Fraud not being arbitrable due to complexity of evidence is an archaic view and has now become obsolete in view of the contemporary arbitration practice.

In the matter of Nilesh Shejwal vs. Agrowon Agrotech Industries Pvt. Ltd., Commercial Arbitration Petition No. 14/2022 decided by the Hon’ble Bombay High Court on 05.01.2024.

Facts of the case–

The Respondent terminated the contract of the Petitioner vide notice dated 16.02.2022 on account of Petitioner being found guilty of misappropriation of funds, wrongful use of company brand and breach of trust/contract. The Petitioner raised grievance for illegally terminating his service and invoked the arbitration clause of the agreement by notice dated 10.05.2022.

The Petitioner filed petition under Section 11 of Arbitration and Concilation Act 1996 for appointment of Arbitrator, which was contested by the Respondent. The grounds of contest was the dispute between the parties is not arbitrable as the Petitioner has defrauded the company and a criminal offence is registered against the Petitioner. The Respondent relied on N.N. Global Mercantile Pvt. Ltd. vs. Indo Unique Flame Ltd. 2021 SC OnLine SC 13 to argue that serious allegations of forgery and fabrication of documents are involved, the matter is not arbitrable.

Analysis and Conclusion:

The Hon’ble Bombay High Court did not find substance in the argument raised by the Respondent and noted that the issue of arbitrability of fraud has been the focus of various decision of the Apex Court and it is trite position of law that a reference to arbitration, in the wake of valid existing arbitration clause is imperative unless the Arbitration Agreement is found to be invalid. It is also a well-recognized principle that certain categories of disputes which are of public nature are not capable of adjudication and settlement by arbitration, which is the private forum constituted by consent of parties.

The Court further noted that in para 116 of N.N. Global (supra), the Supreme Court had concluded that the ground on which the fraud was held to be non-arbitrable earlier was that it would entail voluminous and extensive evidence and would be too complicated to be decided in the arbitration. However, in contemporary arbitration practice, arbitral tribunals are required to traverse through volume of material in various kinds of disputes and therefore the ground of fraud is not arbitrable is an archaic view has now become obsolete and deserve to be discarded.

In the present case, the Court concluded that the dispute is evidently inter se between the parties as the grievance of the Petitioner is that his termination is in breach of the ‘Employment Agreement’. The claim of the Petitioner is that he should be permitted to serve the remainder of his employment and whether the Petitioner is entitled for his claim, of being continued in service or not is ultimately the dispute which arises out of the Employment Agreement.

The Hon’ble Court disposed of the petition by appointing a sole Arbitrator to adjudicate the matter.

SP-04-2024