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TMI Blog2014 (7) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... Million in its Corporation Bank Account at Mumbai, so that total deposit in the said account is maintained at USD 30 Million. This is on the basis that the HSBC can be said to have made out a fairly strong case, of a standard higher than a mere prima-facie case, for an award of such amount in the arbitral proceedings at Singapore. This direction to deposit, is certainly, without prejudice to the rights and contentions of the parties before the Arbitral Tribunal at Singapore. Accordingly, we may not be taken to have expressed any final opinion either upon the merits of the contentions of either parties or quantum of damages. Thus we partly allow the present appeal. The direction to the appellants to deposit the shortfall in the Corporation Bank Account at Mumbai, so as to maintain balance of USD 60 Million is substituted by a direction to the appellants to deposit the shortfall in the said account, so as to maintain a balance of USD 30 Million within four weeks from today. Save and except the aforesaid modification, rest of the directions in the impugned judgment and order dated 22 January 2014, are hereby upheld and maintained. - Appeal No. 196 of 2014 in Arbitration Petition N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted by the Avitel India and respondent Nos. 2 to 4 (hereinafter referred to as Jains ). 4. Respondent No. 1 is a company incorporated under the laws of Mauritius and has its registered office at Mauritius (hereinafter referred to as HSBC ). Respondent No. 1 is an investment holding company for the Principal Investments Asia Division of HSBC. 5. It is the case of HSBC that the appellants had represented to the HSBC that the Avitel Group was at a very advanced stage of finalizing a contract with British Broadcasting Corporation (BBC) and had signed a MOU for the said purpose to convert the BBC's film library from 2D to 3D and that such contract was expected to generate a revenue of USD 300 Million in the first phase, which revenue was expected to ultimately increase upto USD 1 Billion. On basis of such representations, which the appellants knew as being false, the appellants induced the HSBC to invest an amount of USD 60 Millions for purchase of equipments to specifically enable Avitel Dubai to service the BBC contract. The appellants also represented to the HSBC that the Avitel Group had the benefit of number of material contracts, mainly with three customers, which con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned judgment and order dated 22 January 2014 came to be passed. 11. We have heard Mr. Saurabh Kirpal, learned counsel for the appellants and Dr. Virendra Tulzapurkar, learned senior counsel for the respondent at great length. With consent of learned counsel for the parties, we propose to dispose of the appeal finally. 12. Mr. Kirpal, learned counsel for the appellants has broadly made the following submissions in support of the appeal: (a) That the HSBC is merely a disgruntled share holder, but not a creditor in respect of appellant No. 1. The investment of USD 60 Million made by the HSBC ceased to have character of 'investment' and was effectively transferred into capital of the appellant No. 1 consequent upon issue and allotment of shares to the HSBC. Such capital was in fact utilized by appellant No. 1 for purchase of equipments. Since the case of HSBC is that, post investment, there has been misuse or siphoning of the capital of appellant No. 1 company, the HSBC can at highest initiate proceedings under sections 397 and 398 of the Companies Act, 1956 for mismanagement. Further, as a share holder, the HSBC can claim no rights in the assets of the company, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al relief can be enforced in India, then there is obviously no question of the Indian Courts entertaining in plea for grant of interim relief by resort to section 9 of the Act; (e) Even otherwise, on merits the impugned judgment and order is vulnerable, broadly on the following grounds: (i) In matters where serious allegations of fraud have been made, it is imperative that there must be some material and evidence to make good such allegation and mere pleadings are not sufficient. Further, such allegations, even in a civil dispute, must be established beyond reasonable doubt and not merely on basis of preponderance of probability; (ii) On the basis of the allegations of fraud made in the HSBC claim, the HSBC lodged a first information report with the Economic Offences Wings, Mumbai (EOW). The EOW, upon detailed investigation has submitted a report under section 173 of Code of Criminal Procedure (Cr.P.C.) recording a conclusion that no case of fraud has been made out against the appellants. Learned Single Judge, ought to have considered this report and on the said basis ruled that no prima-facie case has been made out by the HSBC for grant of any interim measures; (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty as between the HSBC and the appellants. Accordingly, it was submitted that by applying principle of 'issue estoppel' the appellants are not entitled to even raise the issue of jurisdiction in the proceedings under section 9 of the Act. The provisions of section 9 of the Act clearly entitle a party to an arbitration agreement to seek interim measures before or during arbitral proceedings and therefore, there is no jurisdictional infirmity whatsoever in learned Single Judge entertaining the application under section 9 of the Act; (c) Relying upon several judgments of the Supreme Court, including, in particular, the recent decision in Swiss Timing Limited vs. Organising Committee, Commonwealth Games (Arbitration Petition No. 34 of 2013) decided on 28 May 2014, it was submitted that even under the Indian law, there is no bar to the issue of fraud being arbitrable. The previous decisions of the Supreme Court in N. Radhakrishnan vs. Maestro Engineers and others (2010) 1 SCC 72 and others, which suggest a different view, are clearly distinguishable and in any case have been held to be per incuriam by the Supreme Court itself in Swiss Timing Ltd. (supra). As such, Dr. Tulzap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal, but that is mainly in support of the allegation of fraud and misrepresentation. This is not a case where the HSBC accepts that the contract by which it was induced to make the investment and purchase shares was legal and valid and its grouse concerns only the subsequent acts of mismanagement or otherwise by major shareholders of appellant No. 1. The HSBC questions the very contract, in terms whereof the HSBC has made an investment of USD 60 Millions, as being vitiated on account of there being no free consent due to fraud and misrepresentation. The decision in Hindustan Level Employees Union (supra), does not even remotely deal with a situation of present kind. Accordingly, reliance placed thereupon is clearly misplaced. 16. On the issue of the law governing arbitration agreement being the Indian law, Mr. Kirpal invited our attention to clause 15 of the SSA, which reads thus: 15. Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the Republic of India without regard to applicable conflict of laws principles. The counsel submitted that the law of arbitration agreement, unless specified to the contrary will follow the governi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istence, validity, interpretation, breach or termination shall be referred to and finally resolved by binding arbitration at the SIAC in accordance with the SIAC Rules and that the seat of arbitration shall be at Singapore. 19. Dr. Tulzapurkar, with reference to Clause 16.4, submitted that the parties had clearly agreed that save for section 9 of the Act, Part-I of the Act shall not apply to the terms of this agreement. Thus according to Dr. Tulzapurkar, the parties to the arbitration agreement had clearly specified that the law of arbitration agreement will be the Singapore law, notwithstanding the position that the governing law for the purposes of the agreement is the law of Republic of India. 20. In any case, Dr. Tulzapurkar submitted that the appellants ought to be estopped from even raising such an issue, in the light of jurisdictional awards dated 17 December 2012 and 15 March 2013, which hold in clear terms that the Singapore law and not the Indian law was the governing law for the arbitration agreement and the said jurisdictional awards have attained finality, for want of challenge by the appellants. Dr. Tulzapurkar, invoked the principle of 'issue estoppel' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustries Ltd. (supra) has held that normally the law of arbitration agreement is the same as the substantive law of contract, unless a different intention is either expressed or implied. In light of categorical provisions contained in SSA and SHA, it is clear that the parties have expressly or in any case by implication agreed that the law of arbitration shall be the SIAC Rules, i.e., laws of Singapore. 23. In Bharat Aluminium Co. Ltd. vs. Kaiser Aluminium Technical Services Inc.- 2012(9) SCC 552, the Supreme Court has held that the seat of arbitration would determine the governing law of arbitration agreement. In paragraph 197 of the said decision however, the Supreme Court has held that same will apply with prospective effect. A Division Bench of this Court in Konkola Copper Mines (PLC) vs. Stewarts and Lloyds of India Limited 2013(5) Bom CR 29 upon consideration of the decision in Bharat Aluminium Co. Ltd. (supra) has held that the Supreme Court has merely declared the law as it always stood. In the present case, there is no dispute that the seat of arbitration is at Singapore. 24. In any case, if the entire decision of the Supreme Court in Bharat Aluminium (supra) is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case have specifically retained unto themselves the right to invoke section 9 of the Act in matters of seeking interim measures in Indian Courts. Section 9 of the Act provides that interim measures can be applied for before or during arbitral proceedings or at any time after making of the arbitral award. 28. It is to be noted that even without there having been any emergency or interim awards from the Arbitral Tribunal at Singapore, in light of the provisions contained in clause 16.4 SSA, the HSBC could have invoked the provisions of section 9 of the Act. Merely because, in the present case such emergency or interim awards have been made by the Arbitral Tribunal at Singapore, that would make no difference, particularly when it comes to determination of the jurisdiction of the Indian Courts to grant interim measures by resort to section 9 of the Act. Ultimately, it has to be borne-in-mind that we are dealing with an international commercial arbitration, where perhaps the emergency or interim awards may be enforceable in other parts of the globe, without any further ado, on account of inapplicability of restrictions akin to those contained in sections 46 to 49 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to be conscious of this difference, regard shall have to be had to the nature of allegations, the context in which the same are made and the ultimate relief which is being applied for on basis of such allegations. If the subject matter of dispute has an eminently civil profile, then it may not be proper to conclude that the subject matter of dispute is incapable of settlement by arbitration, merely because fraud or misrepresentation as defined under Section 17 and 18 of the Indian Contract Act, 1872 may have been alleged as one of the grounds for questioning the contract. 31. In the context of provisions of Contract Act 1872, fraud and misrepresentation are some of the well accepted grounds for questioning validity of a contract by the entity, upon whom the same are alleged to have been practised. Section 10 of the Contract Act, 1872 provides that all agreements are contracts, if they are made by free consent of the parties, competent to contract, for lawful consideration, with lawful object which is not expressly declared to be void. Therefore, 'free consent' is one of the essential ingredients for a valid contract under the Contract Act. Section 13 of the Contract A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice, it should be tried in a court of law which would be more competent and have the means to decide such complicated matters involving various questions and issues raised in the dispute. Similarly, in paragraph 26, the Supreme Court after noticing the allegation made, has held that the disputes cannot be 'properly' dealt with by the arbitrator. It does appear therefore, that the Supreme Court was concerned with the issue of 'suitability' rather than 'arbitrability' of the disputes. 34. In any case, the Supreme Court in Swiss Timing Limited (supra), upon analysis of its decision in N. Radhakrishnan (supra) has held that the decision in N. Radhakrishnan (supra) is 'per incuriam' on two grounds: (i) Firstly, the judgment in Hindustan Petroleum Corporation Limited vs. Pink City Midway Petroleums, (2003) 6 SCC 503 though referred has not been distinguished but at the same time is not followed also. The judgment in P. Anand Gajapathi Raju v. P. V.G. Raju (dead), (2000) 4 SCC 539 was not even brought to the notice of this Court. Therefore, the same has neither been followed nor considered; (ii) Secondly, the provision contained in section 16 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to follow the dictum in N. Radhakrishnan (supra) even if we were to agree with Mr. Kirpal that the said decision lays down absolute proposition that issues of fraud are per se non-arbitrable. 39. Again, based upon the italicised portion of paragraph 35 in the decision of Swiss Timing (supra), we are not prepared to accept that some broad proposition with regard to difference in parameters at the stage of reference and at the stage of enforcement has been laid down by the Supreme Court. In fact, such a broad proposition may run counter to the decision of the Supreme Court in SBP Co. v. Patel Engineering Ltd.-(2005) 8 SCC 618 and Chloro Controls India Private Limited v. Severn Trent Water Purification INC ors.- (2013) 1 SCC 641. But however, we choose not to dilate on this issue, as in our opinion, the same really does not arise for our consideration in the facts and circumstances of the present case. 40. The HSBC, in its claim statement before the Arbitral Tribunal at Singapore has alleged 'misrepresentation' and 'breach of warranty' on the part of Avitel India and also sought for indemnification from the 'Jains' in the aforesaid connection. The HS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and misrepresentation. 42. For all the aforesaid reasons and in facts and circumstances of the present case, we are unable to find fault with the decision of the learned Single Judge on the issue of non arbitrability of allegations of fraud and misrepresentation. Accordingly, we see no merit in Mr. Kirpal's submission based upon non-enforceability of any award that may eventually be made by the Arbitral Tribunal at Singapore upholding allegation of fraud and misrepresentation levelled by HSBC against the appellants. 43. Insofar as merits of the impugned judgment and order are concerned, we must remind ourselves that parameters of interference are limited to what have been set out by the Supreme Court in Wander Ltd. (supra). In appeals against the exercise of discretion by the learned Single Judge, as an appellate court, we are not to interfere with the exercise of discretion and substitute our own discretion, unless we are satisfied that discretion is shown to have been exercised arbitrarily, capriciously, perversely or where the Court has ignored the settled principles of law regulating grant or refusal of interim measures. The appeal against the exercise of discretion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminal case, that is, proof beyond reasonable doubt. In Gulabchand vs. Kudilal ors., AIR 1966 SC 1734, the Supreme Court has ruled that the definition of the words 'proved', 'disproved' and 'not proved' given in section 3 of the Evidence Act makes it apparent that it applies the same standard of proof in all civil cases and it makes no difference between cases in which charges of a fraudulent and criminal character are made and the cases in which such charges are not made. This does not mean that the Court will not, whilst striking the balance of probability, keep in mind the presumption of innocence, but it is wrong to insist that such charges must be proved clearly beyond reasonable doubt. 46. Insofar as the EOW report is concerned, the learned Single Judge was quite right in not adverting to the same in light of the provisions contained in section 173 and 190 of Code of Criminal Procedure (Cr.P.C.). There can be no dispute that the EOW report is relatable to section 173(2) of the Cr.P.C. It is settled position in law that when the Magistrate who is dealing with a report submitted by the police under section 173(2) of the Cr.P.C., may either agree w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss and prejudice would occasion the applicant, in case relief of prohibitory injunction is declined. However, when it comes to grant of interim mandatory injunction, the position is slightly different. 49. In Dorab Cawasji Warden (supra), the Supreme Court has ruled that though the Courts have the power to grant interim injunction, such power ought not to be exercised as a matter of course. Interim mandatory injunctions may be granted generally to preserve or restore the status quo of the last non-contested status which preceded the pending controversy until the final hearing when full relief may be granted or to compel the undoing of those acts which have been illegally done or the restoration of that which was wrongfully taken by the party complaining. The general guidelines to be applied in the matter of granting interim mandatory injunction are as follows: (i) the plaintiff has a strong case for trial. That is, it shall be of a higher standard than a prima-facie case, i.e., normally require for a prohibitory injunction; (ii) It is necessary to prevent or serious injury which normally cannot be compensated in terms of money; (iii) The balance of convenience is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e price paid by HSBC and the price, which the HSBC would have received, if it had resold in the market forthwith after the purchase provided, provided of course, there was a fair market for the shares at that stage. In M/s. Torjan Co. (supra), the Supreme Court, when dealing with a situation where a party was fraudulently induced to purchase shares and consequently suffered damages has, observed thus:- 15. Now the rule is well settled that damages due either for breach of contract or for tort or (sic) damages which, so far as money can compensate, will give the injured party reparation for the wrongful act and for all the natural and direct consequences of the wrongful act. Difficulty, however, arises in measuring the amount of this money compensation. A general principle cannot be laid down for measuring it, and every case must to some extent depend upon its own circumstance. It is however, clear that in the absence of any special circumstances the measure of damages cannot be the amount of the loss ultimately sustained by the representee. It can only, be the difference between the price which he paid and the price which he would have received if he had resold them in the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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