Whether disputes over fraud can be arbitrated?

NEW DELHI: Issues related to alleged fraud in business deals can be matter for arbitration, the Supreme Court has ruled, while referring a dispute between Swiss Timing and the organising committee of the 2010 Commonwealth Games over unpaid fees to an arbitral panel. The committee had withheld a part of payment due to the Swiss company after accusing it of obtaining the contract to provide timing, score and result systems for the games fraudulently in connivance with organising committee head Suresh Kalmadi.Kalmadi, who is facing criminal cases along with some company officials over alleged irregularities, and Swiss Timing had denied any wrongdoing. Following the dispute, the company invoked the arbitration clause in the contract. It approached the Supreme Court after the committee refused to agree to arbitration. Swiss Timing also sought court intervention to set up an arbitral panel and named former Supreme Court judge SN Variava its nominee.

Justice SS Nijjar, who considered the company's petition, named Justices BP Singh and Kuldip Singh, both former judges of the top court, to the panel. Under the contract, the total payment to Swiss Timing was estimated at 24.99 million Swiss francs (about Rs 165 crore at current exchange rate). Of that, 5% was to be paid after the Commonwealth Games got over.

Swiss Timing sent an invoice of about 1.25 million francs to the committee on October 27, 2010. Neither that, nor another Rs 15 lakh it had deposited with the committee as earnest money, was paid by the committee, the company had said. In February 2011, the committee issued a statement saying that part payments to nine foreign vendors, including Swiss Timing, had been withheld for "nonperformance of contract".

The committee cited the cases against Kalmadi - under charges of cheating, criminal conspiracy to cheat and corruption - for the nonpayment and had accused some Swiss Timing executives of colluding with him. It claimed that Swiss Timing was liable to reimburse the payments already made, while saying that there was no basis to invoke arbitration.

The organising committee had also urged the court not to allow arbitration while the criminal case was underway. On the allegations against the company, which is accused of overbilling and manipulating the contract, Justice Nijjar said both these issues can be taken care of by arbitration.

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