Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): C. Viswanath (Presiding Member) while addressing the appeal, expressed that:

If the valuation of the lost gold is determined as on the date when reimbursement is made by insurer, it would open Pandora’s box where the beneficiaries of such Policies may seek undue benefit by deliberately delaying reimbursements.

Instant appeal was filed under Section 19 of the Consumer Protection Act against the decision of State Consumer Disputes Redressal Commission.


Appellant/Complainant was engaged in the business of gold jewellery hallmarking and testing of jewellery, refinery and testing of gold. Appellant took jeweller’s block policy from the respondent/insurance company.

Complainant submitted that while his employee was returning to his shop after collecting jewellery, two unknown persons snatched and fled away with the bag containing jewellery. Thereafter a complaint was filed.

During the course of investigation, appellant filed an insurance claim and further, the appellant was informed that the claim had been repudiated. Aggrieved by the same, a consumer complaint was filed before the State Commission.

Not satisfied with the decision of the State Commission, the complainant filed the instant first appeal.

Analysis, Law and Decision

Commission noted that the Insurance Claim of the appellant was repudiated by the respondents on the ground that the “Cover ceased due to policy terms and conditions”.

The Respondents failed to adduce any evidence in support of their contention that the alleged loss was caused by any of the reasons noted under Exclusion Clause 8 of the Insurance Policy, that there was any fraud/mischief on part of the employee of the Appellant, among others leading to the alleged loss.

Therefore, Commission opined that State Commission rightly dismissed the contention of the Respondents that the Appellant’s claim fell under the Exclusion Clause 8 of the Policy.

Appellant submitted that the value of gold increases day by day and therefore, the State Commission erred in law by disregarding the prayer of the Appellant for a sum of Rs 42,86,293/-. Coram was unable to accept the contention of the Appellant in this regard, since the award of compensation must be restricted to the amount that had been claimed by the Appellant under the Insurance Policy. A perusal of the Insurance Claim form shows that the Appellant had only claimed Rs 25,78,680/- from the Insurance Company.

If valuation of the lost gold is determined as on date when reimbursement is made, it would open a Pandora’s box where the beneficiaries of such Policies may seek undue benefit by deliberately delaying reimbursements.

In view of the above background, appeal was partly allowed. [G.N. Hallmarking & Refinery (P) Ltd. v. National Insurance Company Ltd., 2021 SCC OnLine NCDRC 299, decided on 23-08-2021]

Advocates before the Commission:

 For the appellant: Pawan Kumar Ray, Advocate

 For the Respondent: Animesh Sinha, Advocate

Case BriefsHigh Courts

Madras High Court: Dr G. Jayachandran, J., refused to pass a decree in favour of the plaintiff who relied on general admission of facts made by the defendant.

In the instant matter, it was stated that the plaintiff was engaged in the business of providing and arranging finance to various borrowers and had lent a loan to the first defendant company, which is an NBFC.

On the date of filing the suit, a sum of Rs 38,16,45,711/- was due and payable to the plaintiff. While advancing the loan, the second defendant provided personal guarantees for each of the facility agreements entered by the first defendant.

The second and third defendants were jointly and severally liable to pay the suit claim.

According to the plaintiff, since 2014, the transaction between the plaintiff and the first defendant company was regular without any default till the month of September 2020.

Further, it was submitted that the misappropriation of the fund by the Management of the Company came to light, when there was a default and when the Chief Financial Officer of the first defendant issued a Circular on 07-10-2020 disclosing diversion of the fund of the first defendant company by the second defendant as a consequence, criminal proceedings had been initiated by the plaintiff and the matter had been seized by the Directorate of Enforcement Wing.

Extracting a certain portion of the pleadings in the written statement, the plaintiff sought passing of a decree and judgment upon the said statement as admission.

Bench stated that the three admissions which were relied upon by the applicant were all general admissions and did not admit the suit claim.

Further, the Court added that the admission that fraud was committed per se will not entail the plaintiff for a decree as claimed in the suit. Whatever claimed in the suit has to be proved through evidence in the manner known to law and the portions of the admission relied upon by the plaintiff/applicant is a general admission of fact regarding the liability of the first defendant company and its inability to pay his creditors. The general admissions of fact cannot be construed as an admission of suit claim to pass a judgment and decree.

In view of the above application was dismissed. [Northern Arc Capital (P) Ltd. v. Sambandh Finserve (P) Ltd., 2021 SCC OnLine Mad 2577, decided on 5-07-2021]

Advocates before the Court:

For Applicant: Mr Anirudh Krishnan

For 1st Respondent: Mr. Supriyo Ranjan Mahaptra

For 2nd respondent: Mr Prashant Rajapogal

Case BriefsHigh Courts

Kerala High Court: The Division Bench of A. Muhamed Mustaque and Kauser Edappagath, JJ., held that false allegation of impotency amounts to mental cruelty, hence, is a valid ground for dissolution of marriage.

The appellant and the respondent were husband and wife, both doctors by profession. Both of them had initiated legal proceedings against each other – the husband, for divorce and the wife, for restitution of conjugal rights. After trial, the Court below, by the impugned common order, dismissed the original petition filed by the appellant and allowed the original petition by the respondent granting her a decree for restitution of conjugal rights.

The appellant had sought for decree of nullity on the ground that his consent to the marriage was obtained by fraud perpetrated by the respondent in suppressing material facts regarding her mental condition. He had also prayed that the marriage be dissolved on the grounds of incurable unsound mind and cruelty on the part of the respondent.

Whether suppression of any information amount to fraud?

Though it was alleged by the appellant, and practically admitted by the respondent, that two psychiatrists had treated the respondent, no steps were taken by the appellant to examine them or to produce the treatment records. The essential ingredient to be proved for securing an order of dissolution of marriage under Section 10 (1) (iii) of the Act, 1869 is that the respondent had been incurably of unsound mind for a continuous period of not less than two years immediately preceding the presentation of the petition; but there was no convincing evidence on record to prove that the respondent had been suffering from any mental disease of incurable nature. Therefore, opining that the proviso to Section 19 of the Act gets attracted only when the consent was obtained through force or by playing fraud, the Bench explained,

“The word ‘suppression’ does not occur in Section 19 of the Act. The Parliament has employed the words ‘force’ and ‘fraud’. Before a party gives consent for the marriage with the other, there is bound to be exchange of information. This Section cannot be treated as a provision placing burden upon a spouse to the marriage, to reveal the entire information about him or her to the other.”

Hence, the Bench reached to the findings that the allegation was about suppression and failure to inform a particular fact cannot be treated as fraud, unless the person failing to mention it was under legal obligation to state it. Thus, the non disclosure by the wife before marriage that she was suffering from delusion disorder was not a suppression of material fact. Hence, it could not amount to fraud in obtaining his consent for the marriage.


Considering the case of the appellant, the Bench opined that there was nothing to disbelieve the evidence given by the appellant that throughout the period they lived together, the respondent hs perpetrated various acts, ranging from several mental agony by behaving in an immature, irrational and bizarre manner, being drowsy, lethargic and unhygienic always, showing abnormal postures with her hands, talking uninhibitedly, often screaming that some gang was going to attack her, staring at people, having a phobia for darkness, having bad mouth odour, abdicating all shared household duties etc., making his life a living hell. The Bench stated that to constitute cruelty, the conduct complained of need not necessarily be so grave and severe so as to make cohabitation virtually unendurable or of such character as to cause danger to life, limb or health. It must be something more serious than “ordinary wear and tear of the married life”. It is sufficient if the conduct and behaviour of one spouse towards the other is of such a nature that it causes reasonable apprehension in the mind of the latter that it is not safe for him or her to continue the marital tie. The Bench further stated,

“Malevolent intention is not essential to cruelty. There may be instances of cruelty by unintentional but inexcusable conduct of the party. The absence of intention should not make any difference in the case, if by ordinary sense in human affairs; the act complained of could otherwise be regarded as cruelty.”

It had been held by the Supreme Court in Samar Ghosh (supra) that intention is not a necessary element in cruelty and that the relief to the party cannot be denied on the ground that there has been no deliberate or wilful ill treatment.

False Allegation of Impotency

Yet another facet of mental cruelty on the part of the respondent canvassed by the appellant was the false accusation made by the respondent against the appellant about his sexual capacity, that the appellant was suffering from erectile dysfunction and was incapable of performing sexual activities. In K. Srinivas Rao v. D. A. Deepa, (2013) 5 SCC 226, it was held that making unfounded indecent defamatory allegations against the spouse or his or her relatives in the pleadings amount to causing mental cruelty to the other spouse.

The respondent had imputed that the appellant was suffering from erectile dysfunction, and thus, he was incapable of performing sexual activities, but at the same breath, she had admitted that she had a satisfactory sexual relationship with the appellant after July, 2010. Therefore, opining that the respondent had miserably failed to substantiate the imputation made by her, the Bench said remarked,

“Casting aspersions of impotency or erectile dysfunction by one spouse against other in the counter statement in a matrimonial proceeding will undoubtedly constitute cruelty.”

Hence, it was found that the respondent making unnecessary accusations against the appellant amounted to mental Cruelty. Accordingly, the Bench held that the appellant had made out a case for granting a decree for dissolution of marriage on the ground of cruelty under Section 10(1)(x) of the Act. The prayer for restitution of conjugal rights by the respondent was rejected, the impugned orders were partly set aside and the marriage between the appellant and the respondent was dissolved.[xx v. xx, 2021 SCC OnLine Ker 2327 , decided on 31-05-2021]

Kamini Sharma, Editorial Assistant has reported this brief.

Appearance before the Court by:

For the Appellant: Adv. P.Gopakumaran Nair, Adv. B.Bindu and Adv. N.K.Subramanian

For the Respondent: Adv. K.N.Abhilash and Adv. Sunil Nair Palakkat

Op EdsOP. ED.

Arbitration is considered as one of the most preferred modes of dispute resolution as it is expedient, it values party autonomy and ensures party equality and these features are also the pillars on which arbitration as a method of dispute resolution enjoys its standing.

Mr Fali S. Nariman in one of his lectures said “the development of arbitration in India is not attributable to the success in arbitration, rather to the failures of the Court”.

The above-quoted statement quite vehemently and rightly express the development of the law concerning arbitration in India. The Indian jurisprudence has seen a constant development in its understanding and applicability of the concepts and principles of arbitration and the major changes in its jurisprudence has to be attributed to the developing judicial understanding over the same.

However, this method of dispute resolution suffers from various limitation and this article will be dealing with the issue of arbitrability, which is one of the most important issues and limitations of arbitration and it discusses whether the scope of the Arbitration Tribunal extends to disputes of all nature or there exists disputes which the Tribunal is not capable of resolving and have to be mandatorily tried in the courts.


Arbitrability refers to determining which type of disputes may be resolved by arbitration and what kind of disputes shall be exclusively dealt with by the courts.[1] As per Article V(2)(a) of the New York Convention, the arbitration award may be refused recognition or enforcement if the subject-matter of the difference is not capable of settlement by arbitration under the law of that country.[2] Further, Article 36(1)(b) of the UNCITRAL Model Law, a court can refuse enforcement if it finds that the subject-matter of the dispute is not capable of settlement under the law of the State.[3]

In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., the Supreme Court while propounding the three-prolonged test of determining arbitrability bifurcated the disputes into dealing with rights in rem and right in personam and held that the latter were arbitrable whereas the former was not arbitrable as they have the potential to affect the society at large.[4] The  Court also listed out certain types of disputes which were not arbitrable and there has been an evolving jurisprudence which has further added type of disputes to this list.

                  There are various categories of dispute like intellectual property rights, antitrust, insolvency, criminal matters, fraud, etc. which are considered to be non-arbitrable.[5] Fraud has been defined as concealing or making false representation by way of a statement or conduct which results into loss of the person relying on such representation.

Section 17 of the Contract Act, 1872[6] defines “fraud” to mean and include suggesting “a fact knowing it to be untrue, knowingly active concealment of a fact, making a promise without intending to fulfil it or any other act which is capable of deceiving and is committed by a party to a contract, or with his participation, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract”.

The Evolving Jurisprudence

The following judicial decisions highlight the evolving jurisprudence over the concept of arbitrability of fraud:

  1. Russel v. Russel.—The issue of arbitrability of fraud for the first time arose in this case, wherein it was held that if there exists prima facie evidence to support the existence of fraud the court can refuse to refer the matter to arbitration.[7]
  2. Thereafter, the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak  held that cases involving serious allegations of fraud were to be decided by the court and it was a valid ground for not referring the matter to arbitration.[8]
  • The  Supreme Court  again in N. Radhakrishnan v. Maestro Engineers  held that an issue of fraud is not arbitrable as the case involved serious allegations of fraud and such dispute were to be settled by the courts through detailed evidence led by both parties. In addition to this, the  Court also emphasised that the dispute would be non-arbitrable on public policy consideration if it was related to serious allegations of fraud.[9]
  1. A. Ayyasamy v. A. Paramasivam[10].—It was held that, cases where there exists serious allegation of fraud are to be treated as non-arbitrable and such matters have to be dealt with only by the civil courts. However in case, the allegations are in the nature of fraud simpliciter, such disputes can be dealt by the Arbitral Tribunal.[11] The Supreme Court further deliberated that issues in which there exists serious allegation of forgery/fabrication of documents or where fraud is capable of invalidating the entire contract or affects the validity of the arbitration clause will be dealt only by the courts and the Arbitration Tribunal will not have jurisdiction to decide the same.
  2. The concept of “complex fraud” may be found in the opinion of Lord Hoffman, in Fiona Trust & Holding Corpn. v. Privalov, where the Court dealt with the concept of “complex fraud” and held that it refers to a scenario where the very foundation of an arbitration agreement is challenged due to a fraudulent act.[12]
  3. Further in Rashid Raza v. Sadaf Akhtar, the  Supreme Court formulated a two-step test to determine what constitutes a complex fraud It held that firstly, it has to be seen that whether the plea perrmeates the entire contract and specifically the arbitration agreement, thus rendering it void and secondly, the courts have to see whether the allegations of fraud are related to the internal affairs of the parties and have no implication in the public domain and such case it would be arbitrable.[13]
  • The Supreme Court in Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. observed that a dispute becomes non-arbitrable only when the court comes to the conclusion that the “serious allegations of fraud” which make arbitration agreement itself is inexistent and has been vitiated by fraud; or in cases where the allegations are levelled against the State or its instrumentalities, relating to arbitrary, fraudulent, or mala fide conduct, raising  the question of public law as opposed to questions limited to the contractual relationship between the parties and rest all the allegations of fraud are arbitrable.[14]

The Problematic Jurisprudence

The existing jurisprudence highlights the complexity with which the issue of arbitrability of fraud has been dealt with and more importantly it has been overfilled with various test making it more prone for judicial intervention. There exists no sound logic for differentiating between fraud simpliciter and fraud complex as the arbitrators also has the power to seek assistance for the recording of evidence under Section 27 of the Arbitration and Conciliation Act, 1996[15] (hereinafter referred to as “the Act”) and hence decide accordingly based on such evidence the issue of fraud like the courts would ordinarily do.

The fact that this distinction is superfluous and impractical is evident by the fact that the Supreme Court itself after suggesting this distinction in Ayyaswamy[16] has suggested new and complex factor to the same and thus making it unpredictable and wavering.

Even the Law Commission in its 246th Report proposed addition of sub-section (6) to Section 16 of the Act and empowering the Tribunal to pass an award even if there were allegations of fraud  which would still leave the parties with the option of raising the issue of arbitrability before the arbitrator at the pre-award stage and thus adhering to the principle of Kompetenz-Kompetenz and if rejected by the Tribunal, it would be available at the post-award stage as the award can be challenged on the ground of conflicting with the public policy of India under Section 34(2)(b)(ii) of the 1996 Act.[17]

Further, the  Supreme Court in  World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd. while dealing with a foreign seated arbitration held that every kind of fraud is arbitrable, there exists no reasonable differentia for this different approach for foreign and domestic arbitration.[18]

Solving the Problem

Recently, the  Supreme Court in Vidya Drolia v. Durga Trading Corpn. held that allegations of fraud are arbitrable when it relates to a civil dispute and exclude only those claims which vitiates and render the arbitration clause invalid.[19] The Court analysed the fact that arbitration is a private dispute resolution mechanism which aims at securing just, fair and effective resolution of disputes in an expedient manner. The Court focused on the distinction between matters which deal with right in rem and right in personam.

Previously, in N Radhakrishnan case[20], the Supreme Court had held that a dispute would be non-arbitrable on public policy constraints if it is related to serious allegations of fraud. However, the Supreme Court in Vijay Drolia[21] held that if the reasoning propounded in N. Radhakrishnan[22] has to be accepted, it would be similar to agreeing that the arbitration mechanism of the country is flawed and compromised one which can be set aside on grounds that public policy or public interest demands that such dispute should be decided in the court and it would be abrupt to second this opinion. In addition to this, the  Court also highlighted the fact that an  arbitrator is also an expert and decides a case on basis of facts, evidence and law. Further simplicity, informality and expedition are hallmarks of arbitration. Also the principle of party autonomy which finds its place in Sections 8[23] and 11[24] of the Act and also Section 89 of the Civil Procedure Code, 1908[25] of respecting the autonomy of parties and their decision to arbitrate the matter by simply referring the matter to arbitration and not try it themselves.

The  Court further highlighted that the general rule and principle, given the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019[26], and the principle of severability and Kompetence Kompetence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The Court has been conferred the power of “second look” on aspects of the non-arbitrability post the award in terms of sub-clauses (i), (ii) or sub-clause (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act[27].

The Court propounded the fourfold test for determining the arbitrability of the subject-matter:

  1. When the cause of action and subject-matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;
  2. When the cause of action and subject matter of the dispute affects third-party rights; have erga omnes effect; require centralised adjudication, and mutual adjudication would not be appropriate and enforceable;
  3. When the cause of action and subject-matter of the dispute relates to the inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and
  4. When the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).

It held that only when the answer is affirmative, the subject-matter would be considered as non-arbitrable and accordingly it overruled the ratio in N. Radhakrishnan judgment[28]  and held that allegations of fraud can be arbitrable when it relates to a civil dispute. However, the only caveat being that fraud which vitiates or rends the arbitration clause invalid would be non-arbitrable. It further held that matters which are to be adjudicated by the Debts Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 will not be arbitrable.


This recent judgment of the Supreme Court has cleared its stance over the issue of arbitrability of disputes concerning serious allegation of fraud and its relation to the public policy of India and is definitely a step towards the agenda of a pro-arbitration regime, however in the author’s view the Supreme Court has left the matter half done by holding that “those frauds which vitiate or renders the arbitration clause invalid would still be non-arbitrable”, as this still leaves the scope for judicial intervention in arbitration matters where the courts can delve into the question of validity of the arbitration clause and thus can still intervene in arbitration matters which is against the basic principle of arbitration i.e. Kompetenz-Kompetenz.

In Henry Schein Inc. v. Archer and White Sales Co.,  the US Supreme Court held that the issue of arbitrability must be decided by the arbitrator in all cases and not by the civil courts.[29] It further emphasised that even where any party pleads that the reference to arbitration is baseless or has no grounds, even that plea should be decided by the arbitrator because of the principle of Kompetenz-Kompetenz.

This approach adopted by the US Supreme Court is in consonance with the basic principles of arbitration and hence acts as a benchmark towards establishing and functioning a pro-arbitration regime and is a favourable approach than the one propounded by the Indian Supreme Court. Thus it can be concluded that though the Indian jurisprudence on arbitraibility is moving towards a pro-arbitration regime, it cannot be said to be settled notion and in full consonance with the established principles of arbitration like Kompetenz-Kompetenz.

* Principal Associate, Hammurabi and Solomon Partners.

** IVth year student, BA LLB (Hons.), National Law University, Nagpur.

[1]Nigel Blackaby, Constantine Partasides et al., Redfern and Hunter on International Arbitration, 110, (5th Edn. 2014).

[2]Article V(2) NYC, United Nations Commission on International Trade Law, UNCITRAL Model Law on

 International Commercial Arbitration 1985: With amendments as adopted in 2006 (Vienna: United Nations,

2008), available from

[3] Article 36, United Nations Commission on International Trade Law, UNCITRAL Model Law on International

 Commercial Arbitration 1985: With Amendments as adopted in 2006 (Vienna: United Nations, 2008)

[4] (2011) 5 SCC 532 

[5]See O.P. Malhotra on The Law and Practice of Arbitration and Conciliation, Third Edn. authored by Indu Malhotra.


[7](1880) 14 Ch D 471

[8](1962) 3 SCR 702

[9] (2010) 1 SCC 72

[10] (2016) 10 SCC 386

[11]Shubham Jain and Prakshal Jain, Arbitrability of Fraud in India – Is Ayyasamy only about “Seriousness”?, IndiaCorpLaw (31-10-2019), available at

[12]Fiona Trust & Holding Corpn. v. Privalov, 2007 UKHL 40.

[13] (2019) 8 SCC 710 

[14]2020 SCC OnLine SC 656

[15] Arbitration and Concialiation Act, 1996 

[16] Supra Note 10.

[17] Law Commission of  India, Report No. 246 on Amendments to the  Arbitration and Conciliation Act, 1996 (2014).

[18](2014) 11 SCC 639

[19]2020 SCC OnLine SC 1018

[20] Supra Note 9.

[21] Supra Note 18.

[22] Supra Note 9.






[28] Supra Note 9.

[29] 2019 SCC OnLine US SC 1 : 202 L Ed 2d 480 :  139 S Ct 524 : 549 US           (2019)

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): The Division Bench of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) while partly allowing the complaint expressed that the surveyors of the insurance company adopted a conservative approach and kept demanding for information without any further clarification.

Complainant filed the instant complaint against the Opposite Party under Section 21(a)(i) of the Consumer Protection Act, 1986.

Complainant Co. was engaged in the business of arbitrage between NSE and BSE. As per the requirements of NSE and BSE, the complainant company took the insurance cover from the OP for cover amount of Rs 1 crore. The said policy was being renewed every year regularly, which covered “fidelity” under Section 1A of the terms and conditions of the policy. Nilesh Patel was incharge and looking after the arbitrage operations and other back-office work related to the updating of trade datas, MIS reports and deciding about volume of arbitrage. He was drawing salary and entitled to annual bonus like other employees. Alongwith that, he was not allowed to trade on his own or otherwise, any time.

It was noted that Mr Nilesh Patel committed huge fraud by transferring the losses into the accounts of companies clients. Complainant submitted that the said acts were fraudulent, unauthorized, without consent or permission of authority of the Complainant Co. and/ or his constituents.

Complainant company filed an insurance claim with the OP Insurance Co. OP rejected the claim of the complainant co. on the ground of speculative trading entered into by its employee which was outside the scope of the policy.

BSE observed that the loss incurred to the complainant was due to the fraud and infidelity of its employee and it was not speculative trading. OP still refused to settle the insurance claim.

On being aggrieved with the above position, the consumer complaint was filed.

Analysis and Decision

Bench observed that the two surveyors appointed by the insurance company failed to act as per IRDA guidelines and unnecessarily delayed the settlement of the claim. Complainant company though had submitted the entire details as sought, yet the surveyors made repeated demands for additional information.

In view of the above, the Commission found that the surveyors did not follow the IRDA guidelines which was a deficiency of service of the part of the OP.

The Complainant suffered loss due to dishonest actions of its employee Nilesh Patel who confessed his misdeeds and due to guilt, he committed suicide.

Commission opined that the complainant’s claim would be squarely covered under Section 1A i.e. ‘Fidelity’.


Loss resulting solely and directly from dishonest or fraudulent acts by Employees of the Insured committed with the manifest intent to cause the insured to sustain such loss or to obtain a financial gain for themselves wherever committed and whether committed alone or in collusion with others, including loss of property through any such acts by Employees.”

Evidence on record clearly establishes that the Complainant Co. suffered a loss due to fraudulent acts of Mr Nilesh Patel, the employee of the Company.

Bench on perusal of the record expressed that it was the apprehension of the Surveyors who surveyed arbitrage transactions only theoretically and failed to grasp the sophisticated techniques adopted by the complainant co. for arbitrage transactions.

Commission found that it was the baseless presumption of the Surveyors that Mr Nilesh Patel possibly attempted to make profits on speculative transactions, since his remuneration could be performance-based.

Based on the entirety the deficiency in service on the part of Insurance Co. was evident. OP was directed to pay an insurance claim of Rs 1 crore to the complainant co. alongwith interest @9% p.a. [R.R. Chokhani Stock Brokers (P) Ltd. v. New India Assurance Co. Ltd., 2021 SCC OnLine NCDRC 20, decided on 04-02-2021]

Advocates for the parties:

For the Complainant: Harish Malhotra, Senior Advocate with Ramakant Chokhani, AR

For OPs: P.K. Seth, Advocate

Bharat ChughExperts Corner

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

Who is the master of them all? The written letter of the law, or the subjective whim of an investigator?

This is the question that Section 447 of the Companies Act (CA, 2013) poses.

Section 447 makes fraud a penal offence. Prior to introduction of Section 447, provisions under the Penal Code, 1860 (IPC) such as Sections 406, 420, 465, 477-A, etc. would normally be pressed into action in such cases. But, given the complex nature of corporate frauds, their sheer impact, and the heightened need to investigate and punish them more effectively, the need for a special provision was felt.

This is the genesis of Section 447 of the CA, 2013. So far so good.

The definition of “fraud” under CA, 2013, however, leaves a lot to be desired. In fact, it is a definition that fails to define. Let us see how.  Section 447 reads:

  1. Punishment for fraud.—Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one per cent of the turnover of the company, whichever is lower,  shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud: 

Interestingly, the section itself does not define what fraud is. This is what takes us to the Explanation.

Explanation.—For the purposes of this section—

(i) “fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;

On a mere glance, two things immediately stand out:

  1. There is no definition of fraud in the main provision. It is the Explanation to the section that seeks to define what fraud is. The definition in the Explanation is – and wait for it – an inclusive one. It is merely illustrative. Simply put, this means that the section does not define fraud exhaustively and there can be other acts which may qualify as “fraud”, over and above those stated in the section.
  2. Finally, the last part of the section which renders culpable the act of injuring of the “interests” of “any other person” is simply too wide.

Let us unpack each of the above briefly:

First things first, the definition comes out of the Explanation and not the section itself. There is substantial jurisprudence on the purpose of an “Explanation” to a provision. An Explanation is supposed to clarify. But here the Explanation does just the opposite. It obfuscates. It does illustrate what would qualify as “fraud” but leaves the door wide open. Put differently, it says “x, y, and z” would be fraud, but, wait a minute, there may be other things that may qualify as “fraud”  too. Now, this is where the problem lies.  Who decides what those other things may be? The investigator? And that too post facto. This is not how criminal laws are supposed to work.

The provision is astonishingly open ended, and in my humble opinion, unconstitutionally vague. It is an established legal position that there cannot be blurred signposts to criminality. There is a constitutional requirement that a criminal statute be precise, specific, and unambiguous. The idea being that a citizen cannot be kept guessing about what is criminal and what is not and should be able to understand as to what exactly constitutes a crime. Criminal laws which do not explicitly and definitively state which conduct/omission attracts criminal sanctions – may be challenged on the ground of being void for vagueness. This is because vague statutes can lead to arbitrary and discriminatory prosecutions and concentrate too much power in the hands of the investigators.

A definition such as the one for fraud that we saw above would leave the investigators with way too much latitude to, mean what they mean out of the term. Such breadth may lead to over-criminalisation and abuse.

In Skilling v. United States1, it was held that:

… a penal statute [must] define the criminal offense (1) with sufficient definiteness that ordinary people can understand what conduct is prohibited; and (2) in a manner that does not encourage arbitrary and discriminatory enforcement.

Closer to home, in Shreya Singhal v. Union of India2, the infamous Section 66-A IT Act was struck down for over-breadth and held to be unconstitutionally vague.  Similarly, in State of M.P. Baldeo Prasad3, the Court struck down a law criminalising “goondas” on the basis that it did not really define who a “goonda” was. In this case, the definition of a goonda laid down by the Central Provinces and Berar Goondas Act, 1946, was of an inclusive character, and indicated no definitive tests for deciding whether the person was a “goonda” or not.

Section 447 of the CA, 2013 suffers from a similar anomaly.

The way it is worded and the kind of discretion it gives an investigator reminds one – of what Bentham calls – dog law:

“Just as a man makes laws for his dog. When your dog does anything you want to break him of, you wait till he does it, and then beat him for it. This is the way you make laws for your dog….” 

This cannot be the way laws are made for men, especially in a jurisprudence governed by the rule of law, and not the rule of men. And, for greater reason, when personal liberty is at stake.

 The vagueness of what “fraud” is under Section 447 of the Act is further compounded by the use of expressions such as: acts/omissions injuring the “interests” of “any other person”. Now what are these “interests” and who all can fall within the scope of the expression “any other person” are left to the investigator, and then – the court. The inclusive nature of the definition and both these expressions are capable of too wide a meaning, and add to the vagueness of the section, and possibility of abuse.


Given the above, there is a need to either read down, or statutorily amend Section 447 of CA, 2013 and tailor it narrowly – and with precision and clarity. In the present shape, the section is unconstitutionally vague, subjective, open ended and prone to misuse and over-criminalisation. In our enthusiasm to check the scourge of white-collar crime and corporate frauds, we must not cut corners with fairness and due process. A just, fair and reasonable criminal justice system mandates clear signposts to criminality. In other words, what we need is: the rule of law, and not the rule of the investigator.

† Former Judge and Independent Counsel, e-mail

1 2010 SCC OnLine US SC 82 : 177 L Ed 2d 619 : 561 US 358, 402-403 (2010).

2 (2015) 5 SCC 1.

3 AIR 1961 SC 293.

Op EdsOP. ED.

I. Introduction

Arbitration has evolved as the most preferred form of alternate dispute resolution method mostly owing to a surge in commercial disputes and intent of parties to resolve them expeditiously before a private forum. However, it has not been immune from contentious and debatable issues which are witnessed from time to time, leading to considerable amount of judicial intervention and delay in adjudication. One such issue that has plagued arbitration is whether allegations of fraud can be adjudicated under the regime of arbitration. This issue arises because arbitration is restricted to deciding only the rights in personam (against a particular person) and excludes rights in rem (affecting other persons such as matters involving crimes, matrimony, insolvency, winding-up, testamentary matters, trust[1], etc.).[2] Whereas fraud is an issue which may not solely be inter se between the parties but also permeates into the realm of public law in certain occasions. In other words, it possesses dual characteristic, capable of being decided as a right in personam as well as a right in rem. The element of ‘fraud’ goes into the root of the intention of the parties to enter into a contract[3]. This very idiosyncrasy of fraud has led to a major conundrum in the arbitration regime, resulting into diverse views.

Recently, the Supreme Court in  Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. [4] dated 19 August 2020 (Avitel) had the occasion to deal with this issue. Before discussing the recent decision by the Supreme Court, it is important to set out the jurisprudence surrounding arbitrability of fraud.

II. Evolution of jurisprudence on arbitrability of fraud

The line of decisions on arbitrability of fraud started with the judgment by a three-Judge Bench of the Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak[5] (Abdul Kadir”). In Abdul Kadir, the Supreme Court while placing reliance on various English judgments such as Russel v. Russel[6], held that the Court will, in general, refuse to refer a dispute to arbitration if the party charged with fraud desires a public inquiry, but where the objection to arbitration is by the party charging the fraud, the Court will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved[7].

However, in N. Radhakrishnan v. Maestro Engineers[8], (Radhakrishnan), which involved allegations of malpractices in account books and manipulation of records of the partnership firm, the Supreme Court sought to rely on its ruling[9] of Abdul Kadir judgment. While doing so, it held that wherever serious allegations of fraud are raised, it would necessarily mean that they should be tried in a court of law and therefore, rejected the application filed under Section 8 of the Arbitration & Conciliation Act, 1996 (as amended) (“the Arbitration Act”).  This simpliciter rejection to refer the parties to arbitration shifted the course of this issue. Not only did the Supreme Court overlook its own judgment in  Hindustan Petroleum Corp. Ltd. v. Pink City Midway Petroleums[10], and P. Anand Gajapathi Raju v. P.V.G. Raju[11], but also did not consider the aspect where a party can subterfuge the arbitration agreement on simpliciter allegations of fraud. The Court in Radhakrishnan[12] also overlooked the fact that in contrast to Arbitration Act, 1940, the scheme of reference under Section 8 of Arbitration Act, 1996 was radically different where reference to arbitration was mandatory upon existence of arbitration agreement.

The decision in Radhakrishnan[13] set the clock backwards on the approach qua arbitration in India, as it led to arbitration clauses being rendered redundant and increased the scope for judicial interference.

III. Attempted course correction by adopting pro-arbitration approach

The course adopted in Radhakrishnan’s[14] judgment was sought to be corrected by the Supreme Court in  Swiss Timing Ltd. v. Commonwealth Games Organizing Committee[15], (Swiss Timing) and World Sport Group (Mauritius) Ltd.  v. MSM Satellite (Singapore) Pte Ltd.[16], (World Sport Group)  where the Court made bold and remarkable attempts to rectify the past precedents while dealing with applications filed under Sections 11 and 45 of the Arbitration Act respectively, which were resisted primarily on the grounds of fraud being alleged.

In Swiss Timing case[17], where the appointment of the arbitrator under Section 11 was resisted on grounds of pendency of criminal proceedings nullifying the arbitration clause, the Court appointed the arbitrator by keeping in the line with the spirit of the Arbitration Act. It was held that, when a judicial authority is faced with an arbitration clause in an agreement, it is mandatory for the authority to refer parties to arbitration. The Court notably applied the doctrine of severability of arbitration agreement.The Court also dealt with  Radhakrishnan[18]  judgment and rightly held the same to be per incuriuam[19]. The Court also observed that, it is only when the contract is ex facie void, from a meaningful reading of the contract without requirement of further proof, that the appointment cannot be made under Section 11 of the Arbitration Act. However, as this   judgment was made by a Single Judge in an application filed under Section 11, Radhakrishnan[20] judgment could not be overruled in Swiss Timing.[21]

The Supreme Court in World Sport Group[22] was faced with a similar question while dealing with reference to foreign seated arbitration under Section 45 of the Arbitration Act. The Supreme Court not only allowed the application but also went a step further and observed that where allegations of fraud in the procurement or performance of a contract are alleged, there is no reason for arbitral tribunal to decline jurisdiction.

IV. Recommendations by the 246th Law Commission Report on the issue

The 246th Report of the Commission on ‘Amendment to the Arbitration and Conciliation Act, 1996[23] (“the Law Commission Report”) attempted to resolve the issue of arbitrability of fraud by legislative mechanism while attempting to achieve pro–arbitration approach. In the Law Commission Report, it was suggested to introduce a blanket provision after sub-section (6) to Section 16 of the Arbitration Act bestowing upon the tribunal, the power to make an award despite allegations of fraud.[24]

However, this amendment was not brought in by the Legislature and the issue pertaining to arbitrability of fraud persisted before the courts of law. The Supreme Court in  Ayyasamy[25] (cited hereinafter) observed that Parliament may have felt, as was mentioned by Lord Reid in British Railways Board and Herrington[26], that it was unable to make up its mind and instead, leave it to the courts to continue, case by case, deciding upon what should constitute an exception to fraud.[27]

Although the Law Commission Report took note of the conundrum surrounding the arbitrability of cases involving allegations of fraud, the recommended provision was clouded with ambiguity and elusiveness, which is evident from the use of the phrases “serious question of law, complicated questions of fact or allegations of fraud, corruption etc.

V. Arbitrability of disputes – Rights in personam[28]and rights in rem[29]

The Arbitration Act is silent on exclusion of disputes of any category of disputes from its purview, which renders them non–arbitrable. Nonetheless, the Arbitration Act recognises the power of the court to set aside the award if the subject- matter is not arbitrable under the law for the time being in force.[30] Generally and traditionally, all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule.

Arbitrability of dispute is dependent upon the nature of rights involved in the disputes – right in personam and rights in rem. The Supreme Court, in  Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd.[31] (“Afcons”) and Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.[32] (“Booz Allen”)  have made an attempt to categorise the disputes which are non–arbitrable, which includes, inter alia, cases involving serious and specific allegations of fraud and prosecution of criminal offences.[33] The rationale for such categorisation is that such matters relate to actions in rem and hence, cannot be subject to arbitration which is a private forum for the parties. However, this broad categorisation of the cases must be read in light of the judgment laid down in the Ayyasamy case[34] (cited hereinafter).

VI. Twin test to determine “seriousness of fraud” evolved in Ayyasami case

VII. The judgement passed by the Supreme Court in Ayyasamy v. A. Paramasivam[35], (Ayyasamy) proved to be a greeting respite in the arena of fraud relating disputes arising under a contract containing an arbitration clause.

The Supreme Court in  Ayyasamy case, was dealing with an application preferred by the appellants (i.e. the original applicants) under Section 8 of the Arbitration Act, which faced resistance on the ground that acts of fraud were attributable to the applicants and the dispute was not arbitrable[36]. The lower courts, placing reliance on  Radhakrishnan case[37], rejected the reference to arbitration observing that there were allegations of fraud. The Supreme Court reversed the finding of the lower courts by holding that mere allegation of fraud cannot be a ground to nullify the effect of arbitration agreement between the parties. The Court laid emphasis on whether its jurisdiction has been ousted rather than determining if it has jurisdiction. It was held that a reference to arbitration is to be rejected only when the allegations are of serious and complicated nature, which requires extensive evidence and trial before a court. The decision of the Supreme Court was in consonance with the principle of kompetenz kompetenz (embodied in Section 16 of the Act) under which the arbitral tribunal has the power to decide on its own jurisdiction.

It is noteworthy that  Ayyasamy case[38] (passed by a Bench of same strength as that of Radhakrishnan case[39]), did not overrule the judgment in  Radhakrishnan case expressly, but laid down the criteria for sifting of cases involving serious allegations of fraud and simpliciter allegations of fraud, the former being non–arbitrable. The Supreme Court propounded the twin test in order to assess the ‘seriousness’ of fraud, viz. “(1) does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (2) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.“

The principles evolved in the judgment in  Ayyasamy[40] judgment were thereafter applied by the Supreme Court in  Rashid Raza v. Sadaf Akhtar[41], (Rashid  Raza), which has been passed by a Full Bench. By doing so, the Supreme Court has impliedly, overruled the decision passed in Radhakrishnan case[42].

VIII. Supreme Court’s decision in Avitel Post Studioz Ltd. HSBC PI Holdings (Mauritius) Ltd.

The test underlying the determination of arbitrability of fraud has evolved significantly in the judgments passed by the Supreme Court in  Ayyasamy[43] and Rashid Raza[44]. However, the issue came up once again before the Supreme Court in Avitel case[45], from an order passed under Section 9 of the Arbitration Act for interim measures applied by a foreign party award-holder. In Avitel case[46], HSBC alleged fraudulent inducement while entering into contract with Avitel Group. The award was passed in favour of HSBC, upholding its contentions. Thereafter, HSBC applied for interim measures before the courts in India, when Avitel set up a defense that there were serious allegations of fraud and certain criminal cases were also pending and therefore, no orders should be passed.

After due consideration of the facts, the Court applied the twin test laid down in Ayyasamy case[47] and (as also applied in Rashid Raza case[48]), and held that the allegations of impersonation, false representation and diversion of funds were inter parties and did not have any ‘public flavour’. In view of the same, the Supreme Court dismissed the appeal, and upheld the orders passed under Section 9 of the Arbitration Act. In Avitel case[49], the Court reiterated the position of law pertaining to arbitrability of fraud and applied the same while dealing with the application for interim measures.

The Supreme Court in Avitel[50] also clarified that the criteria of arbitrability as laid down in Booz Alllen[51] and Afkons[52] cases cannot be read in bereft of the twin test laid down in  Ayyasamy case[53] while considering the arbitrability issue of fraud. It is not a rarity that the same set of facts can give rise to civil as well as criminal action under law[54]. Therefore, any dispute involving ‘fraud’ either under Section 17 of the  Contract Act, 1872 and/or tort of deceit, the mere fact that criminal proceedings have been initiated in respect of the same subject-matter would not lead to the conclusion that a dispute which is otherwise arbitrable (by applying the twin test), ceases to be so.


Although the judgment in  Ayyasamy case[55] had a pivotal role to play in the arena of cases involving the determination of arbitrability of fraud, the conundrum revolving around the issue still lingered. This appears to be mostly because the judgment in  Radhakrishnan[56]  was not overruled and continued to be heavily relied upon by the parties resisting the reference of disputes to arbitration on mere allegation of fraud.

The non-adoption of the recommendation of the Law Commission Report to introduce sub–section (7) in Section 16 of the Arbitration has left it to the courts to apply the test while dealing with the applications filed under the provisions of the Arbitration Act, whenever faced with resistance to the arbitrability of the dispute on the basis of the allegations of fraud. In any event, the introduction of such a provision would have been repugnant in cases where the allegations of fraud possess ‘public flavour’, which makes such disputes non–amenable to arbitration. Not to mention that the suggested provision was¸ prima facie, obscure and would have unleashed another line of litigation.

The Supreme Court, in Avitel case[57], has negated the precedential value of  Radhakrishnan case[58] and has made sincere efforts through its judgments in  Ayyasamy[59] and Rashid Raza[60] to demystify the arbitrability of fraud. However, the responsibility of the courts to determine if the allegations of fraud are serious or simpliciter in nature and if they attract ‘public flavour’ continue to be intact with them. As much as the intent of the courts have been to take a pro–arbitration approach, it appears that the judicial interference is inevitable, since the courts are burdened to go into the merits of the case in order to scrutinise if the allegation of fraud negates the existence of the arbitration clause itself or renders the dispute incapable of being arbitrable.

*Partner,  IndusLaw

**Senior Associate, IndusLaw

***Associate, IndusLaw

[1]Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788

[2]Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532

[3]Section 17 of the  Contract Act, 1872

[4] 2020 SCC OnLine SC 656

[5] AIR 1962 SC 406

[6] [1880] 14 Ch D 471

[7] See Abdul Kadir, AIR 1962 SC 406  at p. 713

[8] (2010) 1 SCC 72

[9]Abdul Kadir, AIR 1962 SC 406.  “13. There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference.”

[10] (2003) 6 SCC 503 

[11](2000) 4 SCC 539

[12] (2010) 1 SCC 72

[13] Ibid

[14] Ibid

[15](2014) 6 SCC 677

[16] (2014) 11 SCC 639

[17] (2014) 6 SCC 677

[18] (2010) 1 SCC 72

[19]See Footnotes 10 and 11

[20] (2010) 1 SCC 72

[21]Also clarified in State of W. B. v. Associated Contractors, (2008) 6 SCC 740

[22] (2014) 11 SCC 639 

[23] Report No. 246 on  Amendments to the Arbitration and Conciliation Act, 1996 (August 2014)   

[24]Amendment to Section 16, 246th Law Commission Report at p. 50 – After sub-section (6), insert sub-section “(7). The arbitral tribunal shall have the power to make an award or give a ruling notwithstanding that the dispute before it involves a serious question of law, complicated questions of fact or allegations of fraud, corruption etc.”

[25] Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386

[26] 1972 AC 877 [House of Lords]

[27] This case is referred to in Lord Brandon’s judgment in La Pintada (supra) and distinguished at p. 130 of his judgment.

[28] A right or interest protected solely against the specific individuals

[29]A right exercisable against the world at large such as actions determining the title to property

[30]Sections 34(2) (b) and  48 (2) of the Arbitration Act

[31] (2010) 8 SCC 24

[32] (2011) 5 SCC 532

[33]Para 27 in Afcons case and para36 in  Booz Allen case and new category of disputes arising under the Trust Deeds governed by the Trust Act, 1882 have been added in  Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788

[34] (2016) 10 SCC 386

[35] Ibid5

[36]Reliance was placed on Radhkrishnan case

[37] (2010) 1 SCC 72

[38] (2016) 10 SCC 386

[39] (2010) 1 SCC 72

[40] (2016) 10 SCC 386

[41] (2019) 8 SCC 710

[42] (2010) 1 SCC 72

[43] (2016) 10 SCC 386

[44] (2019) 8 SCC 710

[45] 2020 SCC OnLine SC 656 

[46] Ibid

[47] (2016) 10 SCC 386

[48] (2019) 8 SCC 710

[49] 2020 SCC OnLine SC 656

[50] Ibid

[51] (2011) 5 SCC 532

[52] (2010) 8 SCC 24

[53] (2016) 10 SCC 386

[54]Guru Grant Saheb SthanMeerghatVanaras v. Ved Prakash,  (2013) 7 SCC 622

[55] (2016) 10 SCC 386

[56] (2010) 1 SCC 72

[57] 2020 SCC OnLine SC 656 

[58] (2010) 1 SCC 72

[59] (2016) 10 SCC 386

[60] (2019) 8 SCC 710

Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar* and Dinesh Maheshwari, JJ has held that for invoking Section 17 of the Limitation Act, 1963, two ingredients i.e. existence of a fraud and discovery of such fraud, have to be pleaded and duly proved and that in case of failure to establish the existence of fraud, there is no occasion for its discovery.

Background of the case

The dispute dating back to 1990 pertains to a General Power of Attorney (GPA) purported to have been executed by the plaintiff in favour of defendant No. 1 and consequently sale deeds executed by defendant No. 1 as an attorney of the plaintiff. However, according to the plaintiff, reposing complete trust in her step brothers to step-brothers, she had signed on blank papers under the guise of preparation and processing of documents for the purpose of getting the estate left behind by their father mutated in their names.

After analysing the evidence on record, the trial Court dismissed the suit filed by the plaintiff and this order was upheld by the appellate Court. The High Court, however, reversed the concurrent opinions of two Courts and held that the trial Court as well as the first appellate Court committed manifest error and misapplied the settled legal position.

Challenging the High Court’s decision before the Supreme Court, the defendants argued that interference by the High Court was unwarranted as the same did not involve any substantial question of law. On merits, the aforesaid defendants contended that the evidence of the plaintiff was self­-contradictory, as she first claimed that her signatures were taken on blank papers and then denied her signatures occurring on the 1990 GPA. The plea that the signatures were taken on blank papers was not substantiated as the 1990 GPA was executed on stamp papers.


The Court held that the diverse grounds urged by the plaintiff in disputing the 1990 GPA and the sale deeds were unsubstantiated and untenable. Here are the key factors taken into consideration by the Court:

  • As the record revealed that the disputed documents were registered, the Court, guided by the settled legal principle that a document is presumed to be genuine if the same is registered, was of the opinion that the initial onus was on the plaintiff, who had challenged the stated registered document.
  • As the execution of the 1990 GPA and the sale deeds in the present cases was denied by the plaintiff, it became necessary for the plaintiff to examine the attesting witnesses of the disputed documents to establish her allegation about its non-execution. However, both the attesting witnesses were not examined.

“The trial Court had justly placed the initial burden of proof upon the plaintiff as it was her case that the subject documents were forged or product of fraud and moreso because the documents bore her signature. The first appellate Court did not elaborate on that aspect. Even assuming that the burden had shifted upon the defendants, the witness identifying signatures of the dead attesting witness was examined by the defendants. Therefore, the documents stood proved and the burden was duly discharged by the defendants.”

  • The evidence of plaintiff’s deed writer (PW4) unveiled that the stated documents were prepared on the basis of instructions of the plaintiff and had been duly executed by her in the presence of the attesting witnesses.

“… the trial Court and the first appellate Court had relied upon the evidence of PW4. The High Court, however, proceeded on surmises and conjectures and took a view which is perverse and tenuous.   In that, the ground on which the High Court rejected the evidence of PW4 is that he was known to the defendant No. 4 since his school days. We do not find it to be a correct approach to disregard  the credible testimony of the witness examined by the plaintiff herself (without declaring him as a hostile witness) and especially when it had come on record that the said scribe is a regular deed writer at  the  Tehsil  complex,  Dasuya.  Notably, PW4 had not been declared hostile at the instance of the plaintiff and as such, this part of his testimony would be staring at the plaintiff.”

  • Since the attesting witness had proved the execution of the sale deeds, the primary onus upon the plaintiff had not shifted unto the defendants. Further, the plaintiff was obliged to rebut the positive evidence produced by the defendants regarding payment of consideration amount to the plaintiff; but also ought to have independently proved her case of non-receipt of the consideration amount.


Concluding that the plaintiff failed to prove that her signatures on the subject documents are forged, the Court reiterated that the standard of proof required in a civil dispute is preponderance of probabilities and not beyond reasonable doubt.

“In the present cases, though the discrepancies in the 1990 GPA are bound to create some doubt, however, in absence of any tangible evidence produced by the plaintiff to support the plea of fraud, it does not take the matter further. Rather, in this case the testimony of the attesting witness, scribe and other independent witnesses plainly support the case of the defendants. That evidence dispels the doubt if any; and tilt the balance in favour of the defendants.”

[Rattan Singh v. Nirmal Gill, 2020 SCC OnLine SC 936, decided on 16.11.2020]

*Justice AM Khanwilkar has penned this judgment 

Case BriefsHigh Courts

Kerala High Court: A Division Bench of A.M. Shaffique and Mary Joseph, JJ., upheld the Family Court’s decision wherein the wife obtained the consent of husband by fraud.

Husband in the original petition sought a perpetual injunction restraining respondents and their men from trespassing into the petition schedule property and general damages for loss suffered.

Marriage | Null & Void

Another petition by the husband was filed seeking to declare the marriage between himself and respondent null and void for the reason that it was not consummated due to the heart ailment of the wife, suppressing which factum the consent for marriage was obtained

Another petition was filed by the wife seeking to get back money and gold ornaments given to her at the time of marriage, taken custody of and misappropriated by her husband.

Wife had also sought monthly maintenance under Section 125 of Criminal Procedure Code, 1973.

Husband’s petitions were allowed and marriage was declared null and void with a direction to pay damages, whereas the petitions filed by the wife seeking maintenance and return of gold were dismissed.

Aggrieved by the orders issued, the wife preferred the appeals as stated above.

Analysis and Decision

Suppressing Material Factum | Foul Play and Fraud

Bench stated that it is constrained to take a view that without revealing the cardiac ailments the wife had, the consent of the husband for marriage was obtained and suppressing of a material factum is undoubtedly a foul play and nothing short of fraud.

Consent of the husband for the marriage was obtained by playing fraud on him.

Hence Court found no fault in the family court’s decision in granting a decree declaring the marriage as null and void on the strength of the evidence already discussed with.

With regard to the damages being allowed to the husband, Court stated that as discussed above, husband had every reason for the claim made to succeed.

Family Court declined the wife for getting back the money and gold ornaments given to the husband at the time of marriage.

Bench stated that after scrutiny of Ext.A6 it was of a view that all articles belonging to the wife were already received by her from the husband.

With regard to the maintenance being denied by the Family Court, the bench observed that since the marriage was declared as null and void, the lady cannot claim the status of a wife so as to be entitled to raise a claim for maintenance.

The arguments advanced by the wife to get a reversal of the impugned common order being untenable ones, bench discarded those. [Ajitha v. Harshan, Mat. Appeal No. 734 of 2012, decided on 25-09-2020]

Case BriefsHigh Courts

Karnataka High Court: M.I. Arun, J. allowed the writ petition and declared the show cause notice or any subsequent proceeding as null and void.

According to the brief facts of the case, the petitioners were granted the impugned land in 1975 for non-agricultural purposes and had since been in peaceful possession.

The petitioners contended that the respondents had been issuing show-cause notices and had been pursuing proceedings against them since 2016 alleging that the said land was allotted to them, not in accordance with law. The petitioners had been defending themselves since the very inception of the dispute in 2016, and finally filing the present writ petition against the latest notice issued in August 2020. Further, the petitioners also sought the order passed by the respondent Commissioner cancelling their land grant to be quashed as it had been passed while the present appeal was still being adjudicated upon.

The Court held that since the land was granted to the petitioner in the year 1975 and the show cause notice has been issued in 2020, thus a lapse or delay of 45 years is not reasonable or just. The Court further pointed out that Article 112 of the Limitation Act prescribes 30 years limitation period for suits by or on behalf of the central or state government.

Furthermore, fraud may vitiate everything, but the respondents failed in indicating fraudulent acts by the petitioners in the notice. Thus the incessant delay in issuing the notice was held to be bad in law.[G. Chitra Poornima v. State of Karnataka, 2020 SCC OnLine Kar 1393, decided on 10-09-2020]

Case BriefsHigh Courts

Orissa High Court: S. K. Panigrahi J., granted bail and directed the petitioner company to pay the amount in accordance with the manner indicated.

The facts of the case as per the FIR lodged alleging charges under Sections 406/420/120-B of Penal Code, 1860 read with Section 6 of the Odisha Protection of Interests of Depositors (in Financial Establishments) Act, 2011 (O.P.I.D.) are that, one Biswa Bhushan Biswal husband of the petitioner herein, 6-7 years back approached the informant and introduced himself as a land broker doing business in plotting, land development, construction of buildings and flats through his company B. N. Infra Services Pvt. Ltd. where petitioner is the Managing Director. Br. Biswal insisted the informant to invest in the company and promised him assured returns vide agreement dated 19-5-2014, pursuant to which disbursal of Rs 1,89,00,000 was made by the informant. Biswas defaulted with return payments and consented to give one of his plots having Plot No. 3/441 to the informant in case of further default in payment vide a written letter. The said plot was later revealed to be already sold to someone else, subsequent to which another agreement dated 25-01-2017, wherein Biswas committed to pay Rs 1,76,00,000 out of which Rs 1 Lac was paid at the time of signing. The petitioner issued 10 cheques each amounting to Rs 1,50,00,000 which were dishonored by the bank due to insufficient funds. Thereafter FIR was lodged and during the investigation, Mr. Biswal and petitioner were arrested and later filed for bail which was rejected by Trial Court. Aggrieved by the same, an instant bail petition has been filed for seeking regular bail under Section 439 CrPC, 1973.

Counsel for the petitioner D.P. Dhal submitted that the petitioner is a housewife and Biswas is responsible for managing the day to day affairs of the company. It was further submitted that the company is a real estate company and hence comes within the ambit of Real Estate Regulation & Development Act, 2016 and Odisha Real Estate (Regulation and Development) Rule, 2017, hence Section 6 of the O.P.I.D. Act will not be attracted. He also prayed for the relief of bail to be granted.

Counsel for the respondent opposed all the arguments and stated that the instant case makes out for a clear offence of cheating and fraud and provisions of the O.P.I.D Act will squarely apply in the present case.

The Court after hearing both sides observed that characteristics of the agreement entered into between the parties is in the nature of an “agreement to sale” of a flat that was to be constructed by the defaulting petitioners company and hence is a simple flat buyer agreement. It was also observed that the defaulting company is registered under the Companies Act, 1956 and its MOA and AOA clearly states that it is not a “Financial Establishment” instead comes under the purview of the Real Estate (Regulation and Development) Act, 2016.

The Court also observed that it is imperative that the background of the Act needs to be understood before dealing with the legislation.

Whether the instant case falls under O.P.I.D Act or not?

Section 2 (d) of O.P.I.D Act defines “Financial Establishment” as a company registered under the Companies Act carrying on the business of receiving deposits under any scheme or arrangement or in any other manner.

It clearly states that in MOA and AOA it has to be mentioned that the primary business is receiving “deposits” pursuant to any “scheme or arrangement”. On a conjoint reading of Sections 2(d), 3 and 5 of O.P.I.D Act it is clear that the business should be in the nature of accepting or receiving “deposits”.
Section 10 of O.P.I.D Act provides for attachment of the Financial Establishments in case of default payment. Hence the operation of Section 10 of the Act would result in a piquant situation where one lone buyer while claiming refund of his deposit would cause the attachment of the other flats so constructed, irrespective of the fact as to whether such flats have been transferred to other transferees by the builder and corresponding rights thereupon have been created or not.

In case of flat buyer agreement, it provides for the consideration to be paid for the flat/apartment purchased which are sale transactions and are mandatorily registerable under the relevant laws wherein the question of the return of deposit or payment of interest on such deposits does not arise.

The Court relied on various judgments titled Viswapriya [India] Limited v. Government of T.N, 2015 SCC OnLine Mad 10349 and Prasan Kumar Patra v. State of Odisha, 2019 SCC OnLine Ori 93 and held that an inevitable situation will invariably arise when the provisions of the O.P.I.D Act are invoked in real estate transactions especially where a builder has constructed multiple flats/apartments. This kind of situation could not have been the intention of the legislature considering the practices, problems and complexities involved in the real estate sector. Hence the instant case is a classic example of a transaction gone awry which has been strenuously given the color of a criminal offence.

The Court also relied on a judgment titled Tetra Pak India (P) Ltd. v. Tristar Beverages (P) Ltd., 2015 SCC OnLine Bom 4707 and held that though a case of breach of trust may be both a civil wrong and a criminal offence there would be certain situations where it would predominantly be a civil wrong and may or may not amount to a criminal offence and giving colour of criminal case to dispute which is otherwise purely civil and commercial in nature would tantamount to an abuse of the process of court.

The Court further directed the State Government to give wide publicity to the provisions of the said RERA Act, 2016 in order to injunct any such unnecessary litigations arising out of builder-buyer relations.

In view of the facts and overall circumstances, the bail was granted.[Mahasweta Biswal v. State of Odisha, 2020 SCC OnLine Ori 633, decided on 25-08-2020]

Arunima Bose, Editorial Assistant has put this story together

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of SA Kaul, Aniruddha Bose and Krishna Murari, JJ ‘reluctantly’ dismissed an SLP arising out of a Allahabad High Court order which held that the students with certificates from ‘bogus and fictitious’ organisations cannot be allowed to continue pursuing their courses at Dr APJ Abdul Kalam Technical University (APJAKTU).

The Court said,

“We do have sympathy but this is not a case where we can really translate our sympathy to a relief in the present case, more so, in view of the fact that since this exam system is found to be fraudulent, the petitioners before us will never have a recognized plus two status and to give such students the opportunity to get a degree from the University will create a great anomaly.”

The Court also took noticed that the Jharkhand State open exam process itself appears to be a complete fraud. It also faulted the University for not carrying out an appropriate verification as also the State Government “which should have kept a watch for such fraudulent exam systems which operate out of one room”.

The Court, hence, asked the University and the State Government to take immediate corrective action and also bring the defaulters to book.

On being apprised that the continuation on the website of the recognition of the Board is not only creating a problem in Jharkhand but also in other Universities and hence immediate steps should be taken in this behalf, the Court asked all concerned to do the needful within three days.

[Sahil Sohail v. Dr. APJ Abdul Kalam Technical University, 2020 SCC OnLine SC 719, order dated 07.09.2020]

Case BriefsSupreme Court

Supreme Court: The bench of RF Nariman and Navin Sinha, JJ has held that “serious allegations of fraud” as a ground for exemption from arbitral proceedings arise only if either of the two tests laid down are satisfied, and not otherwise.

  • The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all.
  • The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.


The Court was hearing an appeal from the interlocutory judgment and order passed in the appeal under section 9 of the Arbitration and Conciliation Act, 1996 by the Bombay High Court in a dispute between HSBC and Avitel India.

HSBC made an investment in the equity capital of Avitel India for a consideration of USD 60 million in order to acquire 7.8% of its paid-up capital. This was done after Avitel India told HSBC that it was at a very advanced stage of finalising a contract with the British Broadcasting Corporation [BBC] to convert the BBC’s film library from 2D to 3D. This contract was expected to generate a revenue of USD 300 million in the first phase, and ultimately over USD 1 billion and hence, an investment of USD 60 million was required. HSBC, however, discovered that he purported BBC contract was non-existent and was set up by the Appellants to induce HSBC into investing the aforesaid money. Though Avitel Dubai received the entire investment proceeds of USD 60 million, it appeared that around USD 51 million were not used to purchase any equipment to service the BBC contract, but appeared to have been siphoned off to companies in which its promoters, the Jain family, had a stake.


Section 10 of the Contract Act states that all agreements are contracts if they are made with the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Section 14 states that consent is said to be free when it is not caused inter alia by fraud as defined in section 17. Importantly, the section goes on to say that consent is said to be so caused when it would not have been given but for the existence, inter alia, of such fraud. Where such fraud is proved, and consent to an agreement is caused by fraud, the contract is voidable at the option of the party whose consent was so caused.


If it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding under section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so.


Explaining the difference between a contract being obtained by fraud and performance of a contract (which is perfectly valid) being vitiated by fraud or cheating, the Court said that the latter would fall outside section 17 of the Contract Act, in which the remedy for damages would be available, but not the remedy for treating the contract itself as being void. This is for the reason that the words “with intent to deceive another party thereto or his agent” must be read with the words “or to induce him to enter into the contract”, both sets of expressions speaking in relation to the formation of the contract itself. This is further made clear by sections 10, 14 and 19, all of which deal with “fraud” at the stage of entering into the contract. Even section 17(5) which speaks of “any such act or omission as the law specially deals to be fraudulent” must mean such act or omission under such law at the stage of entering into the contract.

Thus, fraud that is practiced outside of section 17 of the Contract Act, i.e., in the performance of the contract, may be governed by the tort of deceit, which would lead to damages, but not rescission of the contract itself. Both kinds of fraud are subsumed within the expression “fraud” when it comes to arbitrability of an agreement which contains an arbitration clause.


After reading the issues and some of the material findings in the Foreign Final Award, the Court came to the conclusion that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The Court said that the fact that a separate criminal proceeding was sought to be started and may have failed was of no consequence whatsoever.

The Court further held that a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by HSBC, which would clearly fall within fraudulent inducement to enter into a contract under section 17 of the Contract Act. Such a contract would be voidable at the instance of HSBC. Also, the findings on the siphoning off of monies that were meant to be allocated for the performance of the BBC contract would attract the tort of deceit.

It, hence, concluded:

  • That there is no such fraud as would vitiate the arbitration clause in the SSA entered into between the parties as it is clear that this clause has to be read as an independent clause. Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration clause which is extremely wide
  • That the impersonation, false representations made, and diversion of funds are all inter parties, having no “public flavour” as explained in paragraph 14 so as to attract the “fraud exception”.

[Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd., 2020 SCC OnLine SC 656, decided on 19.08.2020]

Case BriefsHigh Courts

Kerala High Court: A Division Bench of S.V. Bhati and Bechu Kurian Thomas, JJ., addressed an issue pertaining to the following terms,

Total deprivation, through a partition deed and a release deed, of the property of a deaf and dumb sister forced her to approach the Court to restore her rights in her property and claim partition.

In the present matter, Court held that persons having physical infirmities like deafness or dumbness which seriously affect their cognitive functions can file a suit through “next friend”.

Mental infirmity in the context of Order 32 Rule 15 is not mental disorder, insanity or mental illness.


Mary, Leelamma, and Aani are sisters. Mary being the eldest and Aani the youngest. Leelamma, the second amongst the sisters, is a deaf and dumb person. She is also illiterate.

The eldest sister claimed to have brought up Leelamma under her care and custody, conducted her marriage, and that of her daughter too. Leelamma’s conjugal life with her husband did not last long as she came back along with her daughter to Mary’s care.


Leelamma alleged that partition deed and the release deed were executed on account of fraud and undue influence exerted over the plaintiff and thus sought to set aside the documents.

Partition Deed

As per the partition deed, the properties left behind the mother were divided between the three sisters.

Defendant 1 was allotted A schedule comprising 60 cents, while B schedule comprising just 5 cents, was allotted to the share of both plaintiff and defendant 1. Youngest sister and defendant 2 recited in the document that she is relinquishing her share in the properties.

Mary, defendant 1 the absolute owner of the entire 65 cents property.

Fraud and Dishonesty

Plaintiff conveyed to her daughter through gestures that she had been taken to some place to give her signature and that her thumb impression was taken.

Plaintiff alleged that release deed was cerated by undue influence, fraudulently, dishonestly, and without her knowledge or consent.

Next Friend

Defendant 1 questioned the right of the next friend to file the suit and also denied the incapacity of the plaintiff as far as her ability to comprehend and do things by herself was concerned and also denied the allegation of fraud, cheating and undue influence exerted by the defendants over the plaintiff.

Analysis and Decision

Next Friend

Order 32 Rule 15 of the Code of Civil Procedure, 1908 deal with Suits by or Against Minors and Persons of Unsound Mind. Appointment of next friend for a person with an unsound mind.

Further, the said provision deals with persons of mental infirmity, who are, by the said reason, incapable of protecting their interests, except with the assistance of a next friend, when suing or being sued.

Mental Infirmity

Living as a deaf and dumb person, has a debilitating effect on the mental faculties of comprehension, thought, communication and even response. These faculties when affected will have an effect on the person’s capacity to protect his civil rights.

Fraud, Undue Influence or Coercion

There is no dispute with the proposition that the burden of proof in respect of the plea of fraud, undue influence or coercion is upon the person who alleges the same.

Valid Contract

Free consent, competency to contract, lawful consideration, lawful object and agreement not declared to be void, are the main ingredients for a valid contract. It is a consensual act and the parties are free to settle any terms as they please.

Whether consent for partition and for the release deed has been obtained by undue influence or fraud played by the defendants upon the plaintiff?

High Court observed that, taking care of one’s own sister is a gratuitous or magnanimous act for which it cannot be believed that the entire property will be given away.

Position of Dominance

In the present matter, the defendants failed to prove good faith in the transaction and the execution of release deed documents was proved to have been done exploiting the position of dominance in which defendant 1 wielded over the plaintiff.

Principle of Undue Influence

Hence Court being of firm view stated that the said transactions relating to the share right of the plaintiff are void on the principle of undue influence.

Court also observed that nowhere does the document recite as to why more than 95% of the property (62.5 cents out of a total of 65 cents) left behind by mother of the parties to the document has been allotted to the share of the defendant 1, while the plaintiff is left with a meagre 4% (2.5 cents). Even the 2.5 cents allotted to the plaintiff was released in favour of the defendant1, within a period of five days of execution of Ext.A1. Though the document mentions payment of Rs 2.5 lakhs as consideration for the said transaction, it has come out in evidence that no such payment was received by the plaintiff.

“Fraud in the present case is evident and it has been deployed to exploit a hapless lady of her properties.”


Referring to Section 34 of the Indian Registration Act, 1908 and the Rules made thereunder may be apposite in the present context and Court found that the failure to inform the Sub-Registrar about the deafness and dumbness of one of the parties to the document was a deft method in playing fraud.

Hence, defendant 1 is entitled to 2/3rd share in the plaint schedule property and held that defendant 2 is not entitled to any share. [Mary v. Leelamma, 2020 SCC OnLine Ker 2491, decided on 30-06-2020]

Case BriefsHigh Courts

Orissa High Court: S.K. Paigrahi, J., while addressing a matter, observed that,

One cannot lose sight of the fact that GST regime is relatively new and is still evolving.

“…attempts to dampen the spirit of GST proper implementation are already assuming huge proportions and need to be curbed with an iron fist so that the contours of fiscal compass will be extended to the advantage of the people.”

Petitioner filed the bail application under Section 439 of the Criminal Procedure Code, 1973 for being punishable under Section 132(1)(b)(c) and (1) of the OGST Act, 2017.

Business transactions were made using several fictitious firms including G.S Unitrade,  G.S. Steels and Alloys Co., B.B Associates, Om Shri Ganesh Traders. Petitioner, Ronak Beriwal, Subhash Chandra Swain and Basanta Kumar are the proprietors of GS Unitrade, G.S. Steels & Alloys Co, B.B. Associates and Omm Shree Ganesh Traders respectively.

Above persons, individually and in collusion with each other alleged to have created several dummy and non-existent entities to avail bogus Input Tax Credit (ITC), for the purpose of defrauding the Revenue.


Creation of dummy and non-existent firms was the matter of concern.

Fake and fraudulent transactions have, among others, caused huge loss to the State exchequer at least to the tune of Rs 122.67 crores.


After intensive analysis of data from GSTN/e-way bill portal and inputs from various sources, the Joint Commissioner of State Tax, CT & GST Enforcement Range, Sambalpur detected the fraud committed by the accused.

Several incriminating documents, containing business transactions of such business entities, were unearthed and seized.

Petitioner, in his capacity as the proprietor of G.S. Unitrade, had shown to have purchased goods from many bogus firms and has availed ITC on the strength of fake invoices, without actual transfer of goods.

“…manner in which the accused, in collusion with other accused, had been operating would suggest that there are certain inherent flaws in the GST system, which is prone to such abuse.”

“Fraudsters are taking advantage of the inadequacy of electronic trails of all transactions by employing ingenious methods.”

The search and inspection conducted by the State Authorities revealed that no business was actually being conducted by the declared place of business.

Fictitious firms were created in the name of many daily labourers, private tutors, housewives etc., with the help of their identity documents like PAN, Aadhaar Card, Mobile phone, Voter Card, etc.

Hence accused was alleged to have committed of offences under Section 132(1)(i) read with Section 132(5) of the OGST Act, 2017, which are a non-bailable and cognizable.


In the instant case, the alleged GST fraud committed by the petitioner is having humongous ramification on the revenue collection by the State.

Further the bench added that, the possibility of the accused tampering the evidence and/or influencing/intimidating the witnesses also cannot be ruled out.

Moreover, the Courts cannot lose sight of the adverse impact such activities would have in the economy.

Bench stated that a large number of cases emerged in different parts of the country where such persons, with vested interests, have created a host of unscrupulous and bogus entities.

Fake entities are then used for the purpose of indulging in issuances of false and fabricated invoices, without actual movement or supply of goods and services and without payment of any GST to the public exchequer, but for the purpose of claiming ITC, by defrauding the Revenue.

Enormity of such devious activities touch the raw nerve of the economic system and strike at the root of the proper and effective functioning of the GST regime, which has been set up with the laudable object of “One Nation, One Tax, One Market”.

High Court stated that a countrywide cartel specializing in defrauding the GST system is operating to bring the economy to its knees.

High Court declined the release of the accused petitioner on bail at this stage. Accordingly, the bail petition filed on behalf of the accused/petitioner was rejected. [Amit Beriwal v. State of Odisha, 2020 SCC OnLine Ori 546 , decided on 27-07-2020]

Case BriefsHigh Courts

Orissa High Court: S.K. Panigrahi, J., while addressing a matter with regard to money laundering by way of ponzi schemes, stated that,

“Act of money laundering is done in an exotic fashion encompassing a series of actions by the proverbial renting of credibility from the innocent investors.”

Petitioner has sought bail in a complaint case pending before Sessions Judge, Special Court under PMLA.


Case under Sections 406, 420, 468, 471 and 34 of Penal Code and Sections 4, 5 and 6 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was registered on the basis of a complaint alleging that the complainant had been cheated and defrauded by alluring to invest Rs 10,000 in the attractive investment scheme of Fine Indiasales (P) Ltd.

Complainant further submitted that he had introduced 20 more people to invest in the said scheme.

Complainant neither received the financial product nor the product voucher as per the agreement with FIPL.

FIPL collected huge amounts of money from the public and ultimately duped huge amount from innocent public by giving false assurance of high return for their deposit of money.

In view of the above, complainant requested for an investigation.

FIPL floated a fraudulent scheme

According to the investigation it was found that, FIPL had floated a fraudulent scheme with a terminal ulterior motive to siphon off the funds collected from public.

Ponzi Scheme

The advertised scheme of FIPL, ex-facie appeared to be a bodacious Ponzi scheme, inducing the susceptible depositors by way of misrepresentation, promising immediate refund in case of any default and timely payment of return on the part of FIPL.

Investigation prima facie established that the accused persons connected with  FIPL not only criminally conspired and cheated the depositors but also lured them into the scheme with a rogue mindset.

Machiavellian Layering | Shell Companies

Investigation revealed that the said money, stained with the sweat, tears and blood of multitudes of innocent people has since been moved around and subjected to Machiavellian layering through a myriad of shell companies and bogus transactions.

The collected amount was immediately transferred to different bank accounts of individuals as well as firms under the management and control of the Promotors/Directors/Shareholders of the said FIPL which is nothing but an act of sheltering.

Money Laundering

Modus Operandi adopted while transferring the prodigious sum of ill-gotten wealth with the singular intention of concealing the original source of funds and to project the tainted money as untainted ex facie constitute the offence of money laundering.

Court’s Observation

On the cursory look, Court prima facie observed that dishonesty, untruth and greed eroded the faith of common investors.

One of the significant stages of money laundering is “layering”, and in the present case, multiple use of corporate vehicles was done and the amount was layered further.

The act money laundering involves the process of placement, layering and integration of “proceeds of crime” as envisaged under Section 2 (u) of the Act, derived from criminal activity into mainstream fiscal markets and transmuted into legitimate assets.

“…laundering of tainted money having its origins in large scale economic crimes pose a solemn threat not only to the economic stability of nations but also to their integrity and sovereignty.”

Proceeds of Crime

Petitioner along with others attempted to project the “proceeds of crime” as untainted money by transferring the same to different bank accounts in a bid to camouflage it and project it to be genuine transactions.

Financial Terrorism

Bench added to its analysis that, offence of money laundering is nothing but an act of “financial terrorism” that poses a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation.

Supreme Court’s opinion

Supreme Court of India has consistently held that economic offences are sui generis in nature as they stifle the delicate economic fabric of a society.

Faustain bargain

Perpetrators of such deviant “schemes,” including the petitioner in the present case, who promise utopia to their unsuspecting investors seem to have entered in a proverbial “Faustian bargain” and are grossly unmindful of untold miseries of the faceless multitudes who are left high and dry and consigned to the flames of suffering.

Reputational Damage of the Country

Abuse of financial system in the manner that occurred in the present case can inflict the reputation of the country in the world of business and commerce.

Alleged offence of money laundering committed by the petitioner is serious in nature and the petitioner’s role is not unblemished.

Hence, Court refused bail to the accused/petitioner. [Mohammad Arif v. Directorate of Enforcement, Govt. of India, 2020 SCC OnLine Ori 544 , decided on 13-07-2020]

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Case BriefsHigh Courts

Delhi High Court:  Suresh Kumar Kait, J. rejected the bail plea of the petitioner, accused of fraud, after finding him to be at risk of tampering evidence pending against him.

Petitioner a Managing Director and CEO of Religare Enterprises Limited, was found to be accused of fraud worth over Rs 2000 crores by means of extending fraud loans and falsifying books of accounts. He and another member (Anil Saxena) of his Company were arrested on 10th October, 2019, under the course of investigation. Anil Saxena, was further granted bail but Kavi Arora was refused. Hence, he came before the Delhi High court under under Section 439 read with Section 482 of the Code of Criminal Procedure, 1973 seeking the relief of regular bail.

Senior Advocate, Puneet Bali on behalf of the petitioner with Vibhav Jain, Aditya Soni and Mayank Datta, Advocates and the State was represented by Amit Chadha, APP for State.

The petitioner’s case based on two grounds which were, first, that he was chargesheeted on wholly false premises of misconceived facts against him and, second, that on the ground of parity, he should be awarded bail on the fact that Anil Saxena, a co-accused, was granted bail. The respondents argued that the petitioner is trying to mislead the Court and that Anil Saxena was not holding an executive position but petitioner was and by virtue of his position, petitioner was responsible.

High Court rejected the plea to grant bail to the petitioner after rejecting the claims of the petitioner. The Court decided, relying on the judgement presented by the respondents, “It is settled law that economic offences are considered to be grave offences especially when public money is involved and that the Courts have to be careful in granting bail in such cases”. It found the investigation to be at a crucial stage and since, the petitioner was at a position where he could influence prosecution witnesses and tamper evidence, the Court rejected the first claim of the petitioner. On the issue of parity, the High Court decided not to intervene in that matter, as the granting of bail to co-accused Anil Saxena was challenged before the Supreme Court and has been disposed. It found that the grant of bail to co-accused cannot be granted to petitioner as precedent/parity to the bail does not apply to other accused. Therefore, the High Court, dismissed the petition. [Kavi Arora v. State, 2020 SCC OnLine Del 768 , decided on 23-07-2020]

Case BriefsSupreme Court

Supreme Court: The bench of Dr. DY Chandrachud and MR Shah, JJ has granted bail to former Unitech MD Sanjay Chandra after he told the Court that both his parents, who are 81 years and 78 years of age respectively, have tested positive for Covid-19 and have been hospitalised.

Senior Advocate Mukul Rohatgi, appearing for Chandra, told the Court that

“The applicant has stated that his spouse is presently abroad and has been unable to return due to the lock down. The brother of the applicant, Ajay Chandra, is also in judicial custody.”

Considering the facts and circumstances, the Court said,

“a case for the grant of interim bail has been made out on humanitarian grounds since both the parents of the applicant have tested positive for COVID-19 and having regard to their advanced age.”

The Court, hence, released Chandra on interim bail for a period of thirty days from the date of his actual release, subject to the following conditions:

  • The passport of the applicant shall be deposited with the trial court
  • The applicant shall report on every Sunday before the nearest local police station;
  • The applicant shall furnish bail bonds of Rs 1 lakh to the satisfaction of the trial court; and
  • The applicant shall surrender immediately on the expiry of the period of thirty days specified above.

[Bhupinder Singh v. Unitech Limited, 2020 SCC OnLine SC 559 , order dated 07.07.2020]

Also read

SC to Unitech MD Sanjay Chandra: Deposit Rs. 750 Cr by December-end or stay in jail

Case BriefsHigh Courts

Orissa High Court: S.K. Panigrahi, J., while addressing the present petition held that the present case to be a clear case of forum shopping.

Present petition challenges the termination letter by OP 1/ Hindustan Petroleum Corporation Ltd. (HPCL) on ground of violation of natural justice.

Facts of the Case

Petitioner was appointed as Distributor of LPG under Rajiv Gandhi Gramin LPG Vitarak through a Selection Process by way of an open advertisement issued by HPCL.

Core issue surrounding the present dispute is the submission of “Residence Certificate” of the advertised location. Accordingly, he submitted a “Residence Certificate” issued in his favour by the Tahasildar, Dharmasala.  Further it was noted that, Dharmashala Tahasil underwent a bifurcation namely Dharashala Tahasil and Rasulpur Tahasil.

In the meantime, the HPCL authority, during the Field Verification of Credential (FVC), asked the petitioner to submit Residential Certificate issued by the Tahasildar, Rasulpur since the new jurisdictional Tahasil is Rasulpur. Accordingly, the petitioner submitted another “Residence Certificate.”

Finally, he was found suitable for final award of distributorship.

Upon a complaint made by one of the unsuccessful complainants (OP 6), it was discovered that the furnished “Residential Certificate” mentioned him to be the resident of Brahmabarada alleged to be false and incorrect as he is not an ordinary resident of advertised location “Brahmabarada” which is under Rasulpur Block.

Upon perusal of records, petitioner was found to be the resident of village Chandapur and not Brahmabarada

Residential Certificate issued to the petitioner by the Tahasildar, Rasulpur was issued by OP 6 before Sub-Collector, Jaipur, though the Sub-Collector had allowed the appeal and concluded that the petitioner is a resident of “Chandapur” and not ” Brahamabarada”. Further aggrieved by the same, petitioner had approached this Court and the same was dismissed confirming Sub-Collector’s decision.

Petitioner further invoked the provisions of intra-court Appeal, further the Division Bench took the confirmatory view taken by Single Judge.

Thus, the findings of Appellate Authority-cum-Sub-Collector, Jajpur attained finality.


Bench stated that, petitioner secured the distributorship by means of illegal Residential Certificate and thereby he violated the terms of Distributorship Agreement.

There is sufficient convolution in the instant lis making it a clear case of forum shopping at the behest of the petitioner, who, having lost in the earlier round of litigation which attained finality, has sought similar remedy in the instant proceedings.

Court has time and again deprecated the practice of forum shopping by litigants and viewed it as an abuse of law

Court observed that, Selection alleged to have been done through Residence Certificate shrouded with doubts and smacks a fraudulent behavior on the part of the Petitioner. Fraud and justice cannot go together.

It is a settled law that “Fraud” vitiates every solemn act.

Time and again, it has been reiterated by the Apex Court that the contract between private party and the State or instrumentality of State is under the realm of a private law and there is no element of public law, the normal course for the aggrieved party, is to invoke the remedies available under ordinary civil law rather than approaching the High Court

Procedural formalities for the termination of contract need to be performed in fairness and good faith.

In the instant case, the employer has faithfully attempted to observe the principle of natural justice vide its show-cause letter dated 22.11.2017 and dated 11.01.2018; hence the plea of violating the principles of natural justice is ill-founded.

The instant issue has sufficiently occupied the time of this Court and there have been attempts to circumvent the spirit of litigation by using different forums, hence no substantial miscarriage of justice shall be caused if the instant Writ Petition is dismissed.

In view of the above, petition stands dismissed. [Talim Ali v. HPCL,  2020 SCC OnLine Ori 323 , decided on 24-04-2020]

Case BriefsSupreme Court

Supreme Court: The bench of Arun Mishra and UU Lalit, JJ has cancelled the registration of Amrapali Group of Companies under RERA for defrauding homebuyers. The Court also cancelled the various lease deeds granted in favour of Amrapali Group of Companies by Noida and Greater Noida Authorities for projects in question.

“Because of their failure to fulfil the obligations towards the buyers and the serious kind of fraud which has been played by them upon the home buyers, the registration of Amrapali group of companies under the Real Estate Regulation and Development Act, 2016 deserves to be cancelled.”

The Court noticed that no accounts were prepared w.e.f. the years 2015-2018 and money withdrawn was diverted during the said period. The Statutory Auditor, Anil Mittal failed in duty and was part of fraudulent activities as found in the Forensic Report. The money obtained from banks was diverted to unapproved uses such as for the creation of personal assets of Directors, creation of assets in closely held companies by the Directors along with their partners and relatives, for personal expenses of Directors, to give advances without carrying interest for several years. There was total non-monitoring by the bankers.

“The Noida and Greater Noida Authorities were grossly negligent in reviewing and monitoring the progress of the projects and in collusion with leaseholders failed to take action concerning nonpayment of dues and illegally permitted the group to sub-lease the land without payment of dues. Bogus allotments of flats were made. There were other irregularities galore.”

Below are some of the important directions issued by the Court,

  • Noida and Greater Noida Authorities shall have no right to sell the flats of the home buyers or the land leased out for the realization of their dues. Their dues shall have to be recovered from the sale of other properties which have been attached. The direction holds good for the recovery of the dues of the various Banks also.
  • NBCC has been appointed to complete the various projects and hand over the possession to the buyers. The percentage of commission of NBCC is fixed at 8 percent.
  • The home buyers are directed to deposit the outstanding amount under the Agreement entered with the promoters within 3 months from today in the Bank account opened in UCO Bank in the Branch of this Court. The amount deposited by them shall be invested in the fixed deposit to be disbursed under the order of this Court on phase-wise completion of the projects/work by the NBCC.
  • Various Companies/ Directors and other incumbents in whose hands money of the home buyers is available as per the report of Forensic Auditors, should deposit the same in the Court within one month. The last opportunity of one month is granted to deposit the amount and to do the needful failing which appropriate action shall be taken against them.
  • Concerned Ministry of Central Government, as well as the State Government and the Secretary of Housing and Urban Development, should ensure that appropriate action is taken as against leaseholders concerning such similar projects at Noida and Greater Noida and other places in various States, where projects have not been completed.
  • Senior Advocate R. Venkataramani has been appointed as the Court Receiver. The right of the lessee shall vest in the Court Receiver and he shall execute through authorized person on his behalf, the tripartite agreement and do all other acts as may be necessary and also to ensure that title is passed on to home buyers and possession is handed over to them.
  • Noida and Greater Noida Authorities are also directed to execute the tripartite agreement within one month concerning the projects where homebuyers are residing and issue completion certificate notwithstanding that the dues are to be recovered under this order by the sale of the other attached properties. Registered conveyance deed shall also be executed in favour of homebuyers, they are to be placed in the possession and they shall continue to do so in future on completion of projects or in part as the case may be.

The Court also said,

“In view of the finding recorded by the Forensic Auditors and fraud unearthed, indicating prima facie violation of the FEMA and other fraudulent activities, money laundering, we direct Enforcement Directorate and concerned authorities to investigate and fix liability on persons responsible for such violation and submit the progress report in the Court and let the police also submit the report of the investigation made by them so far.”

It also directed the Institute of Chartered Accountants of India to initiate the appropriate disciplinary action against Anil Mittal, CA for his conduct as reflected in various transactions and the findings recorded in the order and his overall conduct as found on Forensic Audit. The proceedings are to be completed within 6 months.

[Bikram Chatterjee v. Union of India, 2019 SCC OnLine SC 901, decided on 23.07.2019]