In arbitration agreement when one party alleges serious fraud by other, the dispute has to go to civil court: SC

New Delhi, Nov 3 (KNN) In a landmark judgement, the Supreme Court of India has said that in an arbitration agreement when one party alleges serious fraud by the other, the dispute has to go before a civil court as it cannot be arbitrated.

In case the alleged fraud is not serious and it is seen only as an allegation to turn out of the contract, the matter can go for arbitration. The arbitrator can decide the allegation of simple fraud.

This clarification was made by the Supreme Court in its judgment, A Ayyasamy vs A Paramasivam.

In this case, five brothers disagreed over the running of a hotel which they had inherited from their deceased father.

In the decision, it has been held that: (a) allegations of fraud are arbitrable unless they are serious and complex in nature; (b) unless fraud is alleged against the arbitration agreement, there is no impediment in arbitrability of fraud; (c) the decision in Swiss Timing did not overrule Radhakrishnan.

The judgment differentiates between ‘simplicitor fraud’ and ‘serious fraud’, and concludes while ‘serious fraud’ is best left to be determined by the court, ‘simplicitor fraud’ can be decided by the arbitral tribunal.

The Supreme Court also briefly elaborated on the issues which are not arbitrable, including matters involving crimes, matrimony, insolvency, winding up, guardianship, tenancy, testamentary matters (Booz Allen & Hamilton vs SBI Home Finance), trusts (Vimal Kishore Shah vs Jayesh Dinesh Shah) and consumer protection (Skypak Courier Ltd vs Tata Chemical Ltd).