Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO. 34 OF 2013

Swiss Timing Limited …Petitioner

Versus

Organising Committee,

Commonwealth Games 2010, Delhi. ….Respondent

J U D G E M E N T

SURINDER SINGH NIJJAR,J.

1.This is a petition under Section 11(4) read with

Section 11(6) of the Arbitration and Conciliation Act, 1996

(hereinafter referred to as “the Arbitration Act”), with a

prayer to appoint the nominee arbitrator of the

Respondent and to further constitute the arbitral tribunal,

by appointing the presiding arbitrator in order to

adjudicate the disputes that have arisen between the

parties.

2.The relevant facts as set out in the Arbitration Petition are

1

Page 2 as under:-

3.The Petitioner is a company duly incorporated under the

laws of Switzerland, having its registered office in

Corgémont, Switzerland. The respondent is the

Organising Committee, Commonwealth Games, 2010. It is

a society registered under the Societies Registration Act,

1860 (hereinafter referred to as “the Organising

Committee”), established for the primary purpose of

planning, organising and delivering the Commonwealth

Games, 2010 Delhi (hereinafter referred to as

“Commonwealth Games”) and having its registered office

in New Delhi, India.

4.The petitioner entered into an agreement

dated 11

th

March, 2010 with the respondent for providing

timing, score and result systems (“TSR systems/services”)

as well as supporting services required to conduct the

Commonwealth Games. According to the petitioner,

Clause 11.1 of the aforesaid agreement stipulated the

fees, as set out in Schedule 3, which shall be paid to the

2

Page 3 petitioner for performance of the obligations contained in

the agreement. The aforesaid Schedule 3 gives details of

the amounts which were to be paid, in instalments, by the

Organising Committee. The service provider/Petitioner

was to submit monthly tax invoices, detailing the

payments to be made by the Organising Committee.

These invoices were to be paid within 30 days of the end

of the month in which the tax invoices were received by

the Organising Committee. All payments were to be made

in Swiss Francs, unless the parties agree otherwise in

writing. Clause 11.5 provides that on the date of the

agreement, the service provider must provide the

Performance Bank Guarantee to the Organising

Committee to secure the performance of its obligations

under the agreement. Certain other obligations are

enumerated in the other clauses, which are not necessary

to be noticed for the purposes of the decision of the

present petition.

5.It is also noteworthy that in consideration of the

3

Page 4 petitioner’s services as stipulated in the agreement, the

petitioner was to receive a total amount of CHF

24,990,000/-(Swiss Francs Twenty Four Million Nine

Hundred and Ninety Thousand only). It was also provided

in Schedule 3 that payment of the 5% of the total service

fees was to be made upon completion of the

Commonwealth Games. Accordingly, the petitioner sent

the invoice No. 33574 dated 27

th

October, 2010 for the

payment of CHF 1,249,500 (Swiss Francs One Million Two

Hundred Forty Nine Thousand Five Hundred only). This

represents the remaining 5% which was to be paid upon

completion of the Commonwealth Games

on 27

th

October, 2010. The petitioner had also paid to the

Organising Committee a sum of Rs. 15,00,000/-

(INR 1.5 million) as Earnest Money Deposit (EMD), for

successfully completing the TSR services as provided in

the agreement.

6.According to the petitioner, the respondent defaulted in

making the payment without any justifiable reasons. Not

4

Page 5 only the amount was not paid to the petitioner, the

respondent sent a letter dated 15

th

December, 2010

asking the petitioner to extend the Bank Guarantee till

31

st

January, 2011. The petitioner informed the

respondent that the Bank Guarantee had already been

terminated and released on completion of the

Commonwealth Games in October, 2010. It is also the

case of the petitioner that there is no provision in the

service agreement for extension of the Bank Guarantee.

The petitioner reiterated its claim for the aforesaid

amount. Through letter dated 26

th

January, 2011, the

petitioner demanded repayment of Rs. 15 lakhs

deposited as EMD. Instead of making the payment to the

petitioner and other companies, the respondent issued a

Press Communiqué on 2

nd

February, 2011 declaring

that part payments to nine foreign vendors, including the

petitioner, have been withheld for “non-performance of

the contract”. The petitioner is said to have protested

against the aforesaid communiqué through letter dated 4

th

February, 2011. It was reiterated that the petitioner had

5

Page 6 satisfactorily performed the obligations in the service

agreement of 11

th

March, 2010. Since the respondent was

disputing its liability to pay the amounts, the petitioner

served a formal Dispute Notification on the respondent

under Clause 38 of the agreement.

7.The petitioner further points out that on 7

th

February,

2011, the respondent called upon the petitioner to fulfil its

alleged outstanding obligations under the agreement

including handing over of the Legacy Boards, completion

of the formalities of the material, which were required to

be shipped out and to fulfil certain other requirements as

set out in its earlier e-mails in order to prepare the

“agreement closure report”. The respondent also stated

that they were not addressing the issue of invoking the

Dispute Resolution Clause as they were interested in

settling the dispute amicably. The petitioner pleads that

the respondent failed in its commitment for payments

towards services rendered, not only towards the

petitioner but also towards other international companies

6

Page 7 from Australia, Belgium, England, France, Germany, Italy,

the Netherlands and Switzerland, which had provided

various services to the respondent at the Commonwealth

Games. It also appears that collective letters were written

on behalf of various companies by the ambassadors of the

concerned countries, to the Finance Minister of India

indicating the default in payments of the amounts due.

The petitioners, therefore, claim that they were left with

no alternative but to invoke arbitration as provided under

Clause 38.6 of the agreement. The petitioners have

nominated the arbitrator on its behalf namely Justice S.N.

Variava, former Judge of the Supreme Court of India. A

notice to this effect was served on the respondent through

a communication dated 22

nd

April, 2013. Since no

response was received a reminder was issued on 29

th

May,

2013. Upon such failure, the petitioners have filed the

present petition.

8.In the counter affidavit all the averments made by the

petitioners have been denied, as being incorrect in facts

7

Page 8 and in law. The respondents have raised two preliminary

objections, which are as follows:-

(i)The petitioner has not followed the dispute

resolution mechanism as expressly provided in the

agreement dated 11

th

March, 2010. No efforts

have been made by the petitioner to seek

resolution of the dispute as provided under Clause

38. On the other hand, the respondent through

numerous communications invited the petitioner

for amicable resolution of the dispute. The

respondent relies on communications dated 3

rd

January, 2011, 9

th

January, 2011, 10

th

January, 2011, 1

st

February, 2011

and 2

nd

February, 2011.

(ii)The contract stands vitated and is void ab initio in

view of Clauses 29, 30 and 34 of the Agreement

dated 11

th

March, 2010. Hence, the petitioner is

not entitled to any payment whatsoever in respect

of the contract and is liable to reimburse the

8

Page 9 payments already made. Therefore, there is no

basis to invoke arbitration clause.

The respondent points out that a combined

reading of Clause 29 and Clause 34 would show

that the petitioner had warranted that it will never

engage in corrupt, fraudulent, collusive or coercive

practices in connection with the agreement. The

petitioner would be liable to indemnify the

Respondent against all losses suffered or incurred

as a result of any breach of the agreement or any

negligence, unlawful conduct or wilful misconduct.

The respondent may terminate the agreement

whenever it determines that the petitioner had

engaged in any corrupt, fraudulent, collusive or

coercive practice in connection with the

agreement. The respondent seeks to establish the

aforesaid non-liability clause on the basis of

registration of Criminal Case being CC No. 22 of

2011 under Section 120-B, read with Sections 420,

427, 488 and 477 IPC and Section 13(2) read with

9

Page 10 Section 13(1)(d) of the Prevention of Corruption

Act against Suresh Kalmadi, the then Chairman of

the Organising Committee and other officials of

the respondent alongwith some officials of the

petitioner, namely Mr. S. Chianese, Sales &

Marketing Manager, Mr. Christophe Bertaud,

General Manager and Mr. J. Spiri, Multi Sports

Events & Sales Manager.

9.It is further the case of the respondent that due to the

pendency of the criminal proceedings in the trial court,

the present petition ought not to be entertained. In case

the arbitration proceeding continues simultaneously with

the criminal trial, there is real danger of conflicting

conclusions by the two fora, leading to unnecessary

confusion.

10.I have heard the learned counsel for the parties.

11.The submissions made in the petition as well as in the

10

Page 11 counter affidavit have been reiterated before me by the

learned counsel. I have given due consideration to the

submissions made by the learned counsel for the parties.

12.The learned counsel for the petitioners has relied on

an unreported Order of this Court dated 11

th

April, 2012 in

M/s Nussli (Swtizerland) Ltd. Vs. Organizing Commit.

Commonwealth Game. 2010 , wherein the dispute in

almost identical circumstances have been referred to

arbitration.

13.On the other hand, learned counsel for the respondent

has relied on a judgment of this Court in N.

Radhakrishnan Vs. Maestro Engineers & Ors.

1

He

has also relied upon Guru Granth Saheb Sthan

Meerghat Vanaras Vs. Ved Prakash & Ors.

2

Reliance is

also placed on India Household and Healthcare Ltd.

Vs. LG Household and Healthcare Ltd.

3

1

(2010) 1 SCC 72

2

(2013) 7 SCC 622

3

2007 (5) SCC 510

11

Page 12 14.The procedure for Dispute Resolution has been

provided in Clause 38 of the agreement, which is as

under:-

“38.Dispute Resolution

38.1If a dispute arises between the parties out of

or relating to this Agreement (a “Dispute”), any

party seeking to resolve the Dispute must do so

strictly in accordance with the provisions of this

clause. Compliance with the provisions of this

clause is a condition precedent to seeking a

resolution of the Dispute at the arbitral tribunal

constituted in accordance with this clause 38.

38.2During a Dispute, each party must continue

to perform its obligations under this Agreement.

38.3A party seeking to resolve the Dispute must

notify the existence and nature of the Dispute to

the other party (“the Notification”). Upon

receipt of the Notification the Parties must use

their respective reasonable endeavours to

negotiate to resolve the Dispute by discussions

between Delhi 2010 (or a person it nominates) and

the Service Provider (or a person it nominates). If

the Dispute has not been resolved within 10

Business Days of receipt of the Notification (or

such other period as agreed in writing by the

parties) then the parties must refer the Dispute to

the Chairman of Delhi 2010 and the Chief

Executive Officer or its equivalent) of the Service

Provider.

38.4If the Dispute has not been settled within 5

Business Days of referral under Clause 38.3, the

Dispute shall be settled by arbitration in

12

Page 13 accordance with the following clauses.

38.5For any dispute arising after 31 July, 2010,

the relevant period in clause 38.3 is 48 hours and

the relevant period in clause 38.4 is 24 hours.

38.6 The Dispute shall be referred to a tribunal

consisting of three Arbitrators, one to be

nominated by each party, with the presiding

Arbitrator to be nominated by the two arbitrators

nominated by the parties. The Arbitrators shall be

retired judges of the Supreme Court or High Courts

of India. However, the Presiding Arbitrator shall be

a retired Supreme Court Judge.

38.7The place of arbitration shall be New Delhi.

All arbitration proceedings shall be conducted in

English in accordance with the provisions of the

Arbitration and Conciliation Act, 1996 as amended

from time to time.

38.8 The arbitration award will be final and binding

upon the parties, and each party will bear its own

costs of arbitration and equally share the fees of

the arbitral tribunal unless the arbitral tribunal

decides otherwise.

38.9This clause 38 will not affect each party’s

rights to seek interlocutory relief in a court of

competent jurisdiction.”

15.I am unable to agree with the submission made by the

learned counsel for the respondent that the petitioner has

not satisfied the condition precedent under Clause 38.3.

A perusal of the correspondence placed on the record of

13

Page 14 the petition clearly shows that not only the petitioner but

even the ambassadors of the various governments had

made considerable efforts to resolve the issue without

having to take recourse to formal arbitration. It is only

when all these efforts failed, that the petitioner

communicated to the respondent its intention to

commence arbitration by letter /notice dated 22

nd

April,

2013. This was preceded by letters dated 4

th

February,

2011, 14

th

March, 2011 and 20

th

April, 2011 which clearly

reflect the efforts made by the petitioner to resolve

disputes through discussions and negotiations before

sending the notice invoking arbitration clause.

16.It is evident from the counter affidavit filed by the

respondents that the disputes have arisen between the

parties out of or relating to the agreement dated 11

th

March, 2010. On the one hand, the respondent disputes

the claims made by the petitioner and on the other, it

takes the plea that efforts were made to amicably put a

“closure to the agreement”. I, therefore, do not

14

Page 15 find any merit in the submission of the respondent that

the petition is not maintainable for non-compliance with

Clause 38.3 of the Dispute Resolution Clause.

17.The second preliminary objection raised by the

respondent is on the ground that the contract stands

vitiated and is void-ab-initio in view of Clauses 29, 30 and

34 of the agreement dated 11

th

March, 2010. I am of the

considered opinion that the aforesaid preliminary

objection is without any substance. Under Clause 29, both

sides have given a warranty not to indulge in corrupt

practices to induce execution of the Agreement. Clause

34 empowers the Organising Committee to terminate the

contract after deciding that the contract was executed in

breach of the undertaking given in Clause 29 of the

Contract. These are allegations which will have to be

established in a proper forum on the basis of the oral and

documentary evidence, produced by the parties, in

support of their respective claims. The objection taken is

to the manner in which the grant of the contract was

15

Page 16 manipulated in favour of the petitioner. The second

ground is that the rates charged by the petitioner were

exorbitant. Both these issues can be taken care of in the

award. Certainly if the respondent is able to produce

sufficient evidence to show that the similar services could

have been procured for a lesser price, the arbitral tribunal

would take the same into account whilst computing the

amounts payable to the petitioner. As a pure question of

law, I am unable to accept the very broad proposition that

whenever a contract is said to be void-ab-initio, the Courts

exercising jurisdiction under Section 8 and Section 11 of

the Arbitration Act, 1996 are rendered powerless to refer

the disputes to arbitration.

18.However, the respondent has placed strong reliance

on the judgment of this Court in N. Radhakrishnan

(supra). In that case, disputes had arisen between the

appellant and the respondent, who were partners in a firm

known as Maestro Engineers. The appellant had retired

from the firm. Subsequently, the appellant alleged that

16

Page 17 he continued to be a partner. The respondent filed a Civil

Suit seeking a declaration that the appellant is not a

partner of the firm. In this suit, the appellant filed an

application under Section 8 of the Arbitration Act seeking

reference of the dispute to the arbitration. The plea was

rejected by the trial court and the High Court in Civil

Revision. This Court also rejected the prayer of the

appellant for reference of the dispute to arbitration. This

Court found that subject matter of the dispute was within

the ambit of the arbitration clause. It was held as under :

“14. The learned counsel for the respondents

further argued that the subject-matter of the

suit being OS No. 526 of 2006 was a different

one and it was not within the ambit of the

arbitration clause of the partnership deed

dated 7-4-2003 and that the partnership deed

had ceased to exist after the firm was

reconstituted due to the alleged retirement of

the appellant. Therefore, the trial court was

justified in not referring the matter to the

arbitrator.

15. The appellant had on the other hand

contended that the subject-matter of the suit

was within the ambit of the arbitration clause

since according to him the dispute related to

his retirement and the settlement of his dues

after he was deemed to have retired according

17

Page 18 to the respondents. Further, it was his

contention that the partnership deed dated 6-

12-2005 was not a valid one as it was not

framed in compliance with the requirements

under the Partnership Act, 1932. Therefore,

the argument of the respondents that the

subject-matter of the suit did not fall within the

ambit of the arbitration clause of the original

partnership deed dated 7-4-2003 cannot be

sustained. We are in agreement with the

contention of the appellant to this effect.

16. It is clear from a perusal of the

documents that there was a clear dispute

regarding the reconstitution of the partnership

firm and the subsequent deed framed to that

effect. The dispute was relating to the

continuation of the appellant as a partner of

the firm, and especially when the respondents

prayed for a declaration to the effect that the

appellant had ceased to be a partner of the

firm after his retirement, there is no doubt in

our mind that the dispute squarely fell within

the purview of the arbitration clause of the

partnership deed dated 7-4-2003. Therefore,

the arbitrator was competent to decide the

matter relating to the existence of the original

deed and its validity to that effect. Thus, the

contention that the subject-matter of the suit

before the Ist Additional District Munsiff Court

at Coimbatore was beyond the purview of the

arbitration clause, cannot be accepted.”

19.Having found that the subject matter of the suit was

within the jurisdiction of the arbitration, it was held that

18

Page 19 the disputes can not be referred to arbitration. This Court

approved the finding of the High Court that since the case

relates to allegations of fraud and serious malpractices on

the part of the respondents, such a situation can only be

settled in court through furtherance of detailed evidence

by either parties and such a situation can not be properly

gone into by the arbitrator. In my opinion, the aforesaid

observations runs counter to the ratio of the law laid down

by this Court in Hindustan Petroleum Corpn. Ltd. Vs.

Pinkcity Midway Petroleums

4

, wherein this Court in

Paragraph 14 observed as follows:

“If in an agreement between the parties before the

civil court, there is a clause for arbitration, it is

mandatory for the civil court to refer the dispute to

an arbitrator. In the instant case the existence of

an arbitral clause in the agreement is accepted by

both the parties as also by the courts below.

Therefore, in view of the mandatory language of

Section 8 of the Act, the courts below ought to

have referred the dispute to arbitration.”

20.In my opinion, the observations in Hindustan

Petroleum Corpn. Ltd. (supra) lays down the correct

law. Although, reference has been made to the aforesaid

4

(2003) 6 SCC 503

19

Page 20 observations in N. Radhakrishnan (supra) but the same

have not been distinguished. A Two Judge Bench of this

Court in P. Anand Gajapathi Raju & Ors. Vs. P.V.G.

Raju (Dead) & Ors.

5

, had earlier considered the scope of

the provisions contained in Section 8 and observed as

follows:-

“8. In the matter before us, the arbitration

agreement covers all the disputes between the

parties in the proceedings before us and even

more than that. As already noted, the arbitration

agreement satisfies the requirements of Section 7

of the new Act. The language of Section 8 is

peremptory. It is, therefore, obligatory for the

Court to refer the parties to arbitration in terms

of their arbitration agreement. Nothing

remains to be decided in the original action or the

appeal arising therefrom. There is no question of

stay of the proceedings till the arbitration

proceedings conclude and the award becomes

final in terms of the provisions of the new Act. All

the rights, obligations and remedies of the parties

would now be governed by the new Act including

the right to challenge the award. The court to

which the party shall have recourse to challenge

the award would be the court as defined in clause

(e) of Section 2 of the new Act and not the court to

which an application under Section 8 of the new

Act is made. An application before a court under

Section 8 merely brings to the court’s notice that

the subject-matter of the action before it is the

subject-matter of an arbitration agreement. This

5

(2000) 4 SCC 539

20

Page 21 would not be such an application as contemplated

under Section 42 of the Act as the court trying the

action may or may not have had jurisdiction to try

the suit to start with or be the competent court

within the meaning of Section 2(e) of the new

Act.”

21.This judgment was not even brought to the notice of

the Court in N. Radhakrishnan (supra) . In my opinion,

judgment in N. Radhakrishnan (supra) is per incuriam

on two grounds: Firstly, the judgment in Hindustan

Petroleum Corpn. Ltd. (supra) though referred has not

been distinguished but at the same time is not followed

also. The judgment in P. Anand Gajapathi Raju & Ors.

(supra) was not even brought to the notice of this Court.

Therefore, the same has neither been followed nor

considered. Secondly, the provision contained in Section

16 of the Arbitration Act, 1996 were also not brought to

the notice by this Court. Therefore, in my opinion, the

judgment in N. Radhakrishnan (supra) does not lay

down the correct law and can not be relied upon.

22.As noticed above, the attention of this Court was not

21

Page 22 drawn to the provision contained in Section 16 of the

Arbitration Act, 1996 in the case of N. Radhakrishnan

(supra). Section 16 provides that the Arbitral Tribunal

would be competent to rule on its own jurisdiction

including ruling on any objection with regard to existence

or validity of the arbitration agreement. The Arbitration

Act emphasises that an arbitration clause which forms

part of a contract shall be treated as an agreement

independent of the other terms of the contract. It further

provides that a decision by the Arbitral Tribunal that the

contract is null and void shall not entail ipso jure the

invalidity of the arbitration clause. The aforesaid

provision came up for consideration by this Court in

Today Homes & Infrastructure Pvt. Ltd. Vs.

Ludhiana Improvement Trust & Anr.

6

23.In the aforesaid case, the designated Judge of the

Punjab & Haryana High Court had refused to refer the

disputes to arbitration. The High Court had accepted the

6

2013 (7) SCALE 327: 2013 (2) Arb. LR 241 (SC)

22

Page 23 plea that since the underlying contract was void, the

arbitration clause perished with it. The judgment of the

High Court was challenged in this Court, by filing a Special

Leave Petition. Before this Court it was submitted by the

appellant that the High Court treated the application

under Section 11(6) of the Arbitration Act as if it was

deciding a suit but without adducing evidence. Relying on

SBP & Co. Vs. Patel Engineering Ltd., it was submitted

that the High Court was only required to conduct a

preliminary enquiry as to whether there was a valid

arbitration agreement; or whether it was a stale claim. On

the other hand, it was submitted by the respondents that

once the High Court had found the main agreement to be

void, the contents thereof including the arbitration clause

are also rendered void.

24.This Court rejected the aforesaid submission of the

respondents with the following observations :

“13. We have carefully considered the submissions

made on behalf of the respective parties and we

are of the view that the learned designated Judge

23

Page 24 exceeded the bounds of his jurisdiction, as

envisaged in SBP & Co. (supra). In our view, the

learned designated Judge was not required to

undertake a detailed scrutiny of the merits and de-

merits of the case, almost as if he was deciding a

suit. The learned Judge was only required to

decide such preliminary issues such as jurisdiction

to entertain the application, the existence of a

valid arbitration agreement, whether a live claim

existed or not, for the purpose of appointment of

an arbitrator. By the impugned order, much more

than what is contemplated under Section 11(6) of

the 1996 Act was sought to be decided, without

any evidence being adduced by the parties. The

issue

regarding the continued existence of the

arbitration agreement, notwithstanding the main

agreement itself being declared void, was

considered by the 7-Judge Bench in SBP & Co.

(supra) and it was held that an arbitration

agreement could stand independent of the main

agreement and did not necessarily become otiose,

even if the main agreement, of which it is a part, is

declared void.

14. The same reasoning was adopted by a

member of this Bench (S.S. Nijjar, J.), while

deciding the case of Reva Electric Car Company

Private Limited Vs. Green Mobil [(2012) 2 SCC 93],

wherein the provisions of Section 16(1) in the

backdrop of the doctrine of kompetenz kompetenz

were considered and it was inter alia held that

under Section 16(1), the legislature makes it clear

that while considering any objection with regard to

the existence or validity of the arbitration

agreement, the arbitration clause, which formed

part of the contract, had to be treated as an

agreement independent of the other terms of the

24

Page 25 contract. Reference was made in the said

judgment to the provisions of Section 16(1)(b) of

the 1996 Act, which provides that even if the

arbitral tribunal concludes that the contract is null

and void, it should not result, as a matter of law, in

an automatic invalidation of the arbitration clause.

It was also held that Section 16(1)(a) of the 1996

Act presumes the existence of a valid arbitration

clause and mandates the same to be treated as an

agreement independent of the other terms of the

contract. By virtue of Section 16(1)(b) of the 1996

Act, the arbitration clause continues to be

enforceable, notwithstanding a declaration that

the contract was null and void.

25.Keeping in view the aforesaid observations made by

this Court, I see no reason to accept the submission made

by the learned counsel for the respondents that since a

criminal case has been registered against the Chairman of

the Organising Committee and some other officials of the

petitioner, this Court would have no jurisdiction to make a

reference to arbitration.

26.As noticed above, the concept of separability of the

arbitration clause/agreement from the underlying contract

has been statutorily recognised by this country under

Section 16 of the Arbitration Act, 1996. Having provided

25

Page 26 for resolution of disputes through arbitration, parties can

not be permitted to avoid arbitration, without satisfying

the Court that it will be just and in the interest of all the

parties not to proceed with the arbitration. Section 5 of

the Arbitration Act provides that the Court shall not

intervene in the arbitration process except in accordance

with the provisions contained in Part I of the Arbitration

Act. This policy of least interference in arbitration

proceedings recognises the general principle that the

function of Courts in matters relating to arbitration is to

support arbitration process. A conjoint reading of Section

5 and Section 16 would make it clear that all matters

including the issue as to whether the main contract was

void/voidable can be referred to arbitration. Otherwise, it

would be a handy tool available to the unscrupulous

parties to avoid arbitration, by raising the bogey of the

underlying contract being void.

27.I am of the opinion that whenever a plea is taken to

avoid arbitration on the ground that the underlying

26

Page 27 contract is void, the Court is required to ascertain the true

nature of the defence. Often, the terms “ void” and

“voidable” are confused and used loosely and

interchangeably with each other. Therefore, the Court

ought to examine the plea by keeping in mind the

relevant statutory provisions in the Indian Contract Act,

1872, defining the terms “void” and “voidable”. Section

2, the interpretation clause defines some of the relevant

terms as follows:-

“2(g) An agreement not enforceable by law is

said to be void;

2(h) An agreement enforceable by law is a

contract;

2(i) An agreement which is enforceable by law at

the option of one or more of the parties

thereto, but not at the option of the other or

others, is a voidable contract;

2(j) A contract which ceases to be enforceable by

law becomes void when it ceases to be

enforceable.”

The aforesaid clauses clearly delineate and differentiate

between term “void” and “voidable”. Section 2(j) clearly

27

Page 28 provides as to when a voidable contract would reach the

stage of being void. Undoubtedly, in cases, where the Court

can come to a conclusion that the contract is void without

receiving any evidence, it would be justified in declining

reference to arbitration but such cases would be few and

isolated. These would be cases where the Court can readily

conclude that the contract is void upon a meaningful reading

of the contract document itself. Some examples of where a

contract may fall in this category would be :-

(a)Where a contract is entered into by a person, who

has not attained the age of majority (Section 11);

(b)Where both the parties are under a mistake as to

a matter of fact essential to the agreement

(Section 19);

(c) Where the consideration or object of the contract

is forbidden by law or is of such a nature that, if

permitted, it would defeat the provisions of any

law or where the object of the contract is to

indulge in any immoral activity or would be

opposed to public policy. Glaring examples of this

28

Page 29 would be where a contract is entered into between

the parties for running a prostitution racket,

smuggling drugs, human trafficking and any other

activities falling in that category.

(d) Similarly, Section 30 renders wagering contracts

as void. The only exception to this is betting on

horse racing. In the circumstances noted above, it

may not be necessary for the Court to take any

further evidence apart from reading the contract

document itself. Therefore, whilst exercising

jurisdiction under Section 11(6) of the Arbitration

Act, the Court could decline to make a reference

to arbitration as the contract would be patently

void.

28.However, it would not be possible to shut out

arbitration even in cases where the defence taken is that

the contract is voidable. These would be cases which are

covered under the circumstances narrated in Section 12 –

unsoundness of mind; Section 14 – absence of free

29

Page 30 consent, i.e. where the consent is said to be vitiated as it

was obtained by Coercion (Section 15), Undue Influence

(Section 16), Fraud (Section 17) or Misrepresentation

(Section 18). Such a contract will only become void when

the party claiming lack of free consent is able to prove the

same and thus rendering contract void. This indeed is the

provision contained in Section 2(j) of the Indian Contract

Act. In exercising powers under Section 11(6) of the

Arbitration Act, the Court has to keep in view the

provisions contained in Section 8 of the Arbitration Act,

which provides that a reference to arbitration shall be

made if a party applies not later than when submitting his

first statement on the substance of the dispute. In

contrast, Section 45 of the aforesaid Act permits the Court

to decline reference to arbitration in case the Court finds

that the agreement is null and void, inoperative or

incapable of being performed.

29.To shut out arbitration at the initial stage would

destroy the very purpose for which the parties had

30

Page 31 entered into arbitration. Furthermore, there is no inherent

risk of prejudice to any of the parties in permitting

arbitration to proceed simultaneously to the criminal

proceedings. In an eventuality where ultimately an award

is rendered by arbitral tribunal, and the criminal

proceedings result in conviction rendering the underlying

contract void, necessary plea can be taken on the basis of

the conviction to resist the execution/enforcement of the

award. Conversely, if the matter is not referred to

arbitration and the criminal proceedings result in an

acquittal and thus leaving little or no ground for claiming

that the underlying contract is void or voidable, it would

have the wholly undesirable result of delaying the

arbitration. Therefore, I am of the opinion that the Court

ought to act with caution and circumspection whilst

examining the plea that the main contract is void or

voidable. The Court ought to decline reference to

arbitration only where the Court can reach the conclusion

that the contract is void on a meaningful reading of the

contract document itself without the requirement of any

31

Page 32 further proof.

30.In the present case, it is pleaded that the manner in

which the contract was made between the petitioner and

the respondent was investigated by the CBI. As a part of

the investigation, the CBI had seized all the original

documents and the record from the office of the

respondent. After investigation, the criminal case CC

No.22 of 2011 has been registered, as noticed earlier. It is

claimed that in the event the Chairman of the Organising

Committee and the other officials who manipulated the

grant of contract in favour of the respondent are found

guilty in the criminal trial, no amount would be payable to

the petitioner. Therefore, it would be appropriate to await

the decision of the criminal proceedings before the

arbitral tribunal is constituted to go into the alleged

disputes between the parties. I am unable to accept the

aforesaid submission made by the learned counsel for the

respondents, for the reasons stated in the previous

paragraphs. The balance of convenience is tilted more in

32

Page 33 favour of permitting the arbitration proceedings to

continue rather than to bring the same to a grinding halt.

31.I must also notice here that the defence of the

contract being void is now-a-days taken routinely along

with the other usual grounds, to avoid/delay reference to

arbitration. In my opinion, such ground needs to be

summarily rejected unless there is clear indication that

the defence has a reasonable chance of success. In the

present case, the plea was never taken till the present

petition was filed in this Court. Earlier, the respondents

were only impressing upon the petitioners to supply

certain information. Therefore, it would be appropriate,

let the Arbitral Tribunal examine whether there is any

substance in the plea of fraud now sought to be raised by

the respondents.

32.The Respondent also relied on the judgment of this

Court in India Household and Healthcare Ltd. (supra),

wherein the application under section 11 (6) of the

33

Page 34 Arbitration Act was dismissed. This case, however, will not

come in the way of referring the matter to arbitration

since it is clearly distinguishable from the present case. In

India Household and Healthcare Ltd. (supra), the

substantive/underlying contract containing the arbitration

clause was entered into by the parties on 08.05.2004. This

agreement, however, was preceded by a Memorandum of

Understanding (“MoU”) dated 1.11.2003. It was contended

by the Respondent that both the Agreement and the MoU

are vitiated by fraud which was fructified by a criminal

conspiracy hatched between officials representing the

Petitioner and Respondent therein. This Court also noticed

that the concerned officials of the Respondent had been

convicted and sentenced to undergo imprisonment by the

Korean Criminal Court. The said MoU was also contended

by the Respondent to be in contravention of the laws of

Korea. It was further noticed that the Respondent filed a

suit in the Madras High Court against the Petitioner,

whereby the High Court vide interim order dated

06.10.2005 issued an injunction and thereby restrained

34

Page 35 the Petitioner therein to act directly or indirectly on the

basis of MoU and the Agreement dated 08.05.2004, and to

derive any other benefit based upon the said MoU and the

license agreement in any manner whatsoever. This

interim order, the court noticed, was confirmed by an

order dated 21.01.2006; against which no appeal was filed

by the Petitioner. The Court, relying upon A Treatise on

Law Governing Injunctions by Spelling and Lewis,

concluded that this injunction order having not been

challenged by the Petitioner has become final and also

that this order restrains the invocation of the arbitration

agreement contained in Agreement dated 08.05.2004.

Therefore, the Court declined to refer the matter to

arbitration. Another factor that weighed with Court in

dismissing the Petition, it appears, is that the Petitioner

did not conform to the procedure concerning appointment

of the Arbitrator before filing the Petition under Section 11

(6).

33.This case is clearly distinguishable and hence is not

35

Page 36 applicable into the facts and circumstances of the present

case because of the following reasons: Firstly, there has

been no conviction in the present case, though the trial

has been going on against the officials of both the parties.

Secondly, there is no injunction or any other order

restraining the Petitioner from invoking the Arbitration

Clause. Lastly, all the conditions precedent for invoking

the arbitration clause have been satisfied by the

Petitioner, as observed earlier.

34.The respondent had relied on the judgment of this

Court in Guru Granth Saheb Sthan Meerghat Vanaras

Vs. Ved Prakash & Ors .

7

This judgment reiterates the

normal rule which was stated by the Constitution Bench of

this Court in M.S.Sheriff Vs. State of Madras in relation

to the simultaneous prosecution of the criminal

proceeding with the civil suit. In the aforesaid case, the

Constitution Bench had observed as follows:-

“14. … It was said that the simultaneous

prosecution of these matters will embarrass the

accused. … but we can see that the simultaneous

prosecution of the present criminal proceedings

7

(2013) 7 SCC 622

36

Page 37 out of which this appeal arises and the civil suits

will embarrass the accused. We have therefore to

determine which should be stayed.

15. As between the civil and the criminal

proceedings we are of the opinion that the

criminal matters should be given precedence.

There is some difference of opinion in the High

Courts of India on this point. No hard-and-fast rule

can be laid down but we do not consider that the

possibility of conflicting decisions in the civil and

criminal courts is a relevant consideration. The law

envisages such an eventuality when it expressly

refrains from making the decision of one court

binding on the other, or even relevant, except for

certain limited purposes, such as sentence or

damages. The only relevant consideration here is

the likelihood of embarrassment.

16. Another factor which weighs with us is that a

civil suit often drags on for years and it is

undesirable that a criminal prosecution should

wait till everybody concerned has forgotten all

about the crime. The public interests demand that

criminal justice should be swift and sure; that the

guilty should be punished while the events are still

fresh in the public mind and that the innocent

should be absolved as early as is consistent with a

fair and impartial trial. Another reason is that it is

undesirable to let things slide till memories have

grown too dim to trust.

This, however, is not a hard-and-fast rule. Special

considerations obtaining in any particular case

might make some other course more expedient

and just. For example, the civil case or the other

criminal proceeding may be so near its end as to

make it inexpedient to stay it in order to give

precedence to a prosecution ordered under

37

Page 38 Section 476. But in this case we are of the view

that the civil suits should be stayed till the criminal

proceedings have finished.”

35.The purpose of the aforesaid solitary rule is to avoid

embarrassment to the accused. In contrast, the findings

recorded by the arbitral tribunal in its award would not be

binding in criminal proceedings. Even otherwise, the

Constitution Bench in the aforesaid case has clearly held

that no hard and fast rule can be laid down that civil

proceedings in all matters ought to be stayed when

criminal proceedings are also pending. As I have indicated

earlier in case the award is made in favour of the

petitioner herein, the respondents will be at liberty to

resist the enforcement of the same on the ground of

subsequent conviction of either the Chairman or the

officials of the contracting parties.

36.It must also notice here that the Petitioners relied

upon an earlier order of this court in the case of M/s

Nussli (Switzerland) Ltd. (supra). The aforesaid order,

38

Page 39 however, seems to have been passed on a consensus

between the learned counsel for the parties. This is

evident from the following observations in the aforesaid

order:

“In view of the aforesaid order, learned senior

counsel for both the parties have agreed that the

parties have agreed that the matter ought to be

referred to Arbitration. However, Mr. Gopal

Subramaniam, learned senior counsel appearing

for the Respondent, submits that serious issued

would arise which are currently under

investigation of the CBI, which may ultimately

culminate into certain conclusions which could

result in the invalidation of the contract from

inception.

He has, however, very fairly stated that there

would be no impediment for the arbitral Tribunal

to look into all the issues including the allegations

which are pending with the CBI in investigation.

I am of the opinion that the submission made by

the learned senior counsel is in accordance with

the law settled, not only by this Court, but in other

jurisdictions also concerning the international

commercial arbitrations.”

The aforesaid excerpt clearly shows that Mr. Gopal

Subramaniam, had very fairly agreed to proceed with

arbitration. The decision of this Court in M/s Nussli

(Switzerland) Ltd. (supra) has not laid down any law.

39

Page 40 37.As noticed earlier, the petitioners have already

nominated Hon’ble Mr. Justice S.N. Variava, Former Judge

of this Court, having his office at Readymoney Mansion,

2

nd

floor, Next to Akbarallys, Veer Nariman Road, Fort,

Mumbai – 400 001, as their arbitrator. I hereby nominate.

Hon’ble Mr. Justice B.P. Singh, Former Judge of this Court,

R/o A-7, Neeti Bagh, 3rd Floor, New Delhi – 110 049, as

the second Arbitrator and Hon’be Mr. Justice Kuldip Singh,

Former Judge of this Court, R/o H.No. 88, Sector 10A,

Chandigarh – 160 010, as the Chairman of the Arbitral

Tribunal, to adjudicate the disputes that have arisen

between the parties, on such terms and conditions as they

deem fit and proper.

38.The Registry is directed to communicate this order to

the Chairman of the Arbitral Tribunal, as well as, to the

Second Arbitrator to enable them to enter upon the

reference and decide the matter as expeditiously as

possible.

40

Page 41 39.The Arbitration Petition is accordingly allowed with no

order as to costs.

…………………………… J.

[Surinder Singh Nijjar]

New Delhi;

May 28, 2014

41

Page 42