2020 Supreme(Bom) 942

IN THE HIGH COURT OF BOMBAY AT NAGPUR BENCH
Anil S Kilor, J.
M/s Indo Unique Flame Ltd - Appellant
Versus
M/s N N Global Merchantile Pvt Ltd - Respondent
Writ Petition No. 1801 of 2020
Decided On : 30-09-2020

The Arbitral Tribunal may rule on any objection with respect the existence or validity of the arbitration agreement. The Arbitral Tribunal's authority under Section 16 of the Act, 1996, is not confined to the width of its jurisdiction but goes to the very root of its jurisdiction. There is no impediment in contending before the Arbitral Tribunal as regards existence or validity of arbitration agreement.

Headnote:

ARBITRATION - SECTION 8 OF THE ARBITRATION AND CONCILIATION ACT, 1996 - JURISDICTION OF THE COURT - FRAUD - BANK GUARANTEE - WHETHER THE COURT CAN AVOID THE ARBITRAL TRIBUNAL AND MAINTAIN A SUIT EVEN WITH THE ALLEGATION OF FRAUD AND BY RAISING A CHALLENGE TO THE VALIDITY OF THE ARBITRAL AGREEMENT - WHETHER THE PLAINTIFF CAN MAINTAIN A SUIT ON THE GROUND THAT THE DEFENDANT NOS. 2 AND 3 WERE NOT PARTY TO THE ARBITRATION AGREEMENT - WHETHER THE LEARNED LOWER COURT IS RIGHT IN REJECTING THE APPLICATION PREFERRED BY THE DEFENDANT NO.1.

Fact of the Case:

The plaintiff filed a commercial suit before the Commercial Court, Nagpur, for declaration and permanent injunction, against the defendant no.1 and respondent Nos. 2 and 3, banks. The plaintiff's case was that the defendant no.1 was in need of specialized services for transportation of the coal from its washeries to the stockyard, siding and for coal handling. The plaintiff being experts in the said work, after negotiations, a work order dated 28th September, 2015, was issued by the defendant No. 1, to the plaintiff for the above referred work. The plaintiff in pursuance to the terms and conditions of the work order, issued Bank Guarantee, dated 30th September, 2015, in favour of respondent no.2, State Bank of India for an amount of Rs. 3,36,00,000/- (Three Crores Thirty Six Lacs). Plaintiff further stated that the agreement dated 28th September, 2015 was never acted upon as no work was allotted by the defendant no.1 to the plaintiff, as per the agreement. Plaintiff further states that the defendant no.2, State Bank of India on 7th December, 2017, issued a letter to the defendant no.3, Union Bank of India, for invoking the Bank Guarantee. This gave the cause of action to the petitioner to file a suit for declaration and permanent injunction against the petitioner and respondent nos. 2 to 3. The learned Commercial Court on 15th December, 2017, after hearing the plaintiff, passed ad-interim order below Exh-5, which reads thus: (i) Defendants are hereby, till the next date, restrained from invoking and crediting amount under Bank Guarantee bearing No. 44240IGL0011515, dated 30/09/2015, executed by defendant no.3 in favour of defendant no.2. (ii) Issue show cause notice to the defendants as to why ad-interim order should not be confirmed. Notice returnable on 19/12/2017. (iii) Plaintiff is at liberty to intimate this order to defendants by e-mail. (iv) Hamdast allowed. The defendant no.1/petitioner on the first date of appearance in the said suit, filed an application Exh.33 under Section 9A, Order VII Rule 11(D) of the Code of Civil Procedure read with Section 8 of the Act, 1996, inter alia stating that clause 10 of the work order, which relates to arbitration is binding on the plaintiff, therefore, refer the matter to the Arbitral Tribunal, by declaring that the Commercial Court does not have jurisdiction. The plaintiff strongly opposed the said application by filling its reply to the same. The learned trial Court after considering the contentions raised by the respective parties, rejected the said application Exh.33, vide order dated 18th January, 2018.

Finding of the Court:

The Court held that in view of the admitted fact that there is an arbitration agreement between the plaintiff and defendant no.1, the defendant has rightly preferred an application under Section 8 of the Act, 1996. The allegation of fraud made in the present matter, will not make this case as non-arbitral to exclude the jurisdiction of the Arbitral Tribunal. In this case the learned lower Court ought not to have proceeded to examine the applicability and validity of arbitration clause to the facts of the case in hand but ought to have left that issue to be determined by the Arbitral Tribunal. The plaintiff in the facts and circumstances of this case, cannot maintain a suit on the ground that the defendant nos. 2 and 3 Banks were not party to the agreement and Bank Guarantee. The learned lower Court has committed error in rejecting the application Exh.33.

Issues: 1. Whether in the facts and circumstances of the present case, the plaintiff can avoid the Arbitral Tribunal and maintain a suit even with the allegation of fraud and by raising a challenge to the validity of the arbitral agreement? 2. Whether the plaintiff in the facts and circumstances of this case can maintain a suit on the ground that the defendant nos. 2 and 3 were not party to the arbitration agreement ? 3. Whether the learned lower Court is right in rejecting the application Exh.33 preferred by the defendant no.1 ?

Ratio Decidendi: The Court held that the allegation of fraud made in the present matter, will not make this case as non-arbitral to exclude the jurisdiction of the Arbitral Tribunal. The Arbitral Tribunal may rule on any objection with respect the existence or validity of the arbitration agreement. The Arbitral Tribunal's authority under Section 16 of the Act, 1996, is not confined to the width of its jurisdiction but goes to the very root of its jurisdiction. There is no impediment in contending before the Arbitral Tribunal as regards existence or validity of arbitration agreement. The plaintiff in the facts and circumstances of this case, cannot maintain a suit on the ground that the defendant nos. 2 and 3 Banks were not party to the agreement and Bank Guarantee.

Final Decision: The writ petition is allowed. The order below Exh.33, dated 18th January, 2018, passed by the Commercial Court, Nagpur in Commercial Dispute No. 62 of 2017 is set aside and thereby application Exh.33, is allowed. Accordingly, the rule is made absolute in aforesaid terms. No order as to costs.