Delhi High Court
Bentwood Seating System P Ltd vs Airport Authority Of India & Anr. on 11 March, 2025
Author: Subramonium Prasad
Bench: Subramonium Prasad
IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 11th MARCH, 2025
IN THE MATTER OF:
+ ARB. A. (COMM.) 55/2023 & I.A. 25113/2023, I.A. 25114/2023,
I.A. 3993/2024
BENTWOOD SEATING SYSTEM (P) LTD. .....Appellant
Through: Mr. S.D. Singh, Mr. Kamla Prasad,
Mrs. Meenu Singh, Mr. Siddharth
Singh, Advocates.
versus
AIRPORT AUTHORITY OF INDIA & ANR .....Respondents
Through: Mr. Digvijay Rai, Mrs. Chetna Rai,
Mr. Archit Mishra & Mr. Raghib Ali
Khan, Advocates with Mr. Gagan
Kochar, Sr. Manager (Law), AAI.
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD
JUDGMENT
1. The present Appeal has been filed under Section 37(2)(a) of the
Arbitration and Conciliation Act, 1996 (hereinafter ‘Act of 1996’) read with
Section 13 of the Commercial Court Act by the Appellant against the Orders
dated 14.08.2023 and 16.08.2023 passed by the Ld Arbitral Tribunal while
adjudicating the disputes which have arisen between the parties i.e. the
Appellant and the Respondents-herein under a Tender No.Tech 06/2017
(Tender ID 2017_AAI_150_1), dated 02.11.2017 for ‘Supply and
Comprehensive Annual Maintenance Contract (CAMC of 4000 Nos.
passengers baggage trolleys) Stainless Style type for various airports’
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wherein the Ld. Arbitral Tribunal has held that the dispute is not arbitrable
on the ground of fraud played by the Appellant.
2. Shorn of unnecessary details, the facts in brief, leading to the filing of
the instant appeal are as under:-
i. It is stated that the Respondents had invited bids for ‘Supply and
Comprehensive Annual Maintenance Contract (CAMC of 4000
Nos. Passengers Baggage Trolleys (“PBTs”)) Stainless Style type
for various airports’. The relevant Clauses of the Tender dated
02.11.2017, which are necessary for adjudication of instant
appeal, are as under:
“(a) Clauses from Section A of the Tender Document:
1.2 Eligibility conditions for participating in the
Tender:
1.2.3-Experience (For Original Item Manufacturers);
The firm should have successfully completed similar
works which should include supply of at least 400 nos
passenger baggage trolleys during last 7 years ending
31st March 2017 and should be either of the following:
a) three completed works costing not less than the
value of Rs.2.17 crore eachOr
b) two completed works costing not less than the value
of 2.71 crore eachOr
c) one completed work costing not less than the value
of 4.34 crore.
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d) Multiple completed works costing not less than the
value of Rs.5.42 crore in aggregate.
1.2.4-Satisfactory Performance Certificate: The Firm
should submit satisfactory performance certificate
from two end users for the works carried out w.e.f.
01.04.2010 to 31.03.2017 out of which at least one
work should be from an airport for supply of
passenger baggage trolleys.
***
“Clause 1.2.6 (For Indian Associate -Applicable in
case of a foreign bidder): (i) The Indian Associate (IA)
should be authorized by Original Item Manufacturer
(OIM). The Indian Associate should be in the business
of manufacturing/fabricating of Stainless Steel
goods/products/material carrying/trolleys mounted
equipment/passenger baggage trolleys/maintenance of
equipment/machineries for a minimum period of last 3
years (as on 31st March, 2017).
(ii) The Original Item Manufacturer should meet the
eligibility requirements i.e. Profile, Resources,
Experience and Satisfactory Performance Certificate
of Clause 1.2.1, 1.2.2, 1.2.3 and 1.2.4 above;
(iii) Indian Associate (IA) of OIM should have current
authorization from OIM firm authorizing it as its
authorized Indian Agent for the tender, shall be
submitted;
(iv) Indian Associate (IA) shall submit an undertaking
stating that its firm or its Partners or its Directors
have not been blacklisted or any case is pending or any
complaint regarding irregularities is pending in India
or abroad, by any global international body like World
Bank/International Monetary Fund/World Health
Organization etc. or any Indian State/Central
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Government Department or Public Sector undertaking
of India.
(v) Only one Indian Associate (IA) shall be authorized
by OIM firm for the offered product in the tender.
(b) Clauses from Section B:
Clause 2.25.6: Prototype of Passenger Baggage
Trolley (PBT) should be produced for inspection within
15 days from the date of placement of Purchase Order.
***
Clause 2.3: the contractor is to deliver the
stores/materials as per the T&Cs mentioned in this
tender document and purchase order. If the contractor
fails to complete the supply as per the delivery
schedule given in this tender document, the purchaser
has the right to cancel the order or get the
supplies/material from an alternative source at the risk
and cost of the contractor. However, in exceptional
cases, the purchaser may agree to inspect the stores
even beyond the agreed schedule subject to levy of LD
at the rates mentioned in delivery schedule.”
(emphasis supplied)
ii. It is stated that the Appellant had submitted its bid claiming itself
to be the Indian Associate of the Foreign Original Item
Manufacturer i.e. Suzhou Jinta Metal Working Co. Ltd, Cheluba
Industry Zone, Shanghu Town, Changshu City, Jiangsu Province,
China (“SJM”). It is stated that the Appellant who claimed itself to
be the Indian Associate of the Foreign Original Item Manufacturer
was permitted to bid as being eligible under Clause 1.2.6. In
compliance to Clause 1.2.4, the Appellant submitted the
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Satisfactory Performance Certificate (“SPCs”) as having been
issued by Heathrow Airport, United Kingdom and Noi-Bai
International Airport, Vietnam to SJM. It is stated that the said
SPCs had been purportedly issued by the two Airports to SJM.
The Appellant had also furnished a purported authorisation letter
dated 04.05.2017. It is stated that the said letter was issued to the
Appellant by SJM and stated that the Appellant was an authorized
distributor of SJM from 04.05.2017 to 03.05.2017. Apart from
producing the SPCs, the Appellant had submitted different rates
for basic price, excise duty, VAT/Sales Tax, average inland basis
freight and average basic insurance, inland etc. On 30.06.2017, the
Respondents issued its Letter of Intent to the Appellant for supply
of 4000 PBTs and placed the Purchase Order dated 13.07.2017.
iii. Needless to state the Purchase Order contains an Arbitration
Clause being Clause 14 which is not being reproduced as no
dispute arises on the applicability of arbitration between the
parties. It is stated that consequent to the Letter of Intent, an
Agreement has been entered into between the Appellant and the
Respondents on 20.08.2017. The Bank Guarantees for a sum of
Rs.17,30,124.31 as required under the Agreement was furnished
by the Appellant.
iv. Material on record indicates that a complaint was received by the
Airport Authority of India from one M/s GILCO Exports India on
31.10.2017 stating that the Tender has been procured by the
Appellant by producing forged and fabricated documents. The
complaint specifically stated that the Heathrow Airport has not
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issued any SPC to SJM. Material on record further indicates that
certain other issues had also cropped up between the Appellant
and the Respondents regarding delay in delivery of the PBTs to
various airports which are not relevant for the controversy in
dispute in the instant Appeal.
v. It is pertinent to mention that the disputes regarding delay and the
satisfactory working of the PBTs escalated, resulting in issuance
of a Show Cause Notice issued by the Airport Authority of India
as to why the Appellant should not be blacklisted. It is stated that
a Blacklisting Order was passed on 20.02.2018 and the Contract
was terminated. It is also pertinent to mention that though the
Respondents has started investigating on the issue as to whether
the Appellant had given valid SPCs and whether the SPCs
submitted by the Appellant purported to have been supplied to
SJM of which the Appellant claimed to be the Indian Associate. It
is stated that the blacklisting and the disputes that initially arose
were not on these grounds.
vi. It is stated that the Appellant herein had filed a petition under
Section 9 of the Act of 1996 being OMP (I) COMM No.102/2018
apprehending encashment of the bank guarantee on account of the
Blacklisting Order. This Court vide Order dated 06.03.2018
granted interim relief with respect to the blacklisting of the
Appellant by the Respondents and the consequential encashment
of the bank guarantee.
vii. In the interregnum, the Respondents received an e-mail from the
Heathrow Airport on 28.03.2018 stating that it did not recognise
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the SJM, any product supplied by the SJM or any person named in
“Segun Jones” who was named as the contact person at the
Heathrow Airport in the SPC purchased by the Appellant to the
Airport Authority of India for complying with the conditions of
SPC as required by Clause 1.2.6 of the tender condition.
viii. It is stated that the Arbitration was invoked by the Appellant in
terms of Clause 2.3.1 of the General Information and Guidelines
under the tender conditions and Clause 14 of the Terms and
Conditions enclosed with the Purchase Order dated 13.07.2017.
ix. It is also pertinent to mention that the Airport Authority of India
was continuing with the investigation regarding the validity of the
SPC purchased by the Appellant. In pursuance to the said
investigation, the Respondents also requested the Consulate
General of India at Birmingham to find out the authentication and
credentials from SJM the purported original foreign manufacturer
of the PBTs of which the Appellant purported to be the Indian
Associate.
x. It is stated that on receiving the contact details of the original
foreign manufacturer i.e. SJM the Respondents contacted SJM to
verify as to whether the Appellant was in fact the Indian Associate
of SJM as claimed by it or not. Vide an e-mail dated 29.06.2018,
SJM told the Respondents to the queries raised by the
Respondents by stating as under;-
Dear Sirs,
This is Susan from JINTA factory. We are leading
manufacturer in China for more than 15 years.
Ambassador Mr. Yuan called me to investigate our
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company due to a program in last year. I followed the
program, however we cannot accept your target price
so you didn’t place order to us. I am confused about
the investigation now. Pls kindly explain what’s going
on here so that I can cooperate better. Many thanks!
(emphasis supplied)
xi. It is stated that the Consulate General of India at Shanghai has
also sent an e-mail to the Respondents, which reads as under;-
“Dear Mr. Paul Manickam,
The company M/s. Suzhou Jinta Metal Working
Company limited has sent an email that there was a
difference in target price between what was quoted by
their company and what Air India had agreed and
hence the proposal was not followed further and the
business was discontinued. The same email was
marked a copy to you also.
If you want to us to proceed further we can continue to
check their credentials.
Regards
Aparna Ganesan
Consul (Comm)
Consulate General of India
Shanghai.”
3. The arbitration proceedings commenced and the Appellant filed a
petition under Section 11(6) being Arbitration Petition No.490/2018 for
appointment of an Arbitrator. The matter was referred to the Delhi
International Arbitration Centre (DIAC). It is stated that a Sole Arbitrator
was appointed. Before the Ld. Sole Arbitrator, the allegations of fraud were
pointed out. However, the Ld. Sole Arbitrator vide Award dated 13.03.2019
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had set aside the Termination Order dated 20.02.2018 by which the
Appellant was blacklisted and the Contract was terminated. It is stated that
the said Order was challenged by the Respondents by filing a petition under
Section 34 of the Arbitration and Conciliation Act, 1996 being OMP
(COMM) No.262/2019.
4. Pending the challenge under Section 34 of the Act of 1996, an e-mail
dated 04.09.2020 was received by the Embassy of India, Vietnam from the
Noi-Bai International Airport, Vietnam. The e-mail sent from Noi Bai
International Airport (NIA) to Embassy of India reads as under:-
“To Embassy of India,
Warm Greeting from Noi Bai International Airport
(NIA)Regarding the Document No NV/478/CO.M/2020
dated 31/8/2020 of the Embassy asking NIA to check
the genuineness of “Satisfactory Performance
Certificate”, NIA would like to respond as follows:
NIA has checked thoroughly and confirm that the
“Satisfactory Performance Certificate” dated 3 May
2017 had not been issued by NIA; The stamp on the
Document is not the official stamp of NIA; The Person
named “Mr. Nguyen Phuc Ninh” mentioned in the
Document is not belong to NIA,Therefore the “Satisfactory Performance Certificate” is
not genuine. NIA will take no responsibility of the fake
Document.
Thanks & Regards
For and on behalf of NIA
Administration Office
Executive Official
Phan Thi Nim Ha”
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The Embassy of India forwarded the said e-mail to the Airport Authority of
India which reads as under:-
“Dear Sir,
This has reference to your email of 26 August 2020
addressed to CG, Ho Chi Minh City.
Please find below trailing mail received from Noi Bai
International Airport (NIA) in Hanoi mentioning that
the name of the person, stamp and Certificate do not
belong to Noi Bai International Airport, Hanoi,
Vietnam. Therefore, the ‘Satisfactory Performance
Certificate” is not genui.e You may like to take further
necessary action in this regard.
With regards,
(Aman Bansal)
Second Secretary (Eco & Com)
Embassy of India,
Hanoi, Vietnam”
5. Information was also received from the Ministry of External Affairs
that they had reached out to SJM and that they were verbally informed that
some kind of authorization letter has been issued by the SJM to the
Appellant. However, the SJM refused to come for any meeting with the
officials of Indian Consulate to corroborate the same.
6. In view of the information received, the Respondents filed a Criminal
Complaint dated 26.10.2021 to the SHO, P.S. Lodhi Colony, against the
Directors of the Appellant, informing the police authorities about the act of
forgery of documents by the Appellant. However, no further information
was received from P.S. Lodhi Colony pursuant to the Respondents’
complaint.
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7. This Court in OMP (COMM) No.262/2019 set aside the Award dated
13.03.2019 vide Order dated 27.05.2021 primarily on the ground that the Ld.
Sole Arbitrator, despite noting the plea of fraud taken by the Airport
Authority of India had not adjudicated on the dispute. The Coordinate Bench
of this Court was of the opinion that the plea of fraud would have a vital
bearing on the final Award and since the said aspect had not been
adjudicated upon by the Arbitrator, the Award cannot be sustained. The
Order dated 27.05.2021 was challenged by the Appellant herein before the
Division Bench of this Court by filing an appeal being FAO (OS) (COMM)
No.97/2021. The Division Bench vide Order dated 11.08.2021 upheld the
Order of the learned Single Judge by observing as under:-
“14. We have considered the submissions made by the
learned counsel for the appellant, however, find no
merit in the same. From a reading of paragraphs 24
and 24 of the Award, it is clear that the learned
Arbitrator apart from giving a declaration that he has
considered the submissions advanced by the
respondent, has not given any finding as far as the plea
of the fraud urged by the respondent is concerned. In
fact, a perusal of the A ward would show that all other
contentions of the respondent have been elaborately
dealt with by the learned Arbitrator. It is apparent that
the plea of fraud urged by the respondent has escaped
the attention of the learned Arbitrator altogether. This
submission has a vital bearing on the prayer of grant
of specific performance of the Purchase Order made by
the appellant before the Arbitrator and granted by the
Arbitrator in the Arbitral Award.
***
17. We are in agreement with the observations made by
the learned Single Judge. The plea of grant of specific
performance of the contract was dependent on the
outcome of the defence raised by the respondent that
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the Purchase Order/contract itself was vitiated by
fraud. This defence has clearly not been adjudicated
upon by the learned Arbitrator. It is not the case of
merely not recording reasons for his finding, but one
where there is no finding by the learned Arbitrator on
this issue. It cannot also be termed as a deficiency in
the Arbitral Award which may be curable by allowing
the Arbitral Tribunal to take measures which can
eliminate the ground for setting aside the Arbitral
Award, which was stipulated as one of the conditions
for exercise of power under Section 34(4) of the Act in
Kinnari Mullick (supra). A finding on this issue may in
fact, bring about a total change in the Award.”
8. Being aggrieved by the judgment dated 11.08.2021 passed by the
Division Bench, the Appellant had preferred a Special Leave Petition
bearing SLP (C) 12657/2021 before the Apex Court, which came to be
dismissed vide order dated 26.08.2021. On the other hand, the Respondents,
being aggrieved by the order dated 27.05.2021 also preferred an appeal
bearing FAO (OS) (COMM) No. 123 of 2021 before a Division Bench of
this Court, which was disposed of vide order dated 28.09.2022 by way of
which Justice Rajiv Sahai Endlaw, a former Judge of this Court was
appointed as the Sole Arbitrator to adjudicate the disputes between the
parties afresh.
9. It is stated that fresh arbitration proceedings commenced between the
parties and the Ld. Sole Arbitrator vide proceedings dated 28.03.2023
framed the following issues:-
“A. Whether on the basis of pleadings and documents
on record, the disputes between the parties are non-
arbitrable? OPRB. Whether the plea of non-arbitrability of the disputes
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cannot be adjudicated without recording evidence?
OPPr.
C. Whether the principles of res judicata, on the basis
of the judgment dated 27.05.2021 in OMP (COMM)
No. 262 of 2019 and the order dated 11.08.2021 in
FAO (OS) (COMM) No. 97 of 2021 of the High Court
of Delhi and order dated 26.08.2021 of the Supreme
Court, apply, and if so to what extent? OPCID. Whether the claimant procured the
contract/purchase order from the claimant, by playing
fraud on the respondents and if so to what effect? OPR.
E. Whether the respondents were entitled to terminate
the contract and if so to what effect? OPPr.
F. Whether the respondents were estopped from
terminating the contract and/or whether the
respondents had waived the right to terminate the
agreement and if so to what effect? OPCI.
G. If Issues no. E and F are decided in favour of the
claimant, to what amount has the claimant is entitled
from the respondents? OPCI.
H. Whether the respondents have suffered any loss or
damage owing to the actions of the claimant and was
entitled to invoke the Bank Guarantees? OPR.
I. If any monies are found due from either party to the
other, whether such party is also entitled to interest
thereon and if so at what rate and for what period?
OPPr.
J. Relief. ”
10. Issues No. A, B & C were dealt as preliminary issues as the Arbitrator
wanted to first consider as to whether disputes which have arisen in the
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arbitration were arbitrable at all or not before permitting the parties to lead
evidence. The Ld. Sole Arbitrator by way of the Impugned Award held that
the Appellant had played a fraud on the Respondents in getting the Tender
and the extent of fraud is such, that it would be difficult for the Ld. Sole
Arbitrator, which is not a Court, to summon witnesses from various
governmental authorities and foreign companies. The Arbitrator held that
the fraud in the present case cannot be confined to the internal
matters/affairs of the parties herein. The allegations of fraud of the
documents which pertains to fabrication of documents of foreign companies
and governmental authorities cannot be adjudicated upon or examined by
the Arbitral Tribunal which does not have the wherewithal of a Court. The
Ld. Sole Arbitrator placed reliance on the judgments passed by the Apex
Court in Vidya Drolia and Others v. Durga Trading Corporation, (2021) 2
SCC 1, Avitel Post Studioz Limited and Others v. HSBC PI Holdings
(Mauritius) Limited, (2021) 4 SCC 713 and A. Ayyasamy v. A.
Paramasivam & Ors., (2016) 10 SCC 386.
11. Since the Ld. Sole Arbitrator had held that the dispute is not arbitrable
and the Impugned Award therefore falls within the realm of Section 16 of
the Act of 1996, the Appellant has now approached this Court by filing the
instant appeal under Section 37(2)(a) of the Act of 1996 for setting aside the
Impugned Award and also referring the parties to another Arbitrator.
12. Learned Counsel for the Appellant submits as under:-
a) That the Ld. Sole Arbitrator has exceeded the jurisdiction as
conferred u/s 16 of the Act of 1996, when the Respondent had not
even filed an application under the provision and only filed its
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submitted that the Section 16(2) requires the plea of non-
arbitrability to be raised before filing of the Statement of Defence
and thus no occasion arose for the Ld. Sole Arbitrator to exercise
its jurisdiction under Section 16 of the Act of 1996.
b) That the biasness of the Ld. Sole Arbitrator was apparent insofar
as on one hand it was held that the disputes inter se the parties
were non-arbitrable and on the other hand, an observation on the
issue of res judicata was made. It was submitted that when the Ld.
Sole Arbitrator had already found that the disputes were not
arbitrable, then he was denuded from any authority and
jurisdiction to record findings on the issue of res judicata or any
other points. It was further submitted that the Ld. Sole Arbitrator
conducted a mini-trial.
c) That the Ld. Sole Arbitrator took a cursory view by observing that
the plea of fraud would be complex and complicated as witnesses
from various governmental authorities and foreign companies
would have to be examined and assistance of the Ministry of
External Affairs would have to be sought.
d) That the Ld. Sole Arbitrator went beyond the pleadings of the
Respondent, as the Respondent never pleaded that it would be
cumbersome for them to obtain cooperation from the Ministry of
External Affairs.
e) That the Ld. Sole Arbitrator failed to appreciate that the
contentions of arbitrability of the disputes cannot be considered by
the arbitral tribunal, when the same has been constituted by the
Hon’ble High Court while exercising its power under Section
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11(6) of the Act of 1996.
f) That the Ld. Sole Arbitrator is not justified in denying the return
of fees to the Appellant as the Ld. Sole Arbitrator was not entitled
to be paid the entire fees as only findings on the arbitrability had
been rendered. It is submitted that according to thr DIAC Rules,
Ld. Sole Arbitrator was only entitled to get 20% of the fees and
the excess amount had to be refunded to the Appellant.
g) That this Court may be pleased to allow the present Appeal and
substitute the arbitrator for adjudication of disputes between the
parties in accordance with law including the plea of fraud raised
by the Respondents.
13. Per contra, learned Counsel for the Respondents submitted as under:-
a) That the Respondents had taken a categorical plea qua the fraud
played by the Appellant in submitting forged and fabricated
documents to qualify the condition laid down under Clause 1.2.4
of the Tender Document. It was further submitted that the fraud
became abundantly clear when the Heathrow Airport, UK and
Noi-Bai International Airport at Vietnam had communicated that
no such documents were ever issued.
b) That the ld. Sole Arbitrator took note of the email dated
23.03.2018 received from Heathrow Airport, email dated
03.07.2018 received from Consulate General of India at Shanghai,
email dated 29.06.2018 from SJM, email dated 26.06.2018 from
Consulate General of India at Shanghai and rightly concluded that
the said correspondences are sufficient to satisfy that the plea ofSignature Not Verified
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the Respondents of the fraud committed by the Appellant was a
serious one.
c) That the Ld. Sole Arbitrator applied the settled principle of law,
i.e., “fraud vitiates all solemn act,” which is applicable not only to
the primary proceedings but also to all collateral proceedings that
arise out of the same facts and circumstances.
d) That the Ld. Sole Arbitrator had rightly held that the plea of res
judicata would not come in the way of the Respondents to plead
that the Respondent had committed fraud.
e) That the Ld. Sole Arbitrator had rightly noted the Appellant’s
failure to deal or controvert the material pleadings of the
Respondents regarding the purported eligibility it gained as an
associate of SJM as well as the genuineness of the SPCs. It is
submitted that the Ld. Sole Arbitrator even posed such query to
the Appellant, however the Appellant has failed to controvert to
the same.
f) That while taking cognizance of the relevant conditions of the
Tender Documents, the Ld. Sole Arbitrator had rightly arrived at
the conclusion that the Respondents had entered into the contract
with the Appellant solely on the basis of the representations made
by the Appellant. It was submitted that the said fact remained
unchallenged during the entire arbitration proceedings. It was
accordingly further submitted that the Ld. Sole Arbitrator had
correctly held that the plea of the Respondents of the fraud
practiced by the Appellant to procure the contract was a serious
one which permeates the entire contract.
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g) That the Ld. Sole Arbitrator took a plausible and correct view that
the allegations of fraud in the present case could not be said to be
confined to the internal matters/affairs of the parties and such
allegations, if proved, nullify the contract itself.
h) That the findings of the Ld. Sole Arbitrator do not suffer from
illegality which would warrant interference by this Hon’ble Court.
14. Heard learned Counsel for the parties and perused the material on
record.
15. The issue that arises for consideration in the instant Appeal is as to
whether the Ld. Sole Arbitrator ought to have permitted the parties to lead
evidence and adjudicate the issue of fraud, or is the decision taken by the
Ld. Sole Arbitrator that the issue which arises for consideration in this case
is non-arbitrable, looking at the nature of fraud that has been played by the
Appellant herein, valid.
16. Section 17 of the Indian Contract Act, 1872 defines “Fraud”, which
reads as under:-
“17. “Fraud” defined.–“Fraud” means and includes
any of the following acts committed by a party to a
contract, or with his connivance, or by his agent, with
intent to deceive another party thereto of his agent, or
to induce him to enter into the contract:–
(1) the suggestion, as a fact, of that which is not true,
by one who does not believe it to be true;
(2) the active concealment of a fact by one having
knowledge or belief of the fact;
(3) a promise made without any intention of
performing it;
(4) any other act fitted to deceive;
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(5) any such act or omission as the law specially
declares to be fraudulent.
Explanation.–Mere silence as to facts likely to affect
the willingness of a person to enter into a contract is
not fraud, unless the circumstances of the case are such
that, regard being had to them, it is the duty of the
person keeping silence to speak, or unless his silence
is, in itself, equivalent to speech.
(a) A sells, by auction, to B, a horse which A knows to
be unsound. A says nothing to B about the horse‟s
unsoundness. This is not fraud in A.
(b) B is A‟s daughter and has just come of age. Here,
the relation between the parties would make it A‟s duty
to tell B if the horse is unsound.
(c) B says to A–“If you do not deny it, I shall assume
that the horse is sound.” A says nothing. Here, A‟s
silence is equivalent to speech.
(d) A and B, being traders, enter upon a contract. A
has private information of a change in prices which
would affect B‟ willingness to proceed with the
contract. A is not bound to inform B.”
17. The allegation against the Appellant is that the Appellant has
submitted the two SPCs to depict that the end users of the PBTs
manufactured by the Foreign Original Manufacturer namely SJM were
Heathrow Airport, United Kingdom and Noi-Bai International Airport,
Vietnam. It is also stated that the Appellant has submitted an Authorisation
Letter purportedly given by SJM to represent the itself as the Indian
Associate of the Foreign Original Manufacturer to make it eligible to
participate in the Tender. It is the creation of the two SPCs and the
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Authorisation Letter which is to be examined as to whether they are a
product of forgery or are the originals. These documents are therefore the
heart of the matter and if these documents are proved to be forged/fabricated
then the Appellant has committed a fraud on the Respondents as defined
under Section 17 of the Indian Contract Act, 1872. The Civil and Criminal
Courts have to adjudicate the issue. Undoubtedly, both the proceedings can
go on simultaneously and one is not necessarily dependent on the other. But
in both the civil and criminal proceedings, these documents will have to be
tested. It is in this light, this Court has to consider as to whether the finding
of the Ld. Sole Arbitrator holding the disputes as non-arbitrable warrant
interference or not.
18. The parameters which have to be kept in mind while deciding as to
whether allegations regarding fraud are arbitrable or not is now well
established. The Apex Court in A. Ayyasamy v. A. Paramasivam & Ors
(2016) 10 SCC 386, has observed as under:-
“12. In this behalf, we have to begin our discussion
with the pertinent observation that insofar as the
Arbitration and Conciliation Act, 1996 is concerned, it
does not make any specific provision excluding any
category of disputes terming them to be non-
arbitrable:
12.1. A number of pronouncements have been rendered
laying down the scope of judicial intervention, in cases
where there is an arbitration clause, with clear and
unambiguous message that in such an event judicial
intervention would be very limited and minimal.
However, the Act contains provisions for challenging
the arbitral awards. These provisions are Section 34
and Section 48 of the Act. Section 34(2)(b) and Section
48(2) of the Act, inter alia, provide that an arbitral
award may be set aside if the Court finds that the
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“subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force”. Even when such a provision is
interpreted, what is to be shown is that there is a law
which makes subject-matter of a dispute incapable of
settlement by arbitration. The aforesaid position in law
has been culled out from the combined readings of
Sections 5, 16 and 34 of the Act.
12.2. When arbitration proceedings are triggered by
one of the parties because of the existence of an
arbitration agreement between them, Section 5 of the
Act, by a non obstante clause, provides a clear
message that there should not be any judicial
intervention at that stage scuttling the arbitration
proceedings. Even if the other party has objection to
initiation of such arbitration proceedings on the
ground that there is no arbitration agreement or
validity of the arbitration clause or the competence of
the Arbitral Tribunal is challenged, Section 16, in clear
terms, stipulates that such objections are to be raised
before the Arbitral Tribunal itself which is to decide, in
the first instance, whether there is any substance in
questioning the validity of the arbitration proceedings
on any of the aforesaid grounds. It follows that the
party is not allowed to rush to the court for an
adjudication. Even after the Arbitral Tribunal rules on
its jurisdiction and decides that arbitration clause is
valid or the Arbitral Tribunal is legally constituted, the
aggrieved party has to wait till the final award is
pronounced and only at that stage the aggrieved party
is allowed to raise such objection before the court in
proceedings under Section 34 of the Act while
challenging the arbitral award.
12.3. The aforesaid scheme of the Act is succinctly
brought out in the following discussion by this Court in
Kvaerner Cementation India Ltd. v. Bajranglal
Agarwal [Kvaerner Cementation India Ltd. v.
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Bajranglal Agarwal, (2012) 5 SCC 214] : (SCC p. 214,
paras 3-5)
“3. There cannot be any dispute that in the absence
of any arbitration clause in the agreement, no
dispute could be referred for arbitration to an
Arbitral Tribunal. But, bearing in mind the very
object with which the Arbitration and Conciliation
Act, 1996 has been enacted and the provisions
thereof contained in Section 16 conferring the power
on the Arbitral Tribunal to rule on its own
jurisdiction, including ruling on any objection with
respect to existence or validity of the arbitration
agreement, we have no doubt in our mind that the
civil court cannot have jurisdiction to go into that
question.
4. A bare reading of Section 16 makes it explicitly
clear that the Arbitral Tribunal has the power to rule
on its own jurisdiction even when any objection with
respect to existence or validity of the arbitration
agreement is raised, and a conjoint reading of sub-
sections (2), (4) and (6) of Section 16 would make it
clear that such a decision would be amenable to be
assailed within the ambit of Section 34 of the Act.
5. In this view of the matter, we see no infirmity in
the impugned order so as to be interfered with by
this Court. The petitioner, who is a party to the
arbitral proceedings may raise the question of
jurisdiction of the arbitrator as well as the objection
on the ground of non-existence of any arbitration
agreement in the so-called dispute in question, and
on such an objection being raised, the arbitrator
would do well in disposing of the same as a
preliminary issue so that it may not be necessary to
go into the entire gamut of arbitration proceedings.”
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12.4. Aforesaid is the position when the Arbitral
Tribunal is constituted at the instance of one of the
parties and the other party takes up the position that
such proceedings are not valid in law.
***
14. In the instant case, there is no dispute about the
arbitration agreement inasmuch as there is a specific
arbitration clause in the partnership deed. However,
the question is as to whether the dispute raised by the
respondent in the suit is incapable of settlement
through arbitration. As pointed out above, the Act does
not make any provision excluding any category of
disputes treating them as non-arbitrable.
Notwithstanding the above, the courts have held that
certain kinds of disputes may not be capable of
adjudication through the means of arbitration. The
courts have held that certain disputes like criminal
offences of a public nature, disputes arising out of
illegal agreements and disputes relating to status, such
as divorce, cannot be referred to arbitration. The
following categories of disputes are generally treated
as non-arbitrable [ See O.P. Malhotra on „The Law
and Practice of Arbitration and Conciliation‟, 3rd
Edn., authored by Indu Malhotra. See also note 10
ibid.] :
(i) patent, trade marks and copyright;
(ii) anti-trust/competition laws;
(iii) insolvency/winding up;
(iv) bribery/corruption;
(v) fraud;
(vi) criminal matters.
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Fraud is one such category spelled out by the decisions
of this Court where disputes would be considered as
non-arbitrable.
15. “Fraud” is a knowing misrepresentation of the
truth or concealment of a material fact to induce
another to act to his detriment. Fraud can be of
different forms and hues. Its ingredients are an
intention to deceive, use of unfair means, deliberate
concealment of material facts, or abuse of position of
confidence. The Black’s Law Dictionary defines
“fraud” as a concealment or false representation
through a statement or conduct that injures another
who relies on it [ See Ramesh Kumar v. Furu Ram,
(2011) 8 SCC 613 : (2011) 4 SCC (Civ) 303 (a decision
rendered under the Arbitration Act, 1940).] . However,
the moot question here which has to be addressed
would be as to whether mere allegation of fraud by one
party against the other would be sufficient to exclude
the subject-matter of dispute from arbitration and
decision thereof necessary by the civil court.
16. In Abdul Kadir Shamsuddin Bubere v. Madhav
Prabhakar Oak [Abdul Kadir Shamsuddin Bubere v.
Madhav Prabhakar Oak, AIR 1962 SC 406] , serious
allegations of fraud were held by the Court to be a
sufficient ground for not making a reference to
arbitration. Reliance in that regard was placed by the
Court on a decision of the Chancery Division in
Russell v. Russell [Russell v. Russell, (1880) LR 14 Ch
D 471]. That was a case where a notice for the
dissolution of a partnership was issued by one of the
partners, upon which the other partner brought an
action alleging various charges of fraud, and sought a
declaration that the notice of dissolution was void. The
partner who was charged with fraud sought reference
of the disputes to arbitration. The Court held that in a
case where fraud is charged, the Court will in general
refuse to send the dispute to arbitration. But where the
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objection to arbitration is by a party charging the
fraud, the Court will not necessarily accede to it and
would never do so unless a prima facie case of fraud is
proved.
17. The aforesaid judgment was followed by this Court
in N. Radhakrishnan [N. Radhakrishnan v. Maestro
Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12]
while considering the matter under the present Act. In
that case, the respondent had instituted a suit against
the appellant, upon which the appellant filed an
application under Section 8 of the Act. The applicant
made serious allegations against the respondents of
having committed malpractices in the account books,
and manipulation of the finances of the partnership
firm. This Court held that such a case cannot be
properly dealt with by the arbitrator, and ought to be
settled by the Court, through detailed evidence led by
both parties.
***
19. As noted above, in Swiss Timing Ltd. case [Swiss
Timing Ltd. v. Commonwealth Games 2010 Organising
Committee, (2014) 6 SCC 677 : (2014) 3 SCC (Civ)
642] , the Single Judge of this Court while dealing with
the same issue in an application under Section 11 of
the Act treated the judgment in N. Radhakrishnan [N.
Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72
: (2010) 1 SCC (Civ) 12] as per incuriam by referring
to the other judgments in P. Anand Gajapathi Raju v.
P.V.G. Raju [P. Anand Gajapathi Raju v. P.V.G. Raju,
(2000) 4 SCC 539] and Hindustan Petroleum Corpn.
Ltd. v. Pinkcity Midway Petroleums [Hindustan
Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums,
(2003) 6 SCC 503] . Two reasons were given in support
which can be found in para 20 of the judgment which
makes the following reading : (Swiss Timing case
[Swiss Timing Ltd. v. Commonwealth Games 2010
Organising Committee, (2014) 6 SCC 677 : (2014) 3
SCC (Civ) 642] , SCC pp. 689-90)
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“20. This judgment in P. Anand Gajapathi case [P.
Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4 SCC
539] was not even brought to the notice of the Court
in N. Radhakrishnan case [N. Radhakrishnan v.
Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC
(Civ) 12] . In my opinion, the judgment in N.
Radhakrishnan case [N. Radhakrishnan v. Maestro
Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ)
12] is per incuriam on two grounds : firstly, the
judgment in Hindustan Petroleum Corpn. Ltd.
[Hindustan Petroleum Corpn. Ltd. v. Pinkcity
Midway Petroleums, (2003) 6 SCC 503] , though
referred to has not been distinguished but at the
same time is not followed also. The judgment in P.
Anand Gajapathi Raju [P. Anand Gajapathi Raju v.
P.V.G. Raju, (2000) 4 SCC 539] was not even
brought to the notice of this Court. Therefore, the
same has neither been followed nor considered.
Secondly, the provisions contained in Section 16 of
the Arbitration Act, 1996 were also not brought to
the notice by this Court. Therefore, in my opinion,
the judgment in N. Radhakrishnan [N.
Radhakrishnan v. Maestro Engineers, (2010) 1 SCC
72 : (2010) 1 SCC (Civ) 12] does not lay down the
correct law and cannot be relied upon.”
***
21. As we are concerned with the first facet of the
arbitrability of dispute, on this aspect the Court
pointed out that in those cases where the subject-
matter falls exclusively within the domain of public
fora viz. the courts, such disputes would be non-
arbitrable and cannot be decided by the Arbitral
Tribunal but by the courts alone. The justification and
rationale given for adjudicating such disputes through
the process of courts i.e. public fora and not by
Arbitral Tribunals, which is a private forum, is given
by the Court in the following manner : (Booz Allen
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case [Booz Allen & Hamilton Inc. v. SBI Home
Finance Ltd., (2011) 5 SCC 532 : (2011) 2 SCC (Civ)
781] , SCC pp. 546-47, paras 35-38)
“35. The Arbitral Tribunals are private fora chosen
voluntarily by the parties to the dispute, to
adjudicate their disputes in place of courts and
tribunals which are public fora constituted under the
laws of the country. Every civil or commercial
dispute, either contractual or non-contractual,
which can be decided by a court, is in principle
capable of being adjudicated and resolved by
arbitration unless the jurisdiction of the Arbitral
Tribunals is excluded either expressly or by
necessary implication. Adjudication of certain
categories of proceedings are reserved by the
legislature exclusively for public fora as a matter of
public policy. Certain other categories of cases,
though not expressly reserved for adjudication by
public fora (courts and tribunals), may by necessary
implication stand excluded from the purview of
private fora. Consequently, where the cause/dispute
is inarbitrable, the court where a suit is pending,
will refuse to refer the parties to arbitration, under
Section 8 of the Act, even if the parties might have
agreed upon arbitration as the forum for settlement
of such disputes.
36. The well-recognised examples of non-arbitrable
disputes are : (i) disputes relating to rights and
liabilities which give rise to or arise out of criminal
offences; (ii) matrimonial disputes relating to
divorce, judicial separation, restitution of conjugal
rights, child custody; (iii) guardianship matters;
(iv) insolvency and winding-up matters; (v)
testamentary matters (grant of probate, letters of
administration and succession certificate); and (vi)
eviction or tenancy matters governed by special
statutes where the tenant enjoys statutory
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protection against eviction and only the specified
courts are conferred jurisdiction to grant eviction
or decide the disputes.
37. It may be noticed that the cases referred to above
relate to actions in rem. A right in rem is a right
exercisable against the world at large, as contrasted
from a right in personam which is an interest
protected solely against specific individuals. Actions
in personam refer to actions determining the rights
and interests of the parties themselves in the subject-
matter of the case, whereas actions in rem refer to
actions determining the title to property and the
rights of the parties, not merely among themselves
but also against all persons at any time claiming an
interest in that property. Correspondingly, a
judgment in personam refers to a judgment against a
person as distinguished from a judgment against a
thing, right or status and a judgment in rem refers to
a judgment that determines the status or condition of
property which operates directly on the property
itself. (Vide Black’s Law Dictionary.)
38. Generally and traditionally all disputes relating
to rights in personam are considered to be amenable
to arbitration; and all disputes relating to rights in
rem are required to be adjudicated by courts and
public tribunals, being unsuited for private
arbitration. This is not however a rigid or inflexible
rule. Disputes relating to subordinate rights in
personam arising from rights in rem have always
been considered to be arbitrable.”
22. The Law Commission has taken note of the fact that
there is divergence of views between the different High
Courts where two views have been expressed, one is in
favour of the civil court having jurisdiction in cases of
serious fraud and the other view encompasses that
even in cases of serious fraud, the Arbitral Tribunal
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will rule on its own jurisdiction. It may be pertinent
here to reproduce the observations of the Law
Commission as contained in Paras 50 and 51 of the
246th Law Commission Report, which are as under:
“50. The issue of arbitrability of fraud has arisen on
numerous occasions and there exist conflicting
decisions of the Apex Court on this issue. While it
has been held in Bharat Rasiklal Ashra v. Gautam
Rasiklal Ashra [Bharat Rasiklal Ashra v. Gautam
Rasiklal Ashra, (2012) 2 SCC 144 : (2012) 1 SCC
(Civ) 556] that when fraud is of such a nature that it
vitiates the arbitration agreement, it is for the Court
to decide on the validity of the arbitration agreement
by determining the issue of fraud, there exists two
parallel lines of judgments on the issue of whether
an issue of fraud is arbitrable. In this context, a two-
Judge Bench of the Supreme Court, while
adjudicating on an application under Section 8 of
the Act, in N. Radhakrishnan v. Maestro Engineers
[N. Radhakrishnan v. Maestro Engineers, (2010) 1
SCC 72 : (2010) 1 SCC (Civ) 12] held that an issue
of fraud is not arbitrable. This decision was
ostensibly based on the decision of the three-Judge
Bench of the Supreme Court in Abdul Kadir
Shamsuddin Bubere v. Madhav Prabhakar Oak
[Abdul Kadir Shamsuddin Bubere v. Madhav
Prabhakar Oak, AIR 1962 SC 406] . However, the
said three-Judge Bench decision (which was based
on the finding in Russell v. Russell [Russell v.
Russell, (1880) LR 14 Ch D 471] ) is only an
authority for the proposition that a party against
whom an allegation of fraud is made in a public
forum, has a right to defend himself in that public
forum. Yet, following Radhakrishnan [N.
Radhakrishnan v. Maestro Engineers, (2010) 1 SCC
72 : (2010) 1 SCC (Civ) 12] , it appears that issues
of fraud are not arbitrable.
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51. A distinction has also been made by certain
High Courts between a serious issue of fraud and a
mere allegation of fraud and the former has been
held to be not arbitrable [see Ivory Properties and
Hotels (P) Ltd. v. Nusli Neville Wadia [Ivory
Properties and Hotels (P) Ltd. v. Nusli Neville
Wadia, (2011) 2 Arb LR 479 : 2011 SCC OnLine
Bom 22] ; C.S. Ravishankar v. C.K. Ravishankar
[C.S. Ravishankar v. C.K. Ravishankar, (2011) 6
Kant LJ 417 : 2011 SCC OnLine Kar 4128] ]. The
Supreme Court in Meguin GmbH v. Nandan
Petrochem Ltd. [Meguin GmbH v. Nandan
Petrochem Ltd., (2016) 10 SCC 422] in the context
of an application filed under Section 11 has gone
ahead and appointed an arbitrator even though
issues of fraud were involved. Recently, the Supreme
Court in its judgment in Swiss Timing Ltd. v.
Commonwealth Games 2010 Organising Committee
[Swiss Timing Ltd. v. Commonwealth Games 2010
Organising Committee, (2014) 6 SCC 677 : (2014) 3
SCC (Civ) 642] , in a similar case of exercising
jurisdiction under Section 11, held that the judgment
in Radhakrishnan [N. Radhakrishnan v. Maestro
Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ)
12] is per incuriam and, therefore, not good law.”
23. A perusal of the aforesaid two paragraphs brings
into fore that the Law Commission has recognised
that in cases of serious fraud, courts have entertained
civil suits. Secondly, it has tried to make a distinction
in cases where there are allegations of serious fraud
and fraud simpliciter. It, thus, follows that those cases
where there are serious allegations of fraud, they are
to be treated as non-arbitrable and it is only the civil
court which should decide such matters. However,
where there are allegations of fraud simpliciter and
such allegations are merely alleged, we are of the
opinion that it may not be necessary to nullify the
effect of the arbitration agreement between the parties
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as such issues can be determined by the Arbitral
Tribunal.”
(emphasis supplied)
19. The Apex Court was of the opinion that cases where serious frauds are
involved that has to be treated as non-arbitrable and it is only the Civil Court
which take such matters. However, where the allegations of fraud simplicitor
and such frauds are merely alleged then it is not necessary to nullify the
affect of the Arbitration Agreement of the parties and such issues can be
determined by the Tribunal.
20. The Apex Court in Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710,
after considering A. Ayyasamy (supra) has observed as under:-
“4. The principles of law laid down in this appeal
make a distinction between serious allegations of
forgery/fabrication in support of the plea of fraud as
opposed to “simple allegations”. Two working tests
laid down in para 25 are: (1) does this plea permeate
the entire contract and above all, the agreement of
arbitration, rendering it void, or (2) whether the
allegations of fraud touch upon the internal affairs of
the parties inter se having no implication in the
public domain.”
(emphasis supplied)
21. The Judgments passed by the Apex Court in A. Ayyasamy (supra) and
Rashid Raza (supra) had again come up for consideration before the
Hon’ble Apex Court in Avitel Post Studioz Limited and Others v. HSBC PI
Holdings (Mauritius) Limited, (2021) 4 SCC 713. The Apex Court, while
upholding and reaffirming the said two judgments had observed as under:-
“35. After these judgments, it is clear that “serious
allegations of fraud” arise only if either of the two
tests laid down are satisfied, and not otherwise. TheSignature Not Verified
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first test is satisfied only when it can be said that the
arbitration clause or agreement itself cannot be said to
exist in a clear case in which the court finds that the
party against whom breach is alleged cannot be said to
have entered into the agreement relating to arbitration
at all. The second test can be said to have been met in
cases in which allegations are made against the State
or its instrumentalities of arbitrary, fraudulent, or mala
fide conduct, thus necessitating the hearing of the case
by a writ court in which questions are raised which are
not predominantly questions arising from the contract
itself or breach thereof, but questions arising in the
public law domain.”
22. Since there were difference of opinion regarding which are the issues
which are arbitrable or not, the issue was referred to the Bench of three-
Judges and the reference was answered by the Apex Court in Vidya Drolia
and Others v. Durga Trading Corporation, (2021) 2 SCC 1. The Apex Court
considered the issue as to in which cases the issue of fraud would become
non-arbitrable. The Apex Court held that the Arbitrators’ Courts are bound to
resolve and decide the disputes. However, while considering the issue of
fraud, the Bench of three-Judge has observed as under:-
“73. A recent judgment of this Court in Avitel Post
Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.
[Avitel Post Studioz Ltd. v. HSBC PI Holdings
(Mauritius) Ltd., (2021) 4 SCC 713 : 2020 SCC
OnLine SC 656] has examined the law on invocation of
“fraud exception” in great detail and holds that N.
Radhakrishnan [N. Radhakrishnan v. Maestro
Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12]
as a precedent has no legs to stand on. We respectfully
concur with the said view and also the observations
made in para 34 of the judgment in Avitel Post Studioz
Ltd. [Avitel Post Studioz Ltd. v. HSBC PI Holdings
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OnLine SC 656] , which quotes observations in Rashid
Raza v. Sadaf Akhtar [Rashid Raza v. Sadaf Akhtar,
(2019) 8 SCC 710 : (2019) 4 SCC (Civ) 503] : (Rashid
Raza case [Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC
710 : (2019) 4 SCC (Civ) 503] , SCC p. 712, para 4)“4. The principles of law laid down in this appeal
make a distinction between serious allegations of
forgery/fabrication in support of the plea of fraud as
opposed to “simple allegations”. Two working tests
laid down in para 25 are : (1) does this plea
permeate the entire contract and above all, the
agreement of arbitration, rendering it void, or (2)
whether the allegations of fraud touch upon the
internal affairs of the parties inter se having no
implication in the public domain.”
to observe in Avitel Post Studioz Ltd. [Avitel Post
Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.,
(2021) 4 SCC 713 : 2020 SCC OnLine SC 656] :
(SCC para 35)
“35. … it is clear that serious allegations of fraud
arise only if either of the two tests laid down are
satisfied and not otherwise. The first test is satisfied
only when it can be said that the arbitration clause
or agreement itself cannot be said to exist in a clear
case in which the court finds that the party against
whom breach is alleged cannot be said to have
entered into the agreement relating to arbitration at
all. The second test can be said to have been met in
cases in which allegations are made against the
State or its instrumentalities of arbitrary,
fraudulent, or mala fide conduct, thus,
necessitating the hearing of the case by a writ court
in which questions are raised which are not
predominantly questions arising from the contract
itself or breach thereof but questions arising in the
public law domain.”
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74. The judgment in Avitel Post Studioz Ltd. [Avitel
Post Studioz Ltd. v. HSBC PI Holdings (Mauritius)
Ltd., (2021) 4 SCC 713 : 2020 SCC OnLine SC 656]
interprets Section 17 of the Contract Act to hold that
Section 17 would apply if the contract itself is obtained
by fraud or cheating. Thereby, a distinction is made
between a contract obtained by fraud, and post-
contract fraud and cheating. The latter would fall
outside Section 17 of the Contract Act and, therefore,
the remedy for damages would be available and not the
remedy for treating the contract itself as void.”
(emphasis supplied)
23. The Bench of three-Judges therefore held that serious allegations of
fraud ought not to be adjudicated in arbitral proceedings and are best left to
the Courts. The Arbitral Tribunal, after applying the law laid down by the
Apex Court in A. Ayyasamy (supra), Rashid Raza (supra), Avitel Post
Studioz (supra) and Vidya Drolia (supra), came to the conclusion that the
facts of the present case are complex in nature. The Arbitral Tribunal would
have to examine witnesses who are officers from governmental authorities
and/or those outside the country, and therefore, it is difficult to summon
those witnesses before the Ld. Sole Arbitrator. The Ld. Sole Arbitrator
would also have to take the assistance of the Ministry of External Affairs to
summon those witnesses which can be more expediently handed over by the
Civil Courts than by the Arbitral Tribunal. The allegations of fraud are not of
forgery but fabrication of documents of foreign companies/authorities and
therefore this could be more conveniently adjudicated by the Civil Courts
than by the Arbitral Tribunal.
24. The facts of the present case reveal that it took substantial amount of
time by the Respondents to unearth the fraud of the Appellant. The
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Respondents had to send repeated e-mails to the Heathrow Airport, United
Kingdom and Noi-Bai International Airport, Vietnam, take the assistance of
the Ministry of External Affairs and contact the Indian Consulates. The
Indian Consulates had to take steps to contact the SJM, whose e-mails reveal
that SJM was reluctant even to come to the Indian Consulate for a meeting.
Though the Arbitral Tribunal has been conferred with powers under Section
27 of the Act of 1996 to call for witnesses, this Court is of the opinion that
the view taken by the Ld. Sole Arbitrator that it would be more easy for the
civil court to summon witnesses, that is, officials at the Heathrow Airport,
United Kingdom and Noi-Bai International Airport, Vietnam and officials of
the SJM to give evidence for unearthing the core issue which is as to
whether the SPCs which has been produced by the Appellant is fabricated or
not. If the documents are fabricated then the Appellant has taken the benefit
by the forged and fabricated documents and the Appellant cannot be
permitted to get a premium on fraud which is alleged to have been
committed by them and Courts cannot be mute spectator to such fraud which
is alleged to have been committed.
25. The conclusion of the Ld. Sole Arbitrator that a Court is better
equipped to adjudicate these issues therefore, does not call for any
interference. It cannot be said that the Ld. Sole Arbitrator has taken a
cursory view regarding fraud. The issues that arise are complicated and
complex in nature involving production of witnesses outside the country and
also documents from outside the country. It has to be adjudicated whether
the documents are a product of fabrication or not and whether SJM was a
party to the said fabrication and as to how SJM permitted the Appellant, if
they have given any such letter to the Appellant, to use it for getting the
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contract with the Respondents and more particularly when the Heathrow
Airport, United Kingdom and Noi-Bai International Airport, Vietnam have
stated that the SJM did not participate in any supply of the PBTs. The
finding of the Ld. Sole Arbitrator that the issue is not an internal matter of
the Appellant and the Respondents is, therefore, correct. The documents and
witnesses outside the country are necessary to be examined to unearth the
issues.
26. This Court is therefore of the opinion that the present case is not on
the ground of fraud simplicitor. The facts of the case are extremely serious
and they do make out a case for criminal offence. The plea of fraud is of
such a nature that it permits the entire contract including the agreement to
arbitrate as the issue goes to the validity of the entire contract which
contains the Arbitration Clause itself.
27. Considering the entire gamut of facts and the law laid down by the
Apex Court, this Court is of the opinion that the present Appeal is of such a
nature that it would make the entire dispute non-arbitrable, as laid down by
the Apex Court in A. Ayyasamy (supra), Rashid Raza (supra), Avitel Post
Studioz (supra) and Vidya Drolia (supra).
28. Accordingly, the instant Appeal stands dismissed along with pending
application(s), if any.
SUBRAMONIUM PRASAD, J
MARCH 11, 2025
RJ / AP
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