Arbitrability of issues

The question of arbitrability decides whether a dispute is capable of being settled by way of arbitration essentially demarcating the type of dispute which may be resolved by arbitration and the type for which courts will have exclusive jurisdiction. Arbitrability of fraud in India is a concept evolved and nurtured by the Hon’ble Supreme Court of India by way of its various judgements delivered over the time.

Evolution and the Hon’ble Supreme Court of India

In the case of N. Radhakrishnan v. Maestro Engineers (2010) 1 scc 72. (later overruled) it was held that an issue of fraud is not arbitrable as it involves serious fraud allegations and the same should be settled in courts through detailed evidence led by both parties. Later, in the case of Swiss Timing ltd. v. Commonwealth Games 2010 organising committee (2014) 6 SCC 677, the court opined that the judgement in N. Radhakrishnan was bad in the eyes of law and upheld the decisions of previous cases wherein it was stated that arbitration was mandatory if there existed an arbitration agreement. Followed by this was the case of Ayyasamy v. A. Paramasivam and Ors. (2016) 10 SCC 386, the court held that if arbitration agreement existed, the court cannot compel parties to not proceed with arbitration until and unless the case was of serious issue of fraud involving criminal wrongdoing. Also, it would be upon the party trying to avoid arbitration to prove that the dispute is not arbitrable. Subsequently, in the case of Rashid Raza v. Sadaf Akhtar (2019) 8 SCC 710, the court formulated a two-step test to determine what constitutes a complex fraud- 1) whether the plea permeates the entire contract and specifically the arbitration agreement, thus rendering it void 2) whether the allegations of fraud are related to the internal affairs of the parties and have no implication in the public domain and such case it would be arbitrable.

The Current Position as per the Hon’ble Supreme Court of India

In the case of Avitel Post Studioz Ltd. & Ors. v. HSBC PI holdings (Mauritius) Ltd. & Ors. 2020 SCC OnLine SC 656, SC held the decision of N. Radhakrishnan was bad in the eyes of law and the decision in Swiss Timing and A. Ayyasamy was adopted. In the same year, in Deccan Paper Mills v. Regency Mahavir  2020 SCC OnLine SC 655, it was reiterated that merely because a particular transaction may have criminal overtones, it does not mean that its subject matter becomes non-arbitrable. In Vidya Drolia v. Durga Trading Corpn. 2020 SCC OnLine SC 1018, the court held that allegations of fraud are arbitrable when it relates to a civil disputes and are connected with rights in persona and not right in rem. Finally, in the case of N.N. Global Mercantile Pvt. Ltd. 2021 SCC OnLine SC 13, it was held that fraud is not completely non-arbitrable; the civil aspect of fraud is arbitrable with the only exception being a fraud that went to the root of the underlying contract and impeached the arbitration clause itself. Additionally, it was clarified that criminal aspect of fraud that attracted penal consequences and criminal sanctions could only be adjudicated by a court of law owing to the fact that it may result in a conviction which falls in the realm of public law.

REFERENCES

·        Arbitration and Conciliation Act, 1996.

·        N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72.

·        Swiss Timing ltd. v. Commonwealth Games 2010 organising committee (2014) 6 SCC 677.

·        Ayyasamy v. A. Paramasivam and Ors. (2016) 10 SCC 386

·        Rashid Raza v. Sadaf Akhtar (2019) 8 SCC 710.

·        Avitel Post Studioz Ltd. & Ors. v. HSBC PI holdings (Mauritius) Ltd. & Ors. 2020 SCC OnLine SC 656.

·        Deccan Paper Mills v. Regency Mahavir 2020 SCC OnLine SC 655.

·        Vidya Drolia v. Durga Trading Corpn. 2020 SCC OnLine SC 1018.

·        N.N. Global Mercantile Pvt. Ltd. 2021 SCC OnLine SC 13.

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