World Sport Group (mauritius) Ltd. Vs Msm Satellite(singapore) Pte. Ltd.

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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 895 OF 2014 (Arising out of S.L.P. (C) No. 34978 of 2010)

World Sport Group (Mauritius) Ltd. … Appellants

Versus

MSM Satellite (Singapore) Pte. Ltd. … Respondent

J U D G M E N T

A. K. PATNAIK, J.

Leave granted.

2. This is an appeal against the order dated 17.09.2010

of the Division Bench of the Bombay High Court in

Appeal (Lodging) No.534 of 2010.

Facts:

3. The facts very briefly are that on 30.11.2007 the

Board of Control for Cricket in India (for short ‘BCCI’)

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invited tenders for IPL (Indian Premier League) Media

Rights for a period of ten years from 2008 to 2017 on

a worldwide basis. Amongst the tenders submitted,

the bid of World Sports Group India (for short ‘WSG

India’) was accepted by BCCI. By a pre-bid

arrangement, however, the respondent was to get

the media rights for the sub-continent for the period

from 2008 to 2010. Accordingly, on 21.01.2008 BCCI

and the respondent entered into a Media Rights

License Agreement for the period from 2008 to 2012

for a sum of US$274.50 million. After the first IPL

season, the BCCI terminated the agreement dated

21.01.2008 between BCCI and the respondent for the

Indian sub-continent and commenced negotiations

with WSG India. On 14.03.2009, the respondent filed

a petition under Section 9 of the Arbitration and

Conciliation Act, 1996 (for short ‘the Act’) against the

BCCI before the Bombay High Court praying for

injunction against the BCCI from acting on the

termination letter dated 14.03.2009 and for

preventing BCCI from granting the rights under the

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agreement dated 21.01.2008 to any third party.

Pursuant to the negotiations between BCCI and WSG

India, BCCI entered into an agreement with the

appellant whereunder the media rights for the Indian

sub-continent for the period 2009 to 2017 was

awarded to the appellant for a value of Rs.4,791.08

crores. To operate the media rights in India, the

appellant was required to seek a sub-licensee within

seventy two hours. Though, this time period was

extended twice, the appellant was not able to get a

sub-licensee. Thereafter, the appellant claimed to

have allowed media rights in India to have lapsed

and then facilitated on 25.03.2009, a new Media

Rights License Agreement between the BCCI and the

respondent for the Indian sub-continent for the same

contract value of Rs.4,791.08 crores. BCCI and WSG

India, however, were to continue with the Rest of the

World media rights.

4. On 25.03.2009, the appellant and the respondent

also executed the Deed for Provision of Facilitation

Services (hereinafter referred to as ‘the Facilitation

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Deed’) whereunder the respondent was to pay a sum

of Rs.425 crores to the appellant as facilitation fees.

Clause 9 of the Facilitation Deed dated 25.03.2009

between the appellant and the respondent was titled

‘Governing Law’ and read as follows:

“9. GOVERNING LAW This Deed shall be governed by and construed in accordance with the laws of England and Wales, without regard to choice of law principles. All actions or proceedings arising in connection with, touching upon or relating to this Deed, the breach thereof and/or the scope of the provisions of this Section shall be submitted to the International Chamber of Commerce (the “Chamber”) for final and binding arbitration under its Rules of Arbitration, to be held in Singapore, in the English language before a single arbitrator who shall be a retired judge with at least ten years of commercial experience. The arbitrator shall be selected by mutual agreement of the Parties, or, if the Parties cannot agree, then by striking from a list of arbitrators supplied by the Chamber. If the Parties are unable to agree on the arbitrator, the Chamber shall choose one for them. The arbitration shall be a confidential proceeding, closed to the general public. The arbitrator shall assess the cost of the arbitration against the losing party. In addition, the prevailing party in any arbitration or legal proceeding relating to this Deed shall be entitled to all reasonable expenses (including, without limitation, reasonable attorney’s fees). Notwithstanding the foregoing, the arbitrator may require that such fees be borne in such

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other manner as the arbitrator determines is required in order for this arbitration provision to be enforceable under applicable law. The arbitrator shall issue a written opinion stating the essential findings and conclusions upon which the arbitrator’s award is based. The arbitrator shall have the power to enter temporary restraining orders and preliminary and permanent injunctions. No party shall be entitled or permitted to commence or maintain any action in a court of law with respect to any matter in dispute until such matter shall have been submitted to arbitration as herein provided and then only for the enforcement of the arbitrator’s award; provided, however, that prior to the appointment of the arbitrator or for remedies beyond the jurisdiction of an arbitrator, at any time, any party may seek equitable relief in a court of competent jurisdiction in Singapore, or such other court that may have jurisdiction over the Parties, without thereby waiving its right to arbitration of the dispute or controversy under this section. THE PARTIES HEREBY WAIVE THEIR RIGHT TO JURY TRIAL WITH RESPECT TO ALL CLAIMS AND ISSUES ARISING UNDER, IN CONNECTION WITH, TOUCHING UPON OR RELATING TO THIS DEED, THE BREACH THEREOF AND/OR THE SCOPE OF THE PROVISIONS OF THIS SECTION, WHETHER SOUNDING IN CONTRACT OR TORT, AND INCLUDING ANY CLAIM FOR FRAUDULENT INDUCEMENT THEREOF.”

5. The respondent made three payments totaling

Rs.125 crores to the appellant under the Facilitation Deed

during 2009 and did not make the balance payment.

Instead, on 25.06.2010, the respondent wrote to the

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appellant rescinding the Facilitation Deed on the ground

that it was voidable on account of misrepresentation and

fraud. On 25.06.2010, the respondent also filed Suit

No.1869 of 2010 for inter alia a declaration that the

Facilitation Deed was void and for recovery of Rs.125

crores already paid to the appellant. On 28.06.2010, the

appellant acting under Clause 9 of the Facilitation Deed

sent a request for arbitration to ICC Singapore and the ICC

issued a notice to the respondent to file its answer to the

request for arbitration. In the meanwhile, on 30.06.2010,

the respondent filed a second suit, Suit No.1828 of 2010,

before the Bombay High Court against the appellant for

inter alia a declaration that as the Facilitation Deed stood

rescinded, the appellant was not entitled to invoke the

arbitration clause in the Facilitation Deed. The respondent

also filed an application for temporary injunction against

the appellant from continuing with the arbitration

proceedings commenced by the appellant under the aegis

of ICC.

6. On 09.08.2010, the learned Single Judge of the

Bombay High Court dismissed the application for

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temporary injunction of the respondent saying that it

would be for the arbitrator to consider whether the

Facilitation Deed was void on account of fraud and

misrepresentation and that the arbitration must,

therefore, proceed and the Court could not intervene in

matters governed by the arbitration clause. The

respondent challenged the order of the learned Single

Judge before the Division Bench of the Bombay High Court

and by the impugned order, the Division Bench of the

Bombay High Court allowed the appeal, set aside the

order of the learned Single Judge and passed an order of

temporary injunction restraining the arbitration by ICC.

Aggrieved, the appellant has filed this appeal.

Contentions on behalf of the appellant:

7. Mr. K.K. Venugopal, learned senior counsel for the

appellant, submitted that the Division Bench of the High

Court failed to appreciate that the Bombay High Court had

no jurisdiction to pass an order of injunction restraining a

foreign seated international arbitration at Singapore

between the parties, who were not residents of India. In

this context, he referred to Clause 9 of the Facilitation

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Deed which stipulated that any party may seek equitable

relief in a court of competent jurisdiction in Singapore, or

such other court that may have jurisdiction over the

parties. He submitted that on the principle of Comity of

Courts, the Bombay High Court should have refused to

interfere in the matter and should have allowed the

parties to resolve their dispute through ICC arbitration,

subject to the jurisdiction of the Singapore courts in

accordance with Clause 9 of the Facilitation Deed.

8. Mr. Venugopal next submitted that the Division

Bench of the High Court failed to appreciate that under

Section 45 of the Act, the Court seized of an action in a

matter in respect of which the parties have made an

agreement referred to in Section 44 has to refer the

parties to arbitration, unless it finds that the agreement

referred to in Section 44 is null and void, inoperative or

incapable of being performed. He submitted that the

agreement referred to in Section 44 of the Act is ‘an

agreement in writing for arbitration’ and, therefore, unless

the Court finds that the agreement in writing for

arbitration is null and void, inoperative or incapable of

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being performed, the Court will not entertain a dispute

covered by the arbitration agreement and refer the parties

to the arbitration. In support of this submission, he relied

on the decision of this Court in Chloro Controls India

Private Limited v. Seven Trent Water Purification Inc. &

Ors. [(2013) 1 SCC 641].

9. Mr. Venugopal submitted that the Division Bench of

the High Court, instead of examining whether the

agreement in writing for arbitration was null and void,

inoperative or incapable of being performed, has held that

the entire Facilitation Deed was vitiated by fraud and

misrepresentation and was, therefore, void. He

vehemently submitted that it was for the arbitrator to

decide whether the Facilitation Deed was void on account

of fraud and misrepresentation as has been rightly held by

the learned Single Judge and it was not for the Court to

pronounce on whether the Facilitation Deed was void on

account of fraud and misrepresentation. He referred to

Article 6(4) of the ICC Rules of Arbitration which permits

the Arbitral Tribunal to continue to exercise jurisdiction

and adjudicate the claims even if the main contract is

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alleged to be null and void or non-existent because the

arbitration clause is an independent and distinct

agreement. He submitted that this principle of

Kompetenz Kompetenz has been recognized in Section 16

of the Act under which the Arbitral Tribunal has the

competence to rule on its own jurisdiction and on this

point relied on National Insurance Co. Ltd. v. Boghara

Polyfab Pvt. Ltd. [(2009) 1 SCC 267] and Reva Electric Car

Company Private Ltd. v. Green Mobil [(2012) 2 SCC 93].

He submitted that as a corollary to this principle, Courts

have also held that unless the arbitration clause itself,

apart from the underlying contract, is assailed as vitiated

by fraud or misrepresentation, the Arbitral Tribunal will

have jurisdiction to decide all issues including the validity

and scope of the arbitration agreement. He submitted

that in the present case, the arbitration clause itself was

not assailed as vitiated by fraud or misrepresentation. In

support of this argument, he relied on the decision of the

House of Lords in Premium Nafta Products Ltd. v. Fili

Shipping Company Ltd. & Ors. [2007] UKHL 40], the

decision of the Supreme Court of United States in Buckeye

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Check Cashing, Inc. v. John Cardegna et al [546 US 440

(2006)] and the decision of this Court in Branch Manager,

Magma Leasing and Finance Ltd. & Anr. v. Potluri

Madhavilata & Anr. [(2009) 10 SCC 103].

10. Mr. Venugopal submitted that the Division Bench of

the High Court relied on the decision in N. Radhakrishnan

v. Maestro Engineers & Ors. [(2010) 1 SCC 72] to hold that

serious allegations of fraud can only be enquired by a

Court and not by an arbitrator, but the Division Bench

failed to appreciate that in N. Radhakrishnan v. Maestro

Engineers & Ors. (supra) this Court relied on Abdul Kadir

Shamsuddin Bubere v. Madhav Prabhakar Oak [AIR 1962

SC 406] in which it was observed that it is only a party

against whom a fraud is alleged who can request the

Court to inquire into the allegations of fraud instead of

allowing the arbitrator to decide on the allegations of

fraud. In the present case, the respondent has alleged

fraud against the appellant and thus it was for the

appellant to make a request to the Court to decide on the

allegations of fraud instead of referring the same to the

arbitrator, and no such request has been made by the

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appellant. He further submitted that in any case the

judgment of this Court in N. Radhakrishnan v. Maestro

Engineers & Ors. (supra) was rendered in the context of

domestic arbitration in reference to the provisions of

Section 8 of the Act. He submitted that the language of

Section 45 of the Act, which applies to an international

arbitration, is substantially different from the language of

Section 8 of the Act and it will be clear from the language

of Section 45 of the Act that unless the arbitration

agreement is null and void, inoperative or incapable of

being performed, the parties will have to be referred to

arbitration by the Court. In the present case, the

respondent has not made out that the arbitration

agreement is null and void, inoperative or incapable of

being performed.

11. Mr. Venugopal submitted that the High Court has

taken a view that Clause 9 forecloses an open trial in a

court of law except to the extent permitted therein and

the parties have to necessarily submit themselves to a

confidential proceeding which is closed to the general

public. He submitted that the Bombay High Court thus

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appears to have held that Clause 9 is opposed to public

policy and, in particular, Sections 23 and 28 of the Indian

Contract Act, 1872. He submitted that in any case the

arbitration agreement contained in Clause 9 of the

Facilitation Deed cannot be held to be opposed to public

policy and void under Sections 23 and 28 of the Indian

Contract Act, 1872. This will be clear from Exception 1 of

Section 28 of the Indian Contract Act, 1872, which says

that the section shall not render illegal a contract, by

which two or more persons agree that any dispute which

may arise between them in respect of any subject or class

of subjects shall be referred to arbitration and that only

the amount awarded in such arbitration shall be

recoverable in respect of the dispute so referred. He

explained that under the American Law, in a suit for

common law where the value of claim is more than US$20,

the right to jury trial is preserved and this applies even in

relation to claims for breach of contract and for this

reason, the parties made a provision in Clause 9 of the

Facilitation Deed waiving their right to jury trial with

respect to all claims and issues arising under, in

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connection with, touching upon or relating to the

Facilitation Deed. He submitted that this provision in

Clause 9 of the Facilitation Deed cannot, therefore, be

held to be opposed to public policy.

12. Mr. Venugopal next submitted that the crux of the

case of the respondent is set out in its letter dated

25.06.2010 to the appellant in which it was alleged that

‘in view of the false misrepresentations and fraud played

by WSGM the deed is voidable at the option of our client

and thus our client rescinds the deed with immediate

effect’. In other words, the respondent’s case is that it

was induced to enter into the Facilitation Deed on account

of the misrepresentation by the appellant and was led to

believe that it was paying the facilitation fees to the

appellant to allow the rights of the appellant under an

alleged agreement dated 23.03.2009 to lapse, but the

respondent subsequently discovered that there was no

agreement dated 23.03.2009 and the rights of the

appellant had come to an end on 24.03.2009. He

submitted that the appellant has denied these allegations

of the respondent in its affidavit-in-reply filed before the

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Bombay High Court and that there was no false

representation and fraud as alleged by the respondent.

He submitted that the Facilitation Deed was executed by

the senior executives of the parties and in the case of

respondent, it was signed by Michael Grindon, President,

International, Sony Picture Television, and the appellant

and the respondent had entered into the Facilitation Deed

after consulting their sports media experts and after a lot

of negotiations. He submitted that in fact a Press Release

was issued by the respondent on 23.04.2010, which will

go to show that there was no misrepresentation and fraud

by the appellant before the Facilitation Deed was signed

by the parties, and thus the entire case of the respondent

that the Facilitation Deed was vitiated by

misrepresentation and fraud is false.

13. Mr. Venugopal finally submitted that it will be clear

from the language of the letter dated 25.06.2010 of the

respondent to the appellant that according to the

respondent the Facilitation Deed was voidable at the

option of the respondent. He submitted that under

Section 45 of the Act, the Court will have to refer the

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parties to the arbitration unless it finds that the arbitration

agreement is ‘null and void’. He argued that an

agreement which is voidable at the option of one of the

parties is not the same as the agreement which is void

and, therefore, the Division Bench of the High Court

should have referred the parties to arbitration instead of

restraining the arbitration. According to Mr. Venugopal,

this is a fit case in which this Court should set aside the

impugned order of the Division bench of the High Court

and restore the order of the learned Single Judge of the

High Court.

Contentions on behalf of the respondent:

14. In reply, Mr. Gopal Subramanium, learned senior

counsel appearing for the respondent, submitted that

the Division Bench of the Bombay High Court has

rightly restrained the arbitration proceedings under the

aegis of ICC as the Facilitation Deed, which also

contains the arbitration agreement in Clause 9, is void

because of fraud and misrepresentation by the

appellant. He submitted that Section 45 of the Act

makes it clear that the Court will not refer the parties

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to arbitration if the arbitration agreement is null and

void, inoperative or incapable of being performed and

as the respondent has taken the plea that the

Facilitation Deed, which contained the arbitration

agreement, is null and void on account of

misrepresentation and fraud, the Court will have to

decide whether the Facilitation Deed including the

arbitration agreement in Clause 9 was void on account

of fraud and misrepresentation by the appellant. He

submitted that the respondent filed the first suit in the

Bombay High Court (Suit No.1869 of 2010) for

declaring the Facilitation Deed as null and void but in

the said suit, the appellant did not file a written

statement and instead issued the notice for arbitration

only to frustrate the first suit and in the circumstances

the respondent was compelled to file the second suit

(Suit No.1828 of 2010) for an injunction restraining the

arbitration.

15. Mr. Subramanium submitted that Section 9 of the

Code of Civil Procedure, 1908 (for short ‘the CPC’)

confers upon the court jurisdiction to try all civil suits

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except suits which are either expressly or impliedly

barred. He submitted that the Bombay High Court,

therefore, had the jurisdiction to try both the first suit

and the second suit and there was no express or

implied bar in Section 45 of the Act restraining the

Bombay High Court to try the first suit and the second

suit. He submitted that in India as well as in England,

Courts have power to issue injunctions to restrain

parties from proceeding with arbitration proceedings in

foreign countries. In support of this submission, he

relied on V.O. Tractoroexport, Moscow v. Tarapore &

Company and Anr. [(1969) 3 SCC 562] and Oil and

Natural Gas Commission v. Western Company of North

America [(1987) 1 SCC 496]. He also relied on Russel

on Arbitration, para 7-056, 7-058, and Claxton

Engineering v. Txm olaj – es gaz Kutao Ktf [2011]

EWHC 345 (COMM.).

16. Mr. Subramanium relying on the decision of this Court

in Chloro Controls India Private Limited v. Seven Trent

Water Purification Inc. & Ors. (supra) submitted that

Section 45 of the Act casts an obligation on the court to

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determine the validity of the agreement at the

threshold itself because this is an issue which goes to

the root of the matter and a decision on this issue will

prevent a futile exercise of proceedings before the

arbitrator. He submitted that under Section 45 of the

Act the Court is required to consider not only a

challenge to the arbitration agreement but also a

serious challenge to the substantive contract

containing the arbitration agreement. He cited the

decision of this Court in SMS Tea Estates (P) Ltd. v.

Chandmari Tea Co. (P) Ltd. [(2011) 14 SCC 66] in

support of this argument. He submitted that the

contention on behalf of the appellant that the Court

has to determine only whether the arbitration

agreement contained in the main agreement is void is,

therefore, not correct.

17. Mr. Subramanium next submitted that in cases where

allegations of fraud are prima facie made out, the

judicial trend in India has been to have them

adjudicated by the Court. In this context, he referred

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to the decisions of this Court in Abdul Kadir

Shamsuddin Bubere v. Madhav Prabhakar Oak (supra),

Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.

[(1999) 5 SCC 688] and N. Radhakrishnan v. Maestro

Engineers & Ors. (supra). In reply to the submission of

Mr. Venugopal that it was only the parties against

whom the allegations are made who can insist on the

allegations being decided by the Court, Mr.

Subramanium submitted that in the decision of the

Madras High Court in H.G. Oomor Sait v. O Aslam Sait

[(2001) 3 CTC 269 (Mad)] referred to in N.

Radhakrishnan v. Maestro Engineers & Ors. (supra) the

situation was reverse.

18. Mr. Subramanium next submitted that the facts in this

case prima facie establish that a grave fraud was

played by the appellant not only upon the respondent

but also on the BCCI. He argued that the Facilitation

Deed ultimately deals with media rights belonging to

the BCCI and it has been held by this Court in M/s Zee

Tele Films Ltd. & Anr. v. Union of India & Ors. [AIR 2005

SC 2677] that BCCI is a public body. He submitted that

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the Division Bench of the Bombay High Court has,

therefore, rightly taken the view that the disputes in

this case cannot be kept outside the purview of the

Indian Courts and if arbitration is allowed to go on

without BCCI, the interest of BCCI will be adversely

affected. He submitted that having regard to the

magnitude of fraud alleged in the present case, the

disputes were incapable of being arbitrated. Relying

on Booz Allen & Hamilton v. SBI Home Finance [(2011)

5 SCC 532], Haryana Telecom Ltd. v. Sterlite Industries

(India) Ltd. (Supra), India Household and Healthcare

Ltd. v. LG Household and Healthcare Ltd. [(2007) 5 SCC

510] and N. Radhakrishnan v. Maestro Engineers &

Ors. (supra), he submitted that such allegations of

fraud can only be inquired into by the court and not by

the arbitrator.

Findings of the Court:

19. The question that we have to decide is whether the

Division Bench of the Bombay High Court could have

passed the order of injunction restraining the arbitration at

Singapore between the parties. As various contentions

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have been raised by Mr. Venugopal, learned counsel for

the appellant, in support of the case of the appellant that

the Division Bench of the Bombay High Court could not

have passed the order of injunction restraining the

arbitration at Singapore, we may deal with each of these

contentions separately and record our findings. While

recording our findings, we will also deal with the

submissions made by Mr. Gopal Subramanium on behalf of

respondent in reply to the contentions of Mr. Venugopal.

We will also consider the correctness of the findings of the

Division Bench of the Bombay High Court separately.

20. We are unable to accept the first contention of Mr.

Venugopal that as Clause 9 of the Facilitation Deed

provides that any party may seek equitable relief in a

court of competent jurisdiction in Singapore, or such other

court that may have jurisdiction over the parties, the

Bombay High Court had no jurisdiction to entertain the

suit and restrain the arbitration proceedings at Singapore

because of the principle of Comity of Courts. In Black’s

Law Dictionary, 5th Edition, Judicial Comity, has been

explained in the following words:

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“Judicial comity. The principle in accordance with which the courts of one state or jurisdiction will give effect to the laws and judicial decisions of another, not as a matter of obligation, but out of deference and respect.”

Thus, what is meant by the principle of “comity” is that

courts of one state or jurisdiction will give effect to the

laws and judicial decisions of another state or jurisdiction,

not as a matter of obligation but out of deference and

mutual respect. In the present case no decision of a court

of foreign country or no law of a foreign country has been

cited on behalf of the appellant to contend that the courts

in India out of deference to such decision of the foreign

court or foreign law must not assume jurisdiction to

restrain arbitration proceedings at Singapore. On the

other hand, as has been rightly submitted by Mr.

Subramanium, under Section 9 of the CPC, the courts in

India have jurisdiction to try all suits of a civil nature

excepting suits of which cognizance is either expressly or

impliedly barred. Thus, the appropriate civil court in India

has jurisdiction to entertain the suit and pass appropriate

orders in the suit by virtue of Section 9 of the CPC and

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Clause 9 of the Facilitation Deed providing that courts in

Singapore or any other court having jurisdiction over the

parties can be approached for equitable relief could not

oust the jurisdiction of the appropriate civil court

conferred by Section 9 of the CPC. We find that in para 64

of the plaint in Suit No.1828 of 2010 filed before the

Bombay High Court by the respondent, it is stated that the

Facilitation Deed in which the arbitration clause is

incorporated came to be executed by the defendant at

Mumbai and the fraudulent inducement on the part of the

defendant resulting in the plaintiff entering into the

Facilitation Deed took place in Mumbai and the rescission

of the Facilitation Deed on the ground that it was induced

by fraud of defendant has also been issued from Mumbai.

Thus, the cause of action for filing the suit arose within the

jurisdiction of the Bombay High Court and the Bombay

High Court had territorial jurisdiction to entertain the suit

under Section 20 of the CPC.

21. Any civil court in India which entertains a suit,

however, has to follow the mandate of the legislature in

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Sections 44 and 45 in Chapter I of Part II of the Act, which

are quoted hereinbelow:

“CHAPTER I

NEW YORK CONVENTION AWARDS

44. Definition. In this Chapter, unless the context otherwise requires, “foreign award” means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960 -

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies.

45. Power of judicial authority to refer parties to arbitration.- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said

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agreement is null and void, inoperative or incapable of being performed.”

The language of Section 45 of the Act quoted above

makes it clear that notwithstanding anything contained in

Part I or in the Code of Civil Procedure, a judicial authority,

when seized of an action in a matter in respect of which

the parties have made an agreement referred to in

Section 44, shall, at the request of one of the parties or

any person claiming through or under him, refer the

parties to arbitration, unless it finds that the said

agreement is null and void, inoperative or incapable of

being performed. Thus, even if, under Section 9 read with

Section 20 of the CPC, the Bombay High Court had the

jurisdiction to entertain the suit, once a request is made

by one of the parties or any person claiming through or

under him to refer the parties to arbitration, the Bombay

High Court was obliged to refer the parties to arbitration

unless it found that the agreement referred to in Section

44 of the Act was null and void, inoperative or incapable of

being performed. In the present case, the appellant may

not have made an application to refer the parties to

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arbitration, but Section 45 of the Act does not refer to any

application as such. Instead, it refers to the request of

one of the parties or any person claiming through or under

him to refer the parties to arbitration. In this case, the

appellant may not have made an application to refer the

parties to arbitration at Singapore but has filed an affidavit

in reply to the notice of motion and has stated in

paragraphs 3, 4 and 5 of this affidavit that the defendant

had already invoked the arbitration agreement in the

Facilitation Deed and the arbitration proceedings have

commenced and that the suit was an abuse of the process

of court. The appellant had thus made a request to refer

the parties to arbitration at Singapore which had already

commenced.

22. Section 45 of the Act quoted above also makes it

clear that even where such request is made by a party, it

will not refer the parties to arbitration, if it finds that the

agreement is null and void, inoperative or incapable of

being performed. As the very language of Section 45 of

the Act clarifies the word “agreement” would mean the

agreement referred to in Section 44 of the Act. Clause (a)

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of Section 44 of the Act refers to “an agreement in writing

for arbitration to which the Convention set forth in the

First Schedule applies.” The First Schedule of the Act sets

out the different Articles of the New York Convention on

the Recognition and Enforcement of Foreign Arbitral

Awards, 1958. Article II of the New York Convention is

extracted hereinbelow:

“1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

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It will be clear from clauses 1, 2 and 3 of the New York

Convention as set out in the First Schedule of the Act that

the agreement referred to in Section 44 of the Act is an

agreement in writing under which the parties undertake to

submit to arbitration all or any differences which have

arisen or which may arise between them. Thus, the court

will decline to refer the parties to arbitration only if it finds

that the arbitration agreement is null and void, inoperative

or incapable of being performed.

23. According to Mr. Subramanium, however, as the main

agreement is voidable on account of fraud and

misrepresentation by the appellant, clause 9 of the main

agreement which contains the arbitration agreement in

writing is also null and void. In support of his submission,

he cited the decision of this Court in SMS Tea Estates (P)

Ltd. v. Chandmari Tea Co. (P) Ltd. (supra). Paragraphs 12

and 13 of the judgment of this Court in SMS Tea Estates

(P) Ltd. v. Chandmari Tea Co. (P) Ltd. (supra) are quoted

hereinbelow:

“12. When a contract contains an arbitration agreement, it is a collateral term relating to the resolution of disputes, unrelated to the

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performance of the contract. It is as if two contracts—one in regard to the substantive terms of the main contract and the other relating to resolution of disputes—had been rolled into one, for purposes of convenience. An arbitration clause is therefore an agreement independent of the other terms of the contract or the instrument. Resultantly, even if the contract or its performance is terminated or comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract.

13. Similarly, when an instrument or deed of transfer (or a document affecting immovable property) contains an arbitration agreement, it is a collateral term relating to resolution of disputes, unrelated to the transfer or transaction affecting the immovable property. It is as if two documents—one affecting the immovable property requiring registration and the other relating to resolution of disputes which is not compulsorily registerable—are rolled into a single instrument. Therefore, even if a deed of transfer of immovable property is challenged as not valid or enforceable, the arbitration agreement would remain unaffected for the purpose of resolution of disputes arising with reference to the deed of transfer.”

In the aforesaid case, this Court has held that if the

document containing the main agreement is not found to

be duly stamped, even if it contains arbitration clause, it

cannot be acted upon because Section 35 of the Stamp

Act bars the said document from being acted upon, but if

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the document is found to be duly stamped but not

registered though required to be compulsorily registered,

the court can act upon the arbitration agreement which is

a collateral term of the main agreement and is saved by

the proviso to Section 49 of the Registration Act. Thus, as

per the aforesaid decision of this Court in SMS Tea Estates

(P) Ltd. v. Chandmari Tea Co. (P) Ltd. (supra), the court

will have to see in each case whether the arbitration

agreement is also void, unenforceable or inoperative along

with the main agreement or whether the arbitration

agreement stands apart from the main agreement and is

not null and void.

24. The House of Lords has explained this principle of

separability in Premium Nafta Products Ltd. v. Fili Shipping

Company Ltd. & Ors. (supra) thus:

“17. The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a “distinct agreement” and can be void or voidable only on grounds which relate directly to the arbitration agreement. Of course there may be cases in which the ground upon which the main agreement is invalid is identical with

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the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement. But the ground of attack is not that the main agreement was invalid. It is that the signature to the arbitration agreement, as a “distinct agreement”, was forged. Similarly, if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement.

18. On the other hand, if (as in this case) the allegation is that the agent exceeded his authority by entering into a main agreement in terms which were not authorized or for improper reasons, that is not necessarily an attack on the arbitration agreement. It would have to be shown that whatever the terms of the main agreement or the reasons for which the agent concluded it, he would have had no authority to enter into an arbitration agreement. Even if the allegation is that there was no concluded agreement (for example, that terms of the main agreement remained to be agreed) that is not necessarily an attack on the arbitration agreement. If the arbitration clause has been agreed, the patties will be presumed to have intended the question of whether there was a concluded main agreement to be decided by arbitration.”

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25. Applying the principle of separability to the facts of

this case, the respondent rescinded the Facilitation Deed

by notice dated 25.06.2010 to the appellant on the

following grounds stated in the said notice by its lawyers:

“1. Reference is made to the Deed for the Provison of Facilitation Services dated March 25, 2009 (the “Deed”) between World Sport Group (Mauritius) Limited (“WSGM”) and our client. Under the Deed, which is styled as a facilitation agreement, our client agreed to pay WSGM “facilitation” fees for the “facilitation” services stated thereunder to have been provided by WSGM. The underlying consideration for the payments by our client to WSGM, in fact were the representation made by WSGM that : (a) WSGM, had executed in India (“BCCI”) whereunder WSGM had been unfettered Global Media Rights (“the said rights”), including the Indian Subcontinent (implying thereby as natural corollary that the earlier Media Rights agreement dated March 15, 2009 between WSGM and BCCI along with its restrictive conditions had been mutually terminated); (b) WSGM could thereafter relinquish the Media Rights for the Indian Subcontinent in favour of our client for said valuable consideration to enable our client to enter into a direct agreement with BCCI; (c) the said rights were subsisting with WSGM at the time of execution of the Deed, i.e, March 25, 2009; and (d) WSGM had relinquished those rights in favour of BCCI to enable BCCI and our client to execute a direct Media Rights License Agreement for the Indian Subcontinent.

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2. BCCI has recently brought to the attention of our client that the Global Media Rights agreement between WSGM and BCCI dated March 23, 2009 does not exist and in terms of Clause 13.5 of the agreement dated March 15, 2009, after expiry of the 2nd extension the media rights had automatically reverted to BCCI at 3 a.m. on March 24, 2009 and thus at the time of execution of the Deed, WSGM did not have any rights to relinquish and/or to facilitate the procurement of India Subcontinent media rights for the IPL from BCCI and thus no facilitation services could have been provided by WSGM.

3. In view of the above, it is evident that the representation by WSGM that WSGM relinquished its Indian Subcontinent media rights for the IPL in favour of our client to pay the “facilitation” fees under the Deed.

4. Taking cognizance of the same, BCCI’s Governing council at its meeting held at Mumbai, India on June 25, 2010 appropriately executed an amendment to Media Rights License Agreement dated March 25, 2009 between BCCI and our client by deleting, inter alia, clause 10.4 thereof.

5. On its part, and in view of the false representations and fraud played by WSGM, the Deed is voidable at the option of our client and thus our client rescinds the Deed with immediate effect.”

The ground taken by respondent to rescind the Facilitation

Deed thus is that the appellant did not have any right to

relinquish and/or to facilitate the procurement of Indian

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subcontinent media rights for the IPL from BCCI and no

facilitation services could have been provided by the

appellant and therefore the representation by the

appellant that the appellant relinquished its Indian

subcontinent media rights for the IPL in favour of the

respondent for which the appellant had to be paid the

facilitation fee under the deed was false and accordingly

the Facilitation Deed was voidable at the option of the

respondent on account of false representation and fraud.

This ground of challenge to the Facilitation Deed does not

in any manner affect the arbitration agreement contained

in Clause 9 of the Facilitation Deed, which is independent

of and separate from the main Facilitation Deed and does

not get rescinded as void by the letter dated 25.06.2010

of the respondent. The Division Bench of the Bombay

High Court, therefore, could not have refused to refer the

parties to arbitration on the ground that the arbitration

agreement was also void along with the main agreement.

26. Mr. Gopal Subramanium’s contention, however, is

also that the arbitration agreement was inoperative or

incapable of being performed as allegations of fraud could

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be enquired into by the court and not by the arbitrator.

The authorities on the meaning of the words “inoperative

or incapable of being performed” do not support this

contention of Mr. Subramanium. The words “inoperative

or incapable of being performed” in Section 45 of the Act

have been taken from Article II (3) of the New York

Convention as set out in para 22 of this judgment.

Redfern and Hunter on International Arbitration (Fifth

Edition) published by the Oxford University Press has

explained the meaning of these words “inoperative or

incapable of being performed” used in the New York

Convention at page 148, thus:

“At first sight it is difficult to see a distinction between the terms ‘inoperative’ and ‘incapable of being performed’. However, an arbitration clause is inoperative where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. By contrast, the expression ‘incapable of being performed’ appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if for some reason it is impossible to establish the arbitral tribunal.”

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27. Albert Jan Van Den Berg in an article titled “The

New York Convention, 1958 – An Overview” published in

the website of ICCA [www.arbitration-

icca.org/media/0/12125884227980/new_york_convention_

of-1958_overview.pdf], referring to Article II(3) of the New

York Convention, states:

“The words “null and void” may be interpreted as referring to those cases where the arbitration agreement is affected by some invalidity right from the beginning, such as lack of consent due to misrepresentation, duress, fraud or undue influence.

The word “inoperative” can be said to cover those cases where the arbitration agreement has ceased to have effect, such as revocation by the parties.

The words “incapable of being performed” would seem to apply to those cases where the arbitration cannot be effectively set into motion. This may happen where the arbitration clause is too vaguely worded, or other terms of the contract contradict the parties’ intention to arbitrate, as in the case of the so-called co-equal forum selection clauses. Even in these cases, the courts interpret the contract provisions in favour of arbitration.”

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28. The book ‘Recognition and Conferment of Foreign

Arbitral Awards: A Global Commentary on the New York

Convention’ by Kronke, Nacimiento, et al.(ed.) (2010) at

page 82 says:

“Most authorities hold that the same schools of thought and approaches regarding the term null and void also apply to the terms inoperative and incapable of being performed. Consequently, the majority of authorities do not interpret these terms uniformly, resulting in an unfortunate lack of uniformity. With that caveat, we shall give an overview of typical examples where arbitration agreements were held to be (or not to be) inoperative or incapable of being performed.

The terms inoperative refers to cases where the arbitration agreement has ceased to have effect by the time the court is asked to refer the parties to arbitration. For example, the arbitration agreement ceases to have effect if there has already been an arbitral award or a court decision with res judicata effect concerning the same subject matter and parties. However, the mere existence of multiple proceedings is not sufficient to render the arbitration agreement inoperative. Additionally, the arbitration agreement can cease to have effect if the time limit for initiating the arbitration or rendering the award has expired, provided that it was the parties’ intent no longer to be bound by the arbitration agreement due to the expiration of this time limit.

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Finally, several authorities have held that the arbitration agreement ceases to have effect if the parties waive arbitration. There are many possible ways of waiving a right to arbitrate. Most commonly, a party will waive the right to arbitrate if, in a court proceeding, it fails to properly invoke the arbitration agreement or if it actively pursues claims covered by the arbitration agreement.”

29. Thus, the arbitration agreement does not become

“inoperative or incapable of being performed” where

allegations of fraud have to be inquired into and the court

cannot refuse to refer the parties to arbitration as

provided in Section 45 of the Act on the ground that

allegations of fraud have been made by the party which

can only be inquired into by the court and not by the

arbitrator. N. Radhakrishnan v. Maestro Engineers & Ors.

(supra) and Abdul Kadir Shamsuddin Bubere v. Madhav

Prabhakar Oak (supra) were decisions rendered in the

context of domestic arbitration and not in the context of

arbitrations under the New York Convention to which

Section 45 of the Act applies. In the case of such

arbitrations covered by the New York Convention, the

Court can decline to make a reference of a dispute

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covered by the arbitration agreement only if it comes to

the conclusion that the arbitration agreement is null and

void, inoperative or incapable of being performed, and not

on the ground that allegations of fraud or

misrepresentation have to be inquired into while deciding

the disputes between the parties.

30. We may now consider the correctness of the findings

of the Division Bench of the High Court in the impugned

judgment. The Division Bench of the High Court has held

that the Facilitation Deed was part of several agreements

entered into amongst different parties commencing from

25.03.2009 and, therefore, cannot be considered as stand

apart agreement between the appellant and the

respondent and so considered the Facilitation Deed as

contrary to public policy of India because it is linked with

the finances, funds and rights of the BCCI, which is a

public body. This approach of the Division Bench of the

High Court is not in consonance with the provisions of

Section 45 of the Act, which mandates that in the case of

arbitration agreements covered by the New York

Convention, the Court which is seized of the matter will

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refer the parties to arbitration unless the arbitration

agreement is null and void, inoperative or incapable of

being performed. In view of the provisions of Section 45

of the Act, the Division Bench of the High Court was

required to only consider in this case whether Clause 9 of

the Facilitation Deed which contained the arbitration

agreement was null and void, inoperative or incapable of

being performed.

31. The Division Bench of the High Court has further held

that Clause 9 of the Facilitation Deed insofar as it

restricted the right of the parties to move the courts for

appropriate relief and also barred the right to trial by a

jury was void for being opposed to public policy as

provided in Section 23 of the Indian Contract Act, 1872

and was also void for being an agreement in restraint of

the legal proceedings in view of Section 28 of the said Act.

Parliament has made the Arbitration and Conciliation Act,

1996 providing domestic arbitration and international

arbitration as a mode of resolution of disputes between

the parties and Exception 1 to Section 28 of the Indian

Contract Act, 1872 clearly states that Section 28 shall not

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render illegal a contract, by which two or more persons

agree that any dispute which may arise between them in

respect of any subject or class of subjects shall be referred

to arbitration and that only the amount awarded in such

arbitration shall be recoverable in respect of the dispute

so referred. Clause 9 of the Facilitation Deed is consistent

with this policy of the legislature as reflected in the

Arbitration and Conciliation Act, 1996 and is saved by

Exception 1 to Section 28 of the Indian Contract Act, 1872.

The right to jury trial is not available under Indian laws.

The finding of the Division Bench of the High Court,

therefore, that Clause 9 of the Facilitation Deed is opposed

to public policy and is void under Sections 23 and 28 of

the Indian Contract Act, 1872 is clearly erroneous.

32. The Division Bench of the High Court has also held

that as allegations of fraud and serious malpractices on

the part of the appellant are in issue, it is only the court

which can decide these issues through furtherance of

judicial evidence by either party and these issues cannot

be properly gone into by the arbitrator. As we have

already held, Section 45 of the Act does not provide that

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the court will not refer the parties to arbitration if the

allegations of fraud have to be inquired into. Section 45

provides that only if the court finds that the arbitration

agreement is null and void, inoperative or incapable of

being performed, it will decline to refer the parties to

arbitration.

33. The Division Bench of the High court has further

held that since the earlier suit (Suit No.1869 of 2010) was

pending in court since 25.06.2010 and that suit was inter-

connected and inter-related with the second suit (Suit

No.1828 of 2010), the court could not allow splitting of the

matters and disputes to be decided by the court in India in

the first suit and by arbitration abroad in regard to the

second suit and invite conflicting verdicts on the issues

which are inter-related. This reasoning adopted by the

Division Bench of the Bombay High Court in the impugned

judgment is alien to the provisions of Section 45 of the Act

which does not empower the court to decline a reference

to arbitration on the ground that another suit on the same

issue is pending in the Indian court.

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34. We make it clear that we have not expressed any

opinion on the dispute between the appellant and the

respondent as to whether the Facilitation Deed was

voidable or not on account of fraud and misrepresentation.

Clause 9 of the Facilitation Deed states inter alia that all

actions or proceedings arising in connection with, touching

upon or relating to the Facilitation Deed, the breach

thereof and/or the scope of the provisions of the Section

shall be submitted to the ICC for final and binding

arbitration under its Rules of Arbitration. This arbitration

agreement in Clause 9 is wide enough to bring this dispute

within the scope of arbitration. To quote Redfern And

Hunter On International Arbitration (Fifth Edition page 134

para 2.141)

“Where allegations of fraud in the procurement or performance of a contract are alleged, there appears to be no reason for the arbitral tribunal to decline jurisdiction.”

Hence, it has been rightly held by the learned Single Judge

of the Bombay High Court that it is for the arbitrator to

decide this dispute in accordance with the arbitration

agreement.

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35. For the aforesaid reasons, we allow the appeal, set

aside the impugned judgment of the Division Bench of the

High Court and restore the order of the learned Single

Judge. The parties shall bear their own costs.

.....……………..……………………….J. (A. K. Patnaik)

…....…………..………………………..J.

(Fakkir Mohamed Ibrahim Kalifulla) New Delhi, January 24, 2014.

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