Misrepresentation charge in arbitration

When contracting parties fall out with each other, a frequent allegation is that the agreement was induced by fraud or mis representation. One side wants to scrap the contract altogether for that reason. If there is an arbitration clause, that will also go with the contract. The Supreme Court dealt with such an issue last fortnight in the context of an international arbitration conducted in Singapore. The question was whether an arbitration clause could be acted upon when one party alleges that it entered into the agreement by fraudulent inducements by the other. This problem arose in the case, A vi tel post stu di oz Ltd vs HSBCPI holding ( mauritius ), in which the latter alleged that it had extended a loan to the Avitel group on misrepresentation of facts and fraud. The group included Avitel India, Avitel Mauritius and Avitel Dubai. They represented to HSBC that it had a project with BBC, but it turned out to be untrue. HSBC invoked the arbitration clause, which named Singapore as the venue applying the law there. The award of the tribunal went against the Avitel group, leading to a slew of litigation in the Bombay High Court and in district courts. The Supreme Court allowed those suits to continue while observing that “a reading of the foreign final award in this case would show that a strong prima facie case has indeed been made out as the award holds the BBC transaction as a basis on which the contract was entered into and the USD 60 million paid by HSBC, would clearly fall within fraudulent inducement to enter into a contract under Section 17 of the Contract Act. Such a contract would be voidable at the instance of HSBC.”