The Supreme Court has held that where the very existence of an arbitration agreement is alleged to be forged or fabricated, such a dispute falls within the realm of non-arbitrability and must first be examined by the court as a jurisdictional issue before any reference to arbitration can be made or an arbitrator appointed. A Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe delivered the ruling while deciding cross appeals arising out of a partnership dispute between Rajia Begum and Barnali Mukherjee.
The dispute centred around an “Admission Deed” dated 17 April 2007, on the basis of which one party claimed induction into the partnership firm and relied upon an arbitration clause contained therein. The execution of the said document was categorically denied by the opposite party, who alleged that the Admission Deed was forged and fabricated. Multiple proceedings followed, including applications under Sections 9, 8 and 11 of the Arbitration and Conciliation Act, 1996. While the High Court had earlier declined interim relief under Section 9 and refused appointment of an arbitrator under Section 11 on the ground that the existence of the arbitration agreement itself was doubtful, it later exercised jurisdiction under Article 227 of the Constitution to set aside concurrent findings of the Trial Court and the Appellate Court and referred the civil suit to arbitration under Section 8.
Examining the legal position on arbitrability in cases involving allegations of fraud, the Supreme Court reiterated that mere allegations of fraud simpliciter do not render a dispute non-arbitrable. However, where fraud is alleged with respect to the arbitration agreement itself, or where such allegations strike at the root of the parties’ consent to arbitrate, the dispute stands on a different footing. The Court observed that such disputes are generally recognised as falling within the realm of non-arbitrability and the role of the court in such cases is confined to examining the issue as a jurisdictional fact to determine whether arbitral jurisdiction is excluded.
The Court emphasised that arbitration is founded on consent and that a party can be bound by the arbitral process only if it is shown, even at a prima facie level, that such party had agreed to submit disputes to arbitration. Where the arbitration agreement itself is alleged to be forged or fabricated, the dispute ceases to be merely contractual and strikes at the very root of arbitral jurisdiction. In the present case, the arbitration clause did not exist independently but was embedded in a document whose very existence was under serious cloud, necessitating a detailed adjudication by a civil court.
The Court upheld the High Court’s refusal to appoint an arbitrator under Section 11, holding that when the existence of the arbitration agreement itself is in serious dispute and requires adjudication, appointment of an arbitrator would be premature and legally impermissible. Accordingly, the Supreme Court set aside the order referring the dispute to arbitration under Section 8 and affirmed the rejection of the Section 11 application.
