Brief facts

The learned District Judge has by the impugned order dated 29.07.2016 set aside the arbitral award dated 06.06.2011 under Section 34(2)(a)(ii) of the Arbitration and Arbitration Act. Conciliation Act 1996 (Arbitration Act 1996). on the grounds that the invitation to tender as well as the agreement dated 24.08.2001 had been annulled by this Court, as such, the arbitration clause of the agreement dated 24.08.2001 also became non-existent.

The learned District Judge, therefore, held that although the parties had agreed to arbitration, the learned sole arbitrator had no jurisdiction to arbitrate the dispute. An agreement dated 24.08.2001 was entered into between the State of Sikkim and the Director of Lotteries of the State of Sikkim (appellants). and M/s Tashi Delek Gaming Solutions (P) Ltd. (respondent).

The respondent was appointed as the sole and exclusive marketing agent of the respondents for the initiation of the business of the online computerized lottery system for a period of seven years, with a provision for further extension of five years thereafter.

Subsequently, the payment of the minimum assured income did not comply with article 10 of the agreement of 08.24.2001.

In the meantime, the legality of the tender notice dated 10.07.2001 and the agreement dated 24.08.2001 were challenged before this Court in two petitions. This court set aside the entire process of award of contract to the respondent and set aside the agreement dated 24.08.2001. The petitioners were directed to float a fresh tender and complete the entire exercise within three months from 24.06.2003.

Two days later, on 26.06.2003, the petitioners sent a letter requesting the respondent to continue to perform his duties as a marketing agent for three more months on the same terms and conditions stipulated in the agreement dated 24.08.2001. Without any letter of acceptance, the respondent continued its activities of marketing an online computerized lottery system to the appellants.

Since the appellants had not been able to float a fresh tender, the respondent expressed its desire to cease being the marketing agent of the Sikkim Online Lottery. The applicants were not in favor of a reduction in the State’s share and the minimum assured income.

Since the dues owed by the respondent had accumulated to a significant amount, the respondent, by letter dated 11.09.2003, served notice of arbitration under Section 11 of the Arbitration Act. 1996 and expressed by letter dated 04.11.2003 his desire to terminate the agreement of 24.08.2001. By letter dated 12.11.2003, the defendant notified the termination of the contract on 24.08.2001. The termination letter issued by the respondent was not accepted by the appellants.

As the dispute between the parties was still not resolved, by letter dated 05.10.2004, the respondent put the applicants on notice to arbitrate in accordance with the agreement dated 24.08.2001.

The learned sole arbitrator passed the award dated 06.06.2011 holding the respondent liable to pay a total sum of Rs.96,48,38,070.00 to the appellants for the period 2003-2006 along with interest at the rate of 12% per annum. The respondent challenged the award under Section 34 of the Arbitration Act, 1996 before the learned District Judge in TS (Arbitration) Case No. 02 of 2013. The learned District Judge set aside the arbitration award.

Court Analysis

In this case, the respondent failed to appear despite considerable delay in presenting his case. The court therefore decided the case solely on the basis of the argument put forward by the appellant.

The court noted that the District Judge, in the impugned order, had held that since the contract containing an arbitration clause had been set aside by the High Court, the arbitration clause would also perish, thereby making the application d arbitration inadmissible. The learned judge relied on the multiple decisions of the Supreme Court to arrive at this conclusion.

The court noted that the judgments on which the learned judge based his conclusion were rendered in the context of the Arbitration Act, 1940, hence the ld. The judge was not justified in relying on them.

The court noted in Sundaram Finance Ltd. v NEPC India Ltd, 1999the Apex Cout estimated that “The 1996 Act is very different from the Arbitration Act, 1940. The provisions of that Act must therefore be construed and interpreted independently and, in fact, any reference to the 1940 Act may actually lead to misinterpretation . In other words, the provisions of the 1996 Act must be interpreted without being influenced by the principles underlying the 1940 Act. For assistance in interpreting these provisions, it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Law.”

The court further noted that after the enactment of the Arbitration Act, 1996, the situation had completely changed. Arbitration Article 16 empowers the arbitral tribunal to decide the validity of an arbitration agreement even if the underlying contract has been invalidated.

The court relied on the Supreme Court’s judgment in the case Interaction between arbitration agreements under the A&C Act, 1996 and the Stamp Act, 1899, In ​​Re, 2024 wherein the court, after analyzing various judgments and provisions of the law, held that when the parties append their signature to a contract containing an arbitration agreement, they are in fact considered to independently append their signature to the arbitration agreement. arbitration. This is because the parties intend to treat an arbitration agreement contained in an underlying contract as distinct from the other terms of the contract.

The court further noted that “the validity of an arbitration agreement, faced with the nullity of the underlying contract, allows the Arbitral Tribunal to declare itself competent and to decide on its own jurisdiction by determining the existence and validity of the arbitration agreement. In doing so, the presumption of separability gives effect to the jurisdiction-competence doctrine.

The court concluded that the learned District Judge did not realize that with the enactment of the Arbitration Act, 1996, the view that the arbitration clause was an integral part of the contract and had disappeared with it had changed. Now, the presumption of severability guarantees the validity of an arbitration agreement contained in an underlying contract, notwithstanding the invalidity, illegality or termination of that contract.

Accordingly, the present appeal was allowed and the impugned order was set aside.

Case Title: State of Sikkim v. M/s Tashi Delek Gaming Solutions (P) Ltd.

Case Reference: Arb. A. No. 02 of 2016

Judgment date: 11/12/2024

Mr. Zangpo Sherpa, Additional Advocate General and Mr. Shakil Raj Karki, Government Counsel for the caller.

None for the defendant.