Case Note & Summary
The case involves a commercial dispute between Pira Scientific (OPC) Pvt. Limited and others (appellants) and Novo Nordisk India Private Limited and another (respondents). The appellants filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act) in a pending civil suit (Com. OS No.1842 of 2022) before the Commercial Court, seeking referral of the parties to arbitration based on an arbitration agreement. The Commercial Court rejected the application on the ground that the plaint contained serious allegations of fraud, which, according to precedents like A. Ayyasamy, Rashid Raza, and Avitel Post Studioz Ltd., render disputes non-arbitrable and triable only by civil courts. The appellants appealed under Section 37(1)(a) of the A&C Act. The High Court of Karnataka, in its oral judgment, held that the Commercial Court erred in rejecting the application. The court observed that the fraud alleged in the plaint pertained to the performance of the contract and not to the arbitration agreement itself. The court clarified that only when fraud allegations are directly and intimately connected to the arbitration agreement (e.g., fraud in the execution of the arbitration clause) would the dispute be non-arbitrable. Since the fraud allegations here related to the contract's performance, the disputes were arbitrable. Consequently, the High Court set aside the impugned order dated 29.05.2024 and allowed the application under Section 8, referring the parties to arbitration. The appeal was allowed.
Headnote
A) Arbitration Law - Referral to Arbitration - Section 8 of Arbitration and Conciliation Act, 1996 - Allegations of Fraud - The Commercial Court rejected the application under Section 8 on the ground that the plaint contained serious allegations of fraud, relying on precedents that such disputes are non-arbitrable. The High Court held that the mere presence of fraud allegations does not automatically oust arbitrability; the fraud must be directly and intimately related to the arbitration agreement itself. Since the fraud alleged pertained to the performance of the contract and not to the arbitration clause, the disputes were arbitrable. The impugned order was set aside and the parties were referred to arbitration. (Paras 1-4)
B) Arbitration Law - Appeal under Section 37(1)(a) - Maintainability - The appeal was filed under Section 37(1)(a) of the A&C Act against an order rejecting an application under Section 8. The High Court entertained the appeal and allowed it, holding that the Commercial Court erred in law by not referring the parties to arbitration. (Para 1)
Issue of Consideration
Whether allegations of fraud in a civil suit render the disputes non-arbitrable, thereby justifying rejection of an application under Section 8 of the Arbitration and Conciliation Act, 1996 to refer parties to arbitration.
Final Decision
The High Court allowed the appeal, set aside the impugned order dated 29.05.2024, and allowed the application under Section 8 of the Arbitration and Conciliation Act, 1996, thereby referring the parties to arbitration.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 8
- Section 37(1)(a)
- Commercial Courts Act
- 2015
- Section 13(1-A)
- arbitrability of fraud
- referral to arbitration
- serious allegations of fraud
- non-arbitrable disputes
Case Details
2025 LawText (KAR) (07) 47
Vibhu Bakhru, Chief Justice, C M Joshi, Justice
Sri Ujjwal Kumar Dubey for Sri Kiran Kumar H (for appellants), Sri Prashanth V.G. (for respondent No.1)
Pira Scientific (OPC) Pvt. Limited, Mrs. Jayanti Pandey, Mr. Rajesh Pandey
Novo Nordisk India Private Limited, Mr. Abhishek Anand
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Nature of Litigation
Commercial appeal against order rejecting application under Section 8 of Arbitration and Conciliation Act, 1996 to refer parties to arbitration.
Remedy Sought
Appellants sought setting aside of the impugned order dated 29.05.2024 passed by the Commercial Court rejecting their application under Section 8 of the A&C Act, and referral of the parties to arbitration.
Filing Reason
The Commercial Court rejected the application under Section 8 on the ground that the plaint contained serious allegations of fraud, which were considered non-arbitrable.
Previous Decisions
The Commercial Court (LXXXII Additional City Civil and Sessions Judge, Bengaluru) in Com. OS No.1842 of 2022 (CCH-83) rejected IA No.5 filed by the appellants under Section 5 read with Section 8 of the Arbitration and Conciliation Act, 1996, vide order dated 29.05.2024.
Issues
Whether allegations of fraud in a civil suit render the disputes non-arbitrable, thereby justifying rejection of an application under Section 8 of the Arbitration and Conciliation Act, 1996 to refer parties to arbitration.
Submissions/Arguments
Appellants argued that the Commercial Court erred in rejecting the Section 8 application based on fraud allegations, as the fraud alleged was not directly related to the arbitration agreement.
Respondents presumably supported the Commercial Court's order, relying on precedents that serious fraud allegations make disputes non-arbitrable.
Ratio Decidendi
Allegations of fraud in a plaint do not automatically render disputes non-arbitrable under Section 8 of the Arbitration and Conciliation Act, 1996. Only when the fraud is directly and intimately connected to the arbitration agreement itself (e.g., fraud in the execution of the arbitration clause) would the dispute be non-arbitrable. Fraud relating to the performance of the contract does not oust arbitrability.
Judgment Excerpts
The plain reading of the impugned order indicates that the learned Commercial Court had rejected the application on the ground that the plaint contained serious allegations of fraud against the defendants.
In the case of A.Ayyasamy (Supra), Rashid Raza (Supra) and (Avitel Post Studioz Ltd. (Supra), it is held that where there are serious allegations of fraud, they are to be treated as non-arbitrable and it is only the civil court which should decide such matters.
Procedural History
The appellants filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 in Com. OS No.1842 of 2022 before the Commercial Court (LXXXII Additional City Civil and Sessions Judge, Bengaluru). The Commercial Court rejected the application on 29.05.2024. The appellants then filed the present commercial appeal under Section 13(1-A) of the Commercial Courts Act, 2015 read with Section 37(1)(a) of the A&C Act before the High Court of Karnataka, which allowed the appeal on 28.07.2025.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 8, Section 37(1)(a)
- Commercial Courts Act, 2015: Section 13(1-A)
