Suitablility & maintainability of fraud in arbitration - Business Guardian
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Suitablility & maintainability of fraud in arbitration

The question apropos of fraud was first raised before the Supreme Court in the case of Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, wherein the three judges’ bench held that a matter containing fraud cannot be tried for in arbitration.




Arbitration is a mechanism for the resolution of disputes which takes place, usually in private, pursuant to an agreement between two or more parties, under which the parties agree to be bound by the decision to be given by the arbitrator according to law or, if so agreed, other considerations, after fair hearing, such decision being enforceable at law. An arbitration agreement is an agreement to submit present or future disputes (whether they are contractual or not). An arbitration agreement is therefore a contractual undertaking by two or more parties to resolve disputes by the process of arbitration, even if the disputes themselves are not based on contractual obligations. From the aforementioned definitions, one can conclude that, an arbitrable matter can be tried for in arbitration. “Arbitrability” generally connotes the capability of a dispute or classes of disputes that can be settled by an arbitrator.

What disputes are arbitrable? This question has been raised time and again in light of Arbitration. The Arbitration and Conciliation Act, 1996 (The Arbitration Act) nowhere explicitly bars the adjudication of a dispute through arbitration. The liberty to deliberate on the following aspect has been bestowed to the Courts. Interalia, ‘fraud’ has been one of the contentions. The doubt of its arbitrability has been put forth to our judiciary. The Supreme Court in the Afcons case categorically laid down the cases which are not arbitrable. The judgment clearly laid down serious fraud as a ground for non-arbitrability. Keeping that in mind this article will illuminate on the concept of fraud in light of arbitration with the help of relevant landmark developments up until the recent development along with the stance of the International arbitration in terms of its arbitrability and why certain cases are considered arbitrable, despite having been held as a non-arbitrable matter.


The question apropos fraud was first raised before the Supreme Court in the case of Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, wherein the three judges’ bench held that a matter containing fraud cannot be tried for in arbitration. An arbitrator does not have the jurisdiction to entertain a matter having essence of fraud. As per them, a matter of fraud probes a judicial inquiry and examination of evidence, which is to be tried for in a Court of Law. The judgment was given under the Arbitration Act, 1940. Even the adoption of the Arbitration Act, did not change the position laid down by Abdul Kadir. The validity of the same was upheld in N. Radhakrishnan Case, which simply put, held all disputes containing fraud allegations are not arbitrable.

The judgment in N. Radhakrishnan affirmed the position of Abdul Kadir. Howbeit, the judgment was in relation to domestic arbitration. The clarification in regards to International Arbitration was provided for by the Supreme Court in World Sport Group (Mauritius) Ltd v. Msm (Singapore) Pte, wherein vis-à-vis Foreign seated Arbitration, the court held that an arbitrator is well capable and within jurisdiction to decide any allegations of fraud. Inter alia, it is pertinent to note, the aforementioned judgment failed to propound and differentiate on the distinction of fraud in domestic and international/foreign seated arbitration. This created an anomaly between foreign seated arbitration and domestic arbitration which was well put in to perspective after the landmark judgment of A. Ayyasamy v. A. Paramasivam. The judgment upheld the validity of Swiss Timing and overruled N. Radhakrishnan, wherein, the judgment was declared per incuriam.

The A. Ayyasamy judgment was a landmark case which made a categorical segregation, which one might have to consider while probing around fraud allegations. Fraud was categorized into the following two terms:

Fraud Simpliciter (Plain allegations) and;

Complex Fraud (Serious allegations).

Fraud Simpliciter was held to be an arbitrable matter whereas; complex or serious fraud allegations were to be tried by the Court. This is where the anomaly arises and still exists. International or Foreign Seated Arbitration empowers an arbitrator to adjudicate on fraud allegations in toto, wherein, in domestic arbitration in India segregates the arbitrability of fraud in to two categories.


The Supreme Court in a recent judgment of Rashid Raza v. Sadaf Akhtar affirmed the view of A. Ayyasamy, which impliedly overruled the judgment in N. Radhakrishnan because technically Ayyasamy could not overrule the judgment as the strength of the bench was the same.

The judgment in Rashid Raza gave a new dimension to determine a complex fraud. The test is reiterated down below:

Does this plea permeate the entire contract and above all, the agreement of arbitration, rendering it void, or

Whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.

The test clearly lays down that serious allegations of fraud arises if the allegations satisfy the two grounds, if it fails, then the allegation falls under Fraud Simpliciter, which can be adjudicated in arbitration. In the case, the court held the matter to have failed the test and as a result can be tried for in arbitration.


The most recent judgment of the Supreme Court in Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Limited has further reignited the spark of arbitrability of fraud, wherein, the Avitel Post studioz (appellant) through fraud asked the HSBC (respondent) to invest 60 Million USD into the company under false pretences. Respondent under suspicion asked two audit firms to do an inquiry into the matter. On the basis of the findings, HSBC moved to Arbitration under SIAC rules in Singapore as mentioned in the agreement, wherein an award was passed in their favor. The appellant in response filed various applications and appeals which were either against them or were denied. The division bench of Bombay HC, however, passed an order reducing the amount of compensation to be paid. The respondent aggrieved by this fact, moved to Supreme Court under Article 136 by the way of special leave petition.

The case shed clarity on why certain cases of fraud are arbitrable. The Court propounded on the matter using right in rem and right in personem along with the aforementioned test. Right in rem are rights available against public and whereas right in personem are enforceable against a private person. The court related this aspect to fraud and observed, those cases are fraud are arbitrable which are against a person in individual capacity. A right in rem is a right exercisable against the world at large, as contrasted from right in personem which is an interest protected solely against specific individuals as held in Booz Allen Case. Any allegations which affect the public morality or public at large in any capacity are to be tried for in a Court of Law.

The Court in this case held separate criminal proceedings have no bearing on a civil suit. It further held that the matter was arbitrable, as the matter in question was of personal obligation between parties. The respondent followed proper rules and procedure. No question of the matter being tried arises. The Supreme Court reversed the decision of the Bombay High Court Division Bench, returning the compensation to its original position.


The Avitel Jugdment has illuminated with some much needed clarity in terms of arbitrability of fraud. Lack of description of matters not arbitrable has caused some problems in this regard. Both the Amendments which undertook in 2015 and 2019 did not incorporate any heads outlining the same. The judgment has put a boost in the pro arbitration regime, moving step by step in right direction. It affirmed the view of World Sport. The bare-bones analysis and insight provided for by the Supreme Court in matters of fraud being arbitrable is commendable.

Inter alia, there is a situation which might hamper and increase the judicial intervention in an arbitration matter. A pro-arbitration judge might refer the matter to arbitration if the agreement provides for an arbitration clause or an agreement in light of section 8 of the Arbitration Act. However, on the contrary a judge who is not a big supporter of arbitration might inquire deeply into the validity of the fraud allegations, wherein, the speedy justice of the parties will be affected.

I am of the opinion, our arbitration tribunals should be allowed to stand on the same footing as that of courts when it comes to examination of a claim or evidences. As pro-arbitration India is right now, we could still use some deliberations on the gray areas of arbitration in order to be a global arbitration hub for dispute adjudication.

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Legally Speaking

Disproportionate assets case: Delhi High Court stays Lokpal proceedings initiated against Jharkhand Mukti Morcha chief Shibu Soren



Disproportionate assets case: Delhi High Court stays Lokpal proceedings initiated against Jharkhand Mukti Morcha chief Shibu Soren

On Monday, the Delhi High Court has stayed the proceedings initiated by Lokpal of India under the provisions of the Lokpal & Lokayuktas Act, 2013 against Jharkhand Mukti Morcha (JMM) Chief and Rajya Sabha MP Shibu Soren in connection with a disproportionate case of assets.

The bench comprising of Justice Yashwant Varma observed and has passed an order on Soren’s plea challenging the validity of the said proceedings, claiming that the same was ex facie bad in law and without jurisdiction.

In the present case, the proceedings were initiated by Lokpal of India pursuant to a complaint dated August 5, 2020 filed by BJP’s Nishikant Dubey. Therefore, it has been directed by the CBI to make a preliminary enquiry into the Complaint under section 20(1)(a) of the Lokpal and Lokayuktas Act, 2013. It was claimed by Soren that the said order was not served on him.

While claiming the complaint was false, frivolous and vexatious, Soren in his plea submitted that according to section 53 of the Act and there is a statutory bar against the Lokpal of India assuming jurisdiction to investigate or inquire into any Complaint made after the expiry of seven years from the offence alleged.

The plea reads that the initiation of the proceedings under the Complaint, or at the very least, continuation thereof, once it has been demonstrated by the preliminary inquiry that it pertains to alleged acquisitions prior to the 7-year period and is clearly barred by statute, without jurisdiction and the same is liable to be quashed.

Further, the petition filled submits that the maximum period of 180 days for completion of preliminary enquiry from the date of Complaint expired on February 1, 2021. In this backdrop, it has been stated that by this time, only on July 1, 2021, the comments were sought from Soren which is beyond the prescribed statutory period.

The plea adds that the final preliminary enquiry report was submitted by the CBI on 29.06.2022, about a year and a half after expiry of the 180- day period. Such purported report is void and null and non-est in the eyes of law and cannot be received or considered by the Respondent No.1.

Thus, the court took note of the order passed by Lokpal of India dated August 4, 2022 directing that proceedings under section 20(3) of the Lokpal Act be initiated to determine whether a prima facie case existed to be proceeded against Soren. It is Soren’s case that the order was passed without considering the preliminary objection on jurisdiction being raised by him.

In the said order, the court noted that all the Lokpal of India recorded was that the comments received from the petitioner were forwarded to CBI so as to examine and submit an enquiry report.

It was ordered by the court that the challenge to assumption of jurisdiction by respondent no. 1 (the Lokpal of India) has neither been answered and nor dealt with. Matters require consideration. Subsequently, there will be a stay of proceedings pending before the Lokayukta.

Accordingly, the court will now hear the matter on 14 December.

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The Delhi High Court in the case Narender @ Lala v. State Of NCT Of Delhi observed and has set aside the orders of conviction for murder and sentence of life imprisonment awarded to a man in 2018 who was unrepresented by a lawyer before the Trial Court. Thus, the Delhi High Court has remanded the case back to the Trial Court for cross examination of certain prosecution witnesses.

The division bench comprising of Justice Mukta Gupta and Justice Anish Dayal observed and was of the view that there had been a grave miscarriage of justice to the man as when number of witnesses were examined, he was not represented by a counsel and that the legal aid counsel, who was present before Trial Court and was appointed on the same day and asked to cross- examine the witnesses on the same day.

On March, 2018, Narender was convicted for offence of murder punishable under section 302 of Indian Penal Code, 1860. On 4th May, 2018, he was sentenced by the Trial Court for life imprisonment and also to pay a fine of Rs. 10,000.

In the present case, the case of the prosecution was that the man had committed murder of his wife by strangulating her to death.

In a appeal, it was argued by the man that during the substantial course of trial, he was not represented by a lawyer and hence the trial in the absence of a lawyer had seriously prejudiced him. He thus sought recalling of all the prosecution witnesses and thereby ensuring a fair trial.

The Court observed that the manner in which the trial is conducted, there was a serious denial of fair trial to the appellant and the appellant is required to be given an opportunity to cross-examine the witnesses i.e., the witnesses examined in the absence of the lawyer, or the lawyer having been appointed on the same day from the legal aid and is asked to cross-examine the witnesses.

Further, the court remanded the back to Trial Court for cross-examination of ten prosecution witnesses. Also, the court directed the Trial Court Judge to follow due process of law and also to record the statement of the man under Section 313 CrPC and permit leading the defence evidence if so required.

The Court ordered that the case be listed before the learned Trial Court on 26th September, when Superintendent Tihar Jail will product the appellant before the learned Trial Court and the learned Trial Court is requested to expedite the trial and conclude the same preferably within four months.

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The Supreme Court in the case Dr. B.R. Ambedkar Educational And Cultural Trust v. Hon’ble High Court Jharkhand And Ors. observed and has refused to entertain a plea challenging the non-inclusion of reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes communities in the process of appointment of District Judges in pursuant to an advertisement issued in March, 2022 by the High Court of Jharkhand. The present petition claimed that the exclusion of reservation violates Jharkhand State Reservation Policy and constitutional guarantee under Article 16(4). Apart from this, it is also in derogation of a resolution being passed by the High Court vouching to implement reservation in the Jharkhand Superior Judicial Service.

The bench comprising of Justice D.Y. Chandrachud and the Justice Hima Kohli observed and has granted liberty to the petitioner to file a petition under Article 226 of the Constitution before the Jharkhand High Court.

The court while considering that the process of appointment as per the concerned notification is underway, Justice Chandrachud asked the petitioner to approach the High Court with respect to future appointments.

It stated that “For the future you can file a petition before the High Court… We will give you liberty to approach the High Court under Article 226 of the Constitution.”

The bench of Justice Chandrachud observed that the Decisions of the Administrative side of the High Court can be challenged before the judicial side of the High Court. You can move the High Court.

In the present case, a writ petition challenging a similar notification was filed in 2017 before the High Court, which was eventually dismissed. It was observed by the High Court that there is no duty vested in the authorities to reserve seats for all posts, more particularly in higher judiciary. Moreover, it had already initiated the appointment process, the High Court opined that it cannot alter the rules midway. Thus, the appeal filed before the Apex Court was also dismissed.

However, in 2018 the Full Court of the Jharkhand High Court had agreed in principle to grant reservation in the recruitment for Jharkhand Superior Judicial Service. The advocates belonging to the SC/ST/OBC communities in 2021 had made representations to the Chief Justice of the High Court requesting for the implementation of the Reservation policy in appointment of District Judges (direct entry from Bar)/ superior judicial service. The impugned notification was issued without incorporating reservation for SC/ST/OBC communities in March 2022.

Mr. Arvind Gupta, Advocate on Record has filled the present petition.

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Right to contest election is not a fundamental right; it is only a right conferred by statute: Supreme Court



Don’t compare Turban, Kirpan with Hijab: SC

The Supreme Court in the case Vishwanath Pratap Singh vs Election Commission of India observed that the right to contest an election is not a fundamental right but only a right conferred by a statute.

The bench comprising of Justice Hemant Gupta and the Justice Sudhanshu Dhulia observed while dismissing a Special Leave Petition filed by Vishwanath Pratap Singh that an individual cannot claim that he has a right to contest election and the said stipulation violates his fundamental right, so as is required under the Act, to file his nomination without any proposer.

Also, the court imposed a cost of Rupees one lakh on Singh.

In the present case, Singh had first approached the Delhi High Court challenging a notification issued by Election Commission of India for election to Rajya Sabha after he was not allowed to file his nomination without a proper proposer being proposing his name. His contentions were rejected by the High Court that his fundamental right of free speech and expression and right to personal liberty has been infringed.

While dismissing the SLP, the Apex Court observed that the writ petition before the High Court was entirely misconceived.

The bench observed while referring to earlier judgments viz Javed v. State of Haryana, (2003) 8 SCC 369 and Rajbala v. State of Haryana (2016) 2 SCC 445 wherein it was stated that the right to contest an election is neither a fundamental right nor a common law right. It is a right conferred by a statute.

However, the Supreme Court in Javed (supra) had made the following observations: Right to contest an election is neither a fundamental right nor a common law right and it is a right conferred by a statute. At the most, in view of Part IX having been added in the Constitution of India that a right to contest election for an office in Panchayat may be said to be a constitutional right and a right originating in the Constitution and given shape by a statute. But even if, it cannot be equated with a fundamental right. It is stated that there is nothing wrong in the same statute which confers the right to contest an election also to provide for the necessary qualifications without which a person cannot offer his candidature for an elective office and also to provide for disqualifications which would disable a person from contesting for, or from holding, an elective statutory office.

It was held in Rajbala (supra) that the right to contest for a seat in either of the two bodies is subject to certain constitutional restrictions and could be restricted further only by a law which the parliament made.

Further, the court added that Singh did not have any right to contest election to the Rajya Sabha in terms of the law made by the Parliament.

The Court stated while dismissing the SLP that the Representation of People Act, 1950 read with the Conduct of Elections Rules, 1961 has contemplated the name of a candidate to be proposed while filling the nomination form. However, it cannot be claimed by an individual that he has a right to contest election and the said stipulation violates his fundamental right, so as to file his nomination without any proposer as is required under the Act.

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Post-conviction compounding of offences is permissible: Himachal Pradesh High Court



The Himachal Pradesh High Court in the case Shri Kantu Ram v Shri Beer Singh recently observed that a court, while exercising powers under Section 147 of the Negotiable Instruments Act and can proceed to compound the offences even after recording of conviction by the courts below.

The bench comprising of Justice Sandeep Sharma observed in a case where the revision Petitioner, who was convicted under Section 138 of the NI Act by the Magistrate Court and was aggrieved by subsequent dismissal of appeal by the Sessions Court and had agreed to pay the amount due and settle the matter.

Thus, the petitioner had sought compounding of offences.

In the present case, the respondent admitted the factum with regard to receipt of the amount due from the accused and expressed that the prayer made on behalf of accused for compounding of offence can be accepted.

However, the High Court allowed the prayer and the offence committed by the Petitioner under Section 138 NI Act was ordered to be compounded.

The Court observed that the Reliance was placed on Damodar S. Prabhu V. Sayed Babalal H. (2010) 5 SCC 663, wherein the Apex Court has categorically held that court, while exercising power under Section 147 of the NI Act and can proceed to compound the offence even after recording of the conviction by the courts below.

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‘Pensionary benefits to employee, who is removed from service for misconduct, is not at par with those who retire on superannuation’



The Jammu and Kashmir and Ladakh High Court in the case Bashir Ahmad Wani v Jammu and Kashmir Grameen Bank and Another recently observed and stated that an employee who is removed from service for misconduct is not at par with those who is being retired on superannuation.

The bench comprising of Justice Sanjeev Kumar observed while dismissing the pension claim made by a former employee of the J&K Grameen Bank, who was removed from service in 2011.

In the present case, the petitioner had sought benefit of the J&K Grameen Bank (Employees) Pension Regulations, 2018 whereby provision was made for terminal benefits.

However, the court disallowed the claims on two grounds:

Firstly, that at the time of removal of the petitioner from service when there were no norms, rules or regulations providing for the benefit of pension to the employees of the respondent-Bank.

In the year 2011, the employees of the respondent-Bank were governed by the J&K Grameen Bank ( the Officers and Employees) Service Regulations, 2010… it is abundantly clear that it does not prescribe imposition of a penalty of removal along with the pensionary benefits.

Secondly, it was opined by the court that though the 2018 Regulations had been made applicable to those employees who were in service between 1st day of September, 1987 and 31st day of March, 2010 and the employees retired from the services of the Bank before 31st day of March, 2018, however, this leeway cannot come to aid of the Petitioner.

The Curt observed that the reason for finding that the Petitioner was not an employee who had “retired” on superannuation from the bank. Rather, he was “removed” for misconduct.

The Court stated that the regulations apply to those employees who retired from the service of the Bank before 31.03.2018 and not the employees who were terminated for misconduct. Viewed thus, the order of removal of the petitioner dated 02.09.2011 holding the petitioner entitled to terminable benefits and cannot, by any stretch of reasoning, be construed to be an order of removal with the benefit of the pension. Neither, the petitioner, at the time of his removal from service, nor with the promulgation of Pension Regulations of 2018, is entitled to the benefit of pension.

Accordingly, the court dismissed the petition.

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