Whether dispute involving simple allegation of fraud are arbitrable?

 In view of our aforesaid discussions, we are of

the opinion that mere allegation of fraud simplicitor

may not be a ground to nullify the effect of

arbitration agreement between the parties. It is only

in those cases where the Court, while dealing with

Section 8 of the Act, 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 needs to be produced, the

Court can sidetrack the agreement by dismissing

application under Section 8 and proceed with the suit

on merits. It can be so done also in those cases

where there are serious allegations of

forgery/fabrication of documents in support of the

plea of fraud or where fraud is alleged against the

arbitration provision itself or is of such a nature

that permeates the entire contract, including the

agreement to arbitrate, meaning thereby in those

cases where fraud goes to the validity of the

contract itself of the entire contract which contains

the arbitration clause or the validity of the

arbitration clause itself. Reverse position thereof

would be that where there are simple allegations of

fraud touching upon the internal affairs of the party

inter se and it has no implication in the public

domain, the arbitration clause need not be avoided

and the parties can be relegated to arbitration.

While dealing with such an issue in an application

under Section 8 of the Act, the focus of the Court

has to be on the question as to whether jurisdiction

of the Court has been ousted instead of focusing on

the issue as to whether the Court has jurisdiction or

not. It has to be kept in mind that insofar as the

statutory scheme of the Act is concerned, it does not

specifically exclude any category of cases as nonarbitrable.

Such categories of non-arbitrable

subjects are carved out by the Courts, keeping in

mind the principle of common law that certain

disputes which are of public nature, etc. are not

capable of adjudication and settlement by arbitration

and for resolution of such disputes, Courts, i.e.

public fora, are better suited than a private forum

of arbitration. Therefore, the inquiry of the Court,

while dealing with an application under Section 8 of

the Act, should be on the aforesaid aspect, viz.

whether the nature of dispute is such that it cannot

be referred to arbitration, even if there is an

arbitration agreement between the parties. When the

case of fraud is set up by one of the parties and on

that basis that party wants to wriggle out of that

arbitration agreement, a strict and meticulous

inquiry into the allegations of fraud is needed and

only when the Court is satisfied that the allegations

are of serious and complicated nature that it would

be more appropriate for the Court to deal with the

subject matter rather than relegating the parties to

arbitration, then alone such an application under

Section 8 should be rejected.

The principles of law laid down in this appeal make a

distinction between serious allegations of

forgery/fabrication in support of the plea of fraud as

opposed to “simple allegations”. Two working tests laid

down in paragraph 25 are : (1) does this plea permeate the

entire contract and above all, the agreement of arbitration,

rendering it void, or (2) whether the allegations of fraud

touch upon the internal affairs of the parties inter se

having no implication in the public domain.

Judged by these two tests, it is clear that this is a

case which falls on the side of “simple allegations” as

there is no allegation of fraud which would vitiate the

partnership deed as a whole or, in particular, the

arbitration clause concerned in the said deed. Secondly,

all the allegations made which have been relied upon by the

learned counsel appearing on behalf of the respondent,

pertain to the affairs of the partnership and siphoning of

funds therefrom and not to any matter in the public domain.

This being the case, we are of the view that the

disputes raised between the parties are arbitrable and,

hence, a Section 11 application under the Arbitration Act

would be maintainable.

‘REPORTABLE’

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7005 OF 2019

RASHID RAZA Vs  SADAF AKHTAR 

R. F. NARIMAN, J.

Dated:September 04, 2019.

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Concept of Arbitrability of Arbitration Agreements in India

“Arbitration is the grease that helps economies flow and brings us benefits around the world.”

—David W. Rivkin[1]

1.      Introduction

Arbitration is a dynamic dispute resolution technique. An arbitrator’s powers normally derive from the arbitration agreement. With increasing number of cross border transactions and international trade contracts, arbitrability of arbitration agreement holds a prominent place in resolution of international and domestic arbitrations.

2.      Effect given to an arbitration agreement by court

Traditionally the parties move to court when the dispute relating to an arbitration agreement arises. So the question that needs to be dealt with is how does a court give effect to an arbitration agreement? It can be dealt in parts.  

2.1  Where one party wants to institute arbitration and another one is uncooperative, court may pass order compelling arbitration.

2.2  Where litigation is initiated over a claim falling within the scope of arbitration agreement, court may dismiss the suit on grounds of lack of jurisdiction.

2.3  Depending on the law of the seat, the Court may even have powers to support the arbitral tribunal - witnesses, documents, opinions.[2]

However, question is when can parties approach court even in presence of an arbitration agreement? In other words, what makes a dispute non-arbitrable?

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To what extent disputes relating to intellectual property rights are arbitrable?

We now deal with the first aspect of the matter, i.e., as to whether IPR disputes are arbitrable. This takes us to the question as to whether it is in the realm of a right in rem and therefore, not arbitrable. In this context, a clear distinction has been made inter-alia in the line of authorities referred to supra between a right in rem and an action in personam. A judgment in personam refers to a judgment against a person as distinguishable from a judgment against a thing, right or status. A judgment in rem refers to a judgment against a thing, right or status or condition of property which operates directly on the property itself. To make this illustrative, it can be said that a patent license issue may be arbitrable, but validity of the underlying patent may not be arbitrable. This has been alluded to by the Hon'ble Supreme Court of India in Booz Allen supra and the learned Single Judge has also noted this aspect of the matter as is evident from a reading of the order which has been called in question before us.

5(q) We are aware that after Booz Allen and Ayyasamy supra, there is one more judgment of the Supreme Court, which dealt with the question as to whether there can be an arbitration clause in a trust deed and as to whether a dispute pertaining to a trust or as amongst trustees of a public trust is arbitrable and the same was answered in the negative. This judgment is Vimal Kishor Shah Vs. Jayesh Dinesh Shah [(2016) 8 SCC 788] decided on 17.8.2016.

5(r) While Booz Allen dealt with disputes relating to rights in rem qua arbitration / arbitrability, Ayyasamy dealt with fraud qua arbitration / arbitrability. The third judgment dealt with a dispute touching upon a trust qua arbitration /arbitrability. Though the last of the three judgments, i.e., Vimal Kishor Shah was not cited before us, the same stand noticed by us.

5(s) Pivotal submission of Lifestyle on this aspect of the matter is that the aforesaid judgment of the Hon'ble Supreme Court of India has not considered or excluded IPR disputes from the scope of arbitrability. For absolute clarity on this aspect of the matter, learned counsel for Lifestyle referred to paragraph 14 of Ayyasamy case and said that the list of disputes which may not be arbitrable as adumbrated therein is not the ratio or conclusion of the Hon'ble Supreme Court of India, but a mere extract from a book titled 'The Law and Practice of Arbitration and Conciliation'. A perusal of paragraph 14 affirms this position and very fairly, learned Senior Counsel for QDS does not dispute this.

5(t) We also notice that the learned Single Judge has dealt with the rival submissions on this aspect of the matter and summarized the findings returned by the Court. Learned Single Judge has held that there is no quarrel with the proposition that the grant of registration of a copyright or design under the relevant statutes can be achieved through / only by statutory authorities constituted under the respective statutes. Learned Single Judge has gone on to hold in the present case that both parties are in reality claiming a better right of usage vis-a-vis the other and that this would clearly bring the facts of the present case within the realm of a right in personam rather than a right in rem. On this aspect of the matter, we have no difficulty in sustaining the finding returned and opinion of the learned Single Judge. At the risk of repetition, while a patent right may be arbitrable, the very validity of the underlying patent is not arbitrable. This has been articulated in Mustill and Boyd in their '2001 Companion Volume to the 2nd Edn. of Commercial Arbitration' . This has also been extracted by the Hon'ble Supreme Court of India in Booz Allen's case and the learned Single Judge has noticed this. Therefore, to this extent, there is no difficulty in agreeing with the learned Single Judge and holding that the disputes in the instant case as between Lifestyle and QDS are arbitrable.
Madras High Court

Lifestyle Equities Cv vs Qdseatoman Designs Pvt. Ltd on 13 October, 2017

CORAM : Ms.INDIRA BANERJEE, CHIEF JUSTICE

MR.JUSTICE M.SUNDAR

O.S.A.Nos.216 and 249 of 2017
and
C.M.P.No.14932 of 2017
O.S.A.No.216 of 2017 :

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Whether arbitrator can decide non-arbitrable issues?

 The question before this Court is whether the Arbitrator could have decided the issues which were not arbitrable.

20. Arbitration arises from a contract and unless there is a specific written contract, a contract with regard to arbitration cannot be presumed. Section 7(3) of the Act clearly specifies that the contract with regard to arbitration must be in writing. Thus, so far as the disputes which have been referred to in Clause 39 of the contract are concerned, it was not open to the Arbitrator to arbitrate upon the said disputes as there was a specific clause whereby the said disputes had been "excepted". Moreover, when the law specifically makes a provision with regard to formation of a contract in a particular manner, there cannot be any presumption with regard to a contract if the contract is not entered into by the mode prescribed under the Act.

21. If a non-arbitrable dispute is referred to an Arbitrator and even if an issue is framed by the Arbitrator in relation to such a dispute, in our opinion, there cannot be a presumption or a conclusion to the effect that the parties had agreed to refer the issue to the Arbitrator. In the instant case, the Respondent authorities had raised an objection relating to the arbitrability of the aforestated issue before the Arbitrator and yet the Arbitrator had rendered his decision on the said "excepted" dispute. In our opinion, the Arbitrator could not have decided the said "excepted" dispute.

22. We, therefore, hold that it was not open to the Arbitrator to decide the issues which were not arbitrable and the award, so far as it relates to disputes regarding non-arbitrable disputes is concerned, is bad in law and is hereby quashed.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 534 of 2007

Decided On: 05.09.2014

 Harsha Constructions Vs.  Union of India (UOI)

Hon'ble Judges/Coram:

Anil R. Dave and Vikramajit Sen, JJ.

Citation;(2014) 9 SCC 246.

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Whether Mere Allegation Of Fraud would Make Commercial Dispute Non-Arbitrable?

In view of our aforesaid discussions, we are of the opinion that
mere allegation of fraud simplicitor may not be a ground to nullify
the effect of arbitration agreement between the parties. It is only
in those cases where the Court, while dealing with Section 8 of
the Act, 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 needs to be
produced, the Court can sidetrack the agreement by dismissing
application under Section 8 and proceed with the suit on merits. It
can be so done also in those cases where there are serious
allegations of forgery/fabrication of documents in support of the
plea of fraud or where fraud is alleged against the arbitration
provision itself or is of such a nature that permeates the entire
contract, including the agreement to arbitrate, meaning thereby in
those cases where fraud goes to the validity of the contract itself
of the entire contract which contains the arbitration clause or the
validity of the arbitration clause itself. Reverse position thereof
would be that where there are simple allegations of fraud touching
upon the internal affairs of the party inter se and it has no
implication in the public domain, the arbitration clause need not be
avoided and the parties can be relegated to arbitration. While
dealing with such an issue in an application under Section 8 of the
Act, the focus of the Court has to be on the question as to
whether jurisdiction of the Court has been ousted instead of
focusing on the issue as to whether the Court has jurisdiction or
not. It has to be kept in mind that insofar as the statutory scheme
of the Act is concerned, it does not specifically exclude any
category of cases as non-arbitrable. Such categories of
non-arbitrable subjects are carved out by the Courts, keeping in

mind the principle of common law that certain disputes which are
of public nature, etc. are not capable of adjudication and
settlement by arbitration and for resolution of such disputes,
Courts, i.e. public for a, are better suited than a private forum of
arbitration. Therefore, the inquiry of the Court, while dealing with
an application under Section 8 of the Act, should be on the
aforesaid aspect, viz. whether the nature of dispute is such that it
cannot be referred to arbitration, even if there is an arbitration
agreement between the parties. When the case of fraud is set up
by one of the parties and on that basis that party wants to wriggle
out of that arbitration agreement, a strict and meticulous inquiry
into the allegations of fraud is needed and only when the Court is
satisfied that the allegations are of serious and complicated
nature that it would be more appropriate for the Court to deal with
the subject matter rather than relegating the parties to arbitration,
then alone such an application under Section 8 should be
rejected.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 8245-8246 OF 2016
A. AYYASAMY 
VERSUS
A. PARAMASIVAM & ORS. 
Dated:October 04, 2016

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When there will be no arbitrable dispute to exercise power U/S 11 of Arbitration Act?

In the decision rendered in Union of India vs. Master Construction

Co.(2011) 12 SCC 349

 this court observed as under:

“18. In our opinion, there is no rule of the absolute

kind. In a case where the claimant contends that a

discharge voucher or no-claim certificate has been

obtained by fraud, coercion, duress or undue influence

and the other side contests the correctness thereof, the

Chief Justice/his designate must look into this aspect to

find out at least, prima facie, whether or not the dispute

is bona fide and genuine. Where the dispute raised by the

claimant with regard to validity of the discharge voucher

or no-claim certificate or settlement agreement, prima

facie, appears to be lacking in credibility, there may not

be a necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration

is quite huge—most of the time, it runs into six and seven

figures. It may not be proper to burden a party, who

contends that the dispute is not arbitrable on account of

discharge of contract, with huge cost of arbitration

merely because plea of fraud, coercion, duress or undue

influence has been taken by the claimant. A bald plea of

fraud, coercion, duress or undue influence is not enough

and the party who sets up such a plea must prima facie

establish the same by placing material before the Chief

Justice/his designate. If the Chief Justice/his designate

finds some merit in the allegation of fraud, coercion,

duress or undue influence, he may decide the same or

leave it to be decided by the Arbitral Tribunal. On the

other hand, if such plea is found to be an afterthought,

make-believe or lacking in credibility, the matter must be

set at rest then and there.

In our considered view, the plea raised by the respondent is bereft of

any details and particulars, and cannot be anything but a bald assertion.

Given the fact that there was no protest or demur raised around the time or

soon after the letter of subrogation was signed, that the notice dated

31.03.2011 itself was nearly after three weeks and that the financial

condition of the respondent was not so precarious that it was left with no

alternative but to accept the terms as suggested, we are of the firm view that

the discharge in the present case and signing of letter of subrogation were

not because of exercise of any undue influence. Such discharge and signing

of letter of subrogation was voluntary and free from any coercion or undue

influence. In the circumstances, we hold that upon execution of the letter of

subrogation, there was full and final settlement of the claim. Since our

answer to the question, whether there was really accord and satisfaction, is

in the affirmative, in our view no arbitrable dispute existed so as to exercise

power under section 11 of the Act. The High Court was not therefore

justified in exercising power under Section 11 of the Act.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10784 OF 2014 @

SPECIAL LEAVE PETITION (CIVIL) NO.24652 OF 2013

NEW INDIA ASSURANCE COMPANY LTD …. Appellant

Versus

GENUS POWER INFRASTRUCTURE LTD. …. Respondent

Uday U. Lalit, J.

Dated:December 04, 2014

Citation:AIR 2015 SC (SUPP)136

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