• Team Sapphire and Sage


-Subhrotosh Banerjee | Trainee, T&E Q6 | ICA


‘Arbitrability’ refers to the ability of a dispute to constitute the subject matter of arbitration.[1] It goes beyond merely preliminary determination of the legal validity of the arbitration agreement but also includes ascertaining whether the dispute is capable of being adjudicated by a private forum, such as an Arbitral Tribunal, instead of courts.[2] Statutory authority of the principle of arbitrability of disputes can be derived from Section 34(b)(i) and Section 48(2)(a) of the Arbitration and Conciliation Act, 1996 which provides as a ground for setting aside the award as when “the subject-matter of the dispute is not capable of settlement by arbitration under the law”.

The seminal case of Booz Allen Hamilton Inc. v. SBI Home Finance Ltd.[3]defined the essence of arbitrability in its three-fold facets. Firstly, the nature of the dispute, and whether the same can fall within the domain of public courts or whether they can be resolved in a private forum, chosen by the parties. Secondly, whether the dispute has been provided in the agreement to be solved by means of arbitration. Thirdly, the question arises whether the issue falls within the statement of claim and counterclaim submitted by the parties to the tribunal. In this context, the court further observed that rights in-rem would generally be observed to be non-arbitrable as opposed to rights in-personam which can be deemed as “amenable to arbitration”. Bearing this background in mind, this study shall attempt to understand the arbitrability of disputes which deal with questions of fraud committed. Fraud for, the purpose of this study, is understood with respect to its definition in Section 17 of Indian Contract Act, 1872 which defines it as “a fact knowing it to be untrue, knowingly active concealment of a fact, making a promise without intending to fulfil it or any other act which is capable of deceiving and is committed by a party to a contract, or with his participation, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract”.

Fraud held Non-Arbitrable:

Jurisprudence challenging an arbitral tribunal’s authority to adjudicate on questions of fraud date as far back as 1880 wherein in the English case of Russel v. Russel,[4] it was held that if there exists prima facie evidence of fraud, the court can in fact refuse the reference of the matter to an arbitral tribunal. This position has been reiterated and upheld by the Indian Apex Court recently in its decision in the case of R. Radhakrishnan v. Maestro Engineers[5] wherein it had held that given the fraud and serious malpractices found in that case, it “does not warrant the matter to be tried and decided by the Arbitrator, rather for the furtherance of justice, it should be tried in a court of law which would be more competent and have the means to decide such a complicated matter involving various questions and issues raised”.

The Section 8 Caveat:

Section 8 of the Arbitration and Conciliation Act, 1996 provides for reference of the dispute to arbitration in context of a valid arbitration agreement between the parties. The judicial approach to applying this has been enumerated in the case of Hindustan Petroleum Corporation Ltd.v.. Pinkcity Midway Petroleum[6] wherein the Apex Court of India had held that in view of the mandatory language of Section 8, in the existence of an agreement between the parties the civil court must compulsorily refer the dispute to an arbitrator. It is also important to note that Section 16 of the Arbitration and Conciliation Act, 1996 is a statutory recognition of the kompetenz-kompetenz principle in arbitration, bestowing the tribunal with authority to rule with regards to its own jurisdiction. It is in this light that the aforementioned Radhakrishnan case was eventually rejected by the Indian Supreme Court ("SC") in the subsequent case law of Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee[7], the SC pointed out two caveats with the Radhakrishnan[8] case: firstly, the case provided that the SC in the aforementioned Radhakrishnan case did not follow its own precedent of the Hindustan Petroleum[9] case and secondly, the provision of Section 16 of the Arbitration and Conciliation Act, 1996 hasn’t been contended with by the SC in its decision.

Attempts to clarify position:

The SC made an attempt to clarify its position with regard to this issue in the case of A. Ayyasamy vs A. Paramasivam[10], wherein it held that a mere allegation of “fraud simplicitor” is not a ground for nullifying the arbitration agreement and reaffirmed the need for such referral under Section 8 to an Arbitral Tribunal. The arbitrability of fraud was however, clarified in stating that “it is only in those cases where the court, while dealing with Section 8, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence” that the application under Section 8 of of the Arbitration and Conciliation Act, 1996 be dismissed and that the court proceeds with deciding the case on the merits of the dispute. It further clarified that there exists a heavy burden on the party arguing such incompetence of the arbitral tribunal to prove that the dispute is not in fact arbitrable. Therefore, while upholding the principle in Radhakrishnan as good in law, it narrowed the scope for holding a particular dispute non-arbitrable only to the most serious instances of fraud alleged.

Serious Allegations of Fraud:

The phrase “serious allegation of fraud” has been interpreted in the Ayyasamy case[11] wherein it was held that it constitutes those cases where there are serious allegations of the forgery of documents which can be adduced as evidence in support of the plea of fraud or where the fraud in question is itself with regard to the arbitration agreement. The arbitration agreement can be marred with fraud with respect to the validity of the entire contract, which contains the arbitration clause, or the fraud permeates the validity of the arbitration clause. This is also supported with the proposition that where there is elaborate voluminous evidence which needs to be produced, the fraud is likely to be of a serious nature and therefore, the courts are the competent forum to deal with such disputes.

A certain degree of finality has only recently been reached with the judgement of the SC in the case of Avitel Post Studios Ltd. v. HSBC PI Holdings[12]. The SC agreed with its decision in the previous cases that held that instances of “serious allegations of fraud” were in fact not arbitrable. It clarified further that there can be only two instances where a “serious allegation of fraud” can arise:

i. Where an arbitration agreement cannot be said to exist, meaning cases where the allegations of fraud are directed at the arbitration agreement itself such that if such fraud is proven, the validity and existence of an agreement between the parties itself will be nullified and vitiated;

ii. Where the allegations of fraud are made against “the State or its instrumentalities of arbitrary, fraudulent or malafide conduct” as such issues raised can have implications in rem and can be settled in a writ court.

This position has been resonated by the Indian Apex Court in the case of Deccan Paper Mills v. Regency Mahavir.[13] This case declared Radhakrishnan[14]as a precedent which was no longer good in law. It reasoned that if the subject matter of the dispute, in question, falls within Section 17 of Indian Contract Act, 1872 or involves a fraud which has been committed in the performance of the contract, it would be arbitrable in nature. It rebutted earlier case law by stating that merely a case having “criminal overtones” would not make it non-arbitrable. Hence, the court propounded that all that has to be seen in determining whether a case falls under the “fraud exception” for arbitrability is to see the prime facie existence of the arbitration agreement under Section 8 of the Act.

Pro-Arbitration Approach:

In rebuking the proposition in previous cases that have premised the non-arbitrability of fraud on grounds of the inferior adjudicatory mechanism of arbitration in fact-finding and being cognizant to the public interest, the case of Vidya Drolia v. Durga Trading Corporation,[15]has been a welcome departure from that trend. In this case, the SC deemed it wholly irrational to dismiss arbitration as an unsuitable forum in cases of fraud. The SC based its decision on the fact that “arbitrators are required to be impartial and independent, adhere to natural justice, and follow a fair and just procedure” as envisaged within the scheme of the Indian Arbitration Act. It further upheld the Avitel case[16], and held that arbitration was the appropriate mechanism unless the court was able to find that the existence of an arbitration agreement itself hasn’t been vitiated by fraud.

Effect of alleged fraud on Enforcement:

In this context, it is necessary to discuss the Arbitration and Conciliation Act, 2021 which added a proviso to Section 36(3) wherein it has stated that where the Indian Courts are satisfied that a prima facie case is made out that either the arbitration agreement or contract on the basis of which the award has been given or the making of the award itself is either induced or otherwise effected by fraud or corruption, it will unconditionally stay the enforcement of the award in India until the disposal of the challenge under Section 34 of the Arbitration and Conciliation Act, 1996, to such award.

Author’s Opinion:

Arbitration, as a mechanism for dispute settlement, is extremely efficacious in providing parties with a flexible, confidential and efficient means of resolving claims and disputes between parties. Therefore, the judicial approach in limiting court intervention and shifting towards a trend of higher faith in the arbitral process, in the author’s opinion, is the right step forward. The prerogative for the judiciary is to ensure that this same metric for fraud claims be applied to the meaning of “fraud” under the newly added proviso to Section 36(3) of the Indian Arbitration and Conciliation Act, 1996 so as to disallow parties to purposely seek an unconditional stay on the enforcement of the award merely on the basis of arbitrary claims of fraud.


Judicial pronouncements over the last decade, with regard to the arbitrability of fraud, have displayed an increasingly pro-arbitration attitude of the Indian judiciary. The most recent case laws of Avitel[17]and Deccan Paper Mills[18]have had the effect of reducing the scope of judicial intervention in matters that have been agreed to be arbitrated by the parties. They have also provided a much-needed degree of finality and clarity with regard to notions such as “serious allegations of fraud” which had been previously relied on to necessitate the court’s intervention but never fully explained as to what constitutes the same. This pro-arbitration approach has also challenged older notions of adjudicatory inferiority of arbitral tribunals as opposed to courts and reflected the Indian judiciary’s increasing faith in the arbitral process. While these are all positive steps that will be beneficial in the development of arbitration as the go-to dispute settlement method for parties, it still left to be seen how the Indian Apex Court interprets the words “fraud or corruption” in context of the Amendment Act, 2021 and what implication the same can have on issue of arbitrability of fraud.

[1] Anand Kumar Singh, “Arbitrability of Disputes in India: The Changing Landscape of ‘Exclusive Jurisdiction’ Discourse”, 7(1) NLUJ Law Review 70 (2020), available at http://www.nlujlawreview.in/wp-content/uploads/2020/09/71-NLUJ-Law-Review-70-2020.pdf.

[2] Ibid.

[3] (2011) 5 SCC 532.

[4] (1880) 14 Ch D 471.

[5] (2010) 1 SCC 71.

[6] (2003) 6 SCC 503.

[7] (2014) 6 SCC 677.

[8] Supra 5.

[9] Supra 6.

[10] (2016) 10 SCC 386.

[11] Supra 10.

[12] 2020 SCC Online SC 656.

[13] 2020 SCC Online SC 655.

[14] Supra 5.

[15] (2021) 2 SCC 1.

[16] Supra 12.

[17] Supra 12.

[18] Supra 13.

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