# 11 S.C.R. 521 A. AYYASAMY v. A. PARAMASIVAM & ORS - **Citation:** [2016] 11 S.C.R. 521 - **Court:** Supreme Court of India - **Decided:** 2016-10-04 - **Case number:** Civil Appeal Nos. 8245-8246 of 2016 - **Bench:** A.K. Sikri, Dr. D.Y. Chandrachud - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/11-s-c-r-521-a-ayyasamy-v-a-paramasivam-ors-31172 - **Pages:** 39 ## Headnote Arbitration and Conciliation Act, 1996: s. 8 - Application under - Qziestioning the maintainability of the suit on the ground that the parties had agreed to settle the dispute through arbitration - Application dismissed holding that suit was maintainable as the case involved serious allegations as to fraud and malpractices - The order affirmed by High Court - On appeal, held: The cases where there are serious allegations of fraud that in normal course constitute criminal offence, and are complex in nature demanding extensive evidence, are to be treated as non-arbitrable and civil court should decide the matter - However, mere allegation of fraud simplicitor may not nullify the effect of arbitration agreement - Jn the present case, the allegations of fraud were not so serious which could not be decided by the arbitrator - Application u/s. 8 was wrongly rejected. Words and Phrases: "Fraud" - Meaning of Allowing the appeals, the Court HELD: Per A.K. Sikri, J. 1. The Arbitration and Conciliation Act, 1996 does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the Courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. 521 A B c D E F G H 522 SUPREME COURT REPORTS [2016111 S.C.R. A Patent, trademarks and copyright; anti-trust/competition laws; insolvency/winding up; bribery/corruption; fraud; criminal matters are the categories of disputes which are generally treated as non-arbitrable. Thus, fraud is one such category spelled out by the decisions of this Court where disputes would be considered B c D E F G H as non-arbitrable. [Para 9) (535-B-E) 2. 'Fraud' is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Fraud can be of different forms and hues. Its ingredients are an intention to deceive, use of unfair means, deliberate concealment of material facts, or abuse of position of confidence. [Para 10) [535-F] The _Black's Law Dictionary - referred to. 3. However, mere allegation of fraud in the pleadings by one party against the other, cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the devi':!e of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The Law Commission has recognized that in cases of serious fraud, courts have entertained civil suits. It has tried to make a distinction in cases where there are allegations of serious fraud and fraud simplicitor. [Paras 13 and 18) [536-F-G; 537-A; 541-A] Boaz Allen & Hamilton Inc. v. SB! Home Finance Limited and others 2011 (7) SCR 310 : (2011) 5 SCC 532; State of West Bengal & Ors. v. Associated Contractors 2014 (10) SCR 426 : (2015) 1 SCC 32 - relied on. N. Radhakrishnan v. Maestro Engineers and Others 2009 (15) SCR 371 : (2010) 1 SCC 72; Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak AIR 1962 SC 406 : 1962 Suppl. SCR 702 - distinguished. A. AYYASAMY v. A. PARAMASIVAM & ORS. Ramesh Kumar & Am: v. Furu Ram & Anr. (2011) 8 SCC 613 : 2011 (10) SCR 453; P. Anand Gajapathi Raju v. P. V.G Raju 2000 (2) SCR 684 : (2000) 4 SCC 539; Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums (2003) 6 SCC 503 - referred to. Russell ## Text _Characters 0–39,929 of 90,829. This is a partial read: ask again with offset=39929 for what follows._ (2016] 11 S.C.R. 521 A. AYYASAMY v. A. PARAMASIVAM & ORS. (Civil Appeal Nos. 8245-8246 of 2016) OCTOBER 04, 2016 (A.K. SIKRI AND DR. D.Y. CHANDRACHUD, JJ.] Arbitration and Conciliation Act, 1996: s. 8 - Application under - Qziestioning the maintainability of the suit on the ground that the parties had agreed to settle the dispute through arbitration - Application dismissed holding that suit was maintainable as the case involved serious allegations as to fraud and malpractices - The order affirmed by High Court - On appeal, held: The cases where there are serious allegations of fraud that in normal course constitute criminal offence, and are complex in nature demanding extensive evidence, are to be treated as non-arbitrable and civil court should decide the matter - However, mere allegation of fraud simplicitor may not nullify the effect of arbitration agreement - Jn the present case, the allegations of fraud were not so serious which could not be decided by the arbitrator - Application u/s. 8 was wrongly rejected. Words and Phrases: "Fraud" - Meaning of Allowing the appeals, the Court HELD: Per A.K. Sikri, J. 1. The Arbitration and Conciliation Act, 1996 does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the Courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. 521 A B c D E F G H 522 SUPREME COURT REPORTS [2016111 S.C.R. A Patent, trademarks and copyright; anti-trust/competition laws; insolvency/winding up; bribery/corruption; fraud; criminal matters are the categories of disputes which are generally treated as non-arbitrable. Thus, fraud is one such category spelled out by the decisions of this Court where disputes would be considered B c D E F G H as non-arbitrable. [Para 9) (535-B-E) 2. 'Fraud' is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Fraud can be of different forms and hues. Its ingredients are an intention to deceive, use of unfair means, deliberate concealment of material facts, or abuse of position of confidence. [Para 10) [535-F] The _Black's Law Dictionary - referred to. 3. However, mere allegation of fraud in the pleadings by one party against the other, cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the devi':!e of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The Law Commission has recognized that in cases of serious fraud, courts have entertained civil suits. It has tried to make a distinction in cases where there are allegations of serious fraud and fraud simplicitor. [Paras 13 and 18) [536-F-G; 537-A; 541-A] Boaz Allen & Hamilton Inc. v. SB! Home Finance Limited and others 2011 (7) SCR 310 : (2011) 5 SCC 532; State of West Bengal & Ors. v. Associated Contractors 2014 (10) SCR 426 : (2015) 1 SCC 32 - relied on. N. Radhakrishnan v. Maestro Engineers and Others 2009 (15) SCR 371 : (2010) 1 SCC 72; Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak AIR 1962 SC 406 : 1962 Suppl. SCR 702 - distinguished. A. AYYASAMY v. A. PARAMASIVAM & ORS. Ramesh Kumar & Am: v. Furu Ram & Anr. (2011) 8 SCC 613 : 2011 (10) SCR 453; P. Anand Gajapathi Raju v. P. V.G Raju 2000 (2) SCR 684 : (2000) 4 SCC 539; Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums (2003) 6 SCC 503 - referred to. Russell v. Russell (1880) 14 Ch D 471 - referred to. 4. Thus, 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 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 contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. [Para 20) (541-F-H; 542-A-C] 5. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of nonarbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which 523 A B c D E F G H 524 SUPREME COURT REPORTS (2016) 11 S.C.R. A are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public fora are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the B c D E F G H aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone such an application under Section 8 s~ould be rejected. [Para 20) [542-C-F) 6. In the present case, the only allegation of fraud that is levelled is that the appellant had signed and issued a cheque of Rs. 10,00,050/- dated 17.06.2010 of the hotel in favour of his son without the knowledge and consent of the other partners of the hotel i.e. the respondents . .It is a mere matter of accounts which can be looked into and found out even by the arbitrator. It does not involve any complex issue. If such a cheque is issued from the hotel accpunt by the appellant in favour of his son, it is. easy to prove the same and then the onus is upon the appellant to show as to what was the reason for giving that amount from the partnership firm to his son and he will have to account for the same. Likewise, the allegation of the respondents that daily collections were not deposited in the bank accounts is to be proved by the respondents which is again a matter of accounts. Other allegation, which appears to be serious, is about the C.B.I. raid at the house of brother-in-law of the appellant, from where cash in the sum of Rs.45 lakhs was seized. The respondents have themselves alleged that the money did not belong to the hotel. In view of the aforesaid stand taken by the respondents/plaintiffs themselves, this issue does not fall for consideration and, therefore, is not to be gone into by the Arbitral Tribunal. Thus, the allegations of purported fraud A. AYYASAMYv. A. PARAMASIVAM & ORS. were not so serious which cannot be taken care of by the arbitrator. The Courts below, therefore, fell in error in rejecting the application of the appellant under Section 8 of the Act. [Paras 21 and 22] [542-G-H; 543-A-D] Swiss Timing Ltd. v. Commonwealth Games 2010 Organising Committee 2014 (6) SCR 514 : (2014) 6 SCC 677; Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr. (2012) 5 SCC 214; SBP & . Co. v. Patel Engineering Ltd & Anr. 2005 (4) Suppl. SCR 688 : (2005) 8 SCC 618 - referred to. Per Dr. D. Y; Chandrachud. J. (Concurring): 1. The Arbitration and Conciliation Act, 1996 does not in specific terms exclude any category of disputes - civil or commercial - from arbitrability. The Act contemplates and acknowledges that before it can be held that a particular subject matter is not capable of settlement by arbitration, such a consequence must arise under the law for the time being in force. [Paras 3 and 5) [544-A; 545-A-B) 2. Ordinarily every civil or commercial dispute whether based on contract or otherwise which is capable of being decided by a civil court is in principle capable of being adjudicated upon and resolved by arbitration "subject to the dispute being governed by the arbitration agreement" unless the jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implication; [Para 6) [545-B-C] 3. In addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiclion to the exclusion of an ordinary civil court. That such disputes are not arbitrable dovetails with the general principle that a dispute which is capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration. If the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration. (Para 9)[546-G; 547-A-B) 525 A B c D E F G H 526 A B c D E SUPREME COURT REPORTS f2016l 1 l S.C.R. Boaz-Allen and Hamilton Inc. v. SB/ Home Finance Ltd. (2011) 5 sec 532 : 2011 (7) SCR 310; Vimal Kishore Shah v. Jayesh Dinesh Shah (2016) SCC OnLine SC 825; Natraj Studios (P) Ltd. v. Navrang Studios (1981) 2 SCR 466; Skypak Courier Ltd. v. Tata Chemical Ltd. (2000) 5 SCC 294; National Seeds Corporation Ltd. v. M. Madhusudhan Reddy (2012) 2 SCC 506; Rosedale Developers Pvt. Ltd. v. Aghore Bhattacharya (2015) 1 WBLR (SC) 385; N. Radhakrishnan v. Maestro Engineers (2010) 1 SCC 72; P. Anand Gajapathi Raju v. P. V.G Raju (Dead) (2000) 4 SCC 539 : 2000 (2) SCR 684; Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums (2003) 6 SCC 503; Sundaram Finance Ltd. v. T. Thankam AIR 2015 1303 : 2015 (2) SCR 228; Anand Gajapathi Raju, Pink City and in Branch Manager, Magma Leasing and Finance Ltd. v. Potluri Madhvilata (2009) 10 SCC 103 : 2009 (14) SCR 815 - referred to. 4. Once there is an arbitration agreement between the parties, a judicial authority before whom an action is brought covering the subject matter of the arbitration agreement is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract. There is no element of discretion left in the court or judicial authority to obviate the legislative mandate of compelling parties to seek recourse to arbitration. (Para 14) [552-A-B] F 5. The basic principle which must guide judicial decisionmaking is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities G and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy. The arbitration agreement between the parties stands H distinct from the contract in which it is contained, as a matter of A. AYYASAMY v. A. PARAMASIVAM & ORS. law and consequence. Even the invalidity of the main ngreement does not ipso jure result in the invalidity of the arbitration agreement. Parties having agreed to refer disputes to arbitration, the plain meaning and effect of Section 8 must ensue. [Paras 16 and 18) (554-G-H; 555-A-B; 556-F-G) Fiona Trust and Holding Corporation v. Yuri Privalov (2007) 1 All E R (COMM) 891; Premium Na/ta Products Ltd. (20th Defendant) v. Fily Shipping Co. Ltd [2007] UKHL 40- referred to. 6. The Arbitration and Conciliation Act, 1996, should be interpreted so as to bring in line the principles underlying its interpretatfon in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must evolve towards strengthening the institutional efficacy of arbitration. Deference to a forum chosen by. parties as a complete remedy for resolving all their claims is but part of that evolution. Minimising the intervention of courts is again a recognition of the same principle. [Para 20) (557-D-E] Buckeye Check Cashing, Inc. v. Cardegna 546 U.S. 440 (U.S.S.Ct.2006); Prima Paint Corp. v. Flood & Conklin Manufacturing Co. 388 US 395 (U.S. S.Ct. 1967); Southland Corporation v. Keating 465 U.S. 1 (1984) - referred to. 7. Under.Section 24(2) of the Arbitration Act, 1940, the court could revoke the authority of a tribunal to deal with claims involving issues of fraud and determine those Claims itself. This provision has b'een repealed in Section 107(2) of the Arbitration and Conciliation Act, 1996. [Para 21) (558-F-GJ Russell on Arbitration (24th Edition, 2015, para 2007) - referred to. 8. A mere allegation of fraud, in the present case, was not sufficient to detract from the obligation of the parties to submit their disputes to arbitration. A fresh line must be drawn to ensure the fulfilment of the intent of Parliament in enacting the Act of 1996 and towards supporting commercial understandings grounded in the faith in arbitration. [Para 24) (559-F-G] · 527 A B c D E F G H 528 SUPREME COURT REPORTS f2016l 11 S.C.R. A International Arbitration by Redfern and Hunter (6th Edition para 2.154); Internatio11al Co111111ercial Arbitration by Gary B Born (2nd Edition Vol. I, P. 846); International Arbitration Law and Practice by Mauro Rubino-Sammartano (2•d Edition p. 179) - referred to. B Case Law Reference In the Judi:ment of A. K. Sikri1 J: 2009 (15) SCR 371 distinguished Para2 2014 (6) SCR 514 referred to Para2 c (201Zl 5 sec 214 referred to Para7 2011 (10) SCR 453 referred to Para 10 1962 Suppl. SCR 702 distinguished Para 11 (1880) 14 Ch D 471 referred to Para 11 D 2900 (2) SCR 684 referred to Para 14 c2003) 6 sec 503 referred to Para 14 2011 (7) SCR 310 relied on Para 15 2014 (10) SCR 426 relied on Para 19 E 2005 (4) Suppl. SCR 6SS referred to Para 19 In the Jud11.ment of Dr. D.Y. Chandrachud1 J: 2011 (~) SCR 310 referred to Para6 (2016) SCC OnLine SC S25 referred to Para6 F (19Sl) 2 SCR 466 referred to Para7 c2000) 5 sec 294 referred to Paras c2oq> 2 sec 506 referred to Paras G (2015 )l WBLR (SC) 3S5 referred to Paras (2010) 1 sec 12 referred to Para 10 2000 (Z) SCR 6S4 referred to Para 11 (200~> 6 sec 503 referred to Para 11 H 2015 (2) SCR 22S referred to Para 13 A. AYYASAMY v. A. PARAMASIVAM & ORS. 529 2009 (14) SCR 815 referred to Para 13 A (2007) 1 All E R (COMM) 891 referred to Para 15 (2007) UKHL 40 referred to Para 15 546 U.S. 440 (U.S.S.Ct.2006) referred to Para 19 388 US 395 (U.S. S.Ct. 1967) referred to Para 19 B 46~ u.s .. 1 (1984) referred to Para 19 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 82458246 of2016. . From the Judgment and Order dated 11.12.2014 ofthe High Court C of Madras at Madurai in CRPMD No. 1687 of2014 & 1688 of2014. T. R. B. Sivakumar and K.V. Vijayakumar, Advocates for the Appellant. Y. Aruna Giri, Rahul Joshi and P. Ramesh, Advocates for the Respondents. The Judgment of the Court was delivered by A • .f{. SIKRI, J, 1. The parties to this /is, who are brothers, had entered into a deed of partnership dated 01.04.1994 for carrying on hotel business and this partnership firm has been running a hotel with the name' Hotel Arunagiri' located at Tirunelveli, Tamil Nadu. Some disputes . arose out of the said partnership deed between the parties. Partnership Deed contains an arbitration clause i.e. Clause (8) which stipulates resolution of disputes by means of arbitration. 2. Notwithstanding the same, the respondents herein have filed a civil suit before the Court of 1st Additional District Munsif Court, Tirunelveli, Madurai (Tamil Nadu) seeking a declaration that as partners they are entitled to participate in the administration of the said hotel. Reliefofpermanent injunction restraining the defendant (appellant herein) from interfering with their right to participate in the administration of the hotel has also been sought. This suit was filed in the year 2012. The appellant, after receiving the summons in the said suit, moved the application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act') raising an objection to the 'maintainability of the suit in view of arbitration agreement between the parties as contained in clause (8) of the Partnership Deed dated D E F G I-I 530 A B c D E SUPREME COURT REPORTS [2016] II S.C.R. 01.04.1994 and submitted that as per the provisions of Section 8 of the Act, it is mandatory for the Court to refer the dispute to the arbitrator. This application was resisted by the respondents with the submission that since acts offraud were attributed to the appellant by the plaintiffs/ respondents, such serious allegations of fraud could not be adjudicated upon by the Arbitral Tribunal and the appropriate remedy was to approach the civil court by filing a suit, and that was exactly done by the respondents. For this purpose, the respondents had relied upon the judgment of this Court in the case of N. Rtullwkrislman v. Mllestro Engineers llnd Otl1ers1• This plea of the respondents was sought to be controverted by the appellant by arguing that aforesaid judgment was found to be per incuriam by this Court in Swiss Timing Ltd. v. Commonwealth Gllmes 2010 Orgllnising Committee=, wherein the application under Section II of the Act was allowed holding that such a plea of fraud can be adequately taken care of even by the arbitrator. It was, thus, argued that the parties were bound by the arbitration agreement and there was no reason to file the civil suit. The trial court, however, dismissed the application of the appellant herein by its order dated 25.04.2014, relying upon the judgment in N. R{l(//U1krisl11wn. 3. Feeling aggrieved by this order, the appellant preferred revision petition before the High Court repeating his contention that judgment in N. Radltakrislman was held to be per incuriam and, therefore, trial court had committed jurisdictional error in rejecting the application of tk appellant under Section 8 of the Act. Brushing aside this plea, the 11 i,;h Court has also chosen to go by the dicta laid down in N. iludliakrislman with the observations that Swiss Timing Ltd. is the •. , .. ;er passed by a single Judge of this Court under Section II of the Act , h~reas judgment in N. Rlldlwkrislmlln is rendered by a Division Bench of two Hon. Judges of this Court, which is binding on the High ('piJrt. Whether the aforesaid view of the High Court in following the dicta laid down.in the case of N. Rt11llwkrisl1mm, in the facts of this G case. is .correct or not, is the question that needs determination in the instant appeal. 4. Seminal facts in the context in which the issue falls for determination have already been taken note of above. However, few 'l2UIO) t sec 12 H 't20l~)6SCr.677 A. AYYASAMY v. A. PARAMASIVAM & ORS. fA. K. SIKRI, J.] more facts need to be added to the aforesaid chronology, particularly, the nature of plea of fraud taken in the suit filed by the respondents. The respondents are four in number who are brothers of the appellant. These five brothers are the partners. Their father A. Arunagiri was also a partner along with them who died on 28.04.2009. These six partners had I /6th share each in the partnership business. Disputes arose between the brothers after the demise of their father. It is the allegation of the respondents, as contained in the plaint, that the subject matter of the suit 'Hotel Arunagiri' was managed and administered by their father in a disciplined manner till his death. After his death, the appellant being the eldest brother wanted to take the administration of 'Hotel Arunagiri' with the assurance that he will be following the foot prints of his father. The respondents had no other alternative except to accept the said proposal in good faith. It was, at that time resolved by all the brothers, that the daily collection of money from 'Hotel Arunagiri' should be deposited on the very next day into the hotel Current Account No.23 maintained with the Indian Overseas Bank, Tirunelveli Junction. It was agreed that about rupees ten to fifteen thousand may be kept as cash for urgent expenses. The respondents reposed confidence with the appellant and believed that his administration would never be detrimental to the smooth running of the business. On the aforesaid understanding, administration of the hotel was taken over by the appellant. But he did not adhere to the said understanding and failed to deposit day to day collection into the bank account as promised. It is also agged that the appellant, fraudulently, signed and issued a cheque for Rs. I 0,00,050/- dated I 7.06.2010 from the bank account in the name of 'Hotel Arunagiri' in favour of his son without the knowledge and consent of the other partners and in this manner, the money was siphoned off and misappropriated from the common fund. It is further alleged that the appellant kept the hotel account books with him and did not show it to the respondents for their examination. The respondents sent legal notices but it did not deter the appellant to continue to act in the same manner by not depositing the day to day collections in the account. It is also alleged that appellant's wife's younger brother one Dhanapalraj was a member of Bar Council of Tamil Nadu and was also a Vice-Chairman of All India Bar Council, New Delhi. In Chennai, the Central Bureau of Investigation (C.B.I.) raided the houses of the said Dhanapalraj and his co-brother Chandrasekaran and seized Rs.45,00,000/- cash from them. 531 A B c D E F G H 532 SUPREME COURT REPORTS [2016] II S.C.R. A As Dhanapalraj was aware of the disputes between the appellant and the respondents in respect of the 'Hotel Arunagiri', a false statement has been given by him before C.B.I. to the effect that the seized money ofRs.45 lakhs belonged to 'Hotel Arunagiri'. It is reliably learned that the appellant had also, on receipt of summons, appeared before the C.B.I. B in New Delhi and given a false statement as ifthe said seized money of Rs.45 lakhs belonged to 'Hotel Arunagiri' which was taken to Chennai to purchase a property. This led to the issuance of another notice dated 22.01.2011 by the third respondent to the appellant stating that the money seized by the C.B.I. belong only to Dhanpahu:aj and not 'Hotel Arunagiri'. On the basis of the aforesaid allegations, which are relevant and material C for the purposes of this appeal, following reliefs are sought in the suit filed by the respondents: "(a) for a declaration that the respondents as partners of the deed of partnership dated 01.04.1994 are entitled to participate in the administration of the Hotel Arunagiri D mentioned in the schedule and for consequential permanent injunction restraining the appellant from interfering with the same; E F (b) for cost of this suit; and (c) for such other reliefs this Honourable Court deem fit ··and proper in the circumstances of this case." 5. As already mentioned above, the appellant filed the application under Section 8 of the Act for rejection of the plaint and reference of the dispute to an arbitrator in which attemptthe appellant has not succeeded for the reasons stated hereinabo\1e. 6. The two courts below have preferred to adopt the dicta laid down in N. Rtulllilkrlslman while dismissing the application of the appellant under Section 8 of the Act holding that as there are serious allegations as to fraud and malpractices committed by the appellant in respect of the finances of the partnership firm and the case does not G warrant to be tried and decided by the arbitrator and a civil court would be more competent which has the requisite means to decide such complicated matter. In this backdrop, it would be appropriate to revisit the law on this aspect before adverting to the question as to whether the approach of the High Court was correct in following the judgment in N. H Rad/1afcrlslman in the instant case. A. AYYASAMYv. A. PARAMASIVAM & ORS. 533 [A. K. SIKRI, J.] 7. In this behalf, we have to begin our discussion with the pertinent · A observation that insofar as the Arbitration and Conciliation Act, 1996 is concerned, it does not make any specific provision excluding any category of disputes terming them to be non-arbitrable. Number of pronouncements have been rendered laying down the scope of judicial intervention, in <;ases where there is an arbitration clause, with clear and unambiguous message that in such an event judicial intervention would be very limited and minimal. However, the Act contains provisions for challenging the arbitral awards. These provisions are Section 34 and Section 48 of the Act. Section 34(2)(b) and Section 48(2) of the Act, inter a/ia, provide that an arbitral award may be set aside ifthe Court finds that the 'subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.' Even when such a provision is interpreted, what is to be shown is that there is a law which makes subject matter Of a dispute incapable of settlement by arbitration. The aforesaid position in law has been culled out from the combined readings of Sections 5, 16 and 34 of the Act. When arbitration proceedings are triggered by one of the parties because of the existence of an arbitration agreement between them, Section 5 of the Act, by a 11011-obstante clause, provides a clear message that there should not be any judicial intervention at that stage scuttling the arbitration proceedings. Even if the other party has objection to initiation of such arbitration proceedings 011 the ground that there is no arbitration agreement or validity of the arbitration clause or the. competence of the Arbitral Tribunal is challenged, Section 16, in clear terms, stipulates that such objections are to be raised before the Arbitral Tribunal itself which is to decide, in the first instance, whether there is any substance in questioning the validity of the arbitration proceedings on any of the aforesaid grounds. It follows that the party is not allowed to rush to the Court for an adjudication. Even after the Arbitral Tribunal rules on its jurisdiction and decides that arbitration clause is valid or the Arbitral Tribunal is legally constituted, the aggrieved party has to wait till the final award is pronounced and only at that stage the aggrieved party is allowed to raise such objection before the Court in proceedings under Section 34 of the Act while challenging the arbitral award. The aforesaid scheme of the Act is succinctly brought out in the following discussion by this Court in Kvaerner Cementatlon Intl/a Lttl. v. B11}ra11glal Agarwal & Anr.3: '<20t2J s sec 214 B c D E F G H 534 A B c D E F G H SUPREME COURT REPORTS r20161 11 S.C.R. "3. There cannot be any dispute that in the absence of any arbitration clause in the agreement, no dispute could be referred for arbitration to an Arbitral Tribunal. But, bearing in mind the very object with which the Arbitration and Conciliation Act, I 996 has been enacted and the provisions thereof contained in Section I 6 conferring the power on the Arbitral Tribunal to rule on its own jurisdiction, including ruling on any objection with respect to existence or val id ity of the arbitration agreement, we have no doubt in our mind that the civil court cannot have jurisdiction to go into that question. 4. A bare reading of Section I 6 makes it explicitly clear that the Arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised, and a conjoint reading of sub-sections (2), (4) and (6) of Section I 6 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. 5. In this view of the matter, we see no infirmity in the impugned order so as to be interfered with by this Court. The petitioner, who is a party to the arbitral proceedings may raise the question of jurisdiction of the arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question, and on such an objection being raised, the arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings." Aforesaid is the position when Arbitral Tribunal is constituted at the instance of one of the parties and other party takes up the position that such proceedings are not valid in law. 8. What would be the position in case a suit is filed by the plaintiff and in the said suit the defendant files an application under Section 8 of the Act questioning the maintainability of the suit on the ground that parties had agreed to settle the disputes through the means of arbitration having regard to the existence of an arbitration agreement between them? A. AYYASAMY v. A. PARAMASIVAM & ORS. [A. K. SIKRI, J.] Obviously, in such a case, the Court is to pronounce upon arbitrability or non-arbitrability of the disputes. 9. In the instant case, there is no dispute about the arbitration agreement inasmuch as there is a specific arbitration clause in the partnership deed. However, the question is as to whether the dispute raised by the respondent in the suit is incapable of settlement through arbitration. As pointed out above, the Act does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the Courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. Following categories of disputes are generally treated as non-arbitrable~: (i) patent, trademarks and copyright; (ii) anti-trust/competition laws; (iii) insolvency/winding up; (iv) bribery/corruption; (v) fraud; (vi) criminal matters. Fraud is one such category spelled out by the decisions of this Court where disputes would be considered as non-arbitrable. 10. 'Fraud' is a knowing 111isrepresentation of the truth or concea/111ent of a 111aterial fact to induce another to act to his detri111ent. Fraud can be of different forms and hues. Its ingredients are an intention to deceive, use ofunfair means, deliberate concealment of material facts, or abuse of position of confidence. The Black's Law Dictionary defines 'fraud' as a concealment or false representation through a statement or conduct that injures another who relies on it5• However, the moot question here which.has to be addressed would be . ' See-0.P. .\/alhotra on 'The Lail' & Practice of Arbitration and Conciliation'. Third Edition, authored by Indu Malhotra. See also note 10 ibid. ' See - Ramesh Kumar & Anr. \'. F11r11 Ram & Am:, (2011) 8 SCC 613 (a decision rendered under the Arbitration Act, 1940) 535 A 8 c D E F G H 536 SUPREME COURT REPORTS [2016] 11 S.C.R. A as to whether mere allegation of fraud by one party against the other would be sufficient to exclude the subject matter of dispute from arbitration and decision thereof necessary by the civil court. 11. In Abdul Kadir Slwmsuddin Bubere v. Madllav Prabhakar Oak6, serious allegations of fraud were held by the Court to be a sufficient B ground for not making a reference to arbitration. Reliance in that regard was placed by the Court on a decision of the Chancery Division in Russell v. Rusself. That was a case where a notice for the dissolution of a partnership was issued by one of the partners, upon which the other partner brought an action alleging various charges of fraud, and sought a declaration that the notice of dissolution was void. The partner who C was charged with fraud sought reference of the disputes to arbitration. The Court held that in a case where fraud is charged, the Court will in general refuse to send the dispute to arbitration. But where the objection to arbitration is by a party charging the fraud, the Court will not necessarily accede to it and would never do so unless a primafacie case of fraud D isproved. 12. The aforesaid judgment was followed by this Court in N. Rad/1akrislman while considering the matter under the present Act. In that case, the respondent had instituted a suit against the appellant, upon which the appellant tiled an application under Section 8 of the Act. The E applicant made serious allegations against the respondents of having committed malpractices in the account books, and manipulation of the finances of the partnership firm. This Court held that such a case cannot be properly dealt with by the arbitrator, and ought to be settled by the Court, through detailed evidence led by both parties. F 13. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations G are serious that in nonrtal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may 'AIR 1962 SC 406 .H 7(1880)14ChD471 A. AYYASAMY v. A. PARAMASIVAM & ORS. [A. K. SIKRI, J.] become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radltakrislman does not touch upon this aspect and said decision is rendered after finding that allegations of fraud were of serious nature. 14. As noted above, in Swiss Timing Lie/. case, single Judge of this Court while dealing with the same issue in an application under Section 11 of the Act treated the judgment in N. Rac//1akris/man as per incuriam by referring to the other judgments in the case of P. Anand Gajapatlli Raju v. P. V.G Raju8 and Himlust 4 sec 539 9 (2003) 6 sec 503 1•(201J)5 sec 532 537 A 8 c D E F G H 538 SUPREME COURT REPORTS [2016] 11 S.C.R. A I) whether the disputes are capable of adjudication and settlement B c D E F G H by arbitration? 2) whether the disputes are covered by the arbitration agreement? 3) whether the parties have referred the disputes to arbitratfon? 16. As we are concerned with the first facet C>fthe arbitrability of dispute, on this aspect the Court pointed out that in those cases where the subject matter falls exclusively within the domain of public fora, viz. the Courts, such disputes would be non-arbitrable and cannot be decided by the Arbitral Tribunal but by the Courts alone. The justification and rationale given for adjudicating such disputes through the process of Courts, Le. public fora, and not by Arbitral Tribunals, which is a private forum, is given by the court in the following manner: "35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-Contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 36.