MP HC Dismisses Writ Against Section 16 Rejection Despite Fraud Allegations in Arbitration

Master Point Vs Smt. Sandhya Chouhan (Madhya Pradesh High Court)

The Madhya Pradesh High Court considered a writ petition under Articles 226 and 227 of the Constitution challenging the order dated 30.06.2023 passed by the Sole Arbitrator rejecting the petitioners’ application under Section 16(3) read with Section 32 of the Arbitration and Conciliation Act, 1996. The dispute arose from a partnership agreement dated 07.01.2010 between the respondent and petitioner No. 2 for carrying on business through M/s Master Point. The respondent alleged that although she had paid the entire consideration for the purchase of an under-construction shed acquired for the partnership, petitioner No. 2, in collusion with his sons, obtained the signatures of the respondent and her husband on the pretext of securing credit facilities and thereafter executed a Deed of Dissolution dated 27.04.2017. The respondent invoked the arbitration clause and, pursuant to an order dated 28.10.2022 passed under Section 11 of the Arbitration and Conciliation Act, 1996, a Sole Arbitrator was appointed.

Before the Arbitral Tribunal, the petitioners filed an application under Section 16(3) read with Section 32 contending that the respondent’s claim was founded on allegations of fraud and forgery relating to the dissolution deed and, therefore, the dispute was non-arbitrable. By order dated 30.06.2023, the Arbitrator rejected the application, observing that a mere allegation of fraud did not relieve the parties from their obligation to arbitrate and further holding that the petitioners had failed to raise the objection at the earliest opportunity as contemplated under Section 4 of the Act, resulting in waiver of the objection.