Supreme Court Upholds Non-Arbitrability in Fraud Allegations Against Arbitration Agreement, Supreme Court affirms High Court's decision, rules serious fraud allegations render disputes non-arbitrable, upholding lower courts' findings.
In a landmark decision, the Supreme Court of India has affirmed that serious allegations of fraud regarding the very existence of an arbitration agreement render the dispute non-arbitrable. The judgment was delivered by Justices Pamidighantam Sri Narasimha and Alok Aradhe in the case of Rajia Begum and Others v. Barnali Mukherjee and Others.
The case revolved around a partnership dispute where Rajia Begum claimed entry into the firm through an alleged admission deed, which was contested by Barnali Mukherjee as being forged. The dispute hinged on whether the alleged arbitration agreement in the admission deed could be enforced when its very existence was challenged due to serious allegations of forgery.
The Supreme Court upheld the decisions of the Trial Court and the First Appellate Court, which had previously found the allegations of fraud to be serious and dismissed the attempts to refer the dispute to arbitration under Sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The High Court's supervisory jurisdiction under Article 227 of the Constitution, which had overturned these findings, was set aside by the Supreme Court, emphasizing that supervisory jurisdiction is not meant for reappreciating evidence or acting as an appellate body.
The court reiterated the principle that arbitration is founded on consent, and when the arbitration agreement itself is in serious doubt, arbitration is impermissible. The judgment also highlighted that when an allegation of fraud is made against the arbitration agreement itself, it typically falls within the realm of non-arbitrability.
The Supreme Court's ruling underscores the judiciary's cautious approach towards arbitration in cases where allegations of fraud question the validity of the arbitration agreement or the contract containing it, thereby protecting parties from being compelled to arbitrate disputes when foundational agreements are in serious dispute.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Serious allegations of fraud going to the root of the arbitration agreement render the dispute non-arbitrable. Courts can sideline arbitration when allegations of fraud question the validity of the arbitration agreement or the contract containing it.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 8, 9, 11; Constitution of India, 1950 Article 227
Rajia Begum v. Barnali Mukherjee, (SC) : Law Finder Doc id # 2847571
