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2004 (8) TMI 734 - HC - Indian Laws

Issues Involved:
1. Legality of the arbitration agreement.
2. Invocation of the Bank Guarantee.
3. Allegations of fraud and latent defects in the rig.
4. Jurisdiction and applicability of the Arbitration and Conciliation Act, 1996.
5. Financial constraints and oppression in arbitral proceedings.
6. Validity and enforceability of the Charter Agreement.

Detailed Analysis:

1. Legality of the Arbitration Agreement:
The plaintiff contended that the arbitration agreement in Clause 24 of the Charter Agreement was illegal, null, and void, and incapable of being performed. The court examined whether the arbitration agreement was null and void, inoperative, or incapable of being performed under Section 45 of the Arbitration and Conciliation Act, 1996. It concluded that the arbitration agreement was valid, legal, operative, and capable of being performed. The court noted that both parties had already submitted to arbitration, and the plaintiff had appointed its arbitrator, indicating acceptance of the arbitration clause.

2. Invocation of the Bank Guarantee:
The plaintiff objected to the defendant's invocation of the Bank Guarantee, claiming it was illegal and fraudulent. The court found that the invocation was in line with the terms of the Charter Agreement, and the plaintiff had provided a fresh Bank Guarantee towards the end of the agreement. The court held that the invocation of the Bank Guarantee was not fraudulent and was justified under the circumstances.

3. Allegations of Fraud and Latent Defects in the Rig:
The plaintiff alleged that the defendant had fraudulently induced it into the Charter Agreement by providing a rig with latent and inherent defects. The court distinguished between fraud going to the root of an agreement and mere misrepresentations or defects. It held that the alleged defects did not frustrate the Charter Agreement, as the plaintiff continued to use the rig and benefited from it. The court concluded that the Charter Agreement was not vitiated by fraud and was neither void nor illegal.

4. Jurisdiction and Applicability of the Arbitration and Conciliation Act, 1996:
The plaintiff argued that the arbitration proceedings should not be held in London due to financial constraints and that the proceedings were oppressive. The court rejected this argument, stating that the plaintiff, being involved in international contracts, could not claim financial difficulties. The court emphasized that the arbitration agreement was entered into with open eyes and was a commercial deal, thus no unequal bargaining position existed.

5. Financial Constraints and Oppression in Arbitral Proceedings:
The court dismissed the plaintiff's plea of financial constraints and oppression in participating in arbitral proceedings in London. It noted that the plaintiff was a trans-border company involved in offshore oil explorations and could not claim financial difficulties. The court held that the arbitration proceedings in London were not oppressive and that the plaintiff had agreed to them by entering into the Charter Agreement.

6. Validity and Enforceability of the Charter Agreement:
The court found that the Charter Agreement was valid, legal, operative, and capable of being performed. It noted that the plaintiff had utilized the rig throughout the agreement period and had not taken any steps to repudiate the Charter Agreement on the grounds of fraud. The court concluded that the arbitration agreement, being part of the Charter Agreement, was also valid and enforceable.

Conclusion:
The court dismissed the plaintiff's application for an interim injunction under Order XXXIX Rules 1 and 2 read with Section 151 of the Code of Civil Procedure. It allowed the defendant's application under Order XXXIX Rule 4 read with Section 151 CPC, vacating the interim injunction dated 2nd April 2003. The court also allowed the defendant's application under Section 45 of the Arbitration and Conciliation Act, 1996, referring the parties to the already constituted arbitral tribunal. Further proceedings in the suit were stayed, and the suit, along with the interim applications, was disposed of.

 

 

 

 

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