The Arbitral Tribunal is a private forum chosen by the parties to the dispute to get their civil or commercial disputes adjudicated. Every civil and commercial dispute is capable of being adjudicated by arbitration unless the jurisdiction of Arbitral Tribunal is barred. The Arbitration and Conciliation Act, 1996 (as amended) ("the Act") do not specifically exclude category of civil or commercial disputes from arbitrability.
Section 8 of the Act mandates that where an action is brought before a Judicial Authority in a matter, which is the subject of an arbitration agreement, the parties shall be referred by it to arbitration subject to exception given in Section 8 of the Act. Section 8 of the Act casts obligation on the Judicial Authority to refer to arbitration in terms of Arbitration Agreement. Evidently, the Act does not exclude the category of disputes which are to be treated as non-arbitrable. However, the courts in certain category of disputes refuse to refer the parties to arbitration under Section 8 of the Act. Some of the category of disputes which are reserved exclusively to be tried by Public fora (Courts and Tribunals) constituted under the law and which are generally considered as non-arbitrable disputes are as follows :-
- disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
- matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
- guardianship matters;
- insolvency and winding-up matters;
- matters related to grant of probate, letters of administration and succession certificate;
- matters related to eviction of tenants where tenant enjoys statutory protection against eviction by special statutes;
- patent, trade-marks and copyright;
- anti-trust/competition laws;
The issue of arbitrability of fraud has arisen for consideration by the Courts in India on several occasions. There exists conflicting decisions on this issue. The Supreme Court in the case titled "N. Radhakrishnan v. Maestro Engineers & Ors." 1 held that an issue of fraud is not arbitrable. The Supreme Court in the case titled "Meguin GmbH v. Nandan Petrochem Ltd."2 appointed an arbitrator even though issues of fraud were involved. However, the Supreme Court in the case titled "Swiss Timings Ltd. vs. Commonwealth Games 2010 Organizing Committee"3 held that judgment in N. Radhakrishnan case (supra) is per incuriam and is not good law.
The courts have made distinctions between a serious issue of fraud and a mere allegation of fraud while deciding the categories of disputes as non-arbitrable. A serious issue of fraud has been held to be nonarbitrable. The allegations of fraud should be such that not only these allegations are serious but in normal course the allegations may have constituted criminal offences and are so complex in nature that the decision on these issues warrants detailed and elaborate evidence for which only Civil Courts would be proper and appropriate fora than the Arbitral Tribunals. The Supreme Court in the recent judgment titled "A. Ayyasamy vs. A. Paramasivam & Ors." 4 has occasion to consider previous judgments on the issue of nonarbitrability of certain category of disputes including category of dispute involving fraud. The Supreme Court held that mere allegation of fraud simplicitor is not a ground to hold that the disputes between the parties cannot be settled by arbitration agreement. It is only in those cases where the Courts find that there are very serious allegations of fraud, then only the Courts hold such disputes as non-arbitrable. Normally, a party sets up a plea of fraud to wriggle out of the arbitration agreement. The Courts are required to make strict and meticulous enquiry into the allegations of fraud. Only when the Courts are satisfied that the allegations are very serious and of complicated nature, the disputes are held to be non-arbitrable. The recent judgment rendered by Supreme Court in A. Ayyasamy case (supra) has clarified the legal position with respect to the nature of fraud to be alleged for the disputes to be treated as non-arbitrable.
1 (2010) 2 SCC 72
2 (2014) 10 SCC 422
3 (2014) 6 SCC 677
4 (2016) 10SCC 386
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.