Even if there has been fraud between the contractual parties, the Bombay High Court recently held that disputes can be referred to arbitration. [One Point One Solutions Ltd. v. Reliance Nippon Life Insurance Company Ltd.]
The sole exception is where the arbitration agreement is tainted by fraud or when the fraud affects the underlying contract's validity.
The Supreme Court had earlier determined that the Arbitration and Conciliation Act does not exclude any categories of matters as non-arbitrable, while it does define specific types of disputes that cannot be filed to arbitration, according to Justice BP Colabawalla.
“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 considering an application to appoint a single arbitrator to resolve disputes arising from a service level agreement (SLA) signed by two corporations on May 3, 2014.
The respondents argued that the issue could not be brought to arbitration for the following reasons:
That the SLA terminated on May 2, 2017, and those the applicant’s claims are therefore invalid;
That the disagreement in question included the applicant's deception.
The applicant claimed that the SLA allowed for the term to be extended and that the respondent had done so by continuing to use the applicant's services after the three-year period had expired.
Justice Colabawalla acknowledged the applicant's plea and stated,
“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 respondent's second ground, the judge cited the Supreme Court's decision in N. N. Global Mercantile Pvt Ltd v/s Indo Unique Flame Ltd & Ors., asserting that the civil aspect of fraud is arbitrable in arbitration jurisprudence, 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.
He stated that the respondent's contention was not that the arbitration agreement was void because of 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 dismissed both of the respondent's arguments and established an arbitral tribunal to resolve the parties' disagreements.