2020 Supreme(SC) 494

SUPREME COURT OF INDIA
R.F. NARIMAN, NAVIN SINHA, JJ.
Avitel Post Studioz Limited and Others – Appellants
Versus
HSBC PL Holdings (Mauritius) Limited – Respondent
Civil Appeal Nos. 5145, 5158, 9820 of 2016
Decided On : 19-08-2020

IMPORTANT POINTS
(1) Fraud – Same set of facts may lead to civil and criminal proceedings.
(2) Decision by Arbitral Tribunal that contract is null and void does not entail ipso jure invalidity of arbitration clause.
(3) Even where arbitral proceedings are ongoing, such proceedings become invalid the moment legal proceedings upon whole of subject matter of reference have been commenced between all parties to reference and a notice thereof has been given to Arbitrators or Umpire.

Headnote:

(A) Arbitration and Conciliation Act, 1996 – Section 8 – Arbitration proceeding – Arbitration clause is an agreement independent of other terms of contract – Even where arbitral proceedings are ongoing, such proceedings become invalid the moment legal proceedings upon whole of subject matter of reference have been commenced between all parties to reference and a notice thereof has been given to Arbitrators or Umpire – Decision by Arbitral Tribunal that contract is null and void does not entail ipso jure invalidity of arbitration clause. (Paras 4 and 9)

(B) Contract Act, 1872 – Sections 17 and 18 – Fraud – Same set of facts may lead to civil and criminal proceedings and if it is clear that a civil dispute involves questions of fraud, misrepresentation, which can be subject matter of such proceeding under Section 17 of Contract Act, and/or tort of deceit, mere fact that criminal proceedings can or have been instituted in respect of same subject matter would not lead to conclusion that a dispute which is otherwise arbitrable, ceases to be so – Serious allegations of fraud arise only if either of two tests laid down are satisfied, and not otherwise – First test is satisfied only when it can be said that arbitration clause or agreement itself cannot be said to exist in a clear case in which court finds that party against whom breach is alleged cannot be said to have entered into agreement relating to arbitration at all – Second test can be said to have been met in cases in which allegations are made against State or its instrumentalities of arbitrary, fraudulent, or malafide conduct, thus necessitating hearing of case by a writ court in which questions are raised which are not predominantly questions arising from contract itself or breach thereof, but questions arising in public law domain. (Paras 14 and 16)

(C) Arbitration and Conciliation Act, 1996 – Sections 9 and 48 – Protective order – Issues and some of material findings in Foreign Final Award that issues raised and answered are subject matter of civil as opposed to criminal proceedings – Fact that a separate criminal proceeding was sought to be started and may have failed is of no consequence whatsoever – Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as Award holds BBC transaction as a basis on which contract was entered into and USD 60 million paid by HSBC, which would clearly fall within fraudulent inducement to enter into a contract under Section 17 of Contract Act – Such a contract would be voidable at instance of HSBC – Balance of convenience is also in its favour – If HSBC was to enforce Foreign Final Award in India in accordance with Section 48 of 1996 Act, irreparable loss would be caused to it unless at least principal sum were kept aside for purposes of enforcement of award in India – Appeal dismissed. (Paras 21, 22, 24 and 28)

Facts of the case:

Present appeals being Civil Appeal No. 5145 of 2016 by Avitel Post Studioz Ltd. [Avitel India] and its promoters [Jain family], and cross appeal being Civil Appeal No. 5158 of 2016 by HSBC PL Holdings (Mauritius) Ltd. [HSBC], impugn the interlocutory judgment and order passed in the appeal under section 9 of the Arbitration and Conciliation Act, 1996 dated 31.07.2014.

Findings of Court:

So far as the appeal of HSBC is concerned, we are of the view that it has substance in that USD 60 million that was to be kept aside vide the Single Judge’s order, was fair and just in the facts of the case in that it is only the principal amount without any interest or costs that is ordered to be kept aside. Further, the reduction of USD 60 million to USD 30 million by Division Bench is not justified given our finding on the measure of damages in the facts of this case.

Result : Appeal allowed.