AIRPORT AUTHORITY OF INDIA v. M/S. S.S.ENTERPRISE

1. Airport Authority of India has filed this petition under Article 227 of the Constitution of India, challenging the order dated 06.02.2023 passed below Exh.20 by the Commercial Court, Ahmedabad, in Commercial Civil Suit No.1464 of 2021 (Old Suit No.109 of 2019). The petitioner was the plaintiff before the Commercial Court. The respondent was the defendant. A suit for recovery of Rs.2,28,75,348.12 was filed by the petitioner against the defendant, wherein, on an application filed by the respondent at Exh.20 under Section 8 of the Arbitration and Conciliation Act, 1996, (hereinafter to be referred to as 'the Arbitration Act' for short), the Commercial Court by the impugned order allowed the application directing that the disputing context of the suit be referred to arbitration.

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2. FACTS IN BRIEF:

2.1 The respondent is a proprietary concern. A tender was floated by the petitioner authority for vehicle parking rights at Sardar Vallabhbhai Patel International Airport, Ahmedabad. The bid of the respondent came to be accepted and accordingly license for the vehicles parking rights at the airport came to be issued in favour of the respondent. A license agreement was executed on 23.06.2017. Clause 6 of the license agreement required the respondent to provide a security deposit in the form of a bank guarantee. The license agreement inter-alia stated that the respondent licensee had deposited a sum of Rs.8,39,15,802/- equal to six month license fee in the form of a bank guarantee from Bank of India, Mira Road Branch, Mumbai. This was a bank guarantee presented by the respondent bank

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dated 22.05.2017 prior to that of entering into the contract i.e. the license agreement.

2.2 It appears that though the genuineness and validity of the bank guarantee was confirmed by the Chief Manager of the Bank of India, it was subsequently found that the bank officials by communication dated 09.08.2018 informed the petitioner that the bank guarantee was never issued by the Bank of India, Mira Road Branch, Mumbai. A criminal complaint was filed against the respondent under Sections 406, 409, 420 etc. under the Indian Penal Code on the ground that the respondent had committed fraud and forgery by creating a forged and bogus bank guarantee. By a communication dated 24.08.2018 as per Clause 22 of the agreement the license agreement was terminated. On a challenge to this termination by the respondent by filing SCA

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No.13146 of 2018, the petition came to be dismissed on 18.09.2018.

2.3 The petitioner finding that there was no fall back to recover a sum of Rs.2,28,75,348.12 since the bank guarantee was forged. A commercial suit being Commercial Suit No.1464 of 2021 was filed by the petitioner in the Commercial Court at Ahmedabad. The respondent in such suit being the defendant, filed an application under Section 8 of the Arbitration Act contending that in light of para 19 of the agreement, which contained an arbitration clause, the dispute ought to be referred to the arbitrator and the Court will have no jurisdiction to proceed with the suit. Since that application was granted, the present petition by the plaintiff petitioner.

3. Mr.Bhadrish Raju learned counsel for the

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petitioner would make the following submissions:

3.1 Mr.Raju would submit that unlike tenders where, pursuant to a tender agreement already executed pursuant to a contract, a bank guarantee is given, here was a case where already a security deposit was given in form of a bank guarantee before the tender contract was entered into. He would submit that a bank guarantee was given on 22.05.2017, whereas, the tender was actually entered into on 23.06.2017. This was therefore not a tender where pursuant to a contract a bank guarantee was given but a guarantee given prior to the contract.

3.2 Mr.Raju would therefore submit that once upon verification the bank guarantee was found to be fraudulent, it permeated to the root of the

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contract which was vitiated by fraud. The contract being non-existent by fraud, the arbitration agreement itself was neither valid nor existing.

3.3 Mr.Raju would submit that here was a case where it was found that the bank guarantee was entered into by fraud which involved bank officials who are public servants. The petitioner finding that as there was no recourse except to file a suit for recovery, the order of the Commercial Court relegating the parties to arbitration was bad.

3.4 Mr.Raju would submit that the fraud was of such a nature that it resulted in filing of a criminal case which was in public domain and therefore, the contract which resulted post this bank guarantee was a contract vitiated by the

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fraud, being non-existent, there cannot be said to be existing arbitration agreement.

3.5 Taking us through the decision of this Court in Special Civil Application No.13146 of 2018 filed by the respondent challenging the termination, Mr.Raju would submit that the petition was dismissed on three counts. One, that the Court would not prefer to go into the issue of fraud as an FIR was already filed and therefore it would not opine on the aspect of fraud. Secondly, the Court held that since the agreement envisages a dispute resolution mechanism, it was in the realm of arbitration leaving it to the petitioner, the present respondent to avail of such mechanism. That was a passing reference to the existence of the dispute mechanism resolution. He would submit that a mere passing reference to the availability

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of the dispute mechanism resolution cannot estop the petitioner herein to contend to the contrary and the contention of the respondent that the order of the Court estopped the authority from objecting to Section 8 reference was misconceived.

3.6 Mr.Raju would invite our attention to the provisions of Section 8 and 11 of the Arbitration Act. Reading the Sections, he would submit that while deciding a Section 8 application, what has to be decided is the prima-facie existence and validity of the arbitration agreement. The scope and power under Section 8 is much wider than that of Section 11.

3.7 Mr.Raju would submit that from the facts of the present case, what is evident from the present case, fraud permeates from the entire

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contract and which takes place prior to the contract will itself lead one to believe that the validity and the existence of the arbitration agreement, prima-facie, is in doubt and therefore, relegating the parties in such a case to the arbitration mechanism would be pointless. When a fraud predates the contract, it is a case of inducement to enter into the contract by fraud and therefore the contract is void and consequentially there is no arbitration agreement in existence.

3.8 Mr.Raju would refer extensively to the decision of the Supreme Court in case of SBI General Insurance Company Limited v. Krish Shipping reported in 2024 SCC OnLine SC 1754 to explain the scope of power under Section 8 and Section 11 of the Arbitration Act and the evolution of law post 2015 amendment in

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the Arbitration Act. Inviting our attention to the issues for determination which included the examination on the scope and standard of judicial scrutiny that an application under Section 11(6) of the Act can be subjected to, Mr.Raju would submit that the Supreme Court found that post the amendment to the provisions of Section 11 and by insertion of Section 11(6A) to the Act, the scope of interference was restricted only to those cases where Court found that no arbitration agreement exists and it is null and void. He would invite our attention to the fact that though the 2019 amendment had opined in deleting sub-section(6A) of Section 11, the case law that evolved indicated that the Courts while deciding the question under Section 8 and 11, could not enter into a mini trial but only had to decide on the existence of an arbitration agreement. He would submit that as held by the

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Supreme Court in the case of SBI General Insurance Company Limited (supra), what was required for a decision in an application under Section 11 was that arbitration agreement existed. He would submit that the parameters of the judicial review as far as Section 8 is concerned, is much more wider, inasmuch as, the standard of scrutiny provided under Section 8 is that of prima-facie examination of validity and existence of an arbitration agreement whereas under Section 11 it is only confined to the existence of the arbitration agreement.

3.9 Referring to 'eye of the needle test' as propagated in the judgement of the Supreme Court, in the case of NTPC V. SPML Infra Limited reported in 2023 (9) SCC 385 Mr.Raju would submit that under Section 11, it was open for the Arbitral Tribunal to examine the existence

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of the arbitration agreement only. All questions relating to non-arbitrability were to be left to the Arbitral Tribunal to decide. Only those disputes which were demonstrably non-arbitrable, manifestly time barred and deadwood could be refused to be referred to arbitration.

3.10 In support his submission that the scope of powers under Section 8 of the Arbitration Act is wider then that under Section 11, Mr.Raju would submit that no right of appeal is available against any order passed by the referral Court under Section 11 for either appointing or refusing to appoint an arbitrator, whereas, when a judicial authority refuses to refer the parties to arbitration, an appeal lies under Section 37 of the Arbitration Act. In other words, in the facts of the case, the Court could decide that the arbitration agreement was neither valid nor

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existing.

3.11 Inviting our attention to a decision in case of

Vidya Drolia and ors. v. Durga Trading Corporation reported in 2021 (2) SCC 1

Mr.Raju would fairly submit, apart from the validity and existence of the arbitration agreement which would not go against the principles of competence-competence, the Courts have carved out an exception and therefore a non-statutory third window is available for a dispute being even non-arbitrable and therefore not worth being referred to the arbitral tribunal. He would submit that when a fraud is of a domain which is in the realm of a public domain and not interpersonal as is the case on hand where the fraud involves collusion of public servants i.e. bank officials and an angle of corruption, the dispute is clearly non-arbitrable.

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Being so now arbitrable, even if read in context of Section 16, a Tribunal will not be able to decide on its own jurisdiction and by relegating the party under Section 16 would be unnecessary duplicity in light of the fact that the very issues of non-arbitrability and fraud will have to be argued before the Tribunal which have been raised before the Civil Court.

3.12 When fraud goes into a public domain, in light of a decision in case of Vidya Drolia

(supra) it is clear that when there are criminal allegations of fraud like the present one which renders the dispute non-arbitrable, the decision of the Commercial Court to refer it for arbitration is bad. At the cost of repetition, Mr.Raju would submit that when the fraud is a pre-contract fraud and permits the entire contract, it would render the arbitration

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agreement void in consonance with Sections 17 and 19 of the Contract Act and therefore, the dispute is clearly non-arbitrary.

3.13 Mr.Raju would rely on a decision in case of

Vidya Drolia (supra), para 73 was relied upon. In the said para, a reference was made to the decision of the Supreme Court, in the case of

Avitel Post Studioz Limited v. HSBC PI Holdings (Mauritius) Ltd. reported in (2021)

4 SCC 713, where working tests were laid down to decide the issue of non-arbitrability. When the allegations of fraud permeate the entire contract, it would render the agreement itself void. He would therefore submit that in the facts of the present case, the fraud was complex, had criminal ramifications and in public domain. The dispute therefore was clearly non-arbitrable.

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3.14 Relying on a decision in case of Hindustan Zinc Limited v. Ajmer Vidhyut Vitran Nigam Limited reported in (2019) 17 SCC 82,

Mr.Raju relying on para 17 of the decision would submit that even where an argument was raised before the Supreme Court that there was an agreement to go to arbitration, consent to do so cannot be held to be an estoppel to challenge the very appointment of the arbitrator be invalid. He would therefore submit that merely because a passing reference is made to the dispute mechanism resolution in the decision of the Division Bench in the case of the respondent, would itself not bar the petitioner from taking a stand on the issue of validity and existence of the arbitration agreement.

3.15 Relying on the decision in the case of Magic Eye Developers Private Limited v. Green

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Edge Infrastructure Private Limited and others reported in 2023 (8) SCC 15, Mr.Raju would submit that the Supreme Court had held that the scope of powers under Sections 11 and 8 and the jurisdiction of the referral court at pre- referral stage was different. The pre-referral jurisdiction of the Court under Section 11(6) was very narrow and the issue with respect to the existence and validity of an arbitration agreement goes to the root of the matter.

4. Mr.Dipen Desai learned advocate would make the following submissions:

4.1 Reading Section 8 of the Arbitration Act Mr.Desai would submit that referring the parties to arbitration by judicial authority is mandatory. The word used in the section is 'shall'. The only exception is that the parties will not be referred

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to arbitration if there is no valid arbitration agreement which exists. He would submit that all the decisions which have been cited by Mr.Raju deal with powers under Section 11 of the Arbitration Act.

4.2 Mr.Desai would further submit that in the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and others reported in

(2011) 5 SCC 532, the clear distinction has been made on non-arbitrable disputes.

4.3 Mr.Desai would rely on Section 16 of the Arbitration Act and submit that under Section 16 the Arbitral Tribunal is competent to rule on its own jurisdiction and also decide objections with respect to the existence or validity of the arbitration agreement and a decision of the Arbitral Tribunal that the contract is void shall

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not ipso-jure render the arbitration clause invalid. He would submit that it is well settled that the arbitration agreement is a stand alone agreement and not dependent on the contract. It is an independent entity. In support of this submission, Mr.Desai would rely on the decision of the Supreme Court in the case of N.N.Global Mercantile Private Limited v. INDO Unique Claim Limited reported in (2021) 4 SCC 379,

where, the Supreme Court discussed the doctrain of separability of an arbitration agreement from the substantive contract. He would submit that it is held by the aforesaid decision that an arbitration agreement is a distinct and separate agreement which is independent of the substantive commercial contract in which it is embedded.

4.4 Relying on the decision in the case of A.

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Ayyaswai v. A. Param Sivam and ors. reported in 2016 (10) SCC 386, Mr.Desai would submit that it has been held by the Supreme Court that a mere allegation of fraud is no ground to nullify the effect of arbitration agreement. He would submit that if only when there are very serious allegations of fraud which makes a virtual case of criminal offense where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can only be decided by the Civil Court, can a reference to arbitration be refused. He would invite our attention to para 35 of the judgement to submit that even the Arbitral Tribunal is capable to decide a subject matter which otherwise can be decided by a Civil Court. It is obligatory for the Court under Section 8 to refer the parties to arbitration. In context of the submission made by Mr.Raju that the allegation of a fraudulent bank guarantee is a

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dispute which is non-arbitrable, relying the decision in case of N.N.Global Mercantile Private Limited (supra) Mr.Desai would submit that the arbitrability of the dispute can be decided under the provisions of Section 16 and therefore, the submission that in light of the provisions of Section 17 and 19 of the Contract Act, such disputes cannot be decided by an arbitral Tribunal is misconceived. A dispute which is otherwise arbitrable cannot be so held to be non-arbitrable merely because it involves a fraud.

4.5 Reliance was placed by Shri Desai on a decision in the case of Mohammed Masroor Shaikh v. Bharat Bhushan Gupta reported in (2022) 4 SCC 126 to submit that when the contention relating to non-arbitrability is arguable, the same can be considered by the

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Arbitral Tribunal.

4.6 The judgment in case of Vidya Drolia

(supra) was also extensively relied upon by Mr.Desai, he would submit that the meaning of non-arbitrability and as to who decides such an issue was considered by the Supreme Court. After considering the amendments to the Act post 2015 and the concept of well recognized examples of non-arbitrable disputes, the Supreme Court in this case considered the issue as to who decides the non-arbitrability. The decision considered that the issue of non- arbitrability can be raised at three stages. First, on an application under Section 8. Secondly before the arbitral tribunal during the course of proceedings under Section 16 and before the Court at the stage of challenge to the award. The petitioner therefore, in the facts of the case

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had all the three stages available.

4.7 He would submit that the Supreme Court had in the case on hand had considered the scope of Section 8 in context of non-arbitrability and examining Section 16 of the Act held that the existence and the validity of the arbitration agreement can be decided once there is no dispute as to the arbitration clause with the agreement. The Arbitral Tribunal is the preferred first authority to determine and decide all question of non-arbitrability.

4.8 Relying on a decision in a case of In Re Versus With Interplay Between Arbitration Agreement Under The Arbitration And Conciliation Act, 1996 And The Indian Stamp Act, 1899, reported in 2024 (6) SCC 1, the Supreme Court considering the post 2015

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amendment held that the existence and the validity of an arbitration agreement can only be decided by the arbitral tribunal under section 16. Reliance was also placed on a decision in case of

M/s. Sai Polyplast v. Vikas Chhajer reported in 2024 JX (Guj) 232 in support of his submission that the Arbitral Tribunal is competent to decide when the case of fraud is set up by one of the parties.

ANALYSIS

5. Having considered the submissions made by the learned counsels for the respective parties, the issues for consideration before us are as under:

(I) Whether merely because a fraud predates the contract as contended by the counsel for the petitioner and the contract is void should it be a case where the validity and existence of the

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arbitration agreement itself is a matter of dispute. We may take note of the fact that the case of the petitioner is that since the license agreement was entered post the bank guarantee and since the bank guarantee was fraudulent, the contractual relationship pursuant to the license agreement were vitiated by fraud and that itself would erase the arbitration agreement. Section 7 of the Arbitration Act which defines the arbitration agreement indicates that the arbitration agreement can be of various formulations. Section 7 of the Act reads as under:

7. Arbitration agreement.—(1) In this Part,

"arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

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(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in—

(a) a document signed by the parties;

(b) an exchange of letters, telex, telegrams or other means of telecommunication 1 [including communication through electronic means] which provide a record of the agreement; or

(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract."

(i) Academic literature on the law of arbitration indicates that the Arbitration Act should be viewed and interpreted in a manner which strengthens the institutional efficacy of the arbitration. An arbitration clause in a

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commercial contract in accordance with the provisions of Section 7 of the Arbitration Act recognizes the doctrain of separability. In the case of A. Ayyasamy v. A. Paramasivam and others reported in (2016) 10 SCC 386, the doctrain of separability has been set out. Para 33 and 54 of the judgement read as under:

"33. Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement. Section 16(1)(b) stipulates that a decision by the arbitral tribunal that a contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Hence, the invalidity of the contract between the parties does not render the arbitration agreement invalid as a consequence of law. This recognises as inhering in the arbitrator the jurisdiction to consider whether the main contract (other than the arbitration clause) is null and void. The arbitration agreement survives for determining whether the contract in which the arbitration clause is embodied is null and void, which would include voidability on the ground of fraud. The severability of the arbitration agreement is a doctrinal development of crucial significance. For, it leaves the adjudicatory power of the arbitral

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tribunal unaffected, over any objection that the main contract between the parties is affected by fraud or undue influence. …

54. Academic literature on the law of arbitration points in the same direction. In Russell on Arbitration, the doctrine of separability has been summarized in the following extract:

"The doctrine of separability.-An arbitration agreement specifies the means whereby some or all disputes under the contract in which it is contained are to be resolved. It is however separate from the underlying contract:

"An arbitration clause in a commercial contract … is an agreement inside an agreement. The parties make their commercial bargain … but in addition agree on a private tribunal to resolve any issues that may arise between them."

This is known as the doctrine of separability and s.7 of the Arbitration Act 1996 provides a statutory codification of the previous case law on this subject. As the House of Lords noted in Lesotho Highlands v Impreglio SpA:

"21. it is part of the very alphabet of arbitration law as explained in Harbour Assurance Co. (UK) Ltd. v Kansa General International Insurance Co. Ltd

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… and spelled out in s.7 of the Act, the arbitration agreement is a distinct and separable agreement from the underlying or principal contract"….. The Court of Appeal has confirmed that the doctrine of separability as it applies to arbitration agreements and jurisdiction clauses is uncontroversial also as a matter of

European law".

Dealing with arbitrability of matters of fraud, the treatise contains the following statement of the legal position:

"Fraud. Claims involving conduct amounting to fraud can be the subject matter of arbitration, as s.107(2) of the Arbitration Act makes clear. The Act expressly recognises that an arbitral tribunal may decide an issue of fraud, and the courts have acknowledged that an arbitrator has jurisdiction to decide allegations of bribery against a party to an arbitration agreement. Even in this context, however, an arbitral tribunal does not have jurisdiction to impose criminal sanctions on a party, even if bribery of a public officer is established; its power is limited to the civil consequences of that conduct".

Under Section 24(2) of the Arbitration Act, 1950, 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 been repealed in Section 107(2) of the Arbitration Act, 1996."

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(ii) We may discuss the aspect of Section 16 of the Arbitration Act at a later stage, however, reading para 33 above indicates that even if a contract is invalid, it does not render the arbitration agreement invalid as a consequence of law. This is because the Arbitration Agreement survives for determining whether the contract in which arbitration clause is embodied is null and void including on the ground of fraud. The severability of the arbitration agreement, as held by the Supreme Court is a doctrinal development of crucial significance and irrespective of the main contract is vitiated by fraud, the arbitration agreement would survive. In this case it is to be noted that there was an arbitration agreement is not disputed. In light of this, the submission of the learned counsel for the petitioner that in cases unlike where there is post contract fraud, in a pre-contract fraud, since

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the contract itself is void, cannot be accepted. In the case of N.N.Global (supra), the Supreme Court was considering the provisions of Section 8 and 11 of the Arbitration Act and the doctrain of separability of an arbitration agreement from the underlined substantive contract in which it is embedded. In para 3 of the judgement, the Supreme Court held as under:

"3. Validity of an arbitration agreement in an unstamped agreement

3.1 It is well settled in arbitration jurisprudence that an arbitration agreement is a distinct and separate agreement, which is independent from the substantive commercial contract in which it is embedded. This is based on the premise that when parties enter into a commercial contract containing an arbitration clause, they are entering into two separate agreements viz. (i) the substantive contract which contains the rights and obligations of the parties arising from the commercial transaction; and, (ii) the arbitration agreement which contains the binding obligation of the parties to resolve their disputes through the mode of arbitration.

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3.2 The autonomy of the arbitration agreement is based on the twin concepts of separability and kompetenz - kompetenz. The doctrines of separability and kompetenz - kompetenz though inter-related, are distinct, and play an important role in promoting the autonomy of the arbitral process.

3.3 The doctrine of separability of the arbitration agreement connotes that the invalidity, ineffectiveness, or termination of the substantive commercial contract, would not affect the validity of the arbitration agreement, except if the arbitration agreement itself is directly impeached on the ground that the arbitration agreement is void ab initio.

3.4 The doctrine of kompetenz - kompetenz implies that the arbitral tribunal has the competence to determine and rule on its own jurisdiction, including objections with respect to the existence, validity, and scope of the arbitration agreement, in the first instance, which is subject to judicial scrutiny by the courts at a later stage of the proceedings. Under the Arbitration Act, the challenge before the Court is maintainable only after the final award is passed as provided by sub-section (6) of Section 16. The stage at which the order of the tribunal regarding its jurisdiction is amenable to judicial review, varies from jurisdiction to jurisdiction. The doctrine of kompetenz - kompetenz has evolved to minimize judicial intervention at the pre-reference stage, and

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reduce unmeritorious challenges raised on the issue of jurisdiction of the arbitral tribunal.

3.5 The doctrine of separability was expounded in the judgment of Heyman v. Darwins Ltd 1 by the House of Lords wherein it was held that English common law had been evolving towards the recognition of an arbitration clause as a separate contract which survives the termination of the main contract. Lord Wright in his opinion stated that : "An arbitration agreement is collateral to the substantial stipulations of the contract. It is merely procedural and ancillary, it is a mode of settling disputes, though the agreement to do so is itself subject to the discretion of the court." Lord MacMillan in his opinion stated that : "It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract."

3.6 This rule has been affirmed in several cases, including Bremer Vulkan Schiffbau und Maschinefabrik v. South India Shipping Corporation2 in which Lord Diplock cited Heyman as an authority for the assertion that : 1 [1942] AC 356. 2 [1981] AC 909.

"The arbitration clause constitutes a self- contained contract collateral or ancillary to the shipbuilding agreement itself."

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3.7 In Harbour Assurance v. Kansa General International Insurance, 3 the Court of Appeal held that if the arbitration clause is not directly impeached, an arbitration agreement is capable of surviving the invalidity of the contract, so that the arbitrator has the jurisdiction to determine the initial validity of the contract. It was opined that:

"Once it became accepted that the arbitration clause is a separate agreement, ancillary to the contract, the logical impediment to referring an issue of the invalidity of the contract to arbitration disappears. Provided that the arbitration clause itself is not directly impeached (eg by a non-est factum plea), the arbitration agreement is as a matter of principled legal theory capable of surviving the invalidity of the contract."

3.8 In Lesotho Highlands Development Authority v. Impregilo SpA and others, the House of Lords affirmed the view taken in Harbour Assurance (supra), wherein it was held that an arbitration agreement is a distinct and separable agreement from the underlying or principal contract.

"21. It is part of the very alphabet of arbitration law as explained in Harbour Assurance Co v. Kansa General International Insurance, … spelled out in s. 7 of the Act, that the arbitration agreement is a distinct and separable agreement from the underlying or principal contract."

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3.9 Article 16(1) of the Model Law incorporates the doctrine of separability :

"Article 16. The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms a part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause." 3 [1993] 1 Lloyd's Rep. 455

(CA). 4 [2005] UKHL 43 : [2006] 1 A.C.

221 at [21].

3.10 The French Cour de Cassation recognised the doctrine of separability in broad terms in the Gosset v. Caparelli,5 wherein it was held that: "In international arbitration, the agreement to arbitrate, whether concluded separately or included in the contract to which it relates, is always save in exceptional circumstances, … completely autonomous in law which excludes the possibility of it being affected by the possible invalidity of the main contract."

3.11 The doctrine of kompetenz - kompetenz is based on the premise that the arbitration agreement is separate and independent from the substantive underlying contract in which it is embedded. Equally, an arbitration agreement exists and can be acted upon irrespective of whether the main

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substantive contract is valid or not. The Court of Appeal in the seminal decision rendered in Fiona Trust & Holding Corporation v. Privalov, held that the allegation of invalidity of the underlying contract, would not preclude the arbitral tribunal from determining the said issue in the first instance, even though the alleged illegality would render the contract void from inception. In this case, the arbitration agreement was contained in a charter party agreement, wherein it was alleged that it had been procured through bribery by the owner's agent, and was invalid from its inception. It was held that only if the arbitration agreement is itself directly impeached, and rendered void or unenforceable on grounds which relate to the arbitration agreement itself, and not merely as a consequence of the invalidity of the underlying contract, 5 Cass. Civ. Lere, 7 May 1963 (Dalloz, 1963), 545. 6 [2007] EWCA Civ 20. that the courts may refuse reference to arbitration. To discourage parasitical challenges and dilatory tactics in resisting reference to arbitration, the Court of Appeal held in paragraph 38 that :

"38. … As we have sought to explain, once the separability of the arbitration agreement is accepted, there cannot be any question but that there is a valid agreement. … If there is a contest about whether an arbitration agreement had come into existence at all, the court would have a discretion as to whether to determine that issue itself, but that will not be the case where there is an overall

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contract which is said for some reason to be invalid eg for illegality, misrepresentation or bribery and the arbitration agreement is merely part of the contract. … "

(iii) What is evident from reading of the aforesaid paragraphs is that it is a well settled principle in arbitration jurisprudence that an arbitration agreement is a distinct and a separate agreement which is independent from substantive commercial contract in which it is embedded. The premise on which this is based is that when parties enter into a commercial contract containing an arbitration clause, they enter into two separable agreements viz. a substantive contract which contains the rights and obligations of the parties and an arbitration agreement which contains the binding obligations of the parties to resolve their disputes through mode of arbitration. The Supreme Court has held that this is based on the

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twin concept of separability and competence- competence.

(iv) Even in the case of Vidya Drolia (supra),the Court referring to the decision in case of A. Ayyasamy (supra) has held that on the principle of separability an arbitration agreement is distinct and separate.

(II) The scope of powers under Sections 8 and 11 of the Arbitration Act, both the learned counsels for the respective parties have argued on the scope of Section 8 application as compared to an application under Section 11 of the Act. Section 8 of the Arbitration Act reads as under:

8. Power to refer parties to arbitration where there is an arbitration agreement.

—1 [(1)A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if

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a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.]

(2) The application referred to in sub-section

(1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof: 2 [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.]

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

(i) Reading the Section would indicate that a judicial authority before which an action is

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brought in a matter which is the subject of an arbitration agreement, shall if the party to the arbitration agreement applies to refer the parties to arbitration, the Court shall refer such parties to arbitration unless it finds that prima-facie no valid arbitration agreement exists. In other words, reading the Section would indicate that on an application made under Section 8 there is a positive mandate to refer the parties to arbitration unless it is found that there is no valid arbitration agreement in existence.

(ii) In comparison thereto reading Section 6A of the Act introduced by the 2015 Amendment Act indicates that when an application is made under Section 11, the High Court or the Supreme Court shall confine to the examination of the existence of an arbitration agreement. Section 11(6A) reads as under:

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Section 11(6A) - The Supreme Court or, as the case may be, the High Court, while considering any application under sub- section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

(iii) In the case of A. Ayyasamy (supra) the Court considered the scope of Section 8 application in light of the provisions of Section 16 and 34 of the Arbitration Act. We have to consider the scope in light of the factual submissions made by the counsels for the respective parties, firstly by the petitioner's counsel on whether the allegation of fraud being that in public domain should be left for the Civil Court to decide and on the other hand the submission of the learned counsel for the respondent that merely because an allegation of fraud is made, the Arbitral Tribunal has no jurisdiction. The Court in case of A. Ayyasamy

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(supra) considered the moot question 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. Para 18 of the decision in case of A. Ayyasamy (supra) reads as under:

"18. 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 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 device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radhakrishnan does not touch upon this

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aspect and said decision is rendered after finding that allegations of fraud were of serious nature."

(iv) Reading of the aforesaid paragraph would indicate that when allegations are serious and complex in nature and which constitute a criminal offense and therefore demand an extensive evidence from the Civil Court, the Court had held that it is the Civil Court which should be more appropriate. As was canvassed by the learned counsel for the petitioner that since the fraud is a criminal offense in public domain and therefore such an issue can only be decided by a Civil Court, true it is that the case law as discussed in the judgement of A. Ayyasamy (supra) does indicate that when there are serious allegations of fraud it is only the Civil Court which should decide such matters. In the facts of the case we find that the issue is of bank

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guarantee obtained by fraud. The Commercial Court in our opinion has rightly held that it is a separate and an independent contract, merely because a fraud has occurred or a forgery has occurred and it involves a bank guarantee and has resulted in filing of an FIR that by itself would not bring the case to be a one dealing with fraud in a public domain but it is a case of a fraud touching upon the internal affairs of the parties inter-se and it has no implication in the public domain so as to avoid the arbitration clause itself. The parties in the facts of the case can always relegated to the arbitral tribunal.

(v) Referring to the decision in case of

Sundaram Finance Limited v. T. Thankam

reported in 2015 14 SCC 444, the Supreme Court in case of A. Ayyasamy (supra) in paras 43 and 44 held as under:

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"43 Hence, allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the arbitral tribunal to resolve a dispute arising out of a civil or contractual relationship on the basis of the jurisdiction conferred by the arbitration agreement.

44 In a more recent judgment of two judges of this Court in Sundaram Finance Ltd. v. T. Thankam, the same position in regard to the mandate of Section 8 has been reiterated. The earlier decisions in Anand Gajapathi Raju, Pink City and in Branch Manager, Magma Leasing and Finance Ltd. v. Potluri Madhvilata[23], emphasizing the mandate of Section 8, have been reaffirmed. This Court has held:

"13. Once an application in due compliance of Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statute, the civil court should first see whether there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. The general law should yield to the special law - generalia specialibus non derogant. In such a situation, the approach shall not be to

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see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievances and of course unnecessarily increase the pendency in the court."

(vi) Reading the aforesaid paras would indicate that the Supreme Court has observed that once an application in due compliance in Section 8 of the Arbitration Act is filed, the approach of the Civil Court should be not to see whether the Court has jurisdiction. It should be to see whether its jurisdiction has been ousted. Once it is brought to the notice of the Court that its jurisdiction has been taken away in terms of the procedure prescribed under the special statute, the Civil Court should first see whether there is ouster of jurisdiction in terms or compliance with the special procedure. Under Section 8 once there is an arbitration agreement between the parties, a judicial authority before whom an

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action is brought which covers the subject matter of arbitration agreement, such an authority is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract. When the facts of the case are examined in the present situation, the Civil Court on having found that the defense is merely a pretext to avoid the arbitration and the fraud of bank guarantee is not serious enough, we find that the Commercial Court committed no error in referring the dispute to arbitration.

III. The question of considering the issue of 'validity and existence of an arbitration agreement', in context of 'fraud' as well as in the context of the provisions of Section 16 of the Act and the question as to who decides non- arbitrability.

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(i) Since both the counsels have referred to the decision in case of Vidya Drolia (supra) inasmuch as Mr.Raju's reliance thereupon in context of the fraud which permeates the contract, and that by Mr.Desai on the test of Section 16, we have given our anxious consideration to the decision relied upon by both the sides. Before the Supreme Court, the reference was in context of issues relating to (a) meaning of non-arbitrability and where the subject matter of the dispute is not capable of being resolved through arbitration and (b) the conundrum - 'who decides' - whether the Court at the reference stage or the arbitratal tribunal in the arbitration proceedings would decide the question of non-arbitrability. The Court also considered the scope and ambit of the jurisdiction at the referral stage where a question of non-arbitrability is raised. The

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Supreme Court held that non-arbitrability is basic for arbitration as it relates to the very jurisdiction of the Tribunal. Relying on a decision in the case of Booz Allen and Hamilton Inc. (supra) the Supreme Court observed that non-arbitrability has a different meaning. Para 15 of the decision in case of

Vidya Drolia (supra) reads as under:

"15. Non-arbitrability is basic for arbitration as it relates to the very jurisdiction of the arbitral tribunal. An arbitral tribunal may lack jurisdiction for several reasons. Non- arbitrability has multiple meanings. Booz Allen & Hamilton Inc. refers to three facets of non-arbitrability, namely: -

"(i) Whether the disputes are capable of adjudication and settlement by arbitration?That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).

(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement

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as matters to be decided by arbitration or whether the disputes fall under the

"excepted matters" excluded from the purview of the arbitration agreement.

(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of an arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such a joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal."

(ii) The Supreme Court observed in para 73 and 74, and 76 as under:

"73. A recent judgment of this Court in Avitel Post Studioz Limited and Others v. HSBC PI Holdings (Mauritius) Limited 41 has examined the law on invocation of 'fraud exception' in great detail and holds that N. Radhakrishnan as a precedent has no legs to stand on. We respectfully concur with the said view and also the observations made in paragraph 14 of the judgment in Avitel Post Studioz Limited, which quotes observations

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in Rashid Raza v. Sadaf Akhthar:

"4. 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 para 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."

to observe in Avitel Post Studioz Limited:

"35. ...it is clear that serious allegations of fraud arise only if either of the two tests laid down are satisfied and not otherwise. The first test is satisfied only when it can be said that the arbitration clause or agreement itself cannot be said to exist in a clear case in which the court finds that the party against whom breach is alleged cannot be said to have entered into the agreement relating to arbitration at all. The second test can be said to have been met in cases in which allegations are made against the State or its instrumentalities of arbitrary, fraudulent, or mala fide conduct, thus, necessitating the hearing of the case by a writ court in which questions are raised which are not predominantly questions arising from the contract itself or breach thereof but questions arising in the public law domain." The judgment in Avitel Post Studioz Limited interprets

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Section 17 of the Contract Act to hold that Section 17 would apply if the contract itself is obtained by fraud or cheating. Thereby, a distinction is made between a contract obtained by fraud, and post- contract fraud and cheating. The latter would fall outside Section 17 of the Contract Act and, therefore, the remedy for damages would be available and not the remedy for treating the contract itself as void."

"74. The judgment in Avitel Post Studioz Limited interprets Section 17 of the Contract Act to hold that Section 17 would apply if the contract itself is obtained by fraud or cheating. Thereby, a distinction is made between a contract obtained by fraud, and post-contract fraud and cheating. The latter would fall outside Section 17 of the Contract Act and, therefore, the remedy for damages would be available and not the remedy for treating the contract itself as void.

…

76. In view of the above discussion, we would like to propound a four-fold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable:

76.1 when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.

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76.2 when cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;

76.3 when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and

76.4 when the subject-matter of the dispute is expressly or by necessary implication non- arbitrable as per mandatory statute(s).

76.5 These tests are not watertight compartments; they dovetail and overlap, albeit when applied holistically and pragmatically will help and assist in determining and ascertaining with great degree of certainty when as per law in India, a dispute or subject matter is non-arbitrable. Only when the answer is affirmative that the subject matter of the dispute would be non- arbitrable.

76.6 However, the aforesaid principles have to be applied with care and caution as observed in Olympus Superstructures Pvt. Ltd.:

"35...Reference is made there to certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, which cannot be

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referred to arbitration. It has, however, been held that if in respect of fats relating to a criminal matter, say, physical injury, if there is a right to damages for personal injury, then such a dispute can be referred to arbitration (Keir v. Leeman). Similarly, it has been held that a husband and a wife may refer to arbitration the terms on which they shall separate, because they can make a valid agreement between themselves on that matter (Soilleux v. Herbst, Wilson v. Wilson and Cahill v. Cahill)."

(iii) It propounded a fourfold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable. The fourfold test is set out in para 76 as above.

(iv) The question who decides non-arbitrability has been set out in the case of the Vidya Drolia

(supra). Paras 81 to 86 read as under:

"81. Lord Mustill's well-known comparison of the relationship between courts and arbitrators to a relay race, reads:

"Ideally, the handling of arbitrable disputes should resemble a relay race. In the initial stages, before the arbitrators are seized of

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the dispute, the baton is in the grasp of the court; for at that stage there is no other organisation which could take steps to prevent the arbitration agreement for being ineffectual. When the arbitrators take charge they take over the baton and retain it until they have made an award. At this point, having no longer a function to fill, the arbitrators hand back the baton so that the court can in case of need lend its coercive powers to the enforcement of the award." Thus, the legal problem of allocation of decision-making authority between courts and arbitral tribunals.

82. Issue of non-arbitrability can be raised at three stages. First, before the court on an application for reference under Section 11 or for stay of pending judicial proceedings and reference under Section 8 of the Arbitration Act; secondly, before the arbitral tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award or its enforcement. Therefore, the question - 'Who decides non- arbitrability?' and, in particular, the jurisdiction of the court at the first look stage, that is, the referral stage.

83. Who decides the question of non- arbitrability? - a jurisdictional question is a technical legal issue, and requires clarity when applied to facts to avoid bootstrapping and confusion. The doubt as to who has the jurisdiction to decide could hinder, stray, and delay a many arbitration proceedings.

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Unfortunately, who decides non-arbitrability remains a vexed question that does not have a straightforward universal answer as would be apparent from opinions in the at-variance Indian case laws on this subject. To some extent, the answer depends on how much jurisdiction the enactment gives to the arbitrator to decide their own jurisdiction as well as the court's jurisdiction at the reference stage and in the post-award proceedings. It also depends upon the jurisdiction bestowed by the enactment, viz. the facet of non-arbitrability in question, the scope of the arbitration agreement and authority conferred on the arbitrator.

84. Under the Arbitration Act, 1940, the jurisdiction to settle and decide non- arbitrability issues relating to existence, validity, scope as well as whether the subject matter was capable of arbitration, with possible exception in case of termination, novation, frustration and 'accord and satisfaction' when contested on facts, was determined and decided at the first or at the reference stage by the courts. The principle being that the court should be satisfied about the existence of a valid arbitration agreement and that the disputes have arisen with regard to the subject matter of the arbitration agreement. At this stage, the court would be, however, not concerned with the merits or sustainability of the disputes. Despite best efforts to contain obstructive tactics, adjudication and final decision of non-arbitrability issues at the reference stage would invariably stop,

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derail and thwart the proceedings in the courts for years.

85. The Arbitration Act based upon the UNCITRAL Model Law introduced an entirely new regimen with the objective to promote arbitration in commercial and economic matters as an alternative dispute resolution mechanism that is fair, responsive and efficient to contemporary requirements. One of the primary objectives of the Arbitration Act is to reduce and minimize the supervisory role of courts. Accordingly, the statutory powers of the arbitral tribunal to deal with and decide jurisdictional issues of non-arbitrability were amplified and the principles of separation and competence- competence were incorporated, while the courts retained some power to have a 'second look' in the post-award challenge proceeding. On the jurisdiction of the court at the referral stage, views of this Court have differed and there have been statutory amendments to modify and obliterate the legal effect of the court decisions.

86. The legal position as to who decides the question of non-arbitrability under the Arbitration Act can be divided into four phases. The first phase was from the enforcement of the Arbitration Act till the decision of the Constitution Bench of seven Judges in Patel Engineering Ltd. on 26th October 2005. For nearly ten years, the ratio expressed in Konkan Railway Corpn. Ltd. and Others v. Mehul Construction

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Co.,44 affirmed by the 44 (2000) 7 SCC 201 Constitution Bench of five Judges in Konkan Railway Construction Ltd. and Another v. Rani Construction Pvt. Ltd.,45 had prevailed. The second phase commenced with the decision in Patel Engineering Ltd. till the legislative amendments, which were made to substantially reduce court interference and overrule the legal effect of Patel Engineering Ltd. vide Act 3 of 2016 with retrospective effect from 23rd October 2015. The third phase commenced with effect from 23^rd October 2015 and continued till the enactment of Act 33 of 2019 with effect from 9 th August 2019, from where commenced the fourth phase, with a clear intent to promote institutionalized arbitration rather than ad hoc arbitration. The amendments introduced by Act 33 of 2019 have been partially implemented and enforced. In the present case, we are primarily concerned with the legal position in the third phase with effect from 23rd October 2015 when amendments by Act 3 of 2016 became operative."

(v) Reading the aforesaid paras would indicate that the legal problem of allocation has to be between the Court and the Tribunal. According to the Supreme Court the issue of non- arbitrability can be raised at three stages. First,

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is an application under Section 8 and/or Section

11. Secondly, before the Arbitral Tribunal during the course of the arbitration proceedings and thirdly at the stage of the challenge to the award or its enforcement.

(vi) It is at this stage, that we deem it fit to reproduce the relevant statutory provisions where the issue of non-arbitrability can be decide at a second stage. Section 16 of the Arbitration Act provides that the Arbitration Tribunal may rule on its jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement and for that purpose a decision by the Tribunal that the contract is null and void shall not entail ipso-jure the invalidity of the arbitration clause. Section 16(1)(a)(b) reads as under:

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16. Competence of arbitral tribunal to rule on its jurisdiction.—(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, —

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(vii) Discussing the law on arbitration post the amendment, the Supreme Court in Vidya Drolia

(supra) in paras 102 to 112 held as under:

"102. B.N. Srikrishna, J. in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. and Another,49 a case relating to transnational arbitration under the New York Convention, had invoked the principle of ex visceribus actus for interpretation of the Arbitration Act. Sub-section (3) of Section 8 of the Arbitration Act envisages that even in a situation where an application to the court has been made in a pending proceeding, arbitration proceedings may commence and continue and even an award can be made. Section 16, it was held, incorporates the

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principles of separation and competence- competence thereby clearly indicating that the 49 (2005) 7 SCC 234 arbitrator can decide his or her own jurisdiction even when the validity of the main contract or the arbitration agreement is challenged. Section 34 states that the Court can go into three different aspects of arbitrability at the post- award stage. Therefore, the Arbitration Act itself envisages that the arbitral tribunal should rule on the questions of non- arbitrability subject to the second look of the court post the award. This helps in expeditious and quick disposal of matters before the court at the first stage while reserving the court's power to examine the three facets of arbitrability at the third stage. This also prevents the possibility of a multiplicity of trials, an aspect highlighted in Sukanya Holdings (P) Ltd.

103. On the ambit of the Court's jurisdiction at the reference stage, it was observed that the correct approach to the review of the arbitration agreement would be restricted to prima facie finding that there exists an arbitration agreement that is not null and void, inoperative or incapable of being performed. The key rationale for holding that the courts' review of the arbitration agreement should be limited to a prima facie standard is the principle of competence- competence. Further, were the courts are to be empowered to fully scrutinize the arbitration agreement an arbitral proceeding would have to be stayed until such time that the court seized of the

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matter renders a decision on the arbitration agreement. If the finding of the courts would be a final and determinative conclusion, then it is obvious that, until such a pronouncement is made, the arbitral proceedings would have to hang in abeyance. This evidently would defeat the credo and ethos of the Arbitration Act, which is to enable expeditious arbitration without avoidable intervention by the judicial authorities. As a result, the approach to be adopted at the reference stage is whether it is 'plainly arguable' that the arbitration agreement is in existence. The judgment laid emphasis on the fact that the rule of priority in favour of the arbitrators is counter-balanced by the courts' power to review the existence and validity of the arbitration agreement at the end of the arbitral process. It was elucidated: "Even if the court takes the view that the arbitral agreement is not vitiated or that it is not invalid, inoperative or unenforceable, based upon purely a prima facie view, nothing prevents the arbitrator from trying the issue fully and rendering a final decision thereupon … Even after the court takes a prima facie view that the arbitration agreement is not vitiated on account of factors enumerated in Section 45, and the arbitrator upon a full trial holds that there is no vitiating factor in the arbitration agreement and makes an award, such an award can be challenged under Section 48(1)(a). The award will be set aside if the party against whom it is invoked satisfies the court inter alia that the

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agreement was not valid under the law to which the parties had subjected it or under the law of the country where the award was made. The two basic requirements, namely, expedition at the prereference stage, and a fair opportunity to contest the award after full trial, would be fully satisfied by the interpreting Section 45 as enabling the court to act on a prima facie view. [T]he object of the Act would be defeated if the proceedings remain pending in the court even after commencing of the arbitration. It is precisely for this reason that I am inclined to the view that at the pre- reference stage contemplated by Section 45, the court is required to take only a prima facie view for making the reference, leaving the parties to a full trial either before the Arbitral Tribunal or before the court at the post-award stage."

104. D.M. Dharmadhikari, J. in his partly concurring opinion agreed with the view expressed by B.N. Srikrishna, J. on most of the above aspects with the following reservation: "112. Whether such a decision of the judicial authority or the court, of refusal to make a reference on grounds permissible under Section 45 of the Act would be subjected to further re- examination before the Arbitral Tribunal or the court in which eventually the award comes up for enforcement in accordance with Section 48(1)(a) of the Act, is a legal question of sufficient complexity and in my considered opinion since that question does not directly arise on the facts of the present case, it should be left open for consideration

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in an appropriate case where such a question is directly raised and decided by the court." While Y.K.Sabharwal, J. (as His Lordship then was) dissented.

105. We would now refer to decisions of this court post enforcement of Act 3 of 2016 with effect from 23 rd October,2015. Reference Order observes that "one moot question that therefore arises, and which needs to be authoritatively decided by a Bench of three learned Judges, is whether the word 'existence' would include weeding-out arbitration clauses in agreements which indicate that the subject matter is incapable of arbitration". Thereafter paragraph 59 from Duro Felguera S.A. as to the scope of Section 11(6-A) is quoted.

106. In Mayavati Trading Private Limited v. Pradyuat Deb Burman,50 a three Judge Bench has held that the legislature by inserting subsection (6-A) to Section 11 and making amendments to Section 8 by Act 3 of 2016 has legislatively introduced a new regime so as to dilute and legislatively overrule the effect and ratio of the judgment of this Court in Patel Engineering Ltd. Reliance was placed on paragraph 48 and 59 in Duro Felguera S.A. The concluding paragraph in Mayavati Trading Private Limited records: "10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively

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overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment, as Section 11(6- A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA." 50 (2019) 8 SCC 714 66.

107. Paragraph 48 and paragraph 59 of Duro Felguera, S.A. referred to above, read as under: "48...From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect—the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple—it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. xx xx xx 59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. and Boghara Polyfab . This position continued till the amendment brought about in 2015. After the amendment, all that the courts need to see is whether an arbitration agreement exists— nothing more, nothing less. The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected."

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108. Dr. D.Y. Chandrachud, J. in A. Ayyasamy observed that Section 8 of the Arbitration Act has made a departure from Article 8 of UNCITRAL Model Law as the former uses the expression 'judicial authority' rather than court and the words

"unless it finds that the agreement is null and void, inoperative and incapable of being performed" mentioned in Article 8 do not find place in Section 8. Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including the ruling with respect to the existence or validity of the arbitration agreement. Further clause

(b) to Section 16(1) stipulates that a decision by an arbitral tribunal that the main contract is void, will not entail ipso jure the invalidity of the arbitration clause. The arbitration agreement survives for determining whether the contract in which the arbitration clause is embodied is null and void, which would include voidability.

109. The severability doctrine in arbitration is of crucial significance. Reference was made to the judgment of the U.K. Court of Appeal in Fiona Trust and Holding Corpn. v. Privalov, 51 which judgment was affirmed by the House of Lords in Filli Shipping Co. Limited v. Premium Nafta Products Ltd.,52 to highlight that the arbitration clause should be liberally construed in favour of one-stop arbitration. Mere allegation that the agent had no authority to enter into the main contract is not necessarily an attack on the arbitration agreement. The principle of severability treats arbitration agreement as

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a distinct agreement that can be void or voidable only on the ground that relates to the arbitration agreement.

110. Reference was also made to the opinion of Scalia, J. of the 51 (2007) 1 All ER (Comm) 891 : 2007 Bus LR 686 (CA) 52 2007 UKHL 40 : 2007 Bus LR 1719 (HL) Supreme Court of America in Buckeye Check Cashing Inc. v. Cardegna53 that arbitration agreement is severable from the remainder of the contract and unless the challenge is to the arbitration clause itself, the issue of contract's validity should be considered by the arbitrator in the first instance. In conclusion, it was observed:

"48. The basic principle which must guide judicial decision-making 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 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. xx xx xx 53. The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Jurisprudence in India must

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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."

111. In Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited,54 the question related to the effect of an arbitration clause contained in the master contract which was required to be stamped. The second part of Section 7(2) was applicable. The issue was whether the judge hearing the Section 11 application should impound the main contract and ensure that duty and penalty, if any, are paid or in view of sub-section (6-A) to Section 11 this issue should be examined and decided by the arbitrator. The argument drawing distinction between validity and existence was raised before the Court (see paragraph 5 which records the contention) but was rejected for several reasons, including the reasoning given in Patel Engineering Ltd., to hold that it is difficult to accede to the argument that Section 16 of the Arbitration Act makes it clear that an arbitration agreement has an independent existence of its own. Secondly, on the connect between existence and validity of an arbitration agreement, it was observed: "20. Looked at from a slightly different angle, an arbitration agreement which is contained in an agreement or conveyance is dealt with in Section 7(2) of the 1996 Act. We are

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concerned with the first part of Section 7(2) on the facts of the present case, and therefore, the arbitration clause that is contained in 54 (2019) 9 SCC 209 the sub- contract in question is the subject-matter of the present appeal. It is significant that an arbitration agreement may be in the form of an arbitration clause "in a contract". 21. Sections 2(a), 2(b), 2(g) and 2(h) of the Contract Act, 1872 (the Contract Act) read as under: "2. Interpretation clause.—In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context — (a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;

(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; xx xx xx

(g) An agreement not enforceable by law is said to be void; (h) An agreement enforceable by law is a contract; 22. When an arbitration clause is contained "in a contract", it is significant that the agreement only becomes a contract if it is enforceable by law. We have seen how, under the Stamp Act, an agreement does not become a contract, namely, that it is not enforceable in law, unless it is duly stamped. Therefore, even a plain reading of Section 11(6-A), when read with Section 7(2) of the 1996 Act and Section 2(h) of the Contract Act, would make it clear that an arbitration

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clause in an agreement would not exist when it is not enforceable by law. This is also an indicator that SMS Tea Estates has, in no manner, been touched by the amendment of Section 11(6-A)."

112. Thereafter, reference was made to paragraph 83 in Enercon (India) Ltd. v. Enercon GmbH55 wherein the concept of separability of arbitration clause or agreement from the underlying contract was dealt with, and it was observed that it is necessary to ensure that the intention of the parties does not evaporate into thin air when there is a challenge to the legality, validity, finality, or breach of the underlying contract. This is the mandate of Section 16 of the Arbitration Act which accepts the concept that the main contract and the arbitration agreement form two different contracts. It is true that support of the national courts would be required to ensure the success of arbitration but this would not detract from the legitimacy or independence of the collateral arbitration agreement even if it is contained in a contract, which is claimed to be void or voidable or un- concluded. However, this judgment was distinguished in Garware Wall Ropes Limited as a case relating to the controversy whether an arbitration clause was to apply even if there is no concluded contract, but the finding was to the contrary as the case was within the second part and not under the first part of Section 7(2) of the Arbitration Act. In Enercon (India) 55 (2014)

5 SCC 1 : (2014) 3 SCC (Civ) 59 Ltd., on

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facts it was held that the arbitration clause was separate from the main contract as the disputes relating to the intellectual property right license agreement were arbitrable." (viii)Reading the aforesaid paragraphs would indicate that when there is a concept of separability of the Arbitration Clause, in accordance with the mandate of Section 16 of the Arbitration Act which accepts the concept that the main contract and the arbitration agreement form two different contracts. The Supreme Court held that on the principle of competence-competence, the Arbitral Tribunal can decide on the issue of fraud. In context of Section 16 and 34, the Supreme Court in para 130 and 131 held as under:

"130. Section 16(1) of the Arbitration Act accepts and empowers the arbitral tribunal to rule on its own jurisdiction including a ruling on the objections, with respect to all aspects of non-arbitrability including validity of the arbitration agreement. A party opposing arbitration, as per sub-section (2),

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should raise the objection to jurisdiction of the tribunal before the arbitral tribunal, not later than the submission of statement of defence. However, participation in the appointment procedure or appointing an arbitrator would not preclude and prejudice any party from raising an objection to the jurisdiction. Obviously, the intent is to curtail delay and expedite appointment of the arbitral tribunal. The clause also indirectly accepts that appointment of an arbitrator is different from the issue and question of jurisdiction and non-arbitrability. As per sub-section (3), any objection that the arbitral tribunal is exceeding the scope of its authority should be raised as soon as the matter arises. However, the arbitral tribunal, as per sub-section (4), is empowered to admit a plea regarding lack of jurisdiction beyond the periods specified in sub-section (2) and (3) if it considers that the delay is justified. As per the mandate of sub-section (5) when objections to the jurisdiction under sub-sections (2) and (3) are rejected, the arbitral tribunal can continue with the proceedings and pass the arbitration award. A party aggrieved is at liberty to file an application for setting aside such arbitral award under Section 34 of the Arbitration Act. Sub-section (3) to Section 8 in specific terms permits an arbitral tribunal to continue with the arbitration proceeding and make an award, even when an application under sub-section (1) to Section 8 is pending consideration of the court/forum. Therefore, pendency of the judicial proceedings even before the court is

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not by itself a bar for the arbitral tribunal to proceed and make an award. Whether the court should stay arbitral proceedings or appropriate deference by the arbitral tribunal are distinctly different aspects and not for us to elaborate in the present reference.

131. Section 34 of the Act is applicable at the third stage post the award when an application is filed for setting aside the award. Under Section 34, an award can be set aside - (i) if the arbitration agreement is not valid as per law to which the party is subject; (ii) if the award deals with the disputes not contemplated by or not falling within the submission to arbitration, or contains a decision on the matter beyond the scope of submission to arbitration; and

(iii) when the subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. Thus, the competence - competence principle, in its negative effect, leaves the door open for the parties to challenge the findings of the arbitral tribunal on the three issues. The negative effect does not provide absolute authority, but only a priority to the arbitral tribunal to rule the jurisdiction on the three issues. The courts have a 'second look' on the three aspects under Section 34 of the Arbitration Act."

(ix) In other words, summarizing the discussion on who decides arbitrability, in para 154 in the

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case of Vidya Drolia (supra), the Supreme Court held as under:

"154. Discussion under the heading 'Who decides Arbitrability?' can be crystallized as under:

154.1 Ratio of the decision in Patel Engineering Ltd. on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23.10.2015) and even post the amendments vide Act 33 of 2019 (with effect from 09.08.2019), is no longer applicable.

154.2 Scope of judicial review and jurisdiction of the court under Section 8 and 11 of the Arbitration Act is identical but extremely limited and restricted.

154.3 The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence- competence, is that the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of

"second look" on aspects of non- arbitrability post the award in terms of sub- clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act.

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154.4 Rarely as a demurrer the court may interfere at the Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non- existent, invalid or the disputes are non- arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably 'non-arbitrable' and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the arbitral tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism."

(x) What is therefore clear from reading the aforesaid principles is that the arbitral tribunal is the preferred first authority to decide and determine all questions of non-arbitrability. The Court has been conferred power of "second look"

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on aspects of non-arbitrability post the award in terms of Section 34 of the Act. The limited review that is available to hold that the dispute is non-arbitrable, is only when the matter is demonstrably non-arbitrable and that it is deadwood. When the contentions relating to non-arbitrability are plainly arguable, the Court cannot enter into a mini trial so as to usurp the jurisdiction of the Arbitration Tribunal under Section 16 of the Act.

(xi) In the context of the facts of the case whether the bank guarantee is a fraud, the decision in the case of N.N.Global (supra) has considered the issue. Paras 8 to 8.17 of the decision read as under:

"8. Whether the fraudulent invocation of the Bank Guarantee is arbitrable-

8.1 In the present case, the Appellant- Plaintiff in the Commercial Suit inter alia

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submitted that the Bank Guarantee was furnished to ensure due execution of the Work Order dated 28.09.2015. It was submitted on behalf of the Appellants that the invocation of the bank guarantee was fraudulent, since the agreement had never been acted upon. There was no invoice raised or payment received under the Work Order. In the absence of any legal liability for payment under the Work Order, the invocation of the bank guarantee was fraudulent.

8.2 The High Court held that the allegations of fraud made in this case are simple, which do not in the normal course constitute any criminal offence, nor are the allegations so complex in nature which would entail extensive evidence being led, hence the disputes could be resolved through arbitration.

8.3 Under the Arbitration Act, the earliest decision on the issue of arbitrability of allegations of fraud was considered by a two-judge bench in N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72. In this case, the applicant had made serious allegations against the respondents of having committed malpractices in the account books, and manipulation of finances of the partnership firm. An application under Section 8 was filed by the respondents for reference of disputes to arbitration. The Court took the view that since the issues involved detailed

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investigation into the allegations and production of elaborate evidence, it could not be properly dealt by an arbitrator, and ought to be settled by a court of law. This decision relied on the judgment in Abdul Kadir v. Madhav Prabhakar, AIR 1962 SC 406 which was passed under the 1940 Act. The judgment in Abdul Kadir in turn relied upon an English judgment rendered in Russel v. Russel, [1880] 14 Ch. D 471. wherein it was held that a party against whom an allegation of fraud is made, has the right to defend himself in a public forum.

8.4 The judgment in N. Radhakrishnan (supra) is based on an outdated view of the law propounded in Russel v. Russel, which ante-dates even the first English Arbitration Act of 1899. Arbitrability of fraud is no longer an issue relating to the competence of the arbitrator, or dealing with voluminous evidence. Arbitrators are competent to deal with allegations of civil fraud. The judgment in Russel is obsolete, which would be evident from the various enactments of the English Arbitration Act. Under Section 24(2) of the 1950 Act, the court could revoke the authority of a tribunal to deal with claims involving issues of fraud. This provision was repealed by Section 107(2) of the English Arbitration Act, 1996 Act. Russel in his Commentary on Arbitration observed that an arbitral tribunal does not have the jurisdiction to impose criminal sanctions on a party, its power is limited to the civil consequences of fraud.

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8.5 In Bharat Rasiklal Ashra v. Gautam Rasiklal Ashra, (2012) 2 SCC 144 a two- judge bench took a different view by holding that at the pre-reference stage under Section 11, the court is not required to examine the allegations of fraud and forgery. The scope of examination is only the existence of a valid and enforceable arbitration agreement as a condition precedent for making a reference. The ground that allegations of fraud, forgery and fabrication are likely to involve recording of evidence, or involve some delay in disposal, were not relevant grounds to be considered at the pre-reference stage.

8.6 The legislature amended sub-section (1) of Section 8 to provide that a judicial authority shall refer the parties to arbitration, 'unless it finds that prima facie no valid agreement exists'. The amended Section 8 reads :

"8. Power to refer parties to arbitration where there is an arbitration agreement.-

(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

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(2) ...

(3) ... " The issue of arbitrability of fraud was subsequently considered by a two-judge bench in A. Ayyasamy v. A. Paramasivam & Ors., (2016) 10 SCC 386. The Court held that Section 8 mandates reference to arbitration, unless the arbitration agreement is found to be invalid. It has been recognised that certain categories of disputes which are of public nature, are not capable of adjudication and settlement by arbitration, which is a private forum constituted by consent of parties. The Court made a distinction between cases where there are allegations of serious fraud and fraud simplicitor. Mere allegations of fraud simplicitor are not a sufficient ground to decline reference to arbitration. Parties may be referred to arbitration where allegations of fraud pertain to disputes between parties inter se, and have no implication for third parties. The courts may, however, refuse to make a reference to arbitration only in those cases where there are very serious allegations of fraud, which make a virtual case of criminal offence of fraud, or where allegations of fraud are so complicated, that it becomes absolutely essential that such complex issues be decided only by the civil courts on appreciation of voluminous evidence. This would also include those cases where there are serious allegations of forgery or fabrication of documents, or where fraud is alleged with respect to the arbitration clause itself, or where the fraud alleged is of such a nature that it permeates

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the entire contract, including the agreement to arbitrate. The judicial authority must carefully sift the materials for the purpose of determining whether the defence is merely a pretext to avoid arbitration. It was opined that the Arbitration Act must be interpreted to bring it in consonance with the prevailing arbitration jurisprudence in the common law world.

8.7 The judgment in Ayyasamy (supra) was followed in Rashid Raza (S) v. Sadaf Akhtar (S)., (2019) 8 SCC 710 wherein the twin test laid down in para 25 of Ayyasamy was followed i.e. : (i) does the plea of fraud permeate the entire contract and above all, the agreement of arbitration, rendering it void, or (ii) whether the allegations of fraud touch upon the internal affairs of the parties inter se having no implication in the public domain.

8.8 In the subsequent decision of Ameet Lalchand Shah & Ors. v. Rishabh Enterprises & Anr., (2018) 15 SCC 678 allegations of fraud arising from criminal breach of trust and misrepresentation regarding the equipment procured and leased for the setting up and operating of a Photovoltaic solar plant were made. A civil suit was filed praying for a declaration that all the agreements were vitiated by fraud and misrepresentation. An application was filed under Section 8 seeking reference of the disputes to arbitration under all the four agreements. This Court held that only where the court is satisfied that the allegations of

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fraud are serious and complicated in nature, would it be more appropriate for the court to deal with the subject matter of the disputes, rather than relegate the parties to arbitration. It is the duty of the court to impart a sense of business efficacy to commercial transactions, and mere allegations of fraud would not be sufficient to decline reference of disputes to arbitration.

8.9 In a recent judgment delivered in Avitel Post Studioz Ltd. & Ors. v. HSBC PI Holdings (Mauritius Limited), (2020) SCCOnLine SC 656 which pertains to an international commercial contract, the issue of arbitrability of fraud arose for consideration. This Court held that the same set of facts may have civil as well criminal consequences. If it is clear that a civil dispute involves questions of fraud, misrepresentation, etc. which can be the subject matter of a proceeding under Section 17 of the Indian Contract, 1872, and/or the tort of deceit, the mere fact that criminal proceedings can or have been instituted in respect of the same subject matter, would not lead to the conclusion that a dispute which is otherwise arbitrable, ceases to be so. This view has been affirmed by a co-ordinate bench in Deccan Paper Mills v. Regency Mahavir, (2020) SCCOnLine SC 655 and Vidya Drolia & Others v. Durga Trading Corporation Civil Appeal No.2402 of 2019 decided vide Judgment dated 14.12.2020.

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8.10 In our view, all civil or commercial disputes, either contractual or non- contractual, which can be adjudicated upon by a civil court, in principle, can be adjudicated and resolved through arbitration, unless it is excluded either expressly by statute, or by necessary implication. The Arbitration and Conciliation Act, 1996 does not exclude any category of disputes as being non arbitrable. Section 2(3) of the Arbitration Act however recognizes that certain categories of disputes by law may not be submitted to arbitration.40 In all jurisdictions, certain categories of disputes are reserved by the legislature, as a matter of public policy, to be adjudicated by a court of law, since they lie in the realm of public law.

8.11 Traditionally, disputes relating to rights in rem are required to be adjudicated by courts and / or statutory tribunals. A right in rem is a right exercisable against the world at large. Actions in rem refer to actions which create a legal status such as citizenship, divorce, testamentary and probate issues, etc. A lis in rem is not arbitrable by a private tribunal constituted by the consent of parties. Actions in personam determine the rights and interests of parties to the subject matter of the dispute, which are arbitrable. The broad categories of disputes which are considered to be non arbitrable are penal offences which are visited with criminal

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sanction; offences pertaining to bribery / corruption; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody and guardianship matters, which pertain to the status of a person; testamentary matters which pertain to disputes relating to the validity of a Will, grant of probate, letters of administration, succession, which pertain to the status of a person, and are adjudicated by civil courts.

Certain categories of disputes such as consumer disputes Emaar MGF Land Limited v. Aftab Singh, (2019) 12 SCC 751.; insolvency and bankruptcy proceedings; oppression and mismanagement, or winding up of a company; disputes relating to trusts, trustees and beneficiaries of a trust Vimal Kishor Shah & Others v. Jayesh Dinesh Shah & Others. (2016) 8 SCC 788 are governed by special enactments. This Court in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532. has recognized some examples of disputes which are not arbitrable, and held that :

"36. The well recognized examples of non- arbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and

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succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes."

8.12 The civil aspect of fraud is considered to be arbitrable in contemporary arbitration jurisprudence, with the only exception being where the allegation is that the arbitration agreement itself is vitiated by fraud or fraudulent inducement, or the fraud goes to the validity of the underlying contract, and impeaches the arbitration clause itself. Another category of cases is where the substantive contract is "expressly declared to be void" under Section 1044 of the Indian Contract Act, 1872 where the agreement is entered into by a minor (without following the procedure prescribed under the Guardian and Wards Act, 1890) or a lunatic, which would be with a party incompetent to enter into a contract.

8.13 The civil aspect of fraud can be adjudicated by an arbitral tribunal. The civil aspect of fraud is defined by Section 17 of the Indian Contract Act, 1872 as follows :

"17. Fraud defined. - Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his [agent], or to induce him to enter into the contract:

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(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made without any intention of performing it;

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declares to be fraudulent."

8.14 We will now consider whether voidable agreements are arbitrable. Voidable agreements are defined by Section 19 of the Contract Act as :

"19. Voidability of agreements without free consent.-When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representation made had been true. Exception.-If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of Section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. Explanation.-A fraud or misrepresentation

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which did not cause the consent to a contract of the party of whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable." In the case of voidable agreements, such disputes would be arbitrable, since the issue whether the consent was procured by coercion, fraud, or misrepresentation requires to be adjudicated upon by leading cogent evidence, which can very well be decided through arbitration. Until it so proved and upheld as per Sections 2(i) and

(j) of the Indian Contract Act, 1872 such an agreement would remain enforceable, and is not void.

8.15 In Swiss Timing Limited v. Commonwealth Games 2010 Organising Committee . 2010 Organising Committee, (2014)

6 SCC 677 a single judge (exercising powers u/S. 11) opined that when a plea is taken to avoid arbitration on the ground of the underlying contract being void, the court is required to ascertain the true nature of the defence. Often, the terms 'void' and 'voidable' are used loosely and interchangeably. The court ought to examine the plea by keeping in mind the provisions of the Indian Contract Act, 1872. In cases where the court comes to a conclusion that the contract is void without receiving any evidence, it may be justified in declining the reference to arbitration in a few isolated cases. These would be cases where the court can readily conclude that the contract is void upon a meaningful reading of the contract document itself.

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However, it would not be permissible to circumvent arbitration where the defence taken is that the contract is voidable, which are cases covered under circumstances mentioned inter alia in Sections 12, 14, 15, 16, 17, 18 of the Indian Contract Act, 1872. Even though Swiss Timing Ltd. was a decision of a designate of the Chief Justice under Section 11 of the 1996 Act (prior to the Amendment), and would have no precedential value in view of the judgment of this Court in State of West Bengal v. Associated Contractors, (2015) 1 SCC 32 the reasoning in Swiss Timing Ltd. has been cited with approval by this Court in Avitel Post Studioz Ltd. & Ors. v. HSBC PI Holdings (Mauritius Limited), (2020) SCCOnLine SC 656.

8.16 The ground on which fraud was held to be non arbitrable earlier was that it would entail voluminous and extensive evidence, and would be too complicated to be decided in arbitration. In contemporary arbitration practice, arbitral tribunals are required to traverse through volumes of material in various kinds of disputes such as oil, natural gas, construction industry, etc. The ground that allegations of fraud are not arbitrable is a wholly archaic view, which has become obsolete, and deserves to be discarded. However, the criminal aspect of fraud, forgery, or fabrication, which would be visited with penal consequences and criminal sanctions can be adjudicated only by a court of law, since it may result in a conviction, which is in the realm of public

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law.

8.17 In the present case, the allegations of fraud with respect to the invocation of the Bank Guarantee are arbitrable, since it arises out of disputes between parties inter se, and is not in the realm of public law."

(xii) Even in the case of In Re Versus With Interplay (supra), the seven judge bench of the Supreme Court was faced with an issue of whether an arbitration agreement would be rendered void as a result of a void contract. Before the Supreme Court a reference was made in context of the Arbitration Act, the Stamp Act and the Indian Contract Act. Referring to various decisions in the case of Vidya Drolia

(supra) and N.N.Global (supra), the Supreme Court considered the question of arbitral autonomy. It was observed that one of the main objective of the Arbitration Act is to minimize the supervisory role in the arbitration process. Considering the separability of the arbitration

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agreement, the Supreme Court observed that the concept of separability or severability of an arbitration agreement from the underlined contract, is a legal fiction which acknowledges the separate nature of an arbitration agreement. The separate nature of the arbitration agreement from the underlined contract is one of the corner stones of the arbitration law. Paras 90 to 94 of the judgement read as under:

"90. The concept of separability or severability of an arbitration agreement from the underlying contract is a legal fiction which acknowledges the separate nature of an arbitration agreement. The separate nature of the arbitration agreement from the underlying contract is one of the cornerstones of arbitration law. As Redfern and Hunter explain, an arbitration agreement is juridically independent from the underlying contract in which it is contained. 87 The concept of separability reflects the presumptive intention of the parties to distinguish the underlying contract, which captures the substantive rights and obligations of the parties, from an arbitration agreement which provides a procedural framework to resolve the disputes arising out of the

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underlying contract. This presumption has various consequences in theory and practice, 87 Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) 81 56 PART F the most important being that an arbitration agreement survives the invalidity or termination of the underlying contract.

91. Schwebel, Sobota and Manton explain in a book on International Arbitration that the separability presumption 88 is based on four factors: first, the intention of the parties to require arbitration of any dispute arising between them, including disputes over the validity of the contract; second, preventing an unwilling party from avoiding its earlier commitment by alleging the invalidity of the underlying contract; third, since the arbitration agreement and the underlying contract are considered as two separate agreements, the insufficiency in fulfilling formalities in the underlying contract would not result in the invalidity of the arbitration agreement; and fourth, if the separability presumption is discarded, courts will have to rule on the merits of the disputes instead of the arbitral tribunals.

92. The rationale for the separability presumption lies in the contractual freedom of the parties to an arbitration agreement to settle their disputes by proceedings before an arbitral tribunal to the exclusion of courts. According to the common grain of business understanding and expectation, the parties intend all their disputes over

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substantive rights and obligations under the underlying contract to be resolved by the arbitral tribunal.89 Therefore, the separability presumption ensures that an arbitration agreement survives a termination, repudiation, or frustration of a contract to give effect to the true intention of the parties and ensure sanctity of the arbitral proceedings. 88 Stephen Schwebel, Luke Sobota, and Ryan Manton, International Arbitration: Three Salient Problems (Cambridge University Press, 2nd edn, 2020) 4. 89 Mulheim Pipecoatings Gmbh v. Welspun Fintrade Limited & Anr. S, 2013 SCC OnLine Bom 1048 57 PART F

93. Switzerland was one of the first jurisdictions to recognize the separability presumption. In a decision rendered by the Swiss Federal Tribunal in 1933, it was observed that "[e]ven where the arbitration clause is contained in the same document as the substantive contract to which it relates and therefore from the outside appears as a part of the main agreement, it still does not constitute a single provision of the main agreement but an independent agreement of a special nature." However, Gary Born points out that although an arbitration agreement could be separated from the underlying contract, it can never be independent or autonomous from such contract. This is largely due to the fact that in certain situations, the defects in the underlying contract could also invalidate the arbitration agreement.

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94. To properly understand the contours of the separability presumption, it is necessary to understand its origin and development in the international context. Such an analysis is important because any ruling by this Court on the separability presumption ought to be with the aid of international best practices. d. United Kingdom."

(xiii)It was in this context that referring to Section 16 of the Arbitration Act, it was observed that the separability presumption is incorporated in Section 16(1) of the Arbitration Act. The Supreme Court also discussed the doctrain of competence-competence. Paras 105 to 116 read as under:

"105. The Arbitration Act also incorporates the separability presumption in Section 16(1) along the lines of the Model Law. Section 16(1) reads as follows:

"16. Competence of arbitral tribunal to rule on its jurisdiction -(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, -

(a) an arbitration agreement which forms part of a contract shall be treated as an agreement independent of the other terms

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of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."

106. The separability presumption, as incorporated under Article 16(1) of the Model Law, as well as Section 16 of the Arbitration Act, is qualified by the expression "for that purpose." A plain reading may suggest that Section 16 has incorporated the separability presumption only for the particular purpose of allocation of competence over jurisdictional disputes. However, the Digest of Case Laws on UNCITRAL Model Law states that "the language used in the second sentence does not prevent the application of the separability presumption when a jurisdictional question is raised before a court." [80] Gary Born suggests that the better view is that the separability presumption contained in Article 16(1) states a general rule of contractual validity

"which is applicable for all purposes." [81] The judicial view that emerges from the Indian courts also seems to suggest that an arbitration agreement is treated as distinct and separate from the underlying contract as a general rule of substantive validity.

[80] Ibid.

[81] Gary Born (n 62) 403

107. The separability presumption has undergone a significant evolution in India. Initially, the Indian courts viewed an arbitration agreement as an integral part of

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the underlying contract without any existence beyond such contract. For instance, in Union Of India v. Kishorilal Gupta & Bros., 1959 SCC OnLine SC 6 the issue before this Court was whether an arbitration clause in the original contract survived after the enactment of a subsequent contract. Justice K Subba Rao (as the learned Chief Justice then was) considered Heyman (supra) but distinguished it on the ground that it only dealt with repudiation, where rights and obligations of parties survive the termination of contract. It was held that in situations where the original contract is superseded by a subsequent contract, the arbitration clause in the original contract will also cease to exist. Justice K Subba Rao, speaking for the majority, held that first, an arbitration clause is a collateral term of a contract as distinguished from its substantive terms, but nonetheless it is an integral part of it; second, the existence of the underlying contract is a necessary condition for the operation of an arbitration clause; third, if the underlying contract was non-est in the sense that it never came legally into existence or was void-ab-initio, the arbitration clause also cannot operate; fourth, if the parties put an end to a validly executed contract and substitute it with a new contract, the arbitration clause of the original contract also perishes with it; and fifth, in situations such as repudiation, frustration, or breach of contract, only the performance of the contract comes to an end, the arbitration clause persists because the contract continues to exist for the

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purposes of disputes arising under it.

108. In Damodar Valley Corporation v. K.K Kar ., (1974) 1 SCC 141 a two-Judge Bench of this Court held that the plea that a contract is void, illegal, or fraudulent affects the entire contract along with the arbitration clause. However, the enactment of the Arbitration Act in 1996 enabled the Indian courts to give effect to the separability presumption with greater impetus. Section 16(1)(b), which provides that a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause, renders the decisions in Kishorilal Gupta (supra) and Damodar Valley Corporation (supra) redundant. Consequently, even if the underlying contract is declared null and void, it will not ipso jure result in the invalidity of the arbitration agreement.

109. In Firm Ashok Traders v. Gurumukh Das Saluja, (2004) 3 SCC 155 the issue before this Court was whether an application under Section 9 of the Arbitration Act moved by a partner of a non- registered firm or by a person not shown as a partner in the Register of Firms was maintainable in view of Section 69(3) of the Indian Partnership Act, 1932. Section 69(3) creates a bar against the institution of a suit to enforce a right arising from a contract unless the firm is registered and the person suing is or has been shown in the Register

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of Firms as partner. This Court considered the overall scheme of the Arbitration Act to hold that an "arbitration clause is separable from the other clauses of the partnership deed" and "constitutes an agreement by itself."

110. In National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Co., (2007) 5 SCC 692 the issue before this Court in an application under Section 11 was whether an arbitration clause comes to an end if the contract containing such clause is repudiated. While answering this in negative, this Court observed that even if the underlying contract comes to an end, the arbitration agreement contained in such contract survives for the purpose of the resolution of disputes between the parties. Similarly, in P Manohar Reddy & Bros. v. Maharashtra Krishna Valley Development Corp., (2009) 2 SCC 494 this Court referred to Buckeye Check Cashing Inc. (supra) to observe that an arbitration agreement contained in an underlying contract is a collateral term which may survive the termination of the contract.

111. In Magma Leasing & Finance Ltd. v. Potluri Madhavilata, (2009) 10 SCC 103 this Court cited Heyman (supra) with approval to hold that the termination of the underlying contract does not render an arbitration agreement inoperative. It was further observed that the arbitration

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agreement survives for the purpose of resolution of disputes arising "in respect of",

"with regard to", or "under" the underlying contract. The emphasis on the expressions

"in respect of", "with regard to" or "under" in Magma Leasing & Finance Ltd. (supra) indicates that the purpose of an arbitration agreement is to embody the mutual intention of the parties to settle any disputes that may arise "in respect of" the substantive obligations under the underlying contract. It is, therefore, a logical conclusion that the parties mutually intend to make an arbitration agreement distinct and separate from the underlying contract, so that even if the underlying contract comes to an end, the arbitration agreement survives to resolve any outstanding disputes that may arise out the substantive obligations under the contract.

112. In view of the above discussion, we formulate our conclusions on this aspect. First, the separability presumption contained in Section 16 is applicable not only for the purpose of determining the jurisdiction of the arbitral tribunal. It encapsulates the general rule on the substantive independence of an arbitration agreement. Second, parties to an arbitration agreement mutually intend to confer jurisdiction on the arbitral tribunal to determine questions as to jurisdiction as well as substantive contractual disputes between them. The separability presumption gives effect to this by ensuring the validity of an arbitration agreement contained in an

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underlying contract, notwithstanding the invalidity, illegality, or termination of such contract. Third, when the parties append their signatures to a contract containing an arbitration agreement, they are regarded in effect as independently appending their signatures to the arbitration agreement. The reason is that the parties intend to treat an arbitration agreement contained in an underlying contract as distinct from the other terms of the contract; and Fourth, the validity of an arbitration agreement, in the face of the invalidity of the underlying contract, allows the arbitral tribunal to assume jurisdiction and decide on its own jurisdiction by determining the existence and validity of the arbitration agreement. In the process, the separability presumption gives effect to the doctrine of competence- competence.

113. In view of the legal position, we now proceed to analyze the correctness of the decision in N N Global 2 (supra). The Constitution Bench acknowledged the separability presumption, but refused to apply it in the context of Sections 33 and 35 of the Stamp Act. The relevant observation of the Court is as follows:

"157. [...] The evolution of the principle that an arbitration is a separate and distinct agreement from the contract, would indicate that it would have no play in the context of the duty of a Court, within the meaning of Sections 33 and 35 of the Stamp Act, to act in consonance

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therewith."

114. The above position of law is contrary to the separability presumption which treats an arbitration agreement as separate from the underlying contract.

G. The doctrine of competence-competence

115. The doctrine of kompetenz-kompetenz (also known as competence-competence), as originally developed in Germany, was traditionally understood to imply that arbitrators are empowered to make a final ruling on their own jurisdiction, with no subsequent judicial review of the decision by any court. However, many jurisdictions allow an arbitral tribunal to render a decision on its jurisdiction, subject to substantive judicial review.

[82] Fouchard, Gaillard, Goldman on International Commercial Arbitration (edited by Emmanuel Gaillard and John Savage, 1999) 396

[83] Gary Born (n 62) 1143

116. It is a well-recognized principle of public international law that a legal authority possessing adjudicatory powers has the right to decide its own jurisdiction.

[84] Similarly, it is a general rule of international arbitration law that an arbitral tribunal has the power to determine its own jurisdiction. The ability of an arbitral tribunal to determine its own jurisdiction is an important facet of arbitration

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jurisprudence because it gives effect to the separability presumption. The separability presumption insulates the arbitration agreement from the defects of the underlying contract, and thereby ensures the sustenance of the tribunals jurisdiction over the substantive rights and obligations of the parties under the underlying contract even after such a contract is put to an end. The doctrine of competence-competence allows the tribunal to decide on all substantive issues arising out of the underlying contract, including the existence and validity of the arbitration agreement.

[84] Interpretation of Greco-Turkish Agreement of December 1st, 1926, Advisory Opinion, Series B - No. 16 (August 28, 1928)."

(xiv) In the case of Uttarakhand Purv Sainik Kalyan Nigam Limited v. Nothern Coal Field reported in 2020 (2) SCC 455, the Supreme Court considered whether a referral Court at the stage of appointment of arbitrators would be required to decide the issue of limitation. Para 124 of the decision in the case of Re Interplay

(supra) which differs to the aforesaid judgment

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reads as under:

"124. In Uttarakhand Purv Sainik Kalyan Nigam Ltd v. Northern Coal Field, 125 the issue before this Court was whether a referral court at the stage of appointment of arbitrators would be required to decide the issue of limitation or leave it to the arbitral tribunal. A Bench of two Judges of this Court held that the doctrine of competence- competence is "intended to minimize judicial intervention, so that the arbitral process is not thwarted at the threshold, when a preliminary objection is raised by one of the parties." Moreover, this Court held that Section 16 is an inclusive provision of very wide ambit:

"7.13. In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the prereference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may rule on its own jurisdiction,

"including any objections" with respect to the existence or validity of the arbitration agreement. Section 16 is an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator under Section 16, and not the High Court at the pre-reference stage under Section

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11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator." (emphasis supplied).

(xv) Tracing the evolution of the law post the 2015 amendment, the Supreme Court in paras 153 to 158 held as under:

"153. The 2015 Amendment Act has laid down different parameters for judicial review under Section 8 and Section 11. Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the courts jurisdiction to the examination of the existence of an arbitration agreement. Although the object and purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the referral courts under the said provisions is intended to be different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an arbitral tribunal refusing to refer the parties to arbitration under Section 8, but not from Section 11. Thus, the 2015 Amendment Act has legislatively overruled the dictum of Patel Engineering (supra) where it was held that Section 8 and Section 11 are complementary in nature. Accordingly, the two provisions cannot be read as laying down a similar

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standard.

154. The legislature confined the scope of reference under Section 11(6A) to the examination of the existence of an arbitration agreement. The use of the term

"examination" in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self-contained code, the requirement of "existence" of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera (supra), this Court held that the referral courts only need to consider one aspect to determine the existence of an arbitration agreement - whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by arbitral tribunal under Section 16. We accordingly clarify the position of law laid down in Vidya Drolia (supra) in the context of Section 8 and Section 11 of the

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Arbitration Act.

155. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the referral court. The referral court is not the appropriate forum to conduct a minitrial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on the basis of evidence ought to be left to the arbitral tribunal. This position of law can also be gauged from the plain language of the statute.

156. Section 11(6A) uses the expression

"examination of the existence of an arbitration agreement." The purport of using the word "examination" connotes that the legislature intends that the referral court has to inspect or scrutinize the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression "examination" does not connote or imply a laborious or contested inquiry.

[102] On the other hand, Section 16 provides that the arbitral tribunal can "rule" on its jurisdiction, including the existence and validity of an arbitration agreement. A

"ruling" connotes adjudication of disputes

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after admitting evidence from the parties. Therefore, it is evident that the referral court is only required to examine the existence of arbitration agreements, whereas the arbitral tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement. A similar view was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC

234.

[102] P Ramanatha Aiyar, The Law Lexicon (Second edition, 1997) 666

157. In Shin-Etsu (supra), this Court was called upon to determine the nature of adjudication contemplated by unamended Section 45 of the Arbitration Act when the objection with regards to the arbitration agreement being "null and void, inoperative or incapable of being performed" is raised before a judicial authority. Writing for the majority, Justice B N Srikrishna held that Section 45 does not require the judicial authority to give a final determination. The court observed that:

"74. There are distinct advantages in veering to the view that Section 45 does not require a final determinative finding by the court. First, under the Rules of Arbitration of the International Chamber of Commerce (as in force with effect from 1-1-1998), as in the present case, invariably the Arbitral Tribunal is vested with the power to rule upon its own

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jurisdiction. Even if the court takes the view that the arbitral agreement is not vitiated or that it is not invalid, inoperative or unenforceable, based upon purely a prima facie view, nothing prevents the arbitrator from trying the issue fully and rendering a final decision thereupon. If the arbitrator finds the agreement valid, there is no problem as the arbitration will proceed and the award will be made. However, if the arbitrator finds the agreement invalid, inoperative or void, this means that the party who wanted to proceed for arbitration was given an opportunity of proceeding to arbitration, and the arbitrator after fully trying the issue has found that there is no scope for arbitration. Since the arbitrator's finding would not be an enforceable award, there is no need to take recourse to the judicial intercession available under Section 48(1)(

a) of the Act."

158. When the referral court renders a prima facie opinion, neither the arbitral tribunal, nor the court enforcing the arbitral award will be bound by such a prima facie view. If a prima facie view as to the existence of an arbitration agreement is taken by the referral court, it still allows the arbitral tribunal to examine the issue in- depth. Such a legal approach will help the referral court in weeding out prima facie non-existent arbitration agreements. It will also protect the jurisdictional competence of the arbitral tribunals to decide on issues pertaining to the existence and validity of an arbitration agreement."

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6. Reading of the aforesaid paragraphs would indicate that the Supreme Court held that although the object and purpose behind both Sections 8 and 11 is to compel the parties to abide by their contractual obligations, the scope of powers of the referral Courts under the said provisions is intended to be different. This is evident from the fact that Section 37 of the Arbitration Act allows appeal from the order of an arbitral tribunal refusing to refer the parties to arbitration under Section 8 but not from Section 11.

7. What is therefore evident from discussing the case law on the subject is that when an application under Section 8 for referring the dispute to arbitration is filed by either of the parties, in this case by the respondent herein who was the original defendant, considering the

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provisions of Section 16 of the Arbitration Act, based on the principles of competence- competence, the Tribunal can itself decide whether a fraud exists. Since we have reproduced the relevant paragraphs of the decision on this subject which hold that in cases where the allegation of fraud is interpersonal, even in cases of such a nature it is open for the arbitral tribunal to take a call. The Tribunal is equally well equipped to decide whether the fraud persists. In the present case, we do not agree with the argument of the learned counsel for the petitioner that the nature of fraud is complex or that since it involves a criminal law, the same should be decided by the Civil Court. It is a simple allegation between two parties inter- se on the issue of a bank guarantee being obtained by fraud.

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8. In addition thereto on the aspect of sevarability and separability of the arbitration agreement which as is held by the Supreme Court is a stand alone argument, the validity and existence of an arbitration agreement under Section 8 of the Act can be considered by the Tribunal. Even if the contract is held to be void, since the arbitration agreement has not been impeached, it stands. Therefore, an Arbitral Tribunal can decide this because that stage is also available apart from the reference stage in a stage where the issue can be agitated in a Section 34 appeal. The Arbitration Act is a self contained code and the argument of the learned counsel for the petitioner that it will be a futile exercise for the arbitral tribunal to undertake the exercise of examining the issue of fraud, will render duplication, cannot be accepted as on the principle of competence-competence, the Act

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being a self contained code, the issue can only be decided by the Arbitral Tribunal.

9. For the aforesaid reasons therefore the petition is dismissed.

(BIREN VAISHNAV, J)

(NISHA M. THAKORE,J)

ANKIT SHAH

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