Delhi District Court
Generic Web Trade Ltd. And Anr vs India Web Trade Llc And Anr on 7 March, 2008
SUIT NO. 304/2007
1
IN THE COURT OF SH. ASHISH AGGARWAL, CIVIL JUDGE,
DELHI
SUIT NO. 304/2007
Generic Web Trade Ltd. and Anr. ...Plaintiffs
Versus
India Web Trade LLC and Anr. ...Defendants
ORDER
1. This order shall dispose of an application under Section 45 of Arbitration and Conciliation Act, 1996 filed by the defendants.
2. Facts relevant for disposal of the application are that the plaintiffs have filed the suit primarily for declaring that they are not liable to make any payment to the defendants and to prevent the defendants from claiming any such payment. According to the averments made in the plaint, the plaintiff no.2 is an Indian resident and is one of the directors of the plaintiff no.1 company. The plaintiff no.2 was instrumental in incorporation of the plaintiff no.1 company alongwith a company named India Web Trade Pvt. Ltd. The rights and obligations of India Web Trade Pvt. Ltd. were later succeeded by Defendant No.1 company. India Web Trade Pvt. Ltd. SUIT NO. 304/2007 2 is a company incorporated under the laws of the State of Delaware, USA. The assets of the plaintiff no.1 company and India Web Trade Pvt. Ltd. were purchased out of the funds contributed by plaintiff no.2. In the month of August, 2005, defendant no.2, a citizen and resident of the United States of America, approached plaintiff no.2 with a proposal to jointly carry on business. Defendant no.2 expressed his intention to invest in the companies floated by plaintiff no.2. Defendant no.2 assessed value of 40% stake in both the companies at USD 45,337.35. It was agreed that the sum of USD 45,337.35 would be invested by defendant no.2. It was also agreed that for the purpose of avoiding taxes, the purchase price would be paid ostensibly as investment of USD 1000 each in plaintiff no.1 and India Web Trade Pvt. Ltd. by payment directly to plaintiff no.2 and the remaining sum of USD 43,337.35 as interest free loan to India Web Trade Pvt. Ltd. An understanding was arrived at that this sum would reach plaintiff no.2 as the ultimate beneficiary. By the said payment, 40% stake in the two companies floated by plaintiff no.2 was to be transferred to defendant no.1. The funds were agreed to be sent to plaintiff no.1 by India Web SUIT NO. 304/2007 3 Trade Pvt. Ltd. under a running account for the services rendered by plaintiff no.1 to the said company. Thereafter the funds were to be paid by plaintiff no.1 to plaintiff no.2 as discharge of loan advanced by plaintiff no.2.
3. It is further stated in the plaint that an agreement was entered into between the plaintiffs, defendant no.2 and the erstwhile India Web Trade Pvt. Ltd. on 15.3.2006. The agreement provided for payment of the aforesaid purchase price and for operation and control of the companies. It was agreed that though the defendant no.2 had purchased only 40% holding, control over the companies would be shared in equal halves. In accordance with the understanding, defendant no.2 paid a sum of USD 43,337.35 to India Web Trade Pvt. Ltd. This sum was transferred by India Web Trade Pvt. Ltd. to plaintiff no.1 and was further transmitted to plaintiff no.2.
4. It is further pleaded by the plaintiffs that on 10.5.2006, it was agreed that India Web Trade Pvt. Ltd. be dissolved as it had no liabilities and obligations and had fulfilled its purpose. By the dissolution of India Web Trade Pvt. Ltd. and formation of defendant SUIT NO. 304/2007 4 no.1, the agreement dated 15.3.2006 was abandoned and substituted by a new arrangement. Under the new arrangement, the shareholding and control over defendant no.1 was to be with defendant no.2 and the remaining funds of India Web Trade Pvt. Ltd. were to be transferred to the newly formed defendant no.1 company. The arrangement was distinct from the previous agreement wherein plaintiff no.2 had a 60% shareholding in India Web Trade Pvt. Ltd. and control was equally shared. For the purpose of settling the accounts of India Web Trade Pvt. Ltd., plaintiff no.2 sent an e-mail dated 13.10.2006 to defendant no.2 providing exact details of the accounts and indicating the balance of about USD 1530.50 which was to be transferred to the account of defendant no.2. These accounts were accepted by defendant no.2 and by his e-mail dated 13.10.2006, defendant no.2 indicated to plaintiff no.2 that transfer of the remaining balance should be arranged to avoid tax problems. The interest free loan was shown as investment by defendant no.2 in the abovementioned companies in the account. The money was paid to plaintiff no.1 for services rendered by plaintiff no.1 to India Web Trade Pvt. Ltd. The SUIT NO. 304/2007 5 accounts relating to India Web Trade Pvt. Ltd. were finally settled. It was agreed that India Web Trade Pvt. Ltd. had met all its obligations at the time of its dissolution. No money was payable by the then India Web Trade Pvt. Ltd. to defendant no.2 including part payment of the purchase price which was structured as an interest free loan. The enterprise later suffered losses. The loss suffered was absorbed by plaintiff no.1 and defendant no.1 alone. Later the business enterprise did not perform well. Suddenly by e-mail dated 21.5.2007, defendant no.2 started making false claims that he had no knowledge of the companies' situation and he wanted his investment to be returned to him. Defendant no.2 claimed that plaintiff no.2 shall pay a sum of USD 43,337.35 to defendant no.1 which was to be transmitted to defendant no.2 as repayment of interest free loan. Plaintiff no.2 replied to the e-mail disputing this liability.
5. According to the plaint, defendant no.2 is trying to make a false claim through arbitration proceedings before the American Arbitration Association. As per the version of the plaintiffs, the sum which the defendant no.2 is claiming was a mere structural SUIT NO. 304/2007 6 arrangement for payment of purchase price to plaintiff no.2. According to the plaintiffs, in any event, the loan was advanced by defendant no.2 to India Web Trade Pvt. Ltd. and the defendant no.2 has to be made payment of the said sum from India Web Trade Pvt. Ltd. and not from the plaintiff. It is stated in the plaint that India Web Trade Pvt. Ltd. has dissolved and all its obligations have been met which implies that nothing is payable by India Web Trade Pvt. Ltd. to defendant no.2 or any other person. It is stated that defendant no.2 has concealed the agreement dated 10.5.2006 which replaced the previous arrangement and extinguished any possibility of bringing any claims. It is further stated in the plaint that defendant no.1 was not a party to the earlier arbitration agreement contained in the agreement dated 15.3.2006 and is therefore avoiding bringing of any action against defendant no.1. The transaction of payment for services between plaintiff no.1 and India Web Trade Pvt. Ltd. was not part of the superseded agreement dated 15.3.2006 but was an independent contractual agreement. It is stated in the plaint that the defendant no.2 is attempting to bring an action only against plaintiff no.2 in New York SUIT NO. 304/2007 7 and USA and that too under an abandoned, replaced and superseded agreement dated 15.3.2006. The plaintiffs have submitted that defendant no.2 is attempting to initiate oppressive, unjust, unfair, fraudulent, prohibitively inconvenient and expensive proceedings which are against the public policy of India.
6. After institution of suit, summons were issued for service upon the defendants.
7. The defendants appeared through counsel and filed the instant application under Section 45 of Arbitration and Conciliation Act, 1996 praying that the parties be referred to arbitration in accordance with the provisions of Section 5.03 of the agreement dated 15.3.2006 entered into between the parties.
In their application, the defendants stated that the dispute between the parties arises out of the agreement dated 15.3.2006 which is admitted by the plaintiffs. Section 5.03 of the agreement was relied upon to contend that the dispute is within the scope of the arbitration clause necessitating reference of the dispute to arbitration.
SUIT NO. 304/20078
8. Counsel for the defendants has urged that in view of the clear provisions of Section 45 of Arbitration and Conciliation Act, 1996, a civil court has no jurisdiction to entertain the suit. It is submitted that the dispute has arisen out of contractual relationship between the parties and the entire subject matter of dispute is covered by the arbitration clause contained in the agreement dated 15.3.2006. It is further contended by Counsel for defendants that the agreement dated 10.05.2006 does not repudiate the earlier contract and the rights and obligations arising out of earlier contract subsist between the parties to that contract. It is also contended that for deciding an application under Section 45, only prima-facie case in respect of existence of arbitration clause needs to be established and a full trial is not required. Ld. Counsel further urged that in the present case the demand made by the defendant arose out of the agreement dated 5.3.2006 which is subsisting in respect of disputes arising out of that agreement. It has been argued by the Ld. Counsel for defendants that in view of judgments of the Hon'ble Supreme Court in the cases of Shin- Etsu Chemical Co. Ltd. Vs. Aksh Optifibre Ltd. and another AIR 2005 SC 3766 SUIT NO. 304/2007 9 and Modi Entertainment Network and another vs. W.S.G Cricket Pte. Ltd. (2003) 4 SCC 341, the present suit is not maintainable. It is also contended by Ld. Counsel for defendants that the agreement dated 10.5.2006 only restructures the first agreement and does not wash away the obligations created by agreement dated 15.3.2006. While concluding his arguments, Counsel for the defendants reiterated that the second agreement was in continuation of the first agreement and the liabilities incurred by the first agreement have to be discharged in the second agreement.
9. Written submissions were filed on behalf of the plaintiffs in respect of the application under Section 45 of Arbitration and Conciliation Act, 1996. A number of contentions were raised in the written submissions. It was contended by the plaintiffs in the submissions that the defendants have not filed their written statement, which amounts to an admission of the facts stated in the plaint. It was further contended that the defendants cannot be permitted to dispute the facts contained in the plaint for want of written statement. It was also stated that the defendant cannot be permitted to address arguments on facts and interpret documents SUIT NO. 304/2007 10 placed on the judicial record without any formal pleadings or affidavit. It is further contended that the dispute can be referred to arbitration only if the ingredients mentioned in Section 45 of Arbitration and Conciliation Act, 1996 are satisfied. There has to be an arbitration agreement with respect to the subject matter of the suit and an application under Section 8 or Section 45 must have been preferred by all the defendants. Reliance was placed on the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC 531. It is submitted that the application under Section 45 has been filed only on behalf of defendant no.2, implying thereby that the suit shall proceed against defendant no.1 and since the cause of action and parties cannot be bifurcated, the application under Section 45 must be rejected. It was contended that each of the defendants who is interested in dismissal of the suit is required to file an application under Section 45 while in the present case it is only defendant no.2 who has filed the said application. It is submitted that defendant no.2 cannot plead on behalf of defendant no.1 and in absence of any application filed by defendant no.1 under Section 45, the suit must proceed against it. SUIT NO. 304/2007 11 It is further submitted that if defendant no.1 is not a party to the arbitration proceedings, the suit shall have to be sustained. An application filed by one of the parties cannot stop proceedings of the entire suit. It is contended that had the plaintiff impleaded only defendant no.1 as the defendant, the suit would not have been barred. It is further submitted that there is no arbitration agreement in the present case in which either plaintiff no.1 or defendant no.1 are parties. Defendant no.2 has not sought reference of these parties to arbitration. The said parties cannot be compelled to take recourse to arbitration proceedings against their consent. Defendant no.2 has not sought to initiate arbitration proceedings against plaintiff no.1 or defendant no.1.
10. It is next contended on behalf of the plaintiffs that the proposed arbitration proceedings are fraudulent and therefore must be restrained since fraud vitiates all proceedings. Reliance has been placed by the plaintiff on the judgments reported as S.P. Chengalvaraya Naidu Vs. Jagannath (1994) 1 SCC 1 and Bhaurao Dagdu Parlakar Vs. Maharashtra (2005) 7 SCC 605. To buttress the submission that the proceedings are fraudulent, the plaintiffs SUIT NO. 304/2007 12 have contended that plaintiff no.1 is not party to such arbitration and that plaintiffs cannot be compelled to seek relief from the same proceedings which they claim to be fraudulent, oppressive or vexatious.
11. It is further urged on behalf of the plaintiffs that the arbitration agreement does not apply to the present dispute since the dispute does not form part of arbitration proceedings in the United States of America. It is also contended that one of the prayers made in the suit is to declare the arbitration proceedings fraudulent, oppressive and vexatious and the said prayer cannot be dealt with by the same arbitration proceedings. It is submitted that if the contention of the defendants were to be accepted, every suit to prevent fraudulent, oppressive and vexatious proceedings would fail and the litigant would be directed to take such a plea in the same proceedings. Reliance has been placed upon the case of ONGC Vs. Western Company of North America (1987) 1 SCC 496 in this behalf. The plaintiffs have also relied upon the cases of Vijay Vishwanath Talwar Vs. Mashreq Bank (109) 2004 DLT 838 and Bharti Televentures Vs. DSS Enterprises (123) 2005 DLT 532 SUIT NO. 304/2007 13 to support the plea that the Court shall adjudicate the plea regarding fraudulent nature of proceedings.
12. The plaintiffs have highlighted the scope of judicial review under Section 45 and the mandatory conditions which are required to be fulfilled before making of any reference. The requirements of Section 45 have been stated to be as follows:-
"It is submitted that Section 45 of the Act requires the following in the facts of the present case:-
a. A determination from this Hon'ble Court that the entire subject matter of the suit is also the subject matter of the agreement and the ICDR arbitration initiated by defendant no.2; b. A determination that the parties in the suit are parties to the agreement and the ICDR arbitration initiated by defendant no.2;
c. A determination that there is a live and arbitrable dispute, as only then can this Hon'ble Court "refer the parties to arbitration"; d. A determination that the agreement is not null and void, inoperative or incapable of being performed."SUIT NO. 304/2007 14
13. It is further submitted on behalf of the plaintiffs that under Section 45, the Court is required to give finding as to whether the agreement is null, void, inoperative or incapable of being performed. The scope of review under Section 45 is stated to be wider than the scope under Section 8. Reliance in this behalf has been placed upon the case of SBP and Company Vs. Patel Engineering (2005) 8 SCC 618. Under Section 45, the Court is required to make a positive reference to arbitration. According to the plaintiff, the reasoning given by the Judges who delivered the majority opinion in the case of Shin-Etsu Chemical Co. Ltd. v. M/s. Aksh Optifibre Ltd. AIR 2005 SC 3766 is not clear from the judgment and that even according to the said judgment, the documents and material on record have to be examined by the Court. It is further submitted that the Court is required to decide the jurisdiction of the arbitrator even though the arbitrator retains the power to decide jurisdictional issues. The judgment in the case of Modi Entertainment Network and Anr. Vs. WSG Cricket Pte. Ltd. (2003) 4 SCC 341 relied upon by the defendant no.2 is sought to be extinguished by the plaintiff on the ground that it has not been SUIT NO. 304/2007 15 rendered in the context of Section 45 of Arbitration and Conciliation Act, 1996.
14. The application under Section 45 of Arbitration and Conciliation Act, 1996 is assailed on the ground that it is vague and without substance. It is stated that the application does not contain any averment that the cause of action in the present suit is the same as the cause of action in ICDR proceedings. The contents of the plaint have been reiterated by the plaintiffs. It is stated that the prayers No. (a) to (c) in the plaint are not a subject matter of arbitration proceedings in the USA and that plaintiff no.1 and defendant no.1 are not parties to the said proceedings.
15. On the aforesaid grounds, the plaintiffs have prayed for dismissal of the application under Section 45 of Arbitration and Conciliation Act, 1996.
16. I have heard submissions advanced by learned counsel for the parties and have perused the record. The various issues that arise from the contentions of the parties are classified and dealt with under the following heads:-
A. Scope of Section 45 of Arbitration and Conciliation Act, 1996.SUIT NO. 304/2007 16
B. Whether subject matter of the dispute is covered by the arbitration clause?
C. Whether parties to the suit can be referred to arbitration?
D. Whether the arbitrator is competent to decide all the contentions raised by the plaintiffs including its own jurisdiction and validity of the arbitration agreement?
E. Whether the arbitration agreement is null, void, inoperative or incapable of being performed or is fraudulent or against public policy?
F. Whether the defendants are entitled to press their application without having filed written statement?
G. Whether the application under Section 45 is vague?
H. Whether inconvenience or high expenses preclude reference to arbitration?
A. Scope of Section 45 of Arbitration and Conciliation Act, 1996.
17. Before proceeding to deal with the application of the defendants, it is imperative to undertake a careful analysis of the ambit and requirements of Section 45 of the Arbitration and Conciliation Act, 1996. Section 45 of Arbitration and Conciliation Act, 1996 reads as under:-
SUIT NO. 304/200717
"Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed."
18. Section 45 of Arbitration and Conciliation Act, 1996 is pari- materia with Article 8 (1) of UNCITRAL Model law on International Commercial Arbitration, 1985 which is as under :
"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."
19. The language employed in Section 45 of Arbitration and Conciliation Act, 1996 is peremptory. It uses the expression 'shall' SUIT NO. 304/2007 18 in respect of referring the parties to arbitration. This implies that unless judicial authority finds that the said agreement is null and void, inoperative or incapable of being performed, it is under an obligation to refer the parties to arbitration.
Regard must be had to the intention of the legislature while enacting Arbitration and Conciliation Act, 1996. The avowed objectives of the Act have been sucsinctly laid down in the case of Konkan Railway Corpn. Ltd. and Ors. v. Mehul Construction Co. (2000) 7 SCC 201, in which the Hon'bleSupreme Court observed as under :-
"At the outset, it must be borne in mind that prior to the 1996 Act, the Arbitration Act of 1940, which was in force in India provided for domestic arbitration and no provision was there to deal with the Foreign Awards. So far as the Foreign Awards are concerned, the same were being dealt with by the Arbitration (Protocol and Convention) Act, 1937, and the Foreign Awards (Recognition and Enforcement) Act, 1961. The increasing growth of global trade and the delay in disposal of cases in Courts under the normal system in several SUIT NO. 304/2007 19 countries made it imperative to have the perception of an alternative Dispute Resolution System, more particularly, in the matter of commercial disputes. When the entire world was moving in favour of a speedy resolution of commercial disputes, the United Nations Commission on International Trade Law way back in 1985 adopted the UNCITRAL Model Law of International Commercial Arbitration and since then, number of countries have given recognition to that Model in their respective legislative system. With the said UNCITRAL Model Law in view the present Arbitration and Conciliation Act of 1996 has been enacted in India replacing the Indian Arbitration Act, 1940, which was the principal legislation on Arbitration in the country that had been enacted during the British Rule. The Arbitration Act of 1996 provides not only for domestic arbitration but spreads its sweep to International Commercial Arbitration too. The Indian law relating to the enforcement of Foreign Arbitration Awards provides for greater autonomy in the arbitral process and limits judicial intervention to a narrower circumference than under the previous law. To, attract the confidence SUIT NO. 304/2007 20 of International Mercantile community and the growing volume of India'strade and commercial relationship with the rest of the world after the new liberalisation policy of the Government, Indian Parliament was persuaded to enact the Arbitration and Conciliation Act of 1996 in UNCITRAL Model and, therefore, in interpreting any provisions of the 1996 Act Courts must not ignore the objects and purpose of the enactment of 1996. A bare comparison of different provisions of the Arbitration Act of 1940 with the provisions of the Arbitration and Conciliation Act, 1996 would unequivocally indicate that 1996 Act limits intervention of Court with an arbitral process to the minimum and it is certainly not the legislative intent that each and every order passed by an authority under the Act would be a subject matter of judicial scrutiny of a Court of Law. Under the new law the grounds on which an award of an Arbitrator could be challenged before the Court have been severely cut down and such challenge is now permitted on the basis of invalidity of the agreement, want of jurisdiction on the part of the Arbitrator or want of proper notice to a party of the appointment of the Arbitrator or of Arbitral SUIT NO. 304/2007 21 proceedings. The powers of the Arbitrator have been amplified by insertion of specific provisions of several matters. Obstructive tactics adopted by the parties in arbitration proceedings are sought to be thwarted by an express provision inasmuch as if a party knowingly keeps silent and then suddenly raises a procedural objection will not be allowed to do so. The role of institutions in promoting and organising arbitration has been recognised. The power to nominate Arbitrators has been given to the Chief Justice or to an institution or person designated by him. The time limit for making awards has been deleted. The existing provisions in 1940 Act relating to arbitration through intervention of Court, when there is no suit pending or by order of the Court when there is a suit pending, have been removed. The importance of transnational commercial arbitration has been recognised and it has been specifically provided that even where the arbitration is held in India, the parties to the contract would be free to designate the law applicable to the substance of the dispute. Under the new law unless the agreement provides otherwise, the Arbitrators are required to give reasons for the award. The award itself has now SUIT NO. 304/2007 22 been vested with status of a decree, inasmuch as the award itself is made executable as a decree and it will no longer be necessary to apply to the Court for a decree in terms of the award. All these aim at achieving the sole object to resolve the dispute as expeditiously as possible with the minimum intervention of a Court of Law so that the trade and commerce is not affected on account of litigations before a Court. When United Nations established the Commission on International Trade Law it is on account of the fact that the General Assembly recognised that disparities in national laws governing international trade created obstacles to the flow of trade. The General Assembly regarded the Commission on International Trade Law as a medium which could play a more active role in reducing or removing the obstacles. Such Commission, therefore, was given a mandate for progressive harmonization and unification of the law of International Trade. With that objective when UNCITRAL Model has been prepared and the Parliament in our country enacted the Arbitration and Conciliation Act of 1996 adopting UNCITRAL Model, it would be appropriate to bear the said objective in mind SUIT NO. 304/2007 23 while interpreting any provision of the Act. The Statement of Objects and Reasons of the Act clearly enunciates that the main objective of the legislation was to minimise the supervisory role of Courts in the arbitral process."
20. An examination of the judgment in the case of Shin-Etsu Chemical Co. Ltd. Vs. Aksh Optifibre Ltd. and another AIR 2005 SC 3766 is necessary since it defines the scope of proceedings and the manner of deciding an application under Section 45 of Arbitration and Conciliation Act, 1996. The judgment is an authoritative pronouncement which provides guidelines to be borne in mind while determining such an application.
21. In the case of Shin-Etsu Chemical Co. Ltd. Vs. Aksh Optifibre Ltd. and another AIR 2005 SC 3766, the question that arose before the Hon'ble Supreme Court was regarding nature of adjudication contemplated by Section 45 of the Arbitration and Conciliation Act, 1996 when an objection about the agreement being "null and void, inoperative or incapable of being performed"
is raised before the judicial authority.SUIT NO. 304/2007 24
22. The facts of that case were that the agreement between the parties had been terminated by letter issued by one of the parties. The other party instituted a suit claiming a decree of declaration, cancellation of the letter by which agreement had been terminated and consequential injunction. The arbitration clause was assailed as being unconscionable, unfair, unreasonable, against the public policy and void-ab-initio having been entered into under undue influence and therefore inoperative, incapable of performance and without effect. An application was filed under Section 8 of Arbitration and Conciliation Act, 1996 for reference of dispute to arbitration before the International Chamber of Commerce in Tokyo, Japan. The application was allowed by the trial court. The order of the trial Court was set aside by the Hon'bleHigh Court on the ground that Section 45 of Arbitration and Conciliation Act, 1996 applied to the facts of the case. The trial court was directed to adjudicate the matter afresh on an application under Section 45 of Arbitration and Conciliation Act, 1996. The order of the Hon'ble High Court was challenged before the Hon'bleSupreme Court. During arguments before the Hon'bleSupreme Court, it was not in SUIT NO. 304/2007 25 dispute between the parties that the facts of the case were governed by Section 45 and not Section 8 of Arbitration and Conciliation Act, 1996. It was also not in dispute that the judicial authority before whom the suit is pending must return a finding as to whether the arbitration agreement is null, void, inoperative or incapable of being performed. The only question to be examined was whether such a finding was to be given on a prima-facie examination of the pleadings and documents or after dealing with the objections in detail as a final determination.
23. There was difference of judicial opinion and therefore it is necessary to assess each of the divergent opinions that emerged in the case.
24. Hon'bleJustice Y K Sabharwal, while delivering the minority opinion observed as under :-
"37. Clearly Section 45 casts an obligation upon the judicial authority when seized of the matter to record a finding as to the validity of the arbitration agreement as stipulated in the Section and there is nothing to suggest either from the language of SUIT NO. 304/2007 26 the section or otherwise that the finding to be recorded is to be only ex facie or prima facie.
xxxx xxxx xxxx xxxx
58. In view of the aforesaid discussion, I am of the view that under Section 45 of the Act, the determination has to be on merits, final and binding and not prima facie."
25. Hon'bleJustices B.N. Srikrishna and D.M. Dharmadhikari delivered the majority opinion.
Hon'bleJustice B.N. Srikrishna held that an opinion as to whether an arbitration agreement is null, void, inoperative or incapable of being performed has to be prima-facie and does not profess to be a final finding on the merits of the dispute. His Lordship cited several reasons to justify the decision. His Lordship examined interpretation of Section 45, principles of res-judicata and unfairness, problem of proving the applicable foreign law, redundancy of statute in case of contrary interpretation, possibility of multiple trials and foreign decisions to arrive at this conclusion. It was observed as under :-
SUIT NO. 304/200727
"81. True, that there is nothing in Section 45 which suggests that the finding as to the nature of the arbitral agreement has to be ex facie or prima facie. In my view, however, this is an inescapable inference from an ex visceribus interpretation of the statute. Sub-section (3) of Section 8 in Part I of the Act envisages that even in a situation where an application to the court has been made under sub-section (1), the arbitration may commence, continue and even an arbitral award be made. This was obviously meant to cut down delay in the conclusion of the arbitral proceedings. There is conspicuous absence of a corresponding provision either in Section 45 or in the rest of the provisions in Part II. This legitimately gives rise to an inference that once the arbitral agreement has been subjected to scrutiny before the court under Section 45 of the Act, conceivably, the arbitral proceedings could be stayed till the decision of the court on the nature of the arbitral agreement. If it were to be held that the finding of the court under Section 45 should be a final, determinative conclusion, then it is obvious that, until such a pronouncement is made, the arbitral proceedings would have to be SUIT NO. 304/2007 28 in limbo. This evidently defeats the credo and ethos of the Act, which is to enable expeditious arbitration without avoidable intervention by judicial authorities."
It was further noted as under :-
"83. There are distinct advantages in veering to the view that Section 45 does not require a final determinative finding by the Court. First, under the Rules of Arbitration of the International Chamber of Commerce (as in force with effect from 1-1-1998), as in the present case, invariably the arbitral tribunal is vested with the power to rule upon its own jurisdiction. Even if the court takes the view that the arbitral agreement is not vitiated or that it is not invalid, inoperative or unenforceable, based upon purely a prima facie view, nothing prevents the arbitrator from trying the issue fully and rendering a final decision thereupon. If the arbitrator finds the agreement valid, there is no problem as the arbitration will proceed and the award will be made. However, if the arbitrator finds the agreement invalid, inoperative or void, this means that the party who wanted to proceed for arbitration was given an SUIT NO. 304/2007 29 opportunity of proceeding to arbitration, and the arbitrator after fully trying the issue has found that there is no scope for arbitration. Since the arbitrator'sfinding would not be an enforceable award, there is no need to take recourse to the judicial intercession available under Section 48(1)(a) of the Act.
84. The finding of the court that the arbitration agreement is valid, operative and enforceable, if in favour of the party setting up the arbitration agreement, is not appealable under Section 50 as a matter of legislative policy. Refusing to refer parties to arbitration under Section 45, is however, made appealable under Section 50(1)(a) of the Act. Even after the court takes a prima facie view that the arbitration agreement is not vitiated on account of factors enumerated in Section 45, and the arbitrator upon a full trial holds that there is no vitiating factor in the arbitration agreement and makes an award, such as award can be challenged under Section 48(1)(a). The award will be set aside if the party against whom it is invoked satisfies the court inter alia that the agreement was not valid under the law to which the parties had subjected it or under SUIT NO. 304/2007 30 the law of the country where the award was made. The two basic requirements, namely, expedition at the pre-reference stage, and a fair opportunity to contest the award after full trial, would be fully satisfied by interpreting Section 45 as enabling the court to act on a prima facie view."
It was further observed as follows :-
"88. Treating the finding under Section 45 as final results in a paradoxical situation. A final decision rendered by the competent court on the nature of the arbitral agreement may have to be ignored by the arbitral tribunal, which would be entitled to decide the issue afresh on the material presented to it. It may also lead to another curious result, that the competent court in the jurisdiction where the arbitration proceeds (Japan, as in the present case) would have to reckon with the fully binding effect of a finding made under Section 45 by a competent court in India arrived at by following a summary procedure without admitting all relevant evidence."
His Lordship concluded thus :
SUIT NO. 304/200731
"117. I fully agree with my Learned Brother'sview that the object of dispute resolution through arbitration, including international commercial arbitration, is expedition and that the object of the Act would be defeated if proceedings remain pending in court even after commencing of the arbitration. It is precisely for this reason that I am inclined to the view that at the pre-reference stage contemplated by Section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the arbitral tribunal or before the court at the post-award stage.
118. Undoubtedly, an international commercial arbitration involves huge expenses, particularly where the parties have subjected the contract to a foreign law. But, that cannot be a deterrent to this Court from pronouncing on the correct approach to be adopted under Section 45 of the Act. In fact, as I have pointed out, adopting a final and determinative approach under Section 45 may not only prolong proceedings at the initial stage but also correspondingly increase costs and uncertainty for all the parties concerned. Finally, SUIT NO. 304/2007 32 having regard to the structure of the Act, consequences arising from particular interpretations, judgments in other jurisdictions, as well as the opinion of learned authors on the subject, I am of the view that, the correct approach to be adopted under section 45 at the pre- reference stage, is one of a prima facie finding by the trial court as to the validity or otherwise of the arbitration agreement.
119. For all these reasons, I respectfully differ from the judgment of my esteemed Brother Sabharwal. I am of the view that the present matter needs to be remitted to the trial court, but not for a full trial as directed by the impugned judgment of the High Court. The application under Section 45 would have to be determined by the trial court after arriving at the prima facie satisfaction that there exists an arbitral agreement, which is "not null and void, inoperative or incapable of being performed".
If the trial court finds thus, the parties shall be referred to arbitration."
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26. Hon'ble Justice D.M. Dharmadhikari held as follows:-
"65. I have carefully gone through very elaborate and well-considered opinions differing with each other of learned Brethren Y. K. Sabharwal and B. N. Srikrishna JJ.
66. With utmost respect to both of them, I am inclined to agree with the view expressed by learned Brother Srikrishna J. but only with a rider and a partly different reason which may I state below :
67. The main issue is regarding the scope of power of any judicial authority including a regular civil court under section 45 of the Act in making or refusing a reference of dispute arising from an international arbitration agreement governed by the provisions contained in Part III Chapter-I of the Act of 1996. I respectfully Agree with learned Brother Srikrishna J. only to the extent that if on prima facie examination of the documents and material on record, including the arbitration agreement on which request for reference is made by one of the parties, the judicial authority or the SUIT NO. 304/2007 34 court decides to make a reference, it may merely mention the submissions and contentions of the parties and summarily decide the objection if any raised on the alleged nullity, voidness, inoperativeness or incapability of the arbitration agreement. In case, however, on a prima facie view of the matter, which is required to be objectively taken on the basis of material and evidence produced by the parties on the record of the case, the judicial authority including a regular civil court, is inclined to reject the request for reference on the ground that the agreement is 'null and void'or 'inoperative' or 'incapableof being performed'within the meaning of section 45 of the Act, the judicial authority or the court must afford full opportunities to the parties to lead whatever documentary or oral evidence they want to lead and then decide the question like trial of a preliminary issue on jurisdiction or limitation in regular civil suit and pass an elaborate reasoned order. Where a judicial authority or the court refuses to make a reference on the grounds available under section 45 of the Act, it is necessary for the judicial authority or the court which is seized of the matter, to pass a reasoned SUIT NO. 304/2007 35 order as the same is subject to appeal to the appellate court under section 50(1)(a) of the Act and further appeal to this Court under sub-section (2) of the said section."
27. It is thus clear that according to the majority opinion of the Hon'ble Supreme Court, while deciding an application under Section 45 of Arbitration and Conciliation Act, 1996, it is obligatory upon the judicial authority to return a finding as to whether the arbitration agreement is null, void, inoperative or incapable of being performed. Such a finding, however, has to be a prima-facie view of the matter. For forming such an opinion, the material and documents placed on record by the parties have to be considered by the Court.
28. Conscious of the directive laid down in the abovementioned judgment, this Court shall proceed to deal with the application under Section 45 of Arbitration and Conciliation Act, 1996. SUIT NO. 304/2007 36 B. Whether subject matter of the dispute is covered by the arbitration clause?
29. For the purpose of referring parties to arbitration, it is necessary to ascertain as to whether the subject matter of dispute arises out of an agreement which contains an arbitration clause.
30. The grievance of the plaintiffs is that defendant no.2 is claiming recovery of the sum of USD 43,337.35 which had ostensibly been advanced as loan to India Web Trade Pvt. Ltd. The plaintiffs have stated that the true character of the transaction was in the nature of purchase of 40% stake in the companies floated by the plaintiff and the transaction being shown as a loan was a sham. In order to prevent defendant no.2 from recovering the sum of USD 43,337.35, the plaintiffs have filed the present suit praying for several reliefs. The prayer clause of the plaint reads as under:-
"In the facts and circumstances stated as aforesaid, it is prayed that this Hon'bleCourt may be pleased to :-
(a) pass a decree of declaration that the sum of US$ 45,337.35 represented a 40% stake in plaintiff SUIT NO. 304/2007 37 no.1 and India Web Trade Pvt. Limited as of March 15, 2006, and that this amount was the agreed purchase price which was payable by defendant no.2 to plaintiff no.2 for purchasing the 40% stake in plaintiff no.1 and India Web Trade Pvt. Limited from plaintiff no.2;
(b) pass a decree of declaration that after the payment of US$ 45,337.35 by defendant no.2 as the purchase price of the 40% stake in plaintiff no.1 and India Web Trade Pvt. Limited all accounts in relation to the purchase of the 40% stake in plaintiff no.1 and India Web Trade Pvt. Limited stood fully settled and neither of the plaintiffs are not liable to repay any part of such payment to the defendants;
(c) pass a decree of declaration that the agreement of March 15, 2006 stood abandoned, replaced and/or superseded by the arrangement which was agreed to be put in place after the execution of the agreement of May 10, 2006, and consequently all the provisions contained in the agreement of March 15, 2005 are unenforceable, abandoned, null and void;
(d) pass a decree of declaration that the accounts of India Web Trade Pvt. Limited which were sent by plaintiff no.2 to defendant no.2 on SUIT NO. 304/2007 38 October 13, 2006 are full and final accounts and that they were accepted by plaintiff no.2 and defendant no.2;
(e) pass a decree of declaration that plaintiff no.2 is not liable to make any payment of defendant no.2 for any alleged services that may be claimed to have been performed by defendant no.2 for the benefit of or in the course of his association with plaintiff no.1 and defendant no.1;
(f) pass a decree of declaration that the Notice of Demand for arbitration dated July 3, 2007 sent by defendant no.2 to the American Arbitration Association in New York is null, void and of no- effect;
(g) pass a decree for permanent injunction against defendant no.2 restraining him from claiming in any proceeding or otherwise that either of the plaintiffs are liable to make any payment claimed in the Notice of demand for arbitration dated June 27, 2007 sent by defendant no.2 to the American Arbitration Association in New York;
(h) Award costs to the plaintiffs;
(i) Pass any other or further orders and/or directions, which this Hon'bleCourt may deem fit, SUIT NO. 304/2007 39 just and proper in favour of the plaintiffs and against the defendants."
31. In the present case, the plaintiffs have apprehended that defendant no.2 will claim a sum of money on the basis of an agreement dated 15.3.2006. By the very admission of the plaintiffs that the claim would be based on the agreement dated 15.3.2006, the arbitration clause contained in the said agreement comes into operation.
32. In order to appreciate the contentions of the parties, it is imperative to undertake a close examination of the agreements dated 15.3.2006 and 10.5.2006. While assessing the agreements, the intent and motive of the parties must be kept in mind. It would be apt to quote the following passage from the case of Ramkishorelal and Anr. Vs. Kamalnarayan AIR 1963 SC 890:
"The golden rule of construction, it has been said, is to ascertain the intention of the parties to the instrument after considering all the words, in their ordinary, natural sense. To ascertain this intention the Court has to consider the relevant SUIT NO. 304/2007 40 portion of the document as a whole and also to take into account the circumstances under which the particular words were used. Very often the status and the training of the parties using the words have to be taken into consideration. It has to be borne in mind that very many words are used in more than one sense and that sense differs in different circumstances."
33. Under Section 1.02 (b) of the agreement dated 15.3.2006, the payment of USD 43,337.35 had been advanced as an interest free loan to India Web Trade Pvt. Ltd. The 40% stake in India Web Trade Pvt. Ltd. had been purchased for a price of USD 1000, which was separate and distinct from the interest free loan.
34. The agreement was a multilateral one. Plaintiff no.1, plaintiff no.2 and defendant no.2 were parties to the said agreement. There is nothing in the agreement which indicates that the parties did not propose to be bound by its terms. The plaintiff no.1 and plaintiff no.2 are bound by the covenants contained in the agreement including the arbitration clause. The contention of the plaintiffs that the interest free loan was in fact purchase price of 40% stake in SUIT NO. 304/2007 41 the company is contrary to the express terms of the agreement. Even assuming that the submission is correct, that does not affect the validity of the agreement nor does it even remotely impinge upon the validity of the arbitration clause contained in the agreement.
35. Reliance upon the agreement dated 10.5.2006 by the plaintiffs is misplaced. The plaintiffs have contended that by virtue of the agreement dated 10.5.2006, the agreement dated 15.3.2006 stands repudiated, superseded and ineffective.
36. The impugned claim has been preferred by defendant no.2 on the basis of agreement dated 15.3.2006 and not on the basis of agreement dated 10.5.2006. The agreement dated 10.5.2006 has only been pleaded in defence. The cause of action thus revolves around the interpretation and validity of agreement dated 15.3.2006. It is therefore the arbitration agreement that is contained in the agreement dated 15.3.2006 which is relevant.
37. Rescission of the agreement which governs the substantive rights of the parties does not ipso facto rescind the arbitration clause which continues to operate to determine the rights and SUIT NO. 304/2007 42 liabilities of the parties. This proposition finds support in the case of Damodar Valley Corporation Vs. K.K. Kar (1974) 1 SCC 141 in which it was observed as under :-
"The contention that has been canvassed before us is that as there has been a full and final settlement under the contract, the rights and obligations under the contract do not subsist and consequently the arbitration clause also perishes alongwith the settlement. If so, the dispute whether there has or has not been a settlement cannot be the subject of an arbitration. There is, in our view, a basic fallacy underlying this submission. A contract is the creature of an agreement between the parties and where the parties under the terms of the contract agree to incorporate an arbitration clause, that clause stands apart from the rights and obligations under that contract, as it has been incorporated with the object of providing a machinery for the settlement of dispute arising in relation to or in connection with that contract. The questions of unilateral repudiation of the rights and obligations under the contract or of a full and final settlement of the contract relate to the performance or discharge of SUIT NO. 304/2007 43 the contract. Far from putting an end to the arbitration clause, they fall within the purview of it."
38. Furthermore, it is trite law that rescission of an agreement can take place only if it is agreed in the subsequent agreement that previous agreement stands terminated and substituted by a fresh agreement. Rescission has to be expressly agreed upon between all the parties to the agreement.
In this behalf, the test laid down in the landmark case of Morris Vs. Baron and Co. (1918) AC 1 per Lord Dunedin offers a guideline as follows:-
"The difference between variation and rescission is a real one, and is tested, to my thinking by this: In the first case there are no such executory clauses in the second arrangement as would enable you to sue upon that alone if the first did not exist."
39. The agreement dated 10.5.2006 is not a self-contained contract. It does not terminate or rescind the agreement dated 15.3.2006. Hence, it cannot be implied from a bare perusal of the SUIT NO. 304/2007 44 agreement dated 10.5.2006 that all parties have been absolved of their obligations. Moreover, the question as to whether an agreement has been terminated or superseded by a fresh agreement has to be decided by an arbitrator who has been agreed to be appointed in the same agreement as held in the case of Rashtriya Ispat Nigam Ltd. v. M/s. Verma Transport Company AIR 2006 SC 2800.
The agreement dated 10.5.2006 provides as follows:-
"All parties acknowledge and agree that their respective roles, authorities, rights, ownership, duties, benefits, and all other applicable obligations shall transfer from India Web Trade Pvt. Ltd. to India Web Trade LLC on the effective date and shall remain in effect until such time as they are relieved of said responsibilities under the terms of this agreement."
40. The document read as a whole indicates that the obligations are not sought to be extinguished but only to be transferred to India Web Trade LLC. India Web Trade LLC is transposed in the position of India Web Trade Pvt. Ltd.
SUIT NO. 304/200745
The plaintiffs have pleaded that the agreement dated 10.5.2006 governs the rights and liabilities of the parties. Perusal of the agreement dated 10.5.2006 reveals that under the said agreement "the role and applicable obligations of India Web Trade Pvt. Ltd." have been assumed by India Web Trade LLC. It has been agreed that all "roles, authorities, rights, ownership, duties, benefits and other applicable obligations shall transfer from India Web Trade Pvt. Ltd. to India Web Trade LLC". No distinction has been carved between substantive and procedural rights or obligations. It cannot be stated that though the liabilities of India Web Trade Pvt. Ltd. have been transferred to India Web Trade LLC, the remedy for breach agreed upon does not devolve upon the latter. To hold such a view would be contrary to the intent of the agreement dated 10.5.2006 and would unduly restrict its scope. The right to have the dispute resolved by means of arbitration applies to the parties to the agreement dated 10.5.2006 by virtue of "incorporation", in keeping with the following observation of Hon'bleSupreme Court in the case of Owners and SUIT NO. 304/2007 46 Parties Interested in the Vessel M.V. ``Baltic Confidence'' v. State Trading Corpn. of India Ltd.,(2001) 7 SCC 473:
"The arbitration clause of an earlier contract can, by reference, be incorporated into a later contract provided, however, it is not repugnant to or inconsistent with the terms of the contract in which it is incorporated. In the instant case the arbitration clause in the FOSFA-20 contract provided 'any dispute arising out of this contract' and as such there would be no inconsistency between this clause and the terms of the first contract and hence, no difficulty in incorporation of the arbitration clause in the first contract. Such incorporation would be quite intelligible. XXX XXX XXX Where, as in the instant case, the parties are aware of the arbitration clause of an earlier contract, the subject-matter of which is different from the contract which is being entered into by them, but incorporate the terms of the earlier contract by reference by using general words, there would be no bar to such incorporation merely because the subject-matters of the two contracts are different, unless, however, the SUIT NO. 304/2007 47 incorporation of the arbitration clause will be insensible or unintelligible."
In the case of Groupe Chimique Tunisien SA Vs. Southern Petrochemicals Industries Corpn. Ltd. (2006) 5 SCC 275, the Hon'ble Supreme Court has held as under:-
"Sub-section (5) of Section 7 specifically provides that where there is reference in a contract (in this case, the purchase order) to a document containing an arbitration clause (in this case, FAI Terms), such reference constitutes an arbitration agreement, if the contract is in writing and the reference is such as to make that arbitration clause a part of the contract.
XXX XXX XXX When the contract (purchase order) incorporates an arbitration agreement by reference, the invoice need not contain a provision for arbitration."
41. Even if it were to be assumed that by virtue of the agreement dated 10.5.2006, India Web Trade Pvt. Ltd. stands discharged of its obligations, this does not imply that the plaintiffs are also absolved of their obligation to honour the agreement dated SUIT NO. 304/2007 48 15.3.2006. In the present case, the plaintiff is aggrieved by the claim made by defendant no.2 against plaintiff no.2. Hence the discharge of the obligations of India Web Trade Pvt. Ltd. shall not preclude the defendant no.2 from making its claim against plaintiff no.2.
42. All the parties to the suit, being parties to the agreement dated 10.5.2006 (which contains the arbitration clause by incorporation), are bound by the arbitration clause.
In the case of Ormaa Impex Pvt. Ltd., M/s. v. M/s. Nissai Asb Pte. Ltd. AIR 1998 Del. 15, Hon'bleDr. Justice M. K. Sharma on behalf of Hon'ble Delhi High Court held as under :
"When a person signs the document which contains certain contractual terms, normally parties are bound by such contract. When a party to the contract disputes the binding nature of the signed document, it is for him to prove the terms in the contract or the circumstances in which he came to sign the documents.
In the present case, the plaintiff at the time of signing the agreement was represented by the Managing Director of the plaintiff. The plea of the SUIT NO. 304/2007 49 plaintiff that he was not aware of the arbitration agreement existing in the Sales Contract cannot be believed. The Sales Contract contains the arbitration clause and the Managing Director of the plaintiff Company is a signatory to the aforesaid Sales Contract. In my considered opinion, therefore, the plaintiff cannot take up the stand that it is not bound by the aforesaid arbitration clause of the contract."
It was concluded that :-
"Under the aforesaid circumstances, I hold that in view of the arbitration agreement between the parties as spelt out from the Sales Contract dated 8th July, 1994, the present suit in accordance with the provisions of Section 45 of the Arbitration and Conciliation Act 1996, and it is ordered accordingly.
The application filed by the defendant stands allowed and the suit instituted by the plaintiff shall stand stayed."
43. By operation of the arbitration clause embodied in Section 5.03 of the agreement, the dispute is required to be referred to arbitration to be held in New York, USA. All the pleas raised by the SUIT NO. 304/2007 50 plaintiffs herein can be adjudicated by the arbitrator in keeping with the intent of the parties while entering into the agreement dated 15.3.2006.
44. This shall not however imply that the claim made by defendant no.2 against plaintiff no.2 stands substantiated or established. It is still open for plaintiff no.2 to contend that the obligation to make payment of the sum of USD 43,337.35 was of defendant no.1 and not plaintiff no.2. Such a plea though has to be raised before the proper forum as agreed between the parties.
In case this Court were to invite the parties to lead evidence and give a conclusive finding regarding the liability of plaintiff no.2 to pay the sum claimed by defendant no.2, that would make a mockery of the intent underlying the arbitration clause and would render it redundant. It is the duty of the court to give effect to the intention of the parties as expressed in the contract entered into between them. In case any finding on merits is returned before reference of the dispute to arbitration, that may unduly prejudice or SUIT NO. 304/2007 51 influence the decision of the arbitrator and may operate as res- judicata between the parties.
C. Whether parties to the suit can be referred to arbitration?
45. The plaintiffs have contended that the parties to the suit cannot be referred to arbitration for various reasons listed hereinafter and dealt with respectively :-
(i) It is contended by the plaintiffs that all parties to the suit have not been made party to the arbitration proceedings already initiated by defendant no.2 nor has India Web Trade Pvt. Ltd. been made a party therein so as to fraudulently recover the dues of India Web Trade Pvt. Ltd. from plaintiff no.2.
The objection of the plaintiffs is not tenable. To put matters in perspective, it is important to clarify that while deciding the application under Section 45 of Arbitration and Conciliation Act, SUIT NO. 304/2007 52 1996, no reference is required to the arbitration proceedings already initiated by defendant no.2. It is not for the Court to adjudicate about the correctness of the arbitral proceedings in exercise of powers under Section 45. This Court does not sit in appeal over the arbitration proceedings. It will be open to the plaintiffs to raise this plea before the Arbitrator as well as to challenge the said proceedings after their culmination in accordance with the provisions of Arbitration and Conciliation Act, 1996. The plaintiffs are at liberty to plead before the Arbitrator that it is defendant no.1 or India Web Trade Pvt. Ltd., and not the plaintiffs, who are liable to make payment to defendant no.2.
It must be borne in mind that even if no arbitration proceedings had been initiated by defendant no.2, the application under Section 45 of Arbitration and Conciliation Act, 1996 would stand maintainable. The limited scope of determination under Section 45 is to ascertain whether there is a valid arbitration clause which governs the dispute between the parties. Whether that arbitration clause has been rightly invoked is not the concern of the Court at this stage.
SUIT NO. 304/200753
(ii) It is next contended that all the parties to the suit are not parties to the arbitration agreement and therefore they cannot be referred to arbitration. It is urged that there is no arbitration agreement in the present case in which either plaintiff no.1 or defendant no.1 are parties. Defendant no.2 has not sought reference of these parties to arbitration. According to the plaintiffs, the said parties cannot be compelled to take recourse to arbitration proceedings against their consent.
The plaintiffs have placed reliance upon the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC
531. It is submitted that in the present case the application under Section 45 has been filed only on behalf of defendant no.2, implying thereby that the suit shall proceed against defendant no.1 and since the cause of action and parties cannot be bifurcated, the application under Section 45 must be rejected.
Counsel for the defendants has sought to distinguish the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC 531 by submitting that the judgment was SUIT NO. 304/2007 54 rendered in the context of Section 8 of Arbitration and Conciliation Act, 1996 while the scope of Section 45 of Arbitration and Conciliation Act, 1996 is different from that of Section 8. Counsel for the defendants has supported this proposition by reference to the observations made in the case of Shin-Etsu Chemical Co. Ltd. v. M/s. Aksh Optifibre Ltd. AIR 2005 SC 3766 and Bhatia International Vs. Bulk Trading S.A. and Anr. (2002) 4 SCC 105. Drawing support from these decisions, learned counsel for the defendants has urged that in matters where Part-I and Part-II of Arbitration and Conciliation Act, 1996 overlap, it is Part-II alone which shall be applied. Reference may be made to the provisions of Part-I only in matters where there are no corresponding provision in Part-II.
Counsel for the plaintiffs has admitted that the purview of Sections 8 and 45 are distinct. It is however submitted that Section 8 imposes greater limits on judicial interference than Section 45 which is more liberal. It is submitted that the provisions operate in the same field and represent essentially the same principle that is exclusion of judicial interference in matters governed by SUIT NO. 304/2007 55 Arbitration. There is no reason to exclude the operation of the ratio decidendi laid down in the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another (2003) 5 SCC 531 from matters governed by Section 45 of Arbitration and Conciliation Act, 1996. Reliance is also placed upon the cases of Venture Global Engineering Vs. Satyam Computer Services Ltd. and Anr. 2008 (1) Arb.LR 137 (SC) and Bharti Televentures Vs. DSS Enterprises (123) 2005 DLT 532 to strengthen the contention that provisions of Part-I also apply to Part-II and therefore the principle laid down in Section 8 is applicable to Section 45.
In the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya AIR 2003 SC 2252 it was held that :-
"Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of S. 8."SUIT NO. 304/2007 56
The arbitration agreement is contained in the agreement dated 15.3.2006. Both the plaintiffs and defendant no.2 are parties to the said agreement. Defendant no.2 has claimed recovery from plaintiff no.2 on the basis of the said agreement. The plaintiffs have assailed the said claim by virtue of the present suit. The arbitration clause covers the said dispute. The dispute affects the rights and liabilities of plaintiff no.2 and defendant no.2 and both of them have agreed to abide by the arbitration clause for resolution of the dispute. Thus the parties are bound by the arbitration agreement and are liable to be referred to arbitration.
The requirement of law, even as per the plaintiffs, is only that parties to the dispute must be parties to the arbitration agreement. It is also not necessary that all the parties to the arbitration agreement must be parties to the suit. In a multilateral agreement, one of the parties may have a claim only against one or some of the other parties. In such circumstances, it is not necessary to initiate arbitration proceedings by or against all persons who are parties to the arbitration agreement. There is no reason for SUIT NO. 304/2007 57 participation of parties to the arbitration agreement who have nothing to do with the dispute. Such persons cannot be compelled to face arbitration proceedings. The presence of defendant no.1 is not necessary to adjudicate the liability of plaintiff no.2. Therefore the very fact that defendant no.2 is not party to the arbitration agreement does not stymie reference to arbitration.
In any event, defendant no.1 has succeeded to the roles, rights and obligations of India Web Trade Pvt. Ltd. in terms of the agreement dated 10.5.2006, which is admitted by the plaintiffs. India Web Trade Pvt. Ltd. is bound by the arbitration clause embodied in the agreement dated 15.3.2006. Thus, the arbitration clause contained in the agreement dated 15.3.2006 becomes applicable to defendant no.1 by way of incorporation and reference. In this behalf, reliance is placed upon the decisions of Hon'ble Supreme Court in the cases of Owners and Parties Interested in the Vessel M.V. ``BalticConfidence'' v. State Trading Corpn. of India Ltd.,(2001) 7 SCC 473 (supra) and Groupe Chimique Tunisien SA Vs. Southern Petrochemicals Industries Corpn. Ltd. (2006) 5 SCC 275 (supra) wherein the Hon'ble SUIT NO. 304/2007 58 Supreme Court has categorically laid down that arbitration clauses can be applied by reference and incorporation.
Furthermore, under Section 7 of Arbitration and Conciliation Act, 1996, an arbitration agreement can be entered into before the Court itself. Reference in this behalf may be made to the case of Tamil Nadu Electricity Board Vs. Sumathi & Ors. (2000) 4 SCC
543. An arbitration agreement may also be inferred in a case where existence of an arbitration agreement is not denied by a party to the suit. In the case of Datar Switchgears Ltd. Vs. Tata Finance Ltd. (2000) 8 SCC 151, it was held that :-
"When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause."
The defendant no.1 has filed the application under Section 45 of Arbitration and Conciliation Act, 1996 thus exhibiting an unequivocal intention to have the dispute resolved through an Arbitrator. This implies an acceptance of the decision of the SUIT NO. 304/2007 59 Arbitrator and an agreement to adhere to the arbitration agreement. In view of the clear adoption of the arbitration agreement, there is no requirement of a separate written agreement before referring the parties to arbitration. Thus the contention of the plaintiffs that all parties to the suit are not party to the arbitration agreement is rejected.
(iii) Lastly, it is submitted by the plaintiffs that the application under Section 45 of Arbitration and Conciliation Act, 1996 has been filed only on behalf of defendant no.2. According to the plaintiffs, the application under Section 8 or Section 45 must be preferred by all the defendants.
The submission of the plaintiffs is without force. It is not necessary that an application under Section 45 of Arbitration and Conciliation Act, 1996 shall be filed by each of the defendants. Even if the application is preferred by one of the defendants to whom the arbitration agreement applies, it is obligatory upon the Court to refer the parties to arbitration. This is evident from the SUIT NO. 304/2007 60 clear and unambiguous language employed in Section 45 of Arbitration and Conciliation Act, 1996, which provides that the judicial authority shall "at the request of one of the parties or any person claiming through or under him", refer the parties to arbitration. It is therefore not necessary that the application has to be moved on behalf of all the parties to the arbitration agreement or on behalf of all the defendants.
In order to determine an application under Section 45 of Arbitration and Conciliation Act, 1996, it is imperative for the Court to ignore the form and examine the substance of the dispute. Failure to do so would give leverage to a party to defeat the arbitration clause by merely arraying certain persons who are not parties to the arbitration clause as parties to the suit even though such parties have nothing to do with the dispute in question. In this manner, a party would be able to defeat the arbitration clause and frustrate the very objective of Section 45 of Arbitration and Conciliation Act, 1996. In this regard, reference may be made to the case of Prem Sagar Khanna Vs. Ravi Khanna & Ors. AIR 2002 Del. 98, wherein the Hon'bleHigh Court of Delhi held that parties SUIT NO. 304/2007 61 to an arbitration agreement cannot be permitted to defeat the arbitration clause by filing a suit in respect of certain properties in addition to those which are subject matter of the arbitration agreement.
This appears to have happened in the present case. The plaintiffs have, by the present suit, tried to prevent defendant no.2 from approaching the arbitrator so as to establish its claim against plaintiff no.2. Rights and liabilities of plaintiff no.1 or defendant no.1 are not subject matter of the suit. The underlying objective of filing the suit is to protect plaintiff no.2 from incurring liability. In such circumstances, there was no requirement to implead plaintiff no.1 and defendant no.1 as parties to the suit. They appear to have been embroiled into the dispute only to frustrate the arbitration clause.
The absence of defendant no.1 or India Web Trade Pvt. Ltd. does not prevent the plaintiff No.2 from putting forth its defence or disclaiming its liability before the Arbitrator.
Be that as it may, even if it is assumed that the application under Section 45 is required to be filed by all the defendants, that SUIT NO. 304/2007 62 shall not prevent reference to arbitration in the present case. The contention of the plaintiffs that the application under Section 45 of Arbitration and Conciliation Act, 1996 has been filed only on behalf of defendant no.2 is contrary to the record.
The application under Section 45 is titled "Application on behalf of the defendants ...." (emphasis supplied). Thus it is clear that the application has been preferred on behalf of both the defendants. For the removal of doubts, Counsel for the defendants was directed to clarify as to whether the present application has been filed on behalf of defendant no.1. Vide statement of Counsel for the defendants recorded separately on 29.2.2008, it was stated that the application has been preferred on behalf of both the defendants.
Counsel for the plaintiffs objected by submitting that the application is not supported by the affidavit of defendant no.1. Firstly, there is no requirement of the application being supported by an affidavit. An affidavit is required in order to affirm a matter of fact. The contents of the application are borne out from the judicial record and the application relies upon documents admitted by the SUIT NO. 304/2007 63 plaintiffs to be true and correct. Thus there is no requirement of the application being supported by an affidavit. Even if it were so, the application has in fact been supported by the affidavit of Mr. Brian Fiske, who is defendant no.2 and admittedly also the principal officer of defendant no.1. Defendant no.2 is competent to swear affidavits on behalf of the defendant no.1 in accordance with the principle contained in Order 29 Rule 1 of Code of Civil Procedure, 1908.
In any event, even if the application had been filed on behalf of the defendant no.2, it is open for defendant no.1 to have adopted the same by stating so before the Court.
The next objection of the plaintiffs is that defendant no.1 is not party to the arbitration agreement and therefore defendant no.1 is not authorized to move any application under Section 45 of Arbitration and Conciliation Act, 1996. The objection is without merit. Firstly, defendant no.1 is also party to the agreement which contains an arbitration clause by way of incorporation as held above. Secondly, under Section 7 of Arbitration and Conciliation Act, 1996, an arbitration agreement can be entered into before the SUIT NO. 304/2007 64 Court itself and need not necessarily precede litigation in point of time. An arbitration agreement may also be inferred in a case where existence of an arbitration agreement is not denied by a party to the suit.
The contention that the application under Section 45 of Arbitration and Conciliation Act, 1996 has not been filed on behalf of all the defendants and therefore the dispute cannot be referred to arbitration is rejected.
D. Whether the arbitrator is competent to decide all the contentions raised by the plaintiffs including its own jurisdiction and validity of the arbitration agreement?
46. The plaintiffs have submitted that the parties cannot be referred to arbitration and that the subject matter of dispute is different from that governed by the arbitration clause. It is urged that the pleas raised by virtue of the present suit cannot be determined by the arbitrator and the plaintiffs cannot be compelled to seek relief in the proceedings which they claim to be fraudulent, oppressive or vexatious.
SUIT NO. 304/200765
47. The arbitration agreement has been assailed by the plaintiffs as being fraudulent, oppressive and vexatious on the ground that it has been superseded by a subsequent agreement dated 10.5.2006. The plaintiffs have claimed that the arbitrator has no jurisdiction to entertain the dispute. It is also submitted that the true character of the sum advanced as loan by defendant no.2 was that of purchase price of stake in the companies.
48. All the contentions of the plaintiffs can be adequately dealt with by the arbitrator.
The arbitrator has full powers to determine its own jurisdiction. This has been laid down in the case of ITC Ltd. Vs. George Joseph Fernandes and Anr. (1989) 2 SCC 1, the Hon'ble Supreme Court held as under:-
"However it will be within the jurisdiction of the Arbitrator to decide the scope of his jurisdiction as we have said earlier that the Court cannot make a contract between the parties and its power ends with interpretation of the agreement between them."SUIT NO. 304/2007 66
In the case of Rashtriya Ispat Nigam Ltd. v. M/s. Verma Transport Company AIR 2006 SC 2800, it was held as under :-
"Whereas under Sections 45 and 54, the Court exercises its supervisory jurisdiction in relation to arbitration proceedings, in terms of Section 16 of the 1996 Act, the arbitrator is entitled to determine his own jurisdiction. We, however, do not mean to suggest that Part II of the 1996 Act does not contemplate determination of his own jurisdiction by the arbitral tribunal as we are not called upon to determine the said question."
Similar observations have been made in the case of ONGC Vs. Garware Shipping Corporation Ltd. (2004) 1 Mah.LJ 226.
49. Even if the arbitrator exceeds its jurisdiction and entertains a dispute which is not covered by a arbitration clause, the parties shall be at liberty to challenge the arbitral award accordance with Arbitration and Conciliation Act, 1996. There is no requirement to preempt the determination by the arbitrator by delivering an advance ruling by this Court.
50. The real character of the transaction shall also be competently determined by the Arbitrator. The arbitrator is also SUIT NO. 304/2007 67 empowered to determine as to whether the agreement has been superseded by any subsequent agreement between the parties.
In the case of Rashtriya Ispat Nigam Ltd. v. M/s. Verma Transport Company AIR 2006 SC 2800, it was held as under :-
"There cannot also be any dispute that the matter relating to termination of the contract would be a dispute arising out of a contract and, thus, the arbitration agreement contained in clause 44 of the contract would be squarely attracted. Once the conditions precedent contained in the said proceedings are satisfied, the judicial authority is statutorily mandated to refer the matter to arbitration."
51. Since all the arguments advanced by Counsels for the parties can be dealt with and adjudicated by the arbitrator, there is no reason to deprive the parties of an opportunity to plead their case before the appropriate forum. In this behalf, reference may be made to the case of Bharti Televentures Vs. DSS Enterprises (123) 2005 DLT 532 in which it was held by Hon'bleHigh Court of Delhi as follows:-
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"Benefiting from the detailed and erudite legal submissions made before me, it is my understanding that if possible or plausible cases are presented on behalf of both the adversaries, then the Court should direct them to ventilate their respective cases before the arbitrators."
E. Whether the arbitration agreement is null, void, inoperative or incapable of being performed or is fraudulent or against public policy?
52. The plaintiffs have contended that the arbitration proceedings are null, void, inoperative and incapable of being performed, fraudulent and against public policy. It is submitted that the claim of the defendant no.2 is based on an agreement dated 15.3.2006 which was sham and fraudulent and had been entered into only for avoiding payment of taxes. It is also submitted that the agreement dated 15.3.2006 has been rescinded, superseded and replaced by agreement dated 10.5.2006 and therefore the arbitration agreement is not in operation.
53. Hearing before the arbitrator has not even commenced. It would thus be premature to brand the arbitration proceedings as SUIT NO. 304/2007 69 vexatious. It is not the case of the plaintiffs that the agreement dated 15.3.2006 was entered into by undue influence, coercion, misrepresentation or any other ground which vitiates their consent. It is also not the contention of the plaintiffs that the agreement was entered into parties which were not competent to contract or that the agreement has an unlawful object or consideration. Thus no averment has been made before the Court by which the arbitration agreement can be stated to be null, void, inoperative or incapable of being performed.
54. The plaintiffs have also pleaded fraud. However no details have been provided by which the Court can arrive at the conclusion that the agreement dated 15.3.2006 was a result of fraud played by defendant no.2. A bald and unsubstantiated averment is not sufficient to arrive at the conclusion of application of fraud which has to be specifically pleaded alongwith material particulars.
In the case of Union of India Vs. Chaturbhai N. Patel and Co. AIR 1976 SC 712, the Hon'ble Supreme Court held as under :- SUIT NO. 304/2007 70
"It is well settled that fraud like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt: per Lord Atkin in A.L.N. Narayanan Chettyar Vs. Official Assignee, High Court Rangoon, AIR 1941 PC 93. However suspicious may be the circumstances, however strange the coincidence and however grave the doubts, suspicion alone can never take the place of proof. In our normal life, we are sometimes faced with unexplainable phenomenon and strange coincidences, for, as it is said, truth is stranger than fiction."
55. In the present case, the allegations of fraud are not made out. It is the contention of the plaintiffs that payment had been tendered under an understanding that it would be the purchase price of stake in the companies but was ostensibly shown as an interest free loan. Admittedly the real nature of transaction was known to the plaintiffs even prior to the day on which payment was advanced. It is not the case of the plaintiffs that there was concealment of facts or misstatement of facts while entering into the contract. It is also not the case of the plaintiffs that they were SUIT NO. 304/2007 71 misled by any act or omission of the defendants. Even if the averments made in the plaint are assumed to be correct, no case of fraud is established. Reliance in this behalf is placed on the case of Kamal Kant Paliwal Vs. Smt. Prakash Devi Paliwal and Ors. AIR 1976 Raj. 79, in which it has been held as under :-
"In order to constitute fraud it is well known that the person making the statement must have been aware of the falsity of the statement and the party defrauded remains ignorant of the correct situation. Fraud is committed where one person induces another to enter into some contract or transaction on a false belief by a representation of fact which is not true and which he does not believe to be true. The effect of fraud on an agreement so far as consent to it is procured by it may be a complete misunderstanding on the part of the person deceived as to the nature of the transaction undertaken, or the person of the other party. But if the other party has the facts before it or has the means to know cannot be said to have been defrauded even if a false statement has been made."SUIT NO. 304/2007 72
In the case of Immani Appa Rao Vs. Gollapalli Ramalingamurti & Ors. AIR 1962 SC 370, it was held as under:-
"There can be no question of estoppel. In such a case for the obvious reason that the fraud in question was agreed by both the parties and both parties have assisted each other in carrying out the fraud. When it is said that a person cannot plead his own fraud, it clearly means that the person cannot be permitted to go to a Court of law to seek for its assistance and yet base his claim for the Court'sassistance on the ground of his fraud."
56. Reliance placed by the plaintiffs upon the case of ONGC Vs. Western Company of North America (1987) 1 SCC 496 is misplaced. In that case, the proceedings were held to be oppressive in view of likelihood of conflicting decisions by the Indian and the American Court. It is on that ground that a restraint order was passed. In the present case, the facts are different and there is no likelihood of such conflicting decisions.
The cases of Bhaurao Dagdu Parlakar Vs. Maharashtra (2005) 7 SCC 605 and S.P. Chengalvaraya Naidu Vs. Jagannath SUIT NO. 304/2007 73 (1994) 1 SCC 1 relied upon by the plaintiffs are also not applicable to the facts of the case. In those cases, it was held that suppression of a material document amounts to fraud and that in cases of fraud the principle of "finality of litigation" cannot be pressed into service. There is no dispute about this proposition of law. However, in the present case the allegations of fraud are not made out. The defendants have placed reliance upon the documents which have been admitted by the plaintiffs. There is no document which has been suppressed or any misstatements made by the defendants which may substantiate or lend credence to the allegations of fraud. The mere fact that a claim is made by one of the defendants which is refuted by the plaintiffs cannot readily infer a case of fraud.
57. Fraud contemplates a deliberate misrepresentation or concealment of a material fact. In the present case it is not the case of the plaintiffs that any misrepresentation had been made to them or any material fact have been concealed so as to induce the plaintiffs to enter into the agreement dated 15.3.2006. Admittedly, in the agreement dated 15.3.2006, the purchase price was shown SUIT NO. 304/2007 74 as interest free loan with the knowledge and consent of the plaintiff no.2. Thus the plaintiffs cannot be permitted to hold out the said provision as fraudulent.
58. According to the plaintiffs, the agreement by which parties have agreed to have the dispute resolved through arbitration is against public policy. Public policy is the principle which declares that no man can lawfully do that which has the tendency to be injurious to public welfare. In the case of Gerulal Parakh Vs. Mahadeodas Maiya AIR 1959 SC 781, it was observed as follows:-
"Public policy or the policy of the law is an illusive concept; it has been described as 'untrustworthyguide','variablequality, 'uncertain one','unrulyhorse',etc; the primary duty of a court of Law is to enforce a promise which the parties have made and to uphold the sanctity of contracts which form the basis of society, but in certain cases, the court may relieve them of their duty on a rule founded on what is called the public policy. The doctrine of public policy is extended not only to harmful cases but also to harmful tendencies; ...SUIT NO. 304/2007 75
the principles have been crystallised under different heads and though it is impermissible for courts to expound and apply them to different situations, it should only be invoked in clear and incontestable cases of harm to the public; though heads of public policy are not closed and though theoretically it may be permissible to evolve a new head under exceptional circumstances of a changing world, it is advisable in the interest of stability of society not to make any attempt to discover new heads in these days."
59. The Hon'bleSupreme Court has discouraged attempts to expand the doctrine of public policy and has directed that the doctrine must be restrictively applied. It has been consistently laid down in a number of decisions that the doctrine of public policy shall be only if the contract is incontestable and on any view inimical to public interest. The known and recognized heads of public policy relate to agreements with enemies, perversion of justice, unreasonable restrictions on freedom of trade or marriage, injury to state or to governance and connected matters. An arbitration agreement does not fall under any of such heads. SUIT NO. 304/2007 76
60. An agreement to have the dispute resolved through the means of arbitration does not adversely affect public welfare or public interest. The law does not denounce amicable resolution of disputes through alternative disputes resolution mechanisms. On the contrary adoption of such means for resolving disputes is encouraged by law and public policy.
61. All the averments of the plaintiffs by which they have questioned the validity of the arbitration clause merely relate to the provision for advancement of USD 43,337.35 embodied in Section 1.02 of the agreement dated 15.3.2006. This provision stands on a different and separate footing than the arbitration clause which is contained in Section 5.03 of the agreement. The two provisions are severable. Even if it is assumed that Section 1.02 is invalid, that by itself does not affect the validity of the arbitration clause which is provided in Section 5.03 of the agreement. In this behalf, reliance is placed on the case of National Agricultural Coop. Marketing Federation India Ltd. Vs. Gains Trading Ltd. (2007) 5 SCC 692, the Hon'ble Supreme Court has held as under :-
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"The respondent contends that the contract was abrogated by mutual agreement; and when the contract came to an end, the arbitration agreement which forms part of the contract, also comes to an end. Such a contention has never been accepted in law. An arbitration clause is a collateral term in the contract, which relates to resolution disputes, and not performance. Even if the performance of the contract comes to an end on account of repudiation, frustration of breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract."
62. For the foregoing reasons, it is held that the arbitration agreement is not null, void, inoperative, incapable of being performed, fraudulent or against public policy. F. Whether the defendants are entitled to press their application without having filed written statement?
63. The plaintiffs have raised a preliminary objection that the defendants are not entitled to dispute the facts contained in the SUIT NO. 304/2007 78 plaint or to argue on facts for want of written statement. The objection is not tenable. For the limited purpose of deciding an application under Section 45 of Arbitration and Conciliation Act, 1996, a detailed examination of the facts of the case and to return a finding on disputed questions of fact is not necessary. Such an application has to be decided on the basis of a prima-facie assessment of the documents on record. The defendants have not acquiesced or submitted to the jurisdiction of the Court. An application under Section 45 of Arbitration and Conciliation Act, 1996 is akin to an application under Section 8 of the Act for this purpose and is to be contradistinguished from the pleadings. Therefore it is not necessary for the defendants to file their written statement as a condition precedent to pressing their application under Section 45 of Arbitration and Conciliation Act, 1996. G. Whether the application under Section 45 is vague?
64. It is contended by the plaintiffs that the application under Section 45 of Arbitration and Conciliation Act, 1996 is vague and it SUIT NO. 304/2007 79 does not contain any averment that the cause of action which is a subject matter of the suit is the same in the ICDR proceedings initiated by the defendant.
65. For the purpose of Section 45 of Arbitration and Conciliation Act, 1996, the application must plead that the subject matter of the dispute arises out of an agreement which contains an arbitration clause. Such an averment has been duly contained in the application dated 27.9.2007. It is not necessary for an application under Section 45 of Arbitration and Conciliation Act, 1996 to elaborately deal with the merits of the dispute. There is no infirmity in the application of the defendants under Section 45 of Arbitration and Conciliation Act, 1996.
H. Whether inconvenience or high expenses preclude reference to arbitration?
66. According to the plaintiffs, the arbitration proceedings are inconvenient and would involve high expenditure. It is submitted that the costs and delay involved can be avoided by adjudication of the dispute by this Court.
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67. Inconvenience, delay and high expenditure cannot be cited as grounds to proscribe arbitration by a forum which had been consciously agreed upon by the parties for the resolution of their disputes. It is not the case of the plaintiffs that at the time of entering into the agreement they were not aware that arbitration in New York, USA would incur expenditure, delay or inconvenience. Thus these grounds cannot preclude reference to arbitration.
In the case of Modi Entertainment Network and another vs. W.S.G Cricket Pte. Ltd. (2003) 4 SCC 341 it was held as follows:-
"Where parties have agreed, under a non- exclusive jurisdiction clause, to approach a neutral foreign forum and be governed by the law applicable to it for the resolution of their disputes arising under the contract, ordinarily no anti-suit injunction will be granted in regard to proceedings in such a forum conveniens and favoured forum as it shall be presumed that the parties have thought over their convenience and all other relevant factors before submitting to the non-exclusive jurisdiction of the court of their choice which cannot be treated just as an alternative forum.SUIT NO. 304/2007 81
A party to a contract containing the jurisdiction clause cannot normally be prevented from approaching the court of choice of the parties as it would amount to aiding breach of the contract; yet when one of the parties to the jurisdiction clause approaches the court of choice in which exclusive or non-exclusive jurisdiction is created, the proceedings in that court cannot per se be treated as vexatious or oppressive nor can the court be said to be forum non-conveniens."
In the case of Sadhu Singh Ghuman v. Food Corporation of India and Ors. (1990) 2 SCC 68, it was held as under:-
"The right to have the dispute settled by arbitration has been conferred by agreement of parties and that right should not be deprived of by technical pleas. The court must go into the circumstances and intention of the party in the step taken. The court must examine whether the party has abandoned his right under the agreement."
In the case of Rashtriya Ispat Nigam Ltd. v. M/s. Verma Transport Company AIR 2006 SC 2800 it was held as follows:- SUIT NO. 304/2007 82
"Once the conditions precedent contained in the said proceedings are satisfied, the judicial authority is statutorily mandated to refer the matter to arbitration."
In the case of Datar Switchgears Ltd. Vs. Tata Finance Ltd. (2000) 8 SCC 151 , it was held as under :
"When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of "freedom of contract" has been whittled down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it."
68. The agreement is applicable, binding and enforceable against the parties and the parties are required to be referred to arbitration in accordance therewith.
69. For the aforesaid reasons, the application under Section 45 of Arbitration and Conciliation Act, 1996 is allowed. Parties are directed to take recourse to arbitration.
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70. The ad-interim order by which it had been directed that arbitration proceedings shall not commence stands vacated. While directing so, it is apt to refer to the case of Nicholas Piramal India Ltd. v. Cultor Food Science Inc. AIR 2003 AP 254, wherein it has been observed as under :-
"It is thus clear what Section mandates is the Court referring the parties to arbitration, when there is a valid agreement between them, and does not speak anything about the Court granting an injunction restraining the arbitration proceedings already initiated before the filing of the suit. Power to issue injunction should not be confused with the power to grant stay under Section 45 of the Act. If the contention of the learned counsel for the 1st respondent that when a suit questioning the validity of an arbitration agreement is filed (during the pendency of proceedings for arbitration already commenced by the other party on the basis of such agreement) injunction from proceeding with arbitration should automatically follow were to be accepted, it can lead to anomalous situations. Firstly it means that the Court is not governed by any guidelines for SUIT NO. 304/2007 84 issuing an injunction. Secondly the intendment of the Act would get frustrated. Thirdly a situation may arise when the Court may on a petition filed by the opposite party under Section 45 of the Act, stay the proceedings in the suit. If injunction were to automatically follow at the behest of the party filing the suit, the result would be neither arbitration proceedings would go on because of the injunction, nor can there be a progress in the suit because of the stay granted under Section 45 of the Act. Such position could never have been contemplated by the Legislature, i.e., Parliament. Therefore, the contention of the learned counsel for 1st respondent that injunction should automatically follow when a suit questioning the validity of the arbitration agreement is filed has no force."
There shall be no order as to costs. File be consigned to record room.
Announced in the Open Court (ASHISH AGGARWAL) on 7th day of March, 2008 CIVIL JUDGE : DELHI SUIT NO. 304/2007 85 7.2.2008 Present: Proxy Counsel for the plaintiff.
Vide separate order announced in open Court, the application under Section 45 of Arbitration and Conciliation Act, 1996 filed by the defendants has been allowed. The parties are referred to arbitration.
The ad-interim order restraining commencement of arbitration proceedings has been vacated. Parties are left to bear their own costs. File be consigned to record room.
Announced in the Open Court (ASHISH AGGARWAL) on 7th day of March, 2008 CIVIL JUDGE : DELHI