AVITEL POST STUDIOZ LIMITED Vs. HSBC PI HOLDINGS (MAURITIUS) LIMITED

JUDGEMENT

(1.) These two appeals being Civil Appeal No. 5145 of 2016 by Avitel Post Studioz Ltd. ["Avitel India"] and its promoters [the "Jain family"],and the cross appeal being Civil Appeal No. 5158 of 2016 by HSBC PL Holdings (Mauritius) Ltd. ["HSBC"], impugn the interlocutory judgment and order passed in the appeal under section 9 of the Arbitration and Conciliation Act, 1996 ["1996 Act"] dated 31.07.2014. To dispose of the said appeals, we refer to the facts in Civil Appeal No. 5145 of 2016. The brief facts necessary to appreciate the controversy that arises in the present case are as follows:

(2.) Mr. Mukul Rohatgi, learned Senior Advocate and Mr. Saurabh Kirpal, learned counsel, appearing on behalf of the Appellants, took us through the Single Judge order and the Division Bench judgment, and then referred to the Indian law on the allegations of fraud made in arbitral proceedings, which, according to them, show that if the transaction entered into between the parties involve serious criminal offences such as forgery and impersonation, then it is clear that under Indian law, such dispute would not be arbitrable. In fact, they stated that a criminal complaint was filed by HSBC against the Appellants dated 16.01.2013, alleging offences under sections 420, 467, 468, read with section 120B of the Indian Penal Code, 1860, with the Economic Offences Wing, Mumbai ["EOW"], resulting in an FIR being registered. However, the EOW informed HSBC that a closure report was filed before the concerned Magistrate in Mumbai. This closure report was then accepted. HSBC then filed a protest petition seeking rejection of the closure report, which was dismissed by the learned Magistrate on 05.05.2018. This order passed by the Magistrate was in turn challenged by HSBC in Writ Petition (Criminal) No. 5659 of 2018, which petition is still pending. They then argued that, ultimately, in enforcement proceedings in India, the gateways of section 48 of the 1996 Act have to be met. "The public policy of India" is contained in the judgments of this Court regarding serious allegations of fraud made in arbitral proceedings, and if HSBC cannot pass this gateway, then enforcing a foreign award in India would not be possible. It was from this prism that a prima facie case had to be made out under section 9 of the 1996 Act. They, therefore, attacked both the Single Judge order and the Division Bench judgment, stating that a prima facie case for enforcement of such foreign awards cannot possibly refer to the Singapore law on fraud being alleged in arbitral proceedings, but can only refer to Indian law. They further argued that the Division Bench of the Bombay High Court had relied upon a Single Judge judgment of this Court reported as Swiss Timing Ltd. vs. Commonwealth Games 2010 Organising Committee, (2014) 6 SCC 677 ["Swiss Timing"] which had held the judgment in N. Radhakrishnan vs. Maestro Engineers, (2010) 1 SCC 72 ["N. Radhakrishnan"] per incuriam, vitiating the entire Division Bench judgment. This is clear because a Single Judge judgment of this Court under section 11 of the 1996 Act has no precedential value as has correctly been held in State of West Bengal vs. Associated Contractors, (2015) 1 SCC 32 ["Associated Contractors"]. Mr. Rohatgi also indicated that Mr. Christopher Lau, SC, the Chairman of the Arbitral Tribunal in the Singapore proceedings was biased, in that HSBC was a client of the firm to which he belonged, and this is one of the important grounds taken up in the section 48 proceeding which is pending in the Bombay High Court. He also sought to raise an argument (for the first time before us) that the award being insufficiently stamped could not be looked at and that this would also go to show that there is no prima facie case in order to sustain the interim mandatory orders passed by the Division Bench of the High Court. It was further added that Report No. 246 of the Law Commission of India on 'Amendment to the Arbitration and Conciliation Act, 1996' of August 2014 ["246th Law Commission Report"] had recommended that a section 16(7) be added so as to do away with the ratio of N. Radhakrishnan (supra). However, Parliament thought it fit, when it passed the Arbitration and Conciliation (Amendment) Act, 2015 ["2015 Amendment Act"], not to incorporate such a section, showing that N. Radhakrishnan (supra) holds the field and that, therefore, serious questions of fraud raised, like in the present arbitral proceedings, would render such dispute inarbitrable. For this proposition, they relied heavily on the House of Lords judgment in President of India and La Pintada Compania Navigacion S.A., [1985] A.C. 104 ["La Pintada"].

(3.) Mr. Harish Salve, learned Senior Advocate appearing on behalf of the Respondent, HSBC, countered all these submissions by relying upon several judgments of this Court, including the recent judgment in Rashid Raza vs. Sadaf Akhtar, (2019) 8 SCC 710 ["Rashid Raza"]. According to the learned Senior Advocate, this judgment has, with great clarity, explained the judgment in A. Ayyasamy vs. A. Paramasivam, (2016) 10 SCC 386 ["Ayyasamy"], which in turn had explained N. Radhakrishnan (supra), as referring only to such serious allegations of fraud as would vitiate the arbitration clause along with the agreement, and allegations of fraud which are not merely inter parties, but affect the public at large. He argued that a reading of the pleadings in the present case would show that neither of these two tests has been met. He also copiously read from the Foreign Final Award dated 27.09.2014, which found not merely on impersonation, which was one small leg on which it stood, but also on siphoning off or diversion of a substantial portion of the USD 60 million paid by HSBC into companies owned or controlled by the Jain family. He said that these issues are predominantly civil law issues to be decided inter parties. He further argued that insofar as Mr. Christopher Lau SC's alleged bias is concerned, this was not the time or place to go into such allegations, which would only be fully met in the section 48 proceedings which are pending. He indicated that in any case, this Foreign Final Award was unanimous and consisted of two other arbitrators, Dr. Michael C. Pryles and Justice (Retd.) Ferdino I. Rebello, retired Chief Justice of the Allahabad High Court. He also asked us not to go into the stamping aspect of the Foreign Final Award inasmuch as it was raised here for the first time without any proper pleading; if properly pleaded, then his client would have had an opportunity to rebut the same to show that there was no insufficiency of stamp duty paid. Mr. Salve therefore supported the ultimate order of the learned Single Judge of the Bombay High Court, and said that the Division Bench ought not to have reduced the amount of USD 60 million to half, i.e., USD 30 million without any reasoning worth the name, particularly because the Foreign Final Award had held that the USD 60 million was to be paid by way of damages with interest and costs, the shares in HSBC's name standing cancelled. Once it is clear that the aforesaid shares stood cancelled, it is clear that the 7.8% of the paid-up share capital of Avitel India that was held by HSBC reverts to Avitel India. This being the case, there would be no awarding of the difference between market value of the shares as on the date of breach and USD 60 million, as the shares are back in the hands of Avitel India.