The Court observed that the fraud allegations were not limited to internal company matters but extended to foreign entities and government authorities. The Court highlighted the limitations faced by arbitrators in summoning foreign witnesses or obtaining documents from international jurisdictions.
NEW DELHI: The Delhi High Court has recently decided that serious fraud allegations, especially those involving public authorities or foreign entities, should be handled by civil courts instead of arbitration tribunals.
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Background of the Case
In November 2017, the AAI issued a tender for the supply and maintenance of 4,000 baggage trolleys for various airports. Bentwood Seating System submitted its bid, claiming it was the Indian associate of Suzhou Jinta Metal Working (SJM), a Chinese manufacturer.
To meet the tender’s eligibility criteria, Bentwood submitted satisfactory performance certificates (SPCs) supposedly from Heathrow Airport, UK, and Noi Bai International Airport, Vietnam.
However, in October 2017, Gilco Exports India lodged a complaint alleging that Bentwood had submitted forged documents to secure the tender. An investigation revealed that the SPCs were not issued by either Heathrow Airport or Noi Bai International Airport.
Furthermore, SJM denied any association with Bentwood, raising serious doubts about the authenticity of the documents.
Following these revelations, the AAI terminated Bentwood’s contract and blacklisted the company in February 2018. Bentwood initiated arbitration proceedings, and initially, the sole arbitrator ruled in its favour by setting aside the termination and blacklisting. However, the Delhi High Court later overturned this award, stating that the arbitrator had failed to properly address the fraud allegations.
The case was referred to a new arbitrator who decided that the issue was non-arbitrable due to the complexity and seriousness of the fraud allegations. Bentwood challenged this decision under Section 37(2)(a) of the Arbitration Act, which allows appeals against orders refusing to refer parties to arbitration or enforce an arbitral award.
Justice Subramonium Prasad, who presided over the case, upheld the arbitrator’s decision. He noted that civil courts are better equipped to handle such serious fraud cases.
“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 Court observed that the fraud allegations were not limited to internal company matters but extended to foreign entities and government authorities. The Court highlighted the limitations faced by arbitrators in summoning foreign witnesses or obtaining documents from international jurisdictions.
“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 were so serious that they invalidated the entire contract, including the arbitration agreement itself.
Bentwood Seating System was represented by Advocates SD Singh, Kamla Prasad, Meenu Singh, and Siddharth Singh. The Airports Authority of India was represented by Advocates Digvijay Rai, Chetna Rai, Archit Mishra, and Raghib Ali Khan.
Case Title: Bentwood Systems Vs AAI
