SPENTEX INDUSTRIES LTD v. QUINN EMANUEL URQUHART & SULLIVAN LLP

15. Similarly, the Supreme Court in Sasan Power Ltd. vs. North American Coal Corporation (India) Pvt. Ltd.(supra) held as follows:-

25. The language of Section 45 of the Act quoted above makes it clear that notwithstanding anything contained in Part I or in the Code of Civil Procedure, a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. Thus, even if, under Section 9 read with Section 20 CPC, the Bombay High Court had the jurisdiction to entertain the suit, once a request is made by one of the parties or any person claiming through or under him to refer the parties to arbitration, the Bombay High Court was obliged to refer the parties to arbitration unless it found that the agreement referred to in Section 44 of the Act was null and void, inoperative or incapable of being performed. In the present case, the appellant may not have made an application to refer the parties to arbitration, but Section 45 of the Act does not refer to any application as such. Instead, it refers to the request of one of the parties or any person claiming through or under him to refer the parties to arbitration. In this case, the appellant may not have made an application to refer the parties to arbitration at Singapore but has filed an affidavit-inreply to the notice of motion and has stated in Paras 3, 4 and 5 of this affidavit that the defendant had already invoked the arbitration agreement in the Facilitation Deed and the arbitration proceedings have commenced and that the suit was an abuse of process of court. The appellant had thus made a request to refer the parties to arbitration at Singapore which had already commenced. xxx

36. Thus, the arbitration agreement does not become “inoperative or incapable of being performed” where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator. N. Radhakrishnan v. Maestro Engineers [(2010) 1 SCC 72] and Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [AIR 1962 SC 406] were decisions rendered in the context of domestic arbitration and not in the context of arbitrations under the New York Convention to which Section 45 of the Act applies. In the case of such arbitrations covered by the New York Convention, the Court can decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed, and not on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the disputes between the parties. xxx

41. We make it clear that we have not expressed any opinion on the dispute between the appellant and the respondent as to whether the Facilitation Deed was voidable or not on account of fraud and misrepresentation. Clause 9 of the Facilitation Deed states inter alia that all actions or proceedings arising in connection with, touching upon or relating to the Facilitation Deed, the breach thereof and/or the scope of the provisions of the section shall be submitted to ICC for final and binding arbitration under its Rules of Arbitration. This arbitration agreement in Clause 9 is wide enough to bring this dispute within the scope of arbitration. To quote Redfern and Hunter on International Arbitration (5th Edn., p. 134, para 2.141) “Where allegations of fraud in the procurement or performance of a contract are alleged, there appears to be no reason for the Arbitral Tribunal to decline jurisdiction.” Hence, it has been rightly held by the learned Single Judge of the Bombay High Court that it is for the arbitrator to decide this dispute in accordance with the arbitration agreement."

20. Similarly, in Sasan Power Ltd. vs. North American Coal Corporation (India) Pvt. Ltd.(supra) the Supreme Court and this aspect held as follows:- “46. Section 45 permits an enquiry into the question whether the arbitration agreement is “null and void, inoperative and incapable of being performed” xxx

48. It is settled law that an arbitration agreement is an independent or “self-contained” agreement. In a given case, a written agreement for arbitration could form part of another agreement, described by Lord Diplock as the “substantive contract” [Aughton Ltd. v. MF Kent Services Ltd., (1991) 57 BLR 1 (CA)“the status of a so-called “arbitration clause” included in a contract of any nature is different from other types of clauses because it constitutes a “self-contained contract collateral or ancillary to” “the substantive contract”. These are the words of Lord Diplock in Bremer Vulkan Schiffbau and Maschinenfabrik v. South India Shipping Corpn. Ltd., 1981 AC

909. It is a self-contained contract, even though it is, by common usage, described as an “arbitration clause”. It can, for example, have a different proper law from the proper law of the contract to which it is collateral. This status of “self-contained contract” exists irrespective of the type of substantive contract to which it is collateral.”] by which parties create contractual rights and obligations. Notwithstanding the fact that all such rights and obligations arising out of a substantive contract and the agreement to have the disputes (if any, arising out of such substantive contract) settled through the process of arbitration are contained in the same document, the arbitration agreement is an independent agreement. Arbitration agreement/clause is not that governs rights and obligations arising out of the substantive contract: It only governs the way of settling disputes between the parties.

49. In our opinion, the scope of enquiry (even) under Section 45 is confined only to the question whether the arbitration agreement is “null and void, inoperative or incapable of being performed” but not the legality and validity of the substantive contract. xxx

51. This Court in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums [(2003) 6 SCC 503], which was a case where there was a dealership agreement between the parties for supply of petroleum products to the respondents before this Court. On the ground that the dealer committed certain irregularities in business, supply of petroleum products was suspended by the appellant for a period of 30 days and along with the penalty of Rs 15,000. The dealer filed a civil suit seeking a declaration that the action of HPCL was illegal and arbitrary. In the said suit, HPCL filed an application praying that the dispute be referred to arbitration in view of the arbitration agreement between the parties. The said application was dismissed by the civil court holding that the dispute between the parties was not covered by the arbitration agreement which finding came to be confirmed by the High Court in a revision. Dealing with the question, this Court held: (SCC pp. 511-12, para

16)

If it is impermissible for a civil court to examine whether a dispute is really covered by the arbitration agreement, we see no reason to hold that a civil court exercising jurisdiction under Section 45 could examine the question whether the substantive agreement (of which the arbitration agreement is a part) is a valid agreement. No doubt that HPCL case [Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503] was in the context of the bar contained in Section 8 of the 1996 Act. But the same principles of interpretation apply even for the interpretation of Section 45.”

21. Reference may be had to the judgment of a Coordinate Bench of this court in Clearwater Capital Partners (Cyprus) Ltd. vs. Satyajit Singh Majithia & Ors (supra). The Coordinate Bench there was dealing with a shareholder agreement which provided that the venue of arbitration would be Singapore. Respondents No. 1 to 6 therein filed a suit seeking declaration that the agreements in question were illegal and therefore, void- ab-initio. Respondents No.1 to 6 had filed a suit claiming following relief: “10. On 3rd February 2012 Respondent Nos. 1 to 6 filed CS(OS) No. 277 of 2012 seeing the following reliefs: (a) declaration that SSA and SHA, both dated 11th December 2005 and the amended SHA dated 22nd January 2010 are „illegal and therefore, void ab initio being in complete contravention of the External Commercial Borrowing Guidelines („ECB Guidelines‟) issued by the Reserve Bank of India („RBI‟) as well as the Securities Contracts (Regulation) Act, 1956 („SCR Act‟); (b) declaration that Put Option contained in Clause 9.[6] of SHA as amended by Clause 1.[1] of the amended SHA was „illegal and unlawful and not enforceable in law;

(c) permanent injunction restraining the CCPCL, (Defendant

No. 1 in the suit) from initiating any legal action for the enforcement of any terms of the SSA and SHA “including but not limited to invocation of the arbitration clauses” in the SSA and SHA as well as the amended SHA as well as enforcement of Put Option contained in Clause 9.6.”

22. The court considered the issue as to whether the suit seeking the aforesaid relief was maintainable in view of the arbitration clause in the shareholder agreement. The court held as follows:-

23. Similarly, in Himalaya International Ltd. vs. Simplot India Foods Pvt. Ltd & Anr., 2014 SCC Online Del. 217, this court while dealing with a suit seeking a decree for permanent injunction to restrain the defendant from proceeding before the Singapore International Arbitration Centre for arbitration of the Shareholder Agreement and Master Agreement held as follows:-

24. Similarly, in McDonald’s India Private Ltd. vs. Vikram Bakshi & Ors., (Supra), the Division Bench of this court held as follows:-

61. Thus, there is now a mandate to refer the parties to arbitration unless the court finds that prima faice no valid arbitration agreement exists. This is clearly not the case here. Therefore, in any eventuality, in the facts and circumstances of the case and applying the principles, as indicated above, the learned single Judge could not have restrained the appellant from pursuing the arbitration proceedings before the arbitral tribunal.

62. There is a very interesting observation in paragraph 7.01 of Redfern and Hunter on International Arbitration: Sixth Edition: Oxford University Press. The observation is as follows:- “The relationship between national courts and arbitral tribunals swings between forced cohabitation and true partnership. Arbitration is dependent on the underlying support of the courts, which alone have the power to rescue the system when one party seeks to sabotage it. …”

63. Courts need to remind themselves that the trend is to minimize interference with arbitration process as that is the forum of choice. That is also the policy discernible from the 1996 Act. Courts must be extremely circumspect and, indeed, reluctant to thwart arbitration proceedings. Thus, while courts in India may have the power to injunct arbitration proceedings, they must exercise that power rarely and only on principles analogous to those found in sections 8 and 45, as the case may be, of the 1996 Act. We have already indicated that the circumstances of invalidity of the arbitration agreement or it being inoperative or incapable of being performed do not exist in this case.”

25. It would follow from the above judgments that the policy which is clear is that courts have to be extremely circumspect and reluctant in any manner to interfere in arbitration proceedings. The mandate is to refer parties to arbitration unless the arbitration agreement is on the face of it null and void, inoperative or incapable of being performed. The court is not to examine the legality or validity of the substantive agreement.

26. I may look at the facts of the case to see as to what are the allegations to claim that the arbitration agreement is null and void, inoperative or incapable of being performed. First plea raised by the learned counsel for the plaintiff is that the provisions of Sections 44 and 45 of the Arbitration Act do not apply to the agreement as the agreement between a client and a lawyer which is the subject matter of the present dispute, „cannot be considered as commercial under the law in force in India‟. Reference may be had to the relevant statutory provisions, namely, Section 44 and 45 of the Arbitration Act which read as follows:-

45 Power of judicial authority to refer parties to arbitration. — Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”

27. In terms of Section 44, a foreign award would mean an arbitral award arising out of a legal relationship considered as commercial under the law in force in India. The word “commercial” has not been defined in the Arbitration Act. However, learned counsel for the plaintiff has relied upon the judgments of the Supreme Court in the case of M.P. Electricity Board and Ors. vs. Shiv Narayan & Anr., (supra) and the judgment of the Bombay High Court in Sakharam Narayan Kherdekar vs. City of Nagpur Corporation & Ors.(supra) to plead that the work of a lawyer cannot be said to be commercial in nature. Learned counsel for the defendant rebuts the said submission. He relies upon judgments of the Supreme Court in the case of R.D.Saxena vs. Bahram Prasad Sharma (supra) and judgment of the Allahabad High Court in the case of Aditya Narayan Singh vs. State Election Commission (supra) to support his plea. I may first look at the said judgments relied upon by the plaintiff.

28. In M.P. Electricity Board and Ors. vs. Shiv Narayan & Anr., (supra), the Supreme Court was dealing with a case where the tenant was an advocate and was using the office in a tenanted premises. The appellant sought to levy charges for a commercial connection on the respondents. In that context the Supreme Court noted the issue as follows:-

29. The Court held has follows:-

30. In view of the said judgment in the case of NDMC vs. Sohan Lal Sachdev (supra) the Supreme Court referred the issue to a larger Bench. The larger Bench vide judgment dated 27.10.2005 allowed the appeal of the Electricity Company. The judgment of the Supreme Court in the case of NDMC vs. Sohan Lal Sachdeva was upheld. However, the court clarified that it is not going into the issue as to whether an advocate can be said to be carrying on commercial activity.

31. The other judgement relied upon by the plaintiff is the judgment of the Division Bench of the Bombay High Court in the case of Sakharam Narayan Kherdekar vs. City of Nagpur Corporation & Ors. (supra). That was a case relating to Bombay Shops and Establishments Act. The concerned official had sought registration of the office of an advocate under the aforenoted act. In those circumstances, the court held as follows:-

32. In this context reference may also be had to the judgments relied upon by the learned counsel for the defendant. In the case of R.D. Saxena vs. Balram Prasad Sharma (supra) the Supreme Court held as follows:-

33. Similarly, the Division Bench of the Allahabad High Court in Aditya Narayan Singh vs. State Election Commission, Uttar Pradesh (supra) held as follows:-

34. In my opinion, in the facts of this case, the aforesaid two judgments relied upon by learned counsel for the plaintiff would have no application. The factual backgrounds on which the aforesaid two judgments were rendered were entirely different. In this context reference may be had to the judgement of the Supreme Court in the case of R.M. Investment and Trading Co. Pvt Ltd. vs. Boeing Co. & Anr., (1994) 4 SCC 541. The Supreme Court was dealing with the issue whether the agreement for consultant services for sale of Boeing aircrafts in India is a commercial agreement within the meaning of Section 2 of the Foreign Awards (Recognition and Enforcement) Act, 1961. The court held as follows:- “12. It is not disputed that the sale of aircraft by Boeing to customers in India was to be a commercial transaction. The question is whether rendering of consultancy services by RMI for promoting such commercial transaction as consultant under the Agreement is not a “commercial transaction”. We are of the view that the High Court was right in holding that the agreement to render consultancy services by RMI to Boeing is commercial in nature and that RMI and Boeing do stand in commercial relationship with each other. While construing the expression “commercial” in Section 2 of the Act it has to be borne in mind that the “Act is calculated and designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration and any expression or phrase occurring therein should receive, consistent with its literal and grammatical sense, a liberal construction.” [See: Renusagar Power Co. Ltd. v. General Electric Co. [(1984) 4 SCC] (SCC at p. 723-24: SCR at p. 492) and Koch Navigation Inc. v. Hindustan Petroleum Corpn. Ltd. [(1989) 4 SCC 259, 262 (para 8)] (SCC at p. 262: SCR at p. 75).] The expression “commercial” should, therefore, be construed broadly having regard to the manifold activities which are integral part of international trade today.” The term commercial has to be interpreted liberally consistent with its literal and grammatical sense.

35. In this context reference may also be had to the judgement of the Supreme Court in the case of New Delhi Municipal Council vs. Sohan Lal Sachdev, (Supra). The court was dealing with the Electricity Act, 1910. The court noted as follows:-

36. The term commerce has been defined in Collins Concise Dictionary, Third Edition as follows: “Commerce: The activity embracing all forms of the purchase and sale of goods and services” Clearly transactions relating to services for valuable consideration would be a commercial legal relationship and would be covered by Section 44 of the Arbitration and Conciliation Act, 1996.

37. There is another aspect which is quite relevant The aforenoted two judgments relied upon by the learned counsel for the plaintiff were passed keeping into account that the advocates in India are governed by a statutory regime, namely, The Advocates Act, 1961 and the rules and regulations framed thereunder. However, in the present case the defendant is a foreign law firm not governed by the statutory regime prevailing in India relating to advocates.

38. Essentially, the defendant has initiated arbitration proceedings for his outstanding fees. The defendant being a law firm was advising and acting for the plaintiff subsidiary. It was to be paid for the services as agreed upon. It cannot be urged that such an agreement was completely bereft of elements of commerce. The claim of the law firm is that the plaintiff have defaulted in paying its professional charges and other aspects. The claim does not relate to professional issues. As the proceedings are substantially for recovery of money, the same would tantamount to a commercial relationship as per section 45 of the Arbitration Act. Hence, the plea of the learned counsel for the plaintiff that section 44 and 45 of the act are not attracted is a plea without merits.

39. Another plea raised by the learned counsel for the plaintiff was that the agreement in question involves payment of contingency fees and such an agreement would be void in India. The plea is misplaced. A perusal of the Engagement Letter dated 20.05.2013 shows that there is a component of fixed fee also which was spelt out being USD 750,000 payable at different stages. Other costs have also to be recovered. Hence, the entire contract is not based only on the contingency fees. Further as rightly pointed out by the learned counsel for the defendant, the agreement is governed by the laws prevailing in USA. It is not the case of the plaintiff that under the US law contingency fees is barred. Hence, on account of these stated allegations, it cannot be held that the document in question, namely, the Engagement Letter is null and void. This plea also does not lead to a conclusion that the Arbitration Agreement is null and void inoperative or incapable of being performed.

40. The last argument of the learned counsel for the plaintiff was that the defendant has done no professional work for the plaintiff. The entire work was done for the subsidiary company. This is a plea which is at best on the merits of the claim of the defendant before the concerned arbitral tribunal. The Supreme Court in World Sport Group (Mauritius) Ltd. vs. MSM Satellite (Singapore) PTE Ltd. had noted as follows:- “36. Thus, the arbitration agreement does not become “inoperative or incapable of being performed” where allegations of fraud have to be inquired into and the court cannot refuse to refer the parties to arbitration as provided in Section 45 of the Act on the ground that allegations of fraud have been made by the party which can only be inquired into by the court and not by the arbitrator. N. Radhakrishnan v. Maestro Engineers [(2010) 1 SCC 72] and Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak [AIR 1962 SC 406] were decisions rendered in the context of domestic arbitration and not in the context of arbitrations under the New York Convention to which Section 45 of the Act applies. In the case of such arbitrations covered by the New York Convention, the Court can decline to make a reference of a dispute covered by the arbitration agreement only if it comes to the conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed, and not on the ground that allegations of fraud or misrepresentation have to be inquired into while deciding the disputes between the parties.”

41. Hence, the noted ground does not in any manner effect the arbitration agreement. It does not also lead to a conclusion that the arbitration agreement is null and void, inoperative or incapable of being performed.

42. The plaintiff have failed to show or plead that the arbitration agreement is null and void, inoperative or incapable of being performed. The plaint fails to disclose any cause of action. It was for the plaintiff to have participated in the arbitration proceedings and raised any issues/defences which they thought appropriate. They have chosen to abstain themselves from the arbitration proceedings and the award has already been passed. They are free to take appropriate steps as per law against the award.

43. The present application is allowed.

44. As the court is presently hearing matters vide video conferencing, the court master may also inform Ld. Counsels for the parties on phone about the present pronouncement. The present suit is without any cause of action and the suit is accordingly dismissed. Pending applications, if any, also stand dismissed.

JAYANT NATH, J May 12, 2020 rb