Forgery Allegation Renders Dispute Non-Arbitrable

Source: Supreme Court 

Why in News? 

The bench of Justices PS Narasimha and Alok Aradhe in the case of Rajia Begum v. Barnali Mukherjee (2025) observed that parties cannot be compelled to arbitrate when the very existence of the contract containing the arbitration clause is alleged to be fake, as such disputes become non-arbitrable. 

What was the Background of Rajia Begum v. Barnali Mukherjee (2025) Case? 

• The dispute arose from a family-run jewellery firm, M/s RDDHI Gold, which originally had three partners. 
• The appellant claimed that a 2007 Deed of Admission and Retirement inducted her as a partner, retired the other partners, and contained an arbitration clause. 
• The respondent denied the existence of the deed, alleging it was forged. 
• The business was acquired by a private company in 2011. 
• The dispute arose in 2016 when the appellant first relied on the deed. 
• The batch of appeals arose from conflicting decisions of the High Court - in one proceeding it had referred the dispute to arbitration under Section 8 of the Arbitration Act, however in another proceeding the High Court declined to refer by refusing to appoint the arbitrator under Section 11(6) of the Act. 
• The core issue was whether arbitration could be forced when the document containing the arbitration clause was itself disputed. 
• The appellant failed to produce the original Admission Deed or a certified copy of the deed, making the very existence of the deed disputed. 

What were the Court's Observations? 

• The Court held that in cases where a plea is taken regarding non-existence of an arbitration clause or agreement, the same would amount to serious allegation of fraud and would render the subject matter of the agreement non-arbitrable. 
• The Court observed that when an allegation of fraud is made with regard to the arbitration agreement itself, such a dispute is generally recognized as a dispute which is in the realm of non-arbitrability, and the court will examine it as a jurisdictional issue. 
• The Court noted that allegations of fraud going to the very existence of the contract containing the arbitration clause must be first decided by the civil court. 
• Justice Aradhe observed that 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. 
• The Court stated that a controversy of this nature falls squarely within the category of disputes that are generally recognized as non-arbitrable. 
• Since the appellant failed to produce the original Admission Deed or a certified copy, the very existence of the deed was disputed, rendering the arbitration clause illusory and meaningless. 
• The Court found that the allegations of fraud were serious and that the respondent had failed to produce the original Admission Deed or a certified copy thereof, as required under Section 8(2) of the Act. 
• The Court relied on settled precedents including A. Ayyasamy v. A. Paramasivam (2016) and Avitel Post Studioz Ltd. v. HSBC PI Holdings (2021).  
• The Court clarified that mere allegation of fraud simpliciter may not be a ground to nullify the arbitration agreement between the parties, but where the court finds serious allegations of fraud which make a case of criminal offence or where allegations are so complicated requiring voluminous evidence, the court can sidetrack the arbitration agreement. 
• Resultantly, the Court quashed the High Court's order referring the civil suit to arbitration under Section 8. 
• The Court dismissed a connected appeal challenging the refusal to appoint an arbitrator under Section 11.

What is Non-Arbitrability of Disputes? 

• Non-arbitrability refers to disputes that cannot be resolved through arbitration and must be decided by courts or other judicial forums. 
• Disputes become non-arbitrable when they involve matters of public policy, statutory rights, or questions that require judicial determination. 
• Arbitral jurisdiction is founded on consent, and where the very existence of consent (the arbitration agreement) is disputed through serious allegations of fraud, the dispute enters the realm of non-arbitrability. 

What is Section 11 of the Arbitration and Conciliation Act, 1996? 

• Nationality of Arbitrators:  
  • Any person of any nationality can be an arbitrator, unless the parties agree otherwise. 
  • Appointment procedure:  
  • Parties are free to agree on a procedure for appointing arbitrators, subject to subsection (6). 
  • In the absence of an agreement, for a three-arbitrator tribunal, each party appoints one arbitrator, and the two appointed arbitrators select the third (presiding) arbitrator. 
• Role of Arbitral Institutions:  
  • The Supreme Court and High Courts can designate graded arbitral institutions for appointing arbitrators. 
  • In jurisdictions without graded institutions, the Chief Justice of the High Court may maintain a panel of arbitrators. 
  • These arbitrators are deemed to be arbitral institutions and are entitled to fees as specified in the Fourth Schedule. 
• Appointment in case of failure:  
  • If a party fails to appoint an arbitrator within 30 days of receiving a request, or if the two appointed arbitrators fail to agree on the third within 30 days, the appointment is made by the designated arbitral institution. 
  • For international commercial arbitration, the Supreme Court designates the institution; for other arbitrations, the High Court does so. 
• Sole arbitrator appointment:  
  • If parties fail to agree on a sole arbitrator within 30 days, the appointment is made as per subsection (4). 
• Failure to act under agreed procedure:  
  • If a party, the appointed arbitrators, or a designated person/institution fails to perform under the agreed procedure, the court-designated arbitral institution makes the appointment. 
• Disclosure requirements:  
  • Before appointing an arbitrator, the arbitral institution must seek a written disclosure from the prospective arbitrator as per Section 12(1). 
  • The institution must consider any qualifications required by the parties' agreement and the contents of the disclosure. 
• International commercial arbitration:  
  • For sole or third arbitrator appointments in international commercial arbitrations, the designated institution may appoint an arbitrator of a nationality different from the parties. 
• Multiple appointment requests:  
  • If multiple requests are made to different institutions, the one receiving the first request is competent to appoint. 
• Time frame for appointment:  
  • The arbitral institution must dispose of an application for appointment within 30 days of serving notice on the opposite party. 
• Fees determination:  
  • The arbitral institution determines the arbitral tribunal's fees and payment manner, subject to rates in the Fourth Schedule. 
  • This doesn't apply to international commercial arbitrations or where parties have agreed on fee determination as per arbitral institution's rules. 
• Non-delegation of judicial power:  
  • The designation of a person or institution by the Supreme Court or High Court is not considered a delegation of judicial power.