The Supreme Court has held that disputes cannot be referred to arbitration where the very existence of the arbitration agreement is seriously disputed on allegations of forgery and fabrication, ruling that such controversies fall outside the realm of arbitrability. The Court set aside a Calcutta High Court order that had referred a civil suit to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, despite concurrent findings casting doubt on the genuineness of the alleged arbitration agreement.
A Division Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe delivered the verdict while deciding cross appeals arising from a long-running partnership dispute between the parties. The dispute stemmed from an alleged “Admission Deed” dated April 17, 2007, through which the appellant claimed induction into a partnership firm and relied upon an arbitration clause embedded in that document. The execution of the deed, however, was consistently denied by the other partners, who alleged that the document was forged and fabricated.
The Court noted that proceedings under Sections 9, 8 and 11 of the Act had produced conflicting outcomes before the High Court. While one Bench had declined to appoint an arbitrator under Section 11 on the ground that the existence of the arbitration agreement itself was doubtful, another Bench, exercising supervisory jurisdiction under Article 227, had referred the civil suit to arbitration under Section 8. The Supreme Court held that this inconsistency could not be sustained.
Relying on settled precedent, the Bench reiterated that while mere allegations of fraud do not bar arbitration, serious allegations that go to the root of the arbitration agreement itself render the dispute non-arbitrable. The Court emphasised that arbitration is founded on consent, and where the very document containing the arbitration clause is under a “grave cloud of doubt”, arbitral jurisdiction cannot be assumed even at a prima facie stage.
On facts, the Court found substantial material casting doubt on the alleged Admission Deed, including the absence of the document from contemporaneous records for nearly nine years, admissions inconsistent with its recitals, and documentary evidence showing that the claimant had acted only as a guarantor rather than as a partner. It also took note of the fact that earlier proceedings under Section 9 of the Act had culminated in a prima facie finding that the deed was doubtful, which had attained finality after dismissal of a special leave petition.
The Bench held that such prima facie findings, though rendered in interim proceedings, could not be ignored when later applications under Sections 8 and 11 were founded on the same disputed document. It further ruled that the High Court, while exercising jurisdiction under Article 227, had exceeded its limits by dislodging concurrent findings of the trial court and first appellate court even when the very existence of the arbitration agreement was under serious doubt.
Accordingly, the Supreme Court quashed the High Court’s order referring the dispute to arbitration under Section 8, while affirming the refusal to appoint an arbitrator under Section 11.
Appearances
Petitioner- Mr. Aakash Sirohi, AOR Mr. Indra Lal, Adv. Mr. Subhojit Seal, Adv. Mr. Sunando Raha, Adv. Ms. Manishita Bhattacharjee, Adv. Mr. Vikas Jain, Adv. Mr. Abhinav Sharma, Adv. Mr. Shivansh Rajput, Adv. Mr. Vikas Rai, Adv. Mr. Aviral Saxena, AOR
Respondent- Mr. Subhojit Seal, Adv. Mr. Sunando Raha, Adv. Ms. Manishita Bhattacharjee, Adv. Mr. Vikas Jain, Adv. Mr. Abhinav Sharma, Adv. 1 of 3 Mr. Shivansh Rajput, Adv. Mr. Vikas Rai, Adv. Mr. Aviral Saxena, AOR Mr. Aakash Sirohi, AOR Mr. Indra Lal, Adv.
