Advocates:
NEERAJ SHEKHAR

‘REPORTABLE’

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7005 OF 2019

(Arising out of SLP (C) No. 4061 of 2019)

RASHID RAZA Appellant(s)

VERSUS

SADAF AKHTAR Respondent(s)

J U D G M E N T

R. F. NARIMAN, J.

The present case arises out of a partnership dispute

in which an FIR dated 17.11.2017 was lodged by one of the

partners alleging siphoning of funds and various other

business improprieties that were committed. The FIR is at

present under investigation.

An Arbitration Petition dated 02.01.2018 was filed by

the appellant before the High Court under Section 11 of the

Arbitration and Conciliation Act, 1996, seeking appointment

of an Arbitrator under the Arbitration clause which is to be

found in the partnership deed between the parties which is

dated 30.01.2015. The High Court, by the impugned order

dated 06.12.2018, has cited our judgment in ‘A. Ayyasamy v.

A. Paramasivam and Others’ [(2016) 10 SCC 386] and after

extracting paragraph 26 from the said judgment has held:

1

Digitally signed by R

NATARAJAN

Date: 2019.09.12

16:20:30 IST

Reason:

Signature Not Verified

CIVIL APPEAL NO. 7005 OF 2019

(Arising out of SLP (C) No. 4061 of 2019)

“…….The allegation of fraud that was levelled

against the appellant was that he had signed and

issued a cheque of Rs.10,00,050 on 17^th June, 2010 of

Hotel Arunagiri in favour of his son without the

knowledge and consent of the other partners i.e.

respondents. It was a mere matter of account which

could be looked into and found out even by the

arbitrator. The facts of the instant case however

are much more complex as the materials on records

disclose. This Court however does not intend to

make any comments on the merits of the allegations

lest it may prejudice the case of the parties in an

appropriate proceeding before competent court.

However, considered in totality this Court is of the

firm view that the nature of the dispute involving

serious allegations of fraud of complicated nature

are not fit to be decided in an arbitration

proceedings. The dispute may require voluminous

evidence on the part of both the parties to come to

a finding which can be only properly undertaken by a

civil court of competent jurisdiction.”

Consequently, while purportedly following this

judgment, the Section 11 application was dismissed.

Having heard learned counsel for both the sides, it is

clear that the law laid down in A. Ayyasamy’s case is in

paragraph 25 and not in paragraph 26. Paragraph 25 of the

said judgment states as follows:

25. In view of our aforesaid discussions, we are of

the opinion that mere allegation of fraud simplicitor

may not be a ground to nullify the effect of

arbitration agreement between the parties. It is only

in those cases where the Court, while dealing with

Section 8 of the Act, finds that there are very

serious allegations of fraud which make a virtual

case of criminal offence or where allegations of

fraud are so complicated that it becomes absolutely

essential that such complex issues can be decided

only by civil court on the appreciation of the

voluminous evidence that needs to be produced, the

Court can sidetrack the agreement by dismissing

application under Section 8 and proceed with the suit

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CIVIL APPEAL NO. 7005 OF 2019

(Arising out of SLP (C) No. 4061 of 2019)

on merits. It can be so done also in those cases

where

there

are

serious

allegations

of

forgery/fabrication of documents in support of the

plea of fraud or where fraud is alleged against the

arbitration provision itself or is of such a nature

that permeates the entire contract, including the

agreement to arbitrate, meaning thereby in those

cases where fraud goes to the validity of the

contract itself of the entire contract which c