9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (8) TMI 858 - SC - Indian LawsArbitration proceedings - Foreign Final Award - the extent to which HSBC could be said to have a strong prima facie case in the enforcement proceedings Under Section 48 which are pending before the Bombay High Court? - whether irreparable prejudice would be caused to HSBC if protective orders were not issued in its favour, and generally, whether the balance of convenience tilts in its favour and to what extent? HELD THAT - Where arbitral proceedings are ongoing, such proceedings become invalid the moment legal proceedings upon the whole of the subject matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire. As against this, Sections 5, 8 and 16 of the 1996 Act reflect a completely new approach to arbitration, which is that when a judicial authority is shown an arbitration Clause in an agreement, it is mandatory for the authority to refer parties to arbitration bearing in mind the fact that the arbitration Clause is an agreement independent of the other terms of the contract and that, therefore, a decision by the arbitral tribunal that the contract is null and void does not entail ipso jure the invalidity of the arbitration clause. There can be no doubt whatsoever after reading the issues and some of the material findings in the Foreign Final Award that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The fact that a separate criminal proceeding was sought to be started and may have failed is of no consequence whatsoever - a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by HSBC, which would clearly fall within fraudulent inducement to enter into a contract Under Section 17 of the Contract Act. Such a contract would be voidable at the instance of HSBC. Also, the findings on the siphoning off of monies that were meant to be allocated for the performance of the BBC contract would attract the tort of deceit. The measure of damages for such fraudulent misrepresentation is not the difference between the value of the shares on the date of making the contract and the value HSBC would have received, if it had resold those shares in the market, after the purchase. The matter is remanded to the ADJ, Mohali for fresh disposal in accordance with law.
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.
|
