The Bombay High Court in Nilesh Shejwal v. Agrowon Agrotech Industries Pvt. Ltd., Commercial Arbitration Petition No. 14 of 2022 held that the view that “fraud is not arbitrable” is archaic. The Court observed that today arbitral tribunals routinely navigate through voluminous material in various dispute types. Thus, it held that the previous notion of fraud being non-arbitrable due to complexity is archaic and no longer applicable. Such a view has now become obsolete and deserves to be discarded.
The High Court noted that while certain categories of disputes are unsuitable for arbitration due to their public nature, disputes falling within the private realm constituted by the consent of parties are typically arbitrable. The Court referred to the case A. Ayyasamy v. Paramasivam, (2016) 10 SCC 386, wherein the Supreme Court laid down a twin test to be followed: whether the plea of fraud renders the arbitration agreement void or whether the fraud allegations concern internal party affairs inter se with no public implications.
Emphasizing the distinction between rights in rem and actions in personem, the court held that the dispute primarily concerned the petitioner’s employment contract and termination, falling within the realm of arbitrable claims. Therefore, it was held that mere filing of criminal proceedings by itself will not make the dispute that has arisen between the parties, which is set out in the notice invoking arbitration, to be a non-arbitrable dispute. Accordingly, the High Court allowed the Section 11 petition and appointed an arbitrator to adjudicate the dispute between the parties.