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.

Issue:

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:

1. The nature of disputes arisen under the subject contract are disputes inter-se between contracting parties which are required to be adjudicated in a manner as agreed in the contract. However, a third party (i.e. in this case the Ministry of Shipping (MoS)) cannot step into the contractual shoes of the Respondent, i.e. JNPT, to control the disputes which are intrinsic to the contract when it stands fully performed.
2. The court cannot be oblivious to the commercial interest of the parties as set out in the contract and when significant contractual work has been performed. Non-payment of amount for works performed is the issue and purely civil, this cannot be kept away from arbitration.
3. In this case, the letters sent by MoS were placed on record which referred to an ongoing investigation in the award of contract and alleged non-disclosure by the applicants, i.e. BSI-JDN Joint Venture & others, in their bid documents. The court relied on the fact that there was no issue and/ or illegality that occurred in the award of the contract to the applicants and it was fully performed and invoices were raised. Therefore, it was not open for the respondent to contend that the present case was ‘not arbitrable’ on the ground of fraud “merely referring to the letters of the Ministry of Shipping, and only for the reason that the investigation was taken up at the behest of the Ministry by the CVC and now by the CBI”.
4. Pertinently, the Court opined that, even assuming there was some illegality in the award of the contract, such circumstances would not categorize the subject dispute to be a case involving any arbitral adjudication on fraud, to be kept out of the purview of arbitration. If there is any issue during the investigation or any criminal action being taken, touching the arbitral adjudication, it could be placed before the arbitral tribunal at the relevant time and an appropriate plea can be raised.
5. Some judgments of the Supreme Court relied upon by the court are as follows:

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.

Argus View:

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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