2014 (5) TMI 1053 - SC - Indian Laws

Request for appointment of the nominee arbitrator - Constitution of arbitral tribunal - Held that - manner in which the contract was made between the petitioner and the respondent was investigated by the CBI. As a part of the investigation the CBI had seized all the original documents and the record from the office of the respondent. After investigation the criminal case CC No.22 of 2011 has been registered as noticed earlier. It is claimed that in the event the Chairman of the Organising Committee and the other officials who manipulated the grant of contract in favour of the respondent are found guilty in the criminal trial no amount would be payable to the petitioner. Therefore it would be appropriate to await the decision of the criminal proceedings before the arbitral tribunal is constituted to go into the alleged disputes between the parties. - The balance of convenience is tilted more in favour of permitting the arbitration proceedings to continue rather than to bring the same to a grinding halt. Plea was never taken till the present petition was filed in this Court. Earlier the respondents were only impressing upon the petitioners to supply certain information. Therefore it would be appropriate let the Arbitral Tribunal examine whether there is any substance in the plea of fraud now sought to be raised by the respondents. - The purpose of the solitary rule is to avoid embarrassment to the accused. In contrast the findings recorded by the arbitral tribunal in its award would not be binding in criminal proceedings. Even otherwise the Constitution Bench in the aforesaid case has clearly held that no hard and fast rule can be laid down that civil proceedings in all matters ought to be stayed when criminal proceedings are also pending. - The Registry is directed to communicate this order to the Chairman of the Arbitral Tribunal as well as to the Second Arbitrator to enable them to enter upon the reference and decide the matter as expeditiously as possible. - Decided in favour of Appellant.

Summary

Issues Involved:
1. Non-payment of dues by the respondent.
2. Alleged failure to follow the dispute resolution mechanism.
3. Validity of the contract in light of criminal proceedings and allegations of fraud.

Issue-wise Detailed Analysis:

1. Non-payment of dues by the respondent:
The petitioner, a Swiss company, entered into an agreement with the respondent, the Organising Committee of the Commonwealth Games 2010, to provide timing, score, and result systems (TSR systems/services). The petitioner claimed that despite fulfilling their contractual obligations and submitting the final invoice for CHF 1,249,500, the respondent defaulted on the payment without any justifiable reasons. The petitioner also demanded the return of an Earnest Money Deposit (EMD) of Rs. 15,00,000, which was not refunded.

2. Alleged failure to follow the dispute resolution mechanism:
The respondent raised a preliminary objection, asserting that the petitioner did not follow the dispute resolution mechanism outlined in Clause 38 of the agreement, which required efforts to resolve disputes through negotiation before resorting to arbitration. However, the court found that the petitioner had made considerable efforts to resolve the issue amicably, including communications and letters from ambassadors of various countries, before invoking arbitration. Thus, the court rejected the respondent's claim of non-compliance with Clause 38.3.

3. Validity of the contract in light of criminal proceedings and allegations of fraud:
The respondent argued that the contract was void ab initio due to allegations of corrupt practices and ongoing criminal proceedings against officials involved in the agreement. They cited the registration of a criminal case under various sections of the IPC and the Prevention of Corruption Act. The court, however, held that these allegations need to be established in a proper forum with evidence. It emphasized that the arbitration clause is separable from the main contract, as per Section 16 of the Arbitration Act, 1996, which allows the arbitral tribunal to rule on its own jurisdiction, including the validity of the arbitration agreement. The court referred to precedents like Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums and Today Homes & Infrastructure Pvt. Ltd. vs. Ludhiana Improvement Trust, which support the principle of minimal court intervention in arbitration matters.

The court also addressed the respondent's reliance on the judgment in N. Radhakrishnan vs. Maestro Engineers & Ors., which held that disputes involving allegations of fraud should be settled in court. The court found this judgment to be per incuriam, as it did not consider relevant precedents and statutory provisions. The court reiterated that arbitration should proceed unless the contract is patently void, which was not the case here.

Conclusion:
The court allowed the arbitration petition, appointing Hon'ble Mr. Justice S.N. Variava, Hon'ble Mr. Justice B.P. Singh, and Hon'ble Mr. Justice Kuldip Singh as arbitrators to adjudicate the disputes. The Registry was directed to communicate this order to the arbitrators to enable them to decide the matter expeditiously. The court emphasized the policy of least interference in arbitration proceedings and rejected the respondent's objections, allowing the arbitration to proceed despite the ongoing criminal proceedings.