Parties sometimes try to avoid arbitration by alleging fraud, arguing that serious allegations should be decided by a court. Indian law has moved firmly against using fraud allegations as a tactic to escape an arbitration clause.
The Supreme Court has held that civil disputes involving allegations of fraud are generally arbitrable. An arbitral tribunal can examine evidence of fraud and decide those allegations, just as it decides other factual disputes.
There are narrow exceptions. Where the allegation is that the arbitration agreement itself was procured by fraud, so that there is no valid agreement to arbitrate, or where the fraud allegations have a public dimension going beyond the private relationship between the parties — such as allegations involving the State or public officials acting arbitrarily — courts may decline to refer the matter to arbitration. Criminal liability for fraud remains a matter for criminal courts.
In practice, this means a party cannot avoid arbitration simply by adding fraud allegations to a commercial dispute. Courts look at the substance of the allegations and whether they genuinely affect the arbitration agreement or have a public character.
Parties alleging fraud in arbitration should support their case with strong evidence — documents, forensic accounts and witness testimony — because tribunals, like courts, require serious allegations to be proved with clear evidence.