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"Allegations of fraud Are Not Arbitrable Is A Wholly Archaic View, Deserves To Be Discarded ...": SC

News covered by Niloy Ghosh

The Supreme Court on a judgement delivered on 11th January 20211 observed that the ground that allegations of fraud are not arbitrable is based on a completely archaic view which in recent times has become obsolete and thus needs to be discarded. The Court in the said judgement held that allegations of fraud with respect to the invocation of the Bank Guarantee are arbitrable, since it arises out of disputes between parties inter se, and is not in the realm of public law. The Judgement delivered by the Apex court was on a case which had come from the High Court as appeal. The court in the said appeal considered one of the issues which was whether allegations of fraudulent invocation of the bank guarantee furnished under the substantive contract, would be an arbitrable dispute. The High Court on this issue held that since the allegations of fraud did not constitute a criminal offence which would entail recording of voluminous evidence and therefore the disputes could be resolved through arbitration The High Court in the said case had observed that the allegations of fraud in the present case are simple which do not in the normal course constitute any criminal offense and neither are the allegations complex in nature which would entail extensive evidence being led and thus these disputes could be resolved through arbitration.

The court observed that if it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of a proceeding under Section 17 of the Indian Contract, 1872, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter, would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so, the Court noted and referred the legal position as being held in many judgments including in the recent judgment in Vidya Drolia & Others v. Durga Trading Corporation On the issue whether voidable agreements are arbitrable, the court said that such disputes would be arbitrable, since the issue whether the consent was procured by coercion, fraud, or misrepresentation requires to be adjudicated upon by leading cogent evidence, which can very well be decided through arbitration. Until it so proved and upheld as per Sections 2(i) and (j) of the Indian Contract Act, 1872 such an agreement would remain enforceable and it is not void the court observed


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