New Grounds for Judicial Intervention

Introduction

The intention of the legislature while enacting the Arbitration and Conciliation Act, 1996 (“the Act”) was to offer a suitable alternate to litigation, offering parties a mode for resolving their dispute swiftly and with minimal court interference. However, this intention of the legislature is being gradually defeated due to increasing judicial interference. Recently, in MSM Satellite (Singapore) Pte. Ltd. v. World Sport Group (Mauritius) Ltd.¹ the Bombay High Court (“Court”) intervened in an ongoing arbitration proceeding and granted an injunction citing grounds of allegations of fraud and interests of a third party as an exception to judicial non-intervention. In this bulletin, the above mentioned decision is analyzed to deduce its impact on future arbitral proceedings.

1. Brief Facts

Board of Control for Cricket in India (“BCCI”), through its commissioner in January 2008, executed an agreement with MSM Satellite (Singapore) Pte Limited (“Appellant”) which was later terminated. BCCI then entered into a fresh agreement with World Sport Group (Mauritius) Limited (“Respondent”) for conferring certain rights to the latter. However, since the Respondent could not perform the agreement, the agreement was terminated with the rights flowing back to the BCCI. Thereafter the Respondent, being aware of its inability to perform the agreement, approached the Appellant with a proposal to relinquish the rights granted by BCCI to it. Pursuant to negotiations, the Appellant and Respondent entered into a Facilitation Deed (“Deed”) for the above mentioned proposal of the Respondent.

Subsequently, BCCI commenced misconduct proceedings against its commissioner alleging fraud, since the Respondent being unable to perform the agreement should not have been selected at all. The Appellant filed a suit (“first suit”) on June 25, 2010 against the Respondent and BCCI for declaration that the Deed was illegal, null and void and also claimed other relief. Three days later, the Respondent invoked the arbitration clause in the facilitation deed and commenced International Chamber of Commerce (“ICC”) arbitration proceedings in Singapore. The Appellant filed a second suit seeking an injunction restraining the Respondent from proceeding with the arbitration, which was dismissed by the Single Judge of the Court. The Appellant appealed against the said dismissal before the Division Bench of the Court.

2. Contentions of the Parties

2.1 Appellant’s Contentions

The Appellant argued that the dispute referred to arbitration by the Respondent is dependant and inseparably connected with a third party (i.e. BCCI), and deals with issues which have already been decided in the first suit. The Appellant relying on Venture Global Engineering v. Satyam Computer Services Ltd. and another², argued that when there are serious allegations of fraud or where dispute requires detailed examination of witnesses, such a dispute is not suitable for arbitration and have to be necessarily decided by Courts. Further the Appellant stated that the sole purpose of the Respondent to refer the dispute to ICC is to frustrate the first suit.

2.2 Respondent’s Contentions

The Respondent argued that under provisions of the Deed, both parties are under an obligation to refer any dispute to ICC for final and binding arbitration, notwithstanding the fact that the Deed may be adjudged as null or void. Relying on Section 5³ of the Act and the decisions of the Supreme Court of India (“SC”) in CDC Financial Services (Mauritius) Ltd. v. BPL Communications Ltd. and others⁴ and Secur Industries Ltd. v. Godrej and Boyce Mfg. Co. Ltd. and another⁵, the Respondent contended that the Court have no authority to intervene in the arbitral proceedings and a suit for restraining the same is not maintainable. The Respondent relying on N. Radhakrishnan v Maestro Engineers and Others⁶, further argued that even in a case where allegations of fraud are made, it is only the privilege of the accused and not accuser to refer the matter to a Court, therefore the suit is not maintainable.

3. Decision of the Court

The Court, in principle accepted that judicial non-intervention is the general scheme of the Act, however, chose to exercise jurisdiction by carving out an exception for judicial intervention. The Court while granting the injunction to the Appellant, held where the interests of a third party (BCCI in this case) are affected, such an exceptional case mandates the intervention of courts in arbitral proceedings. The Court also relied on a decision of the SC⁷ wherein it had observed that the existence of allegations of fraud and serious malpractices by the parties makes the case peculiar and can only be settled in furtherance of judicial evidence in a court. Based on this, the Court allowed the appeal.

Conclusion

The Court has, in this case, itself established exceptions for allowing judicial intervention in arbitral proceedings, thereby expanding the scope of judicial interference contrary to the legislative intent. While the Court has culled out an exception to the general rule of non-interference, this “exception” has the potential to cause increasing interference by courts. This has no bearing on whether the Court decided correctly based on merits of the case, but has an impact on the efficacy and implementation of the Act in its true sense.

This bulletin is prepared by Nalin Nair (under the supervision of Ashutosh Chandola, Associate), a 4^th year law student at Symbiosis Law School, Pune who interned at PSA.

1 Decided on September 17, 2010
2 (2008) 4 SCC 190
3 Section 5 provides that a judicial authority shall not intervene in arbitral proceedings except where it is so provided in Part-I of the Act.
4 (2003) 12 SCC 140
5 (2004) 3 SCC 447
6 N. Radhakrishnan v Maestro Engineers and Others (2010) 1 SCC 72
7 Id.