Managing Director Bihar State Food and Civil Supply Corporation Limited vs Sanjay Kumar 2025 INSC 933 - S.11 Arbitration Act - Fraud & Arbitrability

Arbitration and Conciliation Act 1996 - Section 8,11 -Courts exercising jurisdictions under Section 11(6) and Section 8 must follow the mandate of sub-section (6A), and their scrutiny must be “confine(d) to the examination of the existence of the arbitration agreement” - When there is an arbitration agreement. The matter must end here. (Para 27)

Arbitration and Conciliation Act - Fraud and Arbitrability - Disputes involving serious fraud may not be submitted to arbitration - “Serious allegations of fraud” is to be understood in the context of facts - The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof, but questions arising in the public law domain  - Disputes involving allegations of serious fraud need more clarity so that there is certainty about the availability of the remedy. At least one instance of serious fraud will be where disputes involving allegations having criminal law implications transcend inter se disputes between the contracting parties and attain public implications, where the ramifications could directly or indirectly affect nonparties and impact, integrity in governance, accountability in public service, distribution of essential commodities, safety and security of the nation for example Consideration of such disputes have public law implications and shall ‘not be submitted to arbitration’- Arbitral Tribunal will be within its jurisdiction to consider allegations of fraud even with respect to the specific terms or clauses in the contract as an arbitration agreement stands independent of the contract and continue to bind and govern the parties even if the contract is terminated or challenged - There is however an exception: The allegations of fraud with respect to the arbitration agreement itself stand on a different footing- In such cases, the arbitral tribunal will not examine the allegation of fraud but will consider the submission only for the purpose of examining exclusion of jurisdiction. The burden of proof is on the party who raises the plea. (Para 21)

Arbitration and Conciliation Act - Same set of facts may lead to civil and criminal proceedings. A civil dispute could involve questions of coercion (section 15 of Contract Act), undue influence (section 16 of Contract Act), fraud (section 17 of Contract Act), misrepresentation (section 18 of Contract Act) for example, and such disputes can be adjudicated as civil proceedings for determination of civil or contractual liabilities between the parties. The same set of facts could have their co-relatives in criminal law. The mere fact that criminal proceedings can or have been instituted in respect of the same incident(s) would not per se lead to the conclusion that the dispute which is otherwise arbitrable ceases to be so.(Para 21)

Disputes Involving Allegations Of Serious Fraud Need More Clarity: Supreme Court Summarises Principles Governing Arbitrability

The Supreme Court observed that disputes involving allegations of serious fraud need more clarity so that there is certainty about the availability of the remedy.

VerdictumSwasti Chaturvedi

Supreme Court: Courts Must Follow S. 11(6A) A&C Act & Their Scrutiny Must Be Confined To Examination Of Existence Of Arbitration Agreement

The Supreme Court dismissed Civil Appeals arising out of the Judgment of the Patna High Court which allowed the Applications under Section 11 of A&C Act and appointed Arbitrators in several cases.

VerdictumSwasti Chaturvedi