AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI HOLDINGS (MAURITIUS) LIMITED

Citation: [2020] 10 S.C.R. 791; 2020 INSC 498

Court: Supreme Court of India

Bench: R.F. NARIMAN , NAVIN SINHA

Judgment date: 2020-08-19

Case summary

2020 INSC 498. Supreme Court of India judgment dated 2020-08-19. AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI HOLDINGS (MAURITIUS) LIMITED. Read the...

Judgment text

[2020] 10 S. C. R. 791 791 AVITEL POST STUDIOZ LIMITED & ORS. A v. HSBC PI HOLDINGS (MAURITIUS) LIMITED (Civil Appeal No. 5145 of 2016) B AUGUST 19, 2020 [R. F. NARIMAN AND NAVIN SINHA, JJ. ] Arbitration and Conciliation Act, 1996 – s. 9 – Contract Act, 1872 – ss. 17 and 18 – A Share Subscription Agreement (SSA) and Shareholders’ Agreement (SHA) was entered into between the C claimant and the appellants – Both SSA and SHA contained an identical arbitration clause – It was alleged that the appellants made a representation that they were at a very advanced stage of finalising a contract with the British Broadcasting Corporation (BBC) to convert the BBC’s film library from 2D to 3D – This contract was expected to generate a revenue of USD 300 million in first phase, D and ultimately over USD 1 billion – Pursuant thereto, the claimant made an investment in the equity capital of the appellants for a consideration of USD 60 million in order to acquire 7.

8% of its paid up capital – The claimant discovered that the purported BBC contract was non-existent and was set up by the appellants to induce E the claimants into investing the aforesaid money of USD 60 million in the shares of Appellants – It was also alleged that the entire investment proceeds of USD 60 million was siphoned off to Companies in which the appellants had a stake – As dispute arose between the parties, the notices of arbitration were issued by the claimant to the Singapore International Arbitration Centre to F commence arbitral proceedings – The Emergency Arbitrator passed two interim awards in favour of the claimant – The claimant filed application u/s. 9 of the 1996 Act – The Single Judge of the High Court directed appellants to deposit any shortfall in their account so as to maintain a balance of USD 60 million – The Division Bench G of the High Court, however, directed appellants to deposit half of USD 60 million i. e.

at USD 30 million – By a final award, the Arbitral Tribunal held that the claimant was entitled to damages in the total amount of USD 60 million plus interest and costs – The Foreign H 791 792 SUPREME COURT REPORTS [2020] 10 S. C. R. A award was challenged by the appellants u/s. 34 before the High Court – The petition u/s. 34 was dismissed by the High Court – An appeal u/s.

37 of the 1996 Act was also dismissed – Meanwhile, the claimant moved the High Court for the enforcement of the Foreign Final award – Before the Supreme Court, the appellant contended that if the transaction entered into between the parties involve serious B criminal offences such as forgery and impersonation, then it is clear that under Indian Law, such dispute would not be arbitrable – The claimant countered that issues were predominantly civil law issues to be decided inter parties – After hearing the parties, the Court formulated question: Whether there is a strong prima facie case C made out in favour of the claimant in the s.

9 proceedings – Whether balance of convenience tilts in favour of the claimant – Held: On a conspectus of facts and following Supreme Court judgments, the issues raised and answered in the Foreign Final award would indicate that there is no such fraud as would vitiate the arbitration D clause in the SSA entered into between the parties as it is clear that this clause has to be read as an independent clause – Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration clause – Further, the impersonation, false E representation made and diversion of funds are all inter parties, having no ‘public flavour’ and attract the ‘fraud exception’ – A reading of the Foreign Final award would show that a strong prima facie case was made out as the award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 F million paid by the claimant, which would fall within fraudulent inducement to enter into contract u/s.

17 of the Contract Act – The order passed by the Single Judge of the High Court to keep aside USD 60 million was fair – However, the reduction of USD 60 million to USD 30 million by the Division Bench of the High Court was not justified – The claimant has made out a strong prima facie case G necessitating that USD 60 million, being the principal amount awarded to them, is kept apart in the manner indicated by the Single Judge of the High Court – The balance of convenience is also in its favour. H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 793 HOLDINGS (MAURITIUS) LIMITED Dismissing the Civil Appeal No. 5145 of 2016 and allowing A the Civil Appeal No. 5158 of 2016, Civil Appeal no. 9820 of 2016, the Court HELD: 1. In order to discover whether there is a strong prima facie case made out in favour of the Claimant before the Arbitral Tribunal in the present section 9 proceedings, it is B necessary to refer to the Foreign Final Award dated 27. 09. 2014.

The Arbitral Tribunal found that the siphoning off of a large part of the amount of USD 60 million into companies owned or controlled by the appellants herein was made out. As a result thereof, it was found that the Claimant, in respect of its claim for fraudulent misrepresentation, and its claim in tort for deceit, is C entitled to damages in the total amount of USD 60 million plus interest and costs as awarded. [Para 20][843-A-B; 844-F; 852- G] 2. There can be no doubt whatsoever after reading the issues and some of the material findings in the Foreign Final Award D that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The fact that a separate criminal proceeding was sought to be started and may have failed is of no consequence whatsoever.

Therefore, on a conspectus of these facts, and following Supreme Court judgments, that the issues raised and answered in the Foreign Final Award would E indicate: (i) That there is no such fraud as would vitiate the arbitration clause in the SSA entered into between the parties as it is clear that this clause has to be read as an independent clause. Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the F invalidity of the arbitration clause which is extremely wide. (ii) That the impersonation, false representations made, and diversion of funds are all inter parties, having no “public flavour” as explained earlier so as to attract the “fraud exception”. [Para 21][853-B-F] G 3.

Thus, a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by the Claimant, which would clearly fall within fraudulent inducement to enter into a contract under section 17 of the Contract Act. H 794 SUPREME COURT REPORTS [2020] 10 S. C. R. A Such a contract would be voidable at the instance of the Claimant. Also, the findings on the siphoning off of monies that were meant to be allocated for the performance of the BBC contract would attract the tort of deceit. The measure of damages for such fraudulent misrepresentation is not the difference between the value of the shares on the date of making the contract and the B value Claimant would have received, if it had resold those shares in the market, after the purchase.

The measure of such damages would be to put Claimant in the same position as if the contract had never been entered into, which is, the entitlement to recover the price paid for the shares and all consequential losses. This being the case, it is difficult to accede to the Division Bench’s C finding as to the measure of damages in such cases. [Para 22][853- F-H; 854-A-B] 4. So far as the appeal of Claimant is concerned, this Court is of the view that it has substance in that the USD 60 million that was to be kept aside vide the Single Judge’s (High Court) order, D was fair and just in the facts of the case in that it is only the principal amount without any interest or costs that is ordered to be kept aside. Further, the reduction of USD 60 million to USD 30 million by the Division Bench of the High Court is not justified given our finding on the measure of damages in the facts of this case. E [Para 23][854-B-D] 5.

It is clarified that any finding made on facts in this judgment is only prima facie for the purpose of deciding the section 9 petition. This Court have held that the Claimant has made out a strong prima facie case necessitating that USD 60 F million, being the principal amount awarded to them, is kept apart in the manner indicated by the Single Judge of the Bombay High Court. The balance of convenience is also in its favour. It is clear that in case Claimant was to enforce the Foreign Final Award in India in accordance with section 48 of the 1996 Act, irreparable loss would be caused to it unless at least the principal sum were G kept aside for purposes of enforcement of the award in India. [Para 24][854-E-F] Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. (2010) 8 SCC 24 : [2010] 8 SCR 1053; Booz Allen & Hamilton Inc. v. SBI Home H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 795 HOLDINGS (MAURITIUS) LIMITED Finance Ltd.

(2011) 5 SCC 532 : [2011] 7 SCR 310; A Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. (1999) 5 SCC 688 : [1999] 3 SCR 861; Vimal Kishor Shah v. Jayesh Dinesh Shah (2016) 8 SCC 788 : [2016] 7 SCR 102; A. Ayyasamy v. A. Paramasivam (2016) 10 SCC 386 : [2016] 11 SCR 521; Ameet Lalchand Shah B v. Rishabh Enterprises (2018) 15 SCC 678 : [2018] 6 SCR 1001; Rashid Raza v. Sadaf Akhtar (2019) 8 SCC 710 : [2019] 12 SCR 460; Kishan Singh v. Gurpal Singh (2010) 8 SCC 775 : [2010] 10 SCR 16; Guru Granth Saheb Sthan Meerghat Vanaras v. Ved Prakash (2013) 7 SCC 622 – relied on. C Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [1962] 3 SCR 702; Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee (2014) 6 SCC 677 : [2014] 6 SCR 514; Vidya Drolia and Ors. v. Durga Trading Corporation (2019) SCC D OnLine SC 358; N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72 : [2009] 15 SCR 371; K. G. Premshanker v. Inspector of Police (2002) 8 SCC 87 : [2002] 2 Suppl.

SCR 350; Syed Askari Hadi Ali Augustine Imam v. State (Delhi Admn. ) (2009) 5 SCC E 528 : [2009] 3 SCR 1017; P. Swaroopa Rani v. M. Hari Narayana (2008) 5 SCC 765 : [2008] 3 SCR 900; M. S. Sheriff v. The State of Madras [1954] SCR 1144; V. M. Shah v. State of Maharashtra (1995) 5 SCC 767 : [1995] 3 Suppl. SCR 79; State of West Bengal v. Associated Contractors (2015) 1 SCC 32 : [2014] 10 SCR 426; F Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums (2003) 6 SCC 503; P. Anand Gajapathi Raju v. P. V. G. Raju (2000) 4 SCC 539 : [2000] 2 SCR 684; State of Tripura v. Province of East Bengal, Union of India [1951] SCR 1; Ellerman & G Bucknall Steamship Co. Ltd. V. Shar Misrimal Bherajee [1966] Supp SCR 92 – referred to. Fazal D. Allana v. Mangaldas M. Pakvasa AIR 1922 Bom 303; John Minas Apcar v. Louis Caird Malchus AIR 1939 Cal 473 – referred to. H 796 SUPREME COURT REPORTS [2020] 10 S. C. R. A President of India and La Pintada Compania Navigacion S. A. [1985] A. C.

104; Russel v. Russel [1880] 14 Ch D 471; Charles Osenton & Co. v. Johnston 1942 A. C. 130; Chatham and Dover Railway Company v. South Eastern Railway Company [1893] A. C. 429; British Railways Board and Herrington 1972 B A. C. 877; Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd. [1996] 4 All ER 769; Doyle v. Olby (Ironmongers) Ltd. [1969] 2 All ER 119 – referred to. Case Law Reference C [2014] 6 SCR 514 referred to Para 2 [2009] 15 SCR 371 referred to Para 2 [2014] 10 SCR 426 referred to Para 2 [2019] 12 SCR 460 relied on Para 3 D [2016] 11 SCR 521 relied on Para 3 [1962] 3 SCR 702 referred to Para 5 (2003) 6 SCC 503 referred to Para 6 E [2010] 8 SCR 1053 relied on Para 7 [2011] 7 SCR 310 relied on Para 8 [1999] 3 SCR 861 relied on Para 8 [2000] 2 SCR 684 referred to Para 9 F [2016] 7 SCR 102 relied on Para 10 [2018] 6 SCR 1001 relied on Para 13 [2002] 2 Suppl. SCR 350 referred to Para 15 [1995] 3 Suppl.

SCR 79 referred to Para 15 G [1954] SCR 1144 referred to Para 15 [2008] 3 SCR 900 referred to Para 15 [2009] 3 SCR 1017 referred to Para 15 [2010] 10 SCR 16 relied on Para 15 H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 797 HOLDINGS (MAURITIUS) LIMITED (2013) 7 SCC 622 relied on Para 15 A [1951] SCR 1 referred to Para 17 [1966] Suppl. SCR 92 referred to Para 19 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5145 of 2016. B From the Judgment and Order dated 31. 07. 2014 of the Bombay High Court in Appeal No. 196 of 2014. WITH Civil Appeal Nos. 5158 and 9820 of 2016. C Mr. Mukul Rohatgi, Harish Salve, Nikhil Sakhardande, Vinay Navare, Sr. Advs. , Saurabh Kirpal, Sanjay Agarwal, Ms. Diksha Rai, Ms. Manali Singhal, Nikhil Rohatgi, Ishan Bisht, Ms. Palak Mahajan, Ms. Liz Mathew, Gautam Awasthi, Mrs. Meena Doshi, Mrs. Prabha Swami, Nikhil Swami, Ms. Divya Swami, Ms. Abha R. Sharma, D Ms. Jasmine Damkewala, Sriniwas Joshi, Ms. Varshali Sharma, Yogesh C. Naidu, Ms. Priyanka Shetty, Mr.

Santosh Sachin, Advs. for the appearing parties. The Judgment of the Court was delivered by R. F. NARIMAN, J. E 1. These two appeals being Civil Appeal No. 5145 of 2016 by Avitel Post Studioz Ltd. [“Avitel India”] and its promoters [the “Jain family”], and the cross appeal being Civil Appeal No. 5158 of 2016 by HSBC PL Holdings (Mauritius) Ltd. [“HSBC”], impugn the interlocutory judgment and order passed in the appeal under section 9 of the Arbitration F and Conciliation Act, 1996 [“1996 Act”] dated 31. 07. 2014. To dispose of the said appeals, we refer to the facts in Civil Appeal No. 5145 of 2016. The brief facts necessary to appreciate the controversy that arises in the present case are as follows: (i) On 21. 04. 2011, a Share Subscription Agreement [“SSA”] was G entered into between HSBC and the Appellants. HSBC made an investment in the equity capital of Avitel India for a consideration of USD 60 million in order to acquire 7. 8% of its paid-up capital.

This SSA contained an arbitration clause which reads as follows:- H 798 SUPREME COURT REPORTS [2020] 10 S. C. R. A “16. DISPUTE RESOLUTION 16. 1. Arbitration 16. 1. 1. Any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding its existence, validity, interpretation, breach or termination shall B be referred to and finally resolved by binding arbitration at the Singapore International Arbitration Centre (“SIAC”) in accordance with the International Arbitration Rules in force at the date of this Agreement (“Rules”), which Rules are deemed to be incorporated by reference into this clause and as may be amended by the rest C of this clause. 16. 1. 2. The seat of arbitration shall be Singapore. 16. 1. 3. The language of the arbitration proceedings shall be English. 16. 1. 4.

The arbitration tribunal shall consist of three (3) arbitrators: D the claimant party shall nominate one (1) arbitrator, the respondent party shall nominate one (1) arbitrator and the two (2) arbitrators thus appointed shall nominate the third arbitrator who shall be the presiding arbitrator (the “Arbitration Tribunal”). If there is more than one claimant party and/or more than one respondent party, E the claimant parties (for the purposes of this Clause 16. 1 together a “party”) shall together designate one (1) arbitrator and the respondent parties (for the purposes of this Clause 16. 1 together a “party”) shall together designate one (1) arbitrator.

If within 30 days of a request from the other party to do so, a party fails to designate an arbitrator, or if the two (2) arbitrators fail to designate F the third arbitrator within 30 days after the confirmation of the appointment of the second arbitrator, the appointment shall be made, upon request of a party, by the SIAC council in accordance with the Rules. 16. 1. 5. If within 14 days of a request from the other party to do G so, a party fails to nominate an arbitrator, or if the two (2) arbitrators fail to nominate the third arbitrator within 14 days after the confirmation of the appointment of the second arbitrator, the appointment shall be made, upon request of a party, by the SIAC council in accordance with the Rules. H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 799 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] 16. 1. 6.

The parties waive any right to apply to any court of law A and/or other judicial authority to determine any preliminary point of law and/or review any question of law and/or the merits, insofar as such waiver may be validly made. The parties shall not be deemed, however, to have waived any right to challenge any award on the ground that the tribunal lacked substantive jurisdiction and/ B or the ground of serious irregularity affecting the tribunal, the proceedings or the award to the extent allowed by the law of the seat of the arbitration. 16. 1. 7. Nothing in this Clause 16. 1 shall be construed as preventing any party from seeking conservatory or interim relief in any court C of competent jurisdiction. 16. 1. 8. Any award of the arbitration tribunal shall be made in writing and shall be final and binding on the parties from the day it is made and the parties agree to be bound thereby and to act accordingly. The parties undertake to carry out the award without delay. D 16. 1. 9.

During the conduct of any arbitration proceedings pursuant to this Clause 16. 1, this Agreement shall remain in full force and effect in all respects except for the matter under arbitration and the parties shall continue to perform their obligations hereunder, except for those obligations involved in the matter under dispute, E and to exercise their rights here under. 16. 2. Costs The costs and expenses of the arbitration, including the fees of the arbitration and the Arbitration Tribunal, shall be borne equally by each Party to the dispute or claim and each Party shall pay its F own fees, disbursements and other charges of its counsel, except as may be determined by the Arbitration Tribunal. The Arbitration Tribunal would have the power to award interest on any sum awarded pursuant to the arbitration proceedings and such sum would carry interest, if awarded, until the actual payment of such G amounts. 16. 3.

Final and Binding It is agreed by the Parties that any award made by the Arbitration Tribunal shall be final and binding on each of the Parties that were parties to the dispute. H 800 SUPREME COURT REPORTS [2020] 10 S. C. R. A 16. 4. Application of Arbitration Act Save for section 9, Part 1 of the Indian Arbitration and Conciliation Act, 1996 (the “Arbitration Act”), the provisions of Part 1 of the Arbitration Act shall not apply to the terms of this Agreement. ” (ii) On 06. 05. 2011, the aforesaid parties entered into a B Shareholders’ Agreement [“SHA”]which defined the relationship between the parties after the SSA dated 21. 04. 2011 had been entered into. The SHA also contained an arbitration clause which was identical to the arbitration clause contained in the SSA. It is the case of HSBC that a representation had been made by Appellants No.

2-4 (the Jain family) that the Appellants were at a very advanced stage of finalising a C contract with the British Broadcasting Corporation [“BBC”] to convert the BBC’s film library from 2D to 3D. This contract was expected to generate a revenue of USD 300 million in the first phase, and ultimately over USD 1 billion. It is the further case of HSBC that this investment of USD 60 million was required by Avitel India to purchase equipment D for Avitel Post Studioz FZ LLC [“Avitel Dubai”] to service the BBC contract (Avitel Dubai is a 100% subsidiary of Avitel Holdings Ltd. , Mauritius [“Avitel Mauritius”], which, in turn, is a 100% subsidiary of Avitel India. Avitel India, Avitel Mauritius, and Avitel Dubai are collectively referred to as the “Avitel Group”).

(iii) In early April 2012, HSBC grew suspicious about the Avitel E Group’s business of digitising films and Ernst & Young and KPMG Dubai were appointed to inquire into and return findings as to the business activities of the Avitel Group. It is the further case of HSBC that they discovered, thanks to certain preliminary findings of Ernst & Young and KPMG Dubai, inter alia, that the purported BBC contract was non- F existent and was set up by the Appellants to induce HSBC into investing the aforesaid money of USD 60 million in the shares of Appellant No. 1. It is also HSBC’s case that though Avitel Dubai received the entire investment proceeds of USD 60 million on or about 10. 05. 2011, it appeared that around USD 51 million were not used to purchase any equipment to service the BBC contract, but appeared to have been G siphoned off to companies in which the Jain family had a stake. (iv) As disputes arose between the parties, on 11. 05.

2012, notices of arbitration were issued by HSBC to the Singapore International Arbitration Centre[“SIAC”] to commence arbitral proceedings. On 14. 05. 2012, the SIAC appointed Mr. Thio Shen Yi, SC, as an Emergency H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 801 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] Arbitrator pursuant to an application dated 11. 05. 2012. On 17. 05. 2012, A the Appellants’ challenge to the appointment of the Emergency Arbitrator was considered by the SIAC and rejected. On 25. 05. 2012, the Appellants filed their response to the notices of arbitration. (v) The Emergency Arbitrator then passed two Interim Awards dated 28. 05. 2012 and 29. 05.

2012, in the SSA and the SHA, respectively, B in favour of HSBC, directing the Appellants and Avitel Dubai to refrain from disposing of or dealing with or diminishing the value of their assets up to USD 50 million, and permitting HSBC to deliver a copy of the Interim Awards to financial institutions in India and the UAE with which any of the Appellants hold or may hold or be signatory to accounts, C together with a request that the financial institutions freeze such accounts consistent with the Interim Awards. On 27. 07. 2012, the Emergency Arbitrator made an amendment to Interim Awards dated 28. 05. 2012 and 29. 05. 2012 passed in the SSA and the SHA, respectively, granting further relief to HSBC by, inter alia, directing the Appellants and Avitel Dubai to cease and desist from prohibiting or inhibiting Ernst & Young D and KPMG Dubai from conducting investigations into the financial affairs of Avitel Dubai and Avitel Mauritius. (vi) On 30. 07. 2012, HSBC filed Arbitration Petition No.

1062 of 2012 under section 9 of the 1996 Act in the Bombay High Court, inter alia seeking directions to call upon the Appellants to deposit a security E amount to the extent of HSBC’s claim in the arbitration proceedings that had begun under both the SSA and the SHA. (vii) On 03. 08. 2012, a learned Single Judge of the Bombay High Court passed an interim order under the section 9 petition, inter alia directing the Corporation Bank to allow the Appellants to withdraw a sum of INR 1 crore from their account on or before 09. 08. 2012, but not F to allow any further withdrawals until further orders, till which time, the account was to remain frozen. (viii) Meanwhile, the Appellants challenged the jurisdiction of the three-member Arbitral Tribunal comprising of Mr. Christopher Lau, SC as its Chairman, and Dr. Michael C. Pryles and Justice (Retd. ) Ferdino G I. Rebello as co-arbitrators [“Arbitral Tribunal”] set up under the auspices of the SIAC. On 25. 09.

2012, the Arbitral Tribunal decided that this would be decided as a preliminary issue. On 17. 12. 2012, the Arbitral Tribunal passed a unanimous “final partial award on jurisdiction”, dismissing the jurisdictional challenge, and stating that since Singapore H 802 SUPREME COURT REPORTS [2020] 10 S. C. R. A law governs the arbitration agreement, allegations of fraud and complicated issues relating to facts are arbitrable. (ix) Meanwhile, in the section 9 petition pending before the Bombay High Court, an order was passed by a learned Single Judge dated 22. 01. 2014, in which the Appellants were directed to deposit any shortfall in their account with the Corporation Bank so as to maintain a balance B of USD 60 million. The learned Single Judge gave prima facie findings that the seat of arbitration was at Singapore and that the arbitration agreement was governed by Singapore law; hence, arbitrability of the dispute at hand would be governed by Singapore law.

It held that the unanimous “final partial award on jurisdiction” dated 17. 12. 2012, delivered C by the Arbitral Tribunal in Singapore, upholding the jurisdiction of the Arbitral Tribunal to proceed, had not been challenged in Singapore by the Appellants, and further held that this being the case, since HSBC has a good chance of success in the final arbitral proceedings, the aforesaid order to deposit the shortfall in the account so as to maintain a balance of USD 60 million was passed. D (x) An appeal against the order of the learned Single Judge was disposed of by the impugned judgment and order of the Division Bench dated 31. 07. 2014, returning a prima facie finding that since Singapore law governs the arbitration agreement, there was no need to interfere with the findings of the learned Single Judge in this respect.

Further, it E was held that there is no estoppel in filing the present proceeding despite the Emergency Awards being passed in Singapore as the section 9 petition could be maintained on a plain reading of the arbitration agreement itself. It was further held that an issue of fraud in the context of sections 17 and 18 of the Indian Contract Act, 1872 [“Contract Act”] referred to F want of free consent, and was a well-accepted ground that would vitiate the contract, rendering it voidable. After referring to various judgments of this Court, it was held that there was a distinction between the “suitability” and “arbitrability” of disputes, and on the facts of the present case, it could not be said that the dispute was not arbitrable because of an allegation of fraud made by HSBC.

After then referring to the claim G statement of HSBC before the Arbitral Tribunal at Singapore, it was held that the allegations of fraud and misrepresentation were primarily in the context of “fraud” and “misrepresentation” as defined in sections 17 and 18 of the Contract Act, thus establishing a civil profile of the disputes that had arisen between the parties. However, after referring H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 803 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] to certain judgments on interim mandatory injunctions, the High Court A prima facie found that HSBC had carried out due diligence by engaging leading agencies like Ernst & Young and Clifford Chance.

Also, it was held that the measure of damages that may ultimately be awarded may not be the amount of loss ultimately sustained by HSBC, but can at best be the difference between the price paid by HSBC in acquiring Avitel B India’s shares and the price HSBC would have received had it resold the said shares in the market. This being the case, and an interim mandatory injunction being in the nature of equitable relief, the Division Bench was of the opinion that the interest of justice would be served if the Appellants are directed to deposit an additional amount equivalent to USD 20 million in its Corporation Bank account, so that the total deposit C in the said account is maintained at half the said figure of USD 60 million, i. e. , at USD 30 million. The appeal against the order dated 22. 01. 2014 was therefore partly allowed. (xi) By a Final Award in the SSA dated 27. 09. 2014 [“Foreign Final Award”], the Arbitral Tribunal held as follows: D “21. FORMAL FINAL AWARD 21.

1 The Tribunal has carefully considered the oral and documentary evidence as well as the submissions of the Parties and given due weight thereto and rejecting all submissions to the E contrary hereby makes, issues and publishes this Final Award and for the reasons set out above FINDS, AWARDS, ORDERS AND DECLARES as follows: 21. 2 Finds that the Respondents jointly and severally represented to the Claimant the following: F a. the Avitel Group’s propriety stereoscopy technology was superior to that of its competitor; b. Avitel Dubai played an important role in the Avitel Group’s business; c. the Avitel Group was in advanced negotiations with the BBC G and that the BBC Contract was close to execution; d. the Claimant’s investment was required and was to be utilized for purchasing equipment in order to enable Avitel Dubai to service the BBC Contract; H 804 SUPREME COURT REPORTS [2020] 10 S. C. R. A e.

the Avitel Group had the benefit of the Material Contracts with Kinden, SPAC and Purple Passion with a total value of approximately USD 658 million; f. the Avitel Group’s key customers Kinden, SPAC and Purple Passion as well as Avitel Dubai’s key supplier, Digital Fusion, and key service provider, Highend, were all independent and B legitimate companies; g. the representations and warranties contained in Clauses 6. 1 and 6. 2 of the SSA and in Clauses 7. 1, 7. 3, 7. 5 , 8, 10 and 11 of Schedule 3 of the SSA to be true, complete, accurate and not misleading; C 21. 3 Finds that the Respondents made the representations and/or warranties in order to induce the Claimant to invest in the First Respondent; 21. 4 Finds that the Claimant did rely on the representations and/ or warranties in making its investment in the First Respondent; D 21. 5 Finds that the representations and/or warranties referred to in paragraph 21. 2 (a) to (g) above were false and/or misleading; 21.

6 Finds that the Respondents made the representations and/or warranties referred to in paragraph 21. 2 (a) to (g) above knowing that these were false and/or without belief in their truth; E 21. 7 Finds that the Respondents are jointly and severally liable to the Claimant in tort for deceit; 21. 8 Finds that the Respondents are jointly and severally liable to the Claimant for fraudulent misrepresentation under the Contract Act; F 21. 9 Finds that the Respondents are jointly and severally liable to the Claimant for breach of warranty; 21. 10 Finds that the Second, Third and Fourth Respondents are to jointly and severally indemnify the Claimant for the loss of its investment in the amount of USD 60 million as well as for the G costs of and associated with this arbitration and associated court actions; 21.

11 Finds that the Claimant in respect of its claim for fraudulent misrepresentation and its claim in tort for deceit is entitled to damages in the total amount of USD 60 million; H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 805 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] 21. 12 Finds that the Claimant is entitled to interest on the sum of A USD 60 million from 6 May 2011 to the date of this Final Award at the rate of 4. 25 % per annum; 21. 13 Finds that the Claimant is entitled to its legal and other costs as well as the costs of the arbitration in the total amount of SGD 827,615. 67 comprising of the following: B (a) the amount of SGD 29,235. 88 in respect of the Emergency Arbitrators fees and expenses (b) the amount of SGD 756,513. 19 in respect of the Tribunal’s fees and expenses; C (c) the amount of SGD 41,866. 60 in respect of SIAC administrative fees and expenses; 21.

14 Finds that upon the Respondents’ paying in full and unconditionally the sums awarded to the Claimant in paragraphs 21. 15, 21. 16, 21. 18, 21. 19 below, the Claimant’s Preference D Subscription Shares and Equity Subscription Shares (as defined in the SSA) in Avitel India are to be cancelled forthwith; 21. 15 Awards to the Claimant and Orders the Respondents to pay damages in the amount of USD 60 million in respect of which award the First, Second, Third and Fourth Respondents are jointly E and severally liable; 21. 16 Awards to the Claimant and Orders the Respondents to pay interest on the sum of USD 60 million from 6 May 2011 to the date of this Final Award at the rate of 4. 25% per annum in respect of which award the First, Second, Third and Fourth Respondents F are jointly and severally liable; 21.

17 Orders in terms identical to the orders in the Interim Award (as amended by the Addendum and Amendment to Interim Award dated 15 June 2012 and by the Amendment to Interim Award dated 27 July 2012), which orders are to remain in force up to and G including the date on which the Respondents comply with all other orders in this Final Award; 21. 18 Awards to the Claimant and Orders the Respondents to pay the Claimant’s legal and other costs amounting to USD 1,652,890. 14 in respect of which award the First, Second, Third and Fourth Respondents are jointly and severally liable; H 806 SUPREME COURT REPORTS [2020] 10 S. C. R. A 21. 19 Awards to the Claimant and Orders the Respondents to pay all the costs of this arbitration in the total amount of SGD 827,615. 67 as follows: (a) the amount of SGD 29,235. 88 in respect of the Emergency Arbitrator’s fees and expenses; B (b) the amount of SGD 756,513. 19 in respect of the Tribunal’s fees and expenses; (c) the amount of SGD 41,868.

60 in respect of SIAC administrative fees and expenses; 21. 20 Declares the Second, Third and Fourth Respondents jointly C and severally liable to indemnify the Claimant for the loss of its investment in the amount of USD 60 million together with interest thereon for the period and at the rate specified in paragraph 21. 16 hereinabove and the Claimant’s legal costs, related expenses as well as the costs of this arbitration as specified in paragraph 21. 19 D hereinabove; 21. 21 Declares and Orders that upon the Respondents’ paying in full and unconditionally the sums awarded to the Claimant in paragraphs 21. 15, 21. 16, 21. 18, 21.

19 hereinabove and all costs arising out of and incidental to the cancellation of the Claimant’s E Preference Subscription Shares and Equity Subscription Shares (as defined in the SSA) in Avitel India, that the said shares be cancelled and that in this regard, the Parties take the requisite steps to effect the said cancellation within 30 days of receipt of such payment. ” F Initially, this Foreign Final Award was challenged by the Appellants in a section 34 proceeding in the Bombay High Court. By a judgment dated 28. 09. 2015, the section 34 petition was dismissed as being not maintainable. An appeal under section 37 of the 1996 Act was dismissed on 05. 05. 2017. Meanwhile, HSBC moved the Bombay High Court on 15. 04. 2015 to enforce the Foreign Final Award in the SSA dated G 27. 09. 2014, which enforcement proceedings are still pending. 2. Mr. Mukul Rohatgi, learned Senior Advocate and Mr.

Saurabh Kirpal, learned counsel, appearing on behalf of the Appellants, took us through the Single Judge order and the Division Bench judgment, and then referred to the Indian law on the allegations of fraud made in arbitral H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 807 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] proceedings, which, according to them, show that if the transaction A entered into between the parties involve serious criminal offences such as forgery and impersonation, then it is clear that under Indian law, such dispute would not be arbitrable. In fact, they stated that a criminal complaint was filed by HSBC against the Appellants dated 16. 01. 2013, alleging offences under sections 420, 467, 468, read with section 120B B of the Indian Penal Code, 1860, with the Economic Offences Wing, Mumbai [“EOW”], resulting in an FIR being registered. However, the EOW informed HSBC that a closure report was filed before the concerned Magistrate in Mumbai.

This closure report was then accepted. HSBC then filed a protest petition seeking rejection of the closure report, which was dismissed by the learned Magistrate on 05. 05. 2018. This C order passed by the Magistrate was in turn challenged by HSBC in Writ Petition (Criminal) No. 5659 of 2018, which petition is still pending. They then argued that, ultimately, in enforcement proceedings in India, the gateways of section 48 of the 1996 Act have to be met. “The public policy of India” is contained in the judgments of this Court regarding D serious allegations of fraud made in arbitral proceedings, and if HSBC cannot pass this gateway, then enforcing a foreign award in India would not be possible. It was from this prism that a prima facie case had to be made out under section 9 of the 1996 Act.

They, therefore, attacked both the Single Judge order and the Division Bench judgment, stating that a prima facie case for enforcement of such foreign awards cannot E possibly refer to the Singapore law on fraud being alleged in arbitral proceedings, but can only refer to Indian law. They further argued that the Division Bench of the Bombay High Court had relied upon a Single Judge judgment of this Court reported as Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 F SCC 677 [“Swiss Timing”] which had held the judgment in N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 [“N. Radhakrishnan”] per incuriam, vitiating the entire Division Bench judgment. This is clear because a Single Judge judgment of this Court under section 11 of the 1996 Act has no precedential value as has correctly been held in State of West Bengal v. Associated Contractors, (2015) G 1 SCC 32 [“Associated Contractors”]. Mr. Rohatgi also indicated that Mr.

Christopher Lau, SC, the Chairman of the Arbitral Tribunal in the Singapore proceedings was biased, in that HSBC was a client of the firm to which he belonged, and this is one of the important grounds taken up in the section 48 proceeding which is pending in the Bombay High H 808 SUPREME COURT REPORTS [2020] 10 S. C. R. A Court. He also sought to raise an argument (for the first time before us) that the award being insufficiently stamped could not be looked at and that this would also go to show that there is no prima facie case in order to sustain the interim mandatory orders passed by the Division Bench of the High Court. It was further added that Report No. 246 of the Law Commission of India on ‘Amendment to the Arbitration and Conciliation B th Act, 1996’ of August 2014 [“246 Law Commission Report”] had recommended that a section 16(7) be added so as to do away with the ratio of N. Radhakrishnan (supra).

However, Parliament thought it fit, when it passed the Arbitration and Conciliation (Amendment) Act, 2015 [“2015 Amendment Act”], not to incorporate such a section, showing C that N. Radhakrishnan(supra) holds the field and that, therefore, serious questions of fraud raised, like in the present arbitral proceedings, would render such dispute inarbitrable. For this proposition, they relied heavily on the House of Lords judgment in President of India and La Pintada Compania Navigacion S. A. , [1985] A. C. 104 [“La Pintada”]. 3. Mr. Harish Salve, learned Senior Advocate appearing on behalf D of the Respondent, HSBC, countered all these submissions by relying upon several judgments of this Court, including the recent judgment in Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 [“Rashid Raza”]. According to the learned Senior Advocate, this judgment has, with great clarity, explained the judgment in A. Ayyasamy v. A.

Paramasivam, E (2016) 10 SCC 386 [“Ayyasamy”], which in turn had explained N. Radhakrishnan (supra), as referring only to such serious allegations of fraud as would vitiate the arbitration clause along with the agreement, and allegations of fraud which are not merely inter parties, but affect the public at large. He argued that a reading of the pleadings in the present case would show that neither of these two tests has been met. He also F copiously read from the Foreign Final Award dated 27. 09. 2014, which found not merely on impersonation, which was one small leg on which it stood, but also on siphoning off or diversion of a substantial portion of the USD 60 million paid by HSBC into companies owned or controlled by the Jain family. He said that these issues are predominantly civil law G issues to be decided inter parties. He further argued that insofar as Mr.

Christopher Lau SC’s alleged bias is concerned, this was not the time or place to go into such allegations, which would only be fully met in the section 48 proceedings which are pending. He indicated that in any case, this Foreign Final Award was unanimous and consisted of two other arbitrators, Dr. Michael C. Pryles and Justice (Retd. ) Ferdino I. Rebello, H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 809 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] retired Chief Justice of the Allahabad High Court. He also asked us not A to go into the stamping aspect of the Foreign Final Award inasmuch as it was raised here for the first time without any proper pleading; if properly pleaded, then his client would have had an opportunity to rebut the same to show that there was no insufficiency of stamp duty paid. Mr.

Salve therefore supported the ultimate order of the learned Single Judge of the B Bombay High Court, and said that the Division Bench ought not to have reduced the amount of USD 60 million to half, i. e. , USD 30 million without any reasoning worth the name, particularly because the Foreign Final Award had held that the USD 60 million was to be paid by way of damages with interest and costs, the shares in HSBC’s name standing cancelled. Once it is clear that the aforesaid shares stood cancelled, it is C clear that the 7. 8% of the paid-up share capital of Avitel India that was held by HSBC reverts to Avitel India. This being the case, there would be no awarding of the difference between market value of the shares as on the date of breach and USD 60 million, as the shares are back in the hands of Avitel India. D 4.

Having heard learned counsel appearing on behalf of both the parties, the only real question that needs to be addressed in the section 9 proceedings is the extent to which HSBC could be said to have a strong prima facie case in the enforcement proceedings under section 48 which are pending before the Bombay High Court. If so, whether irreparable prejudice would be caused to HSBC if protective orders were not issued E in its favour, and generally, whether the balance of convenience tilts in its favour and to what extent. 5. First and foremost, it is correct to state that this prima facie case would necessarily depend upon what is the substantive law in India qua arbitrability when allegations of fraud are raised by one of the parties F to the arbitration agreement. The law on this point has its origins in a judgment under the Arbitration Act, 1940 [“1940 Act”], the predecessor to the 1996 Act, which repealed the 1940 Act. Thus, in Abdul Kadir Shamsuddin Bubere v.

Madhav Prabhakar Oak, [1962] 3 SCR 702 [“Abdul Kadir”], disputes arose out of an agreement between the G parties, which contained an arbitration clause. Consequently, respondents no. 1 and 2 filed an application under section 20 of the 1940 Act, as it then stood. This application was opposed by the appellant on four grounds before the Hon’ble Supreme Court. The fourth ground is important from our point of view and reads thus: “xxx xxx xxx H 810 SUPREME COURT REPORTS [2020] 10 S. C. R. A (4) The respondents had made allegations of fraud against the appellant in their application and that was also a ground for not referring the dispute to arbitration. ” (at p.

707) In dealing with this ground, the Court first referred to section B 20(4) of the 1940 Act, which laid down that “where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. ” This Court referred to the fact that the words of this sub-section leave a C wide discretion with the Court to consider whether an order for filing an agreement should be made and reference thereon should also be made. Various English judgments were referred to. Russel v.

Russel, [1880] 14 Ch D 471 was referred to for the proposition that the Court will, in general, refuse to send a dispute to arbitration if the party charged with D fraud desires a public inquiry, but where the objection to arbitration is by the party charging the fraud, the Court will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved [see Abdul Kadir (supra) at p. 713]. The next English judgment is Charles Osenton & Co. v. Johnston, 1942 A. C. 130. This case held that as the professional reputation of a particular firm was involved, the matter E should not be referred to arbitration for the reason that the normal tribunal of a High Court with a jury, from which there is recourse to a right to appeal, could not be substituted by proceedings before an official referee under section 89 of the Judicature Act, 1925.

After referring to these cases, this Court cautioned: F “There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference. But it is not G every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a court to take the matter out of the forum which the parties themselves have chosen. This to our mind is clear even from the decision in Russel case [1880 14 Ch D 471]. In that case there were allegations of constructive and actual fraud by one brother against H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 811 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] the other and it was in those circumstances that the court made A the observations to which we have referred above.

Even so, the learned Master of the Rolls also observed in the course of the judgment at p. 476 as follows: “Why should it be necessarily beyond the purview of this contract to refer to an arbitrator questions of account, even B when those questions do involve misconduct amounting even to dishonesty on the part of some partner? I do not see it. I do not say that in many cases which I will come to in the second branch of the case before the Court, the Court may not, in the exercise of its discretion, refuse to interfere; but it does not C appear to me to follow of necessity that this clause was not intended to apply to all questions, even including questions either imputing moral dishonesty or moral misconduct to one or other of the parties. ” We are clearly of opinion that merely because some allegations D have been made that accounts are not correct or that certain items are exaggerated and so on that is not enough to induce the court to refuse to make a reference to arbitration.

It is only in cases of allegations of fraud of a serious nature that the court will refuse as decided in Russel’s case [1880 14 Ch D 471] to order an arbitration agreement to be filed and will not make a reference. E We may in this connection refer to Minifie v. Railway Passengers Assurance Company [(1881) 44 LT 552]. There the question was whether certain proceedings should be stayed; and it was held that notwithstanding the fact that the issue and the evidence in support of it might bear upon the conduct of a certain F person and of those who attended him and so might involve a question similar to that of fraud or no fraud, that was no ground for refusing stay. It is only when serious allegations of fraud are made which it is desirable should be tried in open court that a court would be justified in refusing to order the arbitration agreement to be filed and in refusing to make a reference. ” G (at pp.

714-716) The Court then turned to the facts of the case before it and held that allegations as to the correctness or otherwise of entries in accounts are not serious allegations of fraud, stating that such allegations are often H 812 SUPREME COURT REPORTS [2020] 10 S. C. R. A made in suits for accounts, which are purely civil proceedings. It was added: “That is why we emphasise that even in the leading case of Russel [1880 14 Ch D 471], the learned Master of the Rolls was at pains to point out that it could not necessarily be said in a B case of accounts that no reference to arbitration should be made, even though questions relating to accounts which might involve misconduct amounting even to dishonesty on the part of some partner might arise in the arbitration proceedings and even cases where moral dishonesty or moral misconduct is attributed to one party or the other might be referred to arbitration.

It seems to us C that every allegation tending to suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a court to refuse to order the arbitration agreement to be filed and refuse to make a reference. Looking to the allegations which have been made in this case we are of opinion that there are no such serious D allegations of fraud in this case as would be sufficient for the court to say that there is sufficient cause for not referring the dispute to arbitration. This contention of the appellant must also therefore fail. ” (at pp. 717-718) E 6. In N. Radhakrishnan (supra), differences between the partners of a firm were sought to be adjudicated in a civil suit filed by the respondents. The appellant filed an application under section 8 of the 1996 Act stating that as there was an arbitration clause between the partners, the matter should now be referred to arbitration.

This Court, F after considering the judgment in Abdul Kadir (supra), extracted one sentence from the said judgment at p. 714 as follows: “There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be G a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference. ” This sentence, according to the learned Division Bench, being the ratio in Abdul Kadir (supra), would necessarily mean that wherever serious allegations of fraud are raised in a case in which there is an H arbitration agreement, they should be tried in a court of law. In the fact AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 813 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J.

] situation before the Court, the Court found that the appellant had made A serious allegations against the respondents alleging that they were committing malpractices in the account books and had manipulated the finances of the partnership firm. This, according to the learned Division Bench of this Court, was enough to dismiss the section 8 application. We may also refer to the fact that the appellant’s counsel had relied B upon the judgment in Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 [“Hindustan Petroleum”], in which it was stated that it is mandatory for a civil court to refer to arbitration a dispute that arises between parties with an arbitration agreement, under section 8 of the 1996 Act. We may only note at this stage that this judgment was not dealt with at all by the C Court. On the contrary, a judgment delivered under section 20(4) of the 1940 Act was referred to, in order to arrive at the conclusion arrived at by the Court. 7.

In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. , (2010) 8 SCC 24 [“Afcons”], this Court D held as follows: “27. The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature: (i) Representative suits under Order 1 Rule 8 CPC which involve public interest or interest of numerous persons who E are not parties before the court. (In fact, even a compromise in such a suit is a difficult process requiring notice to the persons interested in the suit, before its acceptance). (ii) Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over F the management of societies, clubs, association, etc. ). (iii) Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration.

(iv) Cases involving serious and specific allegations of fraud, G fabrication of documents, forgery, impersonation, coercion, etc. (v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against the Government. (vi) Cases involving prosecution for criminal offences. ” H 814 SUPREME COURT REPORTS [2020] 10 S. C. R. A It will be seen that items (iv) and (vi) are relevant from our point of view and require to be explained in the light of subsequent decisions of this Court. 8. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. , (2011) 5 SCC 532 [“Booz Allen”], this Court decided that proceedings B in rem, such as a mortgage suit filed under Order XXXIV of the Civil Procedure Code, 1908 (which was a proceeding in rem), would not be arbitrable. In a significant passage, this Court held: “36.

The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or C 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 D enjoys statutory 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 E 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 F 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 G 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. H AVITEL POST STUDIOZ LIMITED & ORS. v.

HSBC PI 815 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] This is not however a rigid or inflexible rule. Disputes relating to A subordinate rights in personam arising from rights in rem have always been considered to be arbitrable. 39. The Act does not specifically exclude any category of disputes as being not arbitrable. Sections 34(2)(b) and 48(2) of the Act however make it clear that an arbitral award will be set aside if B the court finds that “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force”. ” The Court then held, following Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. , (1999) 5 SCC 688, that similarly, winding up C proceedings under the Companies Act, 1956 cannot be referred to arbitration (see paragraph 42).

As against this, suits for specific performance are arbitrable despite the fact that the court is vested with discretion to be exercised based upon principles laid down as to when not to decree specific performance (see paragraphs 43 and 44). The D Court then concluded: “46. An agreement to sell or an agreement to mortgage does not involve any transfer of right in rem but creates only a personal obligation. Therefore, if specific performance is sought either in regard to an agreement to sell or an agreement to mortgage, the E claim for specific performance will be arbitrable. On the other hand, a mortgage is a transfer of a right in rem. A mortgage suit for sale of the mortgaged property is an action in rem, for enforcement of a right in rem. A suit on mortgage is not a mere suit for money. A suit for enforcement of a mortgage being the enforcement of a right in rem, will have to be decided by the F courts of law and not by Arbitral Tribunals. 47.

The scheme relating to adjudication of mortgage suits contained in Order 34 of the Code of Civil Procedure, replaces some of the repealed provisions of the Transfer of Property Act, 1882 relating to suits on mortgages (Sections 85 to 90, 97 and 99) and also G provides for implementation of some of the other provisions of that Act (Sections 92 to 94 and 96). Order 34 of the Code does not relate to execution of decrees, but provides for preliminary and final decrees to satisfy the substantive rights of mortgagees with reference to their mortgage security. ” H 816 SUPREME COURT REPORTS [2020] 10 S. C. R. A 9. We now come to a learned Single Judge’s judgment in Swiss Timing (supra). There is no doubt that this judgment delivered by a learned Single Judge under a section 11 jurisdiction cannot be said to be a binding precedent [see Associated Contractors (supra) at paragraph 17]. However, the learned Judge’s reasoning has strong persuasive value which we are inclined to adopt.

The learned Single Judge first held that B the judgment in P. Anand Gajapathi Raju v. P. V. G. Raju, (2000) 4 SCC 539, was not brought to the notice of this Court in N. Radhakrishnan (supra). The judgment of Hindustan Petroleum (supra) which was brought to the notice of the Court was not dealt with at all. Further, the provisions of sections 5 and 16 of the 1996 Act were C also not referred to. Section 5 of the 1996 Act states as follows: “5. Extent of judicial intervention. —Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part. ” D Section 16(1) of the 1996 Act states: “16. Competence of arbitral tribunal to rule on its jurisdiction.

—(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that E purpose,— (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and (b) a decision by the arbitral tribunal that the contract is null F and void shall not entail ipso jure the invalidity of the arbitration clause. ” These provisions, together with section 8 of the 1996 Act, which now makes it mandatory to refer an action which is brought before a judicial authority, which is the subject matter of an arbitration agreement, G to arbitration, if the conditions of the section are met, all point to a sea change from the 1940 Act which was repealed by this 1996 Act. By way of contrast with section 8 of the 1996 Act, section 20 of the 1940 Act is set out hereinbelow: “20. Application to file in Court arbitration agreement.

— H (1) Where any persons have entered into an arbitration agreement AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 817 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] before the institution of any suit with respect to the subject-matter A of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court. B (2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant C as plaintiff and the other parties as defendants.

(3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed. D (4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court. E (5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable. ” It will be seen from section 20 of the 1940 Act, as was held in Abdul Kadir (supra), that a wide discretion is vested in the Court if F sufficient cause is made out not to refer parties to arbitration.

It was in that context that the observations in Abdul Kadir (supra) as to serious allegations of fraud triable in a civil court, being “sufficient cause” shown under section 20(4) of the 1940 Act were made. Also, the approach of the 1940 Act is made clear by section 35(1),which is set out hereinbelow: G “35. Effect of legal proceedings on arbitration. —(1) No reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject-matter of the reference, but when legal proceedings upon the whole of the subject-matter of the reference have been commenced between all the parties to the reference and a notice thereof has H 818 SUPREME COURT REPORTS [2020] 10 S. C. R. A been given to the arbitrators or umpire, all further proceedings in a pending reference shall, unless a stay of proceedings is granted under Section 34, be invalid.

xxx xxx xxx” Thus, even where arbitral proceedings are ongoing, such B proceedings become invalid the moment legal proceedings upon the whole of the subject matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire. As against this, sections 5,8 and 16 of the 1996 Act reflect a completely new approach to arbitration, which is that when C a judicial authority is shown an arbitration clause in an agreement, it is mandatory for the authority to refer parties to arbitration bearing in mind the fact that the arbitration clause is an agreement independent of the other terms of the contract and that, therefore, a decision by the arbitral tribunal that the contract is null and void does not entail ipso jure the invalidity of the arbitration clause. Even otherwise, N. Radhakrishnan D (supra) did not refer to the ratio of Abdul Kadir (supra) correctly.

As has been seen by us hereinabove, Abdul Kadir (supra) held that serious allegations of fraud are not made out when allegations of moral or other wrongdoing inter parties are made. In particular, it was held that discrepancies in account books are the usual subject matter in account suits, which are purely of a civil nature. For all these reasons, we are E broadly in agreement with the observations of Nijjar, J. rendering N. Radhakrishnan (supra) lacking in precedential value. 10. The next judgment to be dealt with, chronologically speaking, is the judgment in Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 [“Vimal Kishor Shah”]. To the six categories of exceptions F to arbitrability of civil disputes, a seventh category has been added, namely, disputes arising under trust deeds governed by the Trusts Act, 1882.

Here, it was held that a consideration of the Trusts Act would show that the intention of the legislature was to confer jurisdiction only on civil courts for deciding disputes arising under the Trusts Act, which would G amount to an implied bar on other proceedings including arbitral proceedings. The Court therefore found: “53. We, accordingly, hold that the disputes relating to trust, trustees and beneficiaries arising out of the trust deed and the Trusts Act, 1882 are not capable of being decided by the arbitrator H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 819 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] despite existence of arbitration agreement to that effect between A the parties.

A fortiori, we hold that the application filed by the respondents under Section 11 of the Act is not maintainable on the ground that firstly, it is not based on an “arbitration agreement” within the meaning of Sections 2(1)(b) and 2(1)(h) read with Section 7 of the Act and secondly, assuming that there exists an B arbitration agreement (Clause 20 of the trust deed) yet the disputes specified therein are not capable of being referred to private arbitration for their adjudication on merits. 54. We thus add one more category of cases i. e. Category (vii), namely, cases arising out of trust deed and the Trusts Act, 1882, C in the list of six categories of cases specified by this Court in para 36 at pp. 546-47 of the decision rendered in Booz Allen & Hamilton Inc. [Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. , (2011) 5 SCC 532 : (2011) 2 SCC (Civ) 781] which as held above cannot be decided by the arbitrator(s).

” D [This judgment was referred to with approval in Vidya Drolia and Ors. v. Durga Trading Corporation, 2019 SCC OnLine SC 358 at paragraph 30]. 11. Now comes the important judgment in Ayyasamy (supra). Two separate judgments were delivered by a Division Bench of this E Court. Sikri, J. , after referring to the judgments in Abdul Kadir (supra), N. Radhakrishnan (supra), Swiss Timing (supra), and Booz Allen th (supra), then referred to the 246 Law Commission Report, in particular to paragraphs 50 and 51 thereof. He then held: “23. A perusal of the aforesaid two paragraphs brings into fore that the Law Commission has recognised that in cases of serious F 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 G 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 as such issues can be determined by the Arbitral Tribunal. H 820 SUPREME COURT REPORTS [2020] 10 S. C. R. A 24. Before we apply the aforesaid test to the facts of the present case, a word on the observations in Swiss Timing Ltd. case [Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677 : (2014) 3 SCC (Civ) 642] to the effect that the judgment of N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) B 1 SCC (Civ) 12] was per incuriam, is warranted.

In fact, we do not have to labour on this aspect as this task is already undertaken by this Court in State of W. B. v. Associated Contractors [State of W. B. v. Associated Contractors, (2015) 1 SCC 32 : (2015) 1 SCC (Civ) 1]. It has been clarified in the aforesaid case that Swiss C Timing Ltd. [Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677 : (2014) 3 SCC (Civ) 642] was a judgment rendered while dealing with Section 11(6) of the Act and Section 11 essentially confers power on the Chief Judge of India or the Chief Justice of the High Court as a designate to appoint an arbitrator, which power has been exercised by D another Hon’ble Judge as a delegate of the Chief Justice. This power of appointment of an arbitrator under Section 11, by the Court, notwithstanding the fact that it has been held in SBP & Co. v. Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd.

, (2005) 8 SCC 618] as a judicial power, cannot be deemed to have E precedential value and, therefore, it cannot be deemed to have overruled the proposition of law laid down in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12]. 25. In view of our aforesaid discussions, we are of the opinion F that mere allegation of fraud simpliciter may not be a ground to nullify the effect of arbitration agreement between the parties.

It is only in those cases where the court, while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential G that such complex issues can be decided only by the civil court on the appreciation of the voluminous evidence that needs to be produced, the court can side-track the agreement by dismissing the application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 821 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J.

] plea of fraud or where fraud is alleged against the arbitration A provision itself or is of such a nature that permeates the entire contract, including the agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof B would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the court has to be on the question as to whether C jurisdiction of the court has been ousted instead of focusing on the issue as to whether the court has jurisdiction or not.

It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are D carved out by the courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, courts i. e. public fora, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the E Act, should be on the aforesaid aspect viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties.

When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict F and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject-matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected. ” G Chandrachud, J. , in a separate judgment, referred to the judgment in N. Radhakrishnan (supra) and then held: “40. The above extract from the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : H 822 SUPREME COURT REPORTS [2020] 10 S. C. R. A (2010) 1 SCC (Civ) 12] relies extensively on the view propounded in Abdul Kadir [Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406].

The decision in Abdul Kadir[Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406] arose under the Arbitration Act, 1940 and was in the context of the provisions of Section 20. In Abdul B Kadir [Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406] , this Court emphasised that sub-section (4) of Section 20 of the Arbitration Act, 1940 left a wide discretion in the court. In contrast, the scheme of the 1996 Act has made a radical departure from the position under the C erstwhile enactment. A marked distinction is made in Section 8 where no option has been left to the judicial authority but to refer parties to arbitration. Abdul Kadir [Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, AIR 1962 SC 406] explains the position under the Arbitration Act, 1940. The present legislation on the subject embodies a conscious departure which is intended D to strengthen the efficacy of arbitration. xxx xxx xxx 43.

Hence, the allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve a dispute arising out of a civil or contractual E relationship on the basis of the jurisdiction conferred by the arbitration agreement. ” He then cautioned against the use of N. Radhakrishnan (supra) as a precedent, and distinguished it as follows: F “45. The position that emerges both before and after the decision in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] is that successive decisions of this Court have given effect to the binding precept incorporated in Section 8. Once there is an arbitration agreement between the parties, a judicial authority before whom an action is G brought covering the subject-matter of the arbitration agreement is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract.

There is no element of discretion left in the court or judicial authority to obviate the legislative mandate of compelling parties to seek recourse H to arbitration. The judgment in N. Radhakrishnan AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 823 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : A (2010) 1 SCC (Civ) 12] has, however, been utilised by parties seeking a convenient ruse to avoid arbitration to raise a defence of fraud: 45. 1. First and foremost, it is necessary to emphasise that the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro B Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] does not subscribe to the broad proposition that a mere allegation of fraud is ground enough not to compel parties to abide by their agreement to refer disputes to arbitration. More often than not, a bogey of fraud is set forth if only to plead that the dispute cannot be arbitrated C upon.

To allow such a plea would be a plain misreading of the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] . As I have noted earlier, that was a case where the appellant who had filed an application under Section 8 faced with a suit on a dispute in partnership had raised serious issues of criminal wrongdoing, D misappropriation of funds and malpractice on the part of the respondent. It was in this background that this Court accepted the submission of the respondent that the arbitrator would not be competent to deal with matters “which involved an elaborate production of evidence to establish the claims relating to fraud E and criminal misappropriation”. Hence, it is necessary to emphasise that as a matter of first principle, this Court has not held that a mere allegation of fraud will exclude arbitrability.

The burden must lie heavily on a party which avoids compliance with the obligation assumed by it to submit disputes to arbitration to establish the dispute is not arbitrable under the law for the time F being in force. In each such case where an objection on the ground of fraud and criminal wrongdoing is raised, it is for the judicial authority to carefully sift through the materials for the purpose of determining whether the defence is merely a pretext to avoid arbitration. It is only where there is a serious issue of fraud involving G criminal wrong doing that the exception to arbitrability carved out in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] may come into existence. 45. 2. Allegations of fraud are not alien to ordinary civil courts. H Generations of judges have dealt with such allegations in the 824 SUPREME COURT REPORTS [2020] 10 S. C. R. A context of civil and commercial disputes.

If an allegation of fraud can be adjudicated upon in the course of a trial before an ordinary civil court, there is no reason or justification to exclude such disputes from the ambit and purview of a claim in arbitration. The parties who enter into commercial dealings and agree to a resolution of disputes by an arbitral forum exercise an option and express a B choice of a preferred mode for the resolution of their disputes. The parties in choosing arbitration place priority upon the speed, flexibility and expertise inherent in arbitral adjudication. Once parties have agreed to refer disputes to arbitration, the court must plainly discourage and discountenance litigative strategies designed C to avoid recourse to arbitration. Any other approach would seriously place in uncertainty the institutional efficacy of arbitration. Such a consequence must be eschewed. ” After the statement of the law, the learned Judge referred to an instructive passage by Gary B. Born as follows: D “56.

The legal position has been succinctly summarised in International Commercial Arbitration by Gary B. Born [2nd Edn. , Vol. I, p. 846] thus: “… under most national arbitration regimes, claims that the parties’ underlying contract (as distinguished from the parties’ E arbitration clause) was fraudulently induced have generally been held not to compromise the substantive validity of an arbitration clause included in the contract. The fact that one party may have fraudulently misrepresented the quality of its goods, services, or balance sheet generally does nothing to impeach the parties’ agreed dispute resolution mechanism. As a F consequence, only fraud or fraudulent inducement directed at the agreement to arbitrate will, as a substantive matter, impeach that agreement.

These circumstances seldom arise: as a practical matter, it is relatively unusual that a party will seek to procure an agreement to arbitrate by fraud, even in those cases G where it may have committed fraud in connection with the underlying commercial contract. ” (See also in this context International Arbitration Law and Practice by Mauro Rubino-Sammartano [2nd Edn. , p. 179]. )” H AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI 825 HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J. ] Mr. Saurabh Kirpal took exception to Sikri, J. ’s judgment in that A th Sikri, J. did not refer to paragraph 52 of the 246 Law Commission Report th and its aftermath. Paragraph 52 of the 246 Law Commission Report reads as follows: “52. The Commission believes that it is important to set this entire controversy to a rest and make issues of fraud expressly arbitrable B and to this end has proposed amendments to section 16. ” (at p. 28) The Law Commission then added, by way of amendment, a propo

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