Mere Allegations Of Fraud Not Directly Challenging Arbitration Agreement Do Not Render Dispute Non-Arbitrable: Gauhati High Court
The Gauhati High Court bench of Justice Soumitra Saikia held that mere allegations of fraud or pendency of criminal proceedings do not render a dispute non-arbitrable unless allegations challenge the arbitration agreement itself. Relying on the Supreme Court's judgment in Managing Director, Bihar State Food and Civil Supply Corporation Ltd. v. Sanjay Kumar (2025), it held that “the...
The Gauhati High Court bench of Justice Soumitra Saikia held that mere allegations of fraud or pendency of criminal proceedings do not render a dispute non-arbitrable unless allegations challenge the arbitration agreement itself.
Relying on the Supreme Court's judgment in Managing Director, Bihar State Food and Civil Supply Corporation Ltd. v. Sanjay Kumar (2025), it held that “the mere fact that criminal proceedings can or have been instituted in respect of the same incident(s) would not per se lead to the conclusion that the dispute which is otherwise arbitrable ceases to be so… To shut out arbitration at the initial stage would destroy the very purpose for which the parties had entered into arbitration.”
Background
The Petitioner, Sushila and the respondent entered into a partnership deed which contained an arbitration clause under clause 17. During the course of business, disputes arose between the parties, leading to multiple legal proceedings. The Petitioner filed criminal complaints against the respondent and also initiated a Money Suit and a Title Suit before civil courts. However, both suits before the civil courts were withdrawn in view of the arbitration clause.
Subsequently, a notice under section 21 of the Arbitration Act was issued to the respondent the receipt of which was denied by the respondent on the ground that he was out of station. However, the petitioner asserted that the notice was properly sent and delivered through post. Since no reply was received by the petitioner, the present has been filed before the High Court seeking appointment of an arbitrator.
Per contra, the Respondent submitted that since in the present case, a notice under section 21 of the Arbitration Act was not received, a precondition of a petition under section 11(6) was not satisfied. Serious allegations of fraud and forgery were raised by the petitioner which rendered the disputes non-arbitrable. Therefore, when allegations go to the root of the matter, the arbitration should not be invoked.
Analysis
On fraud and arbitrability, the court relied on the Supreme Court's judgments in Bihar State Food and Civil Supply Corp. Ltd. v. Sanjay Kumar (2025) and earlier precedent such as A. Ayyasamy v. Paramasivam, Rashid Raza v. Sadaf Akhtar where it was held that a fraud simpliciter is arbitrable. However, serious fraud involving criminality, public law implications or challenge to the arbitration agreement itself are non-arbitrable. Existence of criminal proceedings does not efface arbitration, arbitration proceedings can run parallely.
Applying the above tests to the present case, the court held that “It is also not in dispute that the allegations of fraud are not in respect of the arbitration agreement. It is also no longer res integra that the Arbitral Tribunal is competent to decide on its jurisdiction.” Accordingly, it held that the present disputes are arbitrable.
On notice, the court observed that delivery of notice was sufficiently established. Relegating parties for further exchange of notice under section 21 would only delay the proceedings especially when both the parties have already accepted the existence of a valid arbitration agreement. Accordingly, the present petition was allowed.
Case Title: SUSHILA DEVI BERIA VERSUS ASHOK KUMAR BERIA
Case Number: Arb.P./12/2025
Order Date: 17/09/2025