2017 (7) TMI 1471 - HC - Indian Laws

Enforcement of the partial award and the final award - Sections 47 and 49 of the Arbitration and Conciliation Act, 1996 - Jurisdiction of Arbitral Tribunal under Clause 8 of the Agreement to arbitrate the disputes - termination of agreement by the Respondent by notice in July 2003 - amount of monthly payments on account due to the Claimant - amount of commission which the Claimant is entitled to. Whether the part of the clause requiring the disputes to be submitted to SIAC was severable from the remaining clause? - HELD THAT - It is well settled that the doctrine of severability or the Blue Pencil Rule is applicable where a part of the contract, which is void or unenforceable, can be severed from the main contract without affecting the substantial agreement between the parties - In the present case, it cannot be disputed that the parties had agreed (a) that their disputes shall be resolved by arbitration; (b) that the arbitration shall be conducted under the ICC Rules; (c) that it shall be conducted by an arbitral tribunal constituted by three arbitrators appointed in accordance with the ICC Rules; (d) the venue of the arbitration would be Singapore; and (e) that the arbitral award would be final and binding on the parties. The aforesaid constitutes the quintessential agreement between the parties. The invalidity or unworkability of the part of the clause that provides for the disputes to be submitted to SIAC would not render the entire arbitration agreement (arbitration clause) void. In Enercon (India) Ltd Ors. v. Enercon GMBH Anr 2014 (2) TMI 1170 - SUPREME COURT , the Supreme Court had observed that when faced with a seemingly unworkable arbitration clause, it would be the duty of the court to make the same workable within the permissible limits of the law, without stretching it beyond the boundaries of recognition . The party against whom a foreign award is sought to be enforced is to be provided full opportunity to provide evidence to show that the arbitral tribunal lacked the jurisdiction to make the foreign award - In Shin-Etsu Chemical Co. Ltd. 2005 (8) TMI 622 - SUPREME COURT , the Supreme Court held that a finding regarding an arbitration agreement rendered under Section 45 of the Act would only be a prima facie finding and would not preclude a full examination at the post award stage. There can be no quarrel to this proposition. However, the onus to prove that the arbitral tribunal lacked jurisdiction or that any of the other grounds as set out under Section 48(1) of the Act are attracted, lies squarely on a party challenging the enforcement of the foreign award. Thus, ZTE was required to provide all material necessary for establishing that enforcement of the impugned awards ought to be declined as the arbitral proceedings were not in accordance with the Agreement. Whether the impugned awards are void on account of alleged fraud committed by VAS? - HELD THAT - The fulcrum of the contention rests on the failure of VAS to disclose that its name was struck off the Register of Companies by the ROC - Admittedly, VAS did not disclose to the arbitral tribunal that its name had been struck off the Register of Companies and it stood dissolved on 03.02.2007. VAS had fairly conceded that its Board of Directors had acted on an erroneous understanding, as on one hand, VAS was pursuing the arbitration proceedings, and on the other hand, VAS had also applied for its name to be struck off the Register of Companies. Mr Jeevesh Nagrath contended that the Directors of VAS had proceeded on the basis that they could pursue the arbitral proceedings, which had already commenced. Any allegation of deceit and fraud must necessarily be considered in the context of the factual matrix of the disputes. A clear distinction must be drawn between cases where a party acts erroneously or otherwise proceeds on an erroneous assumption and cases where a party deliberately and wilfully practices deception to acquire a benefit, which is not legitimately due to it, at the cost of the other party and but for the deception, it would not be able to secure the same. The latter would be a case of fraud and not the former - In the present case, there can be little doubt that the amounts awarded are legitimately due and payable by ZTE to VAS. ZTE has not advanced any contention to challenge the impugned award on merits. Thus, in effect, what ZTE seeks to contend is that it has been deprived and cheated of its opportunity, whereby it could have withheld the legitimate dues of VAS. Plainly, this cannot be accepted. This Court is not persuaded to accept the contention that the legal proceedings continued after the name of VAS was struck off the Register of Companies, should be held as void, notwithstanding, that its name had been restored on the Register of Companies subsequently - The existence of a company whose name has been removed from the Register of Companies would continue, at least to the extent of enabling it to have the same restored. This Court is unable to accept that ZTE has established, by sufficient proof, any of the grounds as set out in Section 48(1) of the Act to decline enforcement of the impugned awards - the objections raised by ZTE are rejected. List for further proceedings on 07.07.2017.

Summary

Issues Involved:

1. Jurisdiction of the arbitral tribunal under Clause 8 of the Agreement.
2. Termination of the Agreement by the Judgment Debtor.
3. Amount of monthly payments due to the Claimant.
4. Commission entitlement for the Claimant.
5. Allegations of fraud and concealment by the Claimant.
6. Legal implications of the Claimant's name being struck off the Register of Companies and its subsequent restoration.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitral Tribunal:

The primary issue was whether the arbitral tribunal had jurisdiction to arbitrate the disputes under Clause 8 of the Agreement, which stipulated that disputes would be submitted to the Singapore International Arbitration Centre (SIAC) under the ICC Rules. The arbitral tribunal concluded that it had jurisdiction because SIAC had declined to administer the arbitration under the ICC Rules, and no other institution could administer arbitration cases under these rules. This decision was upheld by the Singapore High Court, which found that the arbitration clause was not workable as initially drafted, and thus, the tribunal was correctly constituted under the ICC Rules.

2. Termination of the Agreement:

The tribunal examined whether the Agreement was terminated by the Judgment Debtor in July 2003. The Judgment Debtor claimed a verbal notice of termination was given, but the tribunal found no evidence of such notice being sent. The tribunal relied on meeting minutes dated 06.09.2003, which indicated the Agreement was still in effect and concluded that the Agreement terminated by efflux of time on 12.01.2005.

3. Amount of Monthly Payments:

The tribunal directed the Judgment Debtor to furnish a Tax Deducted at Source (TDS) certificate for the amount deducted from advance payments to avoid additional payment to the Claimant. The tribunal awarded the Claimant US$ 62,500, conditional on the provision of the TDS certificate, otherwise US$ 65,000 with interest.

4. Commission Entitlement:

The tribunal held that the Claimant was entitled to a 4% commission on purchase orders received from ITI/TCIL up to 12.01.2005, quantified at US$ 812,569. Claims for commissions on orders after this date were not upheld, as the tribunal found no basis in the Agreement for such entitlement.

5. Allegations of Fraud and Concealment:

The Judgment Debtor alleged that the Claimant obtained the awards by fraud, concealing that it was struck off the Register of Companies. The tribunal and the court found no intent to deceive, as the Claimant's claims were legitimate and based on amounts due under the Agreement. The court noted that fraud involves deceit and injury, which were not present in this case.

6. Legal Implications of Being Struck Off and Restoration:

The Claimant's name was struck off the Register of Companies during the arbitration but was later restored. The court held that upon restoration, the company is deemed to have continued in existence as if its name had never been struck off, per Section 560(7) of the Companies Act. Thus, the arbitration proceedings and awards were valid and enforceable.

Conclusion:

The court rejected the Judgment Debtor's objections, finding no grounds under Section 48(1) of the Arbitration and Conciliation Act to decline enforcement of the awards. The tribunal's jurisdiction was upheld, the termination of the Agreement was not established as claimed, and the Claimant's entitlement to payments and commissions was affirmed. Allegations of fraud were dismissed, and the restoration of the Claimant's name validated the proceedings. The court directed the encashment of bank guarantees furnished by the Judgment Debtor.