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No anti-arbitration relief from Civil Court even when fraud/collusion is alleged

March 2019

No anti-arbitration relief from Civil Court even when fraud/collusion is alleged

Introduction

Hon’ble Supreme Court of India paved way in upholding the momentous judicial precedent which lays down a crucial legal principle pertaining to arbitration proceedings in India w.r.t. power of a civil court in granting the anti-arbitration relief. Recently, the Hon’ble Supreme Court was pleased to dismiss the Special Leave Petition filed by Mr. Ravi Arya (‘Opposite Party’/‘RA’) and uphold the order of the Division Bench of the High Court of Judicature at Bombay dated 12.02.2019, in the case of Ravi Arya & Ors. vs. Palmview Overseas Limited & Ors.

S&A Team consisting of Mr. Manoj K Singh (Founding Partner), Ms. Gunita Pahwa (Joint Managing Partner), Mr. Nilava Bandyopadhyay (Sr Partner) and Mr. Rupesh Gupta (Partner) represented the interests of M/s. Palmview Investments Overseas Limited (‘PVIL’) in hearings before the constituted Arbitral Tribunal, the Hon’ble High Court of Judicature at Bombay as well as the Hon’ble Supreme Court.

The case related to the challenge by RA to the invocation of arbitration by PVIL as per the arbitration agreement between RA, PVIL and other parties to the arbitration agreement. RA preferred a suit for, inter alia, seeking temporary injunction to restrain PVIL from proceeding with the arbitration proceedings initiated pursuant to a notice invoking arbitration issued by PVIL.

In the said suit, a notice of motion for interim reliefs was filed by RA seeking relief against PVIL and other parties from proceeding with the arbitration proceedings initiated vide notice invoking arbitration on the following grounds:

  1. The constitution of the Arbitral Tribunal was by way of collusion between PVIL and other parties against RA and the invocation of the arbitration was bad in law.
  2. The Board Resolution giving general authority to an employee to handle legal matters, including appointment of the nominee Arbitrator, on behalf of Arya Iron & Steel Co. Pvt. Ltd. (‘AISCO’) was misused and collusive as the Board of Directors of AISCO were not consulted before replying to the notice invoking arbitration by the said employee on behalf of AISCO.
  3. PVIL was involved in appointing the Arbitrator on behalf of Respondent No. 2 since the representatives of PVIL actively voted in passing the Board Resolution under which Respondent No. 3 derived its authority.
  4. In view of the law laid down by the Hon’ble Delhi High Court in RRB Energy Limited v. Vestas Wind Systems and Anr. it was clear that the present was maintainable and anti arbitration relief can be granted since fraud was alleged to have been played upon RA.

The matter was heard at length by the Hon’ble Single Judge of the High Court of Judicature at Bombay and a reasoned order was passed by the Court on 17.12.2018. PVIL, through its counsel, successfully argued that the arbitration proceedings could not be stalled on the grounds raised by RA, more particularly in view of Sections 5, 11, 12, 13(4) & (5), 16 and 34(2)(v) of the Arbitration & Conciliation Act, 1996 (as amended).

It was successfully submitted that Section 5 provides for a specific bar against any intervention by judicial authority in matters governed by and subject to arbitration. Furthermore, reliance was placed on Section 11(6) and 11(7) to establish that the scope of judicial intervention was reduced significantly to adjudicate only on questions of existence of an arbitration agreement.

Being aggrieved by the order of the Hon’ble Single Judge, RA filed an appeal before the Hon’ble Division Bench of the High Court of Judicature at Bombay. After hearing extensive arguments from all the parties, the Hon’ble Division Bench gave the Judgment on 12.02.2019 and dismissed the appeal filed by RA.

This Judgment distinguished the earlier judgment of the Delhi High Court in the case of RRB Energy Limited v. Vestas Wind Systems and Anr. by holding that in that particular case there was a serious issue of fraud and thus, dealt with an issue of public importance which is not arbitrable. However, in the present case, there was no allegation of fraud, hence, this decision was stated to be not applicable.

The Hon’ble Division Bemch, furthermore, found strength in the judicial pronouncements of the Hon’ble Supreme Court in the case of Ameet Lalchand Shah & Ors. vs. Rishabh Enterprises & Anr. and A. Ayyasamy vs. A. Paramasivam & Ors. relied upon by PVIL wherein it was held that the mere allegation of fraud cannot forego the legislative intent given under the Act of resolving commercial disputes by way of arbitration and that the parties shall avail the remedy to raise its concerns regarding jurisdiction as well as fraud only under Section 16(6) r/w Section 34 of the Act.

The judgment recognized the fundamental principle of ‘no-interference’ in arbitration matters by judicial authorities as provided under Section 5 of the Act. The case holds immense significance as it was held that any party who chooses to stall the arbitration proceedings on the ground of an alleged fraud/collusion or any such similar ground, the relief of injunction against proceedings is bound to be declined and primacy has to be given to the continuation of arbitration proceedings in accordance with Section 32 of the Act which deals with ‘Termination of Proceedings’.

Furthermore, in view of Section 34(2)(v) of the Act, it was held that any such challenge would lie only post the stage of passing of the award and not prior to it.

The order of the Division Bench was further challenged by RA before the Supreme Court vide a Special Leave Petition . The said SLP was heard at length and dismissed on 11.03.2019.

From the above, it has been upheld that Civil Courts or any judicial authority for that matter shall not intervene in the proceedings before an arbitral tribunal except as provided under Part I of the Act.

These judgments shall uphold the trust and faith of a party intending to seek redressal of its claims as per the arbitration agreement and to remain unfazed by any objection raised in order to uphold the legislative intent to ensure invocation, continuation and final adjudication by the Arbitral Tribunal of all disputes decided to be settled by way of arbitration.

Legal Developments by:
Singh & Associates Founder – Manoj K Singh Advocates and Solicit

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