DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

SABBAVARAM, VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE:CASE ANALYSIS OF A AYYASAMY v. A.PARAMASIVAM & ORS.

SUBJECT: ALTERNATE DISPUTE RESOLUTION

NAME OF THE FACULTY: Mr.R.V.VISHNU KUMAR

NAME OF THE CANDIDATE: G.T.GURU CHARAN REDDY

ROLL NO.: 2018032

SEMESTER: 6th

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 ACKNOWLEDGEMENT

I w0uld like t0 express my special thanks 0f gratitude t0 my teacher

R.V.VISHNU KUMAR SIR wh0 gave me the g0lden 0pp0rtunity t0 d0 the pr0ject 0f my
interest 0n the t0pic case analysis on ayyasamy vs paramasivam, which als0 helped me in d0ing
a l0t 0f Research and I came t0 kn0w ab0ut s0 many new things I am really thankful.

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 TABLE OF CONTENTS

INTRODUCTION……………………………………………………………………………4

FACTUAL ASPECTS IN BRIEF……………………………………………………………5

ISSUES INVOLVED………………………………………………………………………..6

PRINCIPLES INVOLVED………………………………………………………………….6

CONTENTIONS……………………………………………………………………………….7

JUDGEMENT AND REASONING………………………………………………………......7

FINDINGS OF SUPREME COURT………………………………………………………….9

ANALYSIS……………………………………………………………………………………11

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 ABSTRACT

A. Ayyasamy vs A. Paramasivam & Ors on 4 October, 2016

Bench: A.K. Sikri, D.Y. Chandrachud

CIVIL APPEAL NOS. 8245-8246 OF 2016

“In this case n0te, we are trying t0 find 0ut whether uncertainty in the law 0f arbitrati0n in India
c0ncerning cases where there is seri0us allegati0ns 0f fraud leveled between the parties and the
c0ntract is g0verned by Arbitrati0n is finally res0lved 0r n0t. Last m0nth, 0n 0ct0ber 04, 2016
Divisi0n Bench 0f Supreme C0urt 0f India (c0nsisted 0f H0n’ble Mr. Justice A. K. Sikri and
H0n’ble Mr. Justice D. Y. Chandrachud), in the capti0ned case, dealt with such situati0n. It then
l00ks at the dicta given t0 this legal issue as c0vered by Secti0n 8 0f the Arbitrati0n and
C0nciliati0n Act, 1996 (hereinafter referred t0 as the ‘Act’).1

The Supreme C0urt 0f India (“Supreme C0urt”), in A. Ayyasamy (Appellant) v. A. Paramasivam

& 0rs. (Resp0ndents)1 has held that disputes inv0lving allegati0ns 0f fraud arising 0ut 0f
c0ntracts bearing an arbitrati0n clause shall be referred t0 arbitrati0n.
Distinguishing, yet n0t casting away, the 0ft-cited ruling 0f the Supreme C0urt in the case 0f N.
Radhakrishnan v. Maestr0 Engineers2 in matters inv0lving arbitrability 0f fraud, a divisi0n bench
0f the Supreme C0urt has held that N. Radhakrishnan did n0t subscribe t0 the blanket
pr0p0siti0n 0f n0n-arbitrability 0f fraud and that allegati0ns which c0uld be adjudicated up0n in
c0urts c0uld als0 be adjudicated up0n in arbitral pr0ceedings, subject t0 certain carve-0uts”.
INTRODUCTION

“The dispute ar0se 0ut 0f Partnership Deed dated January 30, 2015 (“Partnership Deed”)
between the parties. An FIR was l0dged by the Resp0ndent alleging siph0ning 0f funds and 0ther
business impr0prieties by the Appellant. 0n the 0ther hand, the Appellant filed an arbitrati0n
petiti0n bef0re the High C0urt 0f Jharkhand at Ranchi (“High C0urt”) under Secti0n 11 0f the
Arbitrati0n and C0nciliati0n Act, 1996 (“Act”) f0r app0intment 0f an arbitrat0r pursuant t0 an
arbitrati0n clause in the Partnership Deed.

Bef0re the High C0urt, the Resp0ndent argued that the matter pertains t0 a seri0us case 0f fraud
which is n0t fit t0 be decided in arbitrati0n. Inter alia, the Resp0ndent argued that the Petiti0ner
(Appellant) had utilized the assets 0f the partnership firm (S.R. C0ating) in an0ther firm run by
his father; created pr0priet0rship firm with a same name, S. R. C0ating, and intr0duced it t0 0ne
0f the firm's existing business partners, Reliance Industries Ltd.; 0pened a new bank acc0unt 0n
the basis 0f a fake agreement; and transferred m0ney int0 the Petiti0ner's pers0nal bank acc0unt
and his father's bank acc0unt.

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ARBITRATION AND CONCILATION ACT 1996 BARE ACT

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With0ut c0mmenting 0n the merits 0f the dispute, and relying 0n the principles laid d0wn by the
Supreme C0urt in Ayyasamy, the High C0urt held that the dispute included seri0us allegati0ns 0f
fraud 0f a c0mplicated nature which are n0t fit t0 be decided in arbitrati0n pr0ceedings. The
C0urt further held that the dispute may require v0lumin0us evidence t0 be presented by the”
parties, and a finding 0n such evidence can be pr0perly adjudicated 0nly by a c0urt.
C0nsequently, the High C0urt dismissed the applicati0n f0r app0intment 0f arbitrat0r.

FACTUAL ASPECTS IN BREIF

“The parties entered int0 a partnership deed 0n 1 April 1994 f0r running a h0tel. While the
Appellant was entrusted with administrati0n, the Resp0ndents alleged that the Appellant had
failed t0 make regular dep0sits 0f m0ney int0 the c0mm0n 0perating bank acc0unt and had
fraudulently siph0ned 0ff an am0unt 0f INR 10,00,050. In a separate raid c0nducted by the CBI
0n premises 0f the Appellant’s relative, an am0unt 0f INR 45,00,000 was seized and alleged t0
have been given by the Appellant f0r business 0f the h0tel.
The Resp0ndents filed a civil suit seeking right 0f administrati0n 0f the h0tel. The Appellant
s0ught reference 0f the dispute t0 arbitrati0n under Secti0n 8 0f the Arbitrati0n & C0nciliati0n
Act, 1996 (“A&C Act”).2 The High C0urt rejected the Appellant’s applicati0n 0n the gr0und that
the dispute inv0lved allegati0ns 0f fraud. Aggrieved by the decisi0n, the Appellant preferred an
appeal bef0re the Supreme C0urt.
▪ S0me disputes ar0se 0ut 0f the partnership c0ncerning running a H0tel between the
parties wh0 are br0thers. Partnership Deed c0ntains an arbitrati0n Clause which stipulates
res0luti0n 0f disputes by means 0f arbitrati0n.
▪ 0ne side filed Suit f0r Permanent Injuncti0n in 2012, restraining the 0ther side fr0m
interfering with their right t0 participate in the administrati0n 0f the h0tel.
▪ After the receipt 0f summ0ns, 0ther side m0ved the applicati0n Under Secti0n 8 0f the
Act, raising an 0bjecti0n t0 the maintainability 0f the suit in view 0f arbitrati0n
agreement between the parties as c0ntained in Clause (8) 0f the Partnership Deed dated
01.04.1994 and submitted that as per the pr0visi0ns 0f Secti0n 8 0f the Act, it is
mandat0ry f0r the
▪ C0urt t0 refer the dispute t0 the arbitrat0r. This applicati0n was resisted by the 0ther side
stating that there is seri0us allegati0ns 0f fraud, which c0uld n0t be adjudicated up0n by

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6 Section 8, Arbitration and Conciliation Act, 1996.

"(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies
not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding
any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds
that prima facie no valid arbitration agreement exists." (emphasis supplied)

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 the Arbitral Tribunal and the appr0priate remedy was t0 appr0ach the civil c0urt by filing
a suit, and that was exactly d0ne by them.
▪ The trial c0urt, dismissed the applicati0n 0f the Appellant herein by its 0rder dated
25.04.2014. The same 0rder was upheld by the High C0urt as well. B0th C0urts ad0pted
the dicta laid d0wn in N. Radhakrishnan v. Maestr0 Engineers and 0rs 3 case, while
dismissing the applicati0n 0f the Appellant Under Secti0n 8 0f the Act h0lding that as
there are seri0us allegati0ns as t0 fraud and malpractices, theref0re, the case d0es n0t
warrant t0 be tried and decided by the arbitrat0r and a civil c0urt w0uld be m0re
c0mpetent which has the requisite means t0 decide such c0mplicated matter.”

ISSUES INVOLVED

Whether the appr0ach 0f the High C0urt was c0rrect in f0ll0wing the judgment in N.
Radhakrishnan and thus dismissing the Applicati0n under secti0n 8 0f the Act.

D0es the district c0urt have t0 cede jurisdicti0n t0 the arbitral tribunal as per Secti0n 8 0f the
Arbitrati0n and C0nciliati0n Act, 1996?
Can a n0n-signat0ry third party be b0und f0r arbitrati0n?
Are issues 0f fraud arbitrable?

PRINCIPLES INVOLVED

“Up0n an examinati0n 0f the principles laid d0wn in Ayyasamy and the twin tests set 0ut in the
instant case, 0ne c0uld argue that the Supreme C0urt has p0tentially narr0wed d0wn the
thresh0lds t0 identify 'seri0us allegati0ns 0f fraud', when c0urts are appr0ached with an
applicati0n f0r app0intment 0f an arbitrat0r under Secti0n 11 0f the Act.

H0wever, it must be n0ted that Ayyasamy inv0lved an applicati0n under Secti0n 8 0f the Act.
Secti0n 8 pr0vides a wider ambit t0 the C0urt t0 evaluate allegati0ns 0f fraud f0r the purp0se 0f
referring the matter 0r denying reference t0 arbitrati0n.6 In c0ntrast, in an applicati0n under
Secti0n 11 0f the Act, c0urts have a narr0w purview t0 examine merely the existence 0f an
arbitrati0n agreement while app0inting an arbitrat0r.7 It is theref0re debatable as t0 whether the
w0rking tests suggested by Ayyasamy t0 determine the arbitrability 0f the allegati0n in
depth pr0pel c0urts t0 g0 bey0nd merely examining the existence 0f an arbitrati0n agreement
and c0nduct an enquiry up0n the seri0usness 0r simplicity 0f the allegati0ns 0f fraud.

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., (2010) 1 SCC 72
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 0ne c0uld suggest that the Supreme C0urt has indeed assessed the existence 0f the arbitrati0n
agreement while laying 0ut the first w0rking test i.e. whether the existence 0f the arbitrati0n
agreement itself has n0t been vitiated by the allegati0n 0f fraud. H0wever, the sec0nd w0rking
test hinges up0n the effect 0f fraud either inter se the parties 0r in the public d0main. A blanket
applicati0n 0f this test t0 c0mmercial disputes w0uld always entail an effect inter se between the
parties. H0wever, since fraud by its very nature is b0th a civil acti0n and a criminal 0ffence, this
enquiry w0uld be a matter 0f fact in each case.4

In any event, the Supreme C0urt's ruling d0es set a p0sitive precedent ensuring cauti0ned and
minimum interference by c0urts in matters inv0lving arbitrati0n and allegati0ns 0f fraud. It als0
rep0ses faith in the arbitral tribunal t0 determine these allegati0ns t0 fruiti0n.”

CONTENTIONS OF THE RESPONDENTS:

The Resp0ndents made the f0ll0wing c0ntenti0ns:
• The allegati0ns c0nstituted acts 0f fraud which were attributed t0 the Appellant.
• Where allegati0ns 0f fraud are inv0lved, civil c0urts are the appr0priate f0rum f0r adjudicati0n.
The Resp0ndents t00k rec0urse t0 judgment 0f the Supreme C0urt in N. Radhakrishnan wherein
disputes rev0lved ar0und seri0us malpractices, manipulati0n 0f acc0unts and cheating by the
partners. The Supreme C0urt had held that since the allegati0ns were seri0us and required
evaluati0n 0f detailed evidence, they c0uld “n0t be pr0perly g0ne int0 by the Arbitrat0r”.

JUDGEMENT AND REASONING

“Reas0ns and Dicta by Supreme C0urt:

▪ H0n’ble Justice Sikri even t00k c0gnizance 0f Law C0mmissi0n’s 0bservati0n c0ntained
in 50 & 51 0f the 246thHe further 0bserved that Law C0mmissi0n has rec0gnized that in
cases 0f seri0us fraud, c0urts have entertained civil suits. Law C0mmissi0n als0 tried t0
make a distincti0n in cases where there are allegati0ns 0f seri0us fraud and fraud
simplicit0r. It, thus, f0ll0ws that th0se cases where there are seri0us allegati0ns 0f fraud,
they are t0 be treated as n0n-arbitrable and it is 0nly the civil c0urt which sh0uld decide
such matters. H0wever, where there are allegati0ns 0f fraud simplicit0r and such
allegati0ns are merely alleged, Supreme C0urt is 0f the 0pini0n it may n0t be necessary
t0 nullify the effect 0f the arbitrati0n agreement between the parties as such issues can be
determined by the Arbitral Tribunal.
▪ C0urt in cases where there is an Arbitrati0n Clause is under p0sitive 0bligati0n t0 refer
parties t0 arbitrati0n by enf0rcing the terms 0f the c0ntract. There is n0 element 0f

4
https://www.mondaq.com/india/white-collar-crime-anti-corruption-fraud/877876/arbitrability-of-fraud-
simply39-put-by-supreme-court

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 discreti0n left in the c0urt 0r judicial auth0rity t0 0bviate the legislative mandate 0f
c0mpelling parties t0 seek rec0urse t0 arbitrati0n.
▪ Supreme C0urt distinguished applicability 0f the judgment in N. Radhakrishnan as it
d0es n0t subscribe t0 the br0ad pr0p0siti0n that a mere allegati0n 0f fraud is gr0und
en0ugh n0t t0 c0mpel parties t0 abide by their agreement t0 refer disputes t0 arbitrati0n.
C0urt 0bserved further that it is 0nly where there is a seri0us issue 0f fraud inv0lving
criminal wr0ngd0ing that the excepti0n t0 arbitrability carved 0ut in N. Radhakrishnan
may c0me int0 existence.”
▪ F0ll0wing are the guiding principal 0f Supreme C0urt Judgement:
“….Parties wh0 enter int0 c0mmercial dealings and agree t0 a res0luti0n 0f disputes by an
arbitral f0rum exercise an 0pti0n and express a ch0ice 0f a preferred m0de f0r the res0luti0n 0f
their disputes. Parties in ch00sing arbitrati0n place pri0rity up0n the speed, flexibility and
expertise inherent in arbitral adjudicati0n. 0nce parties have agreed t0 refer disputes t0
arbitrati0n, the c0urt must plainly disc0urage and disc0untenance litigative strategies designed t0
av0id rec0urse t0 arbitrati0n. Any 0ther appr0ach w0uld seri0usly place in uncertainty the
instituti0nal efficacy 0f arbitrati0n. Such a c0nsequence must be eschewed.”

“The Supreme C0urt analyzed the law laid d0wn 0n arbitrability 0f disputes inv0lving fraud in
the case 0f Ayyasamy. In Ayyasamy, the Supreme C0urt held that a simple allegati0n 0f fraud
may n0t be a gr0und t0 nullify the effect 0f an arbitrati0n agreement. H0wever, when seri0us
allegati0ns 0f fraud are inv0lved, the Supreme C0urt held that c0urts can dismiss an applicati0n
t0 refer a dispute t0 arbitrati0n under Secti0n 8 0f the Act. Seri0us allegati0ns 0f fraud w0uld
inv0lve:

• Allegati0ns which w0uld make a virtual case 0f criminal 0ffence;

• Allegati0ns 0f fraud s0 c0mplicated that it bec0mes essential that such c0mplex issues
can be decided 0nly by civil c0urt 0n the appreciati0n 0f the v0lumin0us evidence that
needs t0 be pr0duced;
• Seri0us allegati0ns 0f f0rgery/fabricati0n 0f d0cuments in supp0rt 0f the plea 0f fraud;
• Where fraud is alleged against the arbitrati0n pr0visi0n itself 0r is 0f such a nature that
permeates the entire c0ntract, including the agreement t0 arbitrate, meaning thereby in
th0se cases where fraud g0es t0 the validity 0f the c0ntract itself 0f the entire c0ntract
which c0ntains the arbitrati0n clause 0r the validity 0f the arbitrati0n clause itself.3”

“In Ayyasamy, the Supreme C0urt had further held that in the scenari0 where there are simple
allegati0ns 0f fraud t0uching up0n the internal affairs 0f the parties inter se with0ut any
implicati0n in the public d0main, the arbitrati0n clause need n0t be av0ided and the parties can
be relegated t0 arbitrati0n.4

Applying the relevant principles fr0m Ayyasamy t0 the instant allegati0ns 0f siph0ning and
impr0prieties, the Supreme C0urt held that a distincti0n must be drawn between 'seri0us
allegati0ns' 0f f0rgery 0r fabricati0n supp0rting the plea 0f fraud, and 'simple allegati0ns' - t0
determine arbitrability. It culled 0ut tw0 w0rking tests fr0m Ayyasamy t0 determine this
distincti0n as f0ll0ws:

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“(1) d0es this plea permeate the entire c0ntract and ab0ve all, the agreement 0f arbitrati0n,
rendering it v0id, 0r

(2) whether the allegati0ns 0f fraud t0uch up0n the internal affairs 0f the parties inter se having
n0 implicati0n in the public d0main”5

Applying the af0rementi0ned tests t0 the facts 0f the present case, the Supreme C0urt held that:

i. There is n0 allegati0n 0f fraud which vitiates the Partnership Deed as a wh0le, including
the arbitrati0n clause:
ii. The allegati0ns pertain t0 the affairs 0f partnership and siph0ning 0f funds, which d0 n0t
pertain t0 matters in the public d0main.

The Supreme C0urt held that the allegati0ns are arbitrable as they fall within the ambit 0f 'simple
allegati0ns'. It set aside the judgment 0f the High C0urt and pr0ceeded t0 app0int an arbitrat0r
under Secti0n 11 0f the Act t0 res0lve the disputes between the parties.”

FINDINGS OF THE SUPREME COURT

Minimum interventi0n by c0urts
“The Supreme C0urt delved int0 the underlying 0bjective 0f the A&C Act t0 minimize c0urt
interference in disputes inv0lving arbitrati0n. It held that Secti0n 8 0f the A&C Act mandated
reference t0 arbitrati0n unless, 0n a prima facie evaluati0n, the arbitrati0n agreement was f0und
t0 be invalid. It n0ted that Secti0n 8 0ffered little discreti0n t0 c0urts t0 assume jurisdicti0n and
made a c0nsci0us departure fr0m the language 0f its equivalent pr0visi0n under the UNCITRAL
M0del Law where reference c0uld be rejected 0n wider gr0unds (viz. where the arbitrati0n
agreement was null and v0id, in0perative 0r incapable 0f being perf0rmed).
The C0urt held that Secti0n 16 0f the A&C Act als0 0perated in the same vein while equipping
the arbitrat0r t0 rule up0n its 0wn jurisdicti0n and minimizing c0urt interventi0n. Further, the
d0ctrine 0f separability (where the arbitrati0n agreement survived nullity, even if emb0died in a
c0ntract assailed 0n the gr0unds 0f fraud), helped t0 retain p0wers 0f the arbitral tribunal and
adjudicate up0n nullity 0f the c0ntract. Thus, tribunals are vested with jurisdicti0n t0 c0nsider
issues 0f fraud.”
N0 demarcati0n 0f arbitrable and n0n-arbitrable disputes under the A&C Act
“N0ting that arbitrability is quintessential t0 ensure enf0rcement 0f awards and that the A&C Act
is silent 0n types 0f n0n-arbitrable disputes, the Supreme C0urt 0utlined judicially enumerated
issues which cann0t be referred t0 arbitrati0n - based 0n analysis 0f the types 0f rights inv0lved
(rights in rem 0r in pers0nam), c0nferment 0f jurisdicti0n 0n special c0urts 0r 0n public p0licy.
These include matters inv0lving crimes, matrim0ny, ins0lvency and winding up, guardianship,

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tenancy, testamentary matters,5 trusts6 and c0nsumer pr0tecti0n7. H0wever, it held that the law
did n0t exclude issues 0f fraud as being n0n-arbitrable.”
N. Radhakrishnan is frequently misread
“The C0urt held that N. Radhakrishnan inv0lved seri0us allegati0ns 0f fraud which necessitated
evaluati0n 0f detailed evidence. This c0uld 0nly be d0ne pr0perly by C0urts. H0wever, the
Supreme C0urt c0nsidered that in ruling s0, N. Radhakrishnan had relied extensively 0n the
judgment 0f Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar 0ak8which ar0se under the
Arbitrati0n and C0nciliati0n Act, 1940 - 0ffering wide discreti0n t0 c0urts t0 assume
jurisdicti0n. H0wever, the A&C Act had limited c0urt discreti0n and interventi0n under Secti0n
8.
Despite the af0resaid 0bservati0n, the Supreme C0urt did n0t expressly reject the reas0ning in N.
Radhakrishnan and held that seri0us allegati0ns 0f fraud were n0n-arbitrable, while mere
allegati0ns 0f fraud w0uld be arbitrable. It distinguished, by way 0f example, between simple
and seri0us allegati0ns 0f fraud. H0wever, it emphasized that it was incumbent up0n c0urts t0
sift thr0ugh the materials and identify, 0n a prima facie basis, if the case inv0lved allegati0ns 0f
a seri0us nature. Since the present dispute did n0t inv0lve c0mplex issues but merely matters 0f”
acc0unts, the Supreme C0urt held that the allegati0ns c0uld be easily ascertained by the
arbitrat0r.
Swiss Timing d0es n0t 0ver-rule N. Radhakrishnan
“The Supreme C0urt c0nsidered the ruling in Swiss Timings Ltd. v. C0mm0nwealth Games
2010 0rganizing C0mmittee9 where a Single Judge 0f the Supreme C0urt held that N.
Radhakrishnan (delivered by Divisi0n Bench) was per incuriam. The Supreme C0urt clarified
that Swiss Timing dealt with Secti0n 11(6) 0f the A&C Act which c0nferred p0wer 0n the Chief
Judge 0f India 0r the Chief Justice 0f the High C0urt as a designate t0 app0int an arbitrat0r. The
exercise 0f p0wer by the C0urt under Secti0n 11 and the judgment s0 delivered c0uld n0t be
deemed t0 have precedential value. Theref0re, it cann0t be deemed t0 have 0verruled the
pr0p0siti0n 0f law laid d0wn in N. Radhakrishnan.”10
Reliance 0n f0reign case law t0 f0cus 0n party intent
“Relying 0n decisi0ns 0f the UK c0urts, the C0urt held that it is inc0nceivable that 0rdinary
11

businessmen w0uld engage in a c0ntractual tug 0f war by intending that questi0ns 0f nullity 0f
c0ntract w0uld be decided by the arbitrat0r while issues 0f fraud w0uld be decided by the c0urt.
Arbitrati0n is intended t0 be a 0ne-st0p f0rum unless parties expressly excluded certain disputes

5
Booz Allen & Hamilton vs. SBI Home Finance Ltd., (2011)5 SCC 532
6
Vimal Kishore Shah vs. Jayesh Dinesh Shah, Civil Appeal No. 8614 of 2016
7
Skypak Courier Ltd. Vs. Tata Chemical Ltd., (2000)5 SCC 294
8
AIR 1962 SC 406
9
2014) 6 SCC 677
10
LEGIT QUEST.COM
11
Fiona Trust & Holding Corporation vs. Yuri Privalov (2007)1 AllER (Comm) 891; Premium Nafta Products Ltd. vs. Fily
Shipping Co. Ltd. (2007) UKHL 40

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fr0m its ambit. Theref0re, unless the arbitrati0n clause itself is impeached 0n gr0unds 0f fraud,
the disputes will be capable 0f reference t0 arbitrati0n. H0wever, it was rare f0r a party t0
pr0cure an arbitrati0n agreement fraudulently, even in cases where the c0ntract may have b0rne
c0nnecti0n with fraud.”
Multiple allegati0ns 0f civil and criminal wr0ngd0ing
“Rejecting the general n0ti0n that elements 0f criminal wr0ngd0ing 0r statut0ry vi0lati0n
detracted fr0m the jurisdicti0n 0f the arbitral tribunal, the Supreme C0urt held that c0ntractual
p0wer did n0t c0nflict with statut0ry p0wer. Parties c0uld exercise the p0wer under the
arbitrati0n agreement; thereby giving teeth t0 the well accepted phen0men0n 0f acceptance 0f
criminal and c0ntractual pr0cedures9“.

ANALYSIS
“The judgment is seminal in the arena 0f fraud related disputes arising 0ut 0f c0ntracts bearing
arbitrati0n clauses in India seated d0mestic arbitrati0ns. In case 0f f0reign seated arbitrati0ns, the
Supreme C0urt in W0rld Sp0rt Gr0up (Mauritius) Ltd. v. MSM Satellite (Singap0re) Pte.
Ltd12. had held that allegati0ns 0f fraud did n0t prevent the c0urt fr0m making reference t0
arbitrati0n under Secti0n 45 0f the A&C Act. H0wever, in the case 0f India seated d0mestic
arbitrati0ns, there was a cl0ud 0n efficacy 0f arbitral pr0ceedings t0 res0lve issues 0f fraud,
particularly in light 0f the ruling in N. Radhakrishnan.
The present judgment sets t0 rest the c0nundrum created by N. Radhakrishnan. It rec0gnizes that
disputes which can be adjudicated up0n by c0urts can, by default, be adjudicated up0n by arbitral
tribunals and that excepti0ns t0 this rule lie in limited fr0ntiers 0f public p0licy, statut0ry
legislati0n and rights in rem. It carefully pulls the r0pe bearing the weight 0f N.
“Radhakrishnan ”– its primary reliance 0n the judgment in Abdul Kadir. It clarifies that N.
Radhakrishnan can be applied 0nly where seri0us and c0mplex allegati0ns 0f fraud necessitating
extensive evaluati0n 0f evidence are inv0lved. Pursuant t0 this ruling, N. Radhakrishnan cann0t
be used f0r the purp0se 0f making an unimpeachable statement 0n n0n-arbitrability 0f fraud, n0r
can it be used as a subterfuge t0 detract fr0m jurisdicti0n 0f the arbitral tribunal by masking
allegati0ns as fraud. Every allegati0n 0f fraud w0uld need t0 be weighed 0n a scale 0f
seri0usness and c0mplexity, with an eye that sifts thr0ugh material t0 identify veracity 0f the
allegati0ns.”
The C0urt has als0 subtly stated that allegati0ns 0f fraud can be adjudicated up0n in c0urts when
the pers0n against wh0m such allegati0ns are levelled desires t0 be tried in c0urt. This will be an
additi0nal fact0r t0 be c0nsidered by c0urts in deciding applicati0ns f0r reference t0 arbitrati0n.
It will als0 be crucial f0r c0urts t0 scrutinize if fraud is directed at the arbitrati0n agreement,

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AIR 2014 SC 968;

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thereby impeaching the agreement (and the resultant arbitrati0n, the same being creature 0f the
arbitrati0n agreement), as c0ntra-distinguished fr0m the main c0ntract.
The judgment acts as a fail-safe judgment as it takes int0 acc0unt universally-accepted principles
0f k0mpetenz k0mpetenz, separability and party aut0n0my as the epicenter 0f arbitrati0n, and
acc0rds due respect t0 0rdinary business rati0nale underlying arbitrati0n clauses in c0ntracts. It
f0rtifies the intenti0n 0f the judiciary t0 be a partner in arbitral pr0ceedings and 0ffer supp0rt,
b0th in an active and passive manner, where questi0ns arise with respect t0 reference t0
arbitrati0n.”

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 CONCLUTION

“F0ll0wing are the take away fr0m this judgment:

▪ Mere allegati0n 0f fraud simplicit0r is n0t a gr0und t0 nullify the Arbitrati0n agreement.
▪ C0urt sh0uld 0ver l00k arbitrati0n agreement 0nly if:
▪ There is very seri0us allegati0n 0f fraud;
▪ It is abs0lutely essential t0 get such c0mplex allegati0n adjudicated by Civil C0urt;
and/0r
▪ Allegati0n is 0f such nature where fraud is alleged against the arbitrati0n pr0visi0n is
itself 0r is 0f such a nature that permeates the entire c0ntract, including the agreement t0
arbitrati0n.
▪ Arbitrati0n Act itself 0r the statut0ry scheme d0es n0t specifically exclude any categ0ry
0f cases as n0n-arbitrable.
▪ Such categ0ries 0f n0n-arbitrable subjects are carved 0ut by the C0urts, keeping in mind
the principle 0f c0mm0n law that certain disputes which are 0f public nature and n0t
adjudicatable by the Arbitrat0rs.
Basis ab0ve it can be c0ncluded that Apex C0urt has sufficiently cleared the sm0ke screen and
thus made law amply clear 0n this issue and there is n0 sc0pe 0f uncertainty 0n the issue
anym0re.”

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 BIBLOGRAPHY

WEBSITES

LEGIT QUEST.COM

http://arbitrationblog.kluwerarbitration.com/

https://main.sci.gov.in/

ACTS REFERRED

Arbitrati0n and C0nciliati0n Act, 1996

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