The Hon’ble Delhi High Court in Lata Yadav v. Shivakriti Agro Pvt. Ltd. & Ors.1 considered whether arbitral proceedings could be terminated in light of allegations of fraud and a provisional attachment under the Prevention of Money Laundering Act, 2002 (“PMLA”). Delivering the Judgement, Hon’ble Mr. Justice Amit Mahajan dismissed the petition filed under Article 227 of the Constitution, reaffirming the limited scope of judicial interference in arbitral matters and upholding the principle of arbitral autonomy.

Lata Yadav, was a partner in Umaiza Infracon LLP, (“Petitioner”) which had entered into a Facility Agreement (“Agreement”) dated September 30, 2019 with Shivakriti Agro Pvt. Ltd. (“Respondent No.1”). Pursuant to this agreement, INR 130 Cr. were advanced for acquiring assets and settling dues of Sunstar Overseas Ltd. (“Sunstar”), a company undergoing insolvency. When disputes arose regarding compliance with the agreement, Respondent No.1 invoked arbitration.

While arbitral proceedings were underway, the Enforcement Directorate (“ED”) provisionally attached the assets that were part of the Facility Agreement and initiated criminal proceedings. The Petitioner moved an application before the arbitral tribunal under Sections 16(3) and 32(2)(c) of the Arbitration and Conciliation Act, 1996 (“A&C Act”), asserting that the Agreement was void ab initio as it was allegedly a sham used to enable the ex-promoters of Sunstar to regain indirect control. The arbitrator rejected this application. The Petitioner then approached the High Court seeking to invoke Article 227 to challenge that decision.

Justice Mahajan held that the power under Article 227 can be exercised only in rare cases of patent illegality or perversity. In this case, none were found. The Court emphasized that allegations of fraud or criminal proceedings, including those under PMLA, do not automatically render a dispute non-arbitrable. Unless the arbitration agreement itself is declared void, the tribunal has jurisdiction to continue proceedings, consistent with the principle of kompetenz-kompetenz.

The Court noted that the issues raised under PMLA and those before the tribunal existed in different legal spheres. The provisional attachment under Section 5 of PMLA was not final and subject to adjudication by the competent authority. Therefore, its existence could not be a ground to halt arbitral proceedings. Moreover, Section 41 of the PMLA bars the jurisdiction of civil courts, not arbitral tribunals dealing with private commercial contracts.

It was also observed that a similar application under Section 16 of the A&C Act had been filed earlier, and the tribunal had chosen to defer the question of jurisdiction until after evidence was led. The Petitioner’s renewed attempt was viewed as a tactic to delay arbitration, especially as the proceedings were at an advanced stage.

In conclusion, the High Court dismissed the petition, reaffirming the autonomy and competence of arbitral tribunals to decide their jurisdiction and disputes before them. The judgment further provides reaffirmation of the principle of minimal judicial interference in arbitration and clarifies the limited impact of criminal or regulatory actions on ongoing arbitral proceedings.

By - Akarsh Pandey