Arbitrator not equipped for malpractice case

The Supreme Court recently restricted the scope of arbitration in India by deciding that alleging fraud in a dispute will affect a party’s ability to require that it be referred to arbitration, under Part I of the Arbitration and Conciliation Act, 1996. Part I refers to domestic arbitration.

Ruling in N Radhakrishnan v M/S Maestro Engineers and Ors, the Supreme Court said that although the “dispute squarely fell within the purview of the arbitration clause”, only the civil court was competent and had the means to decide such a “complicated matter involving various questions and issues”. It held that the level of enquiry of material evidence that would be needed, given the allegations of forgery and misappropriation of funds, made it inappropriate for arbitration.

In this case N Radhakrishnan and some others entered into a partnership agreement to form Maestro. The agreement had an arbitration clause. Radhakrishnan and his partners subsequently fell out with the former alleging misappropriation of Maestro’s funds and forgery in the firm’s accounts. Radhakrishnan offered to resign from the partnership if his outstanding salary and share of profit in Maestro was paid. Maestro then filed a civil suit against Radhakrishnan seeking a declaration that he had effectively resigned from the partnership and an injunction to stop him from interfering with the partnership.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@vsnl.com. Readers should not act on the basis of this information without seeking professional legal advice.