Rashid Raza v. Sadaf Akhtar
The present dispute arises out of a partnership deed between the parties dated January 30, 2015. An FIR was lodged by the respondent against the appellant under the charge of siphoning the funds and other business improprieties on November 17, 2017. Following this, an arbitration petition was filed by the appellant in the High Court under Section 11 of the Arbitration and Conciliation Act, 1996 seeking the appointment of an arbitrator under the arbitration clause as well which was mentioned in the partnership deed between the parties.
Whether a simple allegation of fraud that does not breach the partnership deed and arbitral clause is arbitrable?
Whether allegations of fraud that do not have an implication on the public domain at large are arbitrable?
The Supreme Court in this case examined the judgment of A. Ayyasamy vs. A. Paramasivam, in order to extract the rule, laid down with respect to the arbitrability of disputes in case of fraud. The apex court in the case of Ayyasamy had ruled that a simple allegation of fraud is not a valid ground to quash the arbitration agreement. However, the Supreme Court ruled in cases of serious fraud allegations the court can terminate the application to refer the dispute to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. The court relied on Ayyasamy judgment - paragraph 25 in order to determine what a serious allegation of fraud would constitute. The Supreme Court also stated that in situations of simple fraud allegations that are just affecting the internal affairs between the parties and has no implication in the public domain then there is no need to dismiss the arbitration clause and the parties can settle through arbitration. Relying on the rules laid down in Ayyasamy the Supreme Court examined the distinction between simple allegation and serious allegation in order to decide arbitrability. The court used the two working tests in the present case:-
“1. Does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void.
- Whether the allegations of fraud touch upon the internal affairs of the party inter se having no implication in the public domain.”
Relying on these tests the court ruled out that in the present case no allegation of fraud infringes the partnership deed as a whole. Further, it was ruled out that the allegations of siphoning the funds and other business improprieties do not have any implication in the public domain.
Based on the above principles the Supreme Court decided that the allegations in the present case fall within the scope of simple allegations. It dismissed the judgment of the High Court and appointed and under Section 11 of the act decided to appoint an arbitrator in order to settle the dispute between parties.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.