Case: Swiss Timing Limited Vs. Organising Committee, Commonwealth Games 2010, Delhi

3. The Petitioner is a company duly incorporated under the laws of Switzerland, having its registered office in Corgémont, Switzerland. The respondent is the Organising Committee, Commonwealth Games, 2010. It is a society registered under the Societies Registration Act, 1860 (hereinafter referred to as), established for the primary purpose of planning, organising and delivering the Commonwealth Games, 2010 Delhi (hereinafter referred to as) and having its registered office in New Delhi, India.4. The petitioner entered into an agreement dated 11th March, 2010 with the respondent for providing timing, score and result systems) as well as supporting services required to conduct the Commonwealth Games. According to the petitioner, Clause 11.1 of the aforesaid agreement stipulated the fees, as set out in Schedule 3, which shall be paid to the petitioner for performance of the obligations contained in the agreement. The aforesaid Schedule 3 gives details of the amounts which were to be paid, in instalments, by the Organising Committee. The service provider/Petitioner was to submit monthly tax invoices, detailing the payments to be made by the Organising Committee. These invoices were to be paid within 30 days of the end of the month in which the tax invoices were received by the Organising Committee. All payments were to be made in Swiss Francs, unless the parties agree otherwise in writing. Clause 11.5 provides that on the date of the agreement, the service provider must provide the Performance Bank Guarantee to the Organising Committee to secure the performance of its obligations under the agreement. Certain other obligations are enumerated in the other clauses, which are not necessary to be noticed for the purposes of the decision of the present petition.5. It is also noteworthy that in consideration of theservices as stipulated in the agreement, the petitioner was to receive a total amount of CHF 24,990,000/- (Swiss Francs Twenty Four Million Nine Hundred and Ninety Thousand only). It was also provided in Schedule 3 that payment of the 5% of the total service fees was to be made upon completion of the Commonwealth Games. Accordingly, the petitioner sent the invoice No. 33574 dated 27th October, 2010 for the payment of CHF 1,249,500 (Swiss Francs One Million Two Hundred Forty Nine Thousand Five Hundred only). This represents the remaining 5% which was to be paid upon completion of the Commonwealth Games on 27th October, 2010. The petitioner had also paid to the Organising Committee a sum of Rs. 15,00,000/- (INR 1.5 million) as Earnest Money Deposit (EMD), for successfully completing the TSR services as provided in the agreement.6. According to the petitioner, the respondent defaulted in making the payment without any justifiable reasons. Not only the amount was not paid to the petitioner, the respondent sent a letter dated 15th December, 2010 asking the petitioner to extend the Bank Guarantee till 31st January, 2011. The petitioner informed the respondent that the Bank Guarantee had already been terminated and released on completion of the Commonwealth Games in October, 2010. It is also the case of the petitioner that there is no provision in the service agreement for extension of the Bank Guarantee.The petitioner reiterated its claim for the aforesaid amount. Through letter dated 26th January, 2011, the petitioner demanded repayment of Rs. 15 lakhs deposited as EMD. Instead of making the payment to the petitioner and other companies, the respondent issued a Press Communiqué on 2nd February, 2011 declaring that part payments to nine foreign vendors, including the petitioner, have been withheld forThe petitioner is said to have protested against the aforesaid communiqué through letter dated 4th February, 2011. It was reiterated that the petitioner had satisfactorily performed the obligations in the service agreement of 11th March, 2010. Since the respondent was disputing its liability to pay the amounts, the petitioner served a formal Dispute Notification on the respondent under Clause 38 of the agreement.7. The petitioner further points out that on 7th February, 2011, the respondent called upon the petitioner to fulfil its alleged outstanding obligations under the agreement including handing over of the Legacy Boards, completion of the formalities of the material, which were required to be shipped out and to fulfil certain other requirements as set out in its earlier e-mails in order to prepare theThe respondent also stated that they were not addressing the issue of invoking the Dispute Resolution Clause as they were interested in settling the dispute amicably. The petitioner pleads that the respondent failed in its commitment for payments towards services rendered, not only towards the petitioner but also towards other international companies from Australia, Belgium, England, France, Germany, Italy, the Netherlands and Switzerland, which had provided various services to the respondent at the Commonwealth Games. It also appears that collective letters were written on behalf of various companies by the ambassadors of the concerned countries, to the Finance Minister of India indicating the default in payments of the amounts due. The petitioners, therefore, claim that they were left with no alternative but to invoke arbitration as provided under Clause 38.6 of the agreement. The petitioners have nominated the arbitrator on its behalf namely Justice S.N. Variava, former Judge of the Supreme Court of India. A notice to this effect was served on the respondent through a communication dated 22nd April, 2013. Since no response was received a reminder was issued on 29th May, 2013. Upon such failure, the petitioners have filed the present petition.8. In the counter affidavit all the averments made by the petitioners have been denied, as being incorrect in facts and in law. The respondents have raised two preliminary objections, which are asThe petitioner has not followed the dispute resolution mechanism as expressly provided in the agreement dated 11th March, 2010. No efforts have been made by the petitioner to seek resolution of the dispute as provided under Clause 38. On the other hand, the respondent through numerous communications invited the petitioner for amicable resolution of the dispute. The respondent relies on communications dated 3rd January, 2011, 9th January, 2011, 10th January, 2011, 1st February, 2011 and 2nd February, 2011.(ii) The contract stands vitated and is void ab initio in view of Clauses 29, 30 and 34 of the Agreement dated 11th March, 2010. Hence, the petitioner is not entitled to any payment whatsoever in respect of the contract and is liable to reimburse the payments already made. Therefore, there is no basis to invoke arbitrationrespondent points out that a combined reading of Clause 29 and Clause 34 would show that the petitioner had warranted that it will never engage in corrupt, fraudulent, collusive or coercive practices in connection with the agreement. The petitioner would be liable to indemnify the Respondent against all losses suffered or incurred as a result of any breach of the agreement or any negligence, unlawful conduct or wilful misconduct. The respondent may terminate the agreement whenever it determines that the petitioner had engaged in any corrupt, fraudulent, collusive or coercive practice in connection with the agreement. The respondent seeks to establish the aforesaid non-liability clause on the basis of registration of Criminal Case being CC No. 22 of 2011 under Section 120-B, read with Sections 420, 427, 488 and 477 IPC and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act against Suresh Kalmadi, the then Chairman of the Organising Committee and other officials of the respondent alongwith some officials of the petitioner, namely Mr. S. Chianese, Sales & Marketing Manager, Mr. Christophe Bertaud, General Manager and Mr. J. Spiri, Multi Sports Events & Sales Manager.9. It is further the case of the respondent that due to the pendency of the criminal proceedings in the trial court, the present petition ought not to be entertained. In case the arbitration proceeding continues simultaneously with the criminal trial, there is real danger of conflicting conclusions by the two fora, leading to unnecessary confusion.

Court's reasoning:
15. I am unable to agree with the submission made by the learned counsel for the respondent that the petitioner has not satisfied the condition precedent under Clause 38.3.A perusal of the correspondence placed on the record of the petition clearly shows that not only the petitioner but even the ambassadors of the various governments had made considerable efforts to resolve the issue without having to take recourse to formal arbitration. It is only when all these efforts failed, that the petitioner communicated to the respondent its intention to commence arbitration by letter /notice dated 22nd April, 2013. This was preceded by letters dated 4th February, 2011, 14th March, 2011 and 20th April, 2011 which clearly reflect the efforts made by the petitioner to resolve disputes through discussions and negotiations before sending the notice invoking arbitration clause.16. It is evident from the counter affidavit filed by the respondents that the disputes have arisen between the parties out of or relating to the agreement dated 11th March, 2010. On the one hand, the respondent disputes the claims made by the petitioner and on the other, it takes the plea that efforts were made to amicably put aI, therefore, do not find any merit in the submission of the respondent that the petition is not maintainable for non-compliance with Clause 38.3 of the Dispute Resolution Clause.17. The second preliminary objection raised by the respondent is on the ground that the contract stands vitiated and is void-ab-initio in view of Clauses 29, 30 and 34 of the agreement dated 11th March, 2010. I am of the considered opinion that the aforesaid preliminary objection is without any substance. Under Clause 29, both sides have given a warranty not to indulge in corrupt practices to induce execution of the Agreement. Clause 34 empowers the Organising Committee to terminate the contract after deciding that the contract was executed in breach of the undertaking given in Clause 29 of the Contract. These are allegations which will have to be established in a proper forum on the basis of the oral and documentary evidence, produced by the parties, in support of their respective claims. The objection taken is to the manner in which the grant of the contract was manipulated in favour of the petitioner. The second ground is that the rates charged by the petitioner were exorbitant. Both these issues can be taken care of in the award. Certainly if the respondent is able to produce sufficient evidence to show that the similar services could have been procured for a lesser price, the arbitral tribunal would take the same into account whilst computing the amounts payable to the petitioner. As a pure question of law, I am unable to accept the very broad proposition that whenever a contract is said to be void-ab-initio, the Courts exercising jurisdiction under Section 8 and Section 11 of the Arbitration Act, 1996 are rendered powerless to refer the disputes to arbitration.Having found that the subject matter of the suit was within the jurisdiction of the arbitration, it was held that the disputes can not be referred to arbitration. This Court approved the finding of the High Court that since the case relates to allegations of fraud and serious malpractices on the part of the respondents, such a situation can only be settled in court through furtherance of detailed evidence by either parties and such a situation can not be properly gone into by the arbitrator.In my opinion, the observations in Hindustan Petroleum Corpn. Ltd. (supra) lays down the correct law. Although, reference has been made to the aforesaid observations in N. Radhakrishnan (supra) but the same have not been distinguished.Keeping in view the aforesaid observations made by this Court, I see no reason to accept the submission made by the learned counsel for the respondents that since a criminal case has been registered against the Chairman of the Organising Committee and some other officials of the petitioner, this Court would have no jurisdiction to make a reference to arbitration.I am of the opinion that whenever a plea is taken to avoid arbitration on the ground that the underlying contract is void, the Court is required to ascertain the true nature of the defence. Often, the termsare confused and used loosely and interchangeably with each other. Therefore, the Court ought to examine the plea by keeping in mind the relevant statutory provisions in the Indian Contract Act, 1872, defining the terms0. In the present case, it is pleaded that the manner in which the contract was made between the petitioner and the respondent was investigated by the CBI. As a part of the investigation, the CBI had seized all the original documents and the record from the office of the respondent. After investigation, the criminal case CC No.22 of 2011 has been registered, as noticed earlier. It is claimed that in the event the Chairman of the Organising Committee and the other officials who manipulated the grant of contract in favour of the respondent are found guilty in the criminal trial, no amount would be payable to the petitioner. Therefore, it would be appropriate to await the decision of the criminal proceedings before the arbitral tribunal is constituted to go into the alleged disputes between the parties. I am unable to accept the aforesaid submission made by the learned counsel for the respondents, for the reasons stated in the previous paragraphs. The balance of convenience is tilted more in favour of permitting the arbitration proceedings to continue rather than to bring the same to a grinding halt.