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06 December 2021| Avantha Holdings Ltd. v. CG Power and Industrial Solutions Ltd. | Arb. P. No. 361 of 2021 | Vibhu Bakhru J | Delhi High Court | 2021 SCC OnLine Del 5202
The arbitration clause provided for arbitration “with respect to the interpretation of the contents of this Agreement”.
The dispute between the parties was “essentially whether the Agreement is part of the fraudulent scheme to siphon funds from the respondent company”. One individual—Gautam Thapar—controlled both the petitioner and the respondent companies at the material time. Both companies contracted that the respondent would use the ‘Avantha’ brand for which 50% brand royalty (around 411 crores) was payable annually, remaining every quarter. Later, the petitioner wanted to arbitrate to settle the liability.
The first question was: did the dispute fall under the arbitration clause? The court answered, no, there was no dispute as to the interpretation. The respondent did not dispute the meaning of any clause and “has not set up a case that any of the clauses must be interpreted in a different manner”.
Given this conclusion, though, the court said, “it is not necessary to address the other questions”, however, “for the sake of completeness”, it addressed the other question: was the dispute arbitrable because it involved allegations of fraud? The court concluded that the disputes were arbitrable: It reasoned that:
The third question addressed was whether the court was required to examine if the agreement was invalid because of fraud: answering yes, but only on a prima facie basis, the court noted that in a few isolated cases, the court might be able to conclude without receiving any evidence that the contract is void. But here, the dispute was whether the consent to execute the brand license agreement was vitiated by fraud under Section 17 of the Indian contract Act 1872 and voidable under Section 19 of that enactment. This was a matter for the arbitrator.
Read the decision here.
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