# RASHID RAZA v. SADAF AKHTAR

- **Citation:** [2019] 12 S.C.R. 460
- **Court:** Supreme Court of India
- **Decided:** 2019-09-04
- **Case number:** Civil Appeal No. 7005 of 2019
- **Bench:** R. F. Nariman, R.Subhash Reddy, Surya Kant
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rashid-raza-v-sadaf-akhtar-33205
- **Pages:** 5

## Headnote

Arbitration and Conciliation Act, 1996: s. 11 - Appointment
of arbitrator - Partnership deed between the parties - Partnership
dispute - FIR by one of the partners alleging siphoning of funds
and various business improprieties - Application u/s. 11 for
appointment of arbitrator under the arbitration clause - Dismissal
of the application - On appeal, held: There is distinction between
serious allegations of forgery/fabrication in support of the plea of
fraud as opposed to "simple allegations" - Two working tests are
whether the plea permeate the entire contract and above all, the
agreement of arbitration, rendering it void, or whether the
allegations of fraud touch upon the internal affairs of the parties
inter se having no implication in the public domain - In view thereof,
in the instant case there are simple allegations since there is no
allegation of fraud which would vitiate the partnership deed as a
whole or, in particular, the arbitration clause concerned in the said
deed - All the allegations pertain to the affairs of the partnership
and siphoning of funds therefrom and not to any matter in the public
domain - Thus, the disputes raised between the parties are arbitrable
and, hence, s. 11 application is maintainable.
A. Ayyasamy v. A. Paramasivam and Others (2016) 10
SCC 386 : [2016] 11 SCR 521 - relied on.
Case Law Reference
[2016] 11 SCR 521
relied on
Para 5, 6

## Text

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SUPREME COURT REPORTS
[2019] 12 S.C.R.
RASHID RAZA
v.
SADAF AKHTAR
(Civil Appeal No. 7005 of 2019)
SEPTEMBER 04, 2019
[R. F. NARIMAN, R.SUBHASH REDDY AND
SURYA KANT, JJ.]
Arbitration and Conciliation Act, 1996: s. 11 - Appointment
of arbitrator - Partnership deed between the parties - Partnership
dispute - FIR by one of the partners alleging siphoning of funds
and various business improprieties - Application u/s. 11 for
appointment of arbitrator under the arbitration clause - Dismissal
of the application - On appeal, held: There is distinction between
serious allegations of forgery/fabrication in support of the plea of
fraud as opposed to "simple allegations" - Two working tests are
whether the plea permeate the entire contract and above all, the
agreement of arbitration, rendering it void, or whether the
allegations of fraud touch upon the internal affairs of the parties
inter se having no implication in the public domain - In view thereof,
in the instant case there are simple allegations since there is no
allegation of fraud which would vitiate the partnership deed as a
whole or, in particular, the arbitration clause concerned in the said
deed - All the allegations pertain to the affairs of the partnership
and siphoning of funds therefrom and not to any matter in the public
domain - Thus, the disputes raised between the parties are arbitrable
and, hence, s. 11 application is maintainable.
A. Ayyasamy v. A. Paramasivam and Others (2016) 10
SCC 386 : [2016] 11 SCR 521 - relied on.
Case Law Reference
[2016] 11 SCR 521
relied on
Para 5, 6
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7005
of 2019.
From the Judgment and Order dated 06.12.2018 of the High Court
of Jharkhand at Ranchi in Arbitration Application No. 1 of 2018.
 [2019] 12 S.C.R. 460
460
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Shivam Singh, Animesh Kumar, Neeraj Shekhar, Shadab Eqbal,
Sumit Kumar, Ms. Ekta Bharati, Murari Kumar, Advs. for the Appellant.
Shree Prakash Sinha, Rishi Pallav, Rakesh Mishra, Ms. Marina
Wheeler, Ms. Mohua Sinha, Shekhar Kumar, Advs. for the Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. 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.
2. 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:
".......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 17th 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."
RASHID RAZA v. SADAF AKHTAR
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SUPREME COURT REPORTS
[2019] 12 S.C.R.
3. Consequently, while purportedly following this judgment, the
Section 11 application was dismissed.
4. 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 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. 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 non-arbitrable subjects are carved out by the Courts,
keeping in mind the principle of common law that certain disputes
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which 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 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 should be rejected.
5. The principles of law laid down in this appeal make a distinction
between serious allegations of forgery/fabrication in support of the plea
of fraud as opposed to "simple allegations". Two working tests laid
down in paragraph 25 are : (1) does this plea permeate the entire contract
and above all, the agreement of arbitration, rendering it void, or (2) whether
the allegations of fraud touch upon the internal affairs of the parties inter
se having no implication in the public domain.
6. Judged by these two tests, it is clear that this is a case which
falls on the side of "simple allegations" as there is no allegation of fraud
which would vitiate the partnership deed as a whole or, in particular, the
arbitration clause concerned in the said deed. Secondly, all the allegations
made which have been relied upon by the learned counsel appearing on
behalf of the respondent, pertain to the affairs of the partnership and
siphoning of funds therefrom and not to any matter in the public domain.
7. This being the case, we are of the view that the disputes raised
between the parties are arbitrable and, hence, a Section 11 application
under the Arbitration Act would be maintainable.
8. The Judgment under appeal is set aside. With the consent of
the parties, we appoint Justice Amareshwar Sahay, Retired Jugde of the
Jharkhand High Court to be the sole arbitrator to resolve all disputes
between the parties.
RASHID RAZA v. SADAF AKHTAR
[R. F. NARIMAN, J.]
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SUPREME COURT REPORTS
[2019] 12 S.C.R.
9. Nothing said in our judgment will affect the investigation that is
being conducted pursuant to the FIR.
20. The appeal stands disposed of.
Nidhi Jain
Appeal disposed of.