TMI Blog2014 (1) TMI 1842X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the finances, funds and rights of the BCCI, which is a public body. This approach of the Division Bench of the High Court is not in consonance with the provisions of Section 45 of the Act, which mandates that in the case of arbitration agreements covered by the New York Convention, the Court which is seized of the matter will refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed. We have not expressed any opinion on the dispute between the appellant and the respondent as to whether the Facilitation Deed was voidable or not on account of fraud and misrepresentation. Clause 9 of the Facilitation Deed states inter alia that all actions or proceedings arising in connection with, touching upon or relating to the Facilitation Deed, the breach thereof and/or the scope of the provisions of the Section shall be submitted to the ICC for final and binding arbitration under its Rules of Arbitration. This arbitration agreement in Clause 9 is wide enough to bring this dispute within the scope of arbitration. Appeal allowed. - CIVIL APPEAL No. 895 OF 2014 (Arising out of S.L.P. (C) No. 34978 of 2010) - - - D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Provision of Facilitation Services (hereinafter referred to as the Facilitation Deed ) whereunder the respondent was to pay a sum of ₹ 425 crores to the appellant as facilitation fees. Clause 9 of the Facilitation Deed dated 25.03.2009 between the appellant and the respondent was titled Governing Law and read as follows: 9. GOVERNING LAW This Deed shall be governed by and construed in accordance with the laws of England and Wales, without regard to choice of law principles. All actions or proceedings arising in connection with, touching upon or relating to this Deed, the breach thereof and/or the scope of the provisions of this Section shall be submitted to the International Chamber of Commerce (the Chamber ) for final and binding arbitration under its Rules of Arbitration, to be held in Singapore, in the English language before a single arbitrator who shall be a retired judge with at least ten years of commercial experience. The arbitrator shall be selected by mutual agreement of the Parties, or, if the Parties cannot agree, then by striking from a list of arbitrators supplied by the Chamber. If the Parties are unable to agree on the arbitrator, the Chamber shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010, the appellant acting under Clause 9 of the Facilitation Deed sent a request for arbitration to ICC Singapore and the ICC issued a notice to the respondent to file its answer to the request for arbitration. In the meanwhile, on 30.06.2010, the respondent filed a second suit, Suit No.1828 of 2010, before the Bombay High Court against the appellant for inter alia a declaration that as the Facilitation Deed stood rescinded, the appellant was not entitled to invoke the arbitration clause in the Facilitation Deed. The respondent also filed an application for temporary injunction against the appellant from continuing with the arbitration proceedings commenced by the appellant under the aegis of ICC. 6. On 09.08.2010, the learned Single Judge of the Bombay High Court dismissed the application for temporary injunction of the respondent saying that it would be for the arbitrator to consider whether the Facilitation Deed was void on account of fraud and misrepresentation and that the arbitration must, therefore, proceed and the Court could not intervene in matters governed by the arbitration clause. The respondent challenged the order of the learned Single Judge before the Division B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of being performed, has held that the entire Facilitation Deed was vitiated by fraud and misrepresentation and was, therefore, void. He vehemently submitted that it was for the arbitrator to decide whether the Facilitation Deed was void on account of fraud and misrepresentation as has been rightly held by the learned Single Judge and it was not for the Court to pronounce on whether the Facilitation Deed was void on account of fraud and misrepresentation. He referred to Article 6(4) of the ICC Rules of Arbitration which permits the Arbitral Tribunal to continue to exercise jurisdiction and adjudicate the claims even if the main contract is alleged to be null and void or non-existent because the arbitration clause is an independent and distinct agreement. He submitted that this principle of Kompetenz Kompetenz has been recognized in Section 16 of the Act under which the Arbitral Tribunal has the competence to rule on its own jurisdiction and on this point relied on National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. [(2009) 1 SCC 267] and Reva Electric Car Company Private Ltd. v. Green Mobil [(2012) 2 SCC 93]. He submitted that as a corollary to this principle, Courts have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration by the Court. In the present case, the respondent has not made out that the arbitration agreement is null and void, inoperative or incapable of being performed. 11. Mr. Venugopal submitted that the High Court has taken a view that Clause 9 forecloses an open trial in a court of law except to the extent permitted therein and the parties have to necessarily submit themselves to a confidential proceeding which is closed to the general public. He submitted that the Bombay High Court thus appears to have held that Clause 9 is opposed to public policy and, in particular, Sections 23 and 28 of the Indian Contract Act, 1872. He submitted that in any case the arbitration agreement contained in Clause 9 of the Facilitation Deed cannot be held to be opposed to public policy and void under Sections 23 and 28 of the Indian Contract Act, 1872. This will be clear from Exception 1 of Section 28 of the Indian Contract Act, 1872, which says that the section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration and that only the amount awarded in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and fraud is false. 13. Mr. Venugopal finally submitted that it will be clear from the language of the letter dated 25.06.2010 of the respondent to the appellant that according to the respondent the Facilitation Deed was voidable at the option of the respondent. He submitted that under Section 45 of the Act, the Court will have to refer the parties to the arbitration unless it finds that the arbitration agreement is null and void . He argued that an agreement which is voidable at the option of one of the parties is not the same as the agreement which is void and, therefore, the Division Bench of the High Court should have referred the parties to arbitration instead of restraining the arbitration. According to Mr. Venugopal, this is a fit case in which this Court should set aside the impugned order of the Division bench of the High Court and restore the order of the learned Single Judge of the High Court. Contentions on behalf of the respondent: 14. In reply, Mr. Gopal Subramanium, learned senior counsel appearing for the respondent, submitted that the Division Bench of the Bombay High Court has rightly restrained the arbitration proceedings under the aegis of ICC as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mine the validity of the agreement at the threshold itself because this is an issue which goes to the root of the matter and a decision on this issue will prevent a futile exercise of proceedings before the arbitrator. He submitted that under Section 45 of the Act the Court is required to consider not only a challenge to the arbitration agreement but also a serious challenge to the substantive contract containing the arbitration agreement. He cited the decision of this Court in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd. [(2011) 14 SCC 66] in support of this argument. He submitted that the contention on behalf of the appellant that the Court has to determine only whether the arbitration agreement contained in the main agreement is void is, therefore, not correct. 17. Mr. Subramanium next submitted that in cases where allegations of fraud are prima facie made out, the judicial trend in India has been to have them adjudicated by the Court. In this context, he referred to the decisions of this Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak (supra), Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [(1999) 5 SCC 688] and N. Radhakrishnan v. Maestro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Venugopal. We will also consider the correctness of the findings of the Division Bench of the Bombay High Court separately. 20. We are unable to accept the first contention of Mr. Venugopal that as Clause 9 of the Facilitation Deed provides that any party may seek equitable relief in a court of competent jurisdiction in Singapore, or such other court that may have jurisdiction over the parties, the Bombay High Court had no jurisdiction to entertain the suit and restrain the arbitration proceedings at Singapore because of the principle of Comity of Courts. In Black s Law Dictionary, 5th Edition, Judicial Comity, has been explained in the following words: Judicial comity. The principle in accordance with which the courts of one state or jurisdiction will give effect to the laws and judicial decisions of another, not as a matter of obligation, but out of deference and respect. Thus, what is meant by the principle of comity is that courts of one state or jurisdiction will give effect to the laws and judicial decisions of another state or jurisdiction, not as a matter of obligation but out of deference and mutual respect. In the present case no decision of a court of for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies. 45. Power of judicial authority to refer parties to arbitration.- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. The language of Section 45 of the Act quoted above makes it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter capable of settlement by arbitration. 2. The term agreement in writing shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. 3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. It will be clear from clauses 1, 2 and 3 of the New York Convention as set out in the First Schedule of the Act that the agreement referred to in Section 44 of the Act is an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them. Thus, the court will decline to refer the parties to arbitration only if it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. 23. According to Mr. Subramanium, however, as the main agreement is voidable on account of fraud and misr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proviso to Section 49 of the Registration Act. Thus, as per the aforesaid decision of this Court in SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd. (supra), the court will have to see in each case whether the arbitration agreement is also void, unenforceable or inoperative along with the main agreement or whether the arbitration agreement stands apart from the main agreement and is not null and void. 24. The House of Lords has explained this principle of separability in Premium Nafta Products Ltd. v. Fili Shipping Company Ltd. Ors. (supra) thus: 17. The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a distinct agreement and can be void or voidable only on grounds which relate directly to the arbitration agreement. Of course there may be cases in which the ground upon which the main agreement is invalid is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en WSGM and BCCI along with its restrictive conditions had been mutually terminated); (b) WSGM could thereafter relinquish the Media Rights for the Indian Subcontinent in favour of our client for said valuable consideration to enable our client to enter into a direct agreement with BCCI; (c) the said rights were subsisting with WSGM at the time of execution of the Deed, i.e, March 25, 2009; and (d) WSGM had relinquished those rights in favour of BCCI to enable BCCI and our client to execute a direct Media Rights License Agreement for the Indian Subcontinent. 2. BCCI has recently brought to the attention of our client that the Global Media Rights agreement between WSGM and BCCI dated March 23, 2009 does not exist and in terms of Clause 13.5 of the agreement dated March 15, 2009, after expiry of the 2nd extension the media rights had automatically reverted to BCCI at 3 a.m. on March 24, 2009 and thus at the time of execution of the Deed, WSGM did not have any rights to relinquish and/or to facilitate the procurement of India Subcontinent media rights for the IPL from BCCI and thus no facilitation services could have been provided by WSGM. 3. In view of the above, it is evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on International Arbitration (Fifth Edition) published by the Oxford University Press has explained the meaning of these words inoperative or incapable of being performed used in the New York Convention at page 148, thus: At first sight it is difficult to see a distinction between the terms inoperative and incapable of being performed . However, an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression incapable of being performed appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal. 27. Albert Jan Van Den Berg in an article titled The New York Convention, 1958 An Overview published in the website of ICCA [www.arbitration-icca.org/media/0/12125884227980/new_york_convention_of- 1958_overview.pdf], referring to Article II(3) of the New York Convention, states: The words null and void may be interpreted as referring to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t commonly, a party will waive the right to arbitrate if, in a court proceeding, it fails to properly invoke the arbitration agreement or if it actively pursues claims covered by the arbitration agreement. 29. Thus, the arbitration agreement does not become inoperative or incapable of being performed where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator. N. Radhakrishnan v. Maestro Engineers Ors. (supra) and Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak (supra) were decisions rendered in the context of domestic arbitration and not in the context of arbitrations under the New York Convention to which Section 45 of the Act applies. In the case of such arbitrations covered by the New York Convention, the Court can decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed, and not on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred. Clause 9 of the Facilitation Deed is consistent with this policy of the legislature as reflected in the Arbitration and Conciliation Act, 1996 and is saved by Exception 1 to Section 28 of the Indian Contract Act, 1872. The right to jury trial is not available under Indian laws. The finding of the Division Bench of the High Court, therefore, that Clause 9 of the Facilitation Deed is opposed to public policy and is void under Sections 23 and 28 of the Indian Contract Act, 1872 is clearly erroneous. 32. The Division Bench of the High Court has also held that as allegations of fraud and serious malpractices on the part of the appellant are in issue, it is only the court which can decide these issues through furtherance of judicial evidence by either party and these issues cannot be properly gone into by the arbitrator. As we have already held, Section 45 of the Act does not provide that the court will not refer the parties to arbitration if the allegations of fraud have to be inquired into. Section 45 provides that only if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed, it will decline to refer the parties to arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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