The Supreme Court of India has made concerted efforts to align its jurisprudence with international norms, to establish India as an arbitration-friendly jurisdiction. Its recent decision in World Sport Group v MSM Satellite brings India further in line with jurisdictions where the courts have held that allegations of fraud can be referred to arbitration.
Before World Sport Group v MSM, the Indian Supreme Court had consistently refused to allow fraud allegations to be heard before an arbitral tribunal, arguing that this was in the interests of justice, due to the complex fact scenarios and evidentiary requirements of such cases.
These earlier cases concerned domestic arbitrations and it was unclear whether this principle also extended to international arbitrations. In World Sport Group v MSM, the Supreme Court clarified the issue by ruling that there is no such bar on issues of fraud being determined by tribunals in international arbitrations. This judgment is expected to reverse the trend of Indian parties in international arbitrations challenging the arbitrability of disputes on the ground that allegations of fraud have been made.
Statutory framework and background
World Sport Group v MSM arose out of a facilitation agreement between the parties concerning media rights for the Indian Premier League broadcasts. The facilitation agreement was governed by English law and contained an ICC, Singapore arbitration clause. This clause granted the parties the right to seek equitable relief prior to the appointment of the arbitrator or remedies beyond the jurisdiction of the arbitrator in the courts in Singapore or in any other court with jurisdiction over the parties.
Following a dispute between the parties, the respondents filed for a declaration that the facilitation agreement was null and void on the grounds of fraud before the Bombay High Court. The appellants then initiated ICC arbitration proceedings in Singapore. The respondents successfully applied to the Bombay High Court for an anti-arbitration injunction; this was granted on the grounds that the substantive aspects of the case raised allegations of fraud, concerned public funds and involved a public body.
On appeal, the Supreme Court was asked to decide two issues.
- Did the Bombay High Court have jurisdiction to grant an injunction restraining a foreign seated arbitration between non-Indian residents?
- Was the Supreme Court required to defer to an agreement to arbitrate between parties to an international arbitration where the contract containing the arbitration agreement was alleged to have been vitiated by fraud?
The Court’s decision
The Supreme Court rejected the appellants’ contention that the High Court did not have the territorial jurisdiction to grant the injunction. Since the facilitation agreement had been executed in India and the alleged fraudulent inducement to enter into the contract and its subsequent rescission had taken place in India, the cause of action arose in India and gave the High Court territorial jurisdiction over the case.
The Supreme Court did not go into this issue at length and the assumption of jurisdiction did not (as will be seen below) affect the Court’s decision upon the arbitrability of the dispute. However, it is pertinent that the Supreme Court saw no impediment in asserting that the courts in India had jurisdiction in a case between non-Indian residents concerning a contract not governed by Indian law. The fact that the contract allowed parties to seek equitable relief in the courts of Singapore or in other courts with jurisdiction over the parties did not overturn the jurisdiction of the Indian courts.
In spite of its assumption of jurisdiction, the Supreme Court noted that the court was bound by the intent of the legislature to encourage arbitrations and referred to Part II of the Indian Arbitration and Conciliation Act, 1996, which draws on the New York Convention and states that parties shall be referred to arbitration unless the arbitration agreement between them is ‘null and void, inoperative or incapable of being performed’. (Section 45, Indian Arbitration and Conciliation Act).
The Supreme Court deliberately chose to read section 45 in consonance with international interpretations of the phrase as used in the New York Convention. Using this interpretation, allegations of fraud in relation to the main contract would not necessarily render the arbitration agreement ‘null and void’. The arbitration agreement was a separate contract and would not be avoided merely because the main agreement had been rescinded as void.
In addition, the fact that allegations of fraud would need to be inquired into would not make the arbitration agreement ‘inoperative or incapable of being performed’. These terms only cover situations where the arbitration agreement has ceased to have effect or where the arbitration cannot be effectively set into motion.
The Supreme Court could therefore not refuse to refer the dispute to an arbitral tribunal on the ground that allegations of fraud or misrepresentation would be inquired into while deciding the dispute, or because public bodies and public funds were involved, or even because another suit on the same issue was pending before an Indian court.
While the last point was not discussed in detail, it is likely that the pending suit in the Indian court will be also referred to arbitration.
By limiting the scope of its decision in World Sport Group v MSM to arbitrations to which Part II of the Indian Arbitration Act applies, the Supreme Court decision applies only to foreign seated arbitrations. Fraud will arguably continue as a bar to a reference to a domestic arbitration.
Scope of agreement
The Supreme Court alluded to the scope of the arbitration agreement in World Sport Group v MSM. The court acknowledged that it was for the arbitrator to decide on the merits of the case, as the arbitration agreement provided for arbitration of all disputes ‘arising in connection with, touching upon or relating to this Deed’. This should serve as a reminder to parties to draft their arbitration clauses as broadly as possible, since it is arguable that the court could still have refused to refer the parties to arbitration on the ground that the agreement did not cover the issues in question.