SC dismissed the Civil Appeal filed by Avitel India against HSBC about arbitration proceedings. It held that HSBC has made out a strong prima facie case. The principal amount of USD 60 million awarded to HSBC in the final arbitral award should be completely kept apart in the manner indicated by the Bombay High Court.
A dispute arose between Avitel Post Studios Ltd. and HSBC for which arbitration proceedings commenced in the Singapore International Arbitration Centre. HSBC accused Avitel of siphoning off or diversion of a substantial portion of USD 60 million paid by HSBC. A Foreign Final Award dated 27.09.2014 was already awarded to HSBC. He said that these issues are predominantly civil law issues that the parties themselves must decide.
Initially, The Appellants challenged this Foreign Final Award in a Section 34 proceeding in the Bombay High Court. By a judgment dated 28.09.2015, the Section 34 Petition was thereby dismissed as being not maintainable. An appeal under Section 37 of the 1996 Act was further dismissed on 05.05.2017. Meanwhile, HSBC moved the Bombay High Court on 15.04.2015 to enforce the Foreign Final Award in the SSA dated 27.09.2014, which enforcement proceedings are still pending.
Senior Advocate Mr Mukul Rohatgi and Mr Saurabh Kirpal appeared on behalf of the Avitel. They made the following averments:
1) They argued that if the transaction entered into between the parties involves serious criminal offences such as forgery and impersonation, then it is clear that under Indian law, such dispute would not be arbitrable.
2) In the enforcement proceedings under Section 48 of the 1996 Act, a prima facie case for enforcement of foreign awards can only refer to Indian law and not Singapore law.
Senior Advocate Mr Harish Salve appeared on behalf of HSBC. He argued that these issues are predominantly civil law issues that the parties themselves must decide. Serious allegations of fraud are those a) that would vitiate the arbitration clause along with the agreement or; b) allegations of fraud which are not merely inter parties, but affect the public at large. He argued that a reading of the Pleadings in the present case shows that neither of these two tests has been successfully met.
The determination of the extent to which HSBC had a strong prima facie case in the enforcement proceedings under Section 48 which are pending before the Bombay High Court.
The Court examined a plethora of judgments and observed:
- “Serious allegations of fraud” arise only if either of the two tests laid down seems satisfied, and not otherwise-
- The first test stands satisfied only when stated that the arbitration clause or agreement itself cannot exist in a clear case in which the Court finds that the party against whom alleged breach cannot have entered into the agreement relating to arbitration at all.
- The second test is in cases in which allegations made against the State or its instrumentalities of arbitrary, are fraudulent, or malafide conduct, thus necessitating the hearing of the case by a Writ Court in which questions raised are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain.
2. The mere institution or possibility of the institution of criminal proceedings in respect of the same subject matter would not lead to the conclusion that an otherwise arbitrable dispute, ceases to be so.
3. That there is no such fraud as would vitiate the arbitration clause in the SSA entered into between the parties. Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration clause which is extremely wide. The impersonation, false representations made, and diversion of funds are all inter parties, have no “public flavour” to attract the “fraud exception”.
The Bench comprising Justices RF Nariman and Navin Sinha held that HSBC has made out a strong prima facie case necessitating that USD 60 million, being the principal amount awarded to them, should be completely kept apart in the manner indicated by the Learned Single Judge of the Bombay High Court. The balance of convenience is also in its favour. In case HSBC was to enforce the Foreign Final Award in India following Section 48 of the 1996 Act, an irreparable loss would be consequentially caused to it unless at least the principal sum was, for enforcement of the award in India, kept aside.
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