Bombay High Court rules on disputes involving fraud

Bombay High Court rules on disputes involving fraud

The judge points out the decisions taken by the apex court in similar cases

The Bombay High Court has held that disputes can be referred to arbitration even if there is a fraud that has been played between the contractual parties.

The high court said, "The Supreme Court has held that the civil aspect of fraud is considered to be arbitrable with the only exception being where the allegation is that the arbitration agreement itself is vitiated by fraud."

Justice BP Colabawalla pointed out that the apex court had already concluded that the Arbitration and Conciliation Act did not exclude any categories of issues as non-arbitrable, although it did identify some categories of disputes that could not be submitted to arbitration.

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 in May 2014. It was the case of the respondents that the dispute could not be referred for arbitration on the following grounds:

• That the SLA expired in May 2017. Hence, the claims made by the applicant were outside its term.

• That the dispute involved fraud by the applicant.

The applicant had submitted that the SLA that the term could be extended and it 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 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 three 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 another Supreme Court's decision to assert that in arbitration jurisprudence, the civil aspect of fraud was considered arbitrable, except when the allegation was that the arbitration agreement was 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.