Bombay HC rejects argument that a dispute cannot be referred for arbitration on account of fraud: Read why

Bombay High Court: B.P. Colabawalla, J., addressed an arbitration application filed under Section 11 of the Arbitration and Conciliation Act, 1996.

Instant application was filed under Section 11 of the Arbitration and Conciliation Act, 1996 seeking the appointment of a Sole Arbitrator to adjudicate upon the disputes and differences between the applicant and respondent arising out of the Service Level Agreement.

High Court noted that the existence of the Arbitration Clause has not been disputed by the respondent.

Grounds on which the application was opposed:

  • Dispute between the parties is not arbitrable as the claims made by the applicant is outside the term of SLA as well as the pleaded case of the applicant as reflected

For the above-stated, respondent’s counsel brought to the Court’s attention Clause 2.1 of the SLA which defined the term of SLA and stipulated that the same shall continue to be in force and in effect for a period of three years and can be extended for a term of one year and shall supersede all prior or contemporaneous communications, proposals and agreements between the respondent and the petitioner.

Further, the counsel submitted that the period of SLA came to an end on 2-05-2017. However, the claim of the applicant was in relation to the services rendered and invoices raised for the period after 2-5-2017. Hence, he submitted that the disputes were clearly not arbitrable and there was no question of referring the disputes to arbitration.

High Court stated that it cannot come to the conclusion as to whether the disputes between the applicant and the respondent are arbitrable or otherwise.

Another argument was that the disputes cannot be referred to arbitration because there is a fraud that has been played by the applicant on the respondent. On being unimpressed with the said argument, Court expressed that on the issue of fraud, the law is well settled. Supreme Court in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd., (2021) 4 SCC 379, clearly held that all civil or commercial disputes, either contractual or non-contractual, which can be adjudicated upon by a Civil Court, in principle, can be adjudicated and resolved through arbitration, unless it is excluded expressly either by statute, or by necessary implication.

Supreme Court has categorically held that the Arbitration and Conciliation Act, 1996 does not exclude any category of disputes as being non-arbitrable. Section 2 (3) of the Arbitration Act, however, recognizes that certain categories of disputes by law may not be submitted to arbitration. Finally, the Supreme Court has held that the civil aspect of fraud is considered to be arbitrable in contemporary arbitration jurisprudence with the only exception being where the allegation is that the Arbitration Agreement itself is vitiated by fraud or fraudulent inducement, or the fraud goes to the validity of the underlying contract, and impeaches the arbitration clause itself.

Respondent’s case was that the alleged fraud was that the former employees of the Respondent (in connivance with the Applicant) continued to avail of the services of the Applicant beyond the expiry of the SLA merely to siphon off the funds of the Respondent unlawfully.

Further, the fraud alleged was that the former employees, along with the applicant siphoned off monies of the Respondent even after the expiry of the said SLA.

The Court opined that the respondent counsel’s submission that dispute between parties cannot be referred to arbitration on account of fraud was incorrect.

High Court held that it has no hesitation in constituting the arbitral tribunal to decide the disputes and differences between the applicant and the respondent arising out of the said SLA.

Parties agreed before the Court that for the purposes of deciding their disputes and differences Mikhail Behl an Advocate of this Court, be appointed as a Sole Arbitrator.

Order of the Court:

(a) By consent of parties, Mr Mikhail Behl, an advocate of this Court is hereby appointed to act as a Sole Arbitrator to decide the disputes and differences between the Applicant and the Respondent arising out of and/or in connection with and/or in relation to the Service Level Agreement dated 3rd May, 2014.

(b) A copy of this order will be communicated to the learned Sole Arbitrator by the advocates for the Applicant within a period of two weeks from today.

(c) The learned Sole Arbitrator is requested to forward his Statement of Disclosure under Section 11 (8) read with Section 12 (1) of the Arbitration Act to the advocates for the Applicant so as to enable them to file the same in the Registry of this Court. The Registry of this Court shall retain the said Statement on the file of this Application and a copy of the same shall be furnished by the advocates for the Applicant to the advocates for the Respondent.

(d) The parties shall appear before the Sole Arbitrator on such date and at such place as he nominates to obtain appropriate directions with regard to fixing a schedule for completing pleadings etc. The Arbitral Tribunal shall give all further directions with reference to the arbitration and also as to how it is to proceed.

(e) Contact and communication particulars shall be provided by both sides to the Sole Arbitrator within a period of two weeks. This information shall include a valid and functional email address as well as mobile numbers of the respective advocates.

(f) The Respondent is at liberty to raise all questions of jurisdiction within the meaning of Section 16 of the Arbitration Act. All contentions in that regard are expressly kept open on both sides. It is made clear that any observations made by me herein are only prima facie and tentative and shall not bind the Arbitral Tribunal while deciding any issue of jurisdiction. It is however made clear that the Respondent shall not be allowed to contend before the Arbitral Tribunal that there does not exist an Arbitration Agreement as the same has been expressly admitted.

(g) The parties have agreed that the Arbitral Tribunal shall be free to fix its own fees and shall not be bound by the 4th Schedule of the Arbitration and Conciliation Act, 1996 or the Bombay High Court (Fee payable to Arbitrators) Rules, 2018. The parties further agree that all arbitral costs and fees of the Arbitrator will be borne by the parties equally and will be subject to the final Award that may be passed by the Tribunal.

(h) The parties immediately consent to a further extension of up to six months to complete the Arbitration should the learned Sole Arbitrator find it necessary.

(i) The parties have agreed that the venue and seat of the arbitration will be in Mumbai.

In view of the above terms, the arbitration application was disposed of.[One Point One Solutions Ltd. v. Reliance Nippon Life Insurance Company Ltd., 2021 SCC OnLine Bom 7861, decided on 28-9-2021]


Advocates before the Court:

Mr Jamshed Master a/w Delan Fernandez, Radhika Motwani i/b Purazar P. Fouzdar, for the Applicant.

Mr Shyam Kapadia a/w Dhruva Gandhi, Mehafrin Mehta i/b HSA Advocates, for the Respondent.

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