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Arbitration and Conciliation Act, 1996 – ss. 8, 11 and 37 – Maharashtra Stamp Act, 1958 – ss. 30, 32A, 33, 34, 35, 36, 37, 41 and 58 – Commercial Courts Act, 2015 – s.13(1A) – Respondent no.1 furnished bank guarantee for Rs.29.29 crores in favour of KPCL, in pursuance of the work order awarded to it by KPCL for work of washing of coal – Subsequently, respondent no.1 entered into a sub-contract/work order dated 28.09.2015 (with arbitration clause) with the appellant company for transportation of coal from its washery – Appellant company also furnished bank guarantee of Rs.3,36,00,000/- in favour of the banker of the respondent no.1 – Dispute arose between KPCL and respondent no.1, which led to invocation of the bank guarantee by KPCL – In turn, respondent no.1 invoked the bank guarantee furnished by the appellant company – Appellant filed a civil commercial suit against the respondent no.1 for a declaration that respondent no.1 was not entitled to encash the bank guarantee as the work order was not acted upon – It was also alleged that invocation of bank guarantee was fraudulent – The Commercial Court directed to maintain status- quo – Respondent no.1 filed an application u/s.8 of the 1996 Act seeking reference to arbitration – Application rejected by the Commercial Court – It held that the arbitration clause in the work order dated 28.09.2015 was not a general arbitration clause, which would cover bank guarantee – Bank guarantee was an independent contract – Writ petition by respondent no.1 – The High Court held that application u/s. 8 of the 1996 Act was maintainable and disputes could be resolved through arbitration – It also held that the filing of suit before the Commercial Court was not justified – Issues arised for consideration before the Supreme Court were: (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 bank guarantee is an arbitrable dispute; (iii) Whether writ petition was maintainable to challenge an order rejecting an application for reference to arbitration u/s.8 of the 1996 Act – Held: Non-payment or deficiency of Stamp duty on the work order does not invalidate the main contract – The arbitration agreement contained in the work order is independent and distinct from the underlying commercial contract – s.3 of the Maharashtra Stamp Act does not subject an arbitration agreement to payment of Stamp Duty – On the basis of the doctrine of separability, the arbitration agreement being a separate and distinct agreement from the underlying commercial contract, would survive independent of the substantive contract – The arbitration agreement would not be rendered invalid, un-enforceable or non-existent, even if the substantive contract is not admissible in evidence, or cannot be acted upon on account of non-payment of Stamp Duty – The civil aspect of fraud is considered arbitrable – The criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjusted by a Court of law, since it may result in conviction, which is in the realm of public law – In the instant case, the allegation of fraud with respect to the invocation of the bank guarantee are arbitrable, since it arises out of the disputes between the parties inter se and is not in realm of public law – The writ petition filed by the respondent no.1 was not maintanable, since a statutory remedy under the amended s.37 of the 1996 Act is available. Arbitration – Arbitration agreement – Held: 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. Doctrines/Principles – Doctrine of separability of the arbitration agreement – Held: 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. A Doctrines/Principles – Doctrine of kompetenz – Held: 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 s.16. |
