2014 (10) TMI 983 - HC - Indian Laws

Maintainability of case for adjudication before Arbitral Tribunal - it was pleaded that the dispute between the parties is one of accounting and the appellant should not be permitted to wriggle out of the mode of resolution of disputes by arbitration - Held that - A plaint is not to be read like a statute. The plaint has to be read as a whole. The allegation is really against their employee and in accounting dispute inter se the parties, and by impleading the third defendant, the appellant cannot be permitted to defeat the arbitration clause. At request of learned Senior Counsel for the appellant, we do clarify that naturally what has been observed by the learned Single Judge is for purposes of deciding the application under Section 8 of the said Act and would not, in any case, affect the merits of controversy before the Arbitral Tribunal. Mere allegation of fraud against the third respondent, with some splatterings of allegations against the first two defendants / respondents, would not result in the case being made unfit for adjudication before the agreed mode of Arbitral Tribunal. In fact, even the appellant understood it in the same way, till suddenly the U turn arose. Appeal do not have any merit and is dismissed.

Summary

Issues Involved:
1. Recovery of sum with interest.
2. Nature of the transaction schemes.
3. Allegations of fraud and discrepancies.
4. Arbitration clause and its applicability.
5. Allegations against the third defendant.
6. Decision of the Single Judge and its appeal.

Detailed Analysis:

1. Recovery of Sum with Interest:
The appellant filed a suit to recover Rs. 170,69,37,775/- from the respondents, including principal and interest calculated at 18% per annum, along with future interest. The transactions in question were under the Buyers' Credit Scheme, although the respondents claimed it included the Outright Purchase Scheme.

2. Nature of the Transaction Schemes:
The appellant imported Bullion and sold it locally under three schemes: Outright Purchase Scheme, Buyers' Credit Scheme, and Usance Letter of Credit and Stand By Letter of Credit Scheme. The transactions in question were claimed to be solely under the Buyers' Credit Scheme.

3. Allegations of Fraud and Discrepancies:
The appellant alleged that the first respondent acknowledged increased liability and undertook to cover foreign exchange fluctuations but delayed doing so, causing losses. Discrepancies were detected by a Special Audit, suggesting fraud, particularly regarding overstated fixed deposits in Union Bank of India. The third defendant was accused of preventing the detection of amounts due by obtaining a fraudulent certificate from the bank.

4. Arbitration Clause and Its Applicability:
The first two respondents moved an application under Section 8 of the Arbitration and Conciliation Act, 1996, citing an arbitration clause in the Memorandum of Understanding. The clause mandated arbitration for disputes arising from the sale-purchase agreement. The appellant initially agreed to arbitration but later retracted, claiming the arbitration agreement was invalid.

5. Allegations Against the Third Defendant:
The third defendant, an employee of the appellant, was accused of clearing debit balances improperly and facilitating refunds without deducting amounts payable for foreign exchange losses. His written statement argued that the transactions could not have been handled solely by him and followed established procedures.

6. Decision of the Single Judge and Its Appeal:
The Single Judge favored the respondents, finding that allegations of fraud were primarily against the third defendant, not the first two respondents. The appellant's dual plea was rejected: the serious nature of fraud allegations did not preclude arbitration, and the third defendant's involvement did not invalidate the arbitration clause. The Supreme Court's judgment in Swiss Timing Ltd. vs. Commonwealth Games 2010 Organising Committee was cited, mandating arbitration despite fraud allegations. The appeal was dismissed, affirming the arbitration clause's applicability and leaving the merits of the controversy to the Arbitral Tribunal.

Conclusion:
The appeal was dismissed, upholding the arbitration clause and referring the dispute to arbitration, with the appellant bearing its own costs. The court emphasized judicial discipline and adherence to the Supreme Court's precedent in Swiss Timing Ltd.