Summary
The High Court refused to appoint an arbitrator for a partnership dispute because allegations of fund diversion and fraud were considered too complex. Applying A. Ayyasamy, the Court held that the allegations concerned only internal partnership affairs and did not impeach the partnership deed or arbitration clause. The dispute was arbitrable. A sole arbitrator was appointed by consent without affecting the pending criminal investigation.
Issues
- Whether allegations of partnership fraud and diversion of funds rendered the dispute non-arbitrable.
Held
- The working tests examine whether alleged fraud permeates and invalidates the contract, especially the arbitration agreement, and whether the allegations concern only internal affairs without public-domain implications. A bare fraud allegation does not itself defeat arbitration. (¶¶ 4, 5)
- No allegation vitiated the partnership deed or arbitration clause. The asserted improprieties and fund diversion concerned the partners’ internal affairs and had no public-domain implications, so the Section 11 application was maintainable. (¶¶ 6, 7)
Result
The High Court judgment was set aside. By consent, retired Jharkhand High Court Justice Amareshwar Sahay was appointed sole arbitrator to resolve all disputes. The appeal was disposed of, expressly preserving the investigation pursuant to the FIR.