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2020 Supreme(Bom) 1336
IN THE HIGH COURT OF BOMBAY AT NAGPUR
ANIL S. KILOR, J.
M/s. Indo Unique Flame Ltd. - Petitioner
Versus
M/s. N.N. Global Merchantile Pvt. Ltd. & Others - Respondent
Writ Petition No. 1801 of 2020
Decided On : 30-09-2020
For the Petitioner:S.P. Bhandarkar, Amit Khare, Advocates.
For the Respondents:Shyam Dewani, M. Anil Kumar, Advocates.
The validity of an arbitration agreement can be challenged before the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act, 1996.
Headnote:
ARBITRATION - JURISDICTION - BANK GUARANTEE - FRAUD - SECTION 8 OF ARBITRATION AND CONCILIATION ACT, 1996 - MAINTAINABILITY OF SUIT - JURISDICTION OF CIVIL COURT - SCOPE OF JUDICIAL INTERVENTION - VALIDITY OF ARBITRATION AGREEMENT - INDEPENDENT CONTRACT.
Fact of the Case:
Plaintiff filed a suit against defendant for declaration and permanent injunction, alleging that the defendant was not allotted any work as per the work order and therefore the bank guarantee issued by the plaintiff in favor of the defendant should not be invoked. The defendant filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (the Act), seeking to refer the dispute to arbitration. The trial court rejected the application, holding that the dispute did not fall under the arbitration agreement. The defendant challenged the order by way of a writ petition.
Finding of the Court:
The High Court allowed the writ petition and set aside the order of the trial court. It held that: * The allegations of fraud made by the plaintiff were not of a serious nature and did not constitute a criminal offense. Therefore, the dispute was not non-arbitrable. * The validity of the arbitration agreement could be challenged before the arbitral tribunal under Section 16 of the Act. * The bank guarantee was an independent contract and the plaintiff could not maintain a suit on the ground that the defendant banks were not party to the arbitration agreement. * The trial court had erred in assuming jurisdiction in the matter and the impugned order was illegal.
Issues: 1. Whether the allegations of fraud made by the plaintiff were of a serious nature and constituted a criminal offense, making the dispute non-arbitrable. 2. Whether the validity of the arbitration agreement could be challenged before the arbitral tribunal under Section 16 of the Act. 3. Whether the plaintiff could maintain a suit on the ground that the defendant banks were not party to the arbitration agreement. 4. Whether the trial court had erred in assuming jurisdiction in the matter.
Ratio Decidendi: 1. The High Court held that the allegations of fraud made by the plaintiff were not of a serious nature and did not constitute a criminal offense. Therefore, the dispute was not non-arbitrable. 2. The High Court held that the validity of the arbitration agreement could be challenged before the arbitral tribunal under Section 16 of the Act. 3. The High Court held that the plaintiff could not maintain a suit on the ground that the defendant banks were not party to the arbitration agreement. 4. The High Court held that the trial court had erred in assuming jurisdiction in the matter.
Final Decision: The High Court allowed the writ petition and set aside the order of the trial court. It held that the dispute was arbitrable and the trial court had erred in assuming jurisdiction in the matter.
JUDGMENT :
1. Rule. Rule made returnable forthwith. Heard finally with the consent of learned counsel for the respective parties.
2. In a dispute filed by the respondent no.1 in relation to a Bank Guarantee given by the respondent no.1 to the petitioner in pursuance to the work order dated 28th September, 2015, the petitioner’s application Exh.33 for referring the said dispute to the Arbitral Tribunal, under Section 8 of the Arbitration and Conciliation Act, 1996 (the Act, 1996), came to be rejected, vide order dated 18th January, 2018 by the Commercial Court, Nagpur, the same is the subject matter of challenge in the present petition.
3. I have heard Shri S. P Bhandarkar learned counsel with Shri Amit Khare, learned counsels for the petitioner/defendant No. 1, Shri Shyam Dewani with Shri S.S. Dewani, learned counsels for the respondent No. 1/ plaintiff and Shri Anil Kumar, learned counsel for the respondent No. 2, State bank of India. None appeared for respondent No. 3, Union Bank of India.
4. The facts in short, leading to the present petition are as follows:
4.1. The plaintiff/respondent no.1 filed a commercial suit before the learned Commercial Court, for declaration and permanent injunction, against the petitioner/defendant no.1 and respondent Nos. 2 and 3, banks.
4.2. It is the case of the plaintiff that the defendant no1 was needed specialized services for transportation of the coal from its washeries to the stockyard, siding and for coal handing.
4.3. 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.
4.4. 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).
4.5. Plaintiff pleads further 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.
4.6. 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.
4.7. 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.
4.8. The learned Commercial Court on 15th December, 2017, after hearing the plaintiff, passed ad-interim order below Exh-5, which reads thus:
ORDER
(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 adinterim 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.”
4.9. 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.
4.10. The plaintiff strongly opposed the said application by filling its reply to the same.
4.11. 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.
4.12. The petitioner prior to filling of this petition made an unsuccessful attempt, questioning the validity of the said order dated 18th January, 2018 in a Civil Revision Application No. 8/2018, before this Court, which was withdrawn with liberty to f
