The Bombay High Court has clarified that unless there are serious allegations of fraud which directly strike at the root of a contract, mere claims of fraud cannot be grounds to deny arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. Justice N. J. Jamadar passed this significant ruling while allowing a writ petition filed by Bholashankar Ramsuresh Dubey against Dinesh Narayan Tiwari and others.
The dispute in this case revolved around a partnership firm named M/s Tiwari Enterprises, formed by the petitioner, the respondents, and Narayan Tiwari, who was the father of some of the respondents. The firm was involved in real estate development and the partners had agreed to share profits in the ratio of 50%, 25%, and 25%. The partnership, which was formed in 2003, contained an arbitration clause, binding all the partners and their legal representatives in case of any dispute.
Following the death of Narayan Tiwari in May 2017, his legal heirs approached Defendant No.2, Bholashankar Ramsuresh Dubey, demanding the calculation and settlement of the deceased’s share. The legal heirs alleged that Dubey, in collusion with his son, Yogesh Tiwari, had manipulated documents to falsely introduce Yogesh as a partner and remove Narayan and another partner from the firm through a forged Deed of Reconstitution dated March 2, 2015.
The plaintiffs had filed a civil suit seeking an account of the firm’s assets and the distribution of Narayan Tiwari’s share. Meanwhile, Dubey filed an application under Section 8 of the Arbitration Act, invoking the arbitration clause in the 2003 partnership deed. However, the Trial Court dismissed the application on the basis that allegations of fraud and forgery were involved, which it believed were beyond the scope of an arbitrator. An appeal against this order was also dismissed by the District Judge on a separate ground, observing that the petitioner himself had denied the existence or enforceability of the original partnership deed by relying on the disputed reconstitution deed.
The matter then reached the Bombay High Court, where the petitioner argued that the courts below had wrongly refused to refer the matter to arbitration. The petitioner emphasized that mere allegations of fraud, unless they involve complex criminal elements or go to the root of the contract, do not prevent disputes from being resolved through arbitration. He contended that the allegations in this case were centered around the execution of the Reconstitution Deed and did not affect the original partnership agreement or the arbitration clause.
On the other hand, the respondents argued that legal heirs are not bound by the arbitration clause because they were not signatories to the original agreement. They also stressed that under Section 8 of the Arbitration Act, only parties who signed the arbitration agreement can be compelled to arbitrate.
While addressing these arguments, the High Court referred to several landmark Supreme Court decisions including Afcons Infrastructure Ltd. vs Cherian Varkey Construction Co. (P) Ltd., N. Radhakrishnan vs Maestro Engineers, A. Ayyasamy vs A. Paramasivam, Rashid Raza vs Sadaf Akhtar, and Avitel Post Studioz Ltd. vs HSBC PI Holdings (Mauritius) Ltd.. The court highlighted the evolution in judicial thinking regarding fraud allegations in arbitration matters.
The court pointed out that earlier, courts were hesitant to refer matters involving fraud to arbitration, considering that arbitrators might not be equipped to handle such cases. However, this view has since evolved. Courts now distinguish between serious allegations of fraud, which could potentially invalidate a contract and are best handled by civil courts, and simple allegations of fraud that pertain to private disputes between parties. The latter can be resolved through arbitration.
The High Court further clarified that the fraud allegations raised by the plaintiffs were related to the Deed of Reconstitution and not the original Partnership Deed, which remained intact and contained the arbitration clause. The court also held that the fraud alleged was of a civil nature and did not have any public implications.
Regarding the argument that legal heirs could not be bound by the arbitration clause, the court observed:
"Section 40(1) of the Arbitration and Conciliation Act, 1996, makes it clear that an arbitration agreement shall not be discharged by the death of any party but shall be enforceable by or against the legal representative of the deceased."
The court concluded that both the Trial Court and the District Judge had committed errors in declining reference to arbitration. The High Court set aside the lower courts’ orders and referred the parties to arbitration. Advocate Vishal Kanade was appointed as the sole arbitrator to adjudicate the disputes.
This ruling once again underlines the judiciary's commitment to honoring party autonomy and limiting judicial intervention, especially in commercial disputes governed by an arbitration agreement.
Case Title: Bholashankar Ramsuresh Dubey Versus Dinesh Narayan Tiwari and Ors.
Case Number: WRIT PETITION NO. 17174 OF 2024
Judgment Date: 17/04/2025
Mr. Abhay S. Khandeparkar, Senior Advocate, with Rushikesh Bhagat, Rohit P Mahadik, Farhan Shaikh, Apoorva Khandeparkar, Vaibhav Kulkarni and Sudarshan Bhilare, i/b Khandeparkar & Associates, for the Petitioner.
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