KALYAN DOMBIVALI MUNICIPAL CORPORATIONversusS M ASSOCITES THR ITS PARTNER ANIL CHANDULAL SHAH

                                                                          8.IA.8651.2025(1).doc


                                      IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                                             CIVIL APPELLATE JURISDICTION

                                          INTERIM APPLICATION NO.8651 OF 2025
                                                          IN
                                          ARBITRATION PETITION NO.120 OF 2019

                       Kalyan Dombivali Municipal Corporation                ….Applicant

                       IN THE MATTER BETWEEN
                       S M Associates                                        ….Petitioner
                         Verus
                       Kalyan Dombivali Municipal Corporation                ….Respondent


                            Mr. Rajiv Narulla a/w. Ms. Nidhi Loya i/b. Jhangiani, Narula &
                            Associates, for Respondent.


                                                   CORAM: SOMASEKHAR SUNDARESAN, J.

                                                   DATE     : JANUARY 13, 2026
                       ORDER :

                       1.        This Interim Application has been filed seeking a recall of the

                       order of this Court dated April 24, 2025, by which the Learned Sole

                       Arbitrator came to be appointed in exercise of jurisdiction under

                       Section 11 of the Arbitration and Conciliation Act, 1996 ( “the Act”).

                       2.        This Interim Application is treated as a Review Application and is

                       taken up for final hearing by consent of the parties.

                       3.        It is the case of Learned Counsel for the Applicant that the

                       Petition had originally been filed as an application on the original side

          Digitally
          signed by
          AARTI
                       in which he had filed his Vakalatnama, but after the transfer of the
AARTI     GAJANAN
GAJANAN   PALKAR
PALKAR    Date:
          2026.01.19
                                                          Page 1 of 7
          12:21:38
          +0530                                        JANUARY 13, 2026
                       Aarti Palkar
                                                  8.IA.8651.2025(1).doc


Application to the Appellate Side, the fact that he was on record was

not carried into the system of the Appellate Side, and therefore, he

missed the hearing and could not be represented.

4.        That apart, the ground on which the review has been sought is

that the party to which the project had been awarded is not a party to

the original agreement, which contains the arbitration clause. Between

the date of the award of the project and the date of the execution of the

contract, the composition of the partnership firm underwent a change,

and therefore, there is no binding arbitration clause between the

Applicant and the original firm and therefore, it is claimed, the

arbitration agreement does not exist for purposes of Section 11 of the

Act.       Therefore, the Applicant contends that in the absence of the

privity of contract, the Petitioner being a “backdoor entrant” into the

contract without consent and knowledge of the Applicant, the

arbitration agreement does not exist.

5.        Finally, the Applicant contends that the manner of execution of

the contract presents a serious fraud being played on the Applicant,

and that matters of serious fraud are not arbitrable. Learned Counsel

for the Applicant would submit that while the contract was executed on

August 31 2009, knowledge of the aforesaid fraud was obtained only in

2017, which has led to consequential action been taken against the

original Petitioner. By the time the Applicant claims to have a
                                  Page 2 of 7
                               JANUARY 13, 2026
Aarti Palkar
                                                  8.IA.8651.2025(1).doc


knowledge of the fraud, the underlying project has been substantially

implemented and mixed questions of fact and law arise for

consideration in the matter.

6.        Therefore, the Applicant submits, the order appointing the

arbitrator, deserves to be recalled.

7.        In contrast, Learned Counsel for the original Petitioner

(Respondent in this Application) would submit that the non-

arbitrability of fraud pertains to fraud on society at large which is in

rem and not an alleged fraud in personam between two parties.

Learned Counsel for the Respondent also strongly denies the

insinuation of fraud or that the Applicant is being taken for a ride by

contending that the reconstitution was to the knowledge of the

Applicant and the partnership deed had even been delivered under the

letter dated July 28, 2009, rendering the allegation of fraud to be

totally baseless.

8.        Having heard the parties, it is clear that the contentions being

raised by the Applicant does not relate to the existence of the

arbitration clause, but to the alleged fraud in procuring the consent to

the agreement which contains the arbitration clause. That apart, prima

facie whether the partnership firm was reconstituted in the manner as

it was or whether it was a fraud being mixed question of fact and law,

which would need to be dealt with by a fact-finding body and not by the
                                  Page 3 of 7
                               JANUARY 13, 2026
Aarti Palkar
                                                    8.IA.8651.2025(1).doc


Section 11 Court. It is now settled law that the blanket prohibition on

arbitrability, whenever fraud is cited as an element that is not

arbitrable, is not permissible.

9.        Clearly, the law on arbitral tribunals being empowered to deal

with allegation of fraud has been distilled and articulated in very clear

terms since the earlier position obtaining from N. Radhakrishnan1

where the Supreme Court took the view that where fraud was alleged in

the books of accounts and records of a partnership firm, it fell in the

domain of the Courts, to repel a Section 8 Application. However, the

law since moved on from that position. The principle that rights in rem

cannot be adjudicated by arbitration, which is essentially a forum

privately created by parties enjoying mutual rights and obligations in

personam has been applied to fraud.

10.       Therefore, where there is a fraud against society at large ( in rem)

as opposed to fraud within the scope of implementing the contract or

inducing a contract, which contract contains an arbitration clause, the

issue of fraud would indeed be arbitrable. In Ayyasamy2, the Supreme

Court held that the mere allegation of fraud would not dispel

arbitrability. It is only in cases where it is found that allegations are

very serious that the Section 8 Court may ignore the arbitration

agreement and continue with the proceedings. Even the existence of

1 N. Radhakrishnan vs. Maestro Engineers – (2010) 1 SCC 72
2 A. Ayyasamy vs. A. Paramasivam – (2016) 10 SCC 386
                                    Page 4 of 7
                                 JANUARY 13, 2026
Aarti Palkar
                                                        8.IA.8651.2025(1).doc


the arbitration agreement itself having been obtained by fraud was kept

within the ambit of potential non-arbitrability. However, the law is

emphatically summarised and set out by a three-judge bench of the

Supreme Court in Deccan3, repelling the case for not being referred to

arbitration where it was argued that an arbitral tribunal could not be

called upon to cancel three written instruments, and that when there is

a serious allegation of fraud, the arbitrator’s jurisdiction gets ousted.

The following extract is noteworthy:-

               6.     We have, in our judgment in Avitel Post Studioz Ltd. v. HSBC
               PI Holdings (Mauritius) Ltd. 10, laid down the law on invocation of
               the "fraud exception" in some detail, which reasoning we adopt and
               follow. The said judgment indicates that given the case law since N.
               Radhakrishnan, it is clear that N. Radhakrishnan, as a precedent, has
               no legs to stand on. If the subject-matter of an agreement between the
               parties falls within Section 17 of the Contract Act, 1872, or involves
               fraud in the performance of the contract, as has been held in the
               aforesaid judgment, which would amount to deceit, being a civil
               wrong, the subject-matter of such agreement would certainly be arbit-
               rable. Further, we have also held that merely because a particular
               transaction may have criminal overtones as well, does not mean that
               its subject-matter becomes non-arbitrable. We have no doubt that Shri
               Navare is right in his submission that there is no averment that the
               agreement dated 20-5-2006 and the deed of confirmation dated 13-7-
               2006 were not entered into at all, as a result of which the arbitration
               clause would be non-existent. Further, it is equally clear that the suit
               is one that is inter partes with no "public overtones", as has been un-



3 Deccan Paper Mills Co. Ltd. Vs. Regency Mahavir Properties – (2021) 4 SCC 786
                                     Page 5 of 7
                                  JANUARY 13, 2026
Aarti Palkar
                                                           8.IA.8651.2025(1).doc


                derstood in paras 34 and 35 of Avitel, as a result of which this excep-
                tion would clearly not apply to the facts of this case.
                                                                    [Emphasis Supplied]




11.       This is an emphatic declaration of the law by a larger bench of the

Supreme Court. Evidently, the Supreme Court has ruled that fraud in

inducing a party into executing a contract as set out in Section 17 of the

Indian Contract Act, 1872, or fraud in the performance of a contract,

would be in the nature of a civil wrong and is eminently arbitrable.

Merely on the ground that there are “criminal overtones” or because a

party claims that there are “public overtones”, the dispute would not

become non-arbitrable.

12.       In any case, the Application is misconceived and was considered

in view of the Applicant stating that had the Applicant remained

present but for the glitch in the Court’s system leading to his not having

knowledge of the matter being listed, the Applicant was heard, after

which it is found that no case is made out for recall of the order.

13.       Needless to say, the Applicant would be at liberty to make

submissions to the Learned Arbitral Tribunal on all facets of the matter

including any element of fraud, whether on merits or on jurisdiction,

subject to what is stated above.

14.       The Interim Application is hereby finally disposed of.

                                       Page 6 of 7
                                    JANUARY 13, 2026
Aarti Palkar
                                                  8.IA.8651.2025(1).doc


15.       All actions required to be taken pursuant to this order shall be

taken upon receipt of a downloaded copy as available on this Court’s

website.



                                   [ SOMASEKHAR SUNDARESAN, J.]




                                  Page 7 of 7
                               JANUARY 13, 2026
Aarti Palkar