“Beyond Allegations of Fraud” – The Supreme Court’s Re-affirmation of a Referral-Court’s Narrow Mandate under Section 11(6A) of the Arbitration & Conciliation Act, 1996

1. Introduction

The decision in The Managing Director, Bihar State Food & Civil Supply Corporation Ltd. v. Sanjay Kumar, 2025 INSC 933 (Supreme Court, 5 Aug 2025) involves nearly 1200 connected Special Leave Petitions springing from a massive Public Distribution System (PDS) “rice–milling” scam in Bihar that allegedly defrauded the State exchequer of over ₹1,500 crore. The Corporation invoked recovery proceedings and launched criminal prosecutions while the millers sought appointment of arbitrators under Section 11 of the Arbitration & Conciliation Act, 1996 (“A&C Act”).

The Patna High Court appointed arbitrators; the Corporation appealed. Although the record bristles with allegations of “serious fraud”, the Supreme Court ultimately dismissed the appeals and re-emphasised a limited enquiry model for courts acting under Section 11(6) post-2015 amendment (sub-section 6A) and the seven-Judge ruling in Interplay between Arbitration Agreements & Stamp Act, 2024.

2. Summary of the Judgment

The Court (Narashimha J.; Misra J. concurring) dismissed all civil appeals, upholding the High Court’s appointment of arbitrators.
It reiterated the settled principles on “arbitrability of disputes tainted by fraud”, but held that, after the 2015 insertion of Section 11(6A) and its authoritative construction in 2024, a referral court must confine itself to a prima-facie “existence test”—even where serious fraud or public-law elements are alleged.
Consequently, all objections on limitation, non-arbitrability, public-law implications, pendency of criminal proceedings, or recovery under the Bihar & Orissa Public Demands Recovery Act, 1914 were left to the arbitral tribunal as “jurisdictional defences”.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

A. Ayyasamy v. A. Paramasivam (2016) – drew distinction between “fraud simpliciter” and “serious fraud”; foundation for later clarifications.
Swiss Timing v. OC CWG 2010 Committee (2014) – allowed arbitral proceedings to run parallel to criminal investigation; used to justify non-interference.
Rashid Raza v. Sadaf Akhtar (2019) – formulated the two-part test for “serious fraud” exclusions.
Avitel Post Studioz v. HSBC PI (2021) – reiterated that allegations must either vitiate the arbitration agreement itself or concern public-law mala fides to oust arbitration.
Vidya Drolia v. Durga Trading (2021) – confined court’s Section 11 scrutiny to prima-facie review.
Interplay between Arbitration Agreements & Stamp Act (7-Judge, 2024) – decisive authority that a Section 11 court only “examines”, not “rules”, on existence of arbitration agreement.
Post-Interplay follow-ups: SBI General Insurance v. Krish Spinning (2024), Aslam Ismail Khan v. ASAP Fluids (2025), etc., confirming the narrow remit.

3.2 Court’s Legal Reasoning

The bench proceeds in two stages:

Restatement of “Serious Fraud” Doctrine: It catalogues earlier case-law, noting that certain disputes that “transcend inter-se contractual issues” and affect public interest can be non-arbitrable. Allegations of criminal conspiracy, public loss and macro-level corruption may fall in this zone.
Application of Section 11(6A): The Court holds that, notwithstanding the above doctrine, the statutory amendment now bars the referral court from undertaking any “mini-trial” into those allegations. The only enquiry is whether a written arbitration agreement exists between these parties covering the dispute. The answer being yes, all other contentions (fraud, limitation, res judicata, waiver, clash with Recovery Act, etc.) must be argued before the arbitral tribunal.
Key Passage: “Courts exercising jurisdiction under Section 11(6) must follow the mandate of sub-section (6A)… their scrutiny must be confined to the examination of the existence of the arbitration agreement.”

3.3 Potential Impact

Section 11 petitions will now face an even more stringent “hands-off” approach; allegations of large-scale fraud or public-law implications will rarely block referral.
Public sector corporations must pursue preliminary objections before tribunals or through Section 16/Section 34 instead of resisting appointment itself.
Simultaneous criminal prosecutions and arbitrations are expressly tolerated; tribunals may stay, adapt, or proceed based on factual overlap.
The decision harmonises High Court practice nation-wide post the seven-Judge ruling, likely reducing inconsistent “merits-screening” at Section 11 stage.
Creates strategic challenges for States: they must consider tailored carve-outs or express “institutional-court arbitration” mechanisms if they wish to avoid arbitral forums in fraud-tainted contracts.

4. Complex Concepts Simplified

Arbitration Agreement: A written clause in a contract under Section 7, by which parties agree that disputes will be resolved by private arbitrators instead of courts.
Section 11 (Appointment by Court): Allows a party to request the High Court/Supreme Court to appoint an arbitrator when the other side defaults.
Sub-section (6A): Added in 2015; directs that the court’s scrutiny at this stage is limited to verifying whether an arbitration agreement “exists”.
Competence-Competence: Doctrine allowing an arbitral tribunal to rule on its own jurisdiction, including validity of the agreement.
Separability: The arbitration clause is treated as independent from the underlying contract; even if the contract is void, the clause can survive.
Serious Fraud (Arbitrability): A judicially carved category where disputes are removed from arbitration if (i) the arbitration clause itself is impeached, or (ii) allegations involve public-law dereliction beyond contractual breaches.
Public Demands Recovery Act, 1914: An old statute permitting the State to recover certain dues as arrears of land revenue; its invocation here does not preclude arbitration.

5. Conclusion

The Supreme Court’s decision is less about the rice-milling scandal and more about process. It crystallises, perhaps for the final time, that post-2015, referral courts are “gatekeepers”, not “umpires”. Even a ₹1,500-crore scam with over a thousand FIRs, SIT monitoring and ED probes cannot entice the court into a merits review at the Section 11 stage. The ruling fortifies a pro-arbitration, minimum-intervention stance, leaving complex questions of fraud, limitation and public interest to be sifted by arbitrators under Section 16, subject only to curial control at the setting-aside and enforcement stages.

For practitioners, the message is unambiguous: if a written arbitration clause exists, the courtroom door at the appointment stage is virtually closed.