Arbitration
Perin Hoshang Davierwalla & Anr. ("Appellants") v. Mr. Kobad Dorabji Davierwalla & Ors ("Respondents")
The main issue which arose for consideration in the present appeal before the Bombay High Court ("BHC") was whether an ad-interim order passed by a court under Section 9 of the Arbitration and Conciliation Act, 1996 ("Act") would be appealable under Section 37 of the Act.
Certain important and recent case laws in this area are set out below.
Arbitration
Perin Hoshang Davierwalla & Anr. ("Appellants") v. Mr. Kobad Dorabji Davierwalla & Ors ("Respondents")
The main issue which arose for consideration in the present appeal before the Bombay High Court ("BHC") was whether an ad-interim order passed by a court under Section 9 of the Arbitration and Conciliation Act, 1996 ("Act") would be appealable under Section 37 of the Act.
The Appellants and Respondents were partners in a partnership firm which carried on the business of running of a boarding and lodging house known as IL Palazzo Hotel. The two Appellants were the widow of two partners and Respondents were the sons of the third partner. Appellants alleged that the Respondent was attempting to utilise the partnership assets for his personal benefit at the cost of the partnership business. The firm was dissolved vide dissolution notice and the Appellants invoked the arbitration clause forming part of the Deed of Partnership and suggested appointment of a sole arbitrator.
The Appellants, thereafter, filed an application under Section 9 of the Act before the District Court at Satara thereby claiming and praying for the following reliefs to be granted in their favour:
- Restrain the Respondents from creating any third party rights in the business or assets of the partnership firm;
- Restrain the Respondents from withdrawing any amount from the partnership account except under joint signatures of the Appellants during the pendency of the application;
- Appoint a Court receiver to manage the business of the partnership firm during the pendency of the application.
The District Judge, Satara vide order dated April 6, 2013, granted ad-interim injunction allowing the first two ad interim reliefs against the Respondents, but rejected the ad-interim application for appointment of Court Receiver for managing the business of the partnership firm. Aggrieved by the said order the Appellants filed this appeal before the BHC.
The Respondents raised the preliminary objections as to maintainability of the appeal on the ground that that the order was passed by the District Judge in the exercise of its powers under Order 39 Rule 1 of the Code of Civil Procedure, 1908 ("CPC") and not under Section 9 of the Act and therefore such an order is not appealable under Section 37 of the Act.
Respondent further averred that an ad-interim order under Section 9 of the Act was not appealable as only a final order under Section 9 of the Act is appealable under Section 37 of the Act.
Dismissing the objections raised by the Respondents, the BHC held that while entertaining an application under Section 9 of the Act, a court has the same powers to pass an order as it would have while passing an order under Order 39 Rule 1 of the CPC. The BHC relied on the judgment passed by the Supreme Court in the case of Arvind Constructions Pvt. Ltd. v. Kalinga Mining Corporation[1] to provide the rationale for the same stating that when a power is conferred on a court by way of a special statute then the general rules of procedure of that court would apply. In light of this, it was further held that grant or refusal of an interim measure of protection by way of an ad-interim order under Section 9 of the Act is an appealable order under Section 37 of the Act.
Swiss Timing Limited v. Organising Committee, Commonwealth Games 2010, Delhi
The Hon'ble Supreme Court of India ("Supreme Court"), setting a pro-arbitration tone to the issue of arbitrability of allegations of fraud, in the case of Swiss Timing Limited ("Petitioner") v. Organising Committee, Commonwealth Games 2010, Delhi ("Respondent") held that the allegations of fraud can be determined by the arbitral tribunal in an arbitration where an arbitration agreement exists between the parties. Vide the present judgment, the Supreme Court has held the much criticised decision of the Supreme Court in N. Radhakrishnan v Maestro Engineers ("N. Radhakrishnan Case") as per incuriam, wherein it had been held that a dispute involving serious allegations of fraud should normally not be referred to arbitration and should be decided by the courts even if there is a valid arbitration clause.
In the present case, the Petitioner entered into an agreement dated 11th March, 2010 ("Contract") with the Respondent for providing timing, score and result systems as well as supporting services required to conduct the Commonwealth Games. After the conclusion of the games, Respondent refused to make the final payment of about CHF (Swiss Franc) 1.3 million which was due to the Petitioner under the Contract. Consequently, disputes arose between the parties with respect to the payment of the dues and the Petitioner invoked the arbitration clause by serving a notice invoking arbitration and nominating their arbitrator in terms of Article 38 of the Contract.
Since the Respondent failed to nominate their arbitrator, the Petitioner filed an Arbitration petition under Section 11 of the Act, thereby seeking the court to appoint the arbitral tribunal for adjudicating the disputes which had arisen between the parties.
The Respondent raised two preliminary objections to the Arbitration Application filed by the Petitioner. Firstly, it contended that Petitioner had not followed the dispute resolution mechanism as set out in the Contract, which required all disputes to be resolved amicably in the first instance, failing which dispute was to be resolved by the Chairman of the Respondent within five days of such reference and that the parties could invoke arbitration only if the Chairman failed to resolve the dispute within five days. Secondly, the Respondent contended that the Contract stood vitiated on grounds of being void-ab-initio as the Petitioners had engaged in corrupt practices and had obtained the Contract by fraud.
Highlighting the fact that the courts should adopt a least interference policy in view of the general principle laid under Section 5 of the Act, the Supreme Court held that all matters including the issue as to whether the main contract was void /voidable can be referred to arbitration. The Supreme Court, after taking into account all the facts of this case, allowed the petition and held the judgment passed in the case of N. Radhakrishnan Case does not lay down the correct law and cannot be relied upon.
The Supreme Court held that the judgment passed in N. Radhakrishnan Case is per incuriam on two grounds. Firstly, the judgment passed by the Supreme Court in Hindustan Petroleum Corp v. Pink City Midway Petroleum[2] Ltd. and P. Anand Gajapathi Raju & Ors. V. P.V.G. Raju (Dead) & Ors.[3] (wherein it was held that the civil courts are obligated to refer the disputes to arbitration in cases where there exists an arbitration agreement between such parties) were not considered by the Supreme Court and secondly, the provision contained under Section 16[4] of the Arbitration Act were also not brought to the notice of this Court.
Providing clarity on how objections regarding invalidity of the contract as a bar to the matter being referred to arbitration have to be dealt with, the Supreme Court observed that;
"...Undoubtedly, in cases, where the Court can come to a conclusion that the contract is void without receiving any evidence, it would be justified in declining reference to arbitration but such cases would be few and isolated. These would be cases where the Court can readily conclude that the contract is void upon a meaningful reading of the contract document itself.
However, it would not be possible to shut out arbitration even in cases where the defence taken is that the contract is voidable. These would be cases which are covered under the circumstances narrated in Section 12 - unsoundness of mind; Section 14 - absence of free consent, i.e. where the consent is said to be vitiated as it was obtained by Coercion (Section 15), Undue Influence (Section 16), Fraud (Section 17) or Misrepresentation (Section 18). Such a contract will only become void when the party claiming lack of free consent is able to prove the same and thus rendering contract void. This indeed is the provision contained in Section 2(j) of the Indian Contract Act. In exercising powers under Section 11(6) of the Arbitration Act, the Court has to keep in view the provisions contained in Section 8 of the Arbitration Act, which provides that a reference to arbitration shall be made if a party applies not later than when submitting his first statement on the substance of the dispute..."
As the judgment has been passed by a single judge of the Supreme Court, Swiss Timing Case only critiques and distinguishes as per incuriam the Radhakrishnan Case but does not overrule the same.
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