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India – Two Encouraging Decisions On The Arbitrability Of Fraud Claims.

16 July, 2014

 

 

The Bombay High Court in the recent decision of HSBC PI Holdings (Mauritius) Ltd v Avitel Post Studioz Ltd, set an important precedent against imposing Indian law on foreign seated arbitrations and held that where the underlying agreement between the parties was governed by Indian law but provided for arbitration in Singapore, in the absence of a contrary indication, the arbitration agreement would be governed by Singapore law. The case involved an application for interim relief where fraud was alleged. The court refused attempts to apply Indian law as regards the arbitrability of claims involving allegations of fraud, and deferred to the Singapore law position on this issue. The court also made obiter remarks which appeared to read down existing jurisprudence and to empower arbitral tribunals to consider allegations of fraud in certain circumstances, even under Indian law.

 

This case is also noteworthy as in exercise of its jurisdiction to grant interim measures of protection, the Bombay High Court ordered interim relief on similar terms as granted in the emergency arbitrator’s award. Read more here.

 

That approach has been supported by the recent decision of the Indian Supreme Court in Swiss Timing Limited v Organising Committee, 2010 Olympic Games, Delhi. The Court overturned the previous authority on this point1 and held that even in the context of India-seated arbitrations, fraud allegations are capable of being dealt with by arbitral tribunals. In particular, it held that:

 

  • Section 16 of the Arbitration Act requires a Court to direct parties to arbitration where there is an applicable arbitration agreement between the parties;
  • Allegations as to the voidness or voidability of the substantive agreement would not (save in exceptional cases) prevent the dispute being referred to arbitration – the Court “ought to decline reference to arbitration only where the Court can reach the conclusion that the contract is void on a meaningful reading of the contract document itself without the requirement of any further proof”; and
  • The fact of ongoing parallel criminal proceedings is not a reason to delay the commencement of the arbitration.

 

The tone of the judgment is arbitration-friendly, and reflects a degree of scepticism about parties seeking to delay the commencement of arbitration by taking tactical points. In particular, the Court observed that:

 

  • Indian arbitration law is based on a “policy of least interference in arbitration proceedings”, recognising a “general principle that the function of the Courts in matters relating to arbitration is to support [the] arbitration process”; and
  • Resisting arbitration proceedings on the ground that the contract is void “is now-a-days taken routinely” and that such a ground “needs to be summarily rejected unless there is clear indication that the defence has a reasonable chance of success”.

 

The above two decisions appear to herald a changing of the landscape, signalling a greater willingness on the part of the Indian judiciary to permit arbitral tribunals to deal with fraud claims, and to provide them with support in the form of interim measures where appropriate.

 

End Notes:

 

1. N Radhakrishnan v Maestro Engineering (2010) 1 SCC 72 – a decision that had already been held inapplicable in the context of offshore arbitration.

 

herbert smith Freehills

 

For further information, please contact:

 

Nicholas Peacock, Partner, Herbert Smith Freehills

nicholas.peacock@hsf.com

 

Alistair Henderson, Partner, Herbert Smith Freehills

alastair.henderson@hsf.com


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