Arbitration and Conciliation Act, 1996 — Sections 8 and 11 — Reference to arbitration — Disputed existence of arbitration agreement
(Paras 2, 11, 16–24)
Where the very existence and execution of the document containing the arbitration clause is seriously disputed on allegations of forgery and fabrication, and substantial material casts grave doubt on its genuineness, the dispute is non-arbitrable at the threshold stage. Appointment of an arbitrator under Section 11 or reference under Section 8 would be legally impermissible.
Impact of fraud on arbitrability — Fraud going to root of arbitration clause
(Paras 12–15)
Mere allegation of fraud simpliciter does not render disputes non-arbitrable. However, where the allegation of fraud permeates the entire contract and, above all, the arbitration agreement itself, such that the very existence of the arbitration agreement is in serious doubt, the matter falls within the category of non-arbitrable disputes.
Section 8(2) — Requirement of production of original or certified copy of arbitration agreement
(Paras 6, 21)
Failure to produce the original arbitration agreement or a certified copy thereof, as mandated under Section 8(2) of the Act, coupled with serious allegations of forgery, justifies rejection of the application seeking reference to arbitration.
Article 227 of the Constitution — Scope of supervisory jurisdiction
(Para 22)
Supervisory jurisdiction under Article 227 is not appellate in nature and does not permit reappreciation of evidence or interference with concurrent findings of fact, particularly where such findings are grounded in material on record and statutory requirements.
ANALYSIS OF FACTS
The dispute arose out of a partnership firm “M/s RDDHI Gold” constituted in 2005. Respondent Rajia Begum claimed induction into the firm by virtue of a Deed of Admission and Retirement dated 17.04.2007 (“Admission Deed”), allegedly executed pursuant to a power of attorney granted by two original partners.
Barnali Mukherjee denied execution of the Admission Deed and asserted that it was a forged and fabricated document. The respondent claimed majority stake (50.33%) in 2016, nearly nine years after the alleged execution.
Proceedings unfolded in three parallel tracks:
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Section 9 application — High Court (04.05.2018) refused interim protection, holding that existence of the Admission Deed was doubtful. The Supreme Court dismissed the SLP, thereby lending finality to that prima facie finding.
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Section 8 application — In a civil suit seeking declaration that the Admission Deed was forged, the respondent sought reference to arbitration. The Trial Court and First Appellate Court rejected the application, citing serious allegations of fraud and failure to produce the original document. However, the High Court under Article 227 set aside those orders and referred the matter to arbitration.
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Section 11 application — Respondent sought appointment of arbitrator. The High Court declined, holding that existence of arbitration agreement was in serious doubt.
Thus, the High Court rendered contradictory conclusions: refusing appointment under Section 11 but directing arbitration under Section 8.
ANALYSIS OF LAW
The Court examined settled jurisprudence on fraud and arbitrability.
The principles in A. Ayyasamy, Avitel Post Studioz Ltd., and subsequent decisions were reiterated:
Fraud simpliciter is arbitrable.
However, fraud that permeates the entire contract and especially the arbitration clause itself renders the dispute non-arbitrable.
Two tests were emphasized:
First, whether the arbitration agreement itself cannot be said to exist in a clear case.
Second, whether the allegations extend into public law domain or affect third-party rights.
The Court found that the case satisfied the first test. The arbitration clause was embedded in the Admission Deed, whose execution was seriously disputed. The material circumstances included:
Inconsistent admissions regarding continuation of partners after 2007.
Nine-year silence regarding the Admission Deed.
Contemporaneous banking documents showing respondent’s role only as guarantor, not partner.
Failure to produce the original or certified copy under Section 8(2).
The Court held that arbitration is founded on consent. Where consent itself is in serious doubt, arbitral jurisdiction cannot be invoked.
The prior prima facie finding in Section 9 proceedings, which attained finality, was a relevant consideration. Though Section 9 findings are prima facie, once final, they cannot be ignored in subsequent proceedings involving identical foundational issues.
On Article 227, the Court held that the High Court exceeded supervisory jurisdiction by overturning concurrent factual findings and directing arbitration despite serious jurisdictional doubts.
Conversely, the High Court’s refusal to appoint an arbitrator under Section 11 was upheld as correct.
RATIO DECIDENDI
Where the existence of the arbitration agreement itself is seriously disputed on credible allegations of forgery and fabrication, and substantial material casts grave doubt on its genuineness, the dispute is non-arbitrable at the threshold. Courts cannot refer the matter to arbitration under Section 8 nor appoint an arbitrator under Section 11 in such circumstances.
RESULT
The appeal challenging the Section 11 rejection was dismissed.
The appeal challenging the Section 8 reference was allowed.
The High Court’s order directing arbitration under Article 227 was quashed.
No order as to costs.
