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India – Swiss Timing Ltd. V. Organising Committee, Commonwealth Games.

14 October, 2014

 

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

 

The Supreme Court in the case of Swiss Timing Ltd. v. Organising Committee, Commonwealth Games, 20101 inter alia deals with the issue of ‘arbitrability”, to rule that even where it is alleged that contract stands vitiated by fraud, such a dispute is arbitrable.

 

Facts And Arguments

 
Swiss Timing Ltd. (the “Petitioner”) entered into an agreement with the Organising Committee, Commonwealth Games, 2010 (the “Respondent”) on March 11, 2010 (the “Agreement”) to provide timing, score and result systems and supporting services in relation to the conduct of the Commonwealth Games (the “Services”) that took place in New Delhi in 2010. After completion of the Commonwealth Games, the Petitioner raised its invoice for fees but the Respondent refused to pay the same (on grounds which the Petitioner claimed, were unjustied). The Agreement contained an arbitration clause and the Petitioner accordingly invoked arbitration. The Respondent failed to appoint an
arbitrator and the Petitioner accordingly approached the Supreme Court of India under Section 11(4) read with 11(6) of the Arbitration and Conciliation Act, 1996 (the “Act”), for appointment of the arbitrator on behalf of the Respondent and the presiding arbitrator.

 
The Respondent opposed the petition inter alia on the grounds that the Agreement stood contract stands vitiated and was void ab initio vitiated due to allegations of fraud against the officials of the Petitioner and, as such, the arbitration agreement between the parties did not survive, and also stood vitiated. Placing strong reliance on the Supreme Court’s decision in N. Radhakrishnan v. MaestroEngineers2 , the Respondent further argued that a case relating to the allegations of fraud, corruption and serious malpractice could be settled only by a court through furtherance of detailed evidence, and hence, such a dispute could not be decided by arbitration and hence the Court ought to dismiss the petition without appointing an arbitrator.

 
Judgment

 
The Court rejected the Respondent’s objections and appointed an arbitrator.

 
The Court took the view that all such allegations (i.e. whether there was fraud, corruption or any act that resulted in the contract being void or voidable), could be decided by the arbitral tribunal, notwithstanding allegations of fraud. In that respect, the court recognised the principle of competence-competence enshrined in Section 16 of the Act, i.e. that an arbitral tribunal is competent to rule on its own jurisdiction including ruling on any objection with regard to existence or validity of the arbitration agreement. Further that, an arbitration clause which forms part of a contract is as an agreement independent of the other terms of the contract and accordingly, even if the contract were held to be null and void, that would not in itself entail ipso jure the invalidity of the arbitration clause.

 
On this basis, the Court also opined that in its view, the decision in N. Radhakrishnan was per incuriam, as it had not taken into account two prior judgments of the Supreme Court, namely, Hindustan Petroleum Corporation v. Pinkcity Midway Petroleums3 and P. Anand Gajapathi Raju v. P.V.G. Raju4, in which the Supreme Court recognised the competence of the arbitral tribunal to rule on its own jurisdiction and also the independence and continued existence and validity of an arbitration agreement notwithstanding that the main contract may be adjudged void.

 

The Court also noted the provisions of Section 5 of the Act (which limits interference of courts), recognising that the role of the court was to “support arbitration process”. The Court therefore held, “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.

 
Analysis

 
The decision in the present case is encouraging and one pro-arbitration judgment to be issued by the Supreme Court. Though the decision does not overrule the decision in N. Radhakrishnan’s case (N. Radhakrishnan’s case was a decision by a two judge bench, whereas the present decision is by a single judge), it seems to suggest that the decision in N. Radhakrishnan’s case may need reconsideration. However, Nijjar J. has certainly set the ground to distinguish N. Radhakrishnan, which he also notes 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”, and goes on to state that, “In my opinion, such ground needs to be summarily rejected unless there is clear indication that the defence has a reasonable chance of success.

 

End Notes:

 

MANU/SC/0516/2014

 
(2010) 1 SCC 72

 
(2003) 6 SCC 503

 
4 (2000) 4 SCC 539

 

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