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

AVITEL POST STUDIOZ LIMITED & ORS.

HSBC PI HOLDINGS (MAURITIUS) LIMITED

(Civil Appeal No. 5145 of 2016)

AUGUST 19, 2020

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Arbitration and Conciliation Act, 1996 – s. 9 – Contract Act,1872 – ss. 17 and 18 – Share Subscription Agreement (SSA) andShareholders’ Agreement (SHA) was entered into between theclaimant and the appellants – Both SSA and SHA contained anidentical arbitration clause – It was alleged that the appellants madea representation that they were at very advanced stage of finalisinga contract with the British Broadcasting Corporation (BBC) toconvert the BBC’s film library from 2D to 3D – This contract wasexpected to generate revenue of USD 300 million in first phase,and ultimately over USD 1 billion – Pursuant thereto, the claimantmade an investment in the equity capital of the appellants for aconsideration of USD 60 million in order to acquire 7.8% of itspaid up capital – The claimant discovered that the purported BBCcontract was non-existent and was set up by the appellants to inducethe claimants into investing the aforesaid money of USD 60 millionin the shares of Appellants – It was also alleged that the entireinvestment proceeds of USD 60 million was siphoned off toCompanies in which the appellants had stake – As dispute arosebetween the parties, the notices of arbitration were issued by theclaimant to the Singapore International Arbitration Centre tocommence arbitral proceedings – The Emergency Arbitrator passedtwo interim awards in favour of the claimant – The claimant filedapplication u/s. 9 of the 1996 Act – The Single Judge of the HighCourt directed appellants to deposit any shortfall in their accountso as to maintain balance of USD 60 million – The Division Benchof the High Court, however, directed appellants to deposit half ofUSD 60 million i.e. at USD 30 million – By final award, the ArbitralTribunal held that the claimant was entitled to damages in the totalamount of USD 60 million plus interest and costs – The Foreign

Aaward was challenged by the appellants u/s. 34 before the HighCourt – The petition u/s. 34 was dismissed by the High Court – Anappeal u/s. 37 of the 1996 Act was also dismissed – Meanwhile, theclaimant moved the High Court for the enforcement of the ForeignFinal award – Before the Supreme Court, the appellant contendedBthat if the transaction entered into between the parties involve seriouscriminal offences such as forgery and impersonation, then it is clearthat under Indian Law, such dispute would not be arbitrable – Theclaimant countered that issues were predominantly civil law issuesto be decided inter parties – After hearing the parties, the Courtformulated question: Whether there is strong prima facie caseCmade out in favour of the claimant in the s. 9 proceedings – Whetherbalance of convenience tilts in favour of the claimant – Held: On aconspectus of facts and following Supreme Court judgments, theissues raised and answered in the Foreign Final award wouldindicate that there is no such fraud as would vitiate the arbitrationDclause in the SSA entered into between the parties as it is clear thatthis clause has to be read as an independent clause – Further, anyfinding that the contract itself is either null and void or voidable asa result of fraud or misrepresentation does not entail the invalidityof the arbitration clause – Further, the impersonation, falseErepresentation made and diversion of funds are all inter parties,having no ‘public flavour’ and attract the ‘fraud exception’ – Areading of the Foreign Final award would show that strong primafacie case was made out as the award holds the BBC transaction asa basis on which the contract was entered into and the USD 60Fmillion paid by the claimant, which would fall within fraudulentinducement to enter into contract u/s. 17 of the Contract Act – Theorder passed by the Single Judge of the High Court to keep asideUSD 60 million was fair – However, the reduction of USD 60 millionto USD 30 million by the Division Bench of the High Court was notGjustified – The claimant has made out strong prima facie casenecessitating that USD 60 million, being the principal amountawarded to them, is kept apart in the manner indicated by the SingleJudge of the High Court – The balance of convenience is also in itsfavour.

Dismissing the Civil Appeal No.5145 of 2016 and allowingthe Civil Appeal No.5158 of 2016, Civil Appeal no.9820 of 2016,the Court

HELD: 1. In order to discover whether there is strongprima facie case made out in favour of the Claimant before theArbitral Tribunal in the present section 9 proceedings, it isnecessary to refer to the Foreign Final Award dated 27.09.2014.The Arbitral Tribunal found that the siphoning off of large partof the amount of USD 60 million into companies owned orcontrolled by the appellants herein was made out. As resultthereof, it was found that the Claimant, in respect of its claim forfraudulent misrepresentation, and its claim in tort for deceit, isentitled to damages in the total amount of USD 60 million plusinterest and costs as awarded. [Para 20][843-A-B; 844-F; 852-G]

2. There can be no doubt whatsoever after reading theissues and some of the material findings in the Foreign Final Awardthat the issues raised and answered are the subject matter ofcivil as opposed to criminal proceedings. The fact that separatecriminal proceeding was sought to be started and may have failedis of no consequence whatsoever. Therefore, on conspectus ofthese facts, and following Supreme Court judgments, that theissues raised and answered in the Foreign Final Award wouldindicate:

(i) That there is no such fraud as would vitiate the arbitrationclause in the SSA entered into between the parties as it is clearthat this clause has to be read as an independent clause. Further,any finding that the contract itself is either null and void or voidableas result of fraud or misrepresentation does not entail theinvalidity of the arbitration clause which is extremely wide.

(ii) That the impersonation, false representations made, anddiversion of funds are all inter parties, having no “public flavour”as explained earlier so as to attract the “fraud exception”.[Para 21][853-B-F]

3. Thus, reading of the Foreign Final Award in this casewould show that strong prima facie case has indeed been madeout as the Award holds the BBC transaction as basis on whichthe contract was entered into and the USD 60 million paid by theClaimant, which would clearly fall within fraudulent inducementto enter into contract under section 17 of the Contract Act.

ABC

ASuch contract would be voidable at the instance of the Claimant.Also, the findings on the siphoning off of monies that were meantto be allocated for the performance of the BBC contract wouldattract the tort of deceit. The measure of damages for suchfraudulent misrepresentation is not the difference between thevalue of the shares on the date of making the contract and theBvalue Claimant would have received, if it had resold those sharesin the market, after the purchase. The measure of such damageswould be to put Claimant in the same position as if the contracthad never been entered into, which is, the entitlement to recoverthe price paid for the shares and all consequential losses. ThisCbeing the case, it is difficult to accede to the Division Bench’sfinding as to the measure of damages in such cases. [Para 22][853-F-H; 854-A-B]

4. So far as the appeal of Claimant is concerned, this Courtis of the view that it has substance in that the USD 60 million thatwas to be kept aside vide the Single Judge’s (High Court) order,Dwas fair and just in the facts of the case in that it is only the principalamount without any interest or costs that is ordered to be keptaside. Further, the reduction of USD 60 million to USD 30 millionby the Division Bench of the High Court is not justified givenour finding on the measure of damages in the facts of this case.E[Para 23][854-B-D]

5. It is clarified that any finding made on facts in thisjudgment is only prima facie for the purpose of deciding thesection 9 petition. This Court have held that the Claimant hasmade out strong prima facie case necessitating that USD 60Fmillion, being the principal amount awarded to them, is kept apartin the manner indicated by the Single Judge of the Bombay HighCourt. The balance of convenience is also in its favour. It is clearthat in case Claimant was to enforce the Foreign Final Award inIndia in accordance with section 48 of the 1996 Act, irreparableloss would be caused to it unless at least the principal sum wereGkept aside for purposes of enforcement of the award in India.[Para 24][854-E-F]

Afcons Infrastructure Ltd. v. Cherian VarkeyConstruction Co. (P) Ltd. (2010) 8 SCC 24 : [2010] 8SCR 1053; Booz Allen & Hamilton Inc. v. SBI Home

Finance Ltd. (2011) 5 SCC 532 : [2011] 7 SCR 310;Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.(1999) 5 SCC 688 : [1999] 3 SCR 861; Vimal KishorShah v. Jayesh Dinesh Shah (2016) 8 SCC 788 : [2016]7 SCR 102; A. Ayyasamy v. A. Paramasivam (2016) 10SCC 386 : [2016] 11 SCR 521; Ameet Lalchand Shahv. Rishabh Enterprises (2018) 15 SCC 678 : [2018] 6SCR 1001; Rashid Raza v. Sadaf Akhtar (2019) 8 SCC710 : [2019] 12 SCR 460; Kishan Singh v. Gurpal Singh(2010) 8 SCC 775 : [2010] 10 SCR 16; Guru GranthSaheb Sthan Meerghat Vanaras v. Ved Prakash(2013) 7 SCC 622 – relied on.Abdul Kadir Shamsuddin Bubere v. Madhav PrabhakarOak [1962] 3 SCR 702; Swiss Timing Ltd. v.Commonwealth Games 2010 Organising Committee(2014) 6 SCC 677 : [2014] 6 SCR 514; Vidya Droliaand Ors. v. Durga Trading Corporation (2019) SCCOnLine SC 358; N. Radhakrishnan v. MaestroEngineers (2010) 1 SCC 72 : [2009] 15 SCR 371; K.G.Premshanker v. Inspector of Police (2002) 8 SCC 87 :[2002] 2 Suppl. SCR 350; Syed Askari Hadi AliAugustine Imam v. State (Delhi Admn.) (2009) 5 SCC528 : [2009] 3 SCR 1017; P. Swaroopa Rani v. M. HariNarayana (2008) 5 SCC 765 : [2008] 3 SCR 900; M.S.Sheriff v. The State of Madras [1954] SCR 1144; V.M.Shah v. State of Maharashtra (1995) 5 SCC 767 : [1995]3 Suppl. SCR 79; State of West Bengal v. AssociatedContractors (2015) 1 SCC 32 : [2014] 10 SCR 426;Hindustan Petroleum Corporation Ltd. v. PinkcityMidway Petroleums (2003) 6 SCC 503; P. AnandGajapathi Raju v. P.V.G. Raju (2000) 4 SCC 539 : [2000] 2 SCR 684; State of Tripura v. Province of EastBengal, Union of India [1951] SCR 1; Ellerman &Bucknall Steamship Co. Ltd. V. Shar Misrimal Bherajee[1966] Supp SCR 92 – referred to.

Fazal D. Allana v. Mangaldas M. Pakvasa AIR 1922Bom 303; John Minas Apcar v. Louis Caird MalchusAIR 1939 Cal 473 – referred to.

APresident of India and La Pintada CompaniaNavigacion S.A. [1985] A.C. 104; Russel v. Russel[1880] 14 Ch 471; Charles Osenton & Co. v.Johnston 1942 A.C. 130; Chatham and Dover RailwayCompany v. South Eastern Railway Company [1893]A.C. 429; British Railways Board and Herrington 1972BA.C. 877; Smith New Court Securities Ltd. v. ScrimgeourVickers (Asset Management) Ltd. [1996] 4 All ER 769;Doyle v. Olby (Ironmongers) Ltd. [1969] 2 All ER 119– referred to.

Case Law Reference

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

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5145of 2016.

From the Judgment and Order dated 31.07.2014 of the BombayHigh Court in Appeal No. 196 of 2014.

WITH

Civil Appeal Nos. 5158 and 9820 of 2016.

Mr. Mukul Rohatgi, Harish Salve, Nikhil Sakhardande, VinayNavare, Sr. Advs., Saurabh Kirpal, Sanjay Agarwal, Ms. Diksha Rai,Ms. Manali Singhal, Nikhil Rohatgi, Ishan Bisht, Ms. Palak Mahajan,Ms. Liz Mathew, Gautam Awasthi, Mrs. Meena Doshi, Mrs. PrabhaSwami, Nikhil Swami, Ms. Divya Swami, Ms. Abha R. Sharma,DMs. Jasmine Damkewala, Sriniwas Joshi, Ms. Varshali Sharma, YogeshC. Naidu, Ms. Priyanka Shetty, Mr. Santosh Sachin, Advs. for theappearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

1. These two appeals being Civil Appeal No. 5145 of 2016 byAvitel Post Studioz Ltd. [“Avitel India”] and its promoters [the “Jainfamily”], and the cross appeal being Civil Appeal No. 5158 of 2016 byHSBC PL Holdings (Mauritius) Ltd. [“HSBC”], impugn the interlocutoryjudgment and order passed in the appeal under section 9 of the Arbitrationand Conciliation Act, 1996 [“1996 Act”] dated 31.07.2014. To disposeof the said appeals, we refer to the facts in Civil Appeal No. 5145 of2016. The brief facts necessary to appreciate the controversy that arisesin the present case are as follows:

(i) On 21.04.2011, Share Subscription Agreement [“SSA”] wasentered into between HSBC and the Appellants. HSBC made aninvestment in the equity capital of Avitel India for consideration ofUSD 60 million in order to acquire 7.8% of its paid-up capital. This SSAcontained an arbitration clause which reads as follows:-

“16. DISPUTE RESOLUTION

16.1. Arbitration

16.1.1. Any dispute, controversy or claim arising out of or inconnection with this Agreement, including any question regardingits existence, validity, interpretation, breach or termination shallbe referred to and finally resolved by binding arbitration at theSingapore International Arbitration Centre (“SIAC”) in accordancewith the International Arbitration Rules in force at the date of thisAgreement (“Rules”), which Rules are deemed to be incorporatedby reference into this clause and as may be amended by the restof this clause.

16.1.2. The seat of arbitration shall be Singapore.

16.1.3. The language of the arbitration proceedings shall beEnglish.

D16.1.4. The arbitration tribunal shall consist of three (3) arbitrators:the claimant party shall nominate one (1) arbitrator, the respondentparty shall nominate one (1) arbitrator and the two (2) arbitratorsthus appointed shall nominate the third arbitrator who shall be thepresiding arbitrator (the “Arbitration Tribunal”). If there is morethan one claimant party and/or more than one respondent party,Ethe claimant parties (for the purposes of this Clause 16.1 togethera “party”) shall together designate one (1) arbitrator and therespondent parties (for the purposes of this Clause 16.1 togethera “party”) shall together designate one (1) arbitrator. If within 30days of request from the other party to do so, party fails toFdesignate an arbitrator, or if the two (2) arbitrators fail to designatethe third arbitrator within 30 days after the confirmation of theappointment of the second arbitrator, the appointment shall bemade, upon request of party, by the SIAC council in accordancewith the Rules.

16.1.5. If within 14 days of request from the other party to doso, party fails to nominate an arbitrator, or if the two (2) arbitratorsfail to nominate the third arbitrator within 14 days after theconfirmation of the appointment of the second arbitrator, theappointment shall be made, upon request of party, by the SIACcouncil in accordance with the Rules.

16.1.6. The parties waive any right to apply to any court of lawand/or other judicial authority to determine any preliminary pointof law and/or review any question of law and/or the merits, insofaras such waiver may be validly made. The parties shall not bedeemed, however, to have waived any right to challenge any awardon the ground that the tribunal lacked substantive jurisdiction and/or the ground of serious irregularity affecting the tribunal, theproceedings or the award to the extent allowed by the law of theseat of the arbitration.

16.1.7. Nothing in this Clause 16.1 shall be construed as preventingany party from seeking conservatory or interim relief in any courtof competent jurisdiction.

16.1.8. Any award of the arbitration tribunal shall be made inwriting and shall be final and binding on the parties from the day itis made and the parties agree to be bound thereby and to actaccordingly. The parties undertake to carry out the award withoutdelay.

16.1.9. During the conduct of any arbitration proceedings pursuantto this Clause 16.1, this Agreement shall remain in full force andeffect in all respects except for the matter under arbitration andthe parties shall continue to perform their obligations hereunder,except for those obligations involved in the matter under dispute,and to exercise their rights here under.

16.2. Costs

The costs and expenses of the arbitration, including the fees ofthe arbitration and the Arbitration Tribunal, shall be borne equallyby each Party to the dispute or claim and each Party shall pay itsown fees, disbursements and other charges of its counsel, exceptas may be determined by the Arbitration Tribunal. The ArbitrationTribunal would have the power to award interest on any sumawarded pursuant to the arbitration proceedings and such sumwould carry interest, if awarded, until the actual payment of suchamounts.

16.3. Final and Binding

It is agreed by the Parties that any award made by the ArbitrationTribunal shall be final and binding on each of the Parties thatwere parties to the dispute.

A16.4. Application of Arbitration Act

Save for section 9, Part 1 of the Indian Arbitration and ConciliationAct, 1996 (the “Arbitration Act”), the provisions of Part 1 of theArbitration Act shall not apply to the terms of this Agreement.”

(ii) On 06.05.2011, the aforesaid parties entered into aBShareholders’ Agreement [“SHA”]which defined the relationshipbetween the parties after the SSA dated 21.04.2011 had been enteredinto. The SHA also contained an arbitration clause which was identicalto the arbitration clause contained in the SSA. It is the case of HSBCthat representation had been made by Appellants No. 2-4 (the Jainfamily) that the Appellants were at very advanced stage of finalising aCcontract with the British Broadcasting Corporation [“BBC”] to convertthe BBC’s film library from 2D to 3D. This contract was expected togenerate revenue of USD 300 million in the first phase, and ultimatelyover USD 1 billion. It is the further case of HSBC that this investmentof USD 60 million was required by Avitel India to purchase equipmentDfor Avitel Post Studioz FZ LLC [“Avitel Dubai”] to service the BBCcontract (Avitel Dubai is 100% subsidiary of Avitel Holdings Ltd.,Mauritius [“Avitel Mauritius”], which, in turn, is 100% subsidiary ofAvitel India. Avitel India, Avitel Mauritius, and Avitel Dubai are collectivelyreferred to as the “Avitel Group”).

E(iii) In early April 2012, HSBC grew suspicious about the AvitelGroup’s business of digitising films and Ernst & Young and KPMG Dubaiwere appointed to inquire into and return findings as to the businessactivities of the Avitel Group. It is the further case of HSBC that theydiscovered, thanks to certain preliminary findings of Ernst & Young andKPMG Dubai, inter alia, that the purported BBC contract was non-Fexistent and was set up by the Appellants to induce HSBC into investingthe aforesaid money of USD 60 million in the shares of Appellant No. 1.It is also HSBC’s case that though Avitel Dubai received the entireinvestment proceeds of USD 60 million on or about 10.05.2011, itappeared that around USD 51 million were not used to purchase anyGequipment to service the BBC contract, but appeared to have beensiphoned off to companies in which the Jain family had stake.

(iv) As disputes arose between the parties, on 11.05.2012, noticesof arbitration were issued by HSBC to the Singapore InternationalArbitration Centre[“SIAC”] to commence arbitral proceedings. On14.05.2012, the SIAC appointed Mr. Thio Shen Yi, SC, as an EmergencyH

Arbitrator pursuant to an application dated 11.05.2012. On 17.05.2012,the Appellants’ challenge to the appointment of the Emergency Arbitratorwas considered by the SIAC and rejected. On 25.05.2012, the Appellantsfiled their response to the notices of arbitration.

(v) The Emergency Arbitrator then passed two Interim Awardsdated 28.05.2012 and 29.05.2012, in the SSA and the SHA, respectively,in favour of HSBC, directing the Appellants and Avitel Dubai to refrainfrom disposing of or dealing with or diminishing the value of their assetsup to USD 50 million, and permitting HSBC to deliver copy of theInterim Awards to financial institutions in India and the UAE with whichany of the Appellants hold or may hold or be signatory to accounts,together with request that the financial institutions freeze such accountsconsistent with the Interim Awards. On 27.07.2012, the EmergencyArbitrator made an amendment to Interim Awards dated 28.05.2012and 29.05.2012 passed in the SSA and the SHA, respectively, grantingfurther relief to HSBC by, inter alia, directing the Appellants and AvitelDubai to cease and desist from prohibiting or inhibiting Ernst & Youngand KPMG Dubai from conducting investigations into the financial affairsof Avitel Dubai and Avitel Mauritius.

(vi) On 30.07.2012, HSBC filed Arbitration Petition No. 1062 of2012 under section 9 of the 1996 Act in the Bombay High Court, interalia seeking directions to call upon the Appellants to deposit securityamount to the extent of HSBC’s claim in the arbitration proceedings thathad begun under both the SSA and the SHA.

(vii) On 03.08.2012, learned Single Judge of the Bombay HighCourt passed an interim order under the section 9 petition, inter aliadirecting the Corporation Bank to allow the Appellants to withdraw asum of INR 1 crore from their account on or before 09.08.2012, but notto allow any further withdrawals until further orders, till which time, theaccount was to remain frozen.

(viii) Meanwhile, the Appellants challenged the jurisdiction of thethree-member Arbitral Tribunal comprising of Mr. Christopher Lau, SCas its Chairman, and Dr. Michael C. Pryles and Justice (Retd.) FerdinoI. Rebello as co-arbitrators [“Arbitral Tribunal”] set up under theauspices of the SIAC. On 25.09.2012, the Arbitral Tribunal decided thatthis would be decided as preliminary issue. On 17.12.2012, the ArbitralTribunal passed unanimous “final partial award on jurisdiction”,dismissing the jurisdictional challenge, and stating that since Singapore

Alaw governs the arbitration agreement, allegations of fraud andcomplicated issues relating to facts are arbitrable.

(ix) Meanwhile, in the section 9 petition pending before the BombayHigh Court, an order was passed by learned Single Judge dated22.01.2014, in which the Appellants were directed to deposit any shortfallBin their account with the Corporation Bank so as to maintain balanceof USD 60 million. The learned Single Judge gave prima facie findingsthat the seat of arbitration was at Singapore and that the arbitrationagreement was governed by Singapore law; hence, arbitrability of thedispute at hand would be governed by Singapore law. It held that theunanimous “final partial award on jurisdiction” dated 17.12.2012, deliveredCby the Arbitral Tribunal in Singapore, upholding the jurisdiction of theArbitral Tribunal to proceed, had not been challenged in Singapore bythe Appellants, and further held that this being the case, since HSBChas good chance of success in the final arbitral proceedings, theaforesaid order to deposit the shortfall in the account so as to maintain aDbalance of USD 60 million was passed.(x) An appeal against the order of the learned Single Judge wasdisposed of by the impugned judgment and order of the Division Benchdated 31.07.2014, returning prima facie finding that since Singaporelaw governs the arbitration agreement, there was no need to interfereEwith the findings of the learned Single Judge in this respect. Further, itwas held that there is no estoppel in filing the present proceeding despitethe Emergency Awards being passed in Singapore as the section 9 petitioncould be maintained on plain reading of the arbitration agreement itself.It was further held that an issue of fraud in the context of sections 17and 18 of the Indian Contract Act, 1872 [“Contract Act”] referred toFwant of free consent, and was well-accepted ground that would vitiatethe contract, rendering it voidable. After referring to various judgmentsof this Court, it was held that there was distinction between the“suitability” and “arbitrability” of disputes, and on the facts of the presentcase, it could not be said that the dispute was not arbitrable because ofGan allegation of fraud made by HSBC. After then referring to the claimstatement of HSBC before the Arbitral Tribunal at Singapore, it washeld that the allegations of fraud and misrepresentation were primarilyin the context of “fraud” and “misrepresentation” as defined in sections17 and 18 of the Contract Act, thus establishing civil profile of thedisputes that had arisen between the parties. However, after referringH

to certain judgments on interim mandatory injunctions, the High Courtprima facie found that HSBC had carried out due diligence by engagingleading agencies like Ernst & Young and Clifford Chance. Also, it washeld that the measure of damages that may ultimately be awarded maynot be the amount of loss ultimately sustained by HSBC, but can at bestbe the difference between the price paid by HSBC in acquiring AvitelIndia’s shares and the price HSBC would have received had it resoldthe said shares in the market. This being the case, and an interimmandatory injunction being in the nature of equitable relief, the DivisionBench was of the opinion that the interest of justice would be served ifthe Appellants are directed to deposit an additional amount equivalent toUSD 20 million in its Corporation Bank account, so that the total depositin the said account is maintained at half the said figure of USD 60 million,i.e., at USD 30 million. The appeal against the order dated 22.01.2014was therefore partly allowed.

(xi) By Final Award in the SSA dated 27.09.2014 [“ForeignFinal Award”], the Arbitral Tribunal held as follows:

“21. FORMAL FINAL AWARD

21.1 The Tribunal has carefully considered the oral anddocumentary evidence as well as the submissions of the Partiesand given due weight thereto and rejecting all submissions to thecontrary hereby makes, issues and publishes this Final Award andfor the reasons set out above FINDS, AWARDS, ORDERS ANDDECLARES as follows:

21.2 Finds that the Respondents jointly and severally representedto the Claimant the following:

a. the Avitel Group’s propriety stereoscopy technology wassuperior to that of its competitor;

b. Avitel Dubai played an important role in the Avitel Group’sbusiness;

c. the Avitel Group was in advanced negotiations with the BBCand that the BBC Contract was close to execution;

d. the Claimant’s investment was required and was to be utilizedfor purchasing equipment in order to enable Avitel Dubai toservice the BBC Contract;

e. the Avitel Group had the benefit of the Material Contractswith Kinden, SPAC and Purple Passion with total value ofapproximately USD 658 million;

f. the Avitel Group’s key customers Kinden, SPAC and PurplePassion as well as Avitel Dubai’s key supplier, Digital Fusion,Band key service provider, Highend, were all independent andlegitimate companies;

g. the representations and warranties contained in Clauses 6.1and 6.2 of the SSA and in Clauses 7.1, 7.3, 7.5 , 8, 10 and 11 ofSchedule 3 of the SSA to be true, complete, accurate and notmisleading;C

21.3 Finds that the Respondents made the representations and/orwarranties in order to induce the Claimant to invest in the FirstRespondent;

21.4 Finds that the Claimant did rely on the representations and/or warranties in making its investment in the First Respondent;

21.5 Finds that the representations and/or warranties referred toin paragraph 21.2 (a) to (g) above were false and/or misleading;

21.6 Finds that the Respondents made the representations and/orwarranties referred to in paragraph 21.2 (a) to (g) above knowingthat these were false and/or without belief in their truth;

E21.7 Finds that the Respondents are jointly and severally liable tothe Claimant in tort for deceit;

21.8 Finds that the Respondents are jointly and severally liable tothe Claimant for fraudulent misrepresentation under the ContractAct;

21.9 Finds that the Respondents are jointly and severally liable tothe Claimant for breach of warranty;

21.10 Finds that the Second, Third and Fourth Respondents areto jointly and severally indemnify the Claimant for the loss of itsinvestment in the amount of USD 60 million as well as for theGcosts of and associated with this arbitration and associated courtactions;

21.11 Finds that the Claimant in respect of its claim for fraudulentmisrepresentation and its claim in tort for deceit is entitled todamages in the total amount of USD 60 million;

21.12 Finds that the Claimant is entitled to interest on the sum ofUSD 60 million from 6 May 2011 to the date of this Final Awardat the rate of 4.25 % per annum;

21.13 Finds that the Claimant is entitled to its legal and othercosts as well as the costs of the arbitration in the total amount ofSGD 827,615.67 comprising of the following:

(a) the amount of SGD 29,235.88 in respect of the EmergencyArbitrators fees and expenses

(b) the amount of SGD 756,513.19 in respect of the Tribunal’sfees and expenses;

(c) the amount of SGD 41,866.60 in respect of SIACadministrative fees and expenses;

21.14 Finds that upon the Respondents’ paying in full andunconditionally the sums awarded to the Claimant in paragraphs21.15, 21.16, 21.18, 21.19 below, the Claimant’s PreferenceSubscription Shares and Equity Subscription Shares (as definedin the SSA) in Avitel India are to be cancelled forthwith;

21.15 Awards to the Claimant and Orders the Respondents topay damages in the amount of USD 60 million in respect of whichaward the First, Second, Third and Fourth Respondents are jointlyand severally liable;

21.16 Awards to the Claimant and Orders the Respondents topay interest on the sum of USD 60 million from 6 May 2011 to thedate of this Final Award at the rate of 4.25% per annum in respectof which award the First, Second, Third and Fourth Respondentsare jointly and severally liable;

21.17 Orders in terms identical to the orders in the Interim Award(as amended by the Addendum and Amendment to Interim Awarddated 15 June 2012 and by the Amendment to Interim Awarddated 27 July 2012), which orders are to remain in force up to andincluding the date on which the Respondents comply with all otherorders in this Final Award;

21.18 Awards to the Claimant and Orders the Respondents topay the Claimant’s legal and other costs amounting to USD1,652,890.14 in respect of which award the First, Second, Thirdand Fourth Respondents are jointly and severally liable;

A21.19 Awards to the Claimant and Orders the Respondents topay all the costs of this arbitration in the total amount of SGD827,615.67 as follows:

(a) the amount of SGD 29,235.88 in respect of the EmergencyArbitrator’s fees and expenses;

(b) the amount of SGD 756,513.19 in respect of the Tribunal’sfees and expenses;

(c) the amount of SGD 41,868.60 in respect of SIACadministrative fees and expenses;

C21.20 Declares the Second, Third and Fourth Respondents jointlyand severally liable to indemnify the Claimant for the loss of itsinvestment in the amount of USD 60 million together with interestthereon for the period and at the rate specified in paragraph 21.16hereinabove and the Claimant’s legal costs, related expenses aswell as the costs of this arbitration as specified in paragraph 21.19Dhereinabove;

21.21 Declares and Orders that upon the Respondents’ paying infull and unconditionally the sums awarded to the Claimant inparagraphs 21.15, 21.16, 21.18, 21.19 hereinabove and all costsarising out of and incidental to the cancellation of the Claimant’sEPreference Subscription Shares and Equity Subscription Shares(as defined in the SSA) in Avitel India, that the said shares becancelled and that in this regard, the Parties take the requisitesteps to effect the said cancellation within 30 days of receipt ofsuch payment.”

FInitially, this Foreign Final Award was challenged by the Appellantsin section 34 proceeding in the Bombay High Court. By judgmentdated 28.09.2015, the section 34 petition was dismissed as being notmaintainable. An appeal under section 37 of the 1996 Act was dismissedon 05.05.2017. Meanwhile, HSBC moved the Bombay High Court on15.04.2015 to enforce the Foreign Final Award in the SSA datedG27.09.2014, which enforcement proceedings are still pending.

2. Mr. Mukul Rohatgi, learned Senior Advocate and Mr. SaurabhKirpal, learned counsel, appearing on behalf of the Appellants, took usthrough the Single Judge order and the Division Bench judgment, andthen referred to the Indian law on the allegations of fraud made in arbitralH

proceedings, which, according to them, show that if the transactionentered into between the parties involve serious criminal offences suchas forgery and impersonation, then it is clear that under Indian law, suchdispute would not be arbitrable. In fact, they stated that criminalcomplaint was filed by HSBC against the Appellants dated 16.01.2013,alleging offences under sections 420, 467, 468, read with section 120Bof the Indian Penal Code, 1860, with the Economic Offences Wing,Mumbai [“EOW”], resulting in an FIR being registered. However, theEOW informed HSBC that closure report was filed before theconcerned Magistrate in Mumbai. This closure report was then accepted.HSBC then filed protest petition seeking rejection of the closure report,which was dismissed by the learned Magistrate on 05.05.2018. Thisorder passed by the Magistrate was in turn challenged by HSBC in WritPetition (Criminal) No. 5659 of 2018, which petition is still pending. Theythen argued that, ultimately, in enforcement proceedings in India, thegateways of section 48 of the 1996 Act have to be met. “The publicpolicy of India” is contained in the judgments of this Court regardingserious allegations of fraud made in arbitral proceedings, and if HSBCcannot pass this gateway, then enforcing foreign award in India wouldnot be possible. It was from this prism that prima facie case had to bemade out under section 9 of the 1996 Act. They, therefore, attackedboth the Single Judge order and the Division Bench judgment, statingthat prima facie case for enforcement of such foreign awards cannotpossibly refer to the Singapore law on fraud being alleged in arbitralproceedings, but can only refer to Indian law. They further argued thatthe Division Bench of the Bombay High Court had relied upon SingleJudge judgment of this Court reported as Swiss Timing Ltd. v.Commonwealth Games 2010 Organising Committee, (2014) 6SCC 677 [“Swiss Timing”] which had held the judgment in N.Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 [“N.Radhakrishnan”] per incuriam, vitiating the entire Division Benchjudgment. This is clear because Single Judge judgment of this Courtunder section 11 of the 1996 Act has no precedential value as has correctlybeen held in State of West Bengal v. Associated Contractors, (2015)1 SCC 32 [“Associated Contractors”]. Mr. Rohatgi also indicatedthat Mr. Christopher Lau, SC, the Chairman of the Arbitral Tribunal inthe Singapore proceedings was biased, in that HSBC was client of thefirm to which he belonged, and this is one of the important grounds takenup in the section 48 proceeding which is pending in the Bombay High

ACourt. He also sought to raise an argument (for the first time before us)that the award being insufficiently stamped could not be looked at andthat this would also go to show that there is no prima facie case in orderto sustain the interim mandatory orders passed by the Division Bench ofthe High Court. It was further added that Report No. 246 of the LawCommission of India on ‘Amendment to the Arbitration and ConciliationBAct, 1996’ of August 2014 [“246[th] Law Commission Report”] hadrecommended that section 16(7) be added so as to do away with theratio of N. Radhakrishnan (supra). However, Parliament thought it fit,when it passed the Arbitration and Conciliation (Amendment) Act, 2015[“2015 Amendment Act”], not to incorporate such section, showingCthat N. Radhakrishnan(supra) holds the field and that, therefore, seriousquestions of fraud raised, like in the present arbitral proceedings, wouldrender such dispute inarbitrable. For this proposition, they relied heavilyon the House of Lords judgment in President of India and La PintadaCompania Navigacion S.A., [1985] A.C. 104 [“La Pintada”].D3. Mr. Harish Salve, learned Senior Advocate appearing on behalfof the Respondent, HSBC, countered all these submissions by relyingupon several judgments of this Court, including the recent judgment inRashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710 [“Rashid Raza”].According to the learned Senior Advocate, this judgment has, with greatclarity, explained the judgment in A. Ayyasamy v. A. Paramasivam,E(2016) 10 SCC 386 [“Ayyasamy”], which in turn had explained N.Radhakrishnan (supra), as referring only to such serious allegations offraud as would vitiate the arbitration clause along with the agreement,and allegations of fraud which are not merely inter parties, but affect thepublic at large. He argued that reading of the pleadings in the presentFcase would show that neither of these two tests has been met. He alsocopiously read from the Foreign Final Award dated 27.09.2014, whichfound not merely on impersonation, which was one small leg on which itstood, but also on siphoning off or diversion of substantial portion ofthe USD 60 million paid by HSBC into companies owned or controlledby the Jain family. He said that these issues are predominantly civil lawGissues to be decided inter parties. He further argued that insofar as Mr.Christopher Lau SC’s alleged bias is concerned, this was not the time orplace to go into such allegations, which would only be fully met in thesection 48 proceedings which are pending. He indicated that in any case,this Foreign Final Award was unanimous and consisted of two otherHarbitrators, Dr. Michael C. Pryles and Justice (Retd.) Ferdino I. Rebello,

retired Chief Justice of the Allahabad High Court. He also asked us notto go into the stamping aspect of the Foreign Final Award inasmuch as itwas raised here for the first time without any proper pleading; if properlypleaded, then his client would have had an opportunity to rebut the sameto show that there was no insufficiency of stamp duty paid. Mr. Salvetherefore supported the ultimate order of the learned Single Judge of theBombay High Court, and said that the Division Bench ought not to havereduced the amount of USD 60 million to half, i.e., USD 30 million withoutany reasoning worth the name, particularly because the Foreign FinalAward had held that the USD 60 million was to be paid by way ofdamages with interest and costs, the shares in HSBC’s name standingcancelled. Once it is clear that the aforesaid shares stood cancelled, it isclear that the 7.8% of the paid-up share capital of Avitel India that washeld by HSBC reverts to Avitel India. This being the case, there wouldbe no awarding of the difference between market value of the shares ason the date of breach and USD 60 million, as the shares are back in thehands of Avitel India.

4. Having heard learned counsel appearing on behalf of both theparties, the only real question that needs to be addressed in the section 9proceedings is the extent to which HSBC could be said to have strongprima facie case in the enforcement proceedings under section 48 whichare pending before the Bombay High Court. If so, whether irreparableprejudice would be caused to HSBC if protective orders were not issuedin its favour, and generally, whether the balance of convenience tilts inits favour and to what extent.5. First and foremost, it is correct to state that this prima faciecase would necessarily depend upon what is the substantive law in Indiaqua arbitrability when allegations of fraud are raised by one of the partiesto the arbitration agreement. The law on this point has its origins in ajudgment under the Arbitration Act, 1940 [“1940 Act”], the predecessorto the 1996 Act, which repealed the 1940 Act. Thus, in Abdul KadirShamsuddin Bubere v. Madhav Prabhakar Oak, [1962] 3 SCR702 [“Abdul Kadir”], disputes arose out of an agreement between theparties, which contained an arbitration clause. Consequently, respondentsno.1 and 2 filed an application under section 20 of the 1940 Act, as itthen stood. This application was opposed by the appellant on four groundsbefore the Hon’ble Supreme Court. The fourth ground is important fromour point of view and reads thus:

“xxx xxx xxx

A(4) The respondents had made allegations of fraud against theappellant in their application and that was also ground for not referringthe dispute to arbitration.”

(at p. 707)

In dealing with this ground, the Court first referred to sectionB20(4) of the 1940 Act, which laid down that “where no sufficient causeis shown, the Court shall order the agreement to be filed, and shallmake an order of reference to the arbitrator appointed by the parties,whether in the agreement or otherwise or, where the parties cannotagree upon an arbitrator, to an arbitrator appointed by the Court.”This Court referred to the fact that the words of this sub-section leave aCwide discretion with the Court to consider whether an order for filing anagreement should be made and reference thereon should also be made.Various English judgments were referred to. Russel v. Russel, [1880]14 Ch 471 was referred to for the proposition that the Court will, ingeneral, refuse to send dispute to arbitration if the party charged withDfraud desires public inquiry, but where the objection to arbitration is bythe party charging the fraud, the Court will not necessarily accede to it,and will never do so unless prima facie case of fraud is proved [seeAbdul Kadir (supra) at p. 713]. The next English judgment is CharlesOsenton & Co. v. Johnston, 1942 A.C. 130. This case held that asthe professional reputation of particular firm was involved, the matterEshould not be referred to arbitration for the reason that the normal tribunalof High Court with jury, from which there is recourse to right toappeal, could not be substituted by proceedings before an official refereeunder section 89 of the Judicature Act, 1925. After referring to thesecases, this Court cautioned:F

“There is no doubt that where serious allegations of fraud aremade against party and the party who is charged with frauddesires that the matter should be tried in open court, that would bea sufficient cause for the court not to order an arbitrationagreement to be filed and not to make the reference. But it is notGevery allegation imputing some kind of dishonesty, particularly inmatters of accounts, which would be enough to dispose court totake the matter out of the forum which the parties themselveshave chosen. This to our mind is clear even from the decisionin Russel case [1880 14 Ch 471]. In that case there wereallegations of constructive and actual fraud by one brother against

the other and it was in those circumstances that the court madethe observations to which we have referred above. Even so, thelearned Master of the Rolls also observed in the course of thejudgment at p. 476 as follows:

“Why should it be necessarily beyond the purview of thiscontract to refer to an arbitrator questions of account, evenwhen those questions do involve misconduct amounting evento dishonesty on the part of some partner? I do not see it. I donot say that in many cases which I will come to in the secondbranch of the case before the Court, the Court may not, in theexercise of its discretion, refuse to interfere; but it does notappear to me to follow of necessity that this clause was notintended to apply to all questions, even including questions eitherimputing moral dishonesty or moral misconduct to one or otherof the parties.”

We are clearly of opinion that merely because some allegationshave been made that accounts are not correct or that certainitems are exaggerated and so on that is not enough to induce thecourt to refuse to make reference to arbitration. It is only incases of allegations of fraud of serious nature that the court willrefuse as decided in Russel’s case [1880 14 Ch 471] to orderan arbitration agreement to be filed and will not make reference.We may in this connection refer to Minifie v. RailwayPassengers Assurance Company [(1881) 44 LT 552]. There thequestion was whether certain proceedings should be stayed; andit was held that notwithstanding the fact that the issue and theevidence in support of it might bear upon the conduct of certainperson and of those who attended him and so might involve aquestion similar to that of fraud or no fraud, that was no groundfor refusing stay. It is only when serious allegations of fraud aremade which it is desirable should be tried in open court that acourt would be justified in refusing to order the arbitrationagreement to be filed and in refusing to make reference.”

(at pp. 714-716)

The Court then turned to the facts of the case before it and heldthat allegations as to the correctness or otherwise of entries in accountsare not serious allegations of fraud, stating that such allegations are often

Amade in suits for accounts, which are purely civil proceedings. It wasadded:

“That is why we emphasise that even in the leading caseof Russel [1880 14 Ch 471], the learned Master of the Rollswas at pains to point out that it could not necessarily be said in aBcase of accounts that no reference to arbitration should be made,even though questions relating to accounts which might involvemisconduct amounting even to dishonesty on the part of somepartner might arise in the arbitration proceedings and even caseswhere moral dishonesty or moral misconduct is attributed to oneparty or the other might be referred to arbitration. It seems to usCthat every allegation tending to suggest or imply moral dishonestyor moral misconduct in the matter of keeping accounts would notamount to such serious allegation of fraud as would impel courtto refuse to order the arbitration agreement to be filed and refuseto make reference. Looking to the allegations which have beenDmade in this case we are of opinion that there are no such seriousallegations of fraud in this case as would be sufficient for thecourt to say that there is sufficient cause for not referring thedispute to arbitration. This contention of the appellant must alsotherefore fail.”

(at pp. 717-718)

6. In N. Radhakrishnan (supra), differences between thepartners of firm were sought to be adjudicated in civil suit filed by therespondents. The appellant filed an application under section 8 of the1996 Act stating that as there was an arbitration clause between thepartners, the matter should now be referred to arbitration. This Court,Fafter considering the judgment in Abdul Kadir (supra), extracted onesentence from the said judgment at p. 714 as follows:

“There is no doubt that where serious allegations of fraud aremade against party and the party who is charged with frauddesires that the matter should be tried in open court, that would beGa sufficient cause for the court not to order an arbitrationagreement to be filed and not to make the reference.”

This sentence, according to the learned Division Bench, being theratio in Abdul Kadir (supra), would necessarily mean that whereverserious allegations of fraud are raised in case in which there is anHarbitration agreement, they should be tried in court of law. In the fact

situation before the Court, the Court found that the appellant had madeserious allegations against the respondents alleging that they werecommitting malpractices in the account books and had manipulated thefinances of the partnership firm. This, according to the learned DivisionBench of this Court, was enough to dismiss the section 8 application.We may also refer to the fact that the appellant’s counsel had reliedupon the judgment in Hindustan Petroleum Corporation Ltd. v.Pinkcity Midway Petroleums, (2003) 6 SCC 503 [“HindustanPetroleum”], in which it was stated that it is mandatory for civil courtto refer to arbitration dispute that arises between parties with anarbitration agreement, under section 8 of the 1996 Act. We may onlynote at this stage that this judgment was not dealt with at all by theCourt. On the contrary, judgment delivered under section 20(4) of the1940 Act was referred to, in order to arrive at the conclusion arrived atby the Court.

7. In Afcons Infrastructure Ltd. v. Cherian VarkeyConstruction Co. (P) Ltd., (2010) 8 SCC 24 [“Afcons”], this Courtheld as follows:

“27. The following categories of cases are normally consideredto be not suitable for ADR process having regard to their nature:

(i) Representative suits under Order 1 Rule 8 CPC whichinvolve public interest or interest of numerous persons whoare not parties before the court. (In fact, even compromisein such suit is difficult process requiring notice to thepersons interested in the suit, before its acceptance).

(ii) Disputes relating to election to public offices (as contrastedfrom disputes between two groups trying to get control overthe management of societies, clubs, association, etc.).

(iii) Cases involving grant of authority by the court after enquiry,as for example, suits for grant of probate or letters ofadministration.

(iv) Cases involving serious and specific allegations of fraud,fabrication of documents, forgery, impersonation, coercion, etc.

(v) Cases requiring protection of courts, as for example, claimsagainst minors, deities and mentally challenged and suits fordeclaration of title against the Government.

(vi) Cases involving prosecution for criminal offences.”

AIt will be seen that items (iv) and (vi) are relevant from our pointof view and require to be explained in the light of subsequent decisionsof this Court.

8. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.,(2011) 5 SCC 532 [“Booz Allen”], this Court decided that proceedingsBin rem, such as mortgage suit filed under Order XXXIV of the CivilProcedure Code, 1908 (which was proceeding in rem), would not bearbitrable. In significant passage, this Court held:

“36. The well-recognised examples of non-arbitrable disputes are:(i) disputes relating to rights and liabilities which give rise to orCarise out of criminal offences; (ii) matrimonial disputes relating todivorce, judicial separation, restitution of conjugal rights, childcustody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters ofadministration and succession certificate); and (vi) eviction ortenancy matters governed by special statutes where the tenantDenjoys statutory protection against eviction and only the specifiedcourts are conferred jurisdiction to grant eviction or decide thedisputes.

37. It may be noticed that the cases referred to above relate toactions in rem. right in rem is right exercisable against theEworld at large, as contrasted from right in personam which is aninterest protected solely against specific individuals. Actions inpersonam refer to actions determining the rights and interests ofthe parties themselves in the subject-matter of the case, whereasactions in rem refer to actions determining the title to propertyFand the rights of the parties, not merely among themselves butalso against all persons at any time claiming an interest in thatproperty. Correspondingly, judgment in personam refers to ajudgment against person as distinguished from judgment againsta thing, right or status and judgment in rem refers to judgmentthat determines the status or condition of property which operatesGdirectly on the property itself. (Vide Black’s Law Dictionary.)

38. Generally and traditionally all disputes relating to rights inpersonam are considered to be amenable to arbitration; and alldisputes relating to rights in rem are required to be adjudicated bycourts and public tribunals, being unsuited for private arbitration.

This is not however rigid or inflexible rule. Disputes relating tosubordinate rights in personam arising from rights in rem havealways been considered to be arbitrable.

39. The Act does not specifically exclude any category of disputesas being not arbitrable. Sections 34(2)(b) and 48(2) of the Acthowever make it clear that an arbitral award will be set aside ifthe court finds that “the subject-matter of the dispute is not capableof settlement by arbitration under the law for the time being inforce”.”

The Court then held, following Haryana Telecom Ltd. v. SterliteIndustries (India) Ltd., (1999) 5 SCC 688, that similarly, winding upproceedings under the Companies Act, 1956 cannot be referred toarbitration (see paragraph 42). As against this, suits for specificperformance are arbitrable despite the fact that the court is vested withdiscretion to be exercised based upon principles laid down as to whennot to decree specific performance (see paragraphs 43 and 44). TheCourt then concluded:

“46. An agreement to sell or an agreement to mortgage does notinvolve any transfer of right in rem but creates only personalobligation. Therefore, if specific performance is sought either inregard to an agreement to sell or an agreement to mortgage, theclaim for specific performance will be arbitrable. On the otherhand, mortgage is transfer of right in rem. mortgage suitfor sale of the mortgaged property is an action in rem, forenforcement of right in rem. suit on mortgage is not meresuit for money. suit for enforcement of mortgage being theenforcement of right in rem, will have to be decided by thecourts of law and not by Arbitral Tribunals.47. The scheme relating to adjudication of mortgage suits containedin Order 34 of the Code of Civil Procedure, replaces some of therepealed provisions of the Transfer of Property Act, 1882 relatingto suits on mortgages (Sections 85 to 90, 97 and 99) and alsoprovides for implementation of some of the other provisions ofthat Act (Sections 92 to 94 and 96). Order 34 of the Code doesnot relate to execution of decrees, but provides for preliminaryand final decrees to satisfy the substantive rights of mortgageeswith reference to their mortgage security.”

A9. We now come to learned Single Judge’s judgment in SwissTiming (supra). There is no doubt that this judgment delivered by alearned Single Judge under section 11 jurisdiction cannot be said to bea binding precedent [see Associated Contractors (supra) at paragraph17]. However, the learned Judge’s reasoning has strong persuasive valuewhich we are inclined to adopt. The learned Single Judge first held thatBthe judgment in P. Anand Gajapathi Raju v. P.V.G. Raju, (2000) 4SCC 539, was not brought to the notice of this Court in N.Radhakrishnan (supra). The judgment of Hindustan Petroleum(supra) which was brought to the notice of the Court was not dealt withat all. Further, the provisions of sections 5 and 16 of the 1996 Act wereCalso not referred to. Section 5 of the 1996 Act states as follows:

“5. Extent of judicial intervention.—Notwithstanding anythingcontained in any other law for the time being in force, in mattersgoverned by this Part, no judicial authority shall intervene exceptwhere so provided in this Part.”DSection 16(1) of the 1996 Act states:

“16. Competence of arbitral tribunal to rule on itsjurisdiction.—(1) The arbitral tribunal may rule on its ownjurisdiction, including ruling on any objections with respect to theexistence or validity of the arbitration agreement, and for thatEpurpose,—

(a) an arbitration clause which forms part of contract shallbe treated as an agreement independent of the other terms ofthe contract; and

F(b) decision by the arbitral tribunal that the contract is nulland void shall not entail ipso jure the invalidity of the arbitrationclause.”

These provisions, together with section 8 of the 1996 Act, whichnow makes it mandatory to refer an action which is brought before ajudicial authority, which is the subject matter of an arbitration agreement,Gto arbitration, if the conditions of the section are met, all point to seachange from the 1940 Act which was repealed by this 1996 Act. Byway of contrast with section 8 of the 1996 Act, section 20 of the 1940Act is set out hereinbelow:

“20. Application to file in Court arbitration agreement.—H(1) Where any persons have entered into an arbitration agreement

before the institution of any suit with respect to the subject-matterof the agreement or any part of it, and where difference hasarisen to which the agreement applies, they or any of them, insteadof proceeding under Chapter II, may apply to Court havingjurisdiction in the matter to which the agreement relates, that theagreement be filed in Court.

(2) The application shall be in writing and shall be numbered andregistered as suit between one or more of the parties interestedor claiming to be interested as plaintiff or plaintiffs and theremainder as defendant or defendants, if the application has beenpresented by all the parties, or, if otherwise, between the applicantas plaintiff and the other parties as defendants.

(3) On such application being made, the Court shall direct noticethereof to be given to all parties to the agreement other than theapplicants, requiring them to show cause within the time specifiedin the notice why the agreement should not be filed.

(4) Where no sufficient cause is shown, the Court shall order theagreement to be filed, and shall make an order of reference to thearbitrator appointed by the parties, whether in the agreement orotherwise or, where the parties cannot agree upon an arbitrator,to an arbitrator appointed by the Court.

(5) Thereafter the arbitration shall proceed in accordance with,and shall be governed by, the other provisions of this Act so far asthey can be made applicable.”

It will be seen from section 20 of the 1940 Act, as was held inAbdul Kadir (supra), that wide discretion is vested in the Court ifsufficient cause is made out not to refer parties to arbitration. It was inthat context that the observations in Abdul Kadir (supra) as to seriousallegations of fraud triable in civil court, being “sufficient cause” shownunder section 20(4) of the 1940 Act were made. Also, the approach ofthe 1940 Act is made clear by section 35(1),which is set out hereinbelow:

“35. Effect of legal proceedings on arbitration.—(1) Noreference nor award shall be rendered invalid by reason only ofthe commencement of legal proceedings upon the subject-matterof the reference, but when legal proceedings upon the whole ofthe subject-matter of the reference have been commencedbetween all the parties to the reference and notice thereof has

[2020] 10 S.C.R.

Abeen given to the arbitrators or umpire, all further proceedings ina pending reference shall, unless stay of proceedings is grantedunder Section 34, be invalid.

xxx xxx xxx”

Thus, even where arbitral proceedings are ongoing, suchBproceedings become invalid the moment legal proceedings upon the wholeof the subject matter of the reference have been commenced betweenall the parties to the reference and notice thereof has been given to thearbitrators or umpire. As against this, sections 5,8 and 16 of the 1996Act reflect completely new approach to arbitration, which is that whenCa judicial authority is shown an arbitration clause in an agreement, it ismandatory for the authority to refer parties to arbitration bearing in mindthe fact that the arbitration clause is an agreement independentof theother terms of the contract and that, therefore, decision by the arbitraltribunal that the contract is null and void does not entail ipso jure theinvalidity of the arbitration clause. Even otherwise, N. RadhakrishnanD(supra) did not refer to the ratio of Abdul Kadir (supra) correctly. Ashas been seen by us hereinabove, Abdul Kadir (supra) held that seriousallegations of fraud are not made out when allegations of moral or otherwrongdoing inter parties are made. In particular, it was held thatdiscrepancies in account books are the usual subject matter in accountEsuits, which are purely of civil nature. For all these reasons, we arebroadly in agreement with the observations of Nijjar, J. rendering N.Radhakrishnan (supra) lacking in precedential value.

10. The next judgment to be dealt with, chronologically speaking,is the judgment in Vimal Kishor Shah v. Jayesh Dinesh Shah, (2016)F8 SCC 788 [“Vimal Kishor Shah”].To the six categories of exceptionsto arbitrability of civil disputes, seventh category has been added, namely,disputes arising under trust deeds governed by the Trusts Act, 1882.Here, it was held that consideration of the Trusts Act would show thatthe intention of the legislature was to confer jurisdiction only on civilcourts for deciding disputes arising under the Trusts Act, which wouldGamount to an implied bar on other proceedings including arbitralproceedings. The Court therefore found:

“53. We, accordingly, hold that the disputes relating to trust,trustees and beneficiaries arising out of the trust deed and theTrusts Act, 1882 are not capable of being decided by the arbitrator

despite existence of arbitration agreement to that effect betweenthe parties. fortiori, we hold that the application filed by therespondents under Section 11 of the Act is not maintainable onthe ground that firstly, it is not based on an “arbitration agreement”within the meaning of Sections 2(1)(b) and 2(1)(h) read withSection 7 of the Act and secondly, assuming that there exists anarbitration agreement (Clause 20 of the trust deed) yet the disputesspecified therein are not capable of being referred to privatearbitration for their adjudication on merits.

54. We thus add one more category of cases i.e. Category (vii),namely, cases arising out of trust deed and the Trusts Act, 1882,in the list of six categories of cases specified by this Court in para36 at pp. 546-47 of the decision rendered in Booz Allen &Hamilton Inc.[Booz Allen & Hamilton Inc.v. SBI Home FinanceLtd., (2011) 5 SCC 532 : (2011) 2 SCC (Civ) 781] which as heldabove cannot be decided by the arbitrator(s).”

[This judgment was referred to with approval in Vidya Droliaand Ors. v. Durga Trading Corporation, 2019 SCC OnLine SC358 at paragraph 30].

11. Now comes the important judgment in Ayyasamy (supra).Two separate judgments were delivered by Division Bench of thisCourt. Sikri, J., after referring to the judgments in Abdul Kadir (supra),N. Radhakrishnan (supra), Swiss Timing (supra), and Booz Allen(supra), then referred to the 246[th ]Law Commission Report, in particularto paragraphs 50 and 51 thereof. He then held:

“23. perusal of the aforesaid two paragraphs brings into forethat the Law Commission has recognised that in cases of seriousfraud, courts have entertained civil suits. Secondly, it has tried tomake distinction in cases where there are allegations of seriousfraud and fraud simpliciter. It, thus, follows that those cases wherethere are serious allegations of fraud, they are to be treated asnon-arbitrable and it is only the civil court which should decidesuch matters. However, where there are allegations of fraudsimpliciter and such allegations are merely alleged, we are of theopinion that it may not be necessary to nullify the effect of thearbitration agreement between the parties as such issues can bedetermined by the Arbitral Tribunal.

24. Before we apply the aforesaid test to the facts of the presentcase, word on the observations in Swiss Timing Ltd.case [Swiss Timing Ltd. v. Commonwealth Games 2010Organising Committee, (2014) 6 SCC 677 : (2014) 3 SCC (Civ)642] to the effect that the judgment of N. Radhakrishnan [N.Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010)1 SCC (Civ) 12] was per incuriam, is warranted. In fact, we donot have to labour on this aspect as this task is already undertakenby this Court in State of W.B. v. Associated Contractors [Stateof W.B. v. Associated Contractors, (2015) 1 SCC 32 : (2015) 1SCC (Civ) 1]. It has been clarified in the aforesaid case that SwissTiming Ltd. [Swiss Timing Ltd. v. Commonwealth Games 2010Organising Committee, (2014) 6 SCC 677 : (2014) 3 SCC (Civ)642] was judgment rendered while dealing with Section 11(6) ofthe Act and Section 11 essentially confers power on the ChiefJudge of India or the Chief Justice of the High Court as designateto appoint an arbitrator, which power has been exercised byanother Hon’ble Judge as delegate of the Chief Justice. Thispower of appointment of an arbitrator under Section 11, by theCourt, notwithstanding the fact that it has been held in SBP &Co. v. Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005)8 SCC 618] as judicial power, cannot be deemed to haveprecedential value and, therefore, it cannot be deemed to haveoverruled the proposition of law laid down in N. Radhakrishnan[N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 :(2010) 1 SCC (Civ) 12].25. In view of our aforesaid discussions, we are of the opinionthat mere allegation of fraud simpliciter may not be ground tonullify the effect of arbitration agreement between the parties. Itis only in those cases where the court, while dealing with Section8 of the Act, finds that there are very serious allegations of fraudwhich make virtual case of criminal offence or where allegationsof fraud are so complicated that it becomes absolutely essentialthat such complex issues can be decided only by the civil court onthe appreciation of the voluminous evidence that needs to beproduced, the court can side-track the agreement by dismissingthe application under Section 8 and proceed with the suit on merits.It can be so done also in those cases where there are seriousallegations of forgery/fabrication of documents in support of the

plea of fraud or where fraud is alleged against the arbitrationprovision itself or is of such nature that permeates the entirecontract, including the agreement to arbitrate, meaning thereby inthose cases where fraud goes to the validity of the contract itselfof the entire contract which contains the arbitration clause or thevalidity of the arbitration clause itself. Reverse position thereofwould be that where there are simple allegations of fraud touchingupon the internal affairs of the party inter se and it has no implicationin the public domain, the arbitration clause need not be avoidedand the parties can be relegated to arbitration. While dealing withsuch an issue in an application under Section 8 of the Act, thefocus of the court has to be on the question as to whetherjurisdiction of the court has been ousted instead of focusing onthe issue as to whether the court has jurisdiction or not. It has tobe kept in mind that insofar as the statutory scheme of the Act isconcerned, it does not specifically exclude any category of casesas non-arbitrable. Such categories of non-arbitrable subjects arecarved out by the courts, keeping in mind the principle of commonlaw that certain disputes which are of public nature, etc. are notcapable of adjudication and settlement by arbitration and forresolution of such disputes, courts i.e. public fora, are better suitedthan private forum of arbitration. Therefore, the inquiry of theCourt, while dealing with an application under Section 8 of theAct, should be on the aforesaid aspect viz. whether the nature ofdispute is such that it cannot be referred to arbitration, even ifthere is an arbitration agreement between the parties. When thecase of fraud is set up by one of the parties and on that basis thatparty wants to wriggle out of that arbitration agreement, strictand meticulous inquiry into the allegations of fraud is needed andonly when the Court is satisfied that the allegations are of seriousand complicated nature that it would be more appropriate for theCourt to deal with the subject-matter rather than relegating theparties to arbitration, then alone such an application under Section8 should be rejected.”

Chandrachud, J., in separate judgment, referred to the judgmentin N. Radhakrishnan (supra) and then held:

“40. The above extract from the judgment in N. Radhakrishnan[N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 :

ABC

DEF

A(2010) 1 SCC (Civ) 12] relies extensively on the view propoundedin Abdul Kadir [Abdul Kadir Shamsuddin Bubere v. MadhavPrabhakar Oak, AIR 1962 SC 406]. The decision in AbdulKadir[Abdul Kadir Shamsuddin Bubere v. Madhav PrabhakarOak, AIR 1962 SC 406] arose under the Arbitration Act, 1940and was in the context of the provisions of Section 20. In AbdulBKadir [Abdul Kadir Shamsuddin Bubere v. MadhavPrabhakar Oak, AIR 1962 SC 406] , this Court emphasised thatsub-section (4) of Section 20 of the Arbitration Act, 1940 left awide discretion in the court. In contrast, the scheme of the 1996Act has made radical departure from the position under theCerstwhile enactment. marked distinction is made in Section 8where no option has been left to the judicial authority but to referparties to arbitration. Abdul Kadir [Abdul Kadir ShamsuddinBubere v. Madhav Prabhakar Oak, AIR 1962 SC 406] explainsthe position under the Arbitration Act, 1940. The present legislationon the subject embodies conscious departure which is intendedDto strengthen the efficacy of arbitration.

xxx xxx xxx

43. Hence, the allegations of criminal wrongdoing or of statutoryviolation would not detract from the jurisdiction of the ArbitralETribunal to resolve dispute arising out of civil or contractualrelationship on the basis of the jurisdiction conferred by thearbitration agreement.”

He then cautioned against the use of N. Radhakrishnan (supra)as precedent, and distinguished it as follows:

“45. The position that emerges both before and after the decision inN. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers,(2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] is that successivedecisions of this Court have given effect to the binding preceptincorporated in Section 8. Once there is an arbitration agreementGbetween the parties, judicial authority before whom an action isbrought covering the subject-matter of the arbitration agreementis under positive obligation to refer parties to arbitration byenforcing the terms of the contract. There is no element ofdiscretion left in the court or judicial authority to obviate thelegislative mandate of compelling parties to seek recourseHto arbitration. The judgment in N.Radhakrishnan

[N.Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 :(2010) 1 SCC (Civ) 12] has, however, been utilised by partiesseeking convenient ruse to avoid arbitration to raise defenceof fraud:

45.1. First and foremost, it is necessary to emphasise that thejudgment in N. Radhakrishnan [N. Radhakrishnan v. MaestroEngineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] does notsubscribe to the broad proposition that mere allegation of fraudis ground enough not to compel parties to abide by their agreementto refer disputes to arbitration. More often than not, bogey offraud is set forth if only to plead that the dispute cannot be arbitratedupon. To allow such plea would be plain misreading of thejudgment in N. Radhakrishnan [N. Radhakrishnan v. MaestroEngineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] . As I havenoted earlier, that was case where the appellant who had filedan application under Section 8 faced with suit on dispute inpartnership had raised serious issues of criminal wrongdoing,misappropriation of funds and malpractice on the part of therespondent. It was in this background that this Court acceptedthe submission of the respondent that the arbitrator would not becompetent to deal with matters “which involved an elaborateproduction of evidence to establish the claims relating to fraudand criminal misappropriation”. Hence, it is necessary toemphasise that as matter of first principle, this Court has notheld that mere allegation of fraud will exclude arbitrability. Theburden must lie heavily on party which avoids compliance withthe obligation assumed by it to submit disputes to arbitration toestablish the dispute is not arbitrable under the law for the timebeing in force. In each such case where an objection on the groundof fraud and criminal wrongdoing is raised, it is for the judicialauthority to carefully sift through the materials for the purpose ofdetermining whether the defence is merely pretext to avoidarbitration. It is only where there is serious issue of fraud involvingcriminal wrong doing that the exception to arbitrability carved outin N.Radhakrishnan [N.Radhakrishnan v. Maestro Engineers,(2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] may come intoexistence.

45.2. Allegations of fraud are not alien to ordinary civil courts.Generations of judges have dealt with such allegations in the

Acontext of civil and commercial disputes. If an allegation of fraudcan be adjudicated upon in the course of trial before an ordinarycivil court, there is no reason or justification to exclude such disputesfrom the ambit and purview of claim in arbitration. The partieswho enter into commercial dealings and agree to resolution ofdisputes by an arbitral forum exercise an option and express aBchoice of preferred mode for the resolution of their disputes.The parties in choosing arbitration place priority upon the speed,flexibility and expertise inherent in arbitral adjudication. Onceparties have agreed to refer disputes to arbitration, the court mustplainly discourage and discountenance litigative strategies designedCto avoid recourse to arbitration. Any other approach would seriouslyplace in uncertainty the institutional efficacy of arbitration. Sucha consequence must be eschewed.”

After the statement of the law, the learned Judge referred to aninstructive passage by Gary B. Born as follows:

“56. The legal position has been succinctly summarisedin International Commercial Arbitration by Gary B. Born [2ndEdn., Vol. I, p. 846] thus:

“… under most national arbitration regimes, claims that theparties’ underlying contract (as distinguished from the parties’Earbitration clause) was fraudulently induced have generally beenheld not to compromise the substantive validity of an arbitrationclause included in the contract. The fact that one party mayhave fraudulently misrepresented the quality of its goods,services, or balance sheet generally does nothing to impeachFthe parties’ agreed dispute resolution mechanism. As aconsequence, only fraud or fraudulent inducement directed atthe agreement to arbitrate will, as substantive matter, impeachthat agreement. These circumstances seldom arise: as apractical matter, it is relatively unusual that party will seek toprocure an agreement to arbitrate by fraud, even in those casesGwhere it may have committed fraud in connection with theunderlying commercial contract.”

(See also in this context International Arbitration Law andPractice by Mauro Rubino-Sammartano [2nd Edn., p. 179].)”

Mr. Saurabh Kirpal took exception to Sikri, J.’s judgment in thatSikri, J. did not refer to paragraph 52 of the 246[th]Law Commission Reportand its aftermath. Paragraph 52 of the 246[th]Law Commission Reportreads as follows:

“52. The Commission believes that it is important to set this entirecontroversy to rest and make issues of fraud expressly arbitrableand to this end has proposed amendments to section 16.”

(at p. 28)

The Law Commission then added, by way of amendment, aproposed section 16(7) as follows:

“Amendment of Section 16

10. In section 16,

After sub-section (6), insert sub-section “(7) The arbitral tribunalshall have the power to make an award or give rulingnotwithstanding that the dispute before it involves serious questionof law, complicated questions of fact or allegations of fraud,corruption etc.”

[NOTE: This amendment is proposed in the light of the SupremeCourt decisions (e.g. N. Radhakrishnan v. Maestro Engineers,(2010) 1 SCC 72) which appear to denude an arbitral tribunal ofthe power to decide on issues of fraud etc.]”

(at p. 50)

He then referred to the fact that the aforesaid sub-section wasnot inserted by Parliament by the 2015 Amendment Act, which largelyincorporated other amendments proposed by the Law Commission. Hisargument therefore was that N. Radhakrishnan (supra) not havingbeen legislatively overruled, cannot now be said to be in any way deprivedof its precedential value, as Parliament has taken note of the proposedsection 16(7) in the 246[th ]Law Commission Report, and has expresslychosen not to enact it. For this proposition, he referred to La Pintada(supra). This judgment related to challenge to an award grantingcompound interest, inter alia, in case where debt is paid late, butbefore any proceedings for its recovery had begun. Lord Brandon ofOakbrook, who wrote the main judgment in this case, stated:

A“There are three cases in which the absence of any common lawremedy for damage or loss caused by the late payment of debtmay arise, cases which I shall in what follows describe forconvenience as case 1, case 2 and case 3. Case 1 is where debtis paid late, before any proceedings for its recovery have beenbegun. Case 2 is where debt is paid late, after proceedings forBits recovery have been begun, but before they have beenconcluded. Case 3 is where debt remains unpaid until as resultof proceedings for its recovery being brought and prosecuted to aconclusion, money judgment is given in which the original debtbecomes merged.”

(at p. 122)

After referring to various precedents, the learned Judge referredto Law Commission Report of 07.04.1978, which containedrecommendations for alterations in the law and draft bill which wouldremedy injustice to unpaid creditors in all the three cases set outDhereinabove. However, when Parliament passed the Administration ofJustice Act, 1982, it covered cases 2 and 3 but not case 1. In this context,Lord Brandon held:

“My first main reason is that the greater part of the injustice tocreditors which resulted from the London, Chatham and DoverERailway case has now been removed, to large extent bylegislative intervention, and to lesser extent by judicial qualificationof the scope of the decision itself. My second main reason is that,when Parliament has given effect by legislation to somerecommendations of the Law Commission in particular field,Fbut has taken what appears to be policy decision not to giveeffect to further such recommendation, any decision of yourLordships’ House which would have the result of giving effect,by another route, to the very recommendation which Parliamentappears to have taken that policy decision to reject, could well beregarded as an unjustifiable usurpation by your Lordships’ HouseGof the functions which belong properly to Parliament, rather thanas judicial exercise in departing from an earlier decision on theground that it has become obsolete and could still, in limitedclass of cases, continue to cause some degree of injustice.”

(at pp. 129-130)

One can see from the speeches of the other Law Lords, withwhat great reluctance they allowed the appeal and set aside the Courtof Appeal’s judgment. Each of the Law Lords did so with regret andreluctance. The real reason why London, Chatham and DoverRailway Company v. South Eastern Railway Company, [1893] A.C.429 [“London Railway Case”] could not be overruled via commonlaw (as opposed to statutory) route was because the statutory routeregarded the award of interest on debts as remedy to which creditorshould not be entitled to as of right, but only as matter of discretion;whereas the common law route granted them such interest as matterof right. If, in overruling the London Railway Case (supra), two parallelremedies would be created, this would lead to an inconsistent position inlaw, as result of which, no departure was made from the 1893 decision.Also, in the words of Lord Brandon, it was held:

“In any event the only remaining loophole of injustice to creditorspaid late is small, has existed for many years and does not seemto require closing urgently.”

(at pp. 130-131)

12. It is little difficult to apply this case to resurrect the ratio ofN. Radhakrishnan (supra) as binding precedent given the advancemade in the law by this Court since N. Radhakrishnan (supra) wasdecided. Quite apart from what has been stated by us in paragraph 9above, as to how N. Radhakrishnan (supra) cannot be considered tobe binding precedent for the reasons given in the said paragraph, weare of the view that the development of the law by this Court cannot bethwarted merely because certain provision recommended in LawCommission Report is not enacted by Parliament. Parliament may havefelt, as was mentioned by Lord Reid in British Railways Board andHerrington, 1972 A.C. 877 [House of Lords], that it was unable tomake up its mind and instead, leave it to the courts to continue, case bycase, deciding upon what should constitute the fraud exception.[1]Parliament may also have thought that section 16(7), proposed by theLaw Commission, is clumsily worded as it speaks of “a serious questionof law, complicated questions of fact, or allegations of fraud, corruption,etc.” N.Radhakrishnan (supra) did not lay down that serious questionsof law or complicated questions of fact are non-arbitrable. Further,

1 This case is referred to in Lord Brandon’s judgment in La Pintada (supra) anddistinguished at p. 130 of his judgment.

A“allegations of fraud, corruption, etc.” is vague. For this reason also,Parliament may have left it to the courts to work out the fraud exception.In any case, we have pointed out that dehors any such provision, theratio in N. Radhakrishnan (supra), being based upon judgment underthe 1940 Act, and without considering sections 5, 8 and 16 of the 1996Act in their proper perspective, would all show that the law laid down inBthis case cannot now be applied as precedent for application of thefraud mantra to negate arbitral proceedings.For the reasons given in thisjudgment, the House of Lords’ decision would have no applicationinasmuch as N. Radhakrishnan (supra) has been tackled on the judicialside and has been found to be wanting.C13. The judgment in Ayyasamy (supra) was then applied in AmeetLalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678.Afterextracting paragraph 25 from Sikri, J.’s judgment and paragraph 48 ofChandrachud, J.’s judgment in Ayyasamy (supra), the Court held:

“37. It is only where serious questions of fraud are involved, theDarbitration can be refused. In this case, as contended by theappellants there were no serious allegations of fraud; the allegationslevelled against Astonfield is that Appellant 1 Ameet LalchandShah misrepresented by inducing the respondents to pay higherprice for the purchase of the equipments. There is, of course, aEcriminal case registered against the appellants in FIR No. 30 of2015 dated 5-3-2015 before the Economic Offences Wing, Delhi.Appellant 1 Ameet Lalchand Shah has filed Criminal Writ PetitionNo. 619 of 2016 before the High Court of Delhi for quashing thesaid FIR. The said writ petition is stated to be pending and therefore,we do not propose to express any views in this regard, lest, itFwould prejudice the parties. Suffice to say that the allegationscannot be said to be so serious to refuse to refer the parties toarbitration. In any event, the arbitrator appointed can very wellexamine the allegations regarding fraud.”

14. In recent judgment reported as Rashid Raza (supra), thisGCourt referred to Sikri, J.’s judgment in Ayyasamy (supra) and thenheld:

“4. The principles of law laid down in this appeal make distinctionbetween serious allegations of forgery/fabrication in support ofthe plea of fraud as opposed to “simple allegations”. Two working

tests laid down in para 25 are: (1) does this plea permeate theentire contract and above all, the agreement of arbitration,rendering it void, or (2) whether the allegations of fraud touchupon the internal affairs of the parties inter se having no implicationin the public domain.”

After these judgments, it is clear that “serious allegations of fraud”arise only if either of the two tests laid down are satisfied, and nototherwise.The first test is satisfied only when it can be said that thearbitration clause or agreement itself cannot be said to exist in clearcase in which the court finds that the party against whom breach isalleged cannot be said to have entered into the agreement relating toarbitration at all. The second test can be said to have been met in casesin which allegations are made against the State or its instrumentalities ofarbitrary, fraudulent, or malafide conduct, thus necessitating the hearingof the case by writ court in which questions are raised which are notpredominantly questions arising from the contract itself or breach thereof,but questions arising in the public law domain.15. At this stage, it is necessary to deal with the broad statementof the law in Afcons (supra) and Booz Allen (supra). When Afcons(supra) refers in paragraph 27(iv) to “cases involving serious and specificallegations of fraud, fabrication of documents, forgery, impersonation,coercion, etc.”, this must now be understood in the sense laid down inAyyasamy (supra) and Rashid Raza (supra). When it comes toparagraph 27(vi) in Afcons (supra), and paragraph 36(i) in Booz Allen(supra), namely, cases involving prosecution for criminal offences, it isalso important to remember that the same set of facts may have civil aswell as criminal consequences. Thus, in K.G. Premshanker v.Inspector of Police, (2002) 8 SCC 87[“Premshanker”], this Courthad to answer reference made to it as follows:

“7. This Court on 9-11-1998, passed the following order:

“Since we are of the view that the judgment of this Court in V.M.Shah v. State of Maharashtra[(1995) 5 SCC 767 : 1995 SCC(Cri) 1077] which has been relied upon by Mr Gopal Subramaniam,learned Senior Counsel appearing for the petitioner, requiresreconsideration, we refer this petition to larger Bench fordisposal. Let the record be placed before Hon. the Chief Justicefor necessary orders.”

AThe observations in V.M. Shah v. State of Maharashtra, 1995(5) SCC 767,which led to the reference, are set out in paragraph 11 asfollows:

“11. In the background of the aforesaid facts, we would refer tothe observations made in V.M. Shah case [(1995) 5 SCC 767 :B1995 SCC (Cri) 1077] which are as under: (SCC p. 770, para 11)

“11. As seen that the civil court after full-dressed trialrecorded the finding that theappellant had not come intopossession through the Company but had independenttenancy rights from the principal landlord and, therefore,Cthe decree for eviction was negatived. Until that finding is dulyconsidered by the appellate court after weighing the evidenceafresh and if it so warranted reversed, the findings bind theparties. The findings, recorded by the criminal court, standsuperseded by the findings recorded by the civil court.Thereby, the findings of the civil court get precedence overDthe findings recorded by the trial court, in particular, in summarytrial for offences like Section 630. The mere pendency of theappeal does not have the effect of suspending the operation ofthe decree of the trial court and neither the finding of the civilcourt gets nor the decree becomes inoperative.”

E(emphasis in original)

After referring to sections 40 to 43 of the Indian Evidence Act,1872, and the judgment in M.S. Sheriff v. The State of Madras, 1954SCR 1144, this Court held:F“32. In the present case, the decision rendered by the ConstitutionBench in M.S. Sheriff case [AIR 1954 SC 397 : 1954 Cri LJ1019] would be binding, wherein it has been specifically held thatno hard-and-fast rule can be laid down and that possibility ofconflicting decision in civil and criminal courts is not relevantconsideration. The law envisagesG

“such an eventuality when it expressly refrains from makingthe decision of one court binding on the other, or even relevant,except for limited purpose such as sentence or damages”.

33. Hence, the observation made by this Court in V.M. Shahcase [(1995) 5 SCC 767 : 1995 SCC (Cri) 1077] that the findingH

recorded by the criminal court stands superseded by the findingrecorded by the civil court is not correct enunciation of law.Further, the general observations made in Karam Chandcase [(1970) 3 SCC 694] are in context of the facts of the casestated above. The Court was not required to consider the earlierdecision of the Constitution Bench in M.S. Sheriff case [AIR1954 SC 397 : 1954 Cri LJ 1019] as well as Sections 40 to 43 ofthe Evidence Act.”

Likewise, in P. Swaroopa Rani v. M. Hari Narayana, (2008) 5SCC 765, this Court laid down the proposition:-

“11. It is, however, well settled that in given case, civilproceedings and criminal proceedings can proceed simultaneously.Whether civil proceedings or criminal proceedings shall be stayeddepends upon the facts and circumstances of each case. (SeeM.S. Sheriff v. State of Madras [AIR 1954 SC 397], Iqbal SinghMarwah v. Meenakshi Marwah[(2005) 4 SCC 370 : 2005 SCC(Cri) 1101] and Institute of Chartered Accountants of India v.Assn. of Chartered Certified Accountants [(2005) 12 SCC 226: (2006) 1 SCC (Cri) 544].)”

In Syed Askari Hadi Ali Augustine Imam v. State (DelhiAdmn.), (2009) 5 SCC 528 , it was held:

“24. If primacy is to be given to criminal proceeding, indisputably,the civil suit must be determined on its own merit, keeping in viewthe evidence brought before it and not in terms of the evidencebrought in the criminal proceeding. The question came up forconsideration in K.G. Premshanker v. Inspector of Police [(2002)8 SCC 87 : 2003 SCC (Cri) 223] ……

25. It is, however, significant to notice that the decision of thisCourt in Karam Chand Ganga Prasad v. Union of India [(1970)3 SCC 694] , wherein it was categorically held that the decisionsof the civil courts will be binding on the criminal courts but theconverse is not true, was overruled ……Axiomatically, if judgmentof civil court is not binding on criminal court, judgment of acriminal court will certainly not be binding on civil court.’’

In Kishan Singh v. Gurpal Singh (2010) 8 SCC 775, the Courtreferred to all the relevant judgments on the subject and ultimately heldthus:

“13. In V.M. Shah v. State of Maharashtra [(1995) 5 SCC 767: 1995 SCC (Cri) 1077] this Court has held as under: (SCC p. 770,para 11)

“11. As seen that the civil court after full-dressed trial recordedthe finding that the appellant had not come into possessionthrough the Company but had independent tenancy rights fromthe principal landlord and, therefore, the decree for evictionwas negatived. Until that finding is duly considered by theappellate court after weighing the evidence afresh and if it sowarranted reversed, the findings bind the parties. The findings,recorded by the criminal court, stand superseded by the findingsrecorded by the civil court. Thereby, the findings of the civil

court get precedence over the findings recorded by the trialcourt, in particular, in summary trial for offences like Section630. The mere pendency of the appeal does not have the effectof suspending the operation of the decree of the trial court andneither the finding of the civil court gets disturbed nor the decree

becomes inoperative.”

14. The correctness of the aforesaid judgment in V.M. Shah [(1995)5 SCC 767 : 1995 SCC (Cri) 1077] was doubted by this Court andthe case was referred to larger Bench in K.G. Premshanker v.EInspector of Police [(2002) 8 SCC 87 : 2003 SCC (Cri) 223 :AIR 2002 SC 3372] . In the said case, the judgment in V.M. Shah[(1995) 5 SCC 767 : 1995 SCC (Cri) 1077] was not approved.While deciding the case, this Court placed reliance upon thejudgment of the Privy Council in King Emperor v. Khwaja NazirAhmad [(1943-44) 71 IA 203 : AIR 1945 PC 18] wherein it hasFbeen held as under: (IA p. 212)

“… It is conceded that the findings in civil proceeding arenot binding in subsequent prosecution founded [upon]the same or similar allegations. Moreover, the policeinvestigation was stopped, and it cannot be said with certaintythat no more information could be obtained. But even if it werenot, it is the duty of criminal court when prosecution for acrime takes place before it to form its own view and not toreach its conclusion by reference to any previous decision whichis not binding [upon] it.”

(emphasis added)

15. In P. Swaroopa Rani v. M. Hari Narayana [(2008) 5 SCC765 : (2008) 3 SCC (Cri) 79 : AIR 2008 SC 1884] this Court hasheld as under: (SCC pp. 769-71, paras 11, 13 & 18)

“11. It is, however, well settled that in given case, civilproceedings and criminal proceedings can proceedsimultaneously. Whether civil proceedings or criminalproceedings shall be stayed depends upon the facts andcircumstances of each case. …

xxx xxx xxx

13. Filing of an independent criminal proceeding, althoughinitiated in terms of some observations made by the civil court,is not barred under any statute. …

xxx xxx xxx

18. It goes without saying that the respondent shall be at libertyto take recourse to such remedy which is available to him inlaw. We have interfered with the impugned order only becausein law simultaneous proceedings of civil and criminal caseare permissible.”

16. In Iqbal Singh Marwah v. Meenakshi Marwah [(2005) 4SCC 370 : 2005 SCC (Cri) 1101] this Court held as under: (SCCpp. 389-90, para 32)

“32. Coming to the last contention that an effort should bemade to avoid conflict of findings between the civil and criminalcourts, it is necessary to point out that the standard of proofrequired in the two proceedings is entirely different. Civil casesare decided on the basis of preponderance of evidence whilein criminal case the entire burden lies on the prosecution andproof beyond reasonable doubt has to be given. There is neitherany statutory provision nor any legal principle that the findingsrecorded in one proceeding may be treated as final or bindingin the other, as both the cases have to be decided on the basisof the evidence adduced therein.”

17. In Syed Askari Hadi Ali Augustine Imam v. State (DelhiAdmn.) [(2009) 5 SCC 528] this Court considered all the earlierjudgments on the issue and held that while deciding the case inKaram Chand [(1970) 3 SCC 694 : AIR 1971 SC 1244], this

ACourt failed to take note of the Constitution Bench judgment inM.S. Sheriff [AIR 1954 SC 397 : 1954 Cri LJ 1019] and, therefore,it remains per incuriam and does not lay down the correct law. Asimilar view has been reiterated by this Court in Vishnu DuttSharma v. Daya Sapra [(2009) 13 SCC 729 : (2010) 1 SCC(Cri) 1229] , wherein it has been held by this Court that the decisionBin Karam Chand [(1970) 3 SCC 694 : AIR 1971 SC 1244] stoodoverruled in K.G. Premshanker [(2002) 8 SCC 87 : 2003 SCC(Cri) 223 : AIR 2002 SC 3372].

18. Thus, in view of the above, the law on the issue standscrystallised to the effect that the findings of fact recorded by theCcivil court do not have any bearing so far as the criminal case isconcerned and vice versa. Standard of proof is different in civiland criminal cases. In civil cases it is preponderance of probabilitieswhile in criminal cases it is proof beyond reasonable doubt. Thereis neither any statutory nor any legal principle that findings recordedDby the court either in civil or criminal proceedings shall be bindingbetween the same parties while dealing with the same subject-matter and both the cases have to be decided on the basis of theevidence adduced therein. However, there may be cases wherethe provisions of Sections 41 to 43 of the Evidence Act, 1872,dealing with the relevance of previous judgments in subsequentEcases may be taken into consideration. “

To complete the review of case law on the subject, we may finallyrefer to Guru Granth Saheb Sthan Meerghat Vanaras v. VedPrakash, (2013) 7 SCC 622, wherein this Court, after referring to theprevious case law on the subject held as follows:F

“17. In K.G. Premshanker [K.G. Premshanker v. Inspector ofPolice, (2002) 8 SCC 87 : 2003 SCC (Cri) 223] the effect of theabove provisions (Sections 40 to 43 of the Evidence Act) hasbeen broadly noted thus: (SCC p. 97, para 30)

“30. … (4) if the criminal case and civil proceedings are forthe same cause, judgment of the civil court would be relevantif conditions of any of Sections 40 to 43 are satisfied, but itcannot be said that the same would be conclusive except asprovided in Section 41. Section 41 provides which judgmentwould be conclusive proof of what is stated therein.”

Moreover, the judgment, order or decree passed in previous civilproceedings, if relevant, as provided under Sections 40 and 42 orother provisions of the Evidence Act then in each case the courthas to decide to what extent it is binding or conclusive with regardto the matters decided therein. In each and every case the firstquestion which would require consideration is, whether thejudgment, order or decree is relevant; if relevant, its effect. Thiswould depend upon the facts of each case.

18. In light of the above legal position, it may be immediatelyobserved that the High Court was not at all justified in staying theproceedings in the civil suit till the decision of criminal case. Firstly,because even if there is possibility of conflicting decisions in thecivil and criminal courts, such an eventuality cannot be taken as arelevant consideration. Secondly, in the facts of the present casethere is no likelihood of any embarrassment to the defendants(Respondents 1 to 4 herein) as they had already filed the writtenstatement in the civil suit and based on the pleadings of the partiesthe issues have been framed. In this view of the matter, the outcomeand/or findings that may be arrived at by the civil court will not atall prejudice the defence(s) of Respondents 1 to 4 in the criminalproceedings.”

16. In the light of the aforesaid judgments, paragraph 27(vi) ofAfcons (supra) and paragraph 36(i) of Booz Allen (supra), must nowbe read subject to the rider that the same set of facts may lead to civiland criminal proceedings and if it is clear that civil dispute involvesquestions of fraud, misrepresentation, etc. which can be the subject matterof such proceeding under section 17 of the Contract Act, and/or the tortof deceit, the mere fact that criminal proceedings can or have beeninstituted in respect of the same subject matter would not lead to theconclusion that dispute which is otherwise arbitrable, ceases to be so.

17. Section 17 of the Contract Act defines “fraud” as follows:

“17. “Fraud” defined.—”Fraud” means and includes any ofthe following acts committed by party to contract, or with hisconnivance, or by his agent[2], with intent to deceive another partythereto or his agent, or to induce him to enter into the contract—

2 Cf. S. 238, infra.

A(1) the suggestion, as fact, of that which is not true, by one whodoes not believe it to be true;

(2) the active concealment of fact by one having knowledge orbelief of the fact;

(3) promise made without any intention of performing it;

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declares to befraudulent.

Explanation.—Mere silence as to facts likely to affect theCwillingness of person to enter into contract is not fraud, unlessthe circumstances of the case are such that, regard being had tothem, it is the duty of the person keeping silence to speak[3], orunless his silence is, in itself, equivalent to speech.”

Section 10 of the Contract Act states that all agreements areDcontracts if they are made with the free consent of parties competent tocontract, for lawful consideration and with lawful object, and are nothereby expressly declared to be void. Section 14 states that consent issaid to be free when it is not caused inter alia by fraud as defined insection 17. Importantly, the section goes on to say that consent is said tobe so caused when it would not have been given but for the existence,Einter alia, of such fraud. Where such fraud is proved, and consent to anagreement is caused by fraud, the contract is voidable at the option ofthe party whose consent was so caused. This is provided by section 19of the Contract Act which reads as follows:

“19. Voidability of agreements without free consent.—FWhen consent to an agreement is caused by coercion, fraud ormisrepresentation, the agreement is contract voidable at theoption of the party whose consent was so caused.

party to contract, whose consent was caused by fraudor misrepresentation, may, if he thinks fit, insist that the contractGshall be performed, and that he shall be put in the position in whichhe would have been if the representation made had been true.

Exception.—If such consent was caused bymisrepresentation or by silence, fraudulent within the meaning of

3H See S. 143, infra.

Section 17, the contract, nevertheless, is not voidable, if the partywhose consent was so caused had the means of discovering thetruth with ordinary diligence.[4]

Explanation.—A fraud or misrepresentation which did notcause the consent to contract of the party of whom such fraudwas practised, or to whom such misrepresentation was made,does not render contract voidable.

It has been held by the Bombay High Court in Fazal D. Allana v.Mangaldas M. Pakvasa, AIR 1922 Bom 303, that section 17 of theContract Act only applies if the contract itself is obtained by fraud orcheating. However, distinction is made between contract beingobtained by fraud and performance of contract (which is perfectlyvalid) being vitiated by fraud or cheating. The latter would fall outsidesection 17 of the Contract Act, in which the remedy for damages wouldbe available, but not the remedy for treating the contract itself as beingvoid (see pp. 311-312). This is for the reason that the words “with intentto deceive another party thereto or his agent” must be read with thewords “or to induce him to enter into the contract”, both sets ofexpressions speaking in relation to the formation of the contract itself.This is further made clear by sections 10, 14 and 19, which have alreadybeen referred to hereinabove, all of which deal with “fraud” at the stageof entering into the contract. Even section 17(5) which speaks of “anysuch act or omission as the law specially deals to be fraudulent” mustmean such act or omission under such law at the stage of entering intothe contract. Thus, fraud that is practiced outside of section 17 of theContract Act, i.e., in the performance of the contract, may be governedby the tort of deceit, which would lead to damages, but not rescission ofthe contract itself.[5]4 It is important to note that the exception in section 19 does not apply to fraudulentmisrepresentation as the words “by silence” alone go with the word “fraudulent”, thusnot applying to cases of fraudulent misrepresentation. In John Minas Apcar v. LouisCaird Malchus, AIR 1939 Cal 473, the concurrent judgments of Derbyshire, C.J. andLort Williams, J. referred to passage from Sir Frederick Pollock and Sir DinshahMulla, in their work on the Contract Act, 6th Edition, which said:“It will be observed that the exception does not apply to cases of active fraud asdistinguished from misrepresentation which is not fraudulent”. (see pp. 476-477)5 In State of Tripura v. Province of East Bengal, Union of India, 1951 SCR 1, in aseparate concurring judgment, Mukherjea, J. went into what in English law wasconsidered as tort (see pp. 44-49). The learned Judge concluded as follows:

ABC

A18. Both kinds of fraud are subsumed within the expression “fraud”when it comes to arbitrability of an agreement which contains anarbitration clause.

19. Now, as to the measure of damages for fraudulentmisrepresentation by which party to the contract is induced to enterBinto the contract.In Smith New Court Securities Ltd. v. ScrimgeourVickers (Asset Management) Ltd., [1996] 4 All ER 769, theappellant, Smith New Court [“SMC”] purchased shares in company,Ferranti International Signal Inc. [“F. Inc.”], which had been pledged toa bank as security for loan made by the bank to client. SMC wasgiven the impression that it was in competition with two other biddersCfor the shares and, therefore, bid very high price for the shares. Whenthe share price collapsed as result of major fraud, SMC investigatedthe circumstances of its purchase and discovered that the two otherbidders were not there at the time of the sale. SMC then broughtproceedings against the first defendant, Scrimgeour Vickers (AssetDManagement) Ltd., and the bank, claiming damages for fraudulentmisrepresentation. The House of Lords referred to the leading judgmentin Doyle v. Olby (Ironmongers) Ltd., [1969] 2 All ER 119 (Queen’sBench) [“Doyle”], and held:

“Doyle v. Olby (Ironmongers) Ltd. establishes four points. First,Ethat the measure of damages where contract has been inducedby fraudulent misrepresentation is reparation for all the actualdamage directly flowing from (i.e. caused by) entering into thetransaction. Second, that in assessing such damages it is not an

“Thus tort is civil injury other than breach of contract which is capable of sustainingFan action for unliquidated damages in court of law. If the appropriate remedy is not aclaim for unliquidated damages but for injunction or some other relief, it would not rankas tort though all the same it would be an actionable wrong.”(at p. 48)Likewise, in Ellerman & Bucknall Steamship Co. Ltd. v. Sha Misrimal Bherajee,[1966] Supp SCR 92, the Court referred to the tort of deceit as follows:“Deceit is false statement of fact made by person knowingly or recklessly with theGintent that it shall be acted upon by another who does act upon it and thereby suffersdamage”; see Textbook of the Law of Tort by Winfield, 5th Edn., at p. 379.”(at p. 99)On the facts, it was then concluded:“Now let us look at the relevant facts of the present case. It was one of the terms of thecontract between the seller and the buyer that the goods should be packed in new fibredrums. The standard of good order and condition of the packages was agreed upon byHinflexible rule that the plaintiff must bring into account the valueas at the transaction date of the asset acquired: although the pointis not adverted to in the judgments, the basis on which the damageswere computed shows that there can be circumstances in whichit is proper to require defendant only to bring into account theactual proceeds of the asset provided that he has acted reasonablyin retaining it. Third, damages for deceit are not limited to thosewhich were reasonably foreseeable. Fourth, the damagesrecoverable can include consequential loss suffered by reason ofhaving acquired the asset.”

(at p. 777)

In this judgment of Lord Browne-Wilkinson, useful summary ofthe principles that apply in assessing the damages payable where theplaintiff has been induced to enter into contract by fraudulentmisrepresentation, are stated as follows:

“In sum, in my judgment the following principles apply in assessingthe damages payable where the plaintiff has been induced by afraudulent misrepresentation to buy property:

(1) the defendant is bound to make reparation for all the damagedirectly flowing from the transaction;

(2) although such damage need not have been foreseeable, it musthave been directly caused by the transaction;

(3) in assessing such damage, the plaintiff is entitled to recover byway of damages the full price paid by him, but he must give creditfor any benefits which he has received as result of the transaction;

(4) as general rule, the benefits received by him include themarket value of the property acquired as at the date of acquisition;but such general rule is not to be inflexibly applied where to do so

the parties to the contract. The shipowners knew that condition as the Mate’s receiptdisclosed the same. If the drums had been mentioned as old in the bill of lading, the saidbill would not have been clean bill. Though the apparent condition of the drums wasold, the shipowners made an assertion that they were not old drums, i.e., they gave aclean bill. This representation was obviously intended, in collusion with the seller, toenable him to operate upon the credit with the Bank. This collusion is also apparentfrom the indemnity bond they took from the seller to guard themselves against theconsequences of the said representation. All the elements of deceit are present.”(at p. 102)

[2020] 10 S.C.R.

Awould prevent him obtaining full compensation for the wrongsuffered;

(5) although the circumstances in which the general rule shouldnot apply cannot be comprehensively stated, it will normally notapply where either (a) the misrepresentation has continued toBoperate after the date of the acquisition of the asset so as toinduce the plaintiff to retain the asset or (b) the circumstances ofthe case are such that the plaintiff is, by reason of the fraud,locked into the property.

(6) In addition, the plaintiff is entitled to recover consequentialClosses caused by the transaction;

(7) the plaintiff must take all reasonable steps to mitigate his lossonce he has discovered the fraud.”

(at pp. 778-779)

DLikewise, in the same judgment Lord Steyn, after referring to theseminal judgment in Doyle [supra] stated the law thus:-

“The logic of the decision in Doyle v. Olby (Ironmongers)Ltd. justifies the following propositions.

(1) The plaintiff in an action for deceit is not entitled to beEcompensated in accordance with the contractual measure ofdamage, i.e. the benefit of the bargain measure. He is not entitledto be protected in respect of his positive interest in the bargain.

(2) The plaintiff in an action for deceit is, however, entitled to becompensated in respect of his negative interest. The aim is to putFthe plaintiff into the position he would have been in if no falserepresentation had been made.

(3) The practical difference between the two measures was lucidlyexplained in contemporary case note on Doyle v. Olby(Ironmongers) Ltd.: G. H. Treitel, “Damages for Deceit” (1969)G32 M.L.R. 556, 558–559. The author said:

“If the plaintiff’s bargain would have been bad one, even onthe assumption that the representation was true, he will dobest under the tortious measure. If, on the assumption that therepresentation was true, his bargain would have been goodHone, he will do best under the first contractual measure (under

which he may recover something even if the actual value ofwhat he has recovered is greater than the price).”

(4) Concentrating on the tort measure, the remoteness test whetherthe loss was reasonably foreseeable had been authoritatively laiddown in The Wagon Mound in respect of the tort of negligencea few years before Doyle v. Olby (Ironmongers) Ltd. wasdecided: Overseas Tankship (U.K.) Ltd. v. Morts Dock &Engineering Co. Ltd. (The Wagon Mound) [1961] A.C.388. Doyle v. Olby (Ironmongers) Ltd. settled that wider testapplies in an action for deceit.

(5) The dicta in all three judgments, as well as the actual calculationof damages in Doyle v. Olby (Ironmongers) Ltd. , make clearthat the victim of the fraud is entitled to compensation for all theactual loss directly flowing from the transaction induced by thewrongdoer. That includes heads of consequential loss.

(6) Significantly in the present context the rule in the previousparagraph is not tied to any process of valuation at the date of thetransaction. It is squarely based on the overriding compensatoryprinciple, widened in view of the fraud to cover all directconsequences. The legal measure is to compare the position ofthe plaintiff as it was before the fraudulent statement was madeto him with his position as it became as result of his reliance onthe fraudulent statement.”

(at p. 792)

In an important passage titled “the date of transaction rule”, LordSteyn emphasised that in cases of fraudulent misrepresentation, there isonly one and not two alternative measures of damages, namely, the losstruly suffered by the party affected who must be put back in the sameplace as if he had never entered into the transaction. In an action fordeceit, the price paid less the valuation at the transaction date is simplya method of measuring such loss, but is not substitute for the basicrule. This was felicitously stated as follows:

“The date of transaction rule

That brings me to the perceived difficulty caused by the date oftransaction rule. The Court of Appeal [1994] 1 W.L.R. 1271,1283G, referred to the rigidity of “the rule in Waddell v.

Blockey (1879) 4 Q.B.D. 678, which requires the damages to becalculated as at the date of sale.” No doubt this view was influencedby the shape of arguments before the Court of Appeal whichtreated the central issue as being in reality valuation exercise. Itis right that the normal method of calculating the loss caused bythe deceit is the price paid less the real value of the subject matterof the sale. To the extent that this method is adopted, the selectionof date of valuation is necessary. And generally the date of thetransaction would be practical and just date to adopt. But it isnot always so. It is only prima facie the right date. It may beappropriate to select later date. That follows from the fact thatthe valuation method is only means of trying to give effect to theoverriding compensatory rule: Potts v. Miller , 64 C.L.R. 282,299, per Dixon J. and County Personnel (Employment Agency)Ltd. v. Alan R. Pulver & Co. [1987] 1 W.L.R. 916, 925–926, per Bingham L.J. Moreover, and more importantly, the dateof transaction rule is simply second order rule applicable onlywhere the valuation method is employed. If that method isinapposite, the court is entitled simply to assess the loss flowingdirectly from the transaction without any reference to the date oftransaction or indeed any particular date. Such course will beappropriate whenever the overriding compensatory rule requiresit. An example of such case is to be found in Cemp Properties(U.K.) Ltd. v. Dentsply Research & DevelopmentCorporation [1991] 2 E.G.L.R. 197, 201, per Bingham L.J. Thereis in truth only one legal measure of assessing damages in anaction for deceit: the plaintiff is entitled to recover as damages asum representing the financial loss flowing directly from hisalteration of position under the inducement of the fraudulentrepresentations of the defendants. The analogy of the assessmentof damages in contractual claim on the basis of cost of cure ordifference in value springs to mind. In Ruxley Electronics andConstruction Ltd. v. Forsyth [1996] A.C. 344, 360 G, Lord Mustillsaid: “There are not two alternative measures of damages, asopposite poles, but only one; namely, the loss truly suffered by thepromisee.” In an action for deceit the price paid less the valuationat the transaction date is simply method of measuring loss whichwill satisfactorily solve many cases. It is not substitute for thesingle legal measure: it is an application of it.”

(at pp. 793-794)

20. At this stage, in order to discover whether there is strongprima facie case made out in favour of HSBC in the present section 9proceedings, it is necessary to refer to the Foreign Final Award dated27.09.2014. The Foreign Final Award in this case, after setting out thecase of HSBC (the Claimant before the Arbitral Tribunal) and the caseof Avitel India and the Jain family (the Respondents before the ArbitralTribunal), set out the issues for determination thus:

“ISSUES

Issues for Determination

4.8 Against this background, the Tribunal considers that the issuesfor determination are as follows:

i. have any of the Respondents made representations and/orwarranties to the Claimant before the Claimant’s investment inAvitel India and if so, what were these representations and/orwarranties;

ii. if so, did the Respondents make the representations and/orwarranties in order to induce the Claimant to invest in Avitel India;

iii. if so, was the Claimant so induced and did it rely on theRespondents’ representations and/or warranties;

iv. if so, were any of these representations and/or warrantiesuntrue;

v. if so, have any of the Respondents made such representationsand/or warranties knowing that these were false and/or withoutbelief in their truth, or recklessly and without caring whether theserepresentations and/or warranties were true or false;

vi. if so, are any of the Respondents liable to the Claimant in tortfor deceit;

vii. if so, are any of the Respondents liable to the Claimant forfraudulent misrepresentation pursuant to the relevant provisionsof the Contract Act;

viii. if so, is the Claimant entitled to damages for fraudulentmisrepresentation pursuant to the relevant provisions of theContract Act;

ix. If so, are any of the Respondents liable to the Claimant forbreach of warranty;

x. If so, are any of the Respondents to indemnify the Claimant inrespect of any of the Claimant’s claims;

xi. if the Claimant is entitled to claim damages, what is the amountof damages the Claimant is entitled to;

xii. if so, is the Claimant entitled to interest and if so, at what rate;

xiii. is the Claimant entitled to the reliefs sought;

xiv. costs;

xv. are the Claimant’s shares in Avitel India to be cancelled and ifso, on what basis?”

In answering these issues, the Arbitral Tribunal found:

“7.14 The Tribunal additionally accepts the Claimant’s submissionand finds that the Claimant was induced by and did rely on theRespondents’ further representations that, inter alia, the AvitelGroup had immediate business with value of approximately USDD1 billion with independent and legitimate customers as well asgood relationships with independent and legitimate suppliers andservice providers (see paragraphs 5.2(i)(l), 5.17(a.xv) and5.17(a.xvi) above).

7.15 The Tribunal rejects the Respondents’ submission and findsthat Clause 6.3 of the SSA unequivocally establishes that theClaimant did rely on the representations and warranties in makingits investment in Avitel India.”

It further found that the siphoning off of large part of the amountof USD 60 million into companies owned or controlled by the Jain familyFwas made out as follows:

“8.20 The Claimant relies in support, inter alia, on the witnessevidence of Mr. van Schalkwyk, HSBC Middle East Limited’sRegional Head of Fraud Risk, who conducted an investigationinto the banking activities of the Jain Family in the United ArabGEmirates. This investigation established the flow of funds followingthe Claimant’s investment [Witness Statement of Mr. vanSchalkwyk, at para.9] in summary as follows:

(i) on 10 May 2011,an amount of USD 60,000,000.00 was receivedby Avitel Dubai (Emirates NDB account number 744859021001)

(“the Avitel Dubai Account”) from Avitel Mauritius. Thisrepresented the Claimant’s initial investment [ Witness Statementof Mr. van Schalkwyk, at para.17(a)]. Mr. van Schalkwyk wasable to ascertain this information from statement of the AvitelDubai Account for the period between 1 May 2011 to 23 September2011 which statement was provided to him by Mr. Derek Wyldeof HSBC [A copy of this statement is exhibited to the WitnessStatement of Mr. van Schalkwyk, at RVS-I pp. 2 to 3];

(ii) series of payments was then made by Avitel Dubai as follows:

a. on 15 May 2011 the Avitel Dubai Account was debited inthe amount of USD 6 million and which amount was creditedto an Emirates NBD account held in the name of Highend.This was followed by multiple small transfers out of Highend’sbank account to number of miscellaneous accounts [WitnessStatement of Mr. van Schalkwyk, at para. 17(b)(i)] ;

b. on 23 May 2011, the Avitel Dubai Account was debited inthe amount of USD 12.22 million and which amount wascredited to the same Emirates NBD account held in the nameof Highend. This amount was in turn transferred to an entityidentified as Avitel Limited on 30 May 2011 whose full beneficialownership Mr. van Schalkwyk has not been able to confirm[Witness Statement of Mr. van Schalkwyk, at para. 17(b)(ii)];

c. on 9 June 2011 the Avitel Dubai Account was debited in theamount of USD 10 million which amount was then credited toa different Emirates NBD bank account which is also held inthe name of Highend. On 27 July 2011 this amount wastransferred to further Emirates NBD account in the name ofDigital Fusion. This sum was thereafter transferred to CraltonCapital Commercial Broker Services LLC (“Cralton”) whichappears to be broking and investment company [WitnessStatement of Mr. van Schalkwyk, at para.17(b) (iii)] in respectof which company Mr. Boban Idiculla is the sole signatory toits bank account with Emirates NDB [Witness Statement ofMr. van Schalkwyk, at fn. 9];

d. on 13 June 2011 and 14 June 2011, the Avitel Dubai Accountwas debited in the amounts of USD 10 million and USD 5million respectively which amounts were credited to an Emirates

NBD account held in the name of Digital Fusion. On 19 July2011 and 26 July 2011, Digital Fusion’s account was debited inthe amounts USD 5 million and USD 10 million respectivelywhich amounts were credited to an Emirates NBD accountheld in the name of Cralton. The account records of Craltonheld with Emirates NBD show that the transfers in July 2011totalling USD 25 million were used to make various transfers,fixed term deposits and investments between Cralton, Highend,Digital Fusion and SPAC [Witness Statement of Mr. vanSchalkwyk, at para.17(b)(iv)];

e. on 23 February 2012, the Avitel Dubai Account was debitedin the amount of USD 8 million which amount was credited tothe Emirates NBD account held in the name of Highend. On28 February 2012, this account was debited in the amount ofUSD 7.48 million which was credited to different EmiratesNBD account held in the name of SPAC. further debit in theamount of USD 500,000 occurred on 28 February 2012 whichsum was routed through two different Emirates NBD accounts,one held in the name of DejaVu FZ-LLC and one in the nameof Al Jalore Trading FZE, before this sum was finally creditedto Dubai Multi Commodities Centre entity, namely EmeraldDMCC [Witness Statement of Mr. van Schalkwyk, atpara.17(b)(v)];

f. Mr. van Schalkwyk understands that between 18 April 2012and 29 April 2012, there was further transfer from the AvitelDubai Account of USD 8.5 million. However, he has beenunable to ascertain to which account(s) these funds have beentransferred to [Witness Statement of Mr. van Schalkwyk, atpara.18].”

It then found that the following admitted facts would show thatmost of the representations made by the Avitel Group and the Jain familyto HSBC were false in that:

“8.70 The Tribunal notes that the Respondents have not deniedthe accuracy of thefollowing:

a. the Avitel Group did not have direct relationship with theBBC and was not close to signing the BBC Contract;

b. Avitel Dubai’s offices had been closed for period of time;

c. Mr. Siddhartha Jain was forty nine percent shareholder inHighend as well as in Digital Fusion at the material time;

d. Mr. Siddhartha Jain is the sole signatory of and thereforecontrols Highend’s and Digital Fusion’s bank accounts withEmirates NBD;

e. Mr. Siddhartha Jain was co-signatory (together with oneMr. Ankit Garg) of SPAC’s bank accounts with Emirates NDB;

f. Kinden was not in existence between 12 October 2010 and26 October 2011;

g. Mr. Boban Idiculla who is the sole shareholder and directorof Kinden, is also the sole signatory of and therefore controlsCralton’s bank accounts with Emirates NDB;

h. Purple Passion, which was wholly owned by Mr. SiddharthaJain, was dissolved on 23 November 2010;

i. In total, USD 59.72 million of the Claimant’s USD 60 millioninvestment have been transferred out of Avitel Dubai’s bankaccounts and into bank accounts the majority of which arecontrolled by the Jain Family;

j. the domain names for Kinden, SPAC, Highend and DigitalFusion had been registered by Mr. Hrishi Jain;

k. on 28 January 2012, the websites for Kinden, SPAC, Highendand Digital Fusion had been transferred from the hosting site“rediffinalpro.com ” to “rirev.com”, the same hosting site whichhad been utilized by Avitel Dubai since 28 June 2011. Eachwebsite was thereafter re-registered employing proxy servicecalled “Domains By Proxy, LLC”, which provides anonymityto the owners of websites on the internet.”

As result thereof, issue (iv) was answered stating:

“8.72 In these circumstances and also for the reasons set outbelow, the Tribunal accepts the Claimant’s submissions and finds thatthe following representations and/or warranties made by the Respondentswere false and/or misleading:

a. the Avitel Group had been in advanced negotiations with theBBC and BBC Contract had been close to execution. This isbecause the Respondents do not deny that the Avitel Groupnever had direct relationship with the BBC and was not aboutto sign the BBC Contract;

b. at the Completion Date, the Avitel Group had the benefit ofthe Material Contracts with Kinden, SPAC and Purple Passionin total valued at approximately USD 658 million. This isbecause in effect, Kinden and Purple Passion had not been inexistence at the time of the Claimant’s investment;

c. at the Completion Date, the Avitel Group’s key customersKinden, SPAC and Purple Passion as well as Avitel Dubai’skey supplier, Highend, and key service provider, Digital Fusion,were all independent and legitimate companies. This is becausein effect, Kinden and Purple Passion had not been in existenceat the time of the Claimant’s investment and Mr. SiddharthaJain was the shareholder and/or sole signatory to Highend’sand Digital Fusion’s bank accounts with Emirates NDB andwas also co-signatory to SPAC’s bank accounts with EmiratesNDB. Further, in light of the complex web of transactions to,from and between Highend’s, Digital Fusion’s, SPAC’s andCralton’s various bank accounts with Emirates NDB (seeparagraph 8.20 above), the Tribunal accepts the Claimant’ssubmission that none of these entities were independent andlegitimate companies. As for Mr. van Schalkwyk’s evidence,as there is no evidence adduced which would challenge theveracity and reliability of Mr. van Schalkwyk’s evidence, theTribunal sees no reason to disregard his evidence. In theTribunal’s view he is credible witness;d. the Claimant’s investment was required and was to be utilizedfor purchasing equipment in order to enable Avitel Dubai toservice the BBC Contract. In light of the circumstancesreferred to in paragraph 8.68 above, the Tribunal accepts theClaimant’s submission that its investment has been siphonedoff by the Respondents;

e. the representations and/or warranties contained in Clause6.2.1 of the SSA because the information provided to theClaimant prior to and during the negotiations and the

preparations of the SSA had not been provided by theRespondents and its/or their representatives and advisors ingood faith and had been untrue, inaccurate and misleading forthe reasons set out in paragraphs 8.72 (a) to (d) above;

f. the representations and/or warranties contained in Clause6.2.2 of the SSA because the representations and warrantiesmade by the Respondents in the SSA read in conjunction withClause 7 of Schedule 3 as well as Annexure to the DisclosureLetter did contain untrue statements of material facts as theAvitel Group did not have immediate business worth close toUSD 1 billion with independent and legitimate customersincluding the purported relationship with the BBC;

g. the representations and/or warranties contained in Clause6.2.3 of the SSA because there had been facts or circumstancesrelating to the affairs of Avitel India or any Subsidiary whichhad not been disclosed to the Claimant and which could havehad an impact on the decision of the Claimant to invest in AvitelIndia. In the Tribunal’s view, the fact that Kinden and PurplePassion did not exist at the material time and that Highend’s,Digital Fusion’s and SPAC’s bank accounts with EmiratesNDB are controlled by Mr. Siddhartha Jain, would have hadan impact on the Claimant’s decision to invest in Avitel India;

h. the representations and/or warranties contained in Clauses7.1 and 7.3 of Schedule 3 of the SSA read in conjunction withthe Disclosure Letter as Kinden and Purple Passion did notexist at the Completion Date such that the Material Contractswith these entities could not have existed either;

i. the representations and/or warranties contained in Clause7.5 of Schedule 3 of the SSA because Mr. Siddhartha Jainwas at the Completion Date forty nine percent shareholderof Highend and Digital Fusion so any transactions with theseentities were Related Party Transactions which were notpermitted pursuant to Clause 7.5 of Schedule 3 of the SSA andwhich, in any event, had not been concluded on an arm’s lengthbasis;

j. the representations and/or warranties contained in Clause10 of Schedule 3 of the SSA because Avitel India’s and the

Subsidiaries’ accounts could not have given true and fairview of the assets, liabilities and state of affairs of Avitel Indiaand the Subsidiaries at the Accounts Date and of the profits orlosses for the period concerned. For example, the MaterialContracts with Kinden and Purple Passion did not exist at theCompletion Date;

k. the representations and warranties contained in Clause 8 ofSchedule 3 of the SSA because if the accounts did not give atrue and fair view of the assets, liabilities and state of affairsof Avitel India and the Subsidiaries, all Tax Returns relating toAvitel India and the Subsidiaries or the Business or the assetsof Avitel India and each of the Subsidiaries could not havebeen correct in all material respects;

l. the representations and warranties contained in Clause 11 ofSchedule 3 of the SSA because the Respondents falselyrepresented and warranted that Avitel India and each of theSubsidiaries were in material compliance with all applicablelaws which in light of the Tribunal’s findings in paragraphs8.72(a) to (j) above, could not have been the case;

m. the representations and warranties contained in Clause 6.1of the SSA because in light of the Tribunal’s findings inparagraphs 8.72 (a) to (k) above, not every representation andwarranty made in the SSA and in Schedule 3 of the SSA wastrue, complete, accurate and not misleading at the CompletionDate.”

As result, in paragraph 20, summary of findings was given as

Ffollows:

“20. SUMMARY

20.1 The Respondents chose not to attend the November 2013Oral Hearing and the Tribunal is not satisfied that they were unableto attend or prevented from doing so. The dates for the November2013 Oral Hearing had been fixed some nine months before thehearing itself. It was only on 19 April 2013 that the First Respondentvide Mr. Yogesh Garodia’s Request applied for these dates to berescheduled to dates later than 9 November 2013 but without anyindication as to the exact dates it sought. The Second, Third andFourth Respondent did not seek re-scheduling of the November

2013 Oral Hearing until 29 July 2013 giving also no indication ofalternative hearing dates asserting that the Respondents followingthe issue of the EOW Final Report, required additional time to filetheir witness statements and to prepare for the oral hearing. TheTribunal did not find this to be persuasive as there was still time.In subsequent correspondence on 15 October 2013, theRespondents further asserted that the November 2013 OralHearing fell over holiday period in India, namely the DiwaliFestival. While the Tribunal accepts this, this hearing which wasscheduled for and to be held in Singapore together with thesubstantial delay in seeking postponement of the November 2013Oral Hearing was not satisfactorily explained. The Respondentsalso sought an adjournment on the grounds, inter alia, of theirinability to engage counsel. However, it appears to the Tribunalthat during this period (i.e. from the time when they sought anadjournment up to the date of the November 2013 Oral Hearing),they were able to. The Tribunal also points out that although theRespondents at various stages ceased to be represented bylawyers, the letters written and signed by Mr. Yogesh Garodiaeither on behalf of the First Respondent or on behalf of allRespondents or the letters signed by the First Respondent (throughMr. Yogesh Garodia) Second, Third and Fourth Respondents,during this period were written in legal terminology including theemployment of legal Latin maxims. The Respondents’ applicationsfor re-scheduling the hearing dates in the Tribunal’s view must beviewed against the background of the failure of the Respondentsto comply with the orders of the Emergency Arbitrator inproceedings in Singapore in which the Respondents had beenrepresented by both Indian and Singapore counsel and providedevidence. All of the above are suggestive to the Tribunal of anattempt to delay these proceedings.

20.2 The Respondents provided no witness statements and didnot adduce any oral evidence before this Tribunal although theTribunal accepts that they did so in the proceedings before theEmergency Arbitrator, namely in Mr. Yogesh Garodia’s WitnessStatement. In reaching its findings and its decisions, this Tribunalhas considered fully the Respondents’ numerous submissions andMr. Yogesh Garodia’s Witness Statement as well as thedocumentary evidence. The Claimant provided evidence from

ABC

DEF

Anumber of witnesses and also documentary evidence. As theRespondents did not attend the November 2013 Oral Hearing,the Tribunal tested the evidence of the Claimant’s witnesses byasking number of questions. The Tribunal finds each of theClaimant’s witnesses to be credible and it accepts their evidencepart of which is corroborated by the documentary evidenceBsubmitted by the Claimant Including an email from Ms. SarahJones, General Counsel at the BBC, dated 4 May 2012 confirming,inter alia, that the BBC had not entered into contract with AvitelIndia, that Mr. John Linwood had not attended meeting on 19April 2011 with Mr. Anthony Bernbaum but at the same time wasCin an internal meeting with BBC staff.

20.3 In summary, the Tribunal finds that the Jain Family (namelythe Second, Third and Fourth Respondents) engaged in deliberateand dishonest scheme to induce the Claimant (part of HSBC) toinvest in Avitel India (namely the First Respondent). The ClaimantDplaced the investment because it had been advised by the JainFamily (making the representations also on behalf of Avitel India),verbally, in writing and in the SSA itself, that Avitel India wasabout to and from 2 August 2011 had signed contract with theBBC, for the BBC to use the services of Avitel India. This wasfalse. Not only had contract not been negotiated, let alone signedEwith the BBC, but the BBC had no knowledge of it.

20.4 The misrepresentations and deception of the Respondentsincluded the arrangement of meeting between representativeof HSBC and person who was falsely held out by theRespondents and purported to be the Chief Technical Officer ofFthe BBC and who falsely purported to corroborate theRespondents’ misrepresentations. The representations were madeprior to the conclusion of the SSA and in the SSA itself. Theywere made knowingly to be untrue and were fraudulent.”

GAs result thereof, it was found that HSBC, in respect of itsclaim for fraudulent misrepresentation, and its claim in tort for deceit, isentitled to damages in the total amount of USD 60 million plus interestand costs as awarded. The final declaration made in the Award thenreads:

“21.21 [The tribunal] Declares and Orders that upon theHRespondents paying in full and unconditionally the sums awarded

to the Claimant in paragraphs 21.15, 21.16, 21.18, 21.19hereinabove and all costs arising out of and incidental to thecancellation of the Claimant’s Preference Subscription Shares andEquity Subscription Shares (as defined in the SSA) in Avitel India,that the said shares be cancelled and that in this regard, the Partiestake the requisite steps to effect the said cancellation within 30days of receipt of such payment.”

21. There can be no doubt whatsoever after reading the issuesand some of the material findings in the Foreign Final Award that theissues raised and answered are the subject matter of civil as opposed tocriminal proceedings. The fact that separate criminal proceeding wassought to be started and may have failed is of no consequence whatsoever.We, therefore, hold on conspectus of these facts, and following ourjudgments, that the issues raised and answered in the Foreign Final Awardwould indicate:

(i) That there is no such fraud as would vitiate the arbitrationclause in the SSA entered into between the parties as it is clear that thisclause has to be read as an independent clause. Further, any finding thatthe contract itself is either null and void or voidable as result of fraudor misrepresentation does not entail the invalidity of the arbitration clausewhich is extremely wide, reading as follows:

“Any dispute, controversy or claim arising out of or in connectionwith this Agreement, including any question regarding its existence,validity, interpretation, breach or termination ……”

(emphasis supplied)

(ii) That the impersonation, false representations made, anddiversion of funds are all inter parties, having no “public flavour”asexplained in paragraph 14 so as to attract the “fraud exception”.

22. Thus, reading of the Foreign Final Award in this case wouldshow that strong prima facie case has indeed been made out as theAward holds the BBC transaction as basis on which the contract wasentered into and the USD 60 million paid by HSBC, which would clearlyfall within fraudulent inducement to enter into contract under section17 of the Contract Act. Such contract would be voidable at the instanceof HSBC. Also, the findings on the siphoning off of monies that weremeant to be allocated for the performance of the BBC contract wouldattract the tort of deceit. The measure of damages for such fraudulentmisrepresentation is not the difference between the value of the shares

Aon the date of making the contract and the value HSBC would havereceived, if it had resold those shares in the market, after the purchase.As has been held in the judgments stated hereinabove, the measure ofsuch damages would be to put HSBC in the same position as if thecontract had never been entered into, which is, the entitlement to recoverthe price paid for the shares and all consequential losses. This being theBcase, it is difficult to accede to the Division Bench’s finding as to themeasure of damages in such cases.

23. So far as the other points raised by M/s. Mukul Rohatgi andSaurabh Kirpal are concerned, we wish to say nothing, as any finding onthese points even prima facie would prejudice the section 48 proceedingsCpending in the Bombay High Court. So far as the appeal of HSBC isconcerned, we are of the view that it has substance in that the USD 60million that was to be kept aside vide the Single Judge’s order, was fairand just in the facts of the case in that it is only the principal amountwithout any interest or costs that is ordered to be kept aside. Further, theDreduction of USD 60 million to USD 30 million by the Division Bench isnot justified given our finding on the measure of damages in the facts ofthis case.

24. It is clarified that any finding made on facts in this judgment isonly prima facie for the purpose of deciding the section 9 petition. Wehave held that HSBC has made out strong prima facie caseEnecessitating that USD 60 million, being the principal amount awardedto them, is kept apart in the manner indicated by the learned SingleJudge of the Bombay High Court. The balance of convenience is also inits favour.It is clear that in case HSBC was to enforcethe Foreign FinalAward in India in accordance with section 48 of the 1996 Act, irreparable

Floss would be caused to it unless at least the principal sum were keptaside for purposes of enforcement of the award in India. Accordingly,we dismiss Civil Appeal No.5145 of 2016filed by Avitel India and theJain family, and allow Civil Appeal No.5158 of 2016 filed by HSBC.

Civil Appeal No. 9820 of 2016

G25. In this case, the Appellant is an angel investor in the shares ofAvitel India. By letter dated 04.07.2016, the Appellant herein expressedhis concern on the observations and the freezing of the company’s bankaccount by the Bombay High Court vide orders dated 22.01.2014 and31.07.2014. The Appellant attended meeting of the Board of Directorsof Avitel India on 11.07.2016, in which the Chairman of the company,Hi.e., Mr. Pradeep Jain, explained to the Appellant in some detail as to the

proceedings filed by HSBC against the company and the orders passedby the Arbitrators and Courts therein. The Chairman expressed viewthat, ultimately, they were likely to succeed in this litigation. The Appellantstated that he was not satisfied with this point of view and asked for thereturn of the money invested along with interest at the rate of 12% perannum. The Chairman stated that the amounts invested by the Appellantwere in equity shares, which were the fixed capital of the company, andany return of such investment is not permissible in law. The Appellantthen stated the following, which is recorded in the Minutes of the BoardMeeting dated 11.07.2016:

“Mr. Savla stated that he would like to peruse the documents indetail and would not rest content till full justification is madeavailable, if need so arises for redressal of issues involved. Herequested that the disputes be decided by an Arbitrator. The Boardunanimously consented that any disputes raised by Mr. RavindraSavla, so long as they are arbitrable under law, shall be referredto arbitration in accordance with Indian law. Mr. Ravindra Savlastated that he would examine the papers provided to him anddetermine his further course of action.

Mr. Ravindra Savla further requested that copy of the Minutesof this Meeting of the Board of Directors be made available tohim. The Chairman accepted the said request.”

26. Almost immediately, the Appellant filed section 9 petitionunder the 1996 Act before the learned ADJ, Mohali, which was decidedby judgment dated 03.08.2016, in which the learned ADJ held that theBoard Resolution dated 11.07.2016 only showed that any disputes raisedby the Appellant shall be referred to arbitration in accordance with Indianlaw, provided they are arbitrable disputes. It was then held that as seriousallegations of fraud were raised by HSBC in the dispute between HSBCand the Avitel Group/Jain family, such dispute would not be arbitrable asper Indian law. Even otherwise, according to the learned ADJ, this dispute(i.e., the dispute between HSBC and the Avitel Group/Jain family) ispending adjudication before the Supreme Court of India, and any decisionmade by that Court shall have direct bearing on the dispute betweenthe parties in this case also. It was, therefore, held:

“11. In view of the detailed discussion made above, this court cansafely conclude that the petitioner is shareholder and has nospecific separate arbitration agreement, so no arbitrable disputearises, as per Indian law, which may be referred to arbitration or

Afor which, provisions of section 9 of Arbitration and ConciliationAct can be involved for protection of his interest qua the sharespurchased by him. Therefore, I do not find that any prima-faciecase is made out in favour of applicant. Even balance ofconvenience is not in favour ofthe applicant and no irreparableloss will be caused to the applicant, if this application is notBallowed. Thus no ground is made out for grant of relief undersection 9 of the Act and section 151 of CPC and the applicationstands dismissed accordingly. File be consigned to the recordroom.”27. An appeal was filed against this judgment to the Punjab andCHaryana High Court. learned Single Judge of the High Court, by theimpugned judgment dated 02.09.2016, held that the final relief sought foris the return of an invested amount with interest together with cancellationof the shares. Such disputes would be governed by the Companies Act,2013. Therefore, following some of the judgments of the Supreme Court,the remedy for arbitration sought by the Appellant would be barred byDimplication in view of the provisions of the Companies Act, 2013. Afterdiscussing the “fraud exception” in some detail and stating that seriousallegations of fraud and impersonation are not arbitrable, the High Courtconcluded:

“For the foregoing reasons, I am of the view that primarily, theEappellant is trying to make out case of parity with the case ofHSBC, which is already matter sub-judice before the CompetentCourt, but as per the facts narrated above, I am of the view thatthe prima facie allegation of fraud, as already noticed above, wouldnot fall in the realm of arbitrable dispute and therefore, rightly so,the court below has declined to grant the interim relief as sought.FI do not intend to differ with the order under challenge. No groundfor interference is made out.

The appeal is dismissed.”

28. In view of the judgment in Civil Appeal No.5145 of 2016 andCivil Appeal No.5158 of 2016, we set aside the judgments of the learnedGADJ and the learned Single Judge that are impugned in this appeal, andremand the matter for adjudication afresh by the ADJ, Mohali. This civilappeal is, accordingly, allowed, the judgments dated 03.08.2016 and02.09.2016 are set aside, and the matter is remanded to the ADJ, Mohalifor fresh disposal in accordance with law.

Ankit Gyan