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2020 (8) TMI 858 - SC - Indian Laws


Issues Involved:
1. Arbitrability of disputes involving allegations of fraud.
2. Validity and enforceability of the arbitration clause under Indian law.
3. Prima facie case for enforcement of the foreign arbitral award.
4. Measure of damages for fraudulent misrepresentation.
5. Jurisdiction and competence of the arbitral tribunal.
6. Interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Arbitrability of Disputes Involving Allegations of Fraud:
The court examined whether serious allegations of fraud render a dispute non-arbitrable under Indian law. It referred to the precedent set in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, which allowed for arbitration unless the allegations of fraud were of a serious nature that required a public inquiry. The judgment in N. Radhakrishnan v. Maestro Engineers, which held that serious allegations of fraud should be tried in court, was reconsidered in light of the Arbitration and Conciliation Act, 1996. The court clarified that only serious allegations of fraud that vitiate the arbitration clause or have public implications would render a dispute non-arbitrable, as per A. Ayyasamy v. A. Paramasivam and Rashid Raza v. Sadaf Akhtar.

2. Validity and Enforceability of the Arbitration Clause:
The court upheld the validity of the arbitration clause in the Share Subscription Agreement (SSA) between HSBC and Avitel India, stating that the clause is independent of other terms of the contract. It emphasized that allegations of fraud do not automatically invalidate the arbitration clause unless the fraud pertains directly to the arbitration agreement itself. The arbitration clause was found to be broad enough to cover disputes arising from allegations of fraud.

3. Prima Facie Case for Enforcement of the Foreign Arbitral Award:
The court assessed whether HSBC had a strong prima facie case for the enforcement of the foreign arbitral award under Section 48 of the Arbitration and Conciliation Act, 1996. It found that the arbitral tribunal had made detailed findings of fraudulent misrepresentation and deceit by the Jain family, which induced HSBC to invest in Avitel India. The court concluded that these findings established a strong prima facie case for enforcement, as the issues were predominantly civil and did not involve public implications.

4. Measure of Damages for Fraudulent Misrepresentation:
The court discussed the measure of damages for fraudulent misrepresentation, referring to English law principles from Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd. It held that the measure of damages should put the claimant in the position they would have been in if the fraudulent misrepresentation had not occurred. This includes the full price paid by HSBC and consequential losses, rather than just the difference in share value.

5. Jurisdiction and Competence of the Arbitral Tribunal:
The court affirmed the jurisdiction and competence of the arbitral tribunal to decide on the allegations of fraud. It noted that the tribunal had conducted a thorough examination of the evidence and found clear instances of fraudulent misrepresentation and deceit. The tribunal's findings were based on credible witness testimony and documentary evidence.

6. Interim Relief under Section 9 of the Arbitration and Conciliation Act, 1996:
The court evaluated the interim relief granted by the Bombay High Court under Section 9, which directed Avitel India to maintain a balance of USD 60 million in its bank account. It found that the Division Bench's reduction of this amount to USD 30 million was not justified. The court reinstated the Single Judge's order, emphasizing that HSBC had made out a strong prima facie case and that maintaining the full amount was necessary to prevent irreparable harm to HSBC.

Conclusion:
The court dismissed the appeal filed by Avitel India and the Jain family, and allowed HSBC's appeal, reinstating the order to maintain USD 60 million in the bank account. It also remanded the matter involving the angel investor's dispute to the ADJ, Mohali for fresh adjudication. The judgment clarified the arbitrability of fraud-related disputes, upheld the validity of the arbitration clause, and reinforced the principles for measuring damages in cases of fraudulent misrepresentation.

 

 

 

 

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