Is the AgustaWestland-Centre arbitration agreement vitiated by allegation of fraud, bribery? Delhi HC to decide

In light of allegations of bribery and corruption in the 2014 AgustaWestland deal, the Delhi High Court has decided to examine if the arbitration agreement between the Italian chopper manufacturer and the Government of India stands vitiated..“Insofar as the question as to whether the contract which includes the arbitration agreement is vitiated by fraud, as also the allegations of bribery and corruption, are concerned, in order for this Court to decide the said question, the nature of the claims raised by the Defendant and the nature of objections and allegations raised by the Plaintiff need to be considered”, the Court has recorded..The issue was framed by Justice Prathiba M Singh while hearing the Centre’s plea to terminate the mandate of the arbitration in terms of Section 29A of the Arbitration and Conciliation Act, 1996..After the Rs 3,600-crore deal to acquire AgustaWestland’s WG21 choppers was called off, the Italian company had invoked the arbitration process against the Government of India, contending that the Union Ministry of Defence could not have unilaterally frozen payments..The notice of arbitration was issued on October 4, 2013 and Justice (Retd.) BN Srikrishna was nominated as AgustaWestland’s arbitrator. Subsequently, on January 1, 2014, the Centre appointed Justice (Retd.) Jeevan Reddy as its arbitrator. Prof William W Park was appointed as the third arbitrator by the International Court of Arbitration in August 2014..Additional Solicitor General Pinky Anand argued before the High Court that that the arbitral proceedings deserved to be stayed, as the mandate of the Arbitral Tribunal stood terminated in terms of Section 29A. She further submitted that the existence of allegations of corruption, fraud, and bribery could not be adjudicated by the Arbitral Tribunal. The dispute before the Tribunal being non- arbitrable, the proceedings ought to be stayed, she contended..Senior Advocate Arun Kathpalia, appearing for the AgustaWestland, on the other hand argued that the present case was not governed by the provisions of Section 29A as the arbitral proceedings had commenced much before the Amendment Act of 2015 came into force. Thus, it was only for the Arbitral Tribunal to rule on its jurisdiction on the basis of the objections raised by the Government of India, he claimed..According to ASG Anand, since the Terms of the Appointment of the arbitrators were fixed only on March 16, 2017, the arbitral proceedings would be governed by the provisions of the Act, as amended in 2015..Rejecting the contention put forth by the ASG, the Court held that the mandate of the Arbitral Tribunal did not stand terminated under Section 29A, as it was constituted prior to the Amendment Act coming into force.. “The language of Section 26 of the Amendment Act is very clear. It clearly specifies that the Amendment Act of 2015 does not apply “to the arbitral proceedings commenced in accordance with provisions of Section 21 of the principal act”. Thus, if Arbitral proceedings have commenced under Section 21 of the Act, prior to coming into force of the 2015 Amendment Act, then Section 29A of the Act would not be applicable.”, the Court explained..In the absence of any agreement between the parties, the commencement is from the issuance of notice invoking arbitration, it added..However, whether the dispute remained arbitrable, owing to the nature of allegations raised in the deal, would be considered by the Court after hearing the parties and perusing the arbitral record..“From the documents placed on record, and the list of dates, it is submitted that subsequent to the filing of the said objections, the Charge-sheet has also been filed by the CBI, and the Special Judge CBI has taken cognizance of the offences alleged. These are subsequent developments which have taken place after the objections under Section 16 of the Act were filed before the Tribunal“, it noted..“The question as to the arbitrability of the disputes, in the context of the claims raised and the allegations of the Plaintiff, as also whether they can be raised at this stage when the Tribunal stands constituted, owing to subsequent developments including the filing of the charge sheet/framing of charges by the CBI court, deserve to be considered by this Court.”.The Court has thus directed the parties to place the arbitral record before it. The matter will be next heard on February 28..Senior Advocate Kathpalia was assisted by Advocates Anand Prasad, Ashok Bhan, Mohit Rohatgi and Swati Narnulia. .ASG Anand was assisted by Advocates Rajesh Ranjan, Sumit Teterwal, Joel and Kritika Sachdeva..Read the Order: