The Bombay High Court recently held in BSI-JDN Joint Venture v. The Board of Trustees of the Jawaharlal Nehru Port Trust (Judgment dated June 9, 2022 in Commercial Arbitration Application no. 140 of 2020 passed by G. S. Kulkarni, J.) that mere allegation of existence of fraud would not categorize a dispute as not to be referred to arbitration.
Whether an allegation of an investigation pertaining to the award of the subject contract carried out by Central Bureau of Investigation (CBI) can be an impediment for the court to refer the disputes to arbitration and categorize the case as ‘non-arbitrable’, in exercise of jurisdiction under section 11 of the Arbitration & Conciliation Act, 1996 (“A&C Act”)?
Findings/ observations of the Court:
i) N. N. Global Mercantile Private Limited v. Indo Unique Flame Limited, [(2021) 4 SCC 739], wherein it was held that allegations of fraud are not arbitrable is an archaic view, which has become obsolete and deserves to be discarded;
ii) Vidya Drolia v. Durga Trading Corporation, [(2021) 2 SCC 1)], wherein the four-fold test for determining when the subject matter of a dispute in an arbitration is not arbitrable was laid down; and
iii) Indian Oil Corporation v. NEPC India Limited, [(2006) 6 SCC 736)], wherein it was observed there is a growing tendency in business circles to convert purely civil disputes into criminal cases. As such, even if there is a contractual dispute between the parties which is purely civil in nature, any element therein attracting criminal consequences under the same set of facts, would stand independent of a civil adjudication.
Although there is an ongoing investigation being carried out by the CBI into irregularities pertaining to the award of the contract, the matter was referred to arbitration. It was clarified by the court that upon any criminal action being taken, an appropriate plea could be raised before the tribunal. Therefore, an ongoing criminal investigation touching the award of the contract would not be a sufficient ground to render the dispute as ‘not arbitrable’.
Please find attached a copy of the judgment.
This update has been contributed by Yuvraj Choksy (Principal Assoicate).
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