting the request for arbitration, the company alleged that the agreement had been procured through fraud, misrepresentation and fabrication. It relied on what it described as multiple versions of the document and disputed signatures.

The company further argued that Sumeet H. Mittal was not in India on December 21, 2016, the date mentioned on the agreement. According to it, these circumstances raised serious doubts about the existence of the arbitration agreement itself.

Kushesh countered that all these allegations stemmed from the very agreement that contained the arbitration clause. Questions of fraud, forgery, and fabrication, he argued, were matters that the arbitral tribunal could examine.

The Court agreed. Rejecting the objections, Justice Sundaresan held that allegations of fraud in a private commercial dispute do not automatically oust arbitration. Since the alleged fraud had no public element, issues concerning the validity, execution, and evidentiary value of the agreement were matters for the arbitral tribunal to decide.

The court was also not persuaded by the argument that the agreement lacked signatures on every page or that another unsigned version existed.

"Merely because the Plaintiffs seek to bring to bear another instrument that does not even have the Defendant's signature, it would not cast a cloud over the Agreement actually signed by the Plaintiffs," Justice Sundaresan observed.

Addressing the argument that Sumeet Mittal was not in India on the date reflected in the agreement, the Court said commercial transactions cannot always be viewed through a rigid lens. Whether and when the agreement was actually signed was a matter of evidence that could be examined by the arbitral tribunal.

"Commercial parties' conduct and that too the conduct of those in a largely informal industrial sector such as film-making, must be viewed from a commercial lens. Often, commercial parties sign an instrument that is already signed by the counterparty. If a party is not in the country, such party would tend to sign on coming back, and not care to emboss the date against the signature," the Court held.

The court also noted that the company's denial of the agreement did not inspire confidence. It pointed out that the company had admittedly received substantial sums that were consistent with the very transaction it was now seeking to disown.

"The Plaintiffs want a bargain, different from the executed instrument and seek a refund of monies with interest. Therefore, the contention that the Agreement was not executed and the bargains therein were not contracted, does not inspire confidence," the Court said.

The court also rejected the argument that Kushesh had given up his right to arbitrate by filing a separate suit in 2021. It noted that he had invoked the arbitration clause first and had continued to pursue that remedy. The later suit, which was being withdrawn, did not amount to a waiver of the arbitration agreement.

Allowing the application, the court referred the parties to arbitration. It appointed advocate Karishma Rao as the sole arbitrator and disposed of the 2021 suit as withdrawn.

For Shashisumeet Production Pvt. Ltd. & Ors. (Plaintiffs): Advocates Piyush Raheja, Akash Loya, Jyoti Ghag and Shailesh Prajapati, instructed by Dua Associates.

For Kuresh R. Kushesh @ Dhiren (Defendant/Applicant): Advocates Manorama Mohanty and Hitanshu Jain, instructed by S.K. Srivastav & Co.