By: Meenakshi Iyer
In an important judgment, the Supreme Court has held that in the case of arbitrations covered by Part II of the Arbitration & Conciliation Act, 1996 (“the Act”), i.e., international arbitration, the Court cannot decline to make a reference of the dispute to arbitration on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the dispute between the parties. Accordingly, the Supreme Court has directed that the dispute between World Sport Group (Mauritius) Limited (“WSG”) and MSM Satellite (Singapore) Pte Limited (“MSM”) in respect of grant of media rights is required to be decided by arbitration under the auspices of the International Chamber of Commerce (“ICC”), at Singapore. The law prior to this was that where the disputes between the parties involved allegations of fraud as well, such disputes were not arbitrable under Indian Law (N. Radhakrishnan v. Maestro Engineers & Ors)[1] . The Supreme Court by clarifying this has made it easier for foreign parties arbitrating against Indian counter parties outside India.
Facts:
The dispute relates to the grant of media rights for the Indian Premier League (“IPL”) by the Board of Control for Cricket in India (“BCCI”) to WSG and MSM. WSG and MSM also entered into an agreement (“Facilitation Deed”) with each other which inter alia provided that the disputes between them would have to be resolved by ICC arbitration in Singapore. Subsequently, MSM rescinded the Facilitation Deed on the ground that it was voidable on account of misrepresentation and fraud on the part of WSG. WSG sought to invoke the arbitration clause in the Facilitation Deed. MSM then filed a suit in the Bombay High Court for a declaration that the Facilitation Deed was rescinded and that WSG was not entitled to invoke the arbitration clause in the Facilitation Deed. The Single Judge of the Bombay High Court dismissed the suit. An appeal preferred by MSM before the Division Bench of the Bombay High Court was allowed. A Civil Appeal was filed in the Supreme Court against the order of the Division Bench of the Bombay High Court.
Issue:
Whether Indian courts have the jurisdiction to restrain foreign arbitration proceedings and whether the Division Bench of the Bombay High Court could have passed the order of injunction restraining the arbitration between the parties?
Arguments by the parties:
Submissions of WSG:
Under Section 45 of the Act, (which is substantially different from Section 8 of the Act that deals with domestic arbitrations) the Court must refer the parties to arbitration, unless it finds that the 1 (2010) 1 SCC 72 arbitration agreement between the parties is null, void, inoperative or incapable of being performed. In the present case, MSM has not made out such a case. Therefore, it was not for the Court but the Arbitrator to decide whether the Facilitation Deed was void on account of fraud and misrepresentation.
Submissions of MSM:
As MSM has taken the plea that the Facilitation Deed, which contained the arbitration agreement, is null and void on account of misrepresentation and fraud, the Court will have to decide whether the Facilitation Deed including the arbitration agreement contained in it was void on account of fraud and misrepresentation by WSG. Section 45 of the Act casts an obligation on the Court to determine the validity of the agreement at the threshold itself because this is an issue that goes to the root of the matter. 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.
Verdict:
The Supreme Court made a distinction between domestic arbitrations covered under part I of the Act and international arbitrations covered under part II of the Act. It held that Section 45 of the Act mandates that in cases where the parties have an arbitration agreement, the Court shall, at the request of either party refer the dispute to arbitration, unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
The Court further enunciated that 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 on that ground.
The Court relied on the decision of the House of Lords in Premium Nafta Products Ltd. v. Fili Shipping Company Ltd. & Ors. [2007] UKHL 40] and after applying the doctrine of separability held that “the ground of challenge to the Facilitation Deed does not in any manner affect the arbitration agreement contained in Clause 9 of the Facilitation Deed, which is independent of and separate from the main Facilitation Deed and does not get rescinded as void by the letter dated 25.06.2010 of the respondent.”
Analysis:
The judgment is welcome for three reasons:
The Supreme Court has applied the doctrine of separability and has endeavored to maintain the sanctity of arbitral tribunals and interdict their abuse by parties who despite the existence of an arbitration clause in the agreement attempt to invoke the jurisdiction of Courts by merely alleging defaults in the agreement and thereby frustrating the purpose of arbitral tribunals, viz. resolution of disputes in a fair, speedy and efficacious manner.
The Court has provided a succinct and unambiguous interpretation of Section 45 of the Act as regards when a judicial authority is required to relegate the dispute between parties to Arbitration and when the authority must refuse to do the same under Part II of the Act.
The Court has distinguished between domestic and international arbitrations and in doing so, held that in the case of international arbitrations with seat outside India and covered by part II of the Act, the Court cannot decline to make a reference of the dispute to Arbitration on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the dispute between the parties, thereby restricting the applicability of its decision in N. Radhakrishnan (supra) to domestic arbitrations alone.
[1] (2010) 1 SCC 72
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