Arbitration and Conciliation Act, 1996 – s. 9 – Contract Act, 1872 – ss. 17 and 18 – A Share Subscription Agreement (SSA) and Shareholders’ Agreement (SHA) was entered into between the claimant and the appellants – Both SSA and SHA contained an identical arbitration clause – It was alleged that the appellants made a representation that they were at a very advanced stage of finalising a contract with the British Broadcasting Corporation (BBC) to convert the BBC’s film library from 2D to 3D – This contract was expected to generate a revenue of USD 300 million in first phase, and ultimately over USD 1 billion – Pursuant thereto, the claimant made an investment in the equity capital of the appellants for a consideration of USD 60 million in order to acquire 7.8% of its paid up capital – The claimant discovered that the purported BBC contract was non-existent and was set up by the appellants to induce the claimants into investing the aforesaid money of USD 60 million in the shares of Appellants – It was also alleged that the entire investment proceeds of USD 60 million was siphoned off to Companies in which the appellants had a stake – As dispute arose between the parties, the notices of arbitration were issued by the claimant to the Singapore International Arbitration Centre to commence arbitral proceedings – The Emergency Arbitrator passed two interim awards in favour of the claimant – The claimant filed application u/s. 9 of the 1996 Act – The Single Judge of the High Court directed appellants to deposit any shortfall in their account so as to maintain a balance of USD 60 million – The Division Bench of the High Court, however, directed appellants to deposit half of USD 60 million i.e. at USD 30 million – By a final award, the Arbitral Tribunal held that the claimant was entitled to damages in the total amount of USD 60 million plus interest and costs – The Foreign award was challenged by the appellants u/s. 34 before the High Court – The petition u/s. 34 was dismissed by the High Court – An appeal u/s. 37 of the 1996 Act was also dismissed – Meanwhile, the claimant moved the High Court for the enforcement of the Foreign Final award – Before the Supreme Court, the appellant contended that if the transaction entered into between the parties involve serious criminal offences such as forgery and impersonation, then it is clear that under Indian Law, such dispute would not be arbitrable – The claimant countered that issues were predominantly civil law issues to be decided inter parties – After hearing the parties, the Court formulated question: Whether there is a strong prima facie case made out in favour of the claimant in the s. 9 proceedings – Whether balance of convenience tilts in favour of the claimant – Held: On a conspectus of facts and following Supreme Court judgments, the issues raised and answered in the Foreign Final award would indicate that there is no such fraud as would vitiate the arbitration clause in the SSA entered into between the parties as it is clear that this clause has to be read as an independent clause – Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration clause – Further, the impersonation, false representation made and diversion of funds are all inter parties, having no ‘public flavour’ and attract the ‘fraud exception’ – A reading of the Foreign Final award would show that a strong prima facie case was made out as the award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by the claimant, which would fall within fraudulent inducement to enter into contract u/s. 17 of the Contract Act – The order passed by the Single Judge of the High Court to keep aside USD 60 million was fair – However, the reduction of USD 60 million to USD 30 million by the Division Bench of the High Court was not justified – The claimant has made out a strong prima facie case necessitating that USD 60 million, being the principal amount awarded to them, is kept apart in the manner indicated by the Single Judge of the High Court – The balance of convenience is also in its favour.
Dismissing the Civil Appeal No.5145 of 2016 and allowing the Civil Appeal No.5158 of 2016, Civil Appeal no.9820 of 2016, the Court
HELD: 1. In order to discover whether there is a strong prima facie case made out in favour of the Claimant before the Arbitral Tribunal in the present section 9 proceedings, it is necessary to refer to the Foreign Final Award dated 27.09.2014. The Arbitral Tribunal found that the siphoning off of a large part of the amount of USD 60 million into companies owned or controlled by the appellants herein was made out. As a result thereof, it was found that the Claimant, in respect of its claim for fraudulent misrepresentation, and its claim in tort for deceit, is entitled to damages in the total amount of USD 60 million plus interest and costs as awarded. [Para 20][843-A-B; 844-F; 852G]
2. There can be no doubt whatsoever after reading the issues and some of the material findings in the Foreign Final Award that the issues raised and answered are the subject matter of civil as opposed to criminal proceedings. The fact that a separate criminal proceeding was sought to be started and may have failed is of no consequence whatsoever. Therefore, on a conspectus of these facts, and following Supreme Court judgments, that the issues raised and answered in the Foreign Final Award would indicate:
(i) That there is no such fraud as would vitiate the arbitration clause in the SSA entered into between the parties as it is clear that this clause has to be read as an independent clause. Further, any finding that the contract itself is either null and void or voidable as a result of fraud or misrepresentation does not entail the invalidity of the arbitration clause which is extremely wide.
(ii) That the impersonation, false representations made, and diversion of funds are all inter parties, having no “public flavour” as explained earlier so as to attract the “fraud exception”. [Para 21][853-B-F]
3. Thus, a reading of the Foreign Final Award in this case would show that a strong prima facie case has indeed been made out as the Award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by the Claimant, which would clearly fall within fraudulent inducement to enter into a contract under section 17 of the Contract Act. Such a contract would be voidable at the instance of the Claimant. Also, the findings on the siphoning off of monies that were meant to be allocated for the performance of the BBC contract would attract the tort of deceit. The measure of damages for such fraudulent misrepresentation is not the difference between the value of the shares on the date of making the contract and the value Claimant would have received, if it had resold those shares in the market, after the purchase. The measure of such damages would be to put Claimant in the same position as if the contract had never been entered into, which is, the entitlement to recover the price paid for the shares and all consequential losses. This being the case, it is difficult to accede to the Division Bench’s finding as to the measure of damages in such cases. [Para 22][853F-H; 854-A-B]
4. So far as the appeal of Claimant is concerned, this Court is of the view that it has substance in that the USD 60 million that was to be kept aside vide the Single Judge’s (High Court) 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 the Division Bench of the High Court is not justified given our finding on the measure of damages in the facts of this case. [Para 23][854-B-D]
5. It is clarified that any finding made on facts in this judgment is only prima facie for the purpose of deciding the section 9 petition. This Court have held that the Claimant has made out a strong prima facie case necessitating that USD 60 million, being the principal amount awarded to them, is kept apart in the manner indicated by the Single Judge of the Bombay High Court. The balance of convenience is also in its favour. It is clear that in case Claimant was to enforce the Foreign Final Award in India in accordance with section 48 of the 1996 Act, irreparable loss would be caused to it unless at least the principal sum were kept aside for purposes of enforcement of the award in India. [Para 24][854-E-F]
Afcons Infrastructure Ltd. v. Cherian Varkey
Construction Co. (P) Ltd. (2010) 8 SCC 24 : [2010] 8 SCR 1053; Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. (2011) 5 SCC 532 : [2011] 7 SCR 310; Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. (1999) 5 SCC 688 : [1999] 3 SCR 861; Vimal Kishor Shah v. Jayesh Dinesh Shah (2016) 8 SCC 788 : [2016]
7 SCR 102; A. Ayyasamy v. A. Paramasivam (2016) 10 SCC 386 : [2016] 11 SCR 521; Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678 : [2018] 6 SCR 1001; Rashid Raza v. Sadaf Akhtar (2019) 8 SCC
710 : [2019] 12 SCR 460; Kishan Singh v. Gurpal Singh (2010) 8 SCC 775 : [2010] 10 SCR 16; Guru Granth Saheb Sthan Meerghat Vanaras v. Ved Prakash
(2013) 7 SCC 622 – relied on.
Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [1962] 3 SCR 702; Swiss Timing Ltd. v.
Commonwealth Games 2010 Organising Committee
(2014) 6 SCC 677 : [2014] 6 SCR 514; Vidya Drolia and Ors. v. Durga Trading Corporation (2019) SCC OnLine SC 358; N. Radhakrishnan v. Maestro
Engineers (2010) 1 SCC 72 : [2009] 15 SCR 371; K.G. Premshanker v. Inspector of Police (2002) 8 SCC 87 : [2002] 2 Suppl. SCR 350; Syed Askari Hadi Ali Augustine Imam v. State (Delhi Admn.) (2009) 5 SCC
528 : [2009] 3 SCR 1017; P. Swaroopa Rani v. M. Hari Narayana (2008) 5 SCC 765 : [2008] 3 SCR 900; M.S. Sheriff v. The State of Madras [1954] SCR 1144; V.M. Shah v. State of Maharashtra (1995) 5 SCC 767 : [1995]
3 Suppl. SCR 79; State of West Bengal v. Associated Contractors (2015) 1 SCC 32 : [2014] 10 SCR 426; Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums (2003) 6 SCC 503; P. Anand
Gajapathi Raju v. P.V.G. Raju (2000) 4 SCC 539 : [2000] 2 SCR 684; State of Tripura v. Province of East Bengal, Union of India [1951] SCR 1; Ellerman & Bucknall Steamship Co. Ltd. V. Shar Misrimal Bherajee [1966] Supp SCR 92 – referred to.
Fazal D. Allana v. Mangaldas M. Pakvasa AIR 1922 Bom 303; John Minas Apcar v. Louis Caird Malchus AIR 1939 Cal 473 – referred to.
President of India and La Pintada Compania
Navigacion S.A. [1985] A.C. 104; Russel v. Russel [1880] 14 Ch D 471; Charles Osenton & Co. v.
Johnston 1942 A.C. 130; Chatham and Dover Railway Company v. South Eastern Railway Company [1893] A.C. 429; British Railways Board and Herrington 1972 A.C. 877; Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd. [1996] 4 All ER 769; Doyle v. Olby (Ironmongers) Ltd. [1969] 2 All ER 119 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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