Page 1

                                      REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO. 34 OF 2013

Swiss Timing Limited                         …Petitioner  

Versus

Organising Committee,  Commonwealth Games 2010, Delhi.                 ….Respondent

J U D G E M E N T

SURINDER SINGH NIJJAR,J.

1. This  is  a  petition  under  Section  11(4)  read  with  

Section 11(6) of the Arbitration and Conciliation Act, 1996  

(hereinafter referred to as “the Arbitration Act”),  with a  

prayer  to  appoint  the  nominee  arbitrator  of  the  

Respondent and to further constitute the arbitral tribunal,  

by  appointing  the  presiding  arbitrator  in  order  to  

adjudicate  the  disputes  that  have  arisen  between  the  

parties.  

2. The relevant facts as set out in the Arbitration Petition are  

1

Page 2

as under:-

3. The Petitioner is a company duly incorporated under the  

laws  of  Switzerland,  having  its  registered  office  in  

Corgémont,  Switzerland.   The  respondent  is  the  

Organising Committee, Commonwealth Games, 2010. It is  

a society registered under the Societies Registration Act,  

1860  (hereinafter  referred  to  as  “the  Organising  

Committee”),  established  for  the  primary  purpose  of  

planning,  organising  and  delivering  the  Commonwealth  

Games,  2010  Delhi  (hereinafter  referred  to  as  

“Commonwealth Games”) and having its registered office  

in New Delhi, India.   

4. The  petitioner  entered  into  an  agreement  

dated 11th March, 2010 with the respondent for providing  

timing, score and result systems (“TSR systems/services”)  

as  well  as  supporting  services  required  to  conduct  the  

Commonwealth  Games.   According  to  the  petitioner,  

Clause  11.1  of  the  aforesaid  agreement  stipulated  the  

fees, as set out in Schedule 3, which shall be paid to the  

2

Page 3

petitioner for performance of the obligations contained in  

the agreement.  The aforesaid Schedule 3 gives details of  

the amounts which were to be paid, in instalments, by the  

Organising Committee.    The service  provider/Petitioner  

was  to  submit  monthly  tax  invoices,  detailing  the  

payments  to  be  made  by  the  Organising  Committee.  

These invoices were to be paid within 30 days of the end  

of the month in which the tax invoices were received by  

the Organising Committee.  All payments were to be made  

in  Swiss  Francs,  unless  the  parties  agree  otherwise  in  

writing.   Clause  11.5  provides  that  on  the  date  of  the  

agreement,  the  service  provider  must  provide  the  

Performance  Bank  Guarantee  to  the  Organising  

Committee to secure the performance of  its  obligations  

under  the  agreement.   Certain  other  obligations  are  

enumerated in the other clauses, which are not necessary  

to  be  noticed  for  the  purposes  of  the  decision  of  the  

present petition.

5. It  is  also  noteworthy  that  in  consideration  of  the  

3

Page 4

petitioner’s services as stipulated in the agreement, the  

petitioner  was  to  receive  a  total  amount  of  CHF  

24,990,000/-(Swiss  Francs  Twenty  Four  Million  Nine  

Hundred and Ninety Thousand only). It was also provided  

in Schedule 3 that payment of the 5% of the total service  

fees  was  to  be  made  upon  completion  of  the  

Commonwealth Games.  Accordingly, the petitioner sent  

the invoice No.  33574 dated 27th October,  2010 for  the  

payment of CHF 1,249,500 (Swiss Francs One Million Two  

Hundred  Forty  Nine  Thousand  Five  Hundred  only).  This  

represents the remaining 5% which was to be paid upon  

completion  of  the  Commonwealth  Games  

on 27th October, 2010.  The petitioner had also paid to the  

Organising  Committee  a  sum  of  Rs.  15,00,000/-  

(INR  1.5  million)  as  Earnest  Money  Deposit  (EMD),  for  

successfully completing the TSR services as provided in  

the agreement.   

6. According to the petitioner,  the respondent defaulted in  

making the payment without any justifiable reasons.  Not  

4

Page 5

only  the  amount  was  not  paid  to  the  petitioner,  the  

respondent  sent  a  letter  dated  15th December,  2010  

asking the petitioner  to  extend the Bank Guarantee till  

31st January,  2011.   The  petitioner  informed  the  

respondent  that  the  Bank  Guarantee  had  already  been  

terminated  and  released  on  completion  of  the  

Commonwealth Games in October,  2010.   It  is  also the  

case  of  the  petitioner  that  there  is  no  provision  in  the  

service agreement for extension of the Bank Guarantee.  

The  petitioner  reiterated  its  claim  for  the  aforesaid  

amount.   Through  letter  dated  26th January,  2011,  the  

petitioner   demanded  repayment  of  Rs.  15  lakhs  

deposited as EMD.  Instead of making the payment to the  

petitioner and other companies, the respondent issued a  

Press Communiqué          on 2nd February, 2011 declaring  

that part payments to nine foreign vendors, including the  

petitioner,  have  been  withheld  for  “non-performance  of  

the contract”.   The petitioner  is  said to  have protested  

against the aforesaid communiqué through letter dated 4th  

February, 2011. It was reiterated that the petitioner had  

5

Page 6

satisfactorily  performed  the  obligations  in  the  service  

agreement of 11th March, 2010.  Since the respondent was  

disputing its  liability to pay the amounts,  the petitioner  

served a  formal  Dispute  Notification  on  the  respondent  

under              Clause 38 of the agreement.    

7. The  petitioner  further  points  out  that  on  7th February,  

2011, the respondent called upon the petitioner to fulfil its  

alleged  outstanding  obligations  under  the  agreement  

including handing over of the Legacy Boards, completion  

of the formalities of the material, which were required to  

be shipped out and to fulfil certain other requirements as  

set  out  in  its  earlier  e-mails  in  order  to  prepare  the  

“agreement closure report”.  The respondent also stated  

that they were not addressing the issue of invoking the  

Dispute  Resolution  Clause  as  they  were  interested  in  

settling the dispute amicably. The petitioner pleads that  

the  respondent  failed  in  its  commitment  for  payments  

towards  services  rendered,   not  only  towards  the  

petitioner but also towards other international companies  

6

Page 7

from Australia, Belgium, England, France, Germany, Italy,  

the  Netherlands  and  Switzerland,  which  had  provided  

various services to the respondent at the Commonwealth  

Games.  It also appears that collective letters were written  

on behalf of various companies by the ambassadors of the  

concerned  countries,  to  the  Finance  Minister  of  India  

indicating the default  in payments of the amounts due.  

The petitioners, therefore, claim that they were left with  

no alternative but to invoke arbitration as provided under  

Clause  38.6  of  the  agreement.   The  petitioners  have  

nominated the arbitrator on its behalf namely Justice S.N.  

Variava, former Judge of the Supreme Court of India.  A  

notice to this effect was served on the respondent through  

a  communication  dated  22nd April,  2013.   Since  no  

response was received a reminder was issued on 29th May,  

2013.   Upon such failure,  the petitioners have filed the  

present petition.  

8. In  the counter  affidavit  all  the averments  made by the  

petitioners have been denied, as being incorrect in facts  

7

Page 8

and in law.  The respondents have raised two preliminary  

objections, which are as follows:-

(i) The  petitioner  has  not  followed  the  dispute  

resolution mechanism as expressly provided in the  

agreement  dated  11th March,  2010.   No  efforts  

have  been  made  by  the  petitioner  to  seek  

resolution of the dispute as provided under Clause  

38.  On the other hand, the respondent through  

numerous  communications  invited  the  petitioner  

for  amicable  resolution  of  the  dispute.   The  

respondent  relies  on  communications  dated  3rd  

January, 2011,                     9th January, 2011, 10th  

January, 2011,                         1st February, 2011  

and   2nd February, 2011.

(ii) The contract stands vitated and is void ab initio in  

view of Clauses 29, 30 and 34 of the Agreement  

dated 11th March,  2010.  Hence,  the petitioner  is  

not entitled to any payment whatsoever in respect  

of  the  contract  and  is  liable  to  reimburse  the  

8

Page 9

payments  already  made.  Therefore,  there  is  no  

basis to invoke arbitration clause.  

The  respondent  points  out  that  a  combined  

reading of Clause 29 and Clause 34 would show  

that the petitioner had warranted that it will never  

engage in corrupt, fraudulent, collusive or coercive  

practices in connection with the agreement.  The  

petitioner  would  be  liable  to  indemnify  the  

Respondent against all losses suffered or incurred  

as a result of any breach of the agreement or any  

negligence, unlawful conduct or wilful misconduct.  

The  respondent  may  terminate  the  agreement  

whenever  it  determines  that  the  petitioner  had  

engaged  in  any  corrupt,  fraudulent,  collusive  or  

coercive  practice  in  connection  with  the  

agreement.  The respondent seeks to establish the  

aforesaid  non-liability  clause  on  the  basis  of  

registration of Criminal Case being CC No. 22 of  

2011 under Section 120-B, read with Sections 420,  

427, 488 and 477 IPC and Section 13(2) read with  

9

Page 10

Section  13(1)(d)  of  the  Prevention  of  Corruption  

Act against Suresh Kalmadi, the then Chairman of  

the  Organising  Committee  and  other  officials  of  

the  respondent  alongwith  some  officials  of  the  

petitioner,  namely  Mr.  S.  Chianese,  Sales  &  

Marketing  Manager,  Mr.  Christophe  Bertaud,  

General  Manager  and  Mr.  J.  Spiri,  Multi  Sports  

Events & Sales Manager.    

9. It  is further the case of the respondent that due to the  

pendency of the criminal  proceedings in  the trial  court,  

the present petition ought not to be entertained.  In case  

the arbitration proceeding continues simultaneously with  

the  criminal  trial,  there  is  real  danger  of  conflicting  

conclusions  by  the  two  fora,  leading  to  unnecessary  

confusion.  

10. I have heard the learned counsel for the parties.  

11. The submissions made in the petition as well as in the  

10

Page 11

counter affidavit have been reiterated before me by the  

learned counsel.  I  have  given  due consideration  to  the  

submissions made by the learned counsel for the parties.   

12. The learned counsel for the petitioners has relied on  

an unreported Order of this Court dated 11th April, 2012 in  

M/s Nussli (Swtizerland) Ltd. Vs. Organizing Commit.  

Commonwealth  Game.  2010,  wherein  the  dispute  in  

almost  identical  circumstances  have  been  referred  to  

arbitration.

13. On the other hand, learned counsel for the respondent  

has  relied  on  a  judgment  of  this  Court  in  N.  

Radhakrishnan  Vs.  Maestro  Engineers  & Ors.  1    He  

has  also  relied  upon  Guru  Granth  Saheb  Sthan  

Meerghat Vanaras Vs. Ved Prakash & Ors.2 Reliance is  

also placed on  India Household and Healthcare Ltd.  

Vs. LG Household and Healthcare Ltd.3

1 (2010) 1 SCC 72 2 (2013) 7 SCC 622 3 2007 (5) SCC 510

11

Page 12

14. The  procedure  for  Dispute  Resolution  has  been  

provided  in  Clause  38  of  the  agreement,  which  is  as  

under:-

“38.Dispute Resolution

38.1 If a dispute arises between the parties out of  or relating to this Agreement (a “Dispute”), any  party seeking to resolve the Dispute must do so  strictly  in  accordance with the provisions of  this  clause.   Compliance  with  the  provisions  of  this  clause  is  a  condition  precedent  to  seeking  a  resolution  of  the  Dispute  at  the  arbitral  tribunal  constituted in accordance with this clause 38.

38.2 During a Dispute, each party must continue  to perform its obligations under this Agreement.  

38.3 A party seeking to resolve the Dispute must  notify the existence and nature of the Dispute to  the  other  party  (“the  Notification”).   Upon  receipt  of  the  Notification  the  Parties  must  use  their  respective  reasonable  endeavours  to  negotiate  to  resolve  the  Dispute  by  discussions  between Delhi 2010 (or a person it nominates) and  the Service Provider (or a person it nominates).  If  the  Dispute  has  not  been  resolved  within  10  Business  Days  of  receipt  of  the  Notification  (or  such  other  period  as  agreed  in  writing  by  the  parties) then the parties must refer the Dispute to  the  Chairman  of  Delhi  2010  and  the  Chief  Executive Officer or its equivalent) of the Service  Provider.

38.4 If the Dispute has not been settled within 5  Business Days of referral under Clause 38.3, the  Dispute  shall  be  settled  by  arbitration  in  

12

Page 13

accordance with the following clauses.

38.5 For  any dispute arising after  31 July,  2010,  the relevant period in clause 38.3 is 48 hours and  the relevant period in clause 38.4 is 24 hours.

38.6 The Dispute shall  be referred to  a  tribunal  consisting  of  three  Arbitrators,  one  to  be  nominated  by  each  party,  with  the  presiding  Arbitrator to be nominated by the two arbitrators  nominated by the parties.  The Arbitrators shall be  retired judges of the Supreme Court or High Courts  of India.  However, the Presiding Arbitrator shall be  a retired Supreme Court Judge.

38.7 The place of arbitration shall  be New Delhi.  All  arbitration proceedings shall  be conducted in  English in  accordance with the provisions of  the  Arbitration and Conciliation Act, 1996 as amended  from time to time.  

38.8 The arbitration award will be final and binding  upon the parties, and each party will bear its own  costs of arbitration and equally share the fees of  the  arbitral  tribunal  unless  the  arbitral  tribunal  decides otherwise.

38.9 This  clause  38  will  not  affect  each  party’s  rights  to  seek  interlocutory  relief  in  a  court  of  competent jurisdiction.”

15. I am unable to agree with the submission made by the  

learned counsel for the respondent that the petitioner has  

not satisfied the condition precedent under Clause 38.3.  

A perusal of the correspondence placed on the record of  

13

Page 14

the petition clearly shows that not only the petitioner but  

even the  ambassadors  of  the various  governments  had  

made  considerable  efforts  to  resolve  the  issue  without  

having to take recourse to formal arbitration.  It is only  

when  all  these  efforts  failed,  that  the  petitioner  

communicated  to  the  respondent  its  intention  to  

commence arbitration by letter  /notice dated 22nd April,  

2013.  This was preceded by letters dated 4th February,  

2011, 14th March, 2011 and 20th April, 2011 which clearly  

reflect  the  efforts  made  by  the  petitioner  to  resolve  

disputes  through  discussions  and  negotiations  before  

sending the notice invoking arbitration clause.  

16. It  is  evident  from the  counter  affidavit  filed  by  the  

respondents that  the disputes have arisen between the  

parties  out  of or  relating  to the  agreement  dated  11th  

March, 2010.  On the one hand, the respondent disputes  

the claims made by the petitioner  and on the other,  it  

takes the plea that efforts were made to amicably put a  

“closure to the agreement”.                   I, therefore, do not  

14

Page 15

find any merit in the submission of the respondent that  

the petition is not maintainable for non-compliance with  

Clause 38.3 of the Dispute Resolution Clause.   

17. The  second  preliminary  objection  raised  by  the  

respondent  is  on  the  ground  that  the  contract  stands  

vitiated and is void-ab-initio in view of Clauses 29, 30 and  

34 of the agreement dated 11th March, 2010.  I am of the  

considered  opinion  that  the  aforesaid  preliminary  

objection is without any substance.  Under Clause 29, both  

sides  have  given  a  warranty  not  to  indulge  in  corrupt  

practices to induce execution of the Agreement.  Clause  

34 empowers the Organising Committee to terminate the  

contract after deciding that the contract was executed in  

breach  of  the  undertaking  given  in  Clause  29  of  the  

Contract.   These  are  allegations  which  will  have  to  be  

established in a proper forum on the basis of the oral and  

documentary  evidence,  produced  by  the  parties,  in  

support of their respective claims. The objection taken is  

to  the  manner  in  which  the  grant  of  the  contract  was  

15

Page 16

manipulated  in  favour  of  the  petitioner.  The  second  

ground is that the rates charged by the petitioner were  

exorbitant. Both these issues can be taken care of in the  

award.  Certainly  if  the  respondent  is  able  to  produce  

sufficient evidence to show that the similar services could  

have been procured for a lesser price, the arbitral tribunal  

would take the same into account whilst computing the  

amounts payable to the petitioner.  As a pure question of  

law, I am unable to accept the very broad proposition that  

whenever a contract is said to be void-ab-initio, the Courts  

exercising jurisdiction under Section 8 and Section 11 of  

the Arbitration Act, 1996 are rendered powerless to refer  

the disputes to arbitration.   

18. However,  the respondent has placed strong reliance  

on  the  judgment  of  this  Court  in  N.  Radhakrishnan  

(supra).  In that case, disputes had arisen between the  

appellant and the respondent, who were partners in a firm  

known as  Maestro  Engineers.  The appellant  had retired  

from the firm.  Subsequently, the appellant alleged that  

16

Page 17

he continued to be a partner.  The respondent filed a Civil  

Suit  seeking  a  declaration  that  the  appellant  is  not  a  

partner  of  the firm.   In  this  suit,  the appellant  filed an  

application under Section 8 of the Arbitration Act seeking  

reference of the dispute to the arbitration.  The plea was  

rejected  by  the  trial  court  and  the  High  Court  in  Civil  

Revision.   This  Court  also  rejected  the  prayer  of  the  

appellant for reference of the dispute to arbitration. This  

Court found that subject matter of the dispute was within  

the ambit of the arbitration clause. It was held as under :

“14. The learned counsel for the respondents  further argued that the subject-matter of the  suit being OS No. 526 of 2006 was a different  one  and  it  was  not  within  the  ambit  of  the  arbitration  clause  of  the  partnership  deed  dated 7-4-2003 and that the partnership deed  had  ceased  to  exist  after  the  firm  was  reconstituted due to the alleged retirement of  the  appellant.  Therefore,  the  trial  court  was  justified  in  not  referring  the  matter  to  the  arbitrator.

15. The  appellant  had  on  the  other  hand  contended that the subject-matter of the suit  was within the ambit of the arbitration clause  since according to him the dispute related to  his retirement and the settlement of his dues  after he was deemed to have retired according  

17

Page 18

to  the  respondents.  Further,  it  was  his  contention that the partnership deed dated 6- 12-2005  was  not  a  valid  one  as  it  was  not  framed in  compliance  with  the  requirements  under  the  Partnership  Act,  1932.  Therefore,  the  argument  of  the  respondents  that  the  subject-matter of the suit did not fall within the  ambit of the arbitration clause of the original  partnership  deed  dated  7-4-2003  cannot  be  sustained.  We  are  in  agreement  with  the  contention of the appellant to this effect.

16. It  is  clear  from  a  perusal  of  the  documents  that  there  was  a  clear  dispute  regarding the reconstitution of the partnership  firm and the subsequent deed framed to that  effect.  The  dispute  was  relating  to  the  continuation of the appellant as a partner of  the firm, and especially when the respondents  prayed for a declaration to the effect that the  appellant  had ceased to be a partner of the  firm after his retirement, there is no doubt in  our mind that the dispute squarely fell within  the  purview  of  the  arbitration  clause  of  the  partnership  deed  dated  7-4-2003.  Therefore,  the  arbitrator  was  competent  to  decide  the  matter relating to the existence of the original  deed and its validity to that effect. Thus, the  contention that the subject-matter of the suit  before the Ist Additional District Munsiff Court  at Coimbatore was beyond the purview of the  arbitration clause, cannot be accepted.”

19. Having found that the subject matter of the suit was  

within the jurisdiction of the arbitration, it was held that  

18

Page 19

the disputes can not be referred to arbitration. This Court  

approved the finding of the High Court that since the case  

relates to allegations of fraud and serious malpractices on  

the part of the respondents, such a situation can only be  

settled in court through furtherance of detailed evidence  

by either parties and such a situation can not be properly  

gone into by the arbitrator.  In my opinion, the aforesaid  

observations runs counter to the ratio of the law laid down  

by this Court in  Hindustan Petroleum Corpn. Ltd. Vs.  

Pinkcity  Midway  Petroleums  4  ,  wherein  this  Court  in  

Paragraph 14 observed as follows:

“If in an agreement between the parties before the  civil  court,  there is  a  clause for  arbitration,  it  is  mandatory for the civil court to refer the dispute to  an arbitrator. In the instant case the existence of  an arbitral clause in the agreement is accepted by  both  the  parties  as  also  by  the  courts  below.  Therefore, in view of the mandatory language of  Section 8 of  the Act,  the courts  below ought  to  have referred the dispute to arbitration.”

20. In  my  opinion,  the  observations  in  Hindustan  

Petroleum Corpn. Ltd. (supra) lays down the correct  

law.  Although, reference has been made to the aforesaid  4 (2003) 6 SCC 503

19

Page 20

observations in N. Radhakrishnan (supra) but the same  

have not been distinguished.  A Two Judge Bench of this  

Court in  P. Anand Gajapathi Raju & Ors. Vs.  P.V.G.  

Raju (Dead) & Ors.  5  , had earlier considered the scope of  

the  provisions  contained  in  Section  8  and  observed  as  

follows:-

“8. In  the  matter  before  us,  the  arbitration  agreement  covers  all  the  disputes  between  the  parties  in  the  proceedings  before  us  and  even  more than that. As already noted, the arbitration  agreement satisfies the requirements of Section 7  of  the  new  Act.  The  language  of  Section  8  is  peremptory.  It  is,  therefore,  obligatory  for  the  Court to refer the parties to arbitration in terms  

of  their  arbitration  agreement.  Nothing  remains to be decided in the original action or the  appeal arising therefrom. There is no question of  stay  of  the  proceedings  till  the  arbitration  proceedings  conclude  and  the  award  becomes  final in terms of the provisions of the new Act. All  the rights, obligations and remedies of the parties  would now be governed by the new Act including  the  right  to  challenge  the  award.  The  court  to  which the party shall have recourse to challenge  the award would be the court as defined in clause  (e) of Section 2 of the new Act and not the court to  which an application under Section 8 of the new  Act is made. An application before a court under  Section 8 merely brings to the court’s notice that  the  subject-matter  of  the  action before it  is  the  subject-matter  of  an  arbitration  agreement.  This  

5 (2000) 4 SCC 539

20

Page 21

would not be such an application as contemplated  under Section 42 of the Act as the court trying the  action may or may not have had jurisdiction to try  the suit  to start with or be the competent court  within  the  meaning  of  Section  2(e)  of  the  new  Act.”

21. This judgment was not even brought to the notice of  

the Court in N. Radhakrishnan (supra).  In my opinion,  

judgment in  N. Radhakrishnan (supra) is  per incuriam  

on  two  grounds:   Firstly,  the  judgment  in  Hindustan  

Petroleum Corpn. Ltd. (supra) though referred has not  

been distinguished but at the same time is not followed  

also.  The judgment in P. Anand Gajapathi Raju & Ors.  

(supra) was not even brought to the notice of this Court.  

Therefore,  the  same  has  neither  been  followed  nor  

considered.  Secondly, the provision contained in Section  

16 of the Arbitration Act, 1996 were also not brought to  

the notice by this Court.   Therefore,  in my opinion, the  

judgment  in  N.  Radhakrishnan  (supra) does  not  lay  

down the correct law and can not be relied upon.

22. As noticed above, the attention of this Court was not  

21

Page 22

drawn  to  the  provision  contained  in  Section  16  of  the  

Arbitration Act, 1996 in the case of  N. Radhakrishnan  

(supra). Section  16  provides  that  the  Arbitral  Tribunal  

would  be  competent  to  rule  on  its  own  jurisdiction  

including ruling on any objection with regard to existence  

or validity of the arbitration agreement.  The Arbitration  

Act  emphasises  that  an  arbitration  clause  which  forms  

part  of  a  contract  shall  be  treated  as  an  agreement  

independent of the other terms of the contract.   It further  

provides that a decision by the Arbitral Tribunal that the  

contract  is  null  and  void shall  not  entail  ipso  jure  the  

invalidity  of  the  arbitration  clause.   The  aforesaid  

provision  came  up  for  consideration  by  this  Court  in  

Today  Homes  &  Infrastructure  Pvt.  Ltd. Vs.  

Ludhiana Improvement Trust & Anr.  6   

23. In  the  aforesaid  case,  the  designated  Judge  of  the  

Punjab  & Haryana High  Court  had refused  to  refer  the  

disputes to arbitration.  The High Court had accepted the  

6 2013 (7) SCALE 327: 2013 (2) Arb. LR 241 (SC)

22

Page 23

plea  that  since  the  underlying  contract  was  void,  the  

arbitration clause perished with it.  The judgment of the  

High Court was challenged in this Court, by filing a Special  

Leave Petition. Before this Court it was submitted by the  

appellant  that  the  High  Court  treated  the  application  

under  Section  11(6)  of  the  Arbitration  Act  as  if  it  was  

deciding a suit but without adducing evidence. Relying on  

SBP & Co. Vs. Patel Engineering Ltd., it was submitted  

that  the  High  Court  was  only  required  to  conduct  a  

preliminary  enquiry  as  to  whether  there  was  a  valid  

arbitration agreement; or whether it was a stale claim. On  

the other hand, it was submitted by the respondents that  

once the High Court had found the main agreement to be  

void, the contents thereof including the arbitration clause  

are also rendered void.   

24. This  Court  rejected  the  aforesaid  submission  of  the  

respondents with the following observations :

“13. We have carefully considered the submissions  made on behalf of the respective parties and we  are  of the view that the learned designated Judge  

23

Page 24

exceeded  the  bounds  of  his  jurisdiction,  as  envisaged in SBP & Co. (supra). In our view, the  learned  designated  Judge  was  not  required  to  undertake a detailed scrutiny of the merits and de-  merits of the case, almost as if he was deciding a  suit.  The  learned  Judge  was  only  required  to  decide such preliminary issues such as jurisdiction  to  entertain  the  application,  the  existence  of  a  valid arbitration agreement, whether a live claim  existed or not, for the purpose of appointment of  an arbitrator. By the impugned order, much more  than what is contemplated under Section 11(6) of  the 1996 Act was sought to be decided, without  any evidence being adduced by the parties.  The  issue  regarding  the  continued  existence  of  the  arbitration  agreement,  notwithstanding  the  main  agreement  itself  being  declared  void,  was  considered  by  the  7-Judge  Bench  in  SBP  &  Co.  (supra)  and  it  was  held  that  an  arbitration  agreement could stand independent of the main  agreement and did not necessarily become otiose,  even if the main agreement, of which it is a part, is  declared void.

14.  The  same  reasoning  was  adopted  by  a  member  of   this  Bench  (S.S.  Nijjar,  J.),  while  deciding the case of Reva Electric Car Company  Private Limited Vs. Green Mobil [(2012) 2 SCC 93],  wherein  the  provisions  of  Section  16(1)  in  the  backdrop of the doctrine of kompetenz kompetenz  were  considered  and  it  was  inter  alia  held  that  under Section 16(1), the legislature makes it clear  that while considering any objection with regard to  the  existence  or  validity  of  the  arbitration  agreement,  the  arbitration  clause,  which  formed  part  of  the  contract,  had  to  be  treated  as  an  agreement independent of the other terms of the  

24

Page 25

contract.  Reference  was  made  in  the  said  judgment to the provisions of Section 16(1)(b) of  the  1996  Act,  which  provides  that  even  if  the  arbitral tribunal concludes that the contract is null  and void, it should not result, as a matter of law, in  an automatic invalidation of the arbitration clause.  It was also held that Section 16(1)(a) of the 1996  Act presumes the existence of a valid arbitration  clause and mandates the same to be treated as an  agreement independent of the other terms of the  contract. By virtue of Section 16(1)(b) of the 1996  Act,  the  arbitration  clause  continues  to  be  enforceable,  notwithstanding  a  declaration  that  the contract was null and void.

25. Keeping in view the aforesaid observations made by  

this Court, I see no reason to accept the submission made  

by the learned counsel for the respondents that since a  

criminal case has been registered against the Chairman of  

the Organising Committee and some other officials of the  

petitioner, this Court would have no jurisdiction to make a  

reference to arbitration.  

26. As noticed above, the concept of separability of the  

arbitration clause/agreement from the underlying contract  

has  been  statutorily  recognised  by  this  country  under  

Section 16 of the Arbitration Act, 1996.  Having provided  

25

Page 26

for resolution of disputes through arbitration, parties can  

not be permitted to avoid arbitration,  without satisfying  

the Court that it will be just and in the interest of all the   

parties not to proceed with the arbitration.  Section 5 of  

the  Arbitration  Act  provides  that  the  Court  shall  not  

intervene in the arbitration process except in accordance  

with the provisions contained in Part I  of the Arbitration  

Act.   This  policy  of  least  interference in  arbitration  

proceedings  recognises  the  general  principle  that  the  

function of Courts in matters relating to arbitration is  to  

support arbitration process.  A conjoint reading of Section  

5  and  Section  16  would  make  it  clear  that  all  matters  

including the issue as to whether the main contract was  

void/voidable can be referred to arbitration.  Otherwise, it  

would  be  a  handy  tool  available  to  the  unscrupulous  

parties to avoid arbitration,  by raising the bogey of the  

underlying contract being void.   

27. I am of the opinion that whenever a plea is taken to  

avoid  arbitration  on  the  ground  that  the  underlying  

26

Page 27

contract is void, the Court is required to ascertain the true  

nature  of  the  defence.   Often,  the  terms  “void”  and  

“voidable”  are  confused  and  used  loosely and  

interchangeably with  each  other.   Therefore,  the  Court  

ought  to  examine  the  plea  by  keeping  in  mind  the  

relevant statutory provisions in the Indian Contract  Act,  

1872, defining the terms “void” and “voidable”.  Section  

2, the interpretation clause defines some of the relevant  

terms as follows:-

“2(g) An agreement not enforceable by law is  said to be void;

2(h) An  agreement  enforceable  by  law  is  a  contract;

2(i) An agreement which is enforceable by law at  the  option  of  one  or  more  of  the  parties  thereto, but not at the option of the other or  others, is a voidable contract;

2(j) A contract which ceases to be enforceable by  law  becomes  void  when  it  ceases  to  be  enforceable.”

The aforesaid clauses clearly delineate and differentiate  

between term “void”  and “voidable”.   Section  2(j)  clearly  

27

Page 28

provides  as  to  when a  voidable contract  would  reach the  

stage of being void.  Undoubtedly, in cases, where the Court  

can come to a conclusion that the contract is void without  

receiving  any  evidence,  it  would  be  justified  in  declining  

reference to arbitration but  such cases would be few and  

isolated.  These would be cases where the Court can readily  

conclude that the contract is void upon a meaningful reading  

of the contract document itself.  Some examples of where a  

contract may fall in this category would be :-

(a) Where a contract is entered into by a person, who  

has not attained the age of majority (Section 11);

(b) Where both the parties are under a mistake as to  

a  matter  of  fact  essential  to  the  agreement  

(Section 19);

(c) Where the consideration or object of the contract  

is forbidden by law or is of such a nature that, if  

permitted,  it  would  defeat  the provisions  of  any  

law  or  where  the  object  of  the  contract  is  to  

indulge  in  any  immoral  activity  or  would  be  

opposed to public policy.  Glaring examples of this  

28

Page 29

would be where a contract is entered into between  

the  parties  for  running  a  prostitution  racket,  

smuggling drugs, human trafficking and any other  

activities falling in that category.   

(d) Similarly,  Section 30 renders  wagering contracts  

as void.  The only exception to this is betting on  

horse racing.  In the circumstances noted above, it  

may not be necessary for the Court to take any  

further evidence apart from reading the contract  

document  itself.   Therefore,  whilst  exercising  

jurisdiction under Section 11(6) of the Arbitration  

Act, the Court could decline to make a reference  

to  arbitration as  the contract  would  be  patently  

void.

28. However,  it  would  not  be  possible  to  shut  out  

arbitration even in cases where the defence taken is that  

the contract is voidable.  These would be cases which are  

covered under the circumstances narrated in Section 12 –  

unsoundness  of  mind;  Section  14  –  absence  of  free  

29

Page 30

consent, i.e. where the consent is said to be vitiated as it  

was obtained by Coercion (Section 15), Undue Influence  

(Section  16),  Fraud  (Section  17)  or  Misrepresentation  

(Section 18).  Such a contract will only become void when  

the party claiming lack of free consent is able to prove the  

same and thus rendering contract void.  This indeed is the  

provision contained in Section 2(j) of the Indian Contract  

Act.   In  exercising  powers  under  Section  11(6)  of  the  

Arbitration  Act,  the  Court  has  to  keep  in  view  the  

provisions contained in Section 8 of the Arbitration Act,  

which  provides  that  a  reference  to  arbitration  shall be  

made if a party applies not later than when submitting his  

first  statement  on  the  substance  of  the  dispute.   In  

contrast, Section 45 of the aforesaid Act permits the Court  

to decline reference to arbitration in case the Court finds  

that  the  agreement  is  null  and  void,  inoperative  or   

incapable of being performed.  

29. To  shut  out  arbitration  at  the  initial  stage  would  

destroy  the  very  purpose  for  which  the  parties  had  

30

Page 31

entered into arbitration. Furthermore, there is no inherent  

risk  of  prejudice  to  any  of  the  parties  in  permitting  

arbitration  to  proceed  simultaneously  to  the  criminal  

proceedings.  In an eventuality where ultimately an award  

is  rendered  by  arbitral  tribunal,  and  the  criminal  

proceedings result in conviction rendering the underlying  

contract void, necessary plea can be taken on the basis of  

the conviction to resist the execution/enforcement of the  

award.  Conversely,  if  the  matter  is  not  referred  to  

arbitration  and  the  criminal  proceedings  result  in  an  

acquittal and thus leaving little or no ground for claiming  

that the underlying contract is  void or  voidable, it would  

have  the  wholly  undesirable  result  of  delaying  the  

arbitration. Therefore, I am of the opinion that the Court  

ought  to  act  with  caution  and  circumspection  whilst  

examining  the  plea  that  the  main  contract  is  void or  

voidable.   The  Court  ought  to  decline  reference  to  

arbitration only where the Court can reach the conclusion  

that the contract is  void on a meaningful reading of the  

contract document itself without the requirement of any  

31

Page 32

further proof.  

30. In the present case, it is pleaded that the manner in  

which the contract was made between the petitioner and  

the respondent was investigated by the CBI. As a part of  

the  investigation,  the  CBI  had  seized  all  the  original  

documents  and  the  record  from  the  office  of  the  

respondent.  After  investigation,  the  criminal  case  CC  

No.22 of 2011 has been registered, as noticed earlier. It is  

claimed that in the event the Chairman of the Organising  

Committee and the other  officials  who manipulated the  

grant of contract in favour of the respondent are found  

guilty in the criminal trial, no amount  would be payable to  

the petitioner. Therefore, it would be appropriate to await  

the  decision  of  the  criminal  proceedings  before  the  

arbitral  tribunal  is  constituted  to  go  into  the  alleged  

disputes between the parties. I am unable to accept the  

aforesaid submission made by the learned counsel for the  

respondents,  for  the  reasons  stated  in  the  previous  

paragraphs. The balance of convenience is tilted more in  

32

Page 33

favour  of  permitting  the  arbitration  proceedings  to  

continue rather than to bring the same to a grinding halt.  

31. I  must  also  notice  here  that  the  defence  of  the  

contract being  void is  now-a-days taken routinely along  

with the other usual grounds, to avoid/delay reference to  

arbitration.  In  my  opinion,  such  ground  needs  to  be  

summarily  rejected unless  there  is  clear  indication  that  

the defence has a reasonable chance of success.  In the  

present case,  the plea was never taken till  the present  

petition was filed in this Court.  Earlier, the respondents  

were  only  impressing  upon  the  petitioners  to  supply  

certain information.  Therefore, it would be appropriate,  

let  the  Arbitral  Tribunal  examine  whether  there  is  any  

substance in the plea of fraud now sought to be raised by  

the respondents.  

32. The Respondent also relied on the judgment of this  

Court in India Household and Healthcare Ltd. (supra),  

wherein  the  application  under  section  11  (6)  of  the  

33

Page 34

Arbitration Act was dismissed. This case, however, will not  

come  in  the  way  of  referring  the  matter  to  arbitration  

since it is clearly distinguishable from the present case.  In  

India  Household  and  Healthcare  Ltd.  (supra),  the  

substantive/underlying contract containing the arbitration  

clause was entered into by the parties on 08.05.2004. This  

agreement, however, was preceded by a Memorandum of  

Understanding (“MoU”) dated 1.11.2003. It was contended  

by the Respondent that both the Agreement and the MoU  

are vitiated by fraud which was fructified by a criminal  

conspiracy  hatched  between  officials  representing  the  

Petitioner and Respondent therein. This Court also noticed  

that the concerned officials of the Respondent had been  

convicted and sentenced to undergo imprisonment by the  

Korean Criminal Court. The said MoU was also contended  

by the Respondent to be in contravention of the laws of  

Korea. It was further noticed that the Respondent filed a  

suit  in  the  Madras  High  Court  against  the  Petitioner,  

whereby  the  High  Court  vide  interim  order  dated  

06.10.2005 issued an  injunction  and thereby  restrained  

34

Page 35

the Petitioner therein to act directly or indirectly on the  

basis of MoU and the Agreement dated 08.05.2004, and to  

derive any other benefit based upon the said MoU and the  

license  agreement  in  any  manner  whatsoever.  This  

interim  order,  the  court  noticed,  was  confirmed  by  an  

order dated 21.01.2006; against which no appeal was filed  

by the Petitioner. The Court, relying upon  A Treatise on  

Law  Governing  Injunctions  by Spelling  and  Lewis,  

concluded  that  this  injunction  order  having  not  been  

challenged by the Petitioner  has become final  and also  

that this order restrains the invocation of the arbitration  

agreement  contained  in  Agreement  dated  08.05.2004.  

Therefore,  the  Court  declined  to  refer  the  matter  to  

arbitration.  Another  factor  that  weighed  with  Court  in  

dismissing the Petition, it appears, is that the Petitioner  

did not conform to the procedure concerning appointment  

of the Arbitrator before filing the Petition under Section 11  

(6).   

33. This case is clearly distinguishable and hence is not  

35

Page 36

applicable into the facts and circumstances of the present  

case because of the following reasons: Firstly, there has  

been no conviction in the present case, though the trial  

has been going on against the officials of both the parties.  

Secondly,  there  is  no  injunction  or  any  other  order  

restraining  the  Petitioner  from  invoking  the  Arbitration  

Clause.  Lastly,  all  the conditions precedent for  invoking  

the  arbitration  clause  have  been  satisfied  by  the  

Petitioner, as observed earlier.  

34. The  respondent  had  relied  on  the  judgment  of  this  

Court in Guru Granth Saheb Sthan Meerghat Vanaras  

Vs. Ved Prakash & Ors.7  This judgment reiterates the  

normal rule which was stated by the Constitution Bench of  

this Court in M.S.Sheriff Vs. State of Madras in relation  

to  the  simultaneous  prosecution  of  the  criminal  

proceeding with the civil suit.  In the aforesaid case, the  

Constitution Bench had observed as follows:-

“14.  …  It  was  said  that  the  simultaneous  prosecution  of  these matters  will  embarrass  the  accused. … but we can see that the simultaneous  prosecution  of  the  present  criminal  proceedings  

7 (2013) 7 SCC 622

36

Page 37

out of which this appeal arises and the civil suits  will embarrass the accused. We have therefore to  determine which should be stayed.

15.  As  between  the  civil  and  the  criminal  proceedings  we  are  of  the  opinion  that  the  criminal  matters  should  be  given  precedence.  There  is  some difference  of  opinion  in  the  High  Courts of India on this point. No hard-and-fast rule  can be laid down but we do not consider that the  possibility of conflicting decisions in the civil and  criminal courts is a relevant consideration. The law  envisages such an eventuality  when it  expressly  refrains  from  making  the  decision  of  one  court  binding on the other, or even relevant, except for  certain  limited  purposes,  such  as  sentence  or  damages. The only relevant consideration here is  the likelihood of embarrassment.

16. Another factor which weighs with us is that a  civil  suit  often  drags  on  for  years  and  it  is  undesirable  that  a  criminal  prosecution  should  wait  till  everybody  concerned  has  forgotten  all  about the crime. The public interests demand that  criminal justice should be swift and sure; that the  guilty should be punished while the events are still  fresh  in  the  public  mind  and  that  the  innocent  should be absolved as early as is consistent with a  fair and impartial trial. Another reason is that it is  undesirable to let things slide till memories have  grown too dim to trust.

This, however, is not a hard-and-fast rule. Special  considerations  obtaining  in  any  particular  case  might  make  some other  course  more  expedient  and just. For example, the civil case or the other  criminal proceeding may be so near its end as to  make  it  inexpedient  to  stay  it  in  order  to  give  precedence  to  a  prosecution  ordered  under  

37

Page 38

Section 476. But in this case we are of the view  that the civil suits should be stayed till the criminal  proceedings have finished.”

35. The purpose of the aforesaid solitary rule is to avoid  

embarrassment to the accused. In contrast, the findings  

recorded by the arbitral tribunal in its award would not be  

binding  in  criminal  proceedings.   Even  otherwise,  the  

Constitution Bench in the aforesaid case has clearly held  

that  no  hard  and  fast  rule  can  be  laid  down  that  civil  

proceedings  in  all  matters  ought  to  be  stayed  when  

criminal proceedings are also pending. As I have indicated  

earlier  in  case  the  award  is  made  in  favour  of  the  

petitioner  herein,  the  respondents  will  be  at  liberty  to  

resist  the  enforcement  of  the  same  on  the  ground  of  

subsequent  conviction  of  either  the  Chairman  or  the  

officials of the contracting parties.  

36. It  must  also  notice  here  that  the  Petitioners  relied  

upon  an  earlier  order  of  this  court  in  the  case  of  M/s  

Nussli (Switzerland) Ltd. (supra). The aforesaid order,  

38

Page 39

however,  seems  to  have  been  passed  on  a  consensus  

between  the  learned  counsel  for  the  parties.  This  is  

evident from the following observations in the aforesaid  

order:   

“In  view  of  the  aforesaid  order,  learned  senior  counsel for both the parties have agreed that the  parties have agreed that the matter ought to be  referred  to  Arbitration.  However,  Mr.  Gopal  Subramaniam,  learned  senior  counsel  appearing  for  the  Respondent,  submits  that  serious  issued  would  arise  which  are  currently  under  investigation  of  the  CBI,  which  may  ultimately  culminate  into  certain  conclusions  which  could  result  in  the  invalidation  of  the  contract  from  inception.

He  has,  however,  very  fairly  stated  that  there  would be no impediment for the arbitral Tribunal  to look into all the issues including the allegations  which are pending with the CBI in investigation.  

I am of the opinion that the submission made by  the learned senior counsel is in accordance with  the law settled, not only by this Court, but in other  jurisdictions  also  concerning  the  international  commercial arbitrations.”

The  aforesaid  excerpt  clearly  shows  that  Mr.  Gopal  

Subramaniam,  had  very  fairly  agreed  to  proceed  with  

arbitration.  The  decision  of  this  Court  in  M/s  Nussli  

(Switzerland) Ltd. (supra) has not laid down any law.

39

Page 40

37. As  noticed  earlier,  the  petitioners  have  already  

nominated Hon’ble Mr. Justice S.N. Variava, Former Judge  

of this Court, having his office at Readymoney Mansion,  

2nd floor,  Next  to  Akbarallys,  Veer  Nariman  Road,  Fort,  

Mumbai – 400 001, as their arbitrator.  I hereby nominate.  

Hon’ble Mr. Justice B.P. Singh, Former Judge of this Court,  

R/o A-7, Neeti Bagh, 3rd Floor, New Delhi – 110 049, as  

the second Arbitrator and Hon’be Mr. Justice Kuldip Singh,  

Former  Judge  of  this  Court,  R/o  H.No.  88,  Sector  10A,  

Chandigarh –  160 010,  as  the Chairman of  the Arbitral  

Tribunal,  to  adjudicate  the  disputes  that  have  arisen  

between the parties, on such terms and conditions as they  

deem fit and proper.

38. The Registry is directed to communicate this order to  

the Chairman of the Arbitral Tribunal, as well as, to the  

Second  Arbitrator  to  enable  them  to  enter  upon  the  

reference  and  decide  the  matter  as  expeditiously  as  

possible.

40

Page 41

39. The Arbitration Petition is accordingly allowed with no  

order as to costs.

……………………………J. [Surinder Singh Nijjar]

New Delhi; May 28, 2014

41

Page 42