Disputes involving fraud arbitrable except when arbitration agreement itself vitiated by fraud: Bombay High Court

The Bombay High Court recently held that disputes can be referred to arbitration even if there is fraud that has been played between the contractual parties. [One Point One Solutions Ltd. v. Reliance Nippon Life Insurance Company Ltd.].The only exception to the same is when the arbitration agreement itself is vitiated by fraud or the fraud goes to the validity of the underlying contract.Justice BP Colabawalla pointed out that the Supreme Court had already concluded that the Arbitration and Conciliation Act does not exclude any categories of issues as non-arbitrable, although it does identify some categories of disputes which cannot be submitted to arbitration..“The Supreme Court has held that the civil aspect of fraud is considered to be arbitrable in contemporary arbitration jurisprudence with the only exception being where the allegation is that the arbitration agreement itself is vitiated by fraud or fraudulent inducement, or the fraud goes to the validity of the underlying contract, and impeaches the arbitration clause itself,” the single-judge ruled..The Court was hearing an application seeking the appointment of a sole arbitrator to adjudicate upon the disputes arising out of a service level agreement (SLA) entered into by two companies on May 3, 2014..It was the case of the respondents that the dispute cannot be referred for arbitration on the following grounds:That the SLA expired on May 2, 2017 and hence the claims made by the applicant are outside its term;That the dispute in question involved fraud by the applicant.The applicant submitted that the SLA stipulated that the term can be extended, and the same had been done by the respondent by availing the services of the applicant even after the three year period..Justice Colabawalla accepted the submission of the applicant and noted,“As correctly submitted by the learned counsel appearing on behalf of the Applicant, prima facie, the Respondent availed of the services of the Applicant even after the expiry of the term of 3 years. The contract itself contemplates that the same can be extended. According to the Applicant, by availing the services of the Applicant, the Respondent by its conduct extended the term of the SLA.”.On the second ground resorted to by the respondent, the judge referred to the Supreme Court’s decision in N. N. Global Mercantile Pvt Ltd v/s Indo Unique Flame Ltd & Ors. to assert that in arbitration jurisprudence, the civil aspect of fraud is considered arbitrable, except when the allegation is that the arbitration agreement is vitiated by fraud or fraudulent inducement, or when the fraud affects the validity of the underlying contract and impeaches the arbitration clause itself.He noted that it was not the respondent's case that the arbitration agreement was vitiated by fraud or fraudulent inducement."In fact, it is the case of the respondent themselves that the alleged fraud is that the former employees of the respondent (in connivance with the applicant) continued to avail of the services of the applicant beyond the expiry of the SLA merely to siphon off the funds of the respondent unlawfully", the order explained.The Court rejected both the arguments of the respondent and constituted an arbitral tribunal to decide the disputes between the parties..Advocates Jamshed Master, Delan Fernandez and Radhika Motwani, instructed by advocate Purazar P Fouzdar appeared for the applicant.Advocates Shyam Kapadia, Dhruva Gandhi and Mehafrin Mehta, instructed by HSA Advocates appeared for the applicant.[Read Order]

Disputes involving fraud arbitrable except when arbitration agreement itself vitiated by fraud: Bombay High Court

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