TMI Blog2020 (8) TMI 858X X X X Extracts X X X X X X X X Extracts X X X X ..... that the arbitration Clause is an agreement independent of the other terms of the contract and that, therefore, a decision by the arbitral tribunal that the contract is null and void does not entail ipso jure the invalidity of the arbitration clause. There can be no doubt whatsoever after reading the issues and some of the material findings in the Foreign Final Award that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The fact that a separate criminal proceeding was sought to be started and may have failed is of no consequence whatsoever - a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by HSBC, which would clearly fall within fraudulent inducement to enter into a contract Under Section 17 of the Contract Act. Such a contract would be voidable at the instance of HSBC. Also, the findings on the siphoning off of monies that were meant to be allocated for the performance of the BBC contract would attract the tort of deceit. The measure of damages f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion shall be Singapore. 16.1.3. The language of the arbitration proceedings shall be English. 16.1.4. The arbitration tribunal shall consist of three (3) arbitrators: the claimant party shall nominate one (1) arbitrator, the Respondent party shall nominate one (1) arbitrator and the two (2) arbitrators thus appointed shall nominate the third arbitrator who shall be the presiding arbitrator (the Arbitration Tribunal ). If there is more than one claimant party and/or more than one Respondent party, the claimant parties (for the purposes of this Clause 16.1 together a party ) shall together designate one (1) arbitrator and the Respondent parties (for the purposes of this Clause 16.1 together a party ) shall together designate one (1) arbitrator. If within 30 days of a request from the other party to do so, a party fails to designate an arbitrator, or if the two (2) arbitrators fail to designate the third arbitrator within 30 days after the confirmation of the appointment of the second arbitrator, the appointment shall be made, upon request of a party, by the SIAC council in accordance with the Rules. 16.1.5. If within 14 days of a request from the other party to do so, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute. 16.4. Application of Arbitration Act Save for Section 9, Part 1 of the Indian Arbitration and Conciliation Act, 1996 (the Arbitration Act ), the provisions of Part 1 of the Arbitration Act shall not apply to the terms of this Agreement. (ii) On 06.05.2011, the aforesaid parties entered into a Shareholders' Agreement [ SHA ] which defined the relationship between the parties after the SSA dated 21.04.2011 had been entered into. The SHA also contained an arbitration Clause which was identical to the arbitration Clause contained in the SSA. It is the case of HSBC that a representation had been made by Appellants No. 2-4 (the Jain family) that the Appellants were at a very advanced stage of finalising a contract with the British Broadcasting Corporation [ BBC ] to convert the BBC's film library from 2D to 3D. This contract was expected to generate a revenue of USD 300 million in the first phase, and ultimately over USD 1 billion. It is the further case of HSBC that this investment of USD 60 million was required by Avitel India to purchase equipment for Avitel Post Studioz FZ LLC [ Avitel Dubai ] to service the BBC contract (Avitel Dubai is a 100% subsidia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectively, granting further relief to HSBC by, inter alia, directing the Appellants and Avitel Dubai to cease and desist from prohibiting or inhibiting Ernst Young and KPMG Dubai from conducting investigations into the financial affairs of Avitel Dubai and Avitel Mauritius. (vi) On 30.07.2012, HSBC filed Arbitration Petition No. 1062 of 2012 Under Section 9 of the 1996 Act in the Bombay High Court, inter alia seeking directions to call upon the Appellants to deposit a security amount to the extent of HSBC's claim in the arbitration proceedings that had begun under both the SSA and the SHA. (vii) On 03.08.2012, a learned Single Judge of the Bombay High Court passed an interim order under the Section 9 petition, inter alia directing the Corporation Bank to allow the Appellants to withdraw a sum of INR 1 crore from their account on or before 09.08.2012, but not to allow any further withdrawals until further orders, till which time, the account was to remain frozen. (viii) Meanwhile, the Appellants challenged the jurisdiction of the three-member Arbitral Tribunal comprising of Mr. Christopher Lau, SC as its Chairman, and Dr. Michael C. Pryles and Justice (Retd.) Ferd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was a distinction between the suitability and arbitrability of disputes, and on the facts of the present case, it could not be said that the dispute was not arbitrable because of an allegation of fraud made by HSBC. After then referring to the claim statement of HSBC before the Arbitral Tribunal at Singapore, it was held that the allegations of fraud and misrepresentation were primarily in the context of fraud and misrepresentation as defined in Sections 17 and 18 of the Contract Act, thus establishing a civil profile of the disputes that had arisen between the parties. However, after referring to certain judgments on interim mandatory injunctions, the High Court prima facie found that HSBC had carried out due diligence by engaging leading agencies like Ernst Young and Clifford Chance. Also, it was held that the measure of damages that may ultimately be awarded may not be the amount of loss ultimately sustained by HSBC, but can at best be the difference between the price paid by HSBC in acquiring Avitel India's shares and the price HSBC would have received had it resold the said shares in the market. This being the case, and an interim mandatory injunction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nties referred to in paragraph 21.2 (a) to (g) above were false and/or misleading; 21.6 Finds that the Respondents made the representations and/or warranties referred to in paragraph 21.2 (a) to (g) above knowing that these were false and/or without belief in their truth; 21.7 Finds that the Respondents are jointly and severally liable to the Claimant in tort for deceit; 21.8 Finds that the Respondents are jointly and severally liable to the Claimant for fraudulent misrepresentation under the Contract Act; 21.9 Finds that the Respondents are jointly and severally liable to the Claimant for breach of warranty; 21.10 Finds that the Second, Third and Fourth Respondents are to jointly and severally indemnify the Claimant for the loss of its investment in the amount of USD 60 million as well as for the costs of and associated with this arbitration and associated court actions; 21.11 Finds that the Claimant in respect of its claim for fraudulent misrepresentation and its claim in tort for deceit is entitled to damages in the total amount of USD 60 million; 21.12 Finds that the Claimant is entitled to interest on the sum of USD 60 million from 6 May 2011 to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urth Respondents jointly and severally liable to indemnify the Claimant for the loss of its investment in the amount of USD 60 million together with interest thereon for the period and at the rate specified in paragraph 21.16 hereinabove and the Claimant's legal costs, related expenses as well as the costs of this arbitration as specified in paragraph 21.19 hereinabove; 21.21 Declares and Orders that upon the Respondents' paying in full and unconditionally the sums awarded to the Claimant in paragraphs 21.15, 21.16, 21.18, 21.19 hereinabove and all costs arising out of and incidental to the cancellation of the Claimant's Preference Subscription Shares and Equity Subscription Shares (as defined in the SSA) in Avitel India, that the said shares be cancelled and that in this regard, the Parties take the requisite steps to effect the said cancellation within 30 days of receipt of such payment. Initially, this Foreign Final Award was challenged by the Appellants in a Section 34 proceeding in the Bombay High Court. By a judgment dated 28.09.2015, the Section 34 petition was dismissed as being not maintainable. An appeal Under Section 37 of the 1996 Act was dismissed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) 6 SCC 677 [ Swiss Timing ] which had held the judgment in N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 [ N. Radhakrishnan ] per incuriam, vitiating the entire Division Bench judgment. This is clear because a Single Judge judgment of this Court Under Section 11 of the 1996 Act has no precedential value as has correctly been held in State of West Bengal v. Associated Contractors, (2015) 1 SCC 32 [ Associated Contractors ]. Mr. Rohatgi also indicated that Mr. Christopher Lau, SC, the Chairman of the Arbitral Tribunal in the Singapore proceedings was biased, in that HSBC was a client of the firm to which he belonged, and this is one of the important grounds taken up in the Section 48 proceeding which is pending in the Bombay High Court. He also sought to raise an argument (for the first time before us) that the award being insufficiently stamped could not be looked at and that this would also go to show that there is no prima facie case in order to sustain the interim mandatory orders passed by the Division Bench of the High Court. It was further added that Report No. 246 of the Law Commission of India on 'Amendment to the Arbitration and Conciliation Act, 1996' of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the Foreign Final Award inasmuch as it was raised here for the first time without any proper pleading; if properly pleaded, then his client would have had an opportunity to rebut the same to show that there was no insufficiency of stamp duty paid. Mr. Salve therefore supported the ultimate order of the learned Single Judge of the Bombay High Court, and said that the Division Bench ought not to have reduced the amount of USD 60 million to half, i.e., USD 30 million without any reasoning worth the name, particularly because the Foreign Final Award had held that the USD 60 million was to be paid by way of damages with interest and costs, the shares in HSBC's name standing cancelled. Once it is clear that the aforesaid shares stood cancelled, it is clear that the 7.8% of the paid-up share capital of Avitel India that was held by HSBC reverts to Avitel India. This being the case, there would be no awarding of the difference between market value of the shares as on the date of breach and USD 60 million, as the shares are back in the hands of Avitel India. 4. Having heard learned Counsel appearing on behalf of both the parties, the only real question that needs to be addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration is by the party charging the fraud, the Court will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved [see Abdul Kadir (supra) at p. 713]. The next English judgment is Charles Osenton Co. v. Johnston, 1942 A.C. 130. This case held that as the professional reputation of a particular firm was involved, the matter should not be referred to arbitration for the reason that the normal tribunal of a High Court with a jury, from which there is recourse to a right to appeal, could not be substituted by proceedings before an official referee Under Section 89 of the Judicature Act, 1925. After referring to these cases, this Court cautioned: There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference. But it is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a court to take the matter out of the forum which the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations of fraud, stating that such allegations are often made in suits for accounts, which are purely civil proceedings. It was added: That is why we emphasise that even in the leading case of Russel [1880 14 Ch D 471], the learned Master of the Rolls was at pains to point out that it could not necessarily be said in a case of accounts that no reference to arbitration should be made, even though questions relating to accounts which might involve misconduct amounting even to dishonesty on the part of some partner might arise in the arbitration proceedings and even cases where moral dishonesty or moral misconduct is attributed to one party or the other might be referred to arbitration. It seems to us that every allegation tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a court to refuse to order the arbitration agreement to be filed and refuse to make a reference. Looking to the allegations which have been made in this case we are of opinion that there are no such serious allegations of fraud in this case as would be sufficient for the court to say that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be not suitable for ADR process having regard to their nature: (i) Representative suits Under Order 1 Rule 8 Code of Civil Procedure which involve public interest or interest of numerous persons who are not parties before the court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance). (ii) Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association, etc.). (iii) Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration. (iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion, etc. (v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against the Government. (vi) Cases involving prosecution for criminal offences. It will be seen that items (iv) and (vi) are relevant from our point of view and require to be explained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered to be arbitrable. 39. The Act does not specifically exclude any category of disputes as being not arbitrable. Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will be set aside if the court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force . The Court then held, following Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd., (1999) 5 SCC 688, that similarly, winding up proceedings under the Companies Act, 1956 cannot be referred to arbitration (see paragraph 42). As against this, suits for specific performance are arbitrable despite the fact that the court is vested with discretion to be exercised based upon principles laid down as to when not to decree specific performance (see paragraphs 43 and 44). The Court then concluded: 46. An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Therefore, if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the claim for specific performance will be arbitrable. On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. These provisions, together with Section 8 of the 1996 Act, which now makes it mandatory to refer an action which is brought before a judicial authority, which is the subject matter of an arbitration agreement, to arbitration, if the conditions of the Section are met, all point to a sea change from the 1940 Act which was repealed by this 1996 Act. By way of contrast with Section 8 of the 1996 Act, Section 20 of the 1940 Act is set out hereinbelow: 20. Application to file in Court arbitration agreement.-- (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court. (2) The application shall be in writing and shall be numbered and registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst this, Sections 5, 8 and 16 of the 1996 Act reflect a completely new approach to arbitration, which is that when a judicial authority is shown an arbitration Clause in an agreement, it is mandatory for the authority to refer parties to arbitration bearing in mind the fact that the arbitration Clause is an agreement independent of the other terms of the contract and that, therefore, a decision by the arbitral tribunal that the contract is null and void does not entail ipso jure the invalidity of the arbitration clause. Even otherwise, N. Radhakrishnan (supra) did not refer to the ratio of Abdul Kadir (supra) correctly. As has been seen by us hereinabove, Abdul Kadir (supra) held that serious allegations of fraud are not made out when allegations of moral or other wrongdoing inter parties are made. In particular, it was held that discrepancies in account books are the usual subject matter in account suits, which are purely of a civil nature. For all these reasons, we are broadly in agreement with the observations of Nijjar, J. rendering N. Radhakrishnan (supra) lacking in precedential value. 10. The next judgment to be dealt with, chronologically speaking, is the judgment in Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that in cases of serious fraud, courts have entertained civil suits. Secondly, it has tried to make a distinction in cases where there are allegations of serious fraud and fraud simpliciter. It, thus, follows that those cases where there are serious allegations of fraud, they are to be treated as non-arbitrable and it is only the civil court which should decide such matters. However, where there are allegations of fraud simpliciter and such allegations are merely alleged, we are of the opinion that it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues can be determined by the Arbitral Tribunal. 24. Before we apply the aforesaid test to the facts of the present case, a word on the observations in Swiss Timing Ltd. case [Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677 : (2014) 3 SCC (Civ) 642] to the effect that the judgment of N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] was per incuriam, is warranted. In fact, we do not have to labour on this aspect as this task is already undertaken by this Court in State of W.B. v. Associated Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty inter se and it has no implication in the public domain, the arbitration Clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application Under Section 8 of the Act, the focus of the court has to be on the question as to whether jurisdiction of the court has been ousted instead of focusing on the issue as to whether the court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are carved out by the courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, courts i.e. public fora, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application Under Section 8 of the Act, should be on the aforesaid aspect viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (2010) 1 SCC (Civ) 12] is that successive decisions of this Court have given effect to the binding precept incorporated in Section 8. Once there is an arbitration agreement between the parties, a judicial authority before whom an action is brought covering the subject-matter of the arbitration agreement is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract. There is no element of discretion left in the court or judicial authority to obviate the legislative mandate of compelling parties to seek recourse to arbitration. The judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] has, however, been utilised by parties seeking a convenient ruse to avoid arbitration to raise a defence of fraud: 45.1. First and foremost, it is necessary to emphasise that the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] does not subscribe to the broad proposition that a mere allegation of fraud is ground enough not to compel parties to abide by their agreement to refer disputes to arbitration. More often than not, a bogey of fraud is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Once parties have agreed to refer disputes to arbitration, the court must plainly discourage and discountenance litigative strategies designed to avoid recourse to arbitration. Any other approach would seriously place in uncertainty the institutional efficacy of arbitration. Such a consequence must be eschewed. After the statement of the law, the learned Judge referred to an instructive passage by Gary B. Born as follows: 56. The legal position has been succinctly summarised in International Commercial Arbitration by Gary B. Born [2nd Edn., Vol. I, p. 846] thus: ... under most national arbitration regimes, claims that the parties' underlying contract (as distinguished from the parties' arbitration clause) was fraudulently induced have generally been held not to compromise the substantive validity of an arbitration Clause included in the contract. The fact that one party may have fraudulently misrepresented the quality of its goods, services, or balance sheet generally does nothing to impeach the parties' agreed dispute resolution mechanism. As a consequence, only fraud or fraudulent inducement directed at the agreement to arbitrate will, as a substantive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common law remedy for damage or loss caused by the late payment of a debt may arise, cases which I shall in what follows describe for convenience as case 1, case 2 and case 3. Case 1 is where a debt is paid late, before any proceedings for its recovery have been begun. Case 2 is where a debt is paid late, after proceedings for its recovery have been begun, but before they have been concluded. Case 3 is where a debt remains unpaid until as a result of proceedings for its recovery being brought and prosecuted to a conclusion, a money judgment is given in which the original debt becomes merged (at p. 122) After referring to various precedents, the learned Judge referred to a Law Commission Report of 07.04.1978, which contained recommendations for alterations in the law and a draft bill which would remedy injustice to unpaid creditors in all the three cases set out hereinabove. However, when Parliament passed the Administration of Justice Act, 1982, it covered cases 2 and 3 but not case 1. In this context, Lord Brandon held: My first main reason is that the greater part of the injustice to creditors which resulted from the London, Chatham and Dover Railway case has now been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be considered to be a binding precedent for the reasons given in the said paragraph, we are of the view that the development of the law by this Court cannot be thwarted merely because a certain provision recommended in a Law Commission Report is not enacted by Parliament. Parliament may have felt, as was mentioned by Lord Reid in British Railways Board and Herrington, 1972 A.C. 877 [House of Lords], that it was unable to make up its mind and instead, leave it to the courts to continue, case by case, deciding upon what should constitute the fraud exception. This case is referred to in Lord Brandon's judgment in La Pintada (supra) and distinguished at p. 130 of his judgment. Parliament may also have thought that Section 16(7), proposed by the Law Commission, is clumsily worded as it speaks of a serious question of law, complicated questions of fact, or allegations of fraud, corruption, etc. N. Radhakrishnan (supra) did not lay down that serious questions of law or complicated questions of fact are non-arbitrable. Further, allegations of fraud, corruption, etc. is vague. For this reason also, Parliament may have left it to the courts to work out the fraud exception. In a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain. After these judgments, it is clear that serious allegations of fraud arise only if either of the two tests laid down are satisfied, and not otherwise. The first test is satisfied only when it can be said that the arbitration Clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain. 15. At this stage, it is necessary to deal with the broad statement of the law in Afcons (supra) and Booz Allen (supra). When Afcons (supra) refers in paragraph 27(iv) to cases involving serious and specific allegatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in M.S. Sheriff v. The State of Madras, 1954 SCR 1144, this Court held: 32. In the present case, the decision rendered by the Constitution Bench in M.S. Sheriff case [AIR 1954 SC 397 : 1954 Cri. LJ 1019] would be binding, wherein it has been specifically held that no hard-and-fast Rule can be laid down and that possibility of conflicting decision in civil and criminal courts is not 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 limited purpose such as sentence or damages. 33. Hence, the observation made by this Court in V.M. Shah case [ (1995) 5 SCC 767 : 1995 SCC (Cri.) 1077] that the finding recorded by the criminal court stands superseded by the finding recorded by the civil court is not correct enunciation of law. Further, the general observations made in Karam Chand case [ (1970) 3 SCC 694] are in context of the facts of the case stated above. The Court was not required to consider the earlier decision of the Constitution Bench in M.S. Sheriff case [AIR 1954 SC 397 : 1954 Cri. LJ 1019] as well as Sections 40 to 43 of the Evidence A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the civil court get precedence over the findings recorded by the trial court, in particular, in summary trial for offences like Section 630. The mere pendency of the appeal does not have the effect of suspending the operation of the decree of the trial court and neither the finding of the civil court gets disturbed nor the decree becomes inoperative. 14. The correctness of the aforesaid judgment in V.M. Shah [ (1995) 5 SCC 767 : 1995 SCC (Cri.) 1077] was doubted by this Court and the case was referred to a larger Bench in K.G. Premshanker v. Inspector of Police [(2002) 8 SCC 87 : 2003 SCC (Cri.) 223 : AIR 2002 SC 3372]. In the said case, the judgment in V.M. Shah [ (1995) 5 SCC 767 : 1995 SCC (Cri.) 1077] was not approved. While deciding the case, this Court placed reliance upon the judgment of the Privy Council in King Emperor v. Khwaja Nazir Ahmad [(1943-44) 71 IA 203 : AIR 1945 PC 18] wherein it has been held as under: (IA p. 212) ... It is conceded that the findings in a civil proceeding are not binding in a subsequent prosecution founded [upon] the same or similar allegations. Moreover, the police investigation was stopped, and it cannot be said with c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, it remains per incuriam and does not lay down the correct law. A similar view has been reiterated by this Court in Vishnu Dutt Sharma v. Daya Sapra [ (2009) 13 SCC 729 : (2010) 1 SCC (Cri.) 1229], wherein it has been held by this Court that the decision in Karam Chand [(1970) 3 SCC 694 : AIR 1971 SC 1244] stood overruled in K.G. Premshanker [ (2002) 8 SCC 87 : 2003 SCC (Cri.) 223 : AIR 2002 SC 3372]. 18. Thus, in view of the above, the law on the issue stands crystallised to the effect that the findings of fact recorded by the civil court do not have any bearing so far as the criminal case is concerned and vice versa. Standard of proof is different in civil and criminal cases. In civil cases it is preponderance of probabilities while in criminal cases it is proof beyond reasonable doubt. There is neither any statutory nor any legal principle that findings recorded by the court either in civil or criminal proceedings shall be binding between the same parties while dealing with the same subject-matter and both the cases have to be decided on the basis of the evidence adduced therein. However, there may be cases where the provisions of Sections 41 to 43 of the Evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Booz Allen (supra), must now be read subject to the rider that the same set of facts may lead to civil and criminal proceedings and if it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of such proceeding Under Section 17 of the Contract Act, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so. 17. Section 17 of the Contract Act defines fraud as follows: 17. Fraud defined.-- Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent Cf. Section 238, infra., with intent to deceive another party thereto or his agent, or to induce him to enter into the contract-- (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct Act, 6th Edition, which said: It will be observed that the exception does not apply to cases of active fraud as distinguished from misrepresentation which is not fraudulent . (see pp. 476-477) Explanation.--A fraud or misrepresentation which did not cause the consent to a contract of the party of whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable. It has been held by the Bombay High Court in Fazal D. Allana v. Mangaldas M. Pakvasa, AIR 1922 Bom 303, that Section 17 of the Contract Act only applies if the contract itself is obtained by fraud or cheating. However, a distinction is made between a contract being obtained by fraud and performance of a contract (which is perfectly valid) being vitiated by fraud or cheating. The latter would fall outside Section 17 of the Contract Act, in which the remedy for damages would be available, but not the remedy for treating the contract itself as being void (see pp. 311-312). This is for the reason that the words with intent to deceive another party thereto or his agent must be read with the words or to induce him to enter into the contract , both sets of expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion with the seller, to enable him to operate upon the credit with the Bank. This collusion is also apparent from the indemnity bond they took from the seller to guard themselves against the consequences of the said representation. All the elements of deceit are present. (at p. 102) 18. Both kinds of fraud are subsumed within the expression fraud when it comes to arbitrability of an agreement which contains an arbitration clause. 19. Now, as to the measure of damages for fraudulent misrepresentation by which a party to the contract is induced to enter into the contract. In Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd.,: [1996] 4 All ER 769, the Appellant, Smith New Court [ SMC ] purchased shares in a company, Ferranti International Signal Inc. [ F. Inc. ], which had been pledged to a bank as security for a loan made by the bank to a client. SMC was given the impression that it was in competition with two other bidders for the shares and, therefore, bid a very high price for the shares. When the share price collapsed as a result of a major fraud, SMC investigated the circumstances of its purchase and discovered that the two other bidder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining full compensation for the wrong suffered; (5) although the circumstances in which the general Rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the Plaintiff to retain the asset or (b) the circumstances of the case are such that the Plaintiff is, by reason of the fraud, locked into the property. (6) In addition, the Plaintiff is entitled to recover consequential losses caused by the transaction; (7) the Plaintiff must take all reasonable steps to mitigatehis loss once he has discovered the fraud. (at pp. 778-779) Likewise, in the same judgment Lord Steyn, after referring to the seminal judgment in Doyle [supra] stated the law thus: The logic of the decision in Doyle v. Olby (Ironmongers) Ltd. justifies the following propositions. (1) The Plaintiff in an action for deceit is not entitled to be compensated in accordance with the contractual measure of damage, i.e. the benefit of the bargain measure. He is not entitled to be protected in respect of his positive interest in the bargain. (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party affected who must be put back in the same place as if he had never entered into the transaction. In an action for deceit, the price paid less the valuation at the transaction date is simply a method of measuring such a loss, but is not a substitute for the basic rule. This was felicitously stated as follows: The date of transaction rule That brings me to the perceived difficulty caused by the date of transaction rule. The Court of Appeal [1994] 1 W.L.R. 1271, 1283G, referred to the rigidity of the Rule in Waddell v. Blockey (1879) 4 Q.B.D. 678, which requires the damages to be calculated as at the date of sale. No doubt this view was influenced by the shape of arguments before the Court of Appeal which treated the central issue as being in reality a valuation exercise. It is right that the normal method of calculating the loss caused by the deceit is the price paid less the real value of the subject matter of the sale. To the extent that this method is adopted, the selection of a date of valuation is necessary. And generally the date of the transaction would be a practical and just date to adopt. But it is not always so. It is only prima facie the right date. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is background, the Tribunal considers that the issues for determination are as follows: i. have any of the Respondents made representations and/or warranties to the Claimant before the Claimant's investment in Avitel India and if so, what were these representations and/or warranties; ii. if so, did the Respondents make the representations and/or warranties in order to induce the Claimant to invest in Avitel India; iii. if so, was the Claimant so induced and did it rely on the Respondents' representations and/or warranties; iv. if so, were any of these representations and/or warranties untrue; v. if so, have any of the Respondents made such representations and/or warranties knowing that these were false and/or without belief in their truth, or recklessly and without caring whether these representations and/or warranties were true or false; vi. if so, are any of the Respondents liable to the Claimant in tort for deceit; vii. if so, are any of the Respondents liable to the Claimant for fraudulent misrepresentation pursuant to the relevant provisions of the Contract Act; viii. if so, is the Claimant entitled to damages for fraudulent misrepresent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period between 1 May 2011 to 23 September 2011 which statement was provided to him by Mr. Derek Wylde of HSBC [A copy of this statement is exhibited to the Witness Statement of Mr. van Schalkwyk, at RVS-I pp. 2 to 3]; (ii) a series of payments was then made by Avitel Dubai as follows: a. on 15 May 2011 the Avitel Dubai Account was debited in the amount of USD 6 million and which amount was credited to an Emirates NBD account held in the name of Highend. This was followed by multiple small transfers out of Highend's bank account to a number of miscellaneous accounts [Witness Statement of Mr. van Schalkwyk, at para. 17(b)(i)]; b. on 23 May 2011, the Avitel Dubai Account was debited in the amount of USD 12.22 million and which amount was credited to the same Emirates NBD account held in the name of Highend. This amount was in turn transferred to an entity identified as Avitel Limited on 30 May 2011 whose full beneficial ownership Mr. van Schalkwyk has not been able to confirm [Witness Statement of Mr. van Schalkwyk, at para. 17(b) (ii)]; c. on 9 June 2011 the Avitel Dubai Account was debited in the amount of USD 10 million which amount was then credited to a differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would show that most of the representations made by the Avitel Group and the Jain family to HSBC were false in that: 8.70 The Tribunal notes that the Respondents have not denied the accuracy of the following a. the Avitel Group did not have a direct relationship with the BBC and was not close to signing the BBC Contract; b. Avitel Dubai's offices had been closed for a period of time; c. Mr. Siddhartha Jain was a forty nine percent shareholder in Highend as well as in Digital Fusion at the material time; d. Mr. Siddhartha Jain is the sole signatory of and therefore controls Highend's and Digital Fusion's bank accounts with Emirates NBD; e. Mr. Siddhartha Jain was co-signatory (together with one Mr. Ankit Garg) of SPAC's bank accounts with Emirates NDB; f. Kinden was not in existence between 12 October 2010 and 26 October 2011; g. Mr. Boban Idiculla who is the sole shareholder and director of Kinden, is also the sole signatory of and therefore controls Cralton's bank accounts with Emirates NDB; h. Purple Passion, which was wholly owned by Mr. Siddhartha Jain, was dissolved on 23 November 2010; i. In total, USD 59.72 million ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Claimant's submission that none of these entities were independent and legitimate companies. As for Mr. van Schalkwyk's evidence, as there is no evidence adduced which would challenge the veracity and reliability of Mr. van Schalkwyk's evidence, the Tribunal sees no reason to disregard his evidence. In the Tribunal's view he is a credible witness; d. the Claimant's investment was required and was to be utilized for purchasing equipment in order to enable Avitel Dubai to service the BBC Contract. In light of the circumstances referred to in paragraph 8.68 above, the Tribunal accepts the Claimant's submission that its investment has been siphoned off by the Respondents; e. the representations and/or warranties contained in Clause 6.2.1 of the SSA because the information provided to the Claimant prior to and during the negotiations and the preparations of the SSA had not been provided by the Respondents and its/or their representatives and advisors in good faith and had been untrue, inaccurate and misleading for the reasons set out in paragraphs 8.72 (a) to (d) above; f. the representations and/or warranties contained in Clause 6.2.2 of the SSA bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and state of affairs of Avitel India and the Subsidiaries, all Tax Returns relating to Avitel India and the Subsidiaries or the Business or the assets of Avitel India and each of the Subsidiaries could not have been correct in all material respects; l. the representations and warranties contained in Clause 11 of Schedule 3 of the SSA because the Respondents falsely represented and warranted that Avitel India and each of the Subsidiaries were in material compliance with all applicable laws which in light of the Tribunal's findings in paragraphs 8.72(a) to (j) above, could not have been the case; m. the representations and warranties contained in Clause 6.1 of the SSA because in light of the Tribunal's findings in paragraphs 8.72(a) to (k) above, not every representation and warranty made in the SSA and in Schedule 3 of the SSA was true, complete, accurate and not misleading at the Completion Date. As a result, in paragraph 20, a summary of findings was given as follows: 20. SUMMARY 20.1 The Respondents chose not to attend the November 2013 Oral Hearing and the Tribunal is not satisfied that they were unable to attend or prevented from doing so. The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements and did not adduce any oral evidence before this Tribunal although the Tribunal accepts that they did so in the proceedings before the Emergency Arbitrator, namely in Mr. Yogesh Garodia's Witness Statement. In reaching its findings and its decisions, this Tribunal has considered fully the Respondents' numerous submissions and Mr. Yogesh Garodia's Witness Statement as well as the documentary evidence. The Claimant provided evidence from a number of witnesses and also documentary evidence. As the Respondents did not attend the November 2013 Oral Hearing, the Tribunal tested the evidence of the Claimant's witnesses by asking a number of questions. The Tribunal finds each of the Claimant's witnesses to be credible and it accepts their evidence part of which is corroborated by the documentary evidence submitted by the Claimant Including an email from Ms. Sarah Jones, General Counsel at the BBC, dated 4 May 2012 confirming, inter alia, that the BBC had not entered into a contract with Avitel India, that Mr. John Linwood had not attended a meeting on 19 April 2011 with Mr. Anthony Bernbaum but at the same time was in an internal meeting with BBC staff. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onspectus of these facts, and following our judgments, that the issues raised and answered in the Foreign Final Award would indicate: (i) That there is no such fraud as would vitiate the arbitration Clause in the SSA entered into between the parties as it is clear that this Clause has to be read as an independent clause. Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration Clause which is extremely wide, reading as follows: Any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding its existence, validity, interpretation, breach or termination ...... (emphasis supplied) (ii) That the impersonation, false representations made, and diversion of funds are all inter parties, having no public flavour as explained in paragraph 14 so as to attract the fraud exception . 22. Thus, a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of enforcement of the award in India. Accordingly, we dismiss Civil Appeal No. 5145 of 2016 filed by Avitel India and the Jain family, and allow Civil Appeal No. 5158 of 2016 filed by HSBC. Civil Appeal No. 9820 of 2016 25. In this case, the Appellant is an angel investor in the shares of Avitel India. By a letter dated 04.07.2016, the Appellant herein expressed his concern on the observations and the freezing of the company's bank account by the Bombay High Court vide orders dated 22.01.2014 and 31.07.2014. The Appellant attended a meeting of the Board of Directors of Avitel India on 11.07.2016, in which the Chairman of the company, i.e., Mr. Pradeep Jain, explained to the Appellant in some detail as to the proceedings filed by HSBC against the company and the orders passed by the Arbitrators and Courts therein. The Chairman expressed a view that, ultimately, they were likely to succeed in this litigation. The Appellant stated that he was not satisfied with this point of view and asked for the return of the money invested along with interest at the rate of 12% per annum. The Chairman stated that the amounts invested by the Appellant were in equity shares, which were the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the Applicant and no irreparable loss will be caused to the applicant, if this application is not allowed. Thus no ground is made out for grant of relief Under Section 9 of the Act and Section 151 of Code of Civil Procedure and the application stands dismissed accordingly. File be consigned to the record room. 27. An appeal was filed against this judgment to the Punjab and Haryana High Court. A learned Single Judge of the High Court, by the impugned judgment dated 02.09.2016, held that the final relief sought for is the return of an invested amount with interest together with cancellation of the shares. Such disputes would be governed by the Companies Act, 2013. Therefore, following some of the judgments of the Supreme Court, the remedy for arbitration sought by the Appellant would be barred by implication in view of the provisions of the Companies Act, 2013. After discussing the fraud exception in some detail and stating that serious allegations of fraud and impersonation are not arbitrable, the High Court concluded: For the foregoing reasons, I am of the view that primarily, the Appellant is trying to make out a case of parity with the case of HSBC, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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