INDU MALHOTRA,J. - (1.) This case raises interesting issues with respect to the application of the doctrine of separability of an arbitration agreement from the underlying substantive contract in which it is embedded; whether an arbitration agreement would be non-existent in law, invalid or un-enforceable, if the underlying contract was not stamped as per the relevant Stamp Act; and, whether allegations of fraudulent invocation of the bank guarantee furnished under the substantive contract, would be an arbitrable dispute. 1.1 The Respondent No.1-lndo Unique Flame Ltd. ("Indo Unique") applied for grant of work of beneficiation/washing of coal to the Karnataka Power Corporation Ltd. ("KPCL") in an open tender. KPCL awarded the Work Order vide letter of Award No.A1M1B3/Washed Coal/1052 dated 18.09.2015 to Indo Unique. In pursuance of the Work Order dated 18.09.2015, the Respondent No.1 Company furnished Bank Guarantees for Rs.29.29 crores in favour of KPCL through its bankers, State Bank of India ("SBI"), the Respondent No.2 herein. 1.2 Indo Unique, the Respondent No.1 herein, subsequently entered into a sub-contract termed as a Work Order dated 28.09.2015 with the Appellant Company - M/s. N.N. Global Mercantile Pvt. Ltd. ("Global Mercantile"), for the transportation of coal from its washery at Village Punwat, District Yavatmal to the stockyard, siding, coal handling and loading into the wagons at Pandharpaoni siding, District Chanderpur, Maharashtra. Clause 9 of the Work Order provided for furnishing a security deposit which reads as : "9. Security Deposit: You will submit the Bank Guarantee for Rs.5.00 crores for the average stock of washed coal lying at your stockyard. This Bank Guarantee can be issued from any nationalised Bank/first class bank, initially valid for a period of 18 (eighteen) months." Clause 10 of the Work Order incorporates an arbitration clause, which reads as: "10. Arbitration : In case of any dispute due to difference of opinion in interpretation of any clause or terms and conditions or meaning of the work or language the decision of the arbitrator appointed with mutual consent shall be treated as final and binding on both the parties." 1.3 As per Clause 9 of the Work Order, Global Mercantile furnished a Bank Guarantee for Rs.3,36,00,000/- on 30.09.2015, in favour of SBI-the banker of Indo Unique. The Bank Guarantee was extended from time to time, and was last extended on 10.11.2017. 1.4 Under the principal contract with KPCL dated 18.09.2015, certain disputes and differences arose with Indo Unique, which led to the invocation of the Bank Guarantee by KPCL on 06.12.2017. 1.5 Indo Unique, on 07.12.2017, invoked the Bank Guarantee furnished by Global Mercantile under the Work Order. It is the invocation of this Guarantee which has led to the present proceedings. 1.6 Global Mercantile filed a Civil (Commercial) Suit No.62 of 2017 against Indo Unique, and its banker SBI, as also the banker of the Appellant i.e. the Union Bank of India (Respondent No.3 herein), before the Commercial Court, Nagpur praying inter alia for a declaration that Indo Unique was not entitled to encash the bank guarantee as the Work Order had not been acted upon. It was expressly stated that Indo Unique had not allotted any work under the Work Order, nor were any invoices raised, or payments made by it. Consequently, there was no loss suffered which would justify the invocation of the Bank Guarantee. It was alleged that the invocation of the Bank Guarantee was fraudulent, since it was not in terms of the Work Order, being a conditional guarantee linked to the performance of work. The Commercial Court vide an ex parte ad interim Order dated 15.12.2017 directed status-quo to be maintained with respect to the enforcement of the Bank Guarantee. 1.7 Indo Unique filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") in Civil (Commercial) Suit No.62 of 2017, seeking reference of disputes to arbitration. Global Mercantile opposed the application under Section 8 as being not maintainable since the Bank Guarantee was a separate and independent contract, and did not contain any arbitration clause. 1.8 The Commercial Court vide Order dated 18.01.2018 rejected the application under Section 8, and held that the arbitration clause in the Work Order dated 28.09.2015 was not a general arbitration clause, which would cover the Bank Guarantee. The Bank Guarantee was an independent contract between SBI and Union Bank of India for due performance of the contract. The Court noted the contention of Global Mercantile that neither of the parties had performed any part of the Work Order dated 28.09.2015, and consequently held that the jurisdiction of the Commercial Court was not ousted by the arbitration agreement. 1.9 Indo Unique then filed Civil Revision Petition No.9 of 2018 before the Bombay High Court challenging the Order passed by the Commercial Court. On an objection being raised on the maintainability of the Civil Revision Petition, the High Court vide Order dated 09.07.2020 permitted the withdrawal of the Civil Revision Petition, with liberty to file a petition under Articles 226 and 227 of the Constitution of India. 1.10 Indo Unique filed W.P. No.1801 of 2020 before the Bombay High Court to quash and set aside the Order dated 18.01.2018 passed by the Commercial Court/District Judge-I, Nagpur in Civil (Commercial) Suit No.62/2017. The High Court vide the Impugned Judgment dated 30.09.2020 held that it was the admitted position that there was an arbitration agreement between the parties, and therefore the application under Section 8 was maintainable. With respect to the contention that the invocation of the Bank Guarantee was fraudulent, it was held that the allegations of fraud did not constitute a criminal offence which would entail recording of voluminous evidence. The disputes could be resolved through arbitration, and the filing of the Suit before the Commercial Court was not justified. The Commercial Court was not justified in restraining the invocation of the bank guarantee in the absence of any finding on fraud or special equities. On the issue of the arbitration agreement being unenforceable since the Work Order was unstamped, it was held that the plaintiff/ Appellant herein, could raise the issue either under Section 11 of the Arbitration Act, or before the arbitral tribunal at the appropriate stage. The Writ Petition was held to be maintainable, since there is no absolute bar to entertain a Writ Petition even if an alternate remedy is available. The Writ Petition was allowed vide Judgment and Order dated 30.09.2020, and the Order dated 18.01.2018 passed by the Commercial Court was set aside. On the request of the counsel for the Appellant, the High Court suspended the operation of its Order for a period of one month from 30.09.2020. 1.11 The Review Petition filed by the Appellant was withdrawn vide Order dated 28.10.2020 passed in Review Application (ST) No. 9819 of 2020. On the request by the counsel for the Appellant, the Order of stay was continued till 20.11.2020. 1.12 Aggrieved by the judgment of the High Court, Global Mercantile has filed the present Special Leave Petition before this Court.
(2.) The issues which have arisen for our consideration are : i. Whether an arbitration agreement would be enforceable and acted upon, even if the Work Order dated 28.09.2015 is unstamped and un-enforceable under the Stamp Act? ii. Whether allegation of the fraudulent invocation of the bank guarantee is an arbitrable dispute? iii. Whether a Writ Petition under Articles 226 and 227 of the Constitution would be maintainable to challenge an Order rejecting an application for reference to arbitration under Section 8 of the Arbitration Act? We will now deal with each of these issues.
(3.) Validity of an arbitration agreement in an unstamped agreement 3.1 It is well settled in arbitration jurisprudence that an arbitration agreement is a distinct and separate agreement, which is independent from the substantive commercial contract in which it is embedded. This is based on the premise that when parties enter into a commercial contract containing an arbitration clause, they are entering into two separate agreements viz. (i) the substantive contract which contains the rights and obligations of the parties arising from the commercial transaction; and, (ii) the arbitration agreement which contains the binding obligation of the parties to resolve their disputes through the mode of arbitration. 3.2 The autonomy of the arbitration agreement is based on the twin concepts of separability and kompetenz - kompetenz. The doctrines of separability and kompetenz - kompetenz though inter-related, are distinct, and play an important role in promoting the autonomy of the arbitral process. 3.3 The doctrine of separability of the arbitration agreement connotes that the invalidity, ineffectiveness, or termination of the substantive commercial contract, would not affect the validity of the arbitration agreement, except if the arbitration agreement itself is directly impeached on the ground that the arbitration agreement is void ab initio. 3.4 The doctrine of kompetenz - kompetenz implies that the arbitral tribunal has the competence to determine and rule on its own jurisdiction, including objections with respect to the existence, validity, and scope of the arbitration agreement, in the first instance, which is subject to judicial scrutiny by the courts at a later stage of the proceedings. Under the Arbitration Act, the challenge before the Court is maintainable only after the final award is passed as provided by sub-section (6) of Section 16. The stage at which the order of the tribunal regarding its jurisdiction is amenable to judicial review, varies from jurisdiction to jurisdiction. The doctrine of kompetenz - kompetenz has evolved to minimize judicial intervention at the pre-reference stage, and reduce unmeritorious challenges raised on the issue of jurisdiction of the arbitral tribunal. 3.5 The doctrine of separability was expounded in the judgment of Heyman v. Darwins Ltd., [1942] AC 356. by the House of Lords wherein it was held that English common law had been evolving towards the recognition of an arbitration clause as a separate contract which survives the termination of the main contract. Lord Wright in his opinion stated that: "An arbitration agreement is collateral to the substantial stipulations of the contract. It is merely procedural and ancillary, it is a mode of settling disputes, though the agreement to do so is itself subject to the discretion of the court." Lord MacMillan in his opinion stated that: "It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract." 3.6 This rule has been affirmed in several cases, including Bremer Vulkan Schiffbau und Maschinefabrik v. South India Shipping Corporation, [1981] AC 909. in which Lord Diplock cited Heyman as an authority for the assertion that: "The arbitration clause constitutes a self-contained contract collateral or ancillary to the shipbuilding agreement itself." 3.7 In Harbour Assurance v. Kansa General International Insurance, [1993] 1 Lloyd's Rep. 455 (CA). the Court of Appeal held that if the arbitration clause is not directly impeached, an arbitration agreement is capable of surviving the invalidity of the contract, so that the arbitrator has the jurisdiction to determine the initial validity of the contract. It was opined that: "Once it became accepted that the arbitration clause is a separate agreement, ancillary to the contract, the logical impediment to referring an issue of the invalidity of the contract to arbitration disappears. Provided that the arbitration clause itself is not directly impeached (eg by a non-est factum plea), the arbitration agreement is as a matter of principled legal theory capable of surviving the invalidity of the contract." 3.8 In Lesotho Highlands Development Authority vs. Impregilo SpA and others, [2005] UKHL 43 : [2006] 1 A.C. 221 at [21]. the House of Lords affirmed the view taken in Harbour Assurance (supra), wherein it was held that an arbitration agreement is a distinct and separable agreement from the underlying or principal contract. "21. It is part of the very alphabet of arbitration law as explained in Harbour Assurance Co v. Kansa General International Insurance, ... spelled out in s. 7 of the Act, that the arbitration agreement is a distinct and separable agreement from the underlying or principal contract." 3.9 Article 16(1) of the Model Law incorporates the doctrine of separability : "Article 16. The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms a part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause." 3.10 The French Cour de Cassation recognised the doctrine of separability in broad terms in the Gosset v. Caparelli,[5] wherein it was held that: "In international arbitration, the agreement to arbitrate, whether concluded separately or included in the contract to which it relates, is always save in exceptional circumstances, ... completely autonomous in law which excludes the possibility of it being affected by the possible invalidity of the main contract." [5] Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545. 3.11 The doctrine of kompetenz - kompetenz is based on the premise that the arbitration agreement is separate and independent from the substantive underlying contract in which it is embedded. Equally, an arbitration agreement exists and can be acted upon irrespective of whether the main substantive contract is valid or not. The Court of Appeal in the seminal decision rendered in Fiona Trust and Holding Corporation v. Privalov, [2007] EWCA Civ 20. held that the allegation of invalidity of the underlying contract, would not preclude the arbitral tribunal from determining the said issue in the first instance, even though the alleged illegality would render the contract void from inception. In this case, the arbitration agreement was contained in a charter party agreement, wherein it was alleged that it had been procured through bribery by the owner's agent, and was invalid from its inception. It was held that only if the arbitration agreement is itself directly impeached, and rendered void or unenforceable on grounds which relate to the arbitration agreement itself, and not merely as a consequence of the invalidity of the underlying contract, that the courts may refuse reference to arbitration. To discourage parasitical challenges and dilatory tactics in resisting reference to arbitration, the Court of Appeal held in paragraph 38 that: "38. ... As we have sought to explain, once the separability of the arbitration agreement is accepted, there cannot be any question but that there is a valid agreement. If there is a contest about whether an arbitration agreement had come into existence at all, the court would have a discretion as to whether to determine that issue itself, but that will not be the case where there is an overall contract which is said for some reason to be invalid eg for illegality, misrepresentation or bribery and the arbitration agreement is merely part of the contract. ..." 3.12 In the Appeal filed in the Fiona Trust case before the House of Lords, in Fili Shipping Co Ltd and others v. Premium Nafta Products Ltd and others, [2007] UKHL 40. Lord Hoffman opined : "It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded. But section 7 in my opinion means that they must be treated as having been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement." Lord Hope in his separate opinion, held that: 'The owners' argument was not that there was no contract at all, but that they were entitled to rescind the contract including the arbitration agreement because the contract was induced by bribery. Allegations of that kind, if sound, may affect the validity of the main agreement. But they do not undermine the validity of the arbitration agreement as a distinct agreement. The doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside. This is an exacting test. The argument must be based on facts which are specific to the arbitration agreement. Allegations that are parasitical to a challenge to the validity to the main agreement will not do. That being the situation in this case, the agreement to go to arbitration must be given effect." 3.13 The law as it stands in U.K. today is that if the court while entertaining a plea to refer the parties to arbitration, is satisfied of the existence of the arbitration agreement, it is incumbent to refer the parties to arbitration, even if objections to the validity of the substantive contract are raised. Where the arbitration agreement is embedded in an underlying contract, the court would not entertain the dispute on the issue of jurisdiction until the arbitral tribunal has ruled on this issue. Lord Hoffman opined that: "But that is in my opinion exactly the kind of argument which s 7 was intended to prevent. It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement."[8] [8] [2007] 4 ALL ER 951 at 960, at paragraph 19. 3.14 On the issue of whether a claim of fraud in the inducement of the entire contract is to be decided by the court, or the arbitrator, was considered by the U.S. Supreme Court in Prima Paint Corporation v. Flood and Conklin MFG. CO., 388 US 395 (1967). The Court held that: "If the claim is fraud in the inducement of the arbitration clause itself an issue which goes to the 'making' of the agreement to arbitrate-the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally....... In so concluding, we not only honor the plain meaning of the statute but also the unmistakably clear congressional purpose that the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts." 3.15 The United States Supreme Court in Buckeye Check Cashing, Inc v. Cardegna et. al, US SC 440 (2006). followed the earlier decisions in Prima Paint and Southland Corp. vs. Keating., 79 L Ed 2d: 465 US 1 (1984). Scalia, J. opined : "Prima Paint and Southland answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance. Third, this arbitration law applies in state as well as federal courts. The parties have not requested, and we do not undertake, reconsideration of those holdings. Applying them to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract. The challenge should therefore be considered by an arbitrator, not a court." 3.16 In Rent-A- Center, West, Inc. v. Jackon, 561 US 63 (2010). the U.S. Supreme Court opined : "There are two types of validity challenges under 2: "One type challenges specifically the validity of the agreement to arbitrate," and "[t]he other challenges the contract as a whole, either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid." Buckeye, 546 U.S., at 444. In a line of cases neither party has asked us to overrule, we held that only the first type of challenge is relevant to a court's determination whether the arbitration agreement at issue is enforceable. See Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 US 395, 403-404 (1967); Buckeye, supra, at 444-446; Preston v. Ferrer, 552 US 346, 353-354 (2008). That is because 2 states that a "written provision" "to settle by arbitration a controversy" is "valid, irrevocable, and enforceable" without mention of the validity of the contract in which it is contained. Thus, a party's challenge to another provision of the contract, or to the contract as a whole, does not prevent a court from enforcing a specific agreement to arbitrate. "[A]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract." Buckeye, 546 U.S., at 445; see also id., at 447 (the severability rule is based on 2). The Court asserts that its holding flows logically from Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395 (1967), in which the Court held that consideration of a contract revocation defense is generally a matter for the arbitrator, unless the defense is specifically directed at the arbitration clause, id., at 404. We have treated this holding as a severability rule: When a party challenges a contract, "but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract." Buckeye Check Cashing, Inc. v. Cardegna, 546 US 440, 446 (2006). The second line of cases bearing on who decides the validity of an arbitration agreement, as the Court explains, involves the Prima Paint rule. See ante, at 71. That rule recognizes two types of validity challenges. One type challenges the validity of the arbitration agreement itself, on a ground arising from an infirmity in that agreement. The other challenges the validity of the arbitration agreement tangentially-via a claim that the entire contract (of which the arbitration agreement is but a part) is invalid for some reason. See Buckeye, 546 U.S., at 444. Under Prima Paint, a challenge of the first type goes to the court; a challenge of the second type goes to the arbitrator. See 388 U.S., at 403-404; see also Buckeye, 546 U.S., at 444-445. The Prima Paint rule is akin to a pleading standard, whereby a party seeking to challenge the validity of an arbitration agreement must expressly say so in order to get his dispute into court.";