The High Court of Delhi has reaffirmed that determining whether an arbitration agreement is tainted by fraud should be entrusted to the discretion of the arbitrator. The arbitrator is then free to make this determination based on the presented evidence. The court, when exercising its authority under Section 11 of the Arbitration and Conciliation Act, should refrain from making such a determination itself.

The bench presided over by Justice Rekha Palli concluded that the mere existence of a criminal complaint filed against the petitioner on allegations of fraud does not provide sufficient grounds to divert the parties involved to arbitration, especially when the dispute clearly falls within the scope of the arbitration clause and is not subject to dispute.

The Court additionally ruled that if the respondent had initially appointed an arbitrator, even if that appointment was legally flawed due to being a unilateral decision, the respondent cannot subsequently object to the court's appointment of a neutral arbitrator by claiming fraud in the execution of the agreement unless such fraud is clearly evident or proven.

The parties entered into an agreement on December 14, 2021. Clause 76 of the General Conditions of Contract (GCC) stipulated that any disputes between the parties should be resolved through arbitration. Subsequently, a dispute emerged between the parties, leading the petitioner to invoke the arbitration clause for resolution.

Following this, the respondent unilaterally appointed an arbitrator. Dissatisfied with this unilateral appointment, the petitioner filed an application under Section 11 of the Act, requesting the court to appoint the arbitrator. However, later on, the respondent lodged a criminal complaint with the Assistant Commissioner of Police, Economic Offence Wing, alleging that the petitioner had submitted a fraudulent experience certificate during the agreement's execution.

The Court noted that the respondent did not contest the presence of the arbitration agreement or the fact that the dispute fell within the purview of the clause. Instead, the respondent's objection primarily revolved around alleging fraud during the agreement's execution. The Court also observed that it was the respondent who had initially appointed the arbitrator. It was only after the petitioner sought the Court's intervention for the appointment of an arbitrator that the respondent took the step of filing a criminal complaint.

The Court concluded that the determination of whether the arbitration agreement is tainted by fraud should be entrusted to the discretion of the arbitrator. The arbitrator should have the freedom to make this determination based on the presented evidence. Therefore, the Court, when exercising its authority under Section 11 of the Arbitration and Conciliation Act, should refrain from making such a determination itself.

The Court ruled that the mere filing of a criminal complaint against the petitioner, alleging fraud, does not constitute a valid reason to divert the parties to arbitration, especially when the dispute falls clearly and indisputably within the scope of the arbitration clause.

In line with its findings, the Court granted the petition and appointed a sole arbitrator to resolve the dispute between the parties.

Case: JRA Infratech v. Engineering Projects (India) Ltd,  ARB.P. 800/2022