Non Filing of FIR doesn't make the case non-arbitrable

After surrendering to the arbitrator's jurisdiction, the High Court of Delhi concluded that a party cannot challenge the arbitrator's jurisdiction based on the lack of an arbitration agreement. When the legitimacy of the primary agreement is questioned, the arbitration clause in the main agreement often falls away, and the dispute becomes non-arbitrable, according to the Single Bench of Justice Vibhu Bakhru.

When a party agrees to submit a disagreement to arbitration and chooses to challenge only the main agreement rather than the arbitration clause, it is presumed to have waived its objections to the arbitration clause and cannot claim that the arbitrator lacked jurisdiction to decide the dispute.

In the instant case titled Amrish Gupta v. Gurchait Singh Chima the two issues raised before the High Court of Delhi for clarification were:

Whether the dispute contained significant issues of fraud and forgery and that the the arbitral tribunal lacked jurisdiction to consider it. Because the petitioner had previously filed a FIR, which included a chargesheet, the disagreement was not arbitrable?
Whether the amount borrowed was Rs. 11 crores, and while the parties had frequent financial dealings, no documentation of the transaction is accessible to the petitioner?

With regard to the first issue, the Court emphasised that just because a FIR has been filed does not mean the matter is not arbitrable. The Court cited different Supreme Court decisions to point out that the issue would only be non-arbitrable if the existence of the arbitration agreement itself was contested on the grounds of fraud or forgery. The petitioner had the option to challenge the referral to arbitration, according to the Court. The petitioner, on the other hand, took part in the nomination of the arbitrator and limited its dispute to the fundamental agreement. As a result, by consenting to proceed with the arbitration, the petitioner has abandoned its right to challenge the arbitration agreement.

With regard to the second issue, the petitioner's contention that the sum of Rs. 11 crores was received as a loan from the respondent was rejected by the Court. The Court found that the petitioner had not paid any interest to the respondent or deducted any income tax (TDS), both of which would have been required if the petitioner had paid or acknowledged his interest liability.

The Court categorically held that

"The exception to arbitrability of a dispute relating to fraud is thus, only restricted to cases where the allegation is a serious one,

which impinges on the existence of an arbitration agreement. An allegation that the arbitration agreement does not exist because the document is forged or fabricated, clearly strikes at the existence of the arbitration agreement and therefore, such disputes are not arbitrable."

As a result, the petition was dismissed by the Court.