Bombay High Court Upholds Arbitral Award in Derivative Transaction Dispute Based on Signed ISDA Agreement. Court Finds No Ground to Interfere Under Section 34 of Arbitration Act as Arbitrator's Findings on Enforceability Are Reasonable.

Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award.

The Petitioner sought to set aside the Arbitral Award dated 30 September 2010.

The Petitioner challenged the award on the ground that the ISDA Master Agreement was unilaterally signed and not counter-signed, and therefore there was no valid arbitration agreement, and that the arbitrator lacked jurisdiction.

The Arbitral Tribunal passed an award in favour of the Respondent Bank directing the Petitioner to pay principal sum of Rs.5,93,53,892 with interest and costs. The Petitioner had earlier filed a Section 9 petition and a Section 11 petition which were not successful.

Whether the Arbitral Award is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on the ground that there was no valid arbitration agreement as the ISDA Master Agreement was allegedly unenforceable for being unilaterally signed and lacking counter-signature. Whether the plea of fraud, undue influence and misrepresentation raised by the Petitioner was established and could vitiate the agreement. Whether the arbitrator had jurisdiction in view of the arbitration clause and the conduct of the parties.

Petitioner argued that the ISDA Master Agreement was a draft and not an enforceable contract as it was only signed by the Petitioner and not counter-signed by the Respondent; hence there was no valid arbitration agreement under Section 7, and the arbitrator lacked jurisdiction. Petitioner contended that the transactions were entered into under undue influence and misrepresentation; the declarations were ante-dated and signed under pressure; and the Respondent failed to follow RBI guidelines. Respondent argued that the ISDA Master Agreement along with deal confirmations and declarations were duly signed by the Petitioner's authorized officers and acted upon; the Petitioner is estopped from denying its enforceability. Respondent submitted that the Petitioner made profits in three earlier similar transactions and only raised objections when losses occurred; the allegations of fraud and undue influence were bald and without particulars. Respondent contended that the arbitration clause was clear and the arbitrator was properly appointed; the Petitioner participated in the proceedings without raising jurisdictional objections at the earliest.

Under Section 34 of the Arbitration Act, the court does not act as an appellate court and cannot reappreciate evidence. An arbitration agreement under Section 7 only requires the agreement to be in writing and signed by the parties; it does not mandate counter-signatures when the party has signed and the document forms part of a series of documents indicating mutual assent. A party who signed and acted upon an agreement over a period of time is estopped from subsequently denying its enforceability. Plea of fraud or undue influence must be specifically pleaded with full particulars; bald allegations are insufficient. RBI guidelines require an ISDA Master Agreement for derivative transactions, which was satisfied here. The arbitrator's findings on facts are binding unless perverse.

it is unacceptable that the alleged agreement was a draft agreement and, therefore, unenforceable. Some unclear clause of the agreement as referred and pointed out just cannot be read in isolation. The nature of commercial transactions/banking documents read with other connected documents and discussion between the parties which are part of record just cannot be overlooked to accept the case of the Petitioner revolving around Section 7 of the Arbitration Act. Having once agreed, signed and acted upon the same for so many years, such person cannot now be allowed to raise the objection and to deny the claim of the Respondent solely on the ground of unilateral signed banking documents basically at the instance of the Petitioner or such party. It is a settled rule of law that a party claiming to have a transaction set aside on the plea of deceit/fraud and/or undue influence, coercion or misrepresentation or the like is obliged to set out the particulars with details as to dates and events and persons involved in support of such a plea. The signature of two officers on ISDA on 2.7.2007, in the background, therefore, itself is not sufficient to overlook the admitted documents as well as facts on record.

The Respondent Bank sanctioned a credit limit on 13 March 2007 for forex derivatives. The Petitioner executed an ISDA Master Agreement and entered into two derivative transactions on 2 July 2007 and 6 September 2007. Following a breach of knock-in levels, the Respondent demanded payment. The Respondent invoked Section 9 and obtained an ex parte injunction order on 12 April 2008. By letter dated 21 May 2008, the Respondent referred the dispute to sole arbitrator. The Petitioner filed a Section 11 petition which was rejected. The arbitration proceeded and the sole arbitrator passed an award on 30 September 2010 directing the Petitioner to pay Rs.5,93,53,892 with interest and costs. The Petitioner filed the present petition under Section 34 in 2010 challenging the award. The petition was heard and judgment was reserved on 19 June 2012 and pronounced on 6 July 2012.

• Arbitration and Conciliation Act, 1996: Section 7, Section 9, Section 11, Section 34