In a recent case, the Supreme Court has reinforced the significance of substantial fraud claims to challenge the jurisdiction of an arbitrator. The case at hand involved an appeal seeking to nullify a Conveyance Deed while upholding the termination of registered Development Agreements.

Justices Aniruddha Bose and Sudhanshu Dhulia, presiding over a two-Judge Bench, emphasized the need for a genuine and serious fraud claim to negate an arbitrator's jurisdiction.

The appellants, acting as plaintiffs, initiated a civil suit in 2021. In response, the defendants sought arbitration under Section 8 of the Arbitration & Conciliation Act, 1996, relying on an arbitration clause in two agreements forming the basis of the Conveyance Deed and Development Agreements. The Trial Court approved the arbitration referral, a decision upheld by the Bombay High Court. Dissatisfied, the plaintiffs brought the matter to the Supreme Court.

The central issue before the court was whether the Trial Court and the High Court appropriately directed the dispute to arbitration, specifically concerning the Conveyance Deed's eligibility for arbitration. The court highlighted its consistent stance that mere bald allegations of fraud are insufficient to exclude an arbitrator's jurisdiction, emphasizing the need for a genuinely serious fraud claim.

The Supreme Court underlined the authority of the Arbitral Tribunal to independently decide jurisdictional matters, including the existence and validity of an arbitration clause. This authority, the court noted, aims to reduce judicial intervention in arbitration proceedings.

Referring to the case of Weatherford Oil Tool Middle East Ltd. v. Baker Hughes Singapore PTE (2022 SCC OnLine SC 1464), the court emphasized the independence of the arbitration clause within a contract, empowering the arbitrator to determine its existence and validity. Citing Rashid Raza v. Sadaf Akhtar (2019) 8 SCC 710, the court outlined two conditions for the court to decline arbitration referral: whether the plea affects the entire contract and if the fraud allegation extends beyond the parties involved into the public domain.

Crucially, the court asserted that for fraud to divest an arbitrator's jurisdiction, it must have implications in the public domain. If confined strictly to the parties and lacking public ramifications, the fraud allegation would not preclude arbitration. In this case, with clear arbitration clauses in the agreements, the Supreme Court dismissed the appeal, reinforcing its commitment to limiting judicial interference in arbitration proceedings.

Case: Sushma Shivkumar Daga & Anr. v. Madhurkumar Ramkrishnaji Bajaj & Ors

CIVIL APPEAL NO.1854 OF 2023.

Click to read/download Judgment.