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29 April, 2014

 

Legal News & Analysis – Asia Pacific – India – Dispute Resolution

 

In a significant ruling, SC has held that an arbitration agreement does not become inoperative or incapable of being performed where allegations of fraud have to be considered. The ruling dated January 24, 2014 was given in the case titled World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd.1 by a bench comprising Justice A.K. Patnaik and Justice Fakkir Mohamed Ibrahim Kalifulla.

 
The dispute centered around a deed for provision of Facilitation Services (‘Facilitation Deed’) entered into between the World Sport Group (‘Appellant’) and MSM Satellite (Singapore) Pte. Ltd (‘Respondent’). The Facilitation Deed had an arbitration clause, which provided for a foreign seated international arbitration at ICC Singapore. It was the Respondent’s case that it was induced to enter into the Facilitation Deed by the Appellant on the basis of misrepresentations and fraud. The Appellant invoked the arbitration agreement and sent a request for arbitration to ICC Singapore. Being a foreign seated arbitration agreement in a reciprocating territory, such agreement was covered under the New York Convention, as captured in Part II of the (Indian) Arbitration and Conciliation Act, 1996. The respondent filed a suit in the BHC and sought temporary injunction restraining the appellant from continuing with arbitration proceedings. The relief was declined by the Single Judge of the BHC (‘Single Judge Order’) on the ground that the dispute was to be decided by the arbitrator in light of the arbitration agreement.

 
The Single Judge Order was reversed by the Division Bench of BHC on appeal. The Division Bench relied on SC’s decision in N. Radhakrishnan v. Maestro Engineers & Ors.2 and granted the injunction on the ground that the dispute involved serious allegations of fraud that can only be enquired by a Court and not an arbitrator. It was the Division Bench’s order that was under appeal before SC.

 
SC distinguished its ruling in N. Radhakrishnan (supra) on the ground that this decision was passed in the context of a domestic arbitration and not in the context of arbitrations under the New York Convention. SC referred to several commentaries on the New York Convention and concluded that reference to arbitration can be declined only if the arbitration agreement becomes “inoperative or incapable of being performed”. It held that allegations of fraud do not render an arbitration agreement inoperative or incapable of being performed. SC set aside the order of the Division Bench and restored the Single Judge Order of the BHC.

 
The decision is noteworthy for dispelling doubts on whether disputes involving allegations of fraud can be referred to a foreign seated arbitration governed by the New York Convention. While the Court did not deal with the issue of enforceability of any award passed in a foreign seated arbitration involving allegations of fraud, the decision is nonetheless a positive development in favour of choosing foreign seated institutional arbitration as a dispute resolution mechanism.

 

End Notes:


1 Civil Appeal No. 895 of 2014 (Arising out S.L.P. (C) No. 34978 of 2010)

2 (2010) 1 SCC 72

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com


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