Arbitration and conciliation Act - Despite of criminal proceedings and Despite of allegations of fraud and void etc., the arbitration proceedings can be initiated to resolve the disputes as per agreement - Disputes arose between Switzer land company and common wealth games 2010 organisation about payment of tail end payments - so many correspondences were made by the petitioner/ company - Respondent failed to pay the amount as CBI cases were registered against Kalmadi and others - due corruption etc., and agreement treated as void - Apex court held that efforts were made to amicably put a “closure to the agreement”. I, therefore, do not find any merit in the submission of the respondent that the petition is not maintainable for non-compliance with Clause 38.3 of the Dispute Resolution Clause. and further held that As a pure question of law, I am unable to accept the very broad proposition that whenever a contract is said to be void-ab-initio, the Courts exercising jurisdiction under Section 8 and Section 11 of the Arbitration Act, 1996 are rendered powerless to refer the disputes to arbitration.=
The respondents have raised two preliminary
objections, which are as follows:-
(i) The petitioner has not followed the dispute
resolution mechanism as expressly provided in the
agreement dated 11th March, 2010. No efforts have
been made by the petitioner to seek resolution of the
dispute as provided under Clause 38. On the other
hand, the respondent through numerous communications
invited the petitioner for amicable resolution of the
dispute. The respondent relies on communications
dated 3rd January, 2011, 9th
January, 2011, 10th January, 2011,
1st February, 2011 and 2nd February, 2011.
(ii) The contract stands vitated and is void ab initio in
view of Clauses 29, 30 and 34 of the Agreement dated
11th March, 2010. Hence, the petitioner is not
entitled to any payment whatsoever in respect of the
contract and is liable to reimburse the payments
already made. Therefore, there is no basis to invoke
arbitration clause.
The respondent points out that a combined reading of
Clause 29 and Clause 34 would show that the
petitioner had warranted that it will never engage in
corrupt, fraudulent, collusive or coercive practices
in connection with the agreement. The petitioner
would be liable to indemnify the Respondent against
all losses suffered or incurred as a result of any
breach of the agreement or any negligence, unlawful
conduct or wilful misconduct. The respondent may
terminate the agreement whenever it determines that
the petitioner had engaged in any corrupt,
fraudulent, collusive or coercive practice in
connection with the agreement. The respondent seeks
to establish the aforesaid non-liability clause on
the basis of registration of Criminal Case being CC
No. 22 of 2011 under Section 120-B, read with
Sections 420, 427, 488 and 477 IPC and Section 13(2)
read with Section 13(1)(d) of the Prevention of
Corruption Act against Suresh Kalmadi, the then
Chairman of the Organising Committee and other
officials of the respondent alongwith some officials
of the petitioner, namely Mr. S. Chianese, Sales &
Marketing Manager, Mr. Christophe Bertaud, General
Manager and Mr. J. Spiri, Multi Sports Events & Sales
Manager.
9. It is further the case of the respondent that due to the
pendency of the criminal proceedings in the trial court, the
present petition ought not to be entertained. In case the
arbitration proceeding continues simultaneously with the
criminal trial, there is real danger of conflicting
conclusions by the two fora, leading to unnecessary
confusion.
. I am unable to agree with the submission made by the learned
counsel for the respondent that the petitioner has not
satisfied the condition precedent under Clause 38.3.
A perusal of the correspondence placed on the record of
the petition clearly shows that not only the petitioner but
even the ambassadors of the various governments had made
considerable efforts to resolve the issue without having to
take recourse to formal arbitration. It is only when all
these efforts failed, that the petitioner communicated to the
respondent its intention to commence arbitration by letter
/notice dated 22nd April, 2013. This was preceded by letters
dated 4th February, 2011, 14th March, 2011 and 20th April,
2011 which clearly reflect the efforts made by the petitioner
to resolve disputes through discussions and negotiations
before sending the notice invoking arbitration clause.
16. It is evident from the counter affidavit filed by the
respondents that the disputes have arisen between the parties
out of or relating to the agreement dated 11th March, 2010.
On the one hand, the respondent disputes the claims made by
the petitioner and on the other, it takes the plea that
efforts were made to amicably put a “closure to the
agreement”. I, therefore, do not find any
merit in the submission of the respondent that the petition
is not maintainable for non-compliance with Clause 38.3 of
the Dispute Resolution Clause.
17. The second preliminary objection raised by the respondent is
on the ground that the contract stands vitiated and is void-
ab-initio in view of Clauses 29, 30 and 34 of the agreement
dated 11th March, 2010. I am of the considered opinion that
the aforesaid preliminary objection is without any substance.
Under Clause 29, both sides have given a warranty not to
indulge in corrupt practices to induce execution of the
Agreement. Clause 34 empowers the Organising Committee to
terminate the contract after deciding that the contract was
executed in breach of the undertaking given in Clause 29 of
the Contract. These are allegations which will have to be
established in a proper forum on the basis of the oral and
documentary evidence, produced by the parties, in support of
their respective claims. The objection taken is to the manner
in which the grant of the contract was manipulated in favour
of the petitioner. The second ground is that the rates
charged by the petitioner were exorbitant. Both these issues
can be taken care of in the award. Certainly if the
respondent is able to produce sufficient evidence to show
that the similar services could have been procured for a
lesser price, the arbitral tribunal would take the same into
account whilst computing the amounts payable to the
petitioner. As a pure question of law, I am unable to accept
the very broad proposition that whenever a contract is said
to be void-ab-initio, the Courts exercising jurisdiction
under Section 8 and Section 11 of the Arbitration Act, 1996
are rendered powerless to refer the disputes to arbitration.
As noticed earlier, the petitioners have already nominated
Hon’ble Mr. Justice S.N. Variava, Former Judge of this Court,
having his office at Readymoney Mansion, 2nd floor, Next to
Akbarallys, Veer Nariman Road, Fort,
Mumbai – 400 001, as their arbitrator. I hereby nominate.
Hon’ble Mr. Justice B.P. Singh, Former Judge of this Court,
R/o A-7, Neeti Bagh, 3rd Floor, New Delhi – 110 049, as the
second Arbitrator and Hon’be Mr. Justice Kuldip Singh, Former
Judge of this Court, R/o H.No. 88, Sector 10A, Chandigarh –
160 010, as the Chairman of the Arbitral Tribunal, to
adjudicate the disputes that have arisen between the parties,
on such terms and conditions as they deem fit and proper.
38. The Registry is directed to communicate this order to the
Chairman of the Arbitral Tribunal, as well as, to the Second
Arbitrator to enable them to enter upon the reference and
decide the matter as expeditiously as possible.
39. The Arbitration Petition is accordingly allowed with no order
as to costs.
Therefore, in my
opinion, the judgment in N. Radhakrishnan (supra) does not
lay down the correct law and can not be relied upon.
It must also notice here that the Petitioners relied upon an
earlier order of this court in the case of M/s Nussli
(Switzerland) Ltd. (supra). The aforesaid order, however,
seems to have been passed on a consensus between the learned
counsel for the parties. The decision of this Court in M/s Nussli (Switzerland) Ltd.
(supra) has not laid down any law.
2014(May.Part) http://judis.nic.in/supremecourt/filename=41548
SURINDER SINGH NIJJAR
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO. 34 OF 2013
Swiss Timing Limited
…Petitioner
Versus
Organising Committee,
Commonwealth Games 2010, Delhi. ….Respondent
J U D G E M E N T
SURINDER SINGH NIJJAR,J.
1. This is a petition under Section 11(4) read with
Section 11(6) of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Arbitration Act”), with a
prayer to appoint the nominee arbitrator of the Respondent
and to further constitute the arbitral tribunal, by
appointing the presiding arbitrator in order to adjudicate
the disputes that have arisen between the parties.
2. The relevant facts as set out in the Arbitration Petition are
as under:-
3. The Petitioner is a company duly incorporated under the laws
of Switzerland, having its registered office in Corgémont,
Switzerland. The respondent is the Organising Committee,
Commonwealth Games, 2010. It is a society registered under
the Societies Registration Act, 1860 (hereinafter referred to
as “the Organising Committee”), established for the primary
purpose of planning, organising and delivering the
Commonwealth Games, 2010 Delhi (hereinafter referred to as
“Commonwealth Games”) and having its registered office in New
Delhi, India.
4. The petitioner entered into an agreement
dated 11th March, 2010 with the respondent for
providing timing, score and result systems (“TSR
systems/services”) as well as supporting services required to
conduct the Commonwealth Games. According to the petitioner,
Clause 11.1 of the aforesaid agreement stipulated the fees,
as set out in Schedule 3, which shall be paid to the
petitioner for performance of the obligations contained in
the agreement. The aforesaid Schedule 3 gives details of the
amounts which were to be paid, in instalments, by the
Organising Committee. The service provider/Petitioner was
to submit monthly tax invoices, detailing the payments to be
made by the Organising Committee. These invoices were to be
paid within 30 days of the end of the month in which the tax
invoices were received by the Organising Committee. All
payments were to be made in Swiss Francs, unless the parties
agree otherwise in writing. Clause 11.5 provides that on the
date of the agreement, the service provider must provide the
Performance Bank Guarantee to the Organising Committee to
secure the performance of its obligations under the
agreement. Certain other obligations are enumerated in the
other clauses, which are not necessary to be noticed for the
purposes of the decision of the present petition.
5. It is also noteworthy that in consideration of the
petitioner’s services as stipulated in the agreement, the
petitioner was to receive a total amount of CHF 24,990,000/-
(Swiss Francs Twenty Four Million Nine Hundred and Ninety
Thousand only). It was also provided in Schedule 3 that
payment of the 5% of the total service fees was to be made
upon completion of the Commonwealth Games. Accordingly, the
petitioner sent the invoice No. 33574 dated 27th October,
2010 for the payment of CHF 1,249,500 (Swiss Francs One
Million Two Hundred Forty Nine Thousand Five Hundred only).
This represents the remaining 5% which was to be paid upon
completion of the Commonwealth Games
on 27th October, 2010. The petitioner had also paid to the
Organising Committee a sum of Rs. 15,00,000/-
(INR 1.5 million) as Earnest Money Deposit (EMD), for
successfully completing the TSR services as provided in the
agreement.
6. According to the petitioner, the respondent defaulted in
making the payment without any justifiable reasons. Not only
the amount was not paid to the petitioner, the respondent
sent a letter dated 15th December, 2010 asking the petitioner
to extend the Bank Guarantee till 31st January, 2011. The
petitioner informed the respondent that the Bank Guarantee
had already been terminated and released on completion of the
Commonwealth Games in October, 2010. It is also the case of
the petitioner that there is no provision in the service
agreement for extension of the Bank Guarantee.
The petitioner reiterated its claim for the
aforesaid amount. Through letter dated 26th January, 2011,
the petitioner demanded repayment of Rs. 15 lakhs deposited
as EMD. Instead of making the payment to the petitioner and
other companies, the respondent issued a Press Communiqué
on 2nd February, 2011 declaring that part payments to
nine foreign vendors, including the petitioner, have been
withheld for “non-performance of the contract”. The
petitioner is said to have protested against the aforesaid
communiqué through letter dated 4th February, 2011. It was
reiterated that the petitioner had satisfactorily performed
the obligations in the service agreement of 11th March, 2010.
Since the respondent was disputing its liability to pay the
amounts, the petitioner served a formal Dispute Notification
on the respondent under Clause 38 of the
agreement.
7. The petitioner further points out that on 7th February, 2011,
the respondent called upon the petitioner to fulfil its
alleged outstanding obligations under the agreement including
handing over of the Legacy Boards, completion of the
formalities of the material, which were required to be
shipped out and to fulfil certain other requirements as set
out in its earlier e-mails in order to prepare the “agreement
closure report”. The respondent also stated that they were
not addressing the issue of invoking the Dispute Resolution
Clause as they were interested in settling the dispute
amicably. The petitioner pleads that the respondent failed in
its commitment for payments towards services rendered, not
only towards the petitioner but also towards other
international companies from Australia, Belgium, England,
France, Germany, Italy, the Netherlands and Switzerland,
which had provided various services to the respondent at the
Commonwealth Games. It also appears that collective letters
were written on behalf of various companies by the
ambassadors of the concerned countries, to the Finance
Minister of India indicating the default in payments of the
amounts due. The petitioners, therefore, claim that they were
left with no alternative but to invoke arbitration as
provided under Clause 38.6 of the agreement. The petitioners
have nominated the arbitrator on its behalf namely Justice
S.N. Variava, former Judge of the Supreme Court of India. A
notice to this effect was served on the respondent through a
communication dated 22nd April, 2013. Since no response was
received a reminder was issued on 29th May, 2013. Upon such
failure, the petitioners have filed the present petition.
8. In the counter affidavit all the averments made by the
petitioners have been denied, as being incorrect in facts and
in law. The respondents have raised two preliminary
objections, which are as follows:-
(i) The petitioner has not followed the dispute
resolution mechanism as expressly provided in the
agreement dated 11th March, 2010. No efforts have
been made by the petitioner to seek resolution of the
dispute as provided under Clause 38. On the other
hand, the respondent through numerous communications
invited the petitioner for amicable resolution of the
dispute. The respondent relies on communications
dated 3rd January, 2011, 9th
January, 2011, 10th January, 2011,
1st February, 2011 and 2nd February, 2011.
(ii) The contract stands vitated and is void ab initio in
view of Clauses 29, 30 and 34 of the Agreement dated
11th March, 2010. Hence, the petitioner is not
entitled to any payment whatsoever in respect of the
contract and is liable to reimburse the payments
already made. Therefore, there is no basis to invoke
arbitration clause.
The respondent points out that a combined reading of
Clause 29 and Clause 34 would show that the
petitioner had warranted that it will never engage in
corrupt, fraudulent, collusive or coercive practices
in connection with the agreement. The petitioner
would be liable to indemnify the Respondent against
all losses suffered or incurred as a result of any
breach of the agreement or any negligence, unlawful
conduct or wilful misconduct. The respondent may
terminate the agreement whenever it determines that
the petitioner had engaged in any corrupt,
fraudulent, collusive or coercive practice in
connection with the agreement. The respondent seeks
to establish the aforesaid non-liability clause on
the basis of registration of Criminal Case being CC
No. 22 of 2011 under Section 120-B, read with
Sections 420, 427, 488 and 477 IPC and Section 13(2)
read with Section 13(1)(d) of the Prevention of
Corruption Act against Suresh Kalmadi, the then
Chairman of the Organising Committee and other
officials of the respondent alongwith some officials
of the petitioner, namely Mr. S. Chianese, Sales &
Marketing Manager, Mr. Christophe Bertaud, General
Manager and Mr. J. Spiri, Multi Sports Events & Sales
Manager.
9. It is further the case of the respondent that due to the
pendency of the criminal proceedings in the trial court, the
present petition ought not to be entertained. In case the
arbitration proceeding continues simultaneously with the
criminal trial, there is real danger of conflicting
conclusions by the two fora, leading to unnecessary
confusion.
10. I have heard the learned counsel for the parties.
11. The submissions made in the petition as well as in the
counter affidavit have been reiterated before me by the
learned counsel. I have given due consideration to the
submissions made by the learned counsel for the parties.
12. The learned counsel for the petitioners has relied on an
unreported Order of this Court dated 11th April, 2012 in
M/s Nussli (Swtizerland) Ltd. Vs. Organizing
Commit. Commonwealth Game. 2010, wherein the dispute in
almost identical circumstances have been referred to
arbitration.
13. On the other hand, learned counsel for the respondent has
relied on a judgment of this Court in N. Radhakrishnan Vs.
Maestro Engineers & Ors.[1] He has also relied upon Guru
Granth Saheb Sthan Meerghat Vanaras Vs. Ved Prakash & Ors.[2]
Reliance is also placed on India Household and Healthcare
Ltd. Vs. LG Household and Healthcare Ltd.[3]
14. The procedure for Dispute Resolution has been provided in
Clause 38 of the agreement, which is as under:-
“38. Dispute Resolution
38.1 If a dispute arises between the parties out of or relating
to this Agreement (a “Dispute”), any party seeking to resolve
the Dispute must do so strictly in accordance with the
provisions of this clause. Compliance with the provisions of
this clause is a condition precedent to seeking a resolution of
the Dispute at the arbitral tribunal constituted in accordance
with this clause 38.
38.2 During a Dispute, each party must continue to perform its
obligations under this Agreement.
38.3 A party seeking to resolve the Dispute must notify the
existence and nature of the Dispute to the other party (“the
Notification”). Upon receipt of the Notification the Parties
must use their respective reasonable endeavours to negotiate to
resolve the Dispute by discussions between Delhi 2010 (or a
person it nominates) and the Service Provider (or a person it
nominates). If the Dispute has not been resolved within 10
Business Days of receipt of the Notification (or such other
period as agreed in writing by the parties) then the parties
must refer the Dispute to the Chairman of Delhi 2010 and the
Chief Executive Officer or its equivalent) of the Service
Provider.
38.4 If the Dispute has not been settled within 5 Business Days
of referral under Clause 38.3, the Dispute shall be settled by
arbitration in accordance with the following clauses.
38.5 For any dispute arising after 31 July, 2010, the relevant
period in clause 38.3 is 48 hours and the relevant period in
clause 38.4 is 24 hours.
38.6 The Dispute shall be referred to a tribunal consisting of
three Arbitrators, one to be nominated by each party, with the
presiding Arbitrator to be nominated by the two arbitrators
nominated by the parties. The Arbitrators shall be retired
judges of the Supreme Court or High Courts of India. However,
the Presiding Arbitrator shall be a retired Supreme Court Judge.
38.7 The place of arbitration shall be New Delhi. All
arbitration proceedings shall be conducted in English in
accordance with the provisions of the Arbitration and
Conciliation Act, 1996 as amended from time to time.
38.8 The arbitration award will be final and binding upon the
parties, and each party will bear its own costs of arbitration
and equally share the fees of the arbitral tribunal unless the
arbitral tribunal decides otherwise.
38.9 This clause 38 will not affect each party’s rights to seek
interlocutory relief in a court of competent jurisdiction.”
15. I am unable to agree with the submission made by the learned
counsel for the respondent that the petitioner has not
satisfied the condition precedent under Clause 38.3.
A perusal of the correspondence placed on the record of
the petition clearly shows that not only the petitioner but
even the ambassadors of the various governments had made
considerable efforts to resolve the issue without having to
take recourse to formal arbitration. It is only when all
these efforts failed, that the petitioner communicated to the
respondent its intention to commence arbitration by letter
/notice dated 22nd April, 2013. This was preceded by letters
dated 4th February, 2011, 14th March, 2011 and 20th April,
2011 which clearly reflect the efforts made by the petitioner
to resolve disputes through discussions and negotiations
before sending the notice invoking arbitration clause.
16. It is evident from the counter affidavit filed by the
respondents that the disputes have arisen between the parties
out of or relating to the agreement dated 11th March, 2010.
On the one hand, the respondent disputes the claims made by
the petitioner and on the other, it takes the plea that
efforts were made to amicably put a “closure to the
agreement”. I, therefore, do not find any
merit in the submission of the respondent that the petition
is not maintainable for non-compliance with Clause 38.3 of
the Dispute Resolution Clause.
17. The second preliminary objection raised by the respondent is
on the ground that the contract stands vitiated and is void-
ab-initio in view of Clauses 29, 30 and 34 of the agreement
dated 11th March, 2010. I am of the considered opinion that
the aforesaid preliminary objection is without any substance.
Under Clause 29, both sides have given a warranty not to
indulge in corrupt practices to induce execution of the
Agreement. Clause 34 empowers the Organising Committee to
terminate the contract after deciding that the contract was
executed in breach of the undertaking given in Clause 29 of
the Contract. These are allegations which will have to be
established in a proper forum on the basis of the oral and
documentary evidence, produced by the parties, in support of
their respective claims. The objection taken is to the manner
in which the grant of the contract was manipulated in favour
of the petitioner. The second ground is that the rates
charged by the petitioner were exorbitant. Both these issues
can be taken care of in the award. Certainly if the
respondent is able to produce sufficient evidence to show
that the similar services could have been procured for a
lesser price, the arbitral tribunal would take the same into
account whilst computing the amounts payable to the
petitioner. As a pure question of law, I am unable to accept
the very broad proposition that whenever a contract is said
to be void-ab-initio, the Courts exercising jurisdiction
under Section 8 and Section 11 of the Arbitration Act, 1996
are rendered powerless to refer the disputes to arbitration.
18. However, the respondent has placed strong reliance on the
judgment of this Court in N. Radhakrishnan (supra). In that
case, disputes had arisen between the appellant and the
respondent, who were partners in a firm known as Maestro
Engineers. The appellant had retired from the firm.
Subsequently, the appellant alleged that he continued to be a
partner. The respondent filed a Civil Suit seeking a
declaration that the appellant is not a partner of the firm.
In this suit, the appellant filed an application under
Section 8 of the Arbitration Act seeking reference of the
dispute to the arbitration. The plea was rejected by the
trial court and the High Court in Civil Revision. This Court
also rejected the prayer of the appellant for reference of
the dispute to arbitration. This Court found that subject
matter of the dispute was within the ambit of the arbitration
clause. It was held as under :
“14. The learned counsel for the respondents further argued that
the subject-matter of the suit being OS No. 526 of 2006 was a
different one and it was not within the ambit of the arbitration
clause of the partnership deed dated 7-4-2003 and that the
partnership deed had ceased to exist after the firm was
reconstituted due to the alleged retirement of the appellant.
Therefore, the trial court was justified in not referring the
matter to the arbitrator.
15. The appellant had on the other hand contended that the
subject-matter of the suit was within the ambit of the
arbitration clause since according to him the dispute related to
his retirement and the settlement of his dues after he was
deemed to have retired according to the respondents. Further, it
was his contention that the partnership deed dated 6-12-2005 was
not a valid one as it was not framed in compliance with the
requirements under the Partnership Act, 1932. Therefore, the
argument of the respondents that the subject-matter of the suit
did not fall within the ambit of the arbitration clause of the
original partnership deed dated 7-4-2003 cannot be sustained. We
are in agreement with the contention of the appellant to this
effect.
16. It is clear from a perusal of the documents that there
was a clear dispute regarding the reconstitution of the
partnership firm and the subsequent deed framed to that effect.
The dispute was relating to the continuation of the appellant as
a partner of the firm, and especially when the respondents
prayed for a declaration to the effect that the appellant had
ceased to be a partner of the firm after his retirement, there
is no doubt in our mind that the dispute squarely fell within
the purview of the arbitration clause of the partnership deed
dated 7-4-2003. Therefore, the arbitrator was competent to
decide the matter relating to the existence of the original deed
and its validity to that effect. Thus, the contention that the
subject-matter of the suit before the Ist Additional District
Munsiff Court at Coimbatore was beyond the purview of the
arbitration clause, cannot be accepted.”
19. Having found that the subject matter of the suit was within
the jurisdiction of the arbitration, it was held that the
disputes can not be referred to arbitration. This Court
approved the finding of the High Court that since the case
relates to allegations of fraud and serious malpractices on
the part of the respondents, such a situation can only be
settled in court through furtherance of detailed evidence by
either parties and such a situation can not be properly gone
into by the arbitrator. In my opinion, the aforesaid
observations runs counter to the ratio of the law laid down
by this Court in Hindustan Petroleum Corpn. Ltd. Vs. Pinkcity
Midway Petroleums[4], wherein this Court in Paragraph 14
observed as follows:
“If in an agreement between the parties before the civil court,
there is a clause for arbitration, it is mandatory for the civil
court to refer the dispute to an arbitrator. In the instant case
the existence of an arbitral clause in the agreement is accepted
by both the parties as also by the courts below. Therefore, in
view of the mandatory language of Section 8 of the Act, the
courts below ought to have referred the dispute to arbitration.”
20. In my opinion, the observations in Hindustan Petroleum Corpn.
Ltd. (supra) lays down the correct law. Although, reference
has been made to the aforesaid observations in N.
Radhakrishnan (supra) but the same have not been
distinguished. A Two Judge Bench of this Court in P. Anand
Gajapathi Raju & Ors. Vs. P.V.G. Raju (Dead) & Ors.[5], had
earlier considered the scope of the provisions contained in
Section 8 and observed as follows:-
“8. In the matter before us, the arbitration agreement covers
all the disputes between the parties in the proceedings before
us and even more than that. As already noted, the arbitration
agreement satisfies the requirements of Section 7 of the new
Act. The language of Section 8 is peremptory. It is, therefore,
obligatory for the Court to refer the parties to arbitration in
terms [pic]of their arbitration agreement. Nothing remains to be
decided in the original action or the appeal arising therefrom.
There is no question of stay of the proceedings till the
arbitration proceedings conclude and the award becomes final in
terms of the provisions of the new Act. All the rights,
obligations and remedies of the parties would now be governed by
the new Act including the right to challenge the award. The
court to which the party shall have recourse to challenge the
award would be the court as defined in clause (e) of Section 2
of the new Act and not the court to which an application under
Section 8 of the new Act is made. An application before a court
under Section 8 merely brings to the court’s notice that the
subject-matter of the action before it is the subject-matter of
an arbitration agreement. This would not be such an application
as contemplated under Section 42 of the Act as the court trying
the action may or may not have had jurisdiction to try the suit
to start with or be the competent court within the meaning of
Section 2(e) of the new Act.”
21. This judgment was not even brought to the notice of the Court
in N. Radhakrishnan (supra). In my opinion, judgment in N.
Radhakrishnan (supra) is per incuriam on two grounds:
Firstly, the judgment in Hindustan Petroleum Corpn. Ltd.
(supra) though referred has not been distinguished but at the
same time is not followed also. The judgment in P. Anand
Gajapathi Raju & Ors. (supra) was not even brought to the
notice of this Court. Therefore, the same has neither been
followed nor considered. Secondly, the provision contained
in Section 16 of the Arbitration Act, 1996 were also not
brought to the notice by this Court. Therefore, in my
opinion, the judgment in N. Radhakrishnan (supra) does not
lay down the correct law and can not be relied upon.
22. As noticed above, the attention of this Court was not drawn
to the provision contained in Section 16 of the Arbitration
Act, 1996 in the case of N. Radhakrishnan (supra). Section 16
provides that the Arbitral Tribunal would be competent to
rule on its own jurisdiction including ruling on any
objection with regard to existence or validity of the
arbitration agreement. The Arbitration Act emphasises that
an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
contract. It further provides that a decision by the
Arbitral Tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration
clause. The aforesaid provision came up for consideration by
this Court in Today Homes & Infrastructure Pvt. Ltd. Vs.
Ludhiana Improvement Trust & Anr.[6]
23. In the aforesaid case, the designated Judge of the Punjab &
Haryana High Court had refused to refer the disputes to
arbitration. The High Court had accepted the plea that since
the underlying contract was void, the arbitration clause
perished with it. The judgment of the High Court was
challenged in this Court, by filing a Special Leave Petition.
Before this Court it was submitted by the appellant that the
High Court treated the application under Section 11(6) of the
Arbitration Act as if it was deciding a suit but without
adducing evidence. Relying on SBP & Co. Vs. Patel Engineering
Ltd., it was submitted that the High Court was only required
to conduct a preliminary enquiry as to whether there was a
valid arbitration agreement; or whether it was a stale claim.
On the other hand, it was submitted by the respondents that
once the High Court had found the main agreement to be void,
the contents thereof including the arbitration clause are
also rendered void.
24. This Court rejected the aforesaid submission of the
respondents with the following observations :
“13. We have carefully considered the submissions made on
behalf of the respective parties and we are of the view that
the learned designated Judge exceeded the bounds of his
jurisdiction, as envisaged in SBP & Co. (supra). In our view,
the learned designated Judge was not required to undertake a
detailed scrutiny of the merits and de- merits of the case,
almost as if he was deciding a suit. The learned Judge was only
required to decide such preliminary issues such as jurisdiction
to entertain the application, the existence of a valid
arbitration agreement, whether a live claim existed or not, for
the purpose of appointment of an arbitrator. By the impugned
order, much more than what is contemplated under Section 11(6)
of the 1996 Act was sought to be decided, without any evidence
being adduced by the parties. The issue
regarding the continued existence of the arbitration agreement,
notwithstanding the main agreement itself being declared void,
was considered by the 7-Judge Bench in SBP & Co. (supra) and it
was held that an arbitration agreement could stand independent
of the main agreement and did not necessarily become otiose,
even if the main agreement, of which it is a part, is declared
void.
14. The same reasoning was adopted by a member of this Bench
(S.S. Nijjar, J.), while deciding the case of Reva Electric Car
Company Private Limited Vs. Green Mobil [(2012) 2 SCC 93],
wherein the provisions of Section 16(1) in the backdrop of the
doctrine of kompetenz kompetenz were considered and it was inter
alia held that under Section 16(1), the legislature makes it
clear that while considering any objection with regard to the
existence or validity of the arbitration agreement, the
arbitration clause, which formed part of the contract, had to be
treated as an agreement independent of the other terms of the
contract. Reference was made in the said judgment to the
provisions of Section 16(1)(b) of the 1996 Act, which provides
that even if the arbitral tribunal concludes that the contract
is null and void, it should not result, as a matter of law, in
an automatic invalidation of the arbitration clause. It was also
held that Section 16(1)(a) of the 1996 Act presumes the
existence of a valid arbitration clause and mandates the same to
be treated as an agreement independent of the other terms of the
contract. By virtue of Section 16(1)(b) of the 1996 Act, the
arbitration clause continues to be enforceable, notwithstanding
a declaration that the contract was null and void.
25. Keeping in view the aforesaid observations made by this
Court, I see no reason to accept the submission made by the
learned counsel for the respondents that since a criminal
case has been registered against the Chairman of the
Organising Committee and some other officials of the
petitioner, this Court would have no jurisdiction to make a
reference to arbitration.
26. As noticed above, the concept of separability of the
arbitration clause/agreement from the underlying contract has
been statutorily recognised by this country under Section 16
of the Arbitration Act, 1996. Having provided for resolution
of disputes through arbitration, parties can not be permitted
to avoid arbitration, without satisfying the Court that it
will be just and in the interest of all the parties not to
proceed with the arbitration. Section 5 of the Arbitration
Act provides that the Court shall not intervene in the
arbitration process except in accordance with the provisions
contained in Part I of the Arbitration Act. This policy of
least interference in arbitration proceedings recognises the
general principle that the function of Courts in matters
relating to arbitration is to support arbitration process. A
conjoint reading of Section 5 and Section 16 would make it
clear that all matters including the issue as to whether the
main contract was void/voidable can be referred to
arbitration. Otherwise, it would be a handy tool available
to the unscrupulous parties to avoid arbitration, by raising
the bogey of the underlying contract being void.
27. I am of the opinion that whenever a plea is taken to avoid
arbitration on the ground that the underlying contract is
void, the Court is required to ascertain the true nature of
the defence. Often, the terms “void” and “voidable” are
confused and used loosely and interchangeably with each
other. Therefore, the Court ought to examine the plea by
keeping in mind the relevant statutory provisions in the
Indian Contract Act, 1872, defining the terms “void” and
“voidable”. Section 2, the interpretation clause defines
some of the relevant terms as follows:-
“2(g) An agreement not enforceable by law is said to be
void;
2(h) An agreement enforceable by law is a contract;
2(i) An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option
of the other or others, is a voidable contract;
2(j) A contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable.”
The aforesaid clauses clearly delineate and differentiate
between term “void” and “voidable”. Section 2(j) clearly
provides as to when a voidable contract would reach the stage of
being void. Undoubtedly, in cases, where the Court can come to
a conclusion that the contract is void without receiving any
evidence, it would be justified in declining reference to
arbitration but such cases would be few and isolated. These
would be cases where the Court can readily conclude that the
contract is void upon a meaningful reading of the contract
document itself. Some examples of where a contract may fall in
this category would be :-
(a) Where a contract is entered into by a person, who has
not attained the age of majority (Section 11);
(b) Where both the parties are under a mistake as to a
matter of fact essential to the agreement
(Section 19);
(c) Where the consideration or object of the contract is
forbidden by law or is of such a nature that, if
permitted, it would defeat the provisions of any law
or where the object of the contract is to indulge in
any immoral activity or would be opposed to public
policy. Glaring examples of this would be where a
contract is entered into between the parties for
running a prostitution racket, smuggling drugs, human
trafficking and any other activities falling in that
category.
(d) Similarly, Section 30 renders wagering contracts as
void. The only exception to this is betting on horse
racing. In the circumstances noted above, it may not
be necessary for the Court to take any further
evidence apart from reading the contract document
itself. Therefore, whilst exercising jurisdiction
under Section 11(6) of the Arbitration Act, the Court
could decline to make a reference to arbitration as
the contract would be patently void.
28. However, it would not be possible to shut out arbitration
even in cases where the defence taken is that the contract is
voidable. These would be cases which are covered under the
circumstances narrated in Section 12 – unsoundness of mind;
Section 14 – absence of free consent, i.e. where the consent
is said to be vitiated as it was obtained by Coercion
(Section 15), Undue Influence (Section 16), Fraud (Section
17) or Misrepresentation (Section 18). Such a contract will
only become void when the party claiming lack of free consent
is able to prove the same and thus rendering contract void.
This indeed is the provision contained in Section 2(j) of the
Indian Contract Act. In exercising powers under Section
11(6) of the Arbitration Act, the Court has to keep in view
the provisions contained in Section 8 of the Arbitration Act,
which provides that a reference to arbitration shall be made
if a party applies not later than when submitting his first
statement on the substance of the dispute. In contrast,
Section 45 of the aforesaid Act permits the Court to decline
reference to arbitration in case the Court finds that the
agreement is null and void, inoperative or incapable of being
performed.
29. To shut out arbitration at the initial stage would destroy
the very purpose for which the parties had entered into
arbitration. Furthermore, there is no inherent risk of
prejudice to any of the parties in permitting arbitration to
proceed simultaneously to the criminal proceedings. In an
eventuality where ultimately an award is rendered by arbitral
tribunal, and the criminal proceedings result in conviction
rendering the underlying contract void, necessary plea can be
taken on the basis of the conviction to resist the
execution/enforcement of the award. Conversely, if the matter
is not referred to arbitration and the criminal proceedings
result in an acquittal and thus leaving little or no ground
for claiming that the underlying contract is void or
voidable, it would have the wholly undesirable result of
delaying the arbitration. Therefore, I am of the opinion that
the Court ought to act with caution and circumspection whilst
examining the plea that the main contract is void or
voidable. The Court ought to decline reference to
arbitration only where the Court can reach the conclusion
that the contract is void on a meaningful reading of the
contract document itself without the requirement of any
further proof.
30. In the present case, it is pleaded that the manner in which
the contract was made between the petitioner and the
respondent was investigated by the CBI. As a part of the
investigation, the CBI had seized all the original documents
and the record from the office of the respondent. After
investigation, the criminal case CC No.22 of 2011 has been
registered, as noticed earlier. It is claimed that in the
event the Chairman of the Organising Committee and the other
officials who manipulated the grant of contract in favour of
the respondent are found guilty in the criminal trial, no
amount would be payable to the petitioner. Therefore, it
would be appropriate to await the decision of the criminal
proceedings before the arbitral tribunal is constituted to go
into the alleged disputes between the parties. I am unable to
accept the aforesaid submission made by the learned counsel
for the respondents, for the reasons stated in the previous
paragraphs. The balance of convenience is tilted more in
favour of permitting the arbitration proceedings to continue
rather than to bring the same to a grinding halt.
31. I must also notice here that the defence of the contract
being void is now-a-days taken routinely along with the other
usual grounds, to avoid/delay reference to arbitration. In my
opinion, such ground needs to be summarily rejected unless
there is clear indication that the defence has a reasonable
chance of success. In the present case, the plea was never
taken till the present petition was filed in this Court.
Earlier, the respondents were only impressing upon the
petitioners to supply certain information. Therefore, it
would be appropriate, let the Arbitral Tribunal examine
whether there is any substance in the plea of fraud now
sought to be raised by the respondents.
32. The Respondent also relied on the judgment of this Court in
India Household and Healthcare Ltd. (supra), wherein the
application under section 11 (6) of the Arbitration Act was
dismissed. This case, however, will not come in the way of
referring the matter to arbitration since it is clearly
distinguishable from the present case. In India Household
and Healthcare Ltd. (supra), the substantive/underlying
contract containing the arbitration clause was entered into
by the parties on 08.05.2004. This agreement, however, was
preceded by a Memorandum of Understanding (“MoU”) dated
1.11.2003. It was contended by the Respondent that both the
Agreement and the MoU are vitiated by fraud which was
fructified by a criminal conspiracy hatched between officials
representing the Petitioner and Respondent therein. This
Court also noticed that the concerned officials of the
Respondent had been convicted and sentenced to undergo
imprisonment by the Korean Criminal Court. The said MoU was
also contended by the Respondent to be in contravention of
the laws of Korea. It was further noticed that the Respondent
filed a suit in the Madras High Court against the Petitioner,
whereby the High Court vide interim order dated 06.10.2005
issued an injunction and thereby restrained the Petitioner
therein to act directly or indirectly on the basis of MoU and
the Agreement dated 08.05.2004, and to derive any other
benefit based upon the said MoU and the license agreement in
any manner whatsoever. This interim order, the court noticed,
was confirmed by an order dated 21.01.2006; against which no
appeal was filed by the Petitioner. The Court, relying upon A
Treatise on Law Governing Injunctions by Spelling and Lewis,
concluded that this injunction order having not been
challenged by the Petitioner has become final and also that
this order restrains the invocation of the arbitration
agreement contained in Agreement dated 08.05.2004. Therefore,
the Court declined to refer the matter to arbitration.
Another factor that weighed with Court in dismissing the
Petition, it appears, is that the Petitioner did not conform
to the procedure concerning appointment of the Arbitrator
before filing the Petition under Section 11 (6).
33. This case is clearly distinguishable and hence is not
applicable into the facts and circumstances of the present
case because of the following reasons: Firstly, there has
been no conviction in the present case, though the trial has
been going on against the officials of both the parties.
Secondly, there is no injunction or any other order
restraining the Petitioner from invoking the Arbitration
Clause. Lastly, all the conditions precedent for invoking the
arbitration clause have been satisfied by the Petitioner, as
observed earlier.
34. The respondent had relied on the judgment of this Court in
Guru Granth Saheb Sthan Meerghat Vanaras Vs. Ved Prakash &
Ors.[7] This judgment reiterates the normal rule which was
stated by the Constitution Bench of this Court in M.S.Sheriff
Vs. State of Madras in relation to the simultaneous
prosecution of the criminal proceeding with the civil suit.
In the aforesaid case, the Constitution Bench had observed as
follows:-
“14. … It was said that the simultaneous prosecution of these
matters will embarrass the accused. … but we can see that the
simultaneous prosecution of the present criminal proceedings out
of which this appeal arises and the civil suits will embarrass
the accused. We have therefore to determine which should be
stayed.
15. As between the civil and the criminal proceedings we are of
the opinion that the criminal matters should be given
precedence. There is some difference of opinion in the High
Courts of India on this point. No hard-and-fast rule can be laid
down but we do not consider that the possibility of conflicting
decisions in the civil and criminal courts is a relevant
consideration. The law envisages such an eventuality when it
expressly refrains from making the decision of one court binding
on the other, or even relevant, except for certain limited
purposes, such as sentence or damages. The only relevant
consideration here is the likelihood of embarrassment.
16. Another factor which weighs with us is that a civil suit
often drags on for years and it is undesirable that a criminal
prosecution should wait till everybody concerned has forgotten
all about the crime. The public interests demand that criminal
justice should be swift and sure; that the guilty should be
punished while the events are still fresh in the public mind and
that the innocent should be absolved as early as is consistent
with a fair and impartial trial. Another reason is that it is
undesirable to let things slide till memories have grown too dim
to trust.
This, however, is not a hard-and-fast rule. Special
considerations obtaining in any particular case might make some
other course more expedient and just. For example, the civil
case or the other criminal proceeding may be so near its end as
to make it inexpedient to stay it in order to give precedence to
a prosecution ordered under Section 476. But in this case we are
of the view that the civil suits should be stayed till the
criminal proceedings have finished.”
35. The purpose of the aforesaid solitary rule is to avoid
embarrassment to the accused. In contrast, the findings
recorded by the arbitral tribunal in its award would not be
binding in criminal proceedings. Even otherwise, the
Constitution Bench in the aforesaid case has clearly held
that no hard and fast rule can be laid down that civil
proceedings in all matters ought to be stayed when criminal
proceedings are also pending. As I have indicated earlier in
case the award is made in favour of the petitioner herein,
the respondents will be at liberty to resist the enforcement
of the same on the ground of subsequent conviction of either
the Chairman or the officials of the contracting parties.
36. It must also notice here that the Petitioners relied upon an
earlier order of this court in the case of M/s Nussli
(Switzerland) Ltd. (supra). The aforesaid order, however,
seems to have been passed on a consensus between the learned
counsel for the parties. This is evident from the following
observations in the aforesaid order:
“In view of the aforesaid order, learned senior counsel for both
the parties have agreed that the parties have agreed that the
matter ought to be referred to Arbitration. However, Mr. Gopal
Subramaniam, learned senior counsel appearing for the
Respondent, submits that serious issued would arise which are
currently under investigation of the CBI, which may ultimately
culminate into certain conclusions which could result in the
invalidation of the contract from inception.
He has, however, very fairly stated that there would be no
impediment for the arbitral Tribunal to look into all the issues
including the allegations which are pending with the CBI in
investigation.
I am of the opinion that the submission made by the learned
senior counsel is in accordance with the law settled, not only
by this Court, but in other jurisdictions also concerning the
international commercial arbitrations.”
The aforesaid excerpt clearly shows that Mr. Gopal
Subramaniam, had very fairly agreed to proceed with arbitration.
The decision of this Court in M/s Nussli (Switzerland) Ltd.
(supra) has not laid down any law.
37. As noticed earlier, the petitioners have already nominated
Hon’ble Mr. Justice S.N. Variava, Former Judge of this Court,
having his office at Readymoney Mansion, 2nd floor, Next to
Akbarallys, Veer Nariman Road, Fort,
Mumbai – 400 001, as their arbitrator. I hereby nominate.
Hon’ble Mr. Justice B.P. Singh, Former Judge of this Court,
R/o A-7, Neeti Bagh, 3rd Floor, New Delhi – 110 049, as the
second Arbitrator and Hon’be Mr. Justice Kuldip Singh, Former
Judge of this Court, R/o H.No. 88, Sector 10A, Chandigarh –
160 010, as the Chairman of the Arbitral Tribunal, to
adjudicate the disputes that have arisen between the parties,
on such terms and conditions as they deem fit and proper.
38. The Registry is directed to communicate this order to the
Chairman of the Arbitral Tribunal, as well as, to the Second
Arbitrator to enable them to enter upon the reference and
decide the matter as expeditiously as possible.
39. The Arbitration Petition is accordingly allowed with no order
as to costs.
……………………………J.
[Surinder Singh Nijjar]
New Delhi;
May 28, 2014
[pic]
-----------------------
[1] (2010) 1 SCC 72
[2] (2013) 7 SCC 622
[3] 2007 (5) SCC 510
[4] (2003) 6 SCC 503
[5] (2000) 4 SCC 539
[6] 2013 (7) SCALE 327: 2013 (2) Arb. LR 241 (SC)
[7] (2013) 7 SCC 622
-----------------------
35
The respondents have raised two preliminary
objections, which are as follows:-
(i) The petitioner has not followed the dispute
resolution mechanism as expressly provided in the
agreement dated 11th March, 2010. No efforts have
been made by the petitioner to seek resolution of the
dispute as provided under Clause 38. On the other
hand, the respondent through numerous communications
invited the petitioner for amicable resolution of the
dispute. The respondent relies on communications
dated 3rd January, 2011, 9th
January, 2011, 10th January, 2011,
1st February, 2011 and 2nd February, 2011.
(ii) The contract stands vitated and is void ab initio in
view of Clauses 29, 30 and 34 of the Agreement dated
11th March, 2010. Hence, the petitioner is not
entitled to any payment whatsoever in respect of the
contract and is liable to reimburse the payments
already made. Therefore, there is no basis to invoke
arbitration clause.
The respondent points out that a combined reading of
Clause 29 and Clause 34 would show that the
petitioner had warranted that it will never engage in
corrupt, fraudulent, collusive or coercive practices
in connection with the agreement. The petitioner
would be liable to indemnify the Respondent against
all losses suffered or incurred as a result of any
breach of the agreement or any negligence, unlawful
conduct or wilful misconduct. The respondent may
terminate the agreement whenever it determines that
the petitioner had engaged in any corrupt,
fraudulent, collusive or coercive practice in
connection with the agreement. The respondent seeks
to establish the aforesaid non-liability clause on
the basis of registration of Criminal Case being CC
No. 22 of 2011 under Section 120-B, read with
Sections 420, 427, 488 and 477 IPC and Section 13(2)
read with Section 13(1)(d) of the Prevention of
Corruption Act against Suresh Kalmadi, the then
Chairman of the Organising Committee and other
officials of the respondent alongwith some officials
of the petitioner, namely Mr. S. Chianese, Sales &
Marketing Manager, Mr. Christophe Bertaud, General
Manager and Mr. J. Spiri, Multi Sports Events & Sales
Manager.
9. It is further the case of the respondent that due to the
pendency of the criminal proceedings in the trial court, the
present petition ought not to be entertained. In case the
arbitration proceeding continues simultaneously with the
criminal trial, there is real danger of conflicting
conclusions by the two fora, leading to unnecessary
confusion.
. I am unable to agree with the submission made by the learned
counsel for the respondent that the petitioner has not
satisfied the condition precedent under Clause 38.3.
A perusal of the correspondence placed on the record of
the petition clearly shows that not only the petitioner but
even the ambassadors of the various governments had made
considerable efforts to resolve the issue without having to
take recourse to formal arbitration. It is only when all
these efforts failed, that the petitioner communicated to the
respondent its intention to commence arbitration by letter
/notice dated 22nd April, 2013. This was preceded by letters
dated 4th February, 2011, 14th March, 2011 and 20th April,
2011 which clearly reflect the efforts made by the petitioner
to resolve disputes through discussions and negotiations
before sending the notice invoking arbitration clause.
16. It is evident from the counter affidavit filed by the
respondents that the disputes have arisen between the parties
out of or relating to the agreement dated 11th March, 2010.
On the one hand, the respondent disputes the claims made by
the petitioner and on the other, it takes the plea that
efforts were made to amicably put a “closure to the
agreement”. I, therefore, do not find any
merit in the submission of the respondent that the petition
is not maintainable for non-compliance with Clause 38.3 of
the Dispute Resolution Clause.
17. The second preliminary objection raised by the respondent is
on the ground that the contract stands vitiated and is void-
ab-initio in view of Clauses 29, 30 and 34 of the agreement
dated 11th March, 2010. I am of the considered opinion that
the aforesaid preliminary objection is without any substance.
Under Clause 29, both sides have given a warranty not to
indulge in corrupt practices to induce execution of the
Agreement. Clause 34 empowers the Organising Committee to
terminate the contract after deciding that the contract was
executed in breach of the undertaking given in Clause 29 of
the Contract. These are allegations which will have to be
established in a proper forum on the basis of the oral and
documentary evidence, produced by the parties, in support of
their respective claims. The objection taken is to the manner
in which the grant of the contract was manipulated in favour
of the petitioner. The second ground is that the rates
charged by the petitioner were exorbitant. Both these issues
can be taken care of in the award. Certainly if the
respondent is able to produce sufficient evidence to show
that the similar services could have been procured for a
lesser price, the arbitral tribunal would take the same into
account whilst computing the amounts payable to the
petitioner. As a pure question of law, I am unable to accept
the very broad proposition that whenever a contract is said
to be void-ab-initio, the Courts exercising jurisdiction
under Section 8 and Section 11 of the Arbitration Act, 1996
are rendered powerless to refer the disputes to arbitration.
As noticed earlier, the petitioners have already nominated
Hon’ble Mr. Justice S.N. Variava, Former Judge of this Court,
having his office at Readymoney Mansion, 2nd floor, Next to
Akbarallys, Veer Nariman Road, Fort,
Mumbai – 400 001, as their arbitrator. I hereby nominate.
Hon’ble Mr. Justice B.P. Singh, Former Judge of this Court,
R/o A-7, Neeti Bagh, 3rd Floor, New Delhi – 110 049, as the
second Arbitrator and Hon’be Mr. Justice Kuldip Singh, Former
Judge of this Court, R/o H.No. 88, Sector 10A, Chandigarh –
160 010, as the Chairman of the Arbitral Tribunal, to
adjudicate the disputes that have arisen between the parties,
on such terms and conditions as they deem fit and proper.
38. The Registry is directed to communicate this order to the
Chairman of the Arbitral Tribunal, as well as, to the Second
Arbitrator to enable them to enter upon the reference and
decide the matter as expeditiously as possible.
39. The Arbitration Petition is accordingly allowed with no order
as to costs.
Therefore, in my
opinion, the judgment in N. Radhakrishnan (supra) does not
lay down the correct law and can not be relied upon.
It must also notice here that the Petitioners relied upon an
earlier order of this court in the case of M/s Nussli
(Switzerland) Ltd. (supra). The aforesaid order, however,
seems to have been passed on a consensus between the learned
counsel for the parties. The decision of this Court in M/s Nussli (Switzerland) Ltd.
(supra) has not laid down any law.
2014(May.Part) http://judis.nic.in/supremecourt/filename=41548
SURINDER SINGH NIJJAR
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO. 34 OF 2013
Swiss Timing Limited
…Petitioner
Versus
Organising Committee,
Commonwealth Games 2010, Delhi. ….Respondent
J U D G E M E N T
SURINDER SINGH NIJJAR,J.
1. This is a petition under Section 11(4) read with
Section 11(6) of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Arbitration Act”), with a
prayer to appoint the nominee arbitrator of the Respondent
and to further constitute the arbitral tribunal, by
appointing the presiding arbitrator in order to adjudicate
the disputes that have arisen between the parties.
2. The relevant facts as set out in the Arbitration Petition are
as under:-
3. The Petitioner is a company duly incorporated under the laws
of Switzerland, having its registered office in Corgémont,
Switzerland. The respondent is the Organising Committee,
Commonwealth Games, 2010. It is a society registered under
the Societies Registration Act, 1860 (hereinafter referred to
as “the Organising Committee”), established for the primary
purpose of planning, organising and delivering the
Commonwealth Games, 2010 Delhi (hereinafter referred to as
“Commonwealth Games”) and having its registered office in New
Delhi, India.
4. The petitioner entered into an agreement
dated 11th March, 2010 with the respondent for
providing timing, score and result systems (“TSR
systems/services”) as well as supporting services required to
conduct the Commonwealth Games. According to the petitioner,
Clause 11.1 of the aforesaid agreement stipulated the fees,
as set out in Schedule 3, which shall be paid to the
petitioner for performance of the obligations contained in
the agreement. The aforesaid Schedule 3 gives details of the
amounts which were to be paid, in instalments, by the
Organising Committee. The service provider/Petitioner was
to submit monthly tax invoices, detailing the payments to be
made by the Organising Committee. These invoices were to be
paid within 30 days of the end of the month in which the tax
invoices were received by the Organising Committee. All
payments were to be made in Swiss Francs, unless the parties
agree otherwise in writing. Clause 11.5 provides that on the
date of the agreement, the service provider must provide the
Performance Bank Guarantee to the Organising Committee to
secure the performance of its obligations under the
agreement. Certain other obligations are enumerated in the
other clauses, which are not necessary to be noticed for the
purposes of the decision of the present petition.
5. It is also noteworthy that in consideration of the
petitioner’s services as stipulated in the agreement, the
petitioner was to receive a total amount of CHF 24,990,000/-
(Swiss Francs Twenty Four Million Nine Hundred and Ninety
Thousand only). It was also provided in Schedule 3 that
payment of the 5% of the total service fees was to be made
upon completion of the Commonwealth Games. Accordingly, the
petitioner sent the invoice No. 33574 dated 27th October,
2010 for the payment of CHF 1,249,500 (Swiss Francs One
Million Two Hundred Forty Nine Thousand Five Hundred only).
This represents the remaining 5% which was to be paid upon
completion of the Commonwealth Games
on 27th October, 2010. The petitioner had also paid to the
Organising Committee a sum of Rs. 15,00,000/-
(INR 1.5 million) as Earnest Money Deposit (EMD), for
successfully completing the TSR services as provided in the
agreement.
6. According to the petitioner, the respondent defaulted in
making the payment without any justifiable reasons. Not only
the amount was not paid to the petitioner, the respondent
sent a letter dated 15th December, 2010 asking the petitioner
to extend the Bank Guarantee till 31st January, 2011. The
petitioner informed the respondent that the Bank Guarantee
had already been terminated and released on completion of the
Commonwealth Games in October, 2010. It is also the case of
the petitioner that there is no provision in the service
agreement for extension of the Bank Guarantee.
The petitioner reiterated its claim for the
aforesaid amount. Through letter dated 26th January, 2011,
the petitioner demanded repayment of Rs. 15 lakhs deposited
as EMD. Instead of making the payment to the petitioner and
other companies, the respondent issued a Press Communiqué
on 2nd February, 2011 declaring that part payments to
nine foreign vendors, including the petitioner, have been
withheld for “non-performance of the contract”. The
petitioner is said to have protested against the aforesaid
communiqué through letter dated 4th February, 2011. It was
reiterated that the petitioner had satisfactorily performed
the obligations in the service agreement of 11th March, 2010.
Since the respondent was disputing its liability to pay the
amounts, the petitioner served a formal Dispute Notification
on the respondent under Clause 38 of the
agreement.
7. The petitioner further points out that on 7th February, 2011,
the respondent called upon the petitioner to fulfil its
alleged outstanding obligations under the agreement including
handing over of the Legacy Boards, completion of the
formalities of the material, which were required to be
shipped out and to fulfil certain other requirements as set
out in its earlier e-mails in order to prepare the “agreement
closure report”. The respondent also stated that they were
not addressing the issue of invoking the Dispute Resolution
Clause as they were interested in settling the dispute
amicably. The petitioner pleads that the respondent failed in
its commitment for payments towards services rendered, not
only towards the petitioner but also towards other
international companies from Australia, Belgium, England,
France, Germany, Italy, the Netherlands and Switzerland,
which had provided various services to the respondent at the
Commonwealth Games. It also appears that collective letters
were written on behalf of various companies by the
ambassadors of the concerned countries, to the Finance
Minister of India indicating the default in payments of the
amounts due. The petitioners, therefore, claim that they were
left with no alternative but to invoke arbitration as
provided under Clause 38.6 of the agreement. The petitioners
have nominated the arbitrator on its behalf namely Justice
S.N. Variava, former Judge of the Supreme Court of India. A
notice to this effect was served on the respondent through a
communication dated 22nd April, 2013. Since no response was
received a reminder was issued on 29th May, 2013. Upon such
failure, the petitioners have filed the present petition.
8. In the counter affidavit all the averments made by the
petitioners have been denied, as being incorrect in facts and
in law. The respondents have raised two preliminary
objections, which are as follows:-
(i) The petitioner has not followed the dispute
resolution mechanism as expressly provided in the
agreement dated 11th March, 2010. No efforts have
been made by the petitioner to seek resolution of the
dispute as provided under Clause 38. On the other
hand, the respondent through numerous communications
invited the petitioner for amicable resolution of the
dispute. The respondent relies on communications
dated 3rd January, 2011, 9th
January, 2011, 10th January, 2011,
1st February, 2011 and 2nd February, 2011.
(ii) The contract stands vitated and is void ab initio in
view of Clauses 29, 30 and 34 of the Agreement dated
11th March, 2010. Hence, the petitioner is not
entitled to any payment whatsoever in respect of the
contract and is liable to reimburse the payments
already made. Therefore, there is no basis to invoke
arbitration clause.
The respondent points out that a combined reading of
Clause 29 and Clause 34 would show that the
petitioner had warranted that it will never engage in
corrupt, fraudulent, collusive or coercive practices
in connection with the agreement. The petitioner
would be liable to indemnify the Respondent against
all losses suffered or incurred as a result of any
breach of the agreement or any negligence, unlawful
conduct or wilful misconduct. The respondent may
terminate the agreement whenever it determines that
the petitioner had engaged in any corrupt,
fraudulent, collusive or coercive practice in
connection with the agreement. The respondent seeks
to establish the aforesaid non-liability clause on
the basis of registration of Criminal Case being CC
No. 22 of 2011 under Section 120-B, read with
Sections 420, 427, 488 and 477 IPC and Section 13(2)
read with Section 13(1)(d) of the Prevention of
Corruption Act against Suresh Kalmadi, the then
Chairman of the Organising Committee and other
officials of the respondent alongwith some officials
of the petitioner, namely Mr. S. Chianese, Sales &
Marketing Manager, Mr. Christophe Bertaud, General
Manager and Mr. J. Spiri, Multi Sports Events & Sales
Manager.
9. It is further the case of the respondent that due to the
pendency of the criminal proceedings in the trial court, the
present petition ought not to be entertained. In case the
arbitration proceeding continues simultaneously with the
criminal trial, there is real danger of conflicting
conclusions by the two fora, leading to unnecessary
confusion.
10. I have heard the learned counsel for the parties.
11. The submissions made in the petition as well as in the
counter affidavit have been reiterated before me by the
learned counsel. I have given due consideration to the
submissions made by the learned counsel for the parties.
12. The learned counsel for the petitioners has relied on an
unreported Order of this Court dated 11th April, 2012 in
M/s Nussli (Swtizerland) Ltd. Vs. Organizing
Commit. Commonwealth Game. 2010, wherein the dispute in
almost identical circumstances have been referred to
arbitration.
13. On the other hand, learned counsel for the respondent has
relied on a judgment of this Court in N. Radhakrishnan Vs.
Maestro Engineers & Ors.[1] He has also relied upon Guru
Granth Saheb Sthan Meerghat Vanaras Vs. Ved Prakash & Ors.[2]
Reliance is also placed on India Household and Healthcare
Ltd. Vs. LG Household and Healthcare Ltd.[3]
14. The procedure for Dispute Resolution has been provided in
Clause 38 of the agreement, which is as under:-
“38. Dispute Resolution
38.1 If a dispute arises between the parties out of or relating
to this Agreement (a “Dispute”), any party seeking to resolve
the Dispute must do so strictly in accordance with the
provisions of this clause. Compliance with the provisions of
this clause is a condition precedent to seeking a resolution of
the Dispute at the arbitral tribunal constituted in accordance
with this clause 38.
38.2 During a Dispute, each party must continue to perform its
obligations under this Agreement.
38.3 A party seeking to resolve the Dispute must notify the
existence and nature of the Dispute to the other party (“the
Notification”). Upon receipt of the Notification the Parties
must use their respective reasonable endeavours to negotiate to
resolve the Dispute by discussions between Delhi 2010 (or a
person it nominates) and the Service Provider (or a person it
nominates). If the Dispute has not been resolved within 10
Business Days of receipt of the Notification (or such other
period as agreed in writing by the parties) then the parties
must refer the Dispute to the Chairman of Delhi 2010 and the
Chief Executive Officer or its equivalent) of the Service
Provider.
38.4 If the Dispute has not been settled within 5 Business Days
of referral under Clause 38.3, the Dispute shall be settled by
arbitration in accordance with the following clauses.
38.5 For any dispute arising after 31 July, 2010, the relevant
period in clause 38.3 is 48 hours and the relevant period in
clause 38.4 is 24 hours.
38.6 The Dispute shall be referred to a tribunal consisting of
three Arbitrators, one to be nominated by each party, with the
presiding Arbitrator to be nominated by the two arbitrators
nominated by the parties. The Arbitrators shall be retired
judges of the Supreme Court or High Courts of India. However,
the Presiding Arbitrator shall be a retired Supreme Court Judge.
38.7 The place of arbitration shall be New Delhi. All
arbitration proceedings shall be conducted in English in
accordance with the provisions of the Arbitration and
Conciliation Act, 1996 as amended from time to time.
38.8 The arbitration award will be final and binding upon the
parties, and each party will bear its own costs of arbitration
and equally share the fees of the arbitral tribunal unless the
arbitral tribunal decides otherwise.
38.9 This clause 38 will not affect each party’s rights to seek
interlocutory relief in a court of competent jurisdiction.”
15. I am unable to agree with the submission made by the learned
counsel for the respondent that the petitioner has not
satisfied the condition precedent under Clause 38.3.
A perusal of the correspondence placed on the record of
the petition clearly shows that not only the petitioner but
even the ambassadors of the various governments had made
considerable efforts to resolve the issue without having to
take recourse to formal arbitration. It is only when all
these efforts failed, that the petitioner communicated to the
respondent its intention to commence arbitration by letter
/notice dated 22nd April, 2013. This was preceded by letters
dated 4th February, 2011, 14th March, 2011 and 20th April,
2011 which clearly reflect the efforts made by the petitioner
to resolve disputes through discussions and negotiations
before sending the notice invoking arbitration clause.
16. It is evident from the counter affidavit filed by the
respondents that the disputes have arisen between the parties
out of or relating to the agreement dated 11th March, 2010.
On the one hand, the respondent disputes the claims made by
the petitioner and on the other, it takes the plea that
efforts were made to amicably put a “closure to the
agreement”. I, therefore, do not find any
merit in the submission of the respondent that the petition
is not maintainable for non-compliance with Clause 38.3 of
the Dispute Resolution Clause.
17. The second preliminary objection raised by the respondent is
on the ground that the contract stands vitiated and is void-
ab-initio in view of Clauses 29, 30 and 34 of the agreement
dated 11th March, 2010. I am of the considered opinion that
the aforesaid preliminary objection is without any substance.
Under Clause 29, both sides have given a warranty not to
indulge in corrupt practices to induce execution of the
Agreement. Clause 34 empowers the Organising Committee to
terminate the contract after deciding that the contract was
executed in breach of the undertaking given in Clause 29 of
the Contract. These are allegations which will have to be
established in a proper forum on the basis of the oral and
documentary evidence, produced by the parties, in support of
their respective claims. The objection taken is to the manner
in which the grant of the contract was manipulated in favour
of the petitioner. The second ground is that the rates
charged by the petitioner were exorbitant. Both these issues
can be taken care of in the award. Certainly if the
respondent is able to produce sufficient evidence to show
that the similar services could have been procured for a
lesser price, the arbitral tribunal would take the same into
account whilst computing the amounts payable to the
petitioner. As a pure question of law, I am unable to accept
the very broad proposition that whenever a contract is said
to be void-ab-initio, the Courts exercising jurisdiction
under Section 8 and Section 11 of the Arbitration Act, 1996
are rendered powerless to refer the disputes to arbitration.
18. However, the respondent has placed strong reliance on the
judgment of this Court in N. Radhakrishnan (supra). In that
case, disputes had arisen between the appellant and the
respondent, who were partners in a firm known as Maestro
Engineers. The appellant had retired from the firm.
Subsequently, the appellant alleged that he continued to be a
partner. The respondent filed a Civil Suit seeking a
declaration that the appellant is not a partner of the firm.
In this suit, the appellant filed an application under
Section 8 of the Arbitration Act seeking reference of the
dispute to the arbitration. The plea was rejected by the
trial court and the High Court in Civil Revision. This Court
also rejected the prayer of the appellant for reference of
the dispute to arbitration. This Court found that subject
matter of the dispute was within the ambit of the arbitration
clause. It was held as under :
“14. The learned counsel for the respondents further argued that
the subject-matter of the suit being OS No. 526 of 2006 was a
different one and it was not within the ambit of the arbitration
clause of the partnership deed dated 7-4-2003 and that the
partnership deed had ceased to exist after the firm was
reconstituted due to the alleged retirement of the appellant.
Therefore, the trial court was justified in not referring the
matter to the arbitrator.
15. The appellant had on the other hand contended that the
subject-matter of the suit was within the ambit of the
arbitration clause since according to him the dispute related to
his retirement and the settlement of his dues after he was
deemed to have retired according to the respondents. Further, it
was his contention that the partnership deed dated 6-12-2005 was
not a valid one as it was not framed in compliance with the
requirements under the Partnership Act, 1932. Therefore, the
argument of the respondents that the subject-matter of the suit
did not fall within the ambit of the arbitration clause of the
original partnership deed dated 7-4-2003 cannot be sustained. We
are in agreement with the contention of the appellant to this
effect.
16. It is clear from a perusal of the documents that there
was a clear dispute regarding the reconstitution of the
partnership firm and the subsequent deed framed to that effect.
The dispute was relating to the continuation of the appellant as
a partner of the firm, and especially when the respondents
prayed for a declaration to the effect that the appellant had
ceased to be a partner of the firm after his retirement, there
is no doubt in our mind that the dispute squarely fell within
the purview of the arbitration clause of the partnership deed
dated 7-4-2003. Therefore, the arbitrator was competent to
decide the matter relating to the existence of the original deed
and its validity to that effect. Thus, the contention that the
subject-matter of the suit before the Ist Additional District
Munsiff Court at Coimbatore was beyond the purview of the
arbitration clause, cannot be accepted.”
19. Having found that the subject matter of the suit was within
the jurisdiction of the arbitration, it was held that the
disputes can not be referred to arbitration. This Court
approved the finding of the High Court that since the case
relates to allegations of fraud and serious malpractices on
the part of the respondents, such a situation can only be
settled in court through furtherance of detailed evidence by
either parties and such a situation can not be properly gone
into by the arbitrator. In my opinion, the aforesaid
observations runs counter to the ratio of the law laid down
by this Court in Hindustan Petroleum Corpn. Ltd. Vs. Pinkcity
Midway Petroleums[4], wherein this Court in Paragraph 14
observed as follows:
“If in an agreement between the parties before the civil court,
there is a clause for arbitration, it is mandatory for the civil
court to refer the dispute to an arbitrator. In the instant case
the existence of an arbitral clause in the agreement is accepted
by both the parties as also by the courts below. Therefore, in
view of the mandatory language of Section 8 of the Act, the
courts below ought to have referred the dispute to arbitration.”
20. In my opinion, the observations in Hindustan Petroleum Corpn.
Ltd. (supra) lays down the correct law. Although, reference
has been made to the aforesaid observations in N.
Radhakrishnan (supra) but the same have not been
distinguished. A Two Judge Bench of this Court in P. Anand
Gajapathi Raju & Ors. Vs. P.V.G. Raju (Dead) & Ors.[5], had
earlier considered the scope of the provisions contained in
Section 8 and observed as follows:-
“8. In the matter before us, the arbitration agreement covers
all the disputes between the parties in the proceedings before
us and even more than that. As already noted, the arbitration
agreement satisfies the requirements of Section 7 of the new
Act. The language of Section 8 is peremptory. It is, therefore,
obligatory for the Court to refer the parties to arbitration in
terms [pic]of their arbitration agreement. Nothing remains to be
decided in the original action or the appeal arising therefrom.
There is no question of stay of the proceedings till the
arbitration proceedings conclude and the award becomes final in
terms of the provisions of the new Act. All the rights,
obligations and remedies of the parties would now be governed by
the new Act including the right to challenge the award. The
court to which the party shall have recourse to challenge the
award would be the court as defined in clause (e) of Section 2
of the new Act and not the court to which an application under
Section 8 of the new Act is made. An application before a court
under Section 8 merely brings to the court’s notice that the
subject-matter of the action before it is the subject-matter of
an arbitration agreement. This would not be such an application
as contemplated under Section 42 of the Act as the court trying
the action may or may not have had jurisdiction to try the suit
to start with or be the competent court within the meaning of
Section 2(e) of the new Act.”
21. This judgment was not even brought to the notice of the Court
in N. Radhakrishnan (supra). In my opinion, judgment in N.
Radhakrishnan (supra) is per incuriam on two grounds:
Firstly, the judgment in Hindustan Petroleum Corpn. Ltd.
(supra) though referred has not been distinguished but at the
same time is not followed also. The judgment in P. Anand
Gajapathi Raju & Ors. (supra) was not even brought to the
notice of this Court. Therefore, the same has neither been
followed nor considered. Secondly, the provision contained
in Section 16 of the Arbitration Act, 1996 were also not
brought to the notice by this Court. Therefore, in my
opinion, the judgment in N. Radhakrishnan (supra) does not
lay down the correct law and can not be relied upon.
22. As noticed above, the attention of this Court was not drawn
to the provision contained in Section 16 of the Arbitration
Act, 1996 in the case of N. Radhakrishnan (supra). Section 16
provides that the Arbitral Tribunal would be competent to
rule on its own jurisdiction including ruling on any
objection with regard to existence or validity of the
arbitration agreement. The Arbitration Act emphasises that
an arbitration clause which forms part of a contract shall be
treated as an agreement independent of the other terms of the
contract. It further provides that a decision by the
Arbitral Tribunal that the contract is null and void shall
not entail ipso jure the invalidity of the arbitration
clause. The aforesaid provision came up for consideration by
this Court in Today Homes & Infrastructure Pvt. Ltd. Vs.
Ludhiana Improvement Trust & Anr.[6]
23. In the aforesaid case, the designated Judge of the Punjab &
Haryana High Court had refused to refer the disputes to
arbitration. The High Court had accepted the plea that since
the underlying contract was void, the arbitration clause
perished with it. The judgment of the High Court was
challenged in this Court, by filing a Special Leave Petition.
Before this Court it was submitted by the appellant that the
High Court treated the application under Section 11(6) of the
Arbitration Act as if it was deciding a suit but without
adducing evidence. Relying on SBP & Co. Vs. Patel Engineering
Ltd., it was submitted that the High Court was only required
to conduct a preliminary enquiry as to whether there was a
valid arbitration agreement; or whether it was a stale claim.
On the other hand, it was submitted by the respondents that
once the High Court had found the main agreement to be void,
the contents thereof including the arbitration clause are
also rendered void.
24. This Court rejected the aforesaid submission of the
respondents with the following observations :
“13. We have carefully considered the submissions made on
behalf of the respective parties and we are of the view that
the learned designated Judge exceeded the bounds of his
jurisdiction, as envisaged in SBP & Co. (supra). In our view,
the learned designated Judge was not required to undertake a
detailed scrutiny of the merits and de- merits of the case,
almost as if he was deciding a suit. The learned Judge was only
required to decide such preliminary issues such as jurisdiction
to entertain the application, the existence of a valid
arbitration agreement, whether a live claim existed or not, for
the purpose of appointment of an arbitrator. By the impugned
order, much more than what is contemplated under Section 11(6)
of the 1996 Act was sought to be decided, without any evidence
being adduced by the parties. The issue
regarding the continued existence of the arbitration agreement,
notwithstanding the main agreement itself being declared void,
was considered by the 7-Judge Bench in SBP & Co. (supra) and it
was held that an arbitration agreement could stand independent
of the main agreement and did not necessarily become otiose,
even if the main agreement, of which it is a part, is declared
void.
14. The same reasoning was adopted by a member of this Bench
(S.S. Nijjar, J.), while deciding the case of Reva Electric Car
Company Private Limited Vs. Green Mobil [(2012) 2 SCC 93],
wherein the provisions of Section 16(1) in the backdrop of the
doctrine of kompetenz kompetenz were considered and it was inter
alia held that under Section 16(1), the legislature makes it
clear that while considering any objection with regard to the
existence or validity of the arbitration agreement, the
arbitration clause, which formed part of the contract, had to be
treated as an agreement independent of the other terms of the
contract. Reference was made in the said judgment to the
provisions of Section 16(1)(b) of the 1996 Act, which provides
that even if the arbitral tribunal concludes that the contract
is null and void, it should not result, as a matter of law, in
an automatic invalidation of the arbitration clause. It was also
held that Section 16(1)(a) of the 1996 Act presumes the
existence of a valid arbitration clause and mandates the same to
be treated as an agreement independent of the other terms of the
contract. By virtue of Section 16(1)(b) of the 1996 Act, the
arbitration clause continues to be enforceable, notwithstanding
a declaration that the contract was null and void.
25. Keeping in view the aforesaid observations made by this
Court, I see no reason to accept the submission made by the
learned counsel for the respondents that since a criminal
case has been registered against the Chairman of the
Organising Committee and some other officials of the
petitioner, this Court would have no jurisdiction to make a
reference to arbitration.
26. As noticed above, the concept of separability of the
arbitration clause/agreement from the underlying contract has
been statutorily recognised by this country under Section 16
of the Arbitration Act, 1996. Having provided for resolution
of disputes through arbitration, parties can not be permitted
to avoid arbitration, without satisfying the Court that it
will be just and in the interest of all the parties not to
proceed with the arbitration. Section 5 of the Arbitration
Act provides that the Court shall not intervene in the
arbitration process except in accordance with the provisions
contained in Part I of the Arbitration Act. This policy of
least interference in arbitration proceedings recognises the
general principle that the function of Courts in matters
relating to arbitration is to support arbitration process. A
conjoint reading of Section 5 and Section 16 would make it
clear that all matters including the issue as to whether the
main contract was void/voidable can be referred to
arbitration. Otherwise, it would be a handy tool available
to the unscrupulous parties to avoid arbitration, by raising
the bogey of the underlying contract being void.
27. I am of the opinion that whenever a plea is taken to avoid
arbitration on the ground that the underlying contract is
void, the Court is required to ascertain the true nature of
the defence. Often, the terms “void” and “voidable” are
confused and used loosely and interchangeably with each
other. Therefore, the Court ought to examine the plea by
keeping in mind the relevant statutory provisions in the
Indian Contract Act, 1872, defining the terms “void” and
“voidable”. Section 2, the interpretation clause defines
some of the relevant terms as follows:-
“2(g) An agreement not enforceable by law is said to be
void;
2(h) An agreement enforceable by law is a contract;
2(i) An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option
of the other or others, is a voidable contract;
2(j) A contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable.”
The aforesaid clauses clearly delineate and differentiate
between term “void” and “voidable”. Section 2(j) clearly
provides as to when a voidable contract would reach the stage of
being void. Undoubtedly, in cases, where the Court can come to
a conclusion that the contract is void without receiving any
evidence, it would be justified in declining reference to
arbitration but such cases would be few and isolated. These
would be cases where the Court can readily conclude that the
contract is void upon a meaningful reading of the contract
document itself. Some examples of where a contract may fall in
this category would be :-
(a) Where a contract is entered into by a person, who has
not attained the age of majority (Section 11);
(b) Where both the parties are under a mistake as to a
matter of fact essential to the agreement
(Section 19);
(c) Where the consideration or object of the contract is
forbidden by law or is of such a nature that, if
permitted, it would defeat the provisions of any law
or where the object of the contract is to indulge in
any immoral activity or would be opposed to public
policy. Glaring examples of this would be where a
contract is entered into between the parties for
running a prostitution racket, smuggling drugs, human
trafficking and any other activities falling in that
category.
(d) Similarly, Section 30 renders wagering contracts as
void. The only exception to this is betting on horse
racing. In the circumstances noted above, it may not
be necessary for the Court to take any further
evidence apart from reading the contract document
itself. Therefore, whilst exercising jurisdiction
under Section 11(6) of the Arbitration Act, the Court
could decline to make a reference to arbitration as
the contract would be patently void.
28. However, it would not be possible to shut out arbitration
even in cases where the defence taken is that the contract is
voidable. These would be cases which are covered under the
circumstances narrated in Section 12 – unsoundness of mind;
Section 14 – absence of free consent, i.e. where the consent
is said to be vitiated as it was obtained by Coercion
(Section 15), Undue Influence (Section 16), Fraud (Section
17) or Misrepresentation (Section 18). Such a contract will
only become void when the party claiming lack of free consent
is able to prove the same and thus rendering contract void.
This indeed is the provision contained in Section 2(j) of the
Indian Contract Act. In exercising powers under Section
11(6) of the Arbitration Act, the Court has to keep in view
the provisions contained in Section 8 of the Arbitration Act,
which provides that a reference to arbitration shall be made
if a party applies not later than when submitting his first
statement on the substance of the dispute. In contrast,
Section 45 of the aforesaid Act permits the Court to decline
reference to arbitration in case the Court finds that the
agreement is null and void, inoperative or incapable of being
performed.
29. To shut out arbitration at the initial stage would destroy
the very purpose for which the parties had entered into
arbitration. Furthermore, there is no inherent risk of
prejudice to any of the parties in permitting arbitration to
proceed simultaneously to the criminal proceedings. In an
eventuality where ultimately an award is rendered by arbitral
tribunal, and the criminal proceedings result in conviction
rendering the underlying contract void, necessary plea can be
taken on the basis of the conviction to resist the
execution/enforcement of the award. Conversely, if the matter
is not referred to arbitration and the criminal proceedings
result in an acquittal and thus leaving little or no ground
for claiming that the underlying contract is void or
voidable, it would have the wholly undesirable result of
delaying the arbitration. Therefore, I am of the opinion that
the Court ought to act with caution and circumspection whilst
examining the plea that the main contract is void or
voidable. The Court ought to decline reference to
arbitration only where the Court can reach the conclusion
that the contract is void on a meaningful reading of the
contract document itself without the requirement of any
further proof.
30. In the present case, it is pleaded that the manner in which
the contract was made between the petitioner and the
respondent was investigated by the CBI. As a part of the
investigation, the CBI had seized all the original documents
and the record from the office of the respondent. After
investigation, the criminal case CC No.22 of 2011 has been
registered, as noticed earlier. It is claimed that in the
event the Chairman of the Organising Committee and the other
officials who manipulated the grant of contract in favour of
the respondent are found guilty in the criminal trial, no
amount would be payable to the petitioner. Therefore, it
would be appropriate to await the decision of the criminal
proceedings before the arbitral tribunal is constituted to go
into the alleged disputes between the parties. I am unable to
accept the aforesaid submission made by the learned counsel
for the respondents, for the reasons stated in the previous
paragraphs. The balance of convenience is tilted more in
favour of permitting the arbitration proceedings to continue
rather than to bring the same to a grinding halt.
31. I must also notice here that the defence of the contract
being void is now-a-days taken routinely along with the other
usual grounds, to avoid/delay reference to arbitration. In my
opinion, such ground needs to be summarily rejected unless
there is clear indication that the defence has a reasonable
chance of success. In the present case, the plea was never
taken till the present petition was filed in this Court.
Earlier, the respondents were only impressing upon the
petitioners to supply certain information. Therefore, it
would be appropriate, let the Arbitral Tribunal examine
whether there is any substance in the plea of fraud now
sought to be raised by the respondents.
32. The Respondent also relied on the judgment of this Court in
India Household and Healthcare Ltd. (supra), wherein the
application under section 11 (6) of the Arbitration Act was
dismissed. This case, however, will not come in the way of
referring the matter to arbitration since it is clearly
distinguishable from the present case. In India Household
and Healthcare Ltd. (supra), the substantive/underlying
contract containing the arbitration clause was entered into
by the parties on 08.05.2004. This agreement, however, was
preceded by a Memorandum of Understanding (“MoU”) dated
1.11.2003. It was contended by the Respondent that both the
Agreement and the MoU are vitiated by fraud which was
fructified by a criminal conspiracy hatched between officials
representing the Petitioner and Respondent therein. This
Court also noticed that the concerned officials of the
Respondent had been convicted and sentenced to undergo
imprisonment by the Korean Criminal Court. The said MoU was
also contended by the Respondent to be in contravention of
the laws of Korea. It was further noticed that the Respondent
filed a suit in the Madras High Court against the Petitioner,
whereby the High Court vide interim order dated 06.10.2005
issued an injunction and thereby restrained the Petitioner
therein to act directly or indirectly on the basis of MoU and
the Agreement dated 08.05.2004, and to derive any other
benefit based upon the said MoU and the license agreement in
any manner whatsoever. This interim order, the court noticed,
was confirmed by an order dated 21.01.2006; against which no
appeal was filed by the Petitioner. The Court, relying upon A
Treatise on Law Governing Injunctions by Spelling and Lewis,
concluded that this injunction order having not been
challenged by the Petitioner has become final and also that
this order restrains the invocation of the arbitration
agreement contained in Agreement dated 08.05.2004. Therefore,
the Court declined to refer the matter to arbitration.
Another factor that weighed with Court in dismissing the
Petition, it appears, is that the Petitioner did not conform
to the procedure concerning appointment of the Arbitrator
before filing the Petition under Section 11 (6).
33. This case is clearly distinguishable and hence is not
applicable into the facts and circumstances of the present
case because of the following reasons: Firstly, there has
been no conviction in the present case, though the trial has
been going on against the officials of both the parties.
Secondly, there is no injunction or any other order
restraining the Petitioner from invoking the Arbitration
Clause. Lastly, all the conditions precedent for invoking the
arbitration clause have been satisfied by the Petitioner, as
observed earlier.
34. The respondent had relied on the judgment of this Court in
Guru Granth Saheb Sthan Meerghat Vanaras Vs. Ved Prakash &
Ors.[7] This judgment reiterates the normal rule which was
stated by the Constitution Bench of this Court in M.S.Sheriff
Vs. State of Madras in relation to the simultaneous
prosecution of the criminal proceeding with the civil suit.
In the aforesaid case, the Constitution Bench had observed as
follows:-
“14. … It was said that the simultaneous prosecution of these
matters will embarrass the accused. … but we can see that the
simultaneous prosecution of the present criminal proceedings out
of which this appeal arises and the civil suits will embarrass
the accused. We have therefore to determine which should be
stayed.
15. As between the civil and the criminal proceedings we are of
the opinion that the criminal matters should be given
precedence. There is some difference of opinion in the High
Courts of India on this point. No hard-and-fast rule can be laid
down but we do not consider that the possibility of conflicting
decisions in the civil and criminal courts is a relevant
consideration. The law envisages such an eventuality when it
expressly refrains from making the decision of one court binding
on the other, or even relevant, except for certain limited
purposes, such as sentence or damages. The only relevant
consideration here is the likelihood of embarrassment.
16. Another factor which weighs with us is that a civil suit
often drags on for years and it is undesirable that a criminal
prosecution should wait till everybody concerned has forgotten
all about the crime. The public interests demand that criminal
justice should be swift and sure; that the guilty should be
punished while the events are still fresh in the public mind and
that the innocent should be absolved as early as is consistent
with a fair and impartial trial. Another reason is that it is
undesirable to let things slide till memories have grown too dim
to trust.
This, however, is not a hard-and-fast rule. Special
considerations obtaining in any particular case might make some
other course more expedient and just. For example, the civil
case or the other criminal proceeding may be so near its end as
to make it inexpedient to stay it in order to give precedence to
a prosecution ordered under Section 476. But in this case we are
of the view that the civil suits should be stayed till the
criminal proceedings have finished.”
35. The purpose of the aforesaid solitary rule is to avoid
embarrassment to the accused. In contrast, the findings
recorded by the arbitral tribunal in its award would not be
binding in criminal proceedings. Even otherwise, the
Constitution Bench in the aforesaid case has clearly held
that no hard and fast rule can be laid down that civil
proceedings in all matters ought to be stayed when criminal
proceedings are also pending. As I have indicated earlier in
case the award is made in favour of the petitioner herein,
the respondents will be at liberty to resist the enforcement
of the same on the ground of subsequent conviction of either
the Chairman or the officials of the contracting parties.
36. It must also notice here that the Petitioners relied upon an
earlier order of this court in the case of M/s Nussli
(Switzerland) Ltd. (supra). The aforesaid order, however,
seems to have been passed on a consensus between the learned
counsel for the parties. This is evident from the following
observations in the aforesaid order:
“In view of the aforesaid order, learned senior counsel for both
the parties have agreed that the parties have agreed that the
matter ought to be referred to Arbitration. However, Mr. Gopal
Subramaniam, learned senior counsel appearing for the
Respondent, submits that serious issued would arise which are
currently under investigation of the CBI, which may ultimately
culminate into certain conclusions which could result in the
invalidation of the contract from inception.
He has, however, very fairly stated that there would be no
impediment for the arbitral Tribunal to look into all the issues
including the allegations which are pending with the CBI in
investigation.
I am of the opinion that the submission made by the learned
senior counsel is in accordance with the law settled, not only
by this Court, but in other jurisdictions also concerning the
international commercial arbitrations.”
The aforesaid excerpt clearly shows that Mr. Gopal
Subramaniam, had very fairly agreed to proceed with arbitration.
The decision of this Court in M/s Nussli (Switzerland) Ltd.
(supra) has not laid down any law.
37. As noticed earlier, the petitioners have already nominated
Hon’ble Mr. Justice S.N. Variava, Former Judge of this Court,
having his office at Readymoney Mansion, 2nd floor, Next to
Akbarallys, Veer Nariman Road, Fort,
Mumbai – 400 001, as their arbitrator. I hereby nominate.
Hon’ble Mr. Justice B.P. Singh, Former Judge of this Court,
R/o A-7, Neeti Bagh, 3rd Floor, New Delhi – 110 049, as the
second Arbitrator and Hon’be Mr. Justice Kuldip Singh, Former
Judge of this Court, R/o H.No. 88, Sector 10A, Chandigarh –
160 010, as the Chairman of the Arbitral Tribunal, to
adjudicate the disputes that have arisen between the parties,
on such terms and conditions as they deem fit and proper.
38. The Registry is directed to communicate this order to the
Chairman of the Arbitral Tribunal, as well as, to the Second
Arbitrator to enable them to enter upon the reference and
decide the matter as expeditiously as possible.
39. The Arbitration Petition is accordingly allowed with no order
as to costs.
……………………………J.
[Surinder Singh Nijjar]
New Delhi;
May 28, 2014
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[1] (2010) 1 SCC 72
[2] (2013) 7 SCC 622
[3] 2007 (5) SCC 510
[4] (2003) 6 SCC 503
[5] (2000) 4 SCC 539
[6] 2013 (7) SCALE 327: 2013 (2) Arb. LR 241 (SC)
[7] (2013) 7 SCC 622
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