The term “arbitrability” typically connotes the aptitude of a dispute or categories of disputes that may be settled by an arbitrator. As far as the Indian legislation concerned, neither the erstwhile Arbitration Act, 1940 nor the Indian Arbitration and Conciliation Act, 1996 expressly classifies any dispute to be not able to settle by arbitration. 

This position didn’t change within the 2015 amendment or the recent 2019 amendment to the 1996 Act. Therefore, in India, the arbitrability of subject-matter is to be determined by the judicial authorities, who might ultimately prefer to interfere with arbitration proceedings on a dispute, should they come across a dispute to be non-arbitrable.

The landmark judgment by a three-judge bench in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak was the primary judgment by the Supreme Court of India on the arbitrability of fraud. It had been held that a dispute containing fraud of any nature cannot be decided upon by an arbitral tribunal (even where the party accused of committing fraud doesn’t want to pursue the case in an open court), since queries of fraud involve complex factual questions that ought to be decided in an open court. 

In such a scenario, the jurisdiction of an arbitrator would need to be plausible to be ousted. Whereas this decision was rendered during the time of the 1940 Act, the silence of the erstwhile legislation, and therefore the 1996 Act made it a law that continued to apply in the present regime.

Arbitration as a mode of resolution of commercial disputes is creating serious inroads in Indian jurisprudence. The 1996 Arbitration Act has been amended thrice since 1940, to keep up with the most effective practices of international arbitration. The time isn’t distant when India would emerge as a global hub for arbitration.

Arbitrability of a matter suggests that whether or not it’s capable of arbitration. The legislation neither defines ‘arbitrability’ nor does it illustrate the matters that are capable of arbitration. The Supreme Court in Booz Allen, not solely defined arbitrability, however, additionally illustrated the matters that are incapable of settlement through arbitration. The foremost disputed issue with respect to arbitrability was the arbitrability of matters involving allegations of fraud. 

The Supreme Court in a landmark rulling, A. Ayyasamy vs. A. Paramasivam, classified the allegations of fraud into “simple allegations” or “fraud simpliciter” and “serious allegations” or “complex fraud” and held that simple allegations of fraud are capable of arbitration, however, complicated fraud permeates the whole contract and thus, isn’t capable of arbitration. Moreover, this position has been reiterated by the 3 judges’ bench of the Supreme Court in Rashid Raza vs. Sadaf Akhtar (2019) 8 Supreme Court Cases 710, whereby the bench narrowed down and streamlined the scope of arbitrability in fraud by laying down the twin tests.


The Supreme Court throughout this matter built upon the Division Bench decision and streamlined the approach to be taken while deciding the intense allegation of fraud. The Court culled out 2 operating tests from the Division Bench decision:

  1. Does this plea permeate the complete contract and particularly, the agreement of arbitration, rendering it null and void?
  2. Whether or not the allegations of fraud influence the internal affairs of the parties inter se do not imply within the public domain?

These twin tests currently act as a guideline for the counsels and also the arbitrators dealing with issues of fraud while adjudicating matters. Therefore, from the above discussion and position of law we are able to conclude that matters involving an allegation of fraud are arbitrable if they fall within these 3 ambits:

  1. Simple allegations that don’t have any impact on the public domain.
  2. The allegation doesn’t vitiate the complete contract rendering it void; and
  3. The allegation doesn’t nullify the arbitration agreement.


The dispute arose out of a ‘Partnership Deed’ dated January 30, 2015 between the parties. An FIR was lodged by the Respondent alleging siphoning off funds and various other business improprieties by the Appellant. On the opposite hand, the Appellant filed an arbitration petition before the high court of Jharkhand at Ranchi under Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator according to an arbitration clause within the Partnership Deed.

Before the High Court, the Respondent argued that the matter pertains to a significant case of fraud that isn’t suitable to be determined in arbitration. Inter alia, the Respondent argued that the Petitioner (Appellant) had utilised the assets of the partnership firm “S.R. Coating”, in another firm run by his father; created a proprietorship firm with the same name “S. R. Coating”, and introduced it to one of the firm’s existing business partners- Reliance Industries Ltd.; opened a brand new bank account on the grounds of a faux agreement; and transferred cash into the Petitioner’s bank account and his father’s bank account.

Without commenting on the merits of the dispute, and hoping on the principles laid down by the Supreme Court in Ayyasamy, the court held that the dispute enclosed serious allegations of fraud of an advanced nature that aren’t suited to be decided in arbitration proceedings. The Court further held that the dispute might need voluminous proof to be presented by the parties, and a finding on such proof may be properly adjudicated only by a court. Consequently, the court dismissed the application for the appointment of an arbitrator.

Aggrieved by the High Court’s ruling, the Appellant approached the Supreme Court through a special leave petition.


The Supreme Court analysed the law laid down on arbitrability of disputes involving fraud in the case of Ayyasamy. In Ayyasamy, the Supreme Court held that a simple allegation of fraud may not be a ground to nullify the impact of an arbitration agreement. However, where serious allegations of fraud are concerned, the Supreme Court held that courts could dismiss an application to refer a dispute to arbitration under Section 8 of the Act. 

Serious allegations of fraud would involve:

  • Allegations which could build a virtual case of a criminal offense;
  • Allegations of fraud so complex that it becomes essential that such complex issues could also be decided solely by a civil court on the appreciation of the voluminous proof that needs to be produced;
  • Serious allegations of forgery/fabrication of documents in support of the plea of fraud;
  • Where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, moreover as the agreement to arbitrate, which implies thereby in those cases where fraud goes to the validity of the contract itself of the entire contract that contains the arbitration clause or the validity of the arbitration clause itself.

In Ayyasamy, the Supreme Court had further held that the scenario wherever there are simple allegations of fraud touching upon the internal affairs of the parties inter se without any implication within the public domain, the arbitration clause needn’t be avoided and thus the parties could also be relegated to arbitration.

Applying the relevant principles from Ayyasamy to the instant allegations of siphoning and improprieties, the Supreme Court held that a distinction ought to be drawn between ‘serious allegations’ of forgery or fabrication supporting the plea of fraud, and ‘simple allegations’ – to determine arbitrability. The Court held that the allegations are arbitrable as they fall within the scope of ‘simple allegations’. It put aside the judgment of the high court and proceeded to appoint an arbitrator under Section 11 of the Act to resolve the disputes between the parties. 

The decision is in-fact a much-appreciated precedent on the matter of arbitrability of fraud. The Supreme Court has time and again taken a pro-arbitration approach and this decision will assist counsels and arbitrators facing such a difficulty in the coming time.

This article is authored by Shreya.

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