The Delhi High Court recently ruled that serious allegations of fraud, particularly those involving public authorities or foreign entities, are best adjudicated by civil courts rather than arbitral tribunals. .The Court dismissed an appeal filed by Bentwood Seating System against the Airports Authority of India (AAI), upholding the decision of a sole arbitrator that the dispute was non-arbitrable due to the complexity and gravity of the fraud allegations.Justice Subramonium Prasad ruled, “The conclusion of the Ld. Sole Arbitrator that a Court is better equipped to adjudicate these issues therefore, does not call for any interference. It cannot be said that the Ld. Sole Arbitrator has taken a cursory view regarding fraud. The issues that arise are complicated and complex in nature involving production of witnesses outside the country and also documents from outside the country.”.The case stemmed from a tender issued by the AAI in November 2017 for the supply and maintenance of 4,000 baggage trolleys across various airports. Bentwood Seating System had submitted its bid, claiming to be the Indian associate of Suzhou Jinta Metal Working (SJM), a Chinese manufacturer. To meet the tender’s eligibility criteria, the appellant submitted satisfactory performance certificates (SPCs) purportedly issued by Heathrow Airport, UK and Noi Bai International Airport, Vietnam.However, in October 2017, a complaint was filed by Gilco Exports India, alleging that the appellant had submitted forged documents to secure the tender. Investigations revealed that neither Heathrow Airport nor Noi Bai International Airport had issued the SPCs submitted by the appellant. Furthermore, SJM denied any association with the appellant, raising serious doubts about the authenticity of the documents..Following the AAI’s termination of the contract and blacklisting of Bentwood Seating in February 2018, the company initiated arbitration proceedings. The sole arbitrator initially ruled in favour of the appellant, setting aside the termination and blacklisting orders. However, the High Court later set aside this award, citing the arbitrator’s failure to adequately address the fraud allegations. The matter was referred to a new arbitrator, who ruled that the dispute was non-arbitrable due to the complexity and seriousness of the fraud allegations..This prompted a plea by the company under Section 37(2)(a) of the Arbitration Act, which allows appeals against orders refusing to refer parties to arbitration under Section 8 or 45 or to enforce an arbitral award under Section 50..In its judgment, the High Court emphasised that the allegations of fraud were not confined to the internal affairs of the parties, but involved the fabrication of documents from foreign entities and governmental authorities. The Court noted that the arbitrator lacked the authority to summon witnesses from international jurisdictions or seek assistance from the Ministry of External Affairs, making it impractical to adjudicate the matter through arbitration.“Though the Arbitral Tribunal has been conferred with powers under Section 27 of the Act of 1996 to call for witnesses, this Court is of the opinion that the view taken by the Ld. Sole Arbitrator that it would be more easy for the civil court to summon witnesses, that is, officials at the Heathrow Airport, United Kingdom and Noi-Bai International Airport, Vietnam and officials of the SJM to give evidence for unearthing the core issue which is as to whether the SPCs which has been produced by the Appellant is fabricated or not...Appellant cannot be permitted to get a premium on fraud which is alleged to have been committed by them and Courts cannot be mute spectator to such fraud which is alleged to have been committed.”.The Court concluded that the fraud allegations in this case were of such a nature that they vitiated the entire contract, including the arbitration agreement..The appellant company was represented by Advocates SD Singh, Kamla Prasad, Meenu Singh and Siddharth Singh.AAI was represented by Advocates Digvijay Rai, Chetna Rai, Archit Mishra and Raghib Ali Khan..[Read Judgment]
