Arbitrability: from fraud to serious fraud ‐ the controversy continues…
Payal Chawla*
The issue of arbitrability of fraud has come up several times before various courts in India and has been met with conflicting decisions of the Apex Court.1 Much of the controversy centred around the decision of N. Radhakrishnan v Maestro Engineers2 (N. Radhakrishnan”), delivered by a two judge bench in 2009, which held that an issue relating to fraud could not be decided in arbitration proceedings. This decision has been the subject matter of much criticism and was also a setback to arbitration proceedings.
Seven years later, the Supreme Court had the occasion to reexamine the issue in the matter of A. Ayyasamy v A. Paramasivam3 (Ayyasamy) and has held that in cases of “very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated”4 (complicated fraud) reference to arbitration, by a court, may be denied. The court has significantly diluted the effect of the N. Radhakrishnan judgment. The court has also discussed the important aspects relating to arbitrability of fraud, including the mandatory nature of s.8 of the Arbitration and Conciliation Act 1996 (the 1996 Act), the doctrine of separability and that contracts must be kept. But, Ayyasamy unfortunately makes a distinction between fraud simplicitor and complicated fraud and has observed: “It is only where there is a serious issue of fraud involving criminal wrongdoing that the exception to arbitrability carved out in N. Radhakrishnan may come into existence.”5
It is submitted that the distinction between fraud simplicitor and complicated fraud finds no basis in statutory law and is fundamentally flawed. In addition, it is submitted that intervention of the court in issues relating to fraud is beyond the scope of judicial inquiry, where parties have chosen arbitration as a mode of dispute resolution, unless the party which is the victim of the fraud has chosen to avoid the arbitration agreement. It is also submitted that, in domestic arbitration, the scope of judicial inquiry is even more limited than in international commercial arbitrations, because s.8 of the Arbitration Act is peremptory6. Finally, this article makes a critical analysis of the recent Ayyasamy judgment particularly in regard to its reading of the 246th Law Commission Report7 and reference to earlier judgments, including N. Radhakrishnan and submits that the Ayyasamy decision is partly erroneous and will undermine the Government’s recent efforts to encourage arbitrations in India.
History of arbitrability of fraud in India
Amongst the first cases that dealt with arbitrability of fraud, in India, was
Abdul Kadir Shamsuddin Bubere v Madhav Prabhakar Oak8 (Abdul Kadir) in 1962. Since then several decisions of the Supreme Court and High Courts have dealt with this aspect. To fully appreciate the critique presented in this paper, it is important to traverse the journey leading to the Ayyasamy ’s decision.
In India, there is no statutory bar on the arbitability of fraud. The entire doctrine of arbitrability of fraud has been built through case law beginning with Abdul Kadir, which in turn finds its basis in an English judgment of Russel v Russel9 (Russel).Russel is a celebrated judgment, delivered as early as 1880 by the court in England and widely regarded as the judgment having the most recognised precedential value on arbitrability of fraud, in both India and England.
The Chancery Division in Russel held that courts could decline reference to arbitration where there were serious allegation of fraud and the party against whom fraud is alleged desires a public inquiry to clear allegations against their character. In England, the decision was largely viewed as favouring arbitration. However, the decision in Russel was followed by the insertion of s.14 in the (UK) Arbitration Act of 1934, which specifically empowered courts to refer disputes involving questions of fraud to court for determination. Despite the statutory provisions, the judicial precedent initially leaned in favour of Russel and reference to arbitrations continued. Judicial vacillations between the statutory provisions and Russel continued a while but, in 1979, the court in the matter of Paczy v Haendler & Natermann GmbH (No.1)10 decisively held, even in cases of international commercial arbitrations even in regard to instances of allegation of fraud the court had no discretion to set aside an arbitration agreement. This principle was later given statutory recognition11 in the (UK) Arbitration Act of 1996 in England. However, the statutory recognition remained limited to international commercial arbitration.
As regards domestic arbitrations, the courts in the UK had more discretion.12 While s.86(2)(b) of the (UK) Arbitration Act 1996 continued on the statute book, due to European Community law considerations that required equitable treatment of all nationalities, the statutory disparity in relation to arbitrability of fraud in domestic and international commercial arbitrations was not enforced.13 Therefore, it was mandatory for the courts in England to refer parties to arbitration alleging fraud thereby bringing parity between international commercial arbitrations and domestic arbitration.
Meanwhile, in India in 1962, a threejudge bench of the Supreme Court in Abdul Kadir, relying on Russel, held that when serious allegations of fraud were made against a party and the party who was charged with fraud desired that the matter should be tried in open court that would be sufficient cause for the court not to make a reference to arbitration. Although Abdul Kadir was “only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, has a right to defend himself in that public forum”,14 it became the authoritative precedent on arbitrability on fraud and the basis to deny reference to arbitration. This was even though the court’s observation qua serious allegations of fraud were obiter dicta in Abdul Kadir, since the court had actually referred the parties to arbitration. While England treated Russel as the exception, in India, we made it the rule and construed Russel as an authority against arbitrability of fraud.
It is also important to mention that the decision in Abdul Kadir was delivered in the context of s.34 of the (Indian) Arbitration Act, 1940 (1940 Act). On 22 August 1996, the (Indian) Arbitration and Conciliation Act, 1996 (the 1996
Act) came into force. Section 34 of the 1940 Act, stood replaced by s.8 of the 1996 Act. The power of judicial intervention under s.34 of the 1940 Act was far greater than under s.8 of the 1996 Act.
Accordingly, interpreting section 8 of the 1996 Act, the Supreme Court, in year 2000, in the matter of P. Anand Gajapathi Raju v P.V.G. Raju15 (Anand Gajapathi Raju), held s.8 to be “peremptory” and stated that it was “obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement”.16 With the inclusion of s.8 and the decisive ruling of Anand Gajapathi Raju the controversy regarding arbitrability of fraud ought to have been laid to rest and made expressly arbitrable.
But something peculiar happened a year later. The Madras High Court, in H.G.
Oomor Sait v O. Aslam Sait,17 went on to hold to the contrary and in doing so stated that the power of a civil court to refuse stay of a suit in view of an arbitration clause on existence of certain grounds that were available under 1940 Act continued to be available under the 1996 Act. The decision of Oomor Sait on the aforegoing aspect was incorrect. In reality the discretion given to courts under the old s.34 was taken away by s.8 of the Arbitration Act of 1996. Further, the decision in Oomor Sait was clearly per incuriam as it failed to follow Anand Gajapathi Raju, despite referring to it.
In 2003, the Supreme Court in Hindustan Petroleum Corpn Ltd v Pinkcity
Midway Petroleums18 fortified the view of Anand Gajapati Raju. The court held, “If in an agreement … there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator”19. The court made no reference to Oomar Sait and rightly so since it was a High Court decision and was per incuriam. It is also, as an aside, important to mention that in September 2001, the 176th Law Commission Report20 had recommended that, in cases of domestic arbitrations, courts should deal with cases where questions of “fraud arise or if serious issues of fact or law arise”21. However, this amendment was not carried out in the Arbitration Act of 1996, presumably, since the suggestion did not meet the approval of the Justice Saraf Committee22 on arbitration and s.8 continued unamended in the 1996 Arbitration Act. Therefore, the decision in Hindustan Petroleum rightly interpreted the scope of s.8.
But this view suffered a serious setback in 2009 with the decision of the Supreme Court in N. Radhakrishnan, which held that fraud was nonarbitrable. The issue in N. Radhakrishnan arose due to a difference of opinion amongst partners of a partnership. The respondent filed a suit seeking a declaration that the petitioner was not a partner of the first respondent. Pending the suit the petitioner filed an application seeking the appointment of an arbitrator, which application was dismissed by the court. In the revision proceedings the High Court, interalia, took the view that the arbitration clause in question required consensus of both parties and since there was no consensus the arbitration clause could not be relied upon. The court also held that the arbitration clause dealt with “difference of opinion” as opposed the requirement of “dispute” in s.8 of the 1996 Act. Further, relying on Oomor Sait, held that issues involving “detailed evidence” could only be looked into by a civil court. The Supreme Court, agreeing with the High Court, took the view that “allegations of fraud and serious malpractices”23 will only be enquired into by the court and not the arbitrator.
Critique of N. Radhakrishnan
The decision of N. Radhakrishnan was incorrect for several reasons. First, the ratio decidendi of the decision in N. Radhakrishnan was based on the aspect of
“allegations of fraud and serious malpractices”,24 which according to the Supreme Court, was the basis of the underlying High Court’s decision in N. Radhakrishan. But a perusal of the Madras High Court’s judgment in N. Radhakrishnan v Maestro Engineers25 will reveal that the said decision does not deal with the question whether fraud is beyond the scope of arbitration. The High Court had merely dealt with the question of whether an application under s.8 of the Arbitration Act could be rejected when the evidence required to be examined is detailed. It is submitted that when the question as to whether issues of fraud could be referred to arbitration or not had not arisen before the High Court, the Hon’ble Supreme Court ought not to have gone into that aspect at all. Therefore, the discourse and ruling on fraud in N. Radhakrishnan was without any basis and was unnecessary. Secondly, the Court relied on a judgment of the High Court in Oomor Sait which had observed that the Civil Court could refuse reference to arbitration if disputes involved “complicated question of fact or law … or where allegation of fraud is made”26 and further held that such cases are “best left to the civil court” and that “the Arbitrator will not be competent to go into the said issues because the nature of the enquiry before an arbitrator is summary and Rules of procedure and evidence are not binding”27. Such a proposition, even at the time when the decision of Oomar Sait was delivered was wholly incorrect. More importantly, by 2006, the Supreme Court had the benefit of the 176th Law Commission Report, as well as the Justice Saraf’s Committee Report. Thirdly, the decision of N. Radhakrishnan on the aspect of the scope of s.8, is per incuriam. The court in N. Radhakrishnan, has referred to Hindustan Petroleum, but failed to distinguish it. Further, the court did not even mention Anand Gajapathi Raju. Fourthly, not only is the judgment of N. Radhakrishnan, per incuriam, it relied on Oomor Sait, which was also per incuriam.
Post N. Radhakrishnan and amendment to the 1996 Act
The 1996 Act stood amended on 1 January 201628 pursuant to the recommendations of the 246th Law Commission Report. It was felt that the 1996 Act needed to be amended for several reasons including the need to make India into the next arbitral destination. The 246th Law Commission Report comprehensively dealt with various shortcomings of the 1996 Act and amendments it proposed in the law, including the aspect of arbitrability of fraud.
The decision in N. Radhakrishnan has been the subject matter of much criticism since the time it was delivered. Its correctness was even doubted by the Law Commission in its 246th report. At paras 50 and 5129 the Law Commission has discussed the nonarbitrability of fraud and the distinction drawn by various courts between mere allegation of fraud and serious issue of fraud. At para.52, the Law Commission decisively states that it was “important to set this entire controversy to rest and make issues of fraud expressly arbitrable and to this end” proposed amendments to s.16. 30
In light of the above the Law Commission recommended the inclusion of s.16(7) as follows: “In section 16, After subsection (6), insert subsection ‘(7) The arbitral tribunal shall have the power to make an award or give a ruling notwithstanding that the dispute before it involves a serious question of law, complicated questions of fact or allegations of fraud, corruption etc.’”31 The Law Commission stated that this amendment was proposed in view of the N. Radhakrishnan judgment by adding the following note: “[NOTE: This amendment is proposed in the light of the Supreme Court decisions (e.g. N. Radhakrishnan v Maestro Engineers, (2010) 1 SCC 72 which appear to denude an arbitral tribunal of the power to decide on issues of fraud etc.)]”.32
It is important to mention that despite the Law Commission’s recommendation, s.16(7) did not form part of the 2016 amendments. On the other hand, s.8 was further made even more restrictive and the scope of judicial intervention now only required a finding that “prima facie no valid arbitration agreement exists.”33. So therefore, even though s.16(7) was not specifically included in the amendments, this did not in anyway signal that fraud was not arbitrable or that serious issues of fraud were not arbitrable, because of the stricter language of s.8.
The Ayyasamy decision
In October 2016, the Supreme Court delivered an important judgment in A. Ayyasamy v A. Paramasivam (Ayyasamy). The brief facts of the case involved a dispute between brothers who ran a partnership firm. The partnership deed contained an arbitration clause. The respondent had filed a civil suit seeking declaration that they were entitled to participate in the administration of the hotel. A s.8 application was filed challenging the maintainability of the suit in view of the arbitration agreement between the parties and allegations of fraud had also been made. The trial court dismissed the s.8 application and the High court dismissed the revision petition relying on in N. Radhakrishnan.
The Supreme Court held where the allegations of fraud are “very serious, which make a virtual case of criminal offence or where allegations of fraud are complicated”34 only in such cases the disputes shall not be arbitrable. The court makes a departure from N. Radhakrishnan in so far as it states that where fraud is merely alleged, or it is fraud simplicitor, such issues shall be arbitrable. While Sikri and Chandrachud JJ gave separate but concurring judgments, the ratio in both on this aspect was similar.
Critique of Ayyasamy
The Court in Ayyasamy while watering down the effect of N. Radhakrishnan, has made an indepth analysis of various principles of law, including foreign judgments. However, it is submitted that the ratio decidendi laid down by the Court in Ayyasamy is flawed and such ratio is unfortunately based on an incorrect appreciation of the 246th Law Commission Report, the Indian Contract Act, 1872, the 1996 Act and various judgments including N. Radhakrishnan.
As mentioned above, the language of s.8 is peremptory, mandatory and more restrictive in its scope of judicial enquiry than the preamendment s.8 of the 1996 Act, s.34 of the 1940 Act and also s.45 of the present Arbitration Act. As held by the Supreme Court, “once the prerequisite conditions,35 of s.8 are satisfied, reference to arbitration is mandatory. As mentioned earlier, it is important to note that the language of s.8 post the 2016 amendments, makes the scope of judicial enquiry further restrictive, to a prima facie finding of only the arbitration agreement being valid.
The inclusion of the words “arbitration agreement” in s.8 are deliberate and based on the doctrine of separability already embodied in s.16. As held by Chandrachud J in Ayyasamy: “The arbitration agreement between the parties stands distinct from the contract in which it is contained, as a matter of law and consequence. Even the invalidity of the main agreement does not ipso jure result in the invalidity of the arbitration agreement.”36 Relying on Buckeye Check Cashing, Inc v Cardegna, Chandrachud J further states just because there is a challenge to a contract by a party, “but not specifically (to) its arbitration provisions, those provisions are enforceable apart from the remainder of the contract.”37 Chandrachud J rightly observes “Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement”. From a perusal of s.8, it is evidently clear that reference to arbitration under s.8 can only be shut out by a court, if the arbitration agreement, is not valid or in other words is void. Void agreements have been defined in the Indian Contract Act 1872 (Contract Act) and are distinct from voidable contracts. Fraud vitiates free consent and makes a contract voidable. Section 8 does not envisage an enquiry into a voidable contract.
While the Supreme Court in Ayyasamy deals with fraud in extenso, it touches upon the definition of fraud fleetingly, mentioning only some ingredients of fraud in the context of the Contract Act. While the Supreme Court refers to the Black’s Law Dictionary in defining fraud, it omits to consider the comprehensive definition of fraud in s.17 of the Contract Act (which is reproduced later). The court completely sidesteps the voidable and void aspect of fraud, except in passing to observe that where the arbitration clause is null and void, it “would include voidability on the ground of fraud.”38 Such a proposition, with respect, is wholly incorrect.
A contract is stated to be voidable in certain instances under the Contract Act. In terms of ss.19 and 19A thereof, when consent to an agreement is caused by “coercion”39, “fraud”40, “misrepresentation”41 or “undue influence”42, the contract is voidable at the option of the party whose consent was so caused.
As held by the Supreme Court in Swiss Timing Ltd v Organising Committee43 (Swiss Timing) “(o)ften, the terms “void” and “voidable” are confused and used loosely and interchangeably with each other.”44
Examples of such void agreements would be agreements entered into with minors or where both the parties are under a mistake as to a matter of fact essential to the agreement or “where the consideration or object of the contract is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law or where the object of the contract (sic45) is to indulge in any immoral activity or would be opposed to public policy. Glaring examples of this would be where a contract is entered into between the parties for running a prostitution racket, smuggling drugs, human trafficking and any other activities falling in that category” or wagering contracts. When a court is presented with a case involving a void agreement (and now only a void arbitration agreement) “it would be justified in declining reference to arbitration.”46
It was imperative for the Court in Ayyasamy to bring out this important distinction. Had it done so, it would have found that the entire discussion in regard to fraud would have been very narrow and limited only to arbitration agreements, avoided at the instance of the party that suffered the fraud. A challenge on the basis of fraud, whereby the arbitration agreement had not been rescinded, would fall within the purview of voidable contracts and would hence be beyond the scope of s.8 and it “would not be possible to shut out arbitration even in cases where the defence taken is that the contract is voidable”.47
It therefore follows, in arbitration proceedings, if one party rescinds the contract on the ground of fraud and alleges the existence of one or more ingredients mentioned in s.17 of the Contract Act and the other party denies the allegation there is simply no justification for holding that only civil courts can decide the dispute. The definition in s.17 also makes no distinction between fraud simplicitor and complicated cases of fraud.
Section 17 of the Contract Act reads:
“‘Fraud defined’—’Fraud’ means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:—
the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; the active concealment of a fact by one having knowledge or belief of the fact; a promise made without any intention of performing it; any other act fitted to deceive; any such act or omission as the law specially declares to be fraudulent.
Explanation.—Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech.” 48
It is rather unfortunate that not a single judgment of the Supreme Court or High Court has considered the significance of this definition while dealing with the arbitrability of fraud, with the exception of Swiss Timing to a certain extent. While the Court in Ayyasamy has held that Swiss Timing does not have precedential value to overrule N. Radhakrishnan, however, Swiss Timing on the aspect of void and voidability of contracts would still be good law, since its observations in that regard were dehors of N. Radhakrishnan and hence ought to have been taken into consideration by the Court in Ayyasamy. This would also be in line with the recommendations of the 246th Law Commission Report49.
Fraud simplicitor and fraud complicated are expressions that have developed through judicial precedent. They envisage a twotier system of judicial enquiry to the category of fraud, which finds no basis in the Contract Act.
Chandrachud J. in Ayyasamy also espouses deference “to a forum chosen by parties as a complete remedy for resolving all their claims”. He relies with approval on the principle espoused in Premium Nafta Products Ltd. (20th Defendant) v Fily Shipping Co. Ltd.50 (Premium Nafta) which states:
“(T)he construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The (arbitration) clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”
Importantly, Chandrachud J. also recognises the principle, espoused by Lord
Hoffman51, that when parties choose arbitration they choose to have the entire dispute referred to arbitration and observes “it would be inconceivable that parties would have intended that some, amongst their disputes should first be resolved by a court before they proceed to arbitration”.52
If the distinction between fraud simplicitor and fraud complicated is retained it would create a system that requires, in the first instance, a resolution by court and thereafter for parties to proceed to arbitration, which runs contrary to the very principle Lord Hoffman espouses in Premium Nafta and the Court in Ayyasamy relies on.
The decision in Ayyasamy gives no reason why an arbitral tribunal is not competent to decide issues of fraud of a complicated nature. It is also important to mention that the Supreme Court has recognised that even the National Consumer Redressal Forum, being headed by a retired judge, is “competent to decide complicated issues of law or facts”.53 Most arbitrators in important and complex arbitrations are retired judges of the Supreme Court or the High Courts or people well trained in conducting arbitrations.
If India is to be the next arbitral destination like Singapore or London, it is time to empower the arbitral universe, more particularly since a closedroom focused process is more conducive to evidence appreciation. In any event, court assistance in taking evidence can always be sought under s.27 of the 1996 Act.
The Supreme Court’s categorisation of “very serious allegations of fraud which make it (a) virtual case of criminal offence” as not being arbitrable, in Ayyasamy, is also fundamentally flawed. There is no restraint in law for fraud to be tried simultaneously by a criminal and civil court. Chandrachud J. in Ayyasamy, relies on the proposition: “The existence of dual procedure; one under the criminal law and the other under the contractual law is a wellaccepted legal phenomenon in the Indian jurisprudence”.54 He also agrees and holds that “allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the arbitral tribunal to resolve a dispute arising out of a civil or contractual relationship”.55 When criminal and civil proceedings can coexist, there is no reason why arbitral proceedings cannot simultaneously coexist with criminal proceedings.
Despite laying down the above proposition, the Supreme Court, in the end, did not make a clearcut departure from N. Radhakrishnan. One reason for the reluctance could, perhaps, have been that despite the clear recommendations of the Law Commission as stated above, the proposed s.16(7) never found its way into the 2016 amendments. The Court in Ayyasamy would, perhaps, have been justified in holding that the fact that subs.(7) was never included in the amended Act. In deference to legislative intent it was appropriate not to reverse the decision of N. Radhakrishan. But that is not what the court said. After quoting paras 50 and 51 of the 246th Law Commission Report, the court, states:
“A perusal of the aforesaid two paragraphs brings into fore that the Law Commission has recognised that in cases of serious fraud, courts have entertained civil suits. Secondly, it has tried to make a distinction in cases where there are allegations of serious fraud and fraud simplicitor. It, thus, follows that those cases where there are serious allegations of fraud, they are to be treated as nonarbitrable and it is only the civil court which should decide such matters.” 56
This interpretational leap runs contrary to the 246th Law Commission Report which categorically states that the entire controversy needs to be put to rest and fraud be made expressly arbitrable. Why s.16(7) did not form part of the amendments, remains an enduring mystery, but to attribute such an interpretation to paras 50 & 51 is in the teeth of the 246th Law Commission Report.
The Aftermath of Ayyasamy: Unnecessary Uncertainty
With N. Radhakrishnan, the floodgates of litigation opened whereby the defence of fraud was “utilised by parties seeking a convenient ruse to avoid arbitration”.57 Now, with the inclusion of elements of very serious allegations of fraud that make a virtual case of criminal offence and complicated fraud, the court leaves the door open, albeit narrowly, with a window of opportunity to the astute lawyer to conflate the subjectivity of those words. Thus, the mere filing of a s.8 application could derail or at the very least delay the arbitration process. When the concurring judgment observes that arbitration is permissible even in cases involving bribery, there is no reason why all disputes relating to fraud, simplicitor or complicated, ought not to be a fortiori arbitrable.
Conclusion
The Supreme Court in Ayyasamy has recognised that a “fresh line must be drawn to ensure the fulfilment of the intent of Parliament in enacting the Act of 1996 and towards supporting commercial understandings grounded in the faith in arbitration”,58 but stops short of stating that N. Radhakrishnan is per incuriam (which it is) and holding that allegations of fraud, whether simplicitor or complicated, would not render the dispute inarbitrable.
On a careful consideration, a juxtaposition of the doctrine of severability embodied in s.16 read with s.8 of the Arbitration Act in relation to void and voidable contracts, it is submitted that the legal principles that ought to govern the arbitrability of fraud would be as follows:
the mandate of s.8 is peremptory and, unless the arbitration agreement (as distinct from the main contract) is prima facie not valid, the parties must be referred to arbitration;
the distinction between fraud simplicitor, serious allegations of fraud which make out a virtual case of criminal offence and complicated cases of fraud that require appreciation of voluminous evidence, is not warranted either by s.17 of the Contract Act, 1872 nor by s.8 of the Arbitration Act;
the proper approach, in an application under s.8, is to determine: whether the dispute can be determined/decided by civil courts under the general law? If yes, the matter must be referred to arbitration;
the reference to arbitration can be denied only if the “jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implication”59;
even if one party makes allegation of criminal wrongdoing in a dispute arising out of a contractual relationship, reference to arbitration cannot be denied under s.8;
similarly, even if complex questions of fact and law are involved, reference to arbitration must be made. Indeed, in complicated shipping or oil/gas contracts, the dispute can be better resolved through arbitration;
in the case of doubt as to whether the arbitral tribunal has jurisdiction, must be left to the arbitrators themselves to decide the question under s.16 of the Arbitration Act.
* Advocate & Founder of JusContractus, a Delhibased law firm. The writer acknowledges the assistance of Ms Hina Shaheen, Advocate, JusContractus and Ms Kruthika Prakash, Advocate, Madras High Court.
there exists two parallel lines of judgments on the issue of whether an issue of fraud is arbitrable. In this context, a 2 judge bench of the Supreme Court, while adjudicating on an application under s.8 of the Act, in Radhakrishnan v Maestro Engineers, 2010 1 SCC 72 held that an issue of fraud is not arbitrable. This decision was ostensibly based on the decision of the three judge bench of the Supreme Court in Abdul Qadir v Madhav Prabhakar, AIR 1962 SC 406. However, the said 3 judge bench decision (which was based on the finding in Russel v Russel [1880 14 Ch. D. 471]) is only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, has a right to defend himself in that public forum. Yet, following Radhakrishnan, it appears that issues of fraud are not arbitrable.
distinction has also been made by certain High Courts between a serious issue of fraud and a mere allegation of fraud and the former has been held to be not arbitrable (See Ivory Properties and Hotels Private Ltd v Nusli Neville Wadia, 2011 (2) Arb L.R. 479 (Bom); CS Ravishankar v CK Ravishankar, 2011 (6) Kar LJ 417).The Supreme Court inMeguin GMBH v Nandan Petrochem Ltd., 2007 (5) R.A.J 239 (SC), in the context of an application filed under s.11 has gone ahead and appointed an arbitrator even though issues of fraud were involved. Recently, the Supreme Court in its judgment in Swiss Timing Ltd v Organising Committee, Arb. Pet. No. 34/2013 dated 28.05.2014, in a similar case of exercising jurisdiction under section 11, held that the judgment in Radhakrishnan is per incuriam and, therefore, not good law.”
This article was original published by International Arbitration Law Review, 2017. © 2017 Sweet & Maxwell and its Contributors.
