Scope of Section 45 of the Arbitration and Conciliation Act, 1996

Introduction

A Division Bench of the Supreme Court (“SC”) comprising of Justice A.K. Patnaik and Justice Ibrahim Kalifulla have ruled that the ongoing dispute between World Sport Group (Mauritius) Limited (“WSG”) and MSM Satellite (Singapore) Pte. Limited (“MSM”) will be decided by Arbitration proceedings to be held at Singapore. The SC while deciding so also set aside the judgment of the Bombay High Court wherein the Bombay High Court had injucted (stopped) WSG from continuing arbitration proceedings against MSM.

Brief Facts 

The dispute relates to the grant of media rights for the Indian Premier League (“IPL”) by the Board of Control for Cricket in India (“BCCI”) to WSG and MSM.

MSM was granted media rights for IPL by BCCI in the Indian Sub-Continent and WSG was granted media rights for IPL by BCCI for the rest of the world.

Thereafter, WSG and MSM entered into an agreement, whereby MSM was to pay Rs. 425 Crores to WSG and acquire global rights to broadcast the IPL - The Agreement provided for a dispute resolution clause – “disputes would be resolved by arbitration by the International Chamber of Commerce (“ICC”) to be held at Singapore”.

Thereafter Board of Cricket Control in India (“BCCI”) wrote to MSM stating that WSG had no role to play in the execution of the Contract and hence the facilitation fee of Rs. 425 Crores was to be paid to BCCI.

Thereafter MSM rescinded the Agreement on the ground that the agreement was voidable on grounds of misrepresentation and fraud by WSG.

Pursuant to the recession, WSG sought to invoke the arbitration clause in the Agreement and as a counter blast of WSG’s notice - MSM filed a suit in the High Court of Bombay for a declaration that the Agreement was voidable and that WSG was not entitled to invoke arbitration clause in the Agreement.

The Suit was dismissed by a single judge of the High Court of Bomaby but allowed in appeal by a Division Bench.

Thereafter WSG approached the Supreme Court against the Division Bench order.

Contentions

MSM had contended that WSG did not have any right to relinquish or to facilitate the procurement of Indian subcontinent media rights for the IPL from BCCI and no facilitation services could have been provided by WSG. Thus MSM claimed that the said representation by WSG which formed the basis for the Agreement was false and accordingly, the Deed was voidable at the option of MSM.

MSM further contented that the arbitration agreement was inoperative or incapable of being performed as allegations of fraud could be enquired into by the court and not by the arbitrator.

Decision

“This ground of challenge to the Facilitation Deed does not in any manner affect the arbitration agreement contained in Clause 9 of the Facilitation Deed, which is independent of and separate from the main Facilitation Deed and does not get rescinded as void by the letter dated 25.06.2010 of the respondent. The Division Bench of the Bombay High Court, therefore, could not have refused to refer the parties to arbitration on the ground that the arbitration agreement was also void along with the main agreement.”

On MSM’s contention that the arbitration agreement was inoperative or incapable of being performed as allegations of fraud could be enquired into by the court and not by the arbitrator, the Court held that,

“...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.”

Conclusion

The SC has very rightly held that a court in the context of a foreign arbitration would be obliged to refer parties to arbitration unless the arbitration agreement itself was found to be null and void, inoperative or incapable of being performed as outlined in Section 45 of the Arbitration and Conciliation Act, 1996 (Act). The decision is significant as it formulates precise guidelines based on which Indian Courts can refuse to refer parties to arbitration under Part II of the Act.

Note:    As the disqualifications in Section 45 were not satisfied in the present matter the Court held that the HC should not have interfered with the arbitration.

The dispute will now have to be submitted to ICC for arbitration to be held in Singapore.