Introduction1
One of the most controversial topics in arbitration law has been that of arbitrability of fraud. On the one hand, fraud is such a grave wrongdoing that it is commonly stated that it vitiates everything and, consequently, arbitration clauses present in the contracts. Conversely, arbitration has emerged as the choice of dispute resolution in business-to-business affairs, which focuses on efficiency, independence, and minimum involvement in the court.
This collision has caused decades of confusion in Indian law with courts swinging between the view that fraud is non-arbitrable in nature and that not every claim of fraud should be subject to a judicial trial. The direction in the international arbitration has been in favour of giving arbitral tribunals the authority to adjudicate cases of frauds, so long as the arbitration agreement itself is valid. It is on this backdrop that the Indian Supreme Court has been transitioning slowly towards a more pragmatic approach with conservative tendencies giving way to international best practice alignment of domestic law.2
Conceptual Foundations And Doctrinal Tensions
In legal context, fraud is called any deliberate distortion or concealment of facts with the aim ofmisleadinganotherpartyintotrustandthusresultinginharm.Fraudincontractualdisputescanbeconnectedwiththeperformanceofthecontractualdutiesorthatofthe creation of the contract. Unless the arbitration clause is specifically impregnated with fraud, the doctrine of separability may not rescue the clause, since the clause remains invalid. Butwhere fraud concerns only the principal contract, the courts are becoming increasingly ready to hold that arbitral adjudication can be made despite the existence of the arbitration clause.3Thedoctrineofarbitrabilityposesathresholdquestion,whetheraspecifictypeofdispute shouldberesolvedbyarbitrationorbythecourt.Theprincipleofjudicialreferralto arbitrationisintegratedintheArbitrationandConciliationact,1996inIndiainSections84and 115,, except at the exception. Traditionally, Indian courts were prudent as they believedthatfraudneededmoreevidence,cross-examination,andjudiciary.Itwasfearedthatthe private tribunals would not have sufficient powers to address the evidentiary and procedural nature of fraud. In addition, fraud charges can occasionally involve issues of general concern, likefraudongovernmentrevenueorcriminallaw,andwhichmustberesolvedopenlyin court. This contradiction between party autonomy and the public interest is the basis of theconflict between the doctrines of arbitrability.6
*1IamZaranaAcharya,4thyearLawStudentatInstituteofLaw,NirmaUniversity.
2ParulKumar,IsFraudArbitrable?ExaminingtheProblematicIndianDiscourse,JUSMUNDI,(Feb.25,2021,) https://jusmundi.com/en/document/publication/en-is-fraud-arbitrable-examining-the-problematic-indian-
3Separability revisited: What if there is no contract?, Commercial Litigation Blog (Kluwer), https://www.commerciallitigationblog.com/separability-revisited-what-if-there-is-no-contract
4TheArbitration and ConciliationAct, 1996, § 8
5TheArbitration and ConciliationAct, 1996, § 11
6ArbitrabilityofFraudsinIndia:EvolvingJurisprudence,AMLEGALS(Aug.21,2025), https://amlegals.com/arbitrability-of-frauds-in-india-evolving-jurisprudence/
Historical Approach: Myths And Misconceptions
Throughout the Indian post-independent judicial history, the courts have been operating on the premise that fraud was per se non-arbitrable. The Supreme Court in Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak7in 1962 noted that when serious allegations of fraud were involved, the matters should be resolved by courts and not by arbitrators. This initial stand was based on the fact that fraud was inimitable to be handled privately. The fallacy that arbitrators are not competent or empowered to review extensive evidence, and to identify deception, took root in Indian law.
This stance culminated in N. Radhakrishnan v. Maestro Engineers (2010)8, where the Supreme Court denied reference to arbitration since the conflict was about claims of misappropriation and malpractice. The decision had the effective effect of establishing a blanket exclusion of claims of fraud, which weakens the principle of separability and which creates confusion in commercial arbitration. The other myth that contributed to this course of action was that fraud had to involve a policy issue at the heart of the government. Although it is true that fraud against the state or against regulatory offenses may well involve public interest, most fraud cases are otherwise private, between commercial entities, and would be unnecessary to monopolize in the judiciary.
Anotherdistortioncameaboutasaresultofthenatureofthefactualinvestigationsthatcourts carriedoutduringthereferralstage.Asanalternativetoaprimafacietest,judgestookpartin mini-trials to determine whether the fraud claims were such serious matters that couldprevent arbitration. This was a confusion of the threshold jurisdiction and determination of merits. Consequently, arbitration was frequently frustrated as parties used the tactic of claiming fraud to avoid going through arbitration.9
Indian Jurisprudence: Evolution And Key Cases
Indian jurisprudence on arbitrability of fraud has undergone significant evolution in the past decade. After the regressive turn in Radhakrishnan, the Supreme Court attempted to carve a middle path in A. Ayyasamy v. A. Paramasivam10. The Court distinguished between simple fraud, which could be referred to arbitration, and serious fraud, which could not. Thisnuanced approach acknowledged that not every allegation of fraud justified ousting arbitral jurisdiction, but it still left the distinction ambiguous and opened the door for judicial subjectivity.11
The confusion was further explained in Avitel Post Studioz Ltd. v. HSBC PI Holdings12. The Court believed that an action would be non-arbitrable due to fraud only to the extent that fraud affected the agreement to arbitrate, or concerned some ultimately public matter, like a criminaloffenseorfraudagainstgovernmentalbodies.ThismorelimitedexclusionputIndia
7MANU/SC/0363/1961
8MANU/SC/1758/2009
9“BeyondAllegationsofFraud”–TheSupremeCourt’sRe-affirmationofaReferral-Court’sNarrowMandate under Section 11(6A) of theArbitration & ConciliationAct, 1996, CaseMine (Aug. 7, 2025),
https://www.casemine.com/commentary/in/%E2%80%9Cbeyond-allegations-of-fraud%E2%80%9D-
%E2%80%93-the-supreme-court%E2%80%99s-re-affirmation-of-a-referral-court%E2%80%99s-narrow-mandate-under-section-11%286a%29-of-the-arbitration-%26-conciliation-act%2C-1996/view
10MANU/SC/1179/2016
11SiddharthNigotia&AgnishAditya,CommentsonA.Ayyasamyv.A.Paramasivam,NLIULawReview,Vol. VI,IssueII,2022,at185,https://nliulawreview.nliu.ac.in/wp-content/uploads/2022/01/Volume-VI-Issue-II-185-198.pdf.
12MANU/SC/0601/2020
in line with the international practice, and ascertained that the majority of commercial fraud disputes are arbitrable.
The landmark judgment in Vidya Drolia v. Durga Trading Corporation13consolidated this pro-arbitration trend. The Court specifically reversed Radhakrishnan and said that civil litigation over a claim of a fraud is arbitrable unless the clause providing arbitration isvitiated itself or the public interest is directly impinged. This decision revived a sense of confidence on the ability of arbitral tribunals, and prevented fraud claims being abused to derail arbitration processes.
Laterrulingshavenarroweddownthelinesofthisstrategy.InRashidRazav.SadafAkhtar14
, the Supreme court stated a two-pronged examination: does the fraud permeate the entire contract, even the arbitration clause, and is it a matter of public interest. Similarly, in N.N. Global Mercantile v. Indo Unique Flame15the Court affirmed the fact that contractual performance claims of fraud do not invalidate the clause of arbitration. Combined, thesecases demonstrate how the judiciary is slowly accepting arbitration even in very complex cases, so long as the underlying arbitration agreement itself is not abrogated.
In spite of these developments, there are still difficulties. The vaguely defined term of public domain is still creating inconsistent applications. Still there are questions concerning whether arbitrators can handle multi-party frauds involving statutory regulators. However, there is a decisive turn in the doctrinal flow of acknowledging that arbitration can also help to adjudicateinfraudcasesandmanyofthemythsandwrongperceptionshavebeenshattered.
16
Comparative Perspectives: Global Jurisprudence And Cross- Border Insights
Arbitrability of fraud is not an issue peculiar to India, and most jurisdictions have dealt withitindifferentways.Comparativestudyprovesthatwhereastheearlyoppositionagainst allowing arbitrators to resolve fraud cases was prevalent across the legal systems, the modern trendhasbeentoconsiderfraudasanissuethatcanbearbitratedaslongasthearbitration agreement itself is not in question. This change indicates the global opinion that arbitration is on par with courts in dealing with complex factual disputes, such as the claim of deception.17In the United Kingdom, a previous generation of courts were unwilling to have fraud issuesarbitrated, being guided by the same maxim of fraud vitiating everything. In the long-term,though, English law came to appreciate that arbitration clause and competency of arbitrators canbeseparatedtoadjudicateclaimsoffraud.InFionaTrustandHoldingCorp.v.Privalov18, Houseoflordsemphasizedthattheclausesthatgovernarbitrationareindependentandunless fraud is clearly present in the arbitration clause, arbitration can be chosen even in situationswhere fraudulent inducement of the primary contract is alleged. This ruling was a landmark that strengthened the party autonomy and reduced the level of judiciary interference.19
13MANU/SC/0363/2019
14MANU/SC/1249/2019
15MANU/SC/0014/2021
16Mittal & Saesha Gehani,An Indian JurisprudentialAnalysis of theArbitrability of Fraud in Commercial Disputes,IndianJournalofLawandLegalResearch(Aug.21,2025),https://www.ijllr.com/post/an-indian-jurisprudential-analysis-of-the-arbitrability-of-fraud-in-commercial-disputes.
17IpsaMittal&SaeshaGehani,AnIndianJurisprudentialAnalysisoftheArbitrabilityofFraudinCommercial Disputes, INDIAN J. LAW & LEGALRES. Vol. I, Iss. 2 (2023), https://www.ijllr.com/post/an-indian-
jurisprudential-analysis-of-the-arbitrability-of-fraud-in-commercial-disputes
18MANU/UKCM/0066/2010
19ChristopherKee,FraudandtheArbitrabilityofDisputes:InsightsfromFionaTrust,74INT’L&COMP.L.Q. 1, 4–5 (2007).
The United States has tended to lean more towards arbitrability with courts believing that fraud and fraud in the inducement of contracts are subject to the arbitration agreement. The caseof Prima Paint Corp. v. Flood & Conklin Mfg. Co.20allowed the doctrine of separability to be regarded as the court ruled that the arbitral tribunal was free to make the decision, exceptincaseswherefraudisinflicteduponthearbitrationclause.IthasbeenafocusofU.
S. arbitration jurisprudence and it has had a potent impact on other jurisdictions.
Singapore and Hong Kong, who are the major arbitral centers in Asia, have also been the champions of arbitrability of fraud. Singaporean courts have identified that arbitrators are capableofhandlingfraudrelatedallegationsaslongastheagreementofarbitrationisupheld. In a similar vein, Hong Kong has considered fraud disputes to be arbitrable except in limited circumstances in the interests of the general population. These jurisdictions demonstrate a worldwide tendency to strengthen the arbitral tribunal as opposed to barring categories of disputes.21
The comparative image shows that India has been slightly lagging behind the global trend in avoiding the treatment of fraud as an arbitrable one. Nonetheless, the pro-arbitration change of heart in cases such as Avitel and Vidya Drolia suggests that Indian judicial system is currently lining up with the global trend, and embracing the effectiveness of arbitral tribunals in adjudicating even against the claims of serious frauds.
Modern Reality: Current Position In India
The present legal stance in India is the result of a long history of doctrinal dispute, although nowadays it is established that fraud as a category need not necessarily be excluded out of arbitration.ThedecisionsmadebytheSupremeCourtinAvitelandVidyaDroliahaveclearly erased the previous blanket exclusion by Radhakrishnan. It is guided by the fact that the allegations of fraud are arbitrable unless they (a) entail the impeachment of the very contract of arbitration or (b) entail the issues of the interest of the masses that are to be determined being in the open court.
The position is indicative of an appreciation that arbitration can deal with complicated cases where large volumes of documents, professional evidence and cross examination are involved. Contemporary arbitral institutions and procedural regimes offer ways to resolve apparent concerns of evidence that once made courts doubtful of the ability of arbitration to handlefraud.Notably,aprimafacietestisnowtakenatthereferralphaseandthisguarantees that the courts do not go into a thorough factual investigation of alleged fraud claims. In this way, the risk of parties bringing forward claims of fraud is minimized to serve as a tactic of postponing or of frustrating arbitration.22
In spite of these developments, uncertainty continues to exist in the use of the public domain test. As an example, in cases of government contracts, government funds, or in violations of regulations, the court may not be keen to send the dispute to arbitration. On the same note, investigations concerning multi-party fraud or fraud mixed with criminal activities pose workable challenges. However, the pivotal change in the jurisprudence has increased arbitration-friendliness of India by boosting its international arbitration suitability and offering more assurance to business entities.
The contemporary reality is thus one of skeptical acceptance: the vast majority of fraud cases willbearbitrable,andajudicialexerciseofgatekeepingappliesinuncommonsituations.The
20MANU/USSC/0154/1967
21ChristopherTo,ArbitrabilityofFraudinHongKong:JudicialTrends,12HongKongL.J.210,213–15 (2018).
22SayantanBhattacharyya,TheArbitrabilityofCivilFraudinIndia:AnalyzingtheSupremeCourt’sDecisionin Avitel Post Studioz Ltd., 37 ARB. INT’L 355 (2021).
Indian judiciary has tried to strike a balance between autonomy and regulation, whereby the default position of the law is pro-arbitration. Such a trend can be seen as a definite policy decision to align with the international practice and enhance the Indian arbitration system.23
Policy Concerns: Party Autonomy, Public Interest, And Institutional Confidence
The arbitrability of fraud makes a significant policy concern that extends beyond thetechnical legal doctrine. The cornerstone of arbitration is the principle of party autonomy, which lies in the center of the case. Arbitration offers confidentiality, efficiency, and neutrality due to which commercial parties prefer arbitration instead of denying them access to solve fraud matters by means of arbitration. Apart from the fact that the party choice is a convenience in a contemporary business world where commercial contracts often imply cross-border components, adherence to party choice is also a component and necessity of international business.24
Meanwhile, one cannot flout the interest of the people. Fraud is not just a personal vice but there are instances when it involves greater issues of state responsibility, regulatory actionand the belief that people have in the honesty in the market. The case of judicial oversight is more valid when there is fraud on the side of state entities, public resources or systemic deception on the part of third parties. Courts being a state institution are more transparent and accountable than may be the case in private arbitration. The issue is that it is difficult to determine which disputes should be considered in this category and not to stretch the exception to include all fraud claims.25
The other policy issue is based on institutional confidence in arbitration. In case arbitral tribunals are viewed as incompetent in dealing with fraud, parties can lose confidence in arbitration. This perception was facilitated by judicial cynicism in the previous cases. In comparison, recent decisions are an indicator of institutional confidence in arbitration and they strengthen the notion that arbitrators are not second class adjudicators, but equally qualified professionals. The construction of such confidence would not be possible without pro-arbitration court rulings, but also strong arbitral practices, that would foster confidence in the good faith of the process.
In the end, the policy balance is such that it tends to assume arbitrability with some exceptions of the judiciary. It is both respectful of party autonomy, and also avoids abuse of thefraudchargesasadelaytactic,andalsoitkeepsthejudiciarychecksandbalancesinissue that border upon the governance of the people. The most recent trend of the Indian judiciary was an effort to strike this fine balance.26
Conclusion
23Parul Kumar, Is Fraud Arbitrable? Examining the Problematic Indian Discourse, JusMundi, https://jusmundi.com/en/document/publication/en-is-fraud-arbitrable-examining-the-problematic-indian-discourse
24PartyAutonomy or the Choice of Seat: The Essence ofArbitration, SCC Online Blog, Oct. 20, 2022, https://www.scconline.com/blog/post/2022/10/20/party-autonomy-or-the-choice-of-seat-the-essence-of-arbitration/
25SayanMukherjee,ACriticalAnalysisofPartyAutonomyinArbitration,iPleaders(Sept.20,2016), https://blog.ipleaders.in/critical-analysis-party-autonomy-arbitration/.
26Rishab Chand Jain & Jitya Singh, PartyAutonomy vs. Judicial Oversight: TheArbitration Dilemma,
IndiaCorpLaw(Apr.8,2025),https://indiacorplaw.in/2025/04/08/party-autonomy-vs-judicial-oversight-the-arbitration-dilemma/.
Indian jurisprudence on arbitrability of fraud has followed the path of reluctance, haphazardness and subsequent reform. Since the case of Radhakrishnan categorical exclusion of fraud disputes, to the nuanced acceptance of Ayyasamy and the wholesome pro-arbitration attitude of Avitel and Vidya Drolia, the courts now have adjusted to the current reality that most fraud disputes are arbitrable. The observation of comparative experiences of the United Kingdom, United States and Singapore reveals that this trend is aligned with the global arbitration practice. The contemporary stance is not without its challenge though. The public domain test is still unclear and judicial courts at referral stage still play a key role in deciding on arbitrability. There are still threats of uneven implementation but the overall pattern is clearly towards arbitration. The implications of this shift are of high policy importance and it will fortify India as an arbitration-friendly jurisdiction and boost confidence of international commercial parties. Finally, the myths and misconceptions according to which the area of arbitration has always been non-existent of fraud no longer have an impact. Thecontemporary practice recognizes that arbitrators, as much as courts, can adequately adjudicate a matter of fraud, so long as the arbitration clause is not initially removed, and the dispute in question does not involve other interests of the general good. With the further developmentofthejurisprudence,Indiaseemstobeonthebrinkofachievingtheappropriate mix of independence of parties and the aspects of accountability to the population, becoming a step closer to the coherent and homogenous system of arbitration.
Author Name- Zarana Acharya, 4th year law student, B.com LL.B(Hons.), Institute of Law, Nirma University
