Image source - https://bit.ly/3C0QofE

This article is written by Abhishek Sharma, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

The present case study is a pro-arbitration decision delivered by the Supreme Court of India. It is a landmark decision delivered by the Supreme Court with reference to Section 45 of the Arbitration and Conciliation Act, 1996. Usually in domestic arbitration, the cases relating to fraud, misappropriation, criminal misappropriation are dealt with by the courts and not by the arbitral tribunals. But a tricky situation is when it comes to the international seat involving International Arbitration, whether the view will remain the same as in the case of domestic arbitration or it is opposite to it. One such case arose before the Supreme Court of India where it dealt with the same situation. To check what was the decision of the Supreme Court in the matter, let’s read this case study. 

Background and facts of the case

The facts in the given case are closely related to the Board of Control for Cricket in India. Indian Premier League (IPL) is the biggest T20 cricket league event across the globe where hundreds of players participate from multiple countries. BCCI issued a tender where it wanted to give the broadcasting rights for the Indian Premier League. After the tender process, the Board of Control for Cricket in India (BCCI) awarded the media rights to broadcast the IPL and selected MSM Satellite (Singapore) Pte Ltd (MSM). MSM broadcasted the T20 league for the initial year of the tournament but after the opening season i.e., after one year, the BCCI decided to terminate the agreement with MSM.

The BCCI then decided to enter into a fresh agreement with World Sport Group (Mauritius) Limited. It was shortly thereafter; the World Sports Group (Mauritius) were not interested and simultaneously they entered into another agreement with MSM (the Facilitation Deed) under which it decided to give up (relinquish) its media rights and allowed MSM to re-enter/ re-acquire the media rights directly from the BCCI for broadcasting the league. As part of this facilitation agreement, World Sports Group was paid a sum of 1.25 billion rupees which is roughly around Rs. 4,250,000,000 (approximately) by MSM as part of facilitation fees. 

It is important to note that the agreement was governed by English Law and both the parties agreed that the dispute shall be settled through arbitration before the International Chamber of Commerce (ICC), and decided the seat of arbitration shall be Singapore. However, MSM rescinded the agreement (facilitation agreement) entered by it and alleged that there were certain misrepresentations by WSG at the time of entering the agreement. MSM alleged that WSG claimed to relinquish certain rights it did not have. It made fraudulent misrepresentations about the rights it had. 

The civil suit in the Bombay High Court

After the fraudulent conduct of the WSG, MSM decided to file a civil suit in the High Court of Bombay against the World Sports Mauritius and misrepresented the BCCI, and claimed inter alia that the facilitation agreement was illegal and void. MSM also claimed recovery of money already paid to World Sports Group.  

It was shortly after the filing of a civil suit by MSM, relying upon the arbitration clause in the Facilitation Deed, World Sports Mauritius also referred the dispute to the seat of arbitration i.e., Singapore under the ICC rules. ICC issued a notice to MSM to file its answer in response to the application filed by WSG for commencement of the arbitration. To this effect, MSM was proactive in seeking an injunction in order to prevent the arbitration proceedings in Singapore.  

Impugned judgment

Surprisingly or not, a two-judge bench of the Bombay High Court granted an injunction in favour of MSG to stop the arbitration proceedings in Singapore. The court was of the view that, in dealing with the matters related to public funds and alleging fraud, the court was more appropriate as a forum to deal with such cases. A dispute where allegations are related to fraud and serious misrepresentation on the part of any party, the court is a better forum to decide it by way of judicial evidence and such issues cannot be properly dealt with by an arbitrator. 

It is most important to note that the High Court of Bombay was the only one and the only judgment where an Indian Court had held allegations of fraud and misrepresentation as a bar to foreign seated arbitrations. Although such finds are common in the area of domestic arbitration. 

In response to the injunction granted by the Bombay High Court, World Sports Group was active enough to file an appeal in the Supreme Court of India against the decision of the Bombay High Court granting the injunction in favour of MSM. 

Contentions from both parties

MSM

MSM contended that the arbitration agreement was contained in the facilitation deed, and since the deed was null and void on account of fraudulent misrepresentation, therefore the arbitration agreement itself becomes null and void. 

WSG

WSG contended that whether the facilitation deed was fraud or not is a dispute which shall be decided by the arbitral tribunal for which the clause was incorporated in the deed. Whether the deed is misappropriated or not is a matter which shall be brought before the tribunal which was pre-decided in the deed itself by inserting the relevant clause. The tribunal shall have the jurisdiction to decide the scope and validity of the arbitration agreement. 

The decision of the Indian Supreme Court

One of the key issues that arose before the Supreme Court of India was whether Indian Court(s) was appropriate to try a case involving allegations of fraud when the agreement already had a clause incorporated which referred the matter to the Arbitral tribunal having an international seat. The counsel on behalf of MSM relied upon the same contention that the arbitration agreement was contained in the facilitation deed, and since the deed was null and void on account of fraudulent misrepresentation, therefore the arbitration agreement itself becomes null and void. The counsel cited the reference of the case N. Radhakrishnan v. M/S. Mastero Engineers & Ors. “N Radhakrishnan”, when the dispute involves fraudulent misappropriation or criminal misappropriation, the court is in a better position to try out the matter by the furtherance of judicial evidence, which cannot be adequately dealt with by the arbitrator and therefore had to be tried by the court.  

In considering the above argument by the counsel on behalf of MSM, the Supreme Court referred to Section 45 of the Indian Arbitration and Conciliation Act, 1996 which states that, in essence, that where the court is presented with a matter in respect of which parties have entered into an arbitration agreement, it shall refer the parties to arbitration at the request of one of the parties unless it finds that the arbitration agreement is “null and void, inoperative or incapable of being performed.”

The court was quick enough to recognize that the language used in Section 45 was taken by a reference from the New York Convention on Enforcement of Foreign Awards. Therefore, a corresponding provision in the New York Convention should be adopted. The court was of the opinion that arbitration may be held null and void when there was any flaw in the agreement because of which the matter could not be referred to the arbitral tribunal. The reference cited by the counsel may be rejected on the ground that there was an attack on the facilitation deed which was fraudulently misappropriated and may not necessarily impact the arbitration agreement. 

In the present case the Supreme Court held that the fact that the deed was fraudulently misappropriated is a thing to be decided, but if it was accepted by MSM, then in such case the arbitration agreement is valid and not void. It is separate from the rest of the contract. The court, therefore, refused to hold the arbitration agreement null and void. The court said that an arbitration agreement cannot be held inoperative or incapable of being performed simply because the contract for which it was inserted was fraudulently misappropriated. The court in such a case cannot refuse to refer the matter to the arbitral tribunal under Section 45. The reference cited by MSM was valid only for domestic arbitration. The court also rejected the argument that BCCI was a public body that involved public funds/interest which was accepted by the High Court of Bombay. The Supreme Court categorically held that such a ground did not fall within the exceptions in Section 45 of the Arbitration Act and therefore cannot form the basis for refusing to refer a matter to arbitration.

Conclusion

It is a very important and welcome step taken by the Supreme Court which should be admired. It clears all the doubts that there should be minimal or no interference of the court in foreign seated arbitrations. It is also a positive outlook towards the development of arbitration to try out cases of diverse fields. The act of the Supreme Court is a positive sign which is consistent with pro-arbitration jurisprudence. However, it is advised that parties must be careful in entering the contracts because the validity of the contract does not inherently invalidate the arbitration agreement. Parties must be mindful that where an allegation of fraud goes to the arbitration agreement itself, a reference to arbitration may still be refused. In the Indian context, the decision in the case of N. Radhakrishnan v. M/S. Mastero Engineers & Ors still prevails and issues relating to fraud are less likely to be referred to arbitration when it comes to domestic arbitration. 

References


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…

LEAVE A REPLY