TaxTMI 
TaxTMI 
2014 (7) TMI 1253
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.... on the date when the impugned judgment and order came to be passed, the amount in the appellants Corporation Bank account was in the range of Rs. 60 Crores or USD 10 Million, which in terms of the impugned judgment and order, the appellants have been restrained to withdraw. Further, the impugned judgment and order issues an interim mandatory injunction to deposit the short fall, i.e., about USD 50 Million in the Corporation Bank within a period of four weeks from the date of the order. 2. The factual matrix in which the aforesaid judgment and order came to be made has been set out in great details in the impugned judgment and order itself. However, a brief reference to some pertinent facts and circumstances is necessary for the purposes of appreciating the challenges raised in the present appeal. 3. Appellant No. 1 is a company incorporated under the provisions of the Companies Act, 1956 having its registered office at Mumbai (hereinafter referred to as "Avitel India"). Appellant No. 1 is stated to be engaged in the business of production of animated works, media past production and film restoration services. Appellant No. 1 is a parent company in the Avitel Group, inasmuch ....
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.... emergency relief under the provisions of Singapore International Arbitration Council Rules 2010 (SIAC). 8. The Arbitral Tribunal at Singapore passed two unanimous final partial awards dismissing the jurisdictional challenges raised by the appellants on 17 December 2012 and 15th March 2013. The jurisdictional awards, inter alia, hold as under:- (a) that the Singapore law and not the Indian law was the governing law of the arbitration agreement; (b) that under the Singapore law, allegations of fraud and/or complicated issues of fact and law are arbitrable; (c) that the Arbitral Tribunal has jurisdiction to adjudicate the disputes between parties under the SSA and SHA. 9. The Arbitral Tribunal at Singapore has also granted some interim measures in favour of the HSBC and against the appellants on 28 and 29 May 2012. In regard to the SHA, the Arbitral Tribunal has passed unanimous final award on 3 November 2013. In regard to the SSA, final hearing before the Arbitral Tribunal at Singapore has concluded on 6 November 2013 and final award is awaited. 10. In the meantime, the HSBC instituted proceedings under Section 9 of the Act seeki....
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....e application for interim relief under section 9 of the Act; (c) In any case and without prejudice, it was submitted that the proceedings under section 9 of the Act virtually seek enforcement of emergency award dated 29 May 2012 by which the appellants' bank accounts were sought to be frozen and directions issued to secure the claim of the HSBC. Relying upon the decision of the Delhi High Court in HFCL v. UOI (OMP No. 464 of 2009) decided on 18 August 2009, it was submitted that a petition under section 9 of the Act for enforcement of an award is clearly not maintainable; (d) Assuming that arbitral proceedings were competent in Singapore, for a foreign award to be enforced or executed in India, it is necessary that the conditions of enforceability set out in section 48 of the Act are complied with. In terms of section 48(2)(a) of the Act, no award can be enforced if, the subject matter itself is not capable of settlement by arbitration under law of India. In the present case, the HSBC has made serious allegations of fraud and criminality and it is well settled that the issues of such nature are not capable of settlement by arbitration. It is submit....
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....ant of interim mandatory injunction, the applicant has to satisfy the Court that its case is of higher standard than a prima facie case which is normally sufficient for grant of prohibitory injunction. This much has been laid down by the Supreme Court in Dorab Cawasji Warden vs. Coomi Sorab Warden & ors- (1990) 2 SCC 117. Inasmuch as, this principle has been overlooked, the impugned judgment and order calls for interference; (v) The impugned order virtually grants final relief to HSBC, at the interim stage. This is clearly impermissible. 13. Dr. Tulzapurkar, learned senior counsel for the HSBC, at the outset, submitted that: (a) The HSBC claim was not in its capacity as a share holder. The HSBC claim, was basically in the capacity of an entity which was induced to enter into a contract of investment, without free consent. The consent was not free because it was caused by the fraud and misrepresentation as defined under sections 17 and 18 of the Indian Contract Act, 1872 or principles analogous thereto. In such circumstances, it was submitted that there was no question of resort to the provisions of sections 397 and 398 of the Companies Act, 1956; ....
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....ied upon or considered by the learned Single Judge, since in terms of the provisions contained in section 190 of Cr.P.C., as also several authorities, upon which reliance was placed, there arises no question of taking cognizance of such report in civil proceedings. The Magistrate to whom such report is made is empowered to take cognizance of the offence irrespective of the view expressed in the report or to direct the police to carry out further investigation in the matter; (f) Relying upon the authority of the Supreme Court in Wander Ltd. & anr. vs. Antoz India P. Ltd.- 1990 (supp) SCC 727, it was submitted that as an appellate court, we should desist reassessment of the material on record and seek to reach a conclusion different from the one reached by the learned Single Judge, particularly since the learned Single Judge has reasonably and in a judicious manner considered the material on record and exercised discretion by way of grant of interim measures. 14. The rival contentions now fall for our evaluation. 15. We are unable to accept Mr. Kirpal's contention that the HSBC, being merely a disgruntled share holder could only have resorted to the provision....
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....arding 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 Singapore 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 ... 16.1.6 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, in so far 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 o....
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....rinciple of estoppel should be fully applied. 21. The principle of issue estoppel has been explained in Wade & Forsyth on Administrative Law, 9th Edition at page 243 and quoted by the Supreme Court in Ishwar Dutt (supra), as follows; One special variety of estoppel is res judicata. This results from the rule which prevents the parties to a judicial determination from litigating the same question over again, even though the determination is demonstrably wrong. Except in proceedings by way of appeal, the parties bound by the judgment are estopped from questioning it. As between one another, they may neither pursue the same cause of action again, nor may they again litigate any issue which was an essential element in the decision. These two aspects are sometimes distinguished as 'cause of action estoppel' and 'issue estoppel. 22. In our opinion, there is no necessity to decide the submission premised upon the principle of issue estoppel in the present proceedings. This is because we are satisfied that in the present case the law governing arbitration would be the law of Singapore. Clause 15 of the SSA, provides that agreement shall be governed by and constru....
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....d reasons, we see no merit in the submission of Mr. Kirpal that the law governing arbitration in the present case, is the Indian law. 26. This takes us to the next contention of Mr. Kirpal that the proceedings under section 9 of the Act, virtually seek enforcement of the emergency award dated 29 May 2012, by which interim measures, similar to those now granted by the learned Single Judge by the impugned judgment and order, came to be granted in favour of HSBC. Mr. Kirpal, relying upon the decision of the Delhi High Court in Himachal Futuristic Communication Ltd. (HFCL) vs. Union of India (OMP No. 464 of 2009) decided on 18 August 2009 submitted that a petition under section 9 for enforcement of an award is clearly not maintainable. 27. In HFCL (supra), learned Single Judge of Delhi High Court was basically faced with a situation where interim measures akin to those contemplated under Order 38 Rule 5 of CPC were applied after making of arbitral award, but before its enforcement. In this context, the learned Single Judge of the Delhi High Court observed that the applicant for interim measures, had neither pleaded nor established any of the ingredients necessary for invoking the....
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....n Report (FIR) against the appellants invoking the provisions of sections 419, 420, 467, 468 and 120-B of Indian Penal Code (IPC). These provisions deal with offences of cheating by impersonation, forgery for the purposes of cheating, and criminal conspiracy. Mr. Kirpal submitted that it is well settled that issues of serious allegations of fraud and criminality are incapable of settlement by arbitration under the law of India. Therefore, in terms of section 48(2)(a), if any final award made by the Arbitral Tribunal at Singapore is incapable of being enforced in India, then surely, there arises no question of granting any interim measures by the Indian Courts, particularly as interim measures are meant to be only in aid of final relief. Mr. Kirpal placed reliance on the decision of the Supreme Court in Afcon Infrastructure Ltd. v. Cherian Varkey Constructions Pvt. Ltd. (2010) 8 SCC 24, Booz Allen and Hamilton v. SBI Home Finance (2011) 5 SCC 532, N. Radhakrishnan (supra) and Goldstar metal Solutions v. Dattaro G. Kavtankar in Arb. Appeal No. 12 of 2013 dt. 13 March 2013, which according to him lay down that under the arbitration laws of India, serious allegations of fraud or crimin....
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.... himself believes it to be true. Thus, 'fraud' and 'misrepresentation' as defined under sections 17 and 18 of the Contract Act are well accepted grounds which would vitiate 'free consent' and consequently the contract itself. Therefore, as a general rule, it cannot be said that the moment allegations of fraud and misrepresentation are made in the context of a contract, the subject matter of the dispute is rendered incapable of resolution by arbitration. 32. In Booz Allen and Hamilton (supra), upon which reliance was placed by Mr. Kirpal, the Supreme Court has noted with approval its earlier decision in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651, in which the contention that a dispute relating to specific performance of a contract cannot be referred to arbitration, was repelled. In the said decision, the Supreme Court did observe that certain disputes like criminal offences of a public nature, disputes as to status such as divorce cannot be referred to arbitration. It was further held that if in respect of the facts relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, t....
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....ts award would not be binding in criminal proceedings. Even otherwise, the Constitution Bench in the aforesaid case has clearly held that no hard and fast rule can be laid down that civil proceedings in all matters ought to be stayed when criminal proceedings are also pending. As I have indicated earlier in case the award is made in favour of the petitioner herein, the respondents will be at liberty to resist the enforcement of the same on the ground of subsequent conviction of either the Chairman or the officials of the contracting parties. (emphasis supplied) 37. Based upon the aforesaid italicised portion, Mr. Kirpal submitted that enforcement of any arbitral award, in which allegations of fraud are upheld, can always be resisted. Therefore, according to Mr. Kirpal, any award that may be made by the Arbitral Tribunal at Singapore upholding the HSBC allegation of fraud against the appellants, would be unenforceable in India in the wake of categorical provisions contained in section 48(2)(a) of the Act. The parameters of determination at the stage of reference to arbitration and at the stage of enforcement of an award are different and distinct. This according to....
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.... and Purple Passion, which again was stated as dissolved on 23 November 2010 and therefore not in existence when HSBC invested in the Avitel Group. There is reference to the role played by one John Linwood or rather the person who is alleged to have played the role of John Linwood in the context of BBC Contract, which ultimately never materialized. There is reference to representations held out in form of tax returns, accounts and legal compliances which were misleading and untrue, to the knowledge of Avitel and Jains. On such basis, HSBC has raised a claim for damages which is presently being adjudicated by Arbitral Tribunal at Singapore. In fact, even the final arguments have been concluded in November 2013 and the final award is now expected at any time. 41. If the aforesaid allegations/pleadings as set out in the claim before the Arbitral Tribunal at Singapore are taken into consideration, then they establish an eminent civil profile of the disputes that has arisen between the parties. The allegations of fraud and misrepresentation are primarily in the context of fraud and misrepresentation as defined under sections 17 and 18 of the Contract Act or in any case principles ana....
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....e to representations held out by the appellants that the BBC contract was almost concluded or in any case, would be concluded, no sooner the equipment necessary for conversion of 2D films to 3D films is acquired. Such representations, eventually turned out to be false, to the knowledge of the appellants themselves. There is reference to representations held out by the appellants with regard to contracts with customers like M/s. Purple Passion valued at Millions of Dollars, which representations ultimately turned out to be false, to the knowledge of the appellants. In fact, there is prima-facie material on record which establishes that the entity M/s. Purple Passion had been dissolved even prior to the date of execution of agreements between the parties. There is reference to some material on record, which prima-facie suggest that no explanation was forthcoming from the appellants as to the manner in which USD 60 Million invested by the HSBC came to be spent. The appellants placed no clear material on record in this regard, thereby lending force to the contention of HSBC that out of USD 60 Million, an amount of almost USD 51 Million was circulated back into the account of appellant ....
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....17, M/s. India Card Pvt. Ltd. vs. State of Karnataka & anr.- (1989) 2 Supreme Court Cases 132 and H.S. Bains, Director Small Saving-cum-Deputy Secretary Finance, Punjab, Chandigarh vs. State (Union Territory of Chandigarh)- (1980) 4 SCC 631. In light of this position, we see no error on the part of the learned Single Judge in not adverting to the EOW report for determining whether prima-facie case has been made out by the HSBC or not. 47. In the course of arguments, Mr. Kirpal submitted that learned Single Judge in exercising powers under section 9 of the Act, has virtually proceeded to grant final relief to HSBC. Such submission is misconceived. The interim relief as granted, primarily directs Avitel India to secure the claim amount by way of deposit/retention of the same in its Corporation Bank Account in India. Final relief, if and when granted, would perhaps enable HSBC to obtain the claim amount for its own appropriation. Thus, this is not a case where learned Single Judge, in exercising powers under section 9 of the Act, has proceeded to grant final reliefs to HSBC. 48. By the impugned judgment and order, however, learned Single Judge has not only granted prohibitory in....
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....d be a sound exercise judicial discretion. 51. In Metro Marins & anr. vs. Bonus Watch Co. (P.) Ltd. & ors- (2004) 7 SCC 478, the Supreme Court reiterated the position laid down in Dorab Cawasji Warden (supra) that interim mandatory injunction can be granted only in exceptional cases coming within the exception noticed in the said judgment and that the grant of interim mandatory injunction must not amount to grant of a pre trial decree. 52. Applying the aforesaid principles, we have to evaluate as to whether pre-requisite for grant of interim mandatory injunction could be said to have been complied with in the present case. 53. As noted earlier, HSBC invested an amount of USD 60 Million in April-May 2011 contemporaneous with execution of SSA dated 21 April 2011 and SHA dated 11 May 2011. The decision to invest, was undoubtedly a commercial decision. Prior to such decision, there is material on record which suggests that, HSBC had carried out due diligence by engaging leading agencies like Ernst & Young, Clifford Chance at an expense of approximately Rs. 3 Crores. 54. The disputes arose between the parties after about a year from the date of execution of SSA and SHA, whic....
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....ness, as regards the aforesaid position. In respect of misrepresentation, HSBC has claimed damages to the extent of its investment sum of USD 60 Million, "less the value of HSBC investment in Avitel India to be assessed, but likely nil". In these circumstances, it cannot be said that HSBC had made out a case of a standard higher than a prima-facie case, requisite for an interim mandatory injunction to require Avitel India to deposit the entire amount of USD 60 Million in its Corporation Bank Account in India by way of security. It must be noted that in this case HSBC has also not offered to sell or surrender its shares/equities in Avitel India, but rather, HSBC seeks to retain the same whilst seeking damages proportionate to its entire extent of investment. 56. As noticed earlier, an interim mandatory injunction can only be granted in exceptional cases and that too preserve or restore status quo of the last non-contesting status, which preceded the controversy. The grant of interim mandatory injunction must not amount to grant of pre trial decree. Such relief is essentially an equitable relief and discretion in that regard has to be exercised in light of facts and circumstances ....