# AVITEL POST STUDIOZ LIMITED & ORS v. HSBC PI HOLDINGS (MAURITIUS) LIMITED

- **Citation:** [2020] 10 S.C.R. 791
- **Court:** Supreme Court of India
- **Decided:** 2020-08-19
- **Case number:** Civil Appeal No. 5145 of 2016
- **Bench:** R. F. Nariman, Navin Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/avitel-post-studioz-limited-ors-v-hsbc-pi-holdings-mauritius-limited-34494
- **Pages:** 66

## Headnote

Arbitration and Conciliation Act, 1996 - s. 9 - Contract Act,
1872 - ss. 17 and 18 - A Share Subscription Agreement (SSA) and
Shareholders' Agreement (SHA) was entered into between the
claimant and the appellants - Both SSA and SHA contained an
identical arbitration clause - It was alleged that the appellants made
a representation that they were at a very advanced stage of finalising
a contract with the British Broadcasting Corporation (BBC) to
convert the BBC's film library from 2D to 3D - This contract was
expected to generate a revenue of USD 300 million in first phase,
and ultimately over USD 1 billion - Pursuant thereto, the claimant
made an investment in the equity capital of the appellants for a
consideration of USD 60 million in order to acquire 7.8% of its
paid up capital - The claimant discovered that the purported BBC
contract was non-existent and was set up by the appellants to induce
the claimants into investing the aforesaid money of USD 60 million
in the shares of Appellants - It was also alleged that the entire
investment proceeds of USD 60 million was siphoned off to
Companies in which the appellants had a stake - As dispute arose
between the parties, the notices of arbitration were issued by the
claimant to the Singapore International Arbitration Centre to
commence arbitral proceedings - The Emergency Arbitrator passed
two interim awards in favour of the claimant - The claimant filed
application u/s. 9 of the 1996 Act - The Single Judge of the High
Court directed appellants to deposit any shortfall in their account
so as to maintain a balance of USD 60 million - The Division Bench
of the High Court, however, directed appellants to deposit half of
USD 60 million i.e. at USD 30 million - By a final award, the Arbitral
Tribunal held that the claimant was entitled to damages in the total
amount of USD 60 million plus interest and costs - The Foreign
[2020] 10 S.C.R. 791
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award was challenged by the appellants u/s. 34 before the High
Court - The petition u/s. 34 was dismissed by the High Court - An
appeal u/s. 37 of the 1996 Act was also dismissed - Meanwhile, the
claimant moved the High Court for the enforcement of the Foreign
Final award - Before the Supreme Court, the appellant contended
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 - The
claimant countered that issues were predominantly civil law issues
to be decided inter parties - After hearing the parties, the Court
formulated question: Whether there is a strong prima facie case
made out in favour of the claimant in the s. 9 proceedings - Whether
balance of convenience tilts in favour of the claimant - Held: On a
conspectus of facts and following Supreme Court judgments, the
issues raised and answered in the Foreign Final award would
indicate that there is no such fraud as would vitiate the arbitration
clause in the SSA entered into between the parties as it is clear that
this clause has to be read as an independent clause - Further, any
finding that the contract itself is either null and void or voidable as
a result of fraud or misrepresentation does not entail the invalidity
of the arbitration clause - Further, the impersonation, false
representation made and diversion of funds are all inter parties,
having no 'public flavour' and attract the 'fraud exception' - A
reading of the Foreign Final award would show that a strong prima
facie case was made out as the award holds the BBC transaction as
a basis on which the contract was entered into and the USD 60
million paid by the claimant, which would fall within fraudulent
inducement to enter into contract u/s. 17 of the Contract Act - The
order passed by the Single Judge of the High Court to keep aside
USD 60 million was fair - However, the reduction of USD 60 million
to USD 30 million by the

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AVITEL POST STUDIOZ LIMITED & ORS.
v.
HSBC PI HOLDINGS (MAURITIUS) LIMITED
(Civil Appeal No. 5145 of 2016)
AUGUST 19, 2020
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Arbitration and Conciliation Act, 1996 - s. 9 - Contract Act,
1872 - ss. 17 and 18 - A Share Subscription Agreement (SSA) and
Shareholders' Agreement (SHA) was entered into between the
claimant and the appellants - Both SSA and SHA contained an
identical arbitration clause - It was alleged that the appellants made
a representation that they were at a very advanced stage of finalising
a contract with the British Broadcasting Corporation (BBC) to
convert the BBC's film library from 2D to 3D - This contract was
expected to generate a revenue of USD 300 million in first phase,
and ultimately over USD 1 billion - Pursuant thereto, the claimant
made an investment in the equity capital of the appellants for a
consideration of USD 60 million in order to acquire 7.8% of its
paid up capital - The claimant discovered that the purported BBC
contract was non-existent and was set up by the appellants to induce
the claimants into investing the aforesaid money of USD 60 million
in the shares of Appellants - It was also alleged that the entire
investment proceeds of USD 60 million was siphoned off to
Companies in which the appellants had a stake - As dispute arose
between the parties, the notices of arbitration were issued by the
claimant to the Singapore International Arbitration Centre to
commence arbitral proceedings - The Emergency Arbitrator passed
two interim awards in favour of the claimant - The claimant filed
application u/s. 9 of the 1996 Act - The Single Judge of the High
Court directed appellants to deposit any shortfall in their account
so as to maintain a balance of USD 60 million - The Division Bench
of the High Court, however, directed appellants to deposit half of
USD 60 million i.e. at USD 30 million - By a final award, the Arbitral
Tribunal held that the claimant was entitled to damages in the total
amount of USD 60 million plus interest and costs - The Foreign
[2020] 10 S.C.R. 791
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award was challenged by the appellants u/s. 34 before the High
Court - The petition u/s. 34 was dismissed by the High Court - An
appeal u/s. 37 of the 1996 Act was also dismissed - Meanwhile, the
claimant moved the High Court for the enforcement of the Foreign
Final award - Before the Supreme Court, the appellant contended
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 - The
claimant countered that issues were predominantly civil law issues
to be decided inter parties - After hearing the parties, the Court
formulated question: Whether there is a strong prima facie case
made out in favour of the claimant in the s. 9 proceedings - Whether
balance of convenience tilts in favour of the claimant - Held: On a
conspectus of facts and following Supreme Court judgments, the
issues raised and answered in the Foreign Final award would
indicate that there is no such fraud as would vitiate the arbitration
clause in the SSA entered into between the parties as it is clear that
this clause has to be read as an independent clause - Further, any
finding that the contract itself is either null and void or voidable as
a result of fraud or misrepresentation does not entail the invalidity
of the arbitration clause - Further, the impersonation, false
representation made and diversion of funds are all inter parties,
having no 'public flavour' and attract the 'fraud exception' - A
reading of the Foreign Final award would show that a strong prima
facie case was made out as the award holds the BBC transaction as
a basis on which the contract was entered into and the USD 60
million paid by the claimant, which would fall within fraudulent
inducement to enter into contract u/s. 17 of the Contract Act - The
order passed by the Single Judge of the High Court to keep aside
USD 60 million was fair - However, the reduction of USD 60 million
to USD 30 million by the Division Bench of the High Court was not
justified - The claimant has made out a strong prima facie case
necessitating that USD 60 million, being the principal amount
awarded to them, is kept apart in the manner indicated by the Single
Judge of the High Court - The balance of convenience is also in its
favour.
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Dismissing the Civil Appeal No.5145 of 2016 and allowing
the Civil Appeal No.5158 of 2016, Civil Appeal no.9820 of 2016,
the Court
HELD: 1. In order to discover whether there is a strong
prima facie case made out in favour of the Claimant before the
Arbitral Tribunal in the present section 9 proceedings, it is
necessary to refer to the Foreign Final Award dated 27.09.2014.
The Arbitral Tribunal found that the siphoning off of a large part
of the amount of USD 60 million into companies owned or
controlled by the appellants herein was made out. As a result
thereof, it was found that the Claimant, in respect of its claim for
fraudulent misrepresentation, and its claim in tort for deceit, is
entitled to damages in the total amount of USD 60 million plus
interest and costs as awarded. [Para 20][843-A-B; 844-F; 852G]
2. There can be no doubt whatsoever after reading the
issues and some of the material findings in the Foreign Final Award
that the issues raised and answered are the subject matter of
civil as opposed to criminal proceedings. The fact that a separate
criminal proceeding was sought to be started and may have failed
is of no consequence whatsoever. Therefore, on a conspectus of
these facts, and following Supreme Court judgments, that the
issues raised and answered in the Foreign Final Award would
indicate:
(i) That there is no such fraud as would vitiate the arbitration
clause in the SSA entered into between the parties as it is clear
that this clause has to be read as an independent clause. Further,
any finding that the contract itself is either null and void or voidable
as a result of fraud or misrepresentation does not entail the
invalidity of the arbitration clause which is extremely wide.
(ii) That the impersonation, false representations made, and
diversion of funds are all inter parties, having no "public flavour"
as explained earlier so as to attract the "fraud exception".
[Para 21][853-B-F]
3. Thus, a reading of the Foreign Final Award in this case
would show that a strong prima facie case has indeed been made
out as the Award holds the BBC transaction as a basis on which
the contract was entered into and the USD 60 million paid by the
Claimant, which would clearly fall within fraudulent inducement
to enter into a contract under section 17 of the Contract Act.
AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI
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Such a contract would be voidable at the instance of the Claimant.
Also, the findings on the siphoning off of monies that were meant
to be allocated for the performance of the BBC contract would
attract the tort of deceit. The measure of damages for such
fraudulent misrepresentation is not the difference between the
value of the shares on the date of making the contract and the
value Claimant would have received, if it had resold those shares
in the market, after the purchase. The measure of such damages
would be to put Claimant in the same position as if the contract
had never been entered into, which is, the entitlement to recover
the price paid for the shares and all consequential losses. This
being the case, it is difficult to accede to the Division Bench's
finding as to the measure of damages in such cases. [Para 22][853F-H; 854-A-B]
4. So far as the appeal of Claimant is concerned, this Court
is of the view that it has substance in that the USD 60 million that
was to be kept aside vide the Single Judge's (High Court) order,
was fair and just in the facts of the case in that it is only the principal
amount without any interest or costs that is ordered to be kept
aside. Further, the reduction of USD 60 million to USD 30 million
by the Division Bench of the High Court is not justified given
our finding on the measure of damages in the facts of this case.
[Para 23][854-B-D]
5. It is clarified that any finding made on facts in this
judgment is only prima facie for the purpose of deciding the
section 9 petition. This Court have held that the Claimant has
made out a strong prima facie case necessitating that USD 60
million, being the principal amount awarded to them, is kept apart
in the manner indicated by the Single Judge of the Bombay High
Court. The balance of convenience is also in its favour. It is clear
that in case Claimant was to enforce the Foreign Final Award in
India in accordance with section 48 of the 1996 Act, irreparable
loss would be caused to it unless at least the principal sum were
kept aside for purposes of enforcement of the award in India.
[Para 24][854-E-F]
Afcons Infrastructure Ltd. v. Cherian Varkey
Construction Co. (P) Ltd. (2010) 8 SCC 24 : [2010] 8
SCR 1053; Booz Allen & Hamilton Inc. v. SBI Home
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Finance Ltd. (2011) 5 SCC 532 : [2011] 7 SCR 310;
Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.
(1999) 5 SCC 688 : [1999] 3 SCR 861; Vimal Kishor
Shah v. Jayesh Dinesh Shah (2016) 8 SCC 788 : [2016]
7 SCR 102; A. Ayyasamy v. A. Paramasivam (2016) 10
SCC 386 : [2016] 11 SCR 521; Ameet Lalchand Shah
v. Rishabh Enterprises (2018) 15 SCC 678 : [2018] 6
SCR 1001; Rashid Raza v. Sadaf Akhtar (2019) 8 SCC
710 : [2019] 12 SCR 460; Kishan Singh v. Gurpal Singh
(2010) 8 SCC 775 : [2010] 10 SCR 16; Guru Granth
Saheb Sthan Meerghat Vanaras v. Ved Prakash
(2013) 7 SCC 622 - relied on.
Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar
Oak [1962] 3 SCR 702; Swiss Timing Ltd. v.
Commonwealth Games 2010 Organising Committee
(2014) 6 SCC 677 : [2014] 6 SCR 514; Vidya Drolia
and Ors. v. Durga Trading Corporation (2019) SCC
OnLine SC 358; N. Radhakrishnan v. Maestro
Engineers (2010) 1 SCC 72 : [2009] 15 SCR 371; K.G.
Premshanker v. Inspector of Police (2002) 8 SCC 87 :
[2002] 2 Suppl. SCR 350; Syed Askari Hadi Ali
Augustine Imam v. State (Delhi Admn.) (2009) 5 SCC
528 : [2009] 3 SCR 1017; P. Swaroopa Rani v. M. Hari
Narayana (2008) 5 SCC 765 : [2008] 3 SCR 900; M.S.
Sheriff v. The State of Madras [1954] SCR 1144; V.M.
Shah v. State of Maharashtra (1995) 5 SCC 767 : [1995]
3 Suppl. SCR 79; State of West Bengal v. Associated
Contractors (2015) 1 SCC 32 : [2014] 10 SCR 426;
Hindustan Petroleum Corporation Ltd. v. Pinkcity
Midway Petroleums (2003) 6 SCC 503; P. Anand
Gajapathi Raju v. P.V.G. Raju (2000) 4 SCC 539 :
 [2000] 2 SCR 684; State of Tripura v. Province of East
Bengal, Union of India [1951] SCR 1; Ellerman &
Bucknall Steamship Co. Ltd. V. Shar Misrimal Bherajee
[1966] Supp SCR 92 - referred to.
Fazal D. Allana v. Mangaldas M. Pakvasa AIR 1922
Bom 303; John Minas Apcar v. Louis Caird Malchus
AIR 1939 Cal 473 - referred to.
AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI
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President of India and La Pintada Compania
Navigacion S.A. [1985] A.C. 104; Russel v. Russel
[1880] 14 Ch D 471; Charles Osenton & Co. v.
Johnston 1942 A.C. 130; Chatham and Dover Railway
Company v. South Eastern Railway Company [1893]
A.C. 429; British Railways Board and Herrington 1972
A.C. 877; Smith New Court Securities Ltd. v. Scrimgeour
Vickers (Asset Management) Ltd. [1996] 4 All ER 769;
Doyle v. Olby (Ironmongers) Ltd. [1969] 2 All ER 119
- referred to.
Case Law Reference
[2014] 6 SCR 514
referred to
Para 2
[2009] 15 SCR 371
referred to
Para 2
[2014] 10 SCR 426
referred to
Para 2
[2019] 12 SCR 460
relied on
Para 3
[2016] 11 SCR 521
relied on
Para 3
[1962] 3 SCR 702
referred to
Para 5
(2003) 6 SCC 503
referred to
Para 6
[2010] 8 SCR 1053
relied on
Para 7
[2011] 7 SCR 310
relied on
Para 8
[1999] 3 SCR 861
relied on
Para 8
[2000] 2 SCR 684
referred to
Para 9
[2016] 7 SCR 102
relied on
Para 10
[2018] 6 SCR 1001
relied on
Para 13
[2002] 2 Suppl. SCR 350
referred to
Para 15
[1995] 3 Suppl. SCR 79
referred to
Para 15
[1954] SCR 1144
referred to
Para 15
[2008] 3 SCR 900
referred to
Para 15
[2009] 3 SCR 1017
referred to
Para 15
[2010] 10 SCR 16
relied on
Para 15
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(2013) 7 SCC 622
relied on
Para 15
[1951] SCR 1
referred to
Para 17
[1966] Suppl. SCR 92
referred to
Para 19
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5145
of 2016.
From the Judgment and Order dated 31.07.2014 of the Bombay
High Court in Appeal No. 196 of 2014.
WITH
Civil Appeal Nos. 5158 and 9820 of 2016.
Mr. Mukul Rohatgi, Harish Salve, Nikhil Sakhardande, Vinay
Navare, Sr. Advs., Saurabh Kirpal, Sanjay Agarwal, Ms. Diksha Rai,
Ms. Manali Singhal, Nikhil Rohatgi, Ishan Bisht, Ms. Palak Mahajan,
Ms. Liz Mathew, Gautam Awasthi, Mrs. Meena Doshi, Mrs. Prabha
Swami, Nikhil Swami, Ms. Divya Swami, Ms. Abha R. Sharma,
Ms. Jasmine Damkewala, Sriniwas Joshi, Ms. Varshali Sharma, Yogesh
C. Naidu, Ms. Priyanka Shetty, Mr. Santosh Sachin, Advs. for the
appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
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:
(i) On 21.04.2011, a Share Subscription Agreement ["SSA"] was
entered into between HSBC and the Appellants. HSBC made an
investment in the equity capital of Avitel India for a consideration of
USD 60 million in order to acquire 7.8% of its paid-up capital. This SSA
contained an arbitration clause which reads as follows:-
AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI
HOLDINGS (MAURITIUS) LIMITED
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"16. DISPUTE RESOLUTION
16.1. Arbitration
16.1.1. Any dispute, controversy or claim arising out of or in
connection with this Agreement, including any question regarding
its existence, validity, interpretation, breach or termination shall
be referred to and finally resolved by binding arbitration at the
Singapore International Arbitration Centre ("SIAC") in accordance
with the International Arbitration Rules in force at the date of this
Agreement ("Rules"), which Rules are deemed to be incorporated
by reference into this clause and as may be amended by the rest
of this clause.
16.1.2. The seat of arbitration shall be Singapore.
16.1.3. The language of the arbitration proceedings shall be
English.
16.1.4. The arbitration tribunal shall consist of three (3) arbitrators:
the claimant party shall nominate one (1) arbitrator, the respondent
party shall nominate one (1) arbitrator and the two (2) arbitrators
thus appointed shall nominate the third arbitrator who shall be the
presiding arbitrator (the "Arbitration Tribunal"). If there is more
than one claimant party and/or more than one respondent party,
the claimant parties (for the purposes of this Clause 16.1 together
a "party") shall together designate one (1) arbitrator and the
respondent parties (for the purposes of this Clause 16.1 together
a "party") shall together designate one (1) arbitrator. If within 30
days of a request from the other party to do so, a party fails to
designate an arbitrator, or if the two (2) arbitrators fail to designate
the third arbitrator within 30 days after the confirmation of the
appointment of the second arbitrator, the appointment shall be
made, upon request of a party, by the SIAC council in accordance
with the Rules.
16.1.5. If within 14 days of a request from the other party to do
so, a party fails to nominate an arbitrator, or if the two (2) arbitrators
fail to nominate the third arbitrator within 14 days after the
confirmation of the appointment of the second arbitrator, the
appointment shall be made, upon request of a party, by the SIAC
council in accordance with the Rules.
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16.1.6. The parties waive any right to apply to any court of law
and/or other judicial authority to determine any preliminary point
of law and/or review any question of law and/or the merits, insofar
as such waiver may be validly made. The parties shall not be
deemed, however, to have waived any right to challenge any award
on the ground that the tribunal lacked substantive jurisdiction and/
or the ground of serious irregularity affecting the tribunal, the
proceedings or the award to the extent allowed by the law of the
seat of the arbitration.
16.1.7. Nothing in this Clause 16.1 shall be construed as preventing
any party from seeking conservatory or interim relief in any court
of competent jurisdiction.
16.1.8. Any award of the arbitration tribunal shall be made in
writing and shall be final and binding on the parties from the day it
is made and the parties agree to be bound thereby and to act
accordingly. The parties undertake to carry out the award without
delay.
16.1.9. During the conduct of any arbitration proceedings pursuant
to this Clause 16.1, this Agreement shall remain in full force and
effect in all respects except for the matter under arbitration and
the parties shall continue to perform their obligations hereunder,
except for those obligations involved in the matter under dispute,
and to exercise their rights here under.
16.2. Costs
The costs and expenses of the arbitration, including the fees of
the arbitration and the Arbitration Tribunal, shall be borne equally
by each Party to the dispute or claim and each Party shall pay its
own fees, disbursements and other charges of its counsel, except
as may be determined by the Arbitration Tribunal. The Arbitration
Tribunal would have the power to award interest on any sum
awarded pursuant to the arbitration proceedings and such sum
would carry interest, if awarded, until the actual payment of such
amounts.
16.3. Final and Binding
It is agreed by the Parties that any award made by the Arbitration
Tribunal shall be final and binding on each of the Parties that
were parties to the dispute.
AVITEL POST STUDIOZ LIMITED & ORS. v. HSBC PI
HOLDINGS (MAURITIUS) LIMITED [R. F. NARIMAN, J.]
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16.4. Application of Arbitration Act
Save for section 9, Part 1 of the Indian Arbitration and Conciliation
Act, 1996 (the "Arbitration Act"), the provisions of Part 1 of the
Arbitration Act shall not apply to the terms of this Agreement."
(ii) On 06.05.2011, the aforesaid parties entered into a
Shareholders' Agreement ["SHA"]which defined the relationship
between the parties after the SSA dated 21.04.2011 had been entered
into. The SHA also contained an arbitration clause which was identical
to the arbitration clause contained in the SSA. It is the case of HSBC
that a representation had been made by Appellants No. 2-4 (the Jain
family) that the Appellants were at a very advanced stage of finalising a
contract with the British Broadcasting Corporation ["BBC"] to convert
the BBC's film library from 2D to 3D. This contract was expected to
generate a revenue of USD 300 million in the first phase, and ultimately
over USD 1 billion. It is the further case of HSBC that this investment
of USD 60 million was required by Avitel India to purchase equipment
for Avitel Post Studioz FZ LLC ["Avitel Dubai"] to service the BBC
contract (Avitel Dubai is a 100% subsidiary of Avitel Holdings Ltd.,
Mauritius ["Avitel Mauritius"], which, in turn, is a 100% subsidiary of
Avitel India. Avitel India, Avitel Mauritius, and Avitel Dubai are collectively
referred to as the "Avitel Group").
(iii) In early April 2012, HSBC grew suspicious about the Avitel
Group's business of digitising films and Ernst & Young and KPMG Dubai
were appointed to inquire into and return findings as to the business
activities of the Avitel Group. It is the further case of HSBC that they
discovered, thanks to certain preliminary findings of Ernst & Young and
KPMG Dubai, inter alia, that the purported BBC contract was nonexistent and was set up by the Appellants to induce HSBC into investing
the aforesaid money of USD 60 million in the shares of Appellant No. 1.
It is also HSBC's case that though Avitel Dubai received the entire
investment proceeds of USD 60 million on or about 10.05.2011, it
appeared that around USD 51 million were not used to purchase any
equipment to service the BBC contract, but appeared to have been
siphoned off to companies in which the Jain family had a stake.
(iv) As disputes arose between the parties, on 11.05.2012, notices
of arbitration were issued by HSBC to the Singapore International
Arbitration Centre["SIAC"] to commence arbitral proceedings. On
14.05.2012, the SIAC appointed Mr. Thio Shen Yi, SC, as an Emergency
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Arbitrator pursuant to an application dated 11.05.2012. On 17.05.2012,
the Appellants' challenge to the appointment of the Emergency Arbitrator
was considered by the SIAC and rejected. On 25.05.2012, the Appellants
filed their response to the notices of arbitration.
(v) The Emergency Arbitrator then passed two Interim Awards
dated 28.05.2012 and 29.05.2012, in the SSA and the SHA, respectively,
in favour of HSBC, directing the Appellants and Avitel Dubai to refrain
from disposing of or dealing with or diminishing the value of their assets
up to USD 50 million, and permitting HSBC to deliver a copy of the
Interim Awards to financial institutions in India and the UAE with which
any of the Appellants hold or may hold or be signatory to accounts,
together with a request that the financial institutions freeze such accounts
consistent with the Interim Awards. On 27.07.2012, the Emergency
Arbitrator made an amendment to Interim Awards dated 28.05.2012
and 29.05.2012 passed in the SSA and the SHA, respectively, granting
further relief to HSBC by, inter alia, directing the Appellants and Avitel
Dubai to cease and desist from prohibiting or inhibiting Ernst & Young
and KPMG Dubai from conducting investigations into the financial affairs
of Avitel Dubai and Avitel Mauritius.
(vi) On 30.07.2012, HSBC filed Arbitration Petition No. 1062 of
2012 under section 9 of the 1996 Act in the Bombay High Court, inter
alia seeking directions to call upon the Appellants to deposit a security
amount to the extent of HSBC's claim in the arbitration proceedings that
had begun under both the SSA and the SHA.
(vii) On 03.08.2012, a learned Single Judge of the Bombay High
Court passed an interim order under the section 9 petition, inter alia
directing the Corporation Bank to allow the Appellants to withdraw a
sum of INR 1 crore from their account on or before 09.08.2012, but not
to allow any further withdrawals until further orders, till which time, the
account was to remain frozen.
(viii) Meanwhile, the Appellants challenged the jurisdiction of the
three-member Arbitral Tribunal comprising of Mr. Christopher Lau, SC
as its Chairman, and Dr. Michael C. Pryles and Justice (Retd.) Ferdino
I. Rebello as co-arbitrators ["Arbitral Tribunal"] set up under the
auspices of the SIAC. On 25.09.2012, the Arbitral Tribunal decided that
this would be decided as a preliminary issue. On 17.12.2012, the Arbitral
Tribunal passed a unanimous "final partial award on jurisdiction",
dismissing the jurisdictional challenge, and stating that since Singapore
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law governs the arbitration agreement, allegations of fraud and
complicated issues relating to facts are arbitrable.
(ix) Meanwhile, in the section 9 petition pending before the Bombay
High Court, an order was passed by a learned Single Judge dated
22.01.2014, in which the Appellants were directed to deposit any shortfall
in their account with the Corporation Bank so as to maintain a balance
of USD 60 million. The learned Single Judge gave prima facie findings
that the seat of arbitration was at Singapore and that the arbitration
agreement was governed by Singapore law; hence, arbitrability of the
dispute at hand would be governed by Singapore law. It held that the
unanimous "final partial award on jurisdiction" dated 17.12.2012, delivered
by the Arbitral Tribunal in Singapore, upholding the jurisdiction of the
Arbitral Tribunal to proceed, had not been challenged in Singapore by
the Appellants, and further held that this being the case, since HSBC
has a good chance of success in the final arbitral proceedings, the
aforesaid order to deposit the shortfall in the account so as to maintain a
balance of USD 60 million was passed.
(x) An appeal against the order of the learned Single Judge was
disposed of by the impugned judgment and order of the Division Bench
dated 31.07.2014, returning a prima facie finding that since Singapore
law governs the arbitration agreement, there was no need to interfere
with the findings of the learned Single Judge in this respect. Further, it
was held that there is no estoppel in filing the present proceeding despite
the Emergency Awards being passed in Singapore as the section 9 petition
could be maintained on a plain reading of the arbitration agreement itself.
It was further held that an issue of fraud in the context of sections 17
and 18 of the Indian Contract Act, 1872 ["Contract Act"] referred to
want of free consent, and was a well-accepted ground that would vitiate
the contract, rendering it voidable. After referring to various judgments
of this Court, it was held that there was a distinction between the
"suitability" and "arbitrability" of disputes, and on the facts of the present
case, it could not be said that the dispute was not arbitrable because of
an allegation of fraud made by HSBC. After then referring to the claim
statement of HSBC before the Arbitral Tribunal at Singapore, it was
held that the allegations of fraud and misrepresentation were primarily
in the context of "fraud" and "misrepresentation" as defined in sections
17 and 18 of the Contract Act, thus establishing a civil profile of the
disputes that had arisen between the parties. However, after referring
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to certain judgments on interim mandatory injunctions, the High Court
prima facie found that HSBC had carried out due diligence by engaging
leading agencies like Ernst & Young and Clifford Chance. Also, it was
held that the measure of damages that may ultimately be awarded may
not be the amount of loss ultimately sustained by HSBC, but can at best
be the difference between the price paid by HSBC in acquiring Avitel
India's shares and the price HSBC would have received had it resold
the said shares in the market. This being the case, and an interim
mandatory injunction being in the nature of equitable relief, the Division
Bench was of the opinion that the interest of justice would be served if
the Appellants are directed to deposit an additional amount equivalent to
USD 20 million in its Corporation Bank account, so that the total deposit
in the said account is maintained at half the said figure of USD 60 million,
i.e., at USD 30 million. The appeal against the order dated 22.01.2014
was therefore partly allowed.
(xi) By a Final Award in the SSA dated 27.09.2014 ["Foreign
Final Award"], the Arbitral Tribunal held as follows:
"21. FORMAL FINAL AWARD
21.1 The Tribunal has carefully considered the oral and
documentary evidence as well as the submissions of the Parties
and given due weight thereto and rejecting all submissions to the
contrary hereby makes, issues and publishes this Final Award and
for the reasons set out above FINDS, AWARDS, ORDERS AND
DECLARES as follows:
21.2 Finds that the Respondents jointly and severally represented
to the Claimant the following:
a. the Avitel Group's propriety stereoscopy technology was
superior to that of its competitor;
b. Avitel Dubai played an important role in the Avitel Group's
business;
c. the Avitel Group was in advanced negotiations with the BBC
and that the BBC Contract was close to execution;
d. the Claimant's investment was required and was to be utilized
for purchasing equipment in order to enable Avitel Dubai to
service the BBC Contract;
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e. the Avitel Group had the benefit of the Material Contracts
with Kinden, SPAC and Purple Passion with a total value of
approximately USD 658 million;
f. the Avitel Group's key customers Kinden, SPAC and Purple
Passion as well as Avitel Dubai's key supplier, Digital Fusion,
and key service provider, Highend, were all independent and
legitimate companies;
g. the representations and warranties contained in Clauses 6.1
and 6.2 of the SSA and in Clauses 7.1, 7.3, 7.5 , 8, 10 and 11 of
Schedule 3 of the SSA to be true, complete, accurate and not
misleading;
21.3 Finds that the Respondents made the representations and/or
warranties in order to induce the Claimant to invest in the First
Respondent;
21.4 Finds that the Claimant did rely on the representations and/
or warranties in making its investment in the First Respondent;
21.5 Finds that the representations and/or warranties referred to
in paragraph 21.2 (a) to (g) above were false and/or misleading;
21.6 Finds that the Respondents made the representations and/or
warranties referred to in paragraph 21.2 (a) to (g) above knowing
that these were false and/or without belief in their truth;
21.7 Finds that the Respondents are jointly and severally liable to
the Claimant in tort for deceit;
21.8 Finds that the Respondents are jointly and severally liable to
the Claimant for fraudulent misrepresentation under the Contract
Act;
21.9 Finds that the Respondents are jointly and severally liable to
the Claimant for breach of warranty;
21.10 Finds that the Second, Third and Fourth Respondents are
to jointly and severally indemnify the Claimant for the loss of its
investment in the amount of USD 60 million as well as for the
costs of and associated with this arbitration and associated court
actions;
21.11 Finds that the Claimant in respect of its claim for fraudulent
misrepresentation and its claim in tort for deceit is entitled to
damages in the total amount of USD 60 million;
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21.12 Finds that the Claimant is entitled to interest on the sum of
USD 60 million from 6 May 2011 to the date of this Final Award
at the rate of 4.25 % per annum;
21.13 Finds that the Claimant is entitled to its legal and other
costs as well as the costs of the arbitration in the total amount of
SGD 827,615.67 comprising of the following:
(a) the amount of SGD 29,235.88 in respect of the Emergency
Arbitrators fees and expenses
(b) the amount of SGD 756,513.19 in respect of the Tribunal's
fees and expenses;
(c) the amount of SGD 41,866.60 in respect of SIAC
administrative fees and expenses;
21.14 Finds that upon the Respondents' paying in full and
unconditionally the sums awarded to the Claimant in paragraphs
21.15, 21.16, 21.18, 21.19 below, the Claimant's Preference
Subscription Shares and Equity Subscription Shares (as defined
in the SSA) in Avitel India are to be cancelled forthwith;
21.15 Awards to the Claimant and Orders the Respondents to
pay damages in the amount of USD 60 million in respect of which
award the First, Second, Third and Fourth Respondents are jointly
and severally liable;
21.16 Awards to the Claimant and Orders the Respondents to
pay interest on the sum of USD 60 million from 6 May 2011 to the
date of this Final Award at the rate of 4.25% per annum in respect
of which award the First, Second, Third and Fourth Respondents
are jointly and severally liable;
21.17 Orders in terms identical to the orders in the Interim Award
(as amended by the Addendum and Amendment to Interim Award
dated 15 June 2012 and by the Amendment to Interim Award
dated 27 July 2012), which orders are to remain in force up to and
including the date on which the Respondents comply with all other
orders in this Final Award;
21.18 Awards to the Claimant and Orders the Respondents to
pay the Claimant's legal and other costs amounting to USD
1,652,890.14 in respect of which award the First, Second, Third
and Fourth Respondents are jointly and severally liable;
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21.19 Awards to the Claimant and Orders the Respondents to
pay all the costs of this arbitration in the total amount of SGD
827,615.67 as follows:
(a) the amount of SGD 29,235.88 in respect of the Emergency
Arbitrator's fees and expenses;
(b) the amount of SGD 756,513.19 in respect of the Tribunal's
fees and expenses;
(c) the amount of SGD 41,868.60 in respect of SIAC
administrative fees and expenses;
21.20 Declares the Second, Third and Fourth Respondents jointly
and severally liable to indemnify the Claimant for the loss of its
investment in the amount of USD 60 million together with interest
thereon for the period and at the rate specified in paragraph 21.16
hereinabove and the Claimant's legal costs, related expenses as
well as the costs of this arbitration as specified in paragraph 21.19
hereinabove;
21.21 Declares and Orders that upon the Respondents' paying in
full and unconditionally the sums awarded to the Claimant in
paragraphs 21.15, 21.16, 21.18, 21.19 hereinabove and all costs
arising out of and incidental to the cancellation of the Claimant's
Preference Subscription Shares and Equity Subscription Shares
(as defined in the SSA) in Avitel India, that the said shares be
cancelled and that in this regard, the Parties take the requisite
steps to effect the said cancellation within 30 days of receipt of
such payment."
Initially, this Foreign Final Award was challenged by the Appellants
in a section 34 proceeding in the Bombay High Court. By a judgment
dated 28.09.2015, the section 34 petition was dismissed as being not
maintainable. An appeal under section 37 of the 1996 Act was dismissed
on 05.05.2017. Meanwhile, HSBC moved the Bombay High Court on
15.04.2015 to enforce the Foreign Final Award in the SSA dated
27.09.2014, which enforcement proceedings are still pending.
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
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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. v.
Commonwealth Games 2010 Organising Committee, (2014) 6
SCC 677 ["Swiss Timing"] which had held the judgment in N.
Radhakrishnan v. 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 v. 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
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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 v. 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 v. 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.