The plaintiff chartered the tug ASL Courageous and the barge ASLCO 3008 from the defendant under two time charterparties. The plaintiff filed an action in rem seeking the arrest of the vessels. A warrant of arrest was issued. Upon receipt of notice, the defendant provided a banker's cheque as security for the claim. Subsequently, a warrant of release was issued. The proceeds of the cheque were deposited in an interest-bearing account with an Indian bank.

The defendant applied to refer the dispute to arbitration on the basis of the arbitration clauses in the charterparties. The defendant argued, among other things, that upon the release of the vessels by providing the security, the suit was converted from an action in rem to an action in personam; art 7 of the Arrest Convention 1999 provides that the courts of the State where the arrest was effected may refer parties to arbitration, if the parties have agreed thereto.

The plaintiff contended, among other things, that the charterparties were incapable of being performed and vitiated by fraud perpetrated by the defendant.

Held: Application granted.

According to s 45 of the Arbitration and Conciliation Act 1996, the Court can refer the parties to arbitration unless it prima facie finds that the arbitration agreement is null and void, inoperative or incapable of being performed. It could not be said that the contracts were incapable of being performed at the time of contract formation or that they were frustrated. The plaintiff also failed to submit any material to support a prima facie finding that the agreement was either null and void or inoperative.

When the cause of action and subject matter of the dispute relate to actions in rem that do not pertain to subordinate rights in personam that arise from rights in rem, the subject matter of a dispute in an arbitration agreement is not arbitrable. In this case, the action in rem had been converted into an action in personam upon the defendant providing security and obtaining release of the vessels. Being an action in personam, it clearly did not fall within any of the categories of non-arbitrable disputes.

The allegations of fraud were insufficient to meet the exacting standard for the Court to decline the application to refer the dispute to arbitration.

The warrant of release was issued only because the defendant provided security. Therefore, it was just and necessary that the defendant continue to maintain that security until the conclusion of the arbitral proceedings.  Thereafter, the security shall abide by the outcome of such proceedings.