Case Brief Avantha Holdings Limited v. CG Power and Industrial Solutions Limited

Aditi Ladda, Intern

Avantha Holdings Limited v. CG Power and Industrial Solutions Limited

Citation- MANU/DE/3352/2021

Court- Delhi High Court

Bench- Justice Vibhu Bakhru

Date of decision- 06.12.2021

The court concludes that the contract is void without receiving evidence; it may be justified in declining the reference to arbitration in a few isolated cases.

FACTS OF THE CASE

The Respondent, a public limited company, entered into a Royalty Agreement with the Petitioner to use the Petitioner's brand name Avantha. Thus the Respondent had entered into an Avantha Brand License and Brand Support Agreement. The Respondent had agreed to pay the petitioner Brand Royalty computed at 1% of its Annual Consolidated Net Operating Revenue according to the agreement. The Petitioner claimed that the Respondent declined to pay the Brand Royalty and rescinded the agreement leveling specific allegations. Because of the above dispute, the Petitioner invoked the arbitration under Clause 18.6 of the Agreement. The Respondent contested and opposed the present petition because the subject disputes are not arbitrable. It was contended that the dispute regarding the fraud perpetrated in respect of the petitioner company's affairs is the subject of an investigation by the Securities and Exchange Board of India (SEBI) and Serious Fraud Investigation Office (SFIO). The Respondent further contended that the Civil Courts are also seized of the issues regarding the fraud, which is pending investigation; therefore, the said disputes are not arbitrable.

APPLICABLE LAWS

Laws and provisions applicable are:

• Section 11(6) of Arbitration And Conciliation Act, 1996

• Section 11(1) of Securities And Exchange Board Of India Act, 1992

• Section 11(B) of Securities And Exchange Board Of India Act, 1992

• Section 10 of the Indian Contract Act

• Section 11 of the Indian Contract Act

• Section 12of Indian Contract Act

• Section 14 of the Indian Contract Act

ISSUES

• Whether the agreement, which is invalid on fraud, can be decided by the arbitration tribunal?

• Whether the Petitioner has the right to seek arbitration?

JUDGEMENT

While adjudicating the matter, the Hon'ble Court analyzed that there is no dispute that the Respondent had entered into the agreement that includes the arbitration clause. The disagreement, essentially, is whether the said agreement is invalid as part of the Respondent's fraudulent exercise to siphon funds from the respondent company. Highlighting the Commission's 246th Report, the Hon'ble Court observed that a reference by any judicial authority is required to be made to arbitration if prima facie an arbitration agreement exists. However, the conclusion that an arbitration agreement does not exist would be conclusive and not prima facie. Prima facie, Hon'ble Court found no reason why an Arbitral Tribunal cannot decide the said disputes. The Hon'ble Supreme Court, on several occasions, held that an Arbitral Tribunal could determine what the trial court can adjudicate. In this view, the Hon'ble High Court could not accept that the present petition was liable to be rejected only because it involves allegations of fraud. The Hon'ble Court dismissed the petition not on the basis that the disputes are per se not arbitrable but because but the disputes fell fall outside the scope of the Arbitration Clause agreed between the parties.