World Sports Group (Mauritius) Ltd vs MSM Satellite(Singapore) Pte., (2014) 11 SCC 639

World Sports Group (Mauritius) Ltd vs MSM Satellite(Singapore) Pte., (2014) 11 SCC 639

Decided on: 24 January 2014

Author of the judgement: A K Patnaik

Bench: A.K. Patnaik, Fakkir Mohamed Kalifulla

Advocate for the appellant: Mr K.K. Venugopal

Advocate for the respondent: 

Judgements referred:

  1. Chloro Controls India Private Limited v. Seven Trent Water Purification Inc. & Ors. [(2013) 1 SCC 641].
  2. National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. [(2009) 1 SCC 267]
  3. Reva Electric Car Company Private Ltd. v. Green Mobil [(2012) 2 SCC 93]
  4. Premium Nafta Products Ltd. v. Fili Shipping Company Ltd. & Ors. [2007] UKHL 40]
  5. Buckeye Check Cashing, Inc. v. John Cardegna et al [546 US 440 (2006)]
  6. Branch Manager, Magma Leasing and Finance Ltd. & Anr. v. Potluri Madhavilata & Anr. [(2009) 10 SCC 103
  7. Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [AIR 1962 SC 406]
  8. Radhakrishnan v. Maestro Engineers & Ors. [(2010) 1 SCC 72]
  9. V.O. Tractoroexport, Moscow v. Tarapore & Company and Anr. [(1969) 3 SCC 562]
  10. Oil and Natural Gas Commission v. Western Company of North America [(1987) 1 SCC 496]
  11. Claxton Engineering v. Txm olaj – es gaz Kutao Ktf [2011] EWHC 345 (COMM.).
  12. SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd. [(2011) 14 SCC 66]
  13. Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [(1999) 5 SCC 688]
  14. M/s Zee Tele Films Ltd. & Anr. v. Union of India & Ors. [AIR 2005 SC 2677]
  15. Booz Allen & Hamilton v. SBI Home Finance [(2011) 5 SCC 532]
  16. India Household Healthcare Ltd. v. LG Household and Healthcare Ltd. [(2007) 5 SCC 510]

Brief Facts and Procedural History: 

On 30.11.2007 the Board of Control for Cricket in India (for short ‘BCCI’) invited tenders for IPL (Indian Premier League) Media Rights for a period of ten years from 2008 to 2017 on a worldwide basis. Amongst the tenders submitted, the bid of World Sports Group India (for short ‘WSG India’) was accepted by BCCI. By a pre-bid arrangement, however, the respondent was to get the media rights for the sub-continent for the period from 2008 to 2010. Accordingly, on 21.01.2008 BCCI and the respondent entered into a Media Rights License Agreement for the period from 2008 to 2012 for a sum of US$274.50 million. After the first IPL season, the BCCI terminated the agreement dated 21.01.2008 between BCCI and the respondent for the Indian sub-continent and commenced negotiations with WSG India. On 14.03.2009, the respondent filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short ‘the Act’) against the BCCI before the Bombay High Court praying for injunction against the BCCI from acting on the termination letter dated 14.03.2009 and for preventing BCCI from granting the rights under the agreement dated 21.01.2008 to any third party.

Pursuant to the negotiations between BCCI and WSG India, BCCI entered into an agreement with the appellant whereunder the media rights for the Indian sub-continent for the period 2009 to 2017 was awarded to the appellant for a value of Rs.4,791.08 crores. To operate the media rights in India, the appellant was required to seek a sub-licensee within seventy-two hours. Though this time period was extended twice, the appellant was not able to get a sub-licensee. Thereafter, the appellant claimed to have allowed media rights in India to have lapsed and then facilitated on 25.03.2009, a new Media Rights License Agreement between the BCCI and the respondent for the Indian sub- continent for the same contract value of Rs.4,791.08 crores. BCCI and WSG India, however, were to continue with the Rest of the World media rights.

On 25.03.2009, the appellant and the respondent also executed the Deed for Provision of Facilitation Services (hereinafter referred to as ‘the Facilitation Deed’) whereunder the respondent was to pay a sum of Rs.425 crores to the appellant as facilitation fees. The respondent made three payments totaling Rs.125 crores to the appellant under the Facilitation Deed during 2009 and did not make the balance payment. Instead, on 25.06.2010, the respondent wrote to the appellant rescinding the Facilitation Deed on the ground that it was voidable on account of misrepresentation and fraud.

On 25.06.2010, the respondent also filed Suit No.1869 of 2010 for inter alia a declaration that the Facilitation Deed was void and for recovery of Rs.125 crores already paid to the appellant. On 28.06.2010, the appellant acting under Clause 9 of the Facilitation Deed sent a request for arbitration to ICC Singapore and the ICC issued a notice to the respondent to file its answer to the request for arbitration.

In the meanwhile, on 30.06.2010, the respondent filed a second suit, Suit No.1828 of 2010, before the Bombay High Court against the appellant for inter alia a declaration that as the Facilitation Deed stood rescinded, the appellant was not entitled to invoke the arbitration clause in the Facilitation Deed. The respondent also filed an application for temporary injunction against the appellant from continuing with the arbitration proceedings commenced by the appellant under the aegis of ICC.

On 09.08.2010, the learned Single Judge of the Bombay High Court dismissed the application for temporary injunction of the respondent saying that it would be for the arbitrator to consider whether the Facilitation Deed was void on account of fraud and misrepresentation and that the arbitration must, therefore, proceed and the Court could not intervene in matters governed by the arbitration clause.

The respondent challenged the order of the learned Single Judge before the Division Bench of the Bombay High Court and by the impugned order, the Division Bench of the Bombay High Court allowed the appeal set aside the order of the learned Single Judge and passed an order of temporary injunction restraining the arbitration by ICC. Aggrieved, the appellant has filed this appeal.

Contentions on behalf of the appellant:

Mr K.K. Venugopal, learned senior counsel for the appellant, submitted that the Division Bench of the High Court failed to appreciate that the Bombay High Court had no jurisdiction to pass an order of injunction restraining a foreign seated international arbitration at Singapore between the parties, who were not residents of India.

It was next submitted that the Division Bench of the High Court failed to appreciate that under Section 45 of the Act, the Court seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44 has to refer the parties to arbitration, unless it finds that the agreement referred to in Section 44 is null and void, inoperative or incapable of being performed.

It was submitted that the Division Bench of the High Court, instead of examining whether the agreement in writing for arbitration was null and void, inoperative or incapable of being performed, has held that the entire Facilitation Deed was vitiated by fraud and misrepresentation and was, therefore, void. He vehemently submitted that it was for the arbitrator to decide whether the Facilitation Deed was void on account of fraud and misrepresentation as has been rightly held by the learned Single Judge and it was not for the Court to pronounce on whether the Facilitation Deed was void on account of fraud and misrepresentation. He referred to Article 6(4) of the ICC Rules of Arbitration which permits the Arbitral Tribunal to continue to exercise jurisdiction and adjudicate the claims even if the main contract is alleged to be null and void or non-existent because the arbitration clause is an independent and distinct agreement. He submitted that this principle of Kompetenz Kompetenz has been recognised in Section 16 of the Act under which the Arbitral Tribunal has the competence to rule on its own jurisdiction.

It was submitted that in the present case, the respondent has alleged fraud against the appellant and thus it was for the appellant to make a request to the Court to decide on the allegations of fraud instead of referring the same to the arbitrator, and no such request has been made by the appellant.

It was submitted that the High Court has taken a view that Clause 9 forecloses an open trial in a court of law except to the extent permitted therein and the parties have to necessarily submit themselves to a confidential proceeding which is closed to the general public. He submitted that the Bombay High Court thus appears to have held that Clause 9 is opposed to public policy and, in particular, Sections 23 and 28 of the Indian Contract Act, 1872. He submitted that in any case the arbitration agreement contained in Clause 9 of the Facilitation Deed cannot be held to be opposed to public policy and void under Sections 23 and 28 of the Indian Contract Act, 1872. This will be clear from Exception 1 of Section 28 of the Indian Contract Act, 1872, which says that the section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

It was next submitted that the crux of the case of the respondent is set out in its letter dated 25.06.2010 to the appellant in which it was alleged that ‘in view of the false misrepresentations and fraud played by WSGM the deed is voidable at the option of our client and thus our client rescinds the deed with immediate effect’. In other words, the respondent’s case is that it was induced to enter into the Facilitation Deed on account of the misrepresentation by the appellant and was led to believe that it was paying the facilitation fees to the appellant to allow the rights of the appellant under an alleged agreement dated 23.03.2009 to lapse, but the respondent subsequently discovered that there was no agreement dated 23.03.2009 and the rights of the appellant had come to an end on 24.03.2009. He submitted that the appellant has denied these allegations of the respondent in its affidavit-in-reply filed before the Bombay High Court and that there was no false representation and fraud as alleged by the respondent.

It was finally submitted that it will be clear from the language of the letter dated 25.06.2010 of the respondent to the appellant that according to the respondent the Facilitation Deed was voidable at the option of the respondent.

Contentions on behalf of the respondent:

In reply, Mr. Gopal Subramanium, learned senior counsel appearing for the respondent, submitted that the Division Bench of the Bombay High Court has rightly restrained the arbitration proceedings under the aegis of ICC as the Facilitation Deed, which also contains the arbitration agreement in Clause 9, is void because of fraud and misrepresentation by the appellant.

He submitted that Section 45 of the Act makes it clear that the Court will not refer the parties to arbitration if the arbitration agreement is null and void, inoperative or incapable of being performed and as the respondent has taken the plea that the Facilitation Deed, which contained the arbitration agreement, is null and void on account of misrepresentation and fraud, the Court will have to decide whether the Facilitation Deed including the arbitration agreement in Clause 9 was void on account of fraud and misrepresentation by the appellant.

It was submitted that Section 9 of the Code of Civil Procedure, 1908 (for short ‘the CPC’) confers upon the court jurisdiction to try all civil suits except suits which are either expressly or impliedly barred. He submitted that the Bombay High Court, therefore, had the jurisdiction to try both the first suit and the second suit and there was no express or implied bar in Section 45 of the Act restraining the Bombay High Court to try the first suit and the second suit.

It was submitted that Section 45 of the Act casts an obligation on the court to determine the validity of the agreement at the threshold itself because this is an issue which goes to the root of the matter and a decision on this issue will prevent a futile exercise of proceedings before the arbitrator.

It was next submitted that in cases where allegations of fraud are prima facie made out, the judicial trend in India has been to have them adjudicated by the Court. Mr Subramanium next submitted that the facts in this case prima facie establish that a grave fraud was played by the appellant not only upon the respondent but also on the BCCI.

He submitted that because BCCI is a public body the Division Bench of the Bombay High Court has, therefore, rightly taken the view that the disputes in this case cannot be kept outside the purview of the Indian Courts and if arbitration is allowed to go on without BCCI, the interest of BCCI will be adversely affected.

Issue:

Whether the Division Bench of the Bombay High Court could have passed the order of injunction restraining the arbitration at Singapore between the parties.

Findings of the Court:

1.) Whether Bombay High Court had jurisdictions to entertain the suit and restrain the arbitration proceedings at Singapore?

The Bombay High Court had no jurisdiction to entertain the suit and restrain the arbitration proceedings at Singapore because of the principle of Comity of Courts. Any civil court in India which entertains a suit, however, has to follow the mandate of the legislature in Sections 44 and 45 in Chapter I of Part II of the Act.

The language of Section 45 of the Act quoted above makes it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Thus, even if, under Section 9 read with Section 20 of the CPC, the Bombay High Court had the jurisdiction to entertain the suit, once a request is made by one of the parties or any person claiming through or under him to refer the parties to arbitration, the Bombay High Court was obliged to refer the parties to arbitration unless it found that the agreement referred to in Section 44 of the Act was null and void, inoperative or incapable of being performed. In the present case, the appellant may not have made an application to refer the parties to arbitration, but Section 45 of the Act does not refer to any application as such. Instead, it refers to the request of one of the parties or any person claiming through or under him to refer the parties to arbitration. In this case, the appellant may not have made an application to refer the parties to arbitration at Singapore but has filed an affidavit in reply to the notice of motion and has stated in paragraphs 3, 4 and 5 of this affidavit that the defendant had already invoked the arbitration agreement in the Facilitation Deed and the arbitration proceedings have commenced and that the suit was an abuse of the process of court. The appellant had thus made a request to refer the parties to arbitration at Singapore which had already commenced.

2.) Whether the findings recorded by the division bench were correct in nature?

The Division Bench of the High Court has held that the Facilitation Deed was part of several agreements entered into amongst different parties commencing from 25.03.2009 and, therefore, cannot be considered as stand apart agreement between the appellant and the respondent and so considered the Facilitation Deed as contrary to public policy of India because it is linked with the finances, funds and rights of the BCCI, which is a public body. This approach of the Division Bench of the High Court is not in consonance with the provisions of Section 45 of the Act, which mandates that in the case of arbitration agreements covered by the New York Convention, the Court which is seized of the matter will refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed. In view of the provisions of Section 45 of the Act, the Division Bench of the High Court was required to only consider in this case whether Clause 9 of the Facilitation Deed which contained the arbitration agreement was null and void, inoperative or incapable of being performed.

The Division Bench of the High Court has further held that Clause 9 of the Facilitation Deed insofar as it restricted the right of the parties to move the courts for appropriate relief and also barred the right to trial by a jury was void for being opposed to public policy as provided in Section 23 of the Indian Contract Act, 1872 and was also void for being an agreement in restraint of the legal proceedings in view of Section 28 of the said Act. Parliament has made the Arbitration and Conciliation Act, 1996 providing domestic arbitration and international arbitration as a mode of resolution of disputes between the parties and Exception 1 to Section 28 of the Indian Contract Act, 1872 clearly states that Section 28 shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Clause 9 of the Facilitation Deed is consistent with this policy of the legislature as reflected in the Arbitration and Conciliation Act, 1996 and is saved by Exception 1 to Section 28 of the Indian Contract Act, 1872. The finding of the Division Bench of the High Court, therefore, that Clause 9 of the Facilitation Deed is opposed to public policy and is void underSections 23 and 28 of the Indian Contract Act, 1872 is clearly erroneous.

The Division Bench of the High Court has also held that as allegations of fraud and serious malpractices on the part of the appellant are in issue, it is only the court which can decide these issues through furtherance of judicial evidence by either party and these issues cannot be properly gone into by the arbitrator. Section 45 provides that only if the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed, it will decline to refer the parties to arbitration.

The Division Bench of the High court has further held that since the earlier suit (Suit No.1869 of 2010) was pending in court since 25.06.2010 and that suit was interconnected and inter-related with the second suit (Suit No.1828 of 2010), the court could not allow splitting of the matters and disputes to be decided by the court in India in the first suit and by arbitration abroad in regard to the second suit and invite conflicting verdicts on the issues which are inter-related. This reasoning adopted by the Division Bench of the Bombay High Court in the impugned judgment is alien to the provisions of Section 45 of the Act which does not empower the court to decline a reference to arbitration on the ground that another suit on the same issue is pending in the Indian court.

Held:

It has been rightly held by the learned Single Judge of the Bombay High Court that it is for the arbitrator to decide this dispute in accordance with the arbitration agreement. Thus the appeal was allowed and the decision of the Division bench of the High Court was stuck down.

 

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