TMI Blog2014 (5) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... me to a grinding halt. 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. - The purpose of the 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. - 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. - Decided in favour of Appellant. - ARBITRATION PETITION NO. 34 OF 2013 - - - Dated:- 28-5-2014 - NIJJAR, S.S,J. JUDGMENT : 1. This is a petition under Section 11(4) read with Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner 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 ₹ 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 comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent has relied on a judgment of this Court in N. Radhakrishnan Vs. Maestro Engineers Ors. (2010) 1 SCC 72 He has also relied upon Guru Granth Saheb Sthan Meerghat Vanaras Vs. Ved Prakash Ors. (2013) 7 SCC 622 Reliance is also placed on India Household and Healthcare Ltd. Vs. LG Household and Healthcare Ltd 2007 (5) SCC 510. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011, 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 declara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 demerits 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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 eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prakash Ors. (2013) 7 SCC 622 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 lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hereb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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