Supreme Court holds disputes over alleged forged arbitration agreement non-arbitrable; quashes High Court order referring suit to arbitration

A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe heard appeals arising from competing orders on whether disputes between the parties could be referred to arbitration where the very existence of the arbitration agreement was alleged to be forged. The appeals tested whether an arbitrator could be appointed or a suit be stayed under the Arbitration and Conciliation Act, 1996, when serious allegations questioned the genuineness of the document containing the arbitration clause.

The Court held that where the arbitration agreement itself was under serious cloud of forgery or fabrication, the dispute was not amenable to arbitration at that stage and must be adjudicated by the court. The Court noted that "arbitration... is founded upon consent" and that a party could be bound by arbitration only if it was shown, even at a prima facie level, that the party had agreed to submit disputes to arbitration. The Court, in its reasoning, observed: "Arbitration, it bears reiteration, is founded upon consent. A party may be bound by the arbitral process only if it is first shown, even at a prima facie level, that such a party had agreed to submit disputes to arbitration. Where the arbitration agreement itself is alleged to be forged or fabricated, the disputes ceases to be merely contractual and strikes at the very root of arbitral jurisdiction. A controversy of this nature falls squarely within the category of disputes that are generally recognized as non-arbitrable." Applying these principles, the Supreme Court quashed the High Court order of 24.09.2021 that had referred the suit to arbitration and affirmed the High Court order of 11.03.2021 that had declined to appoint an arbitrator. Accordingly, Civil Appeal @ SLP (C) No. 6013 of 2021 was dismissed and Civil Appeal @ SLP (C) No. 20262 of 2021 was allowed; there was no order as to costs.

Background: The dispute arose from a partnership originally constituted as M/s RDDHI Gold by a deed dated 1.12.2005. A document described as an Admission and Retirement Deed dated 17.04.2007 was relied upon by one party to claim induction into the firm and to invoke an arbitration clause; the other party denied execution of that deed and alleged it was forged. The respondent relied on the Admission Deed to assert a 50.33% interest in the erstwhile partnership and initiated proceedings under the Arbitration Act.

Proceedings under Section 9 of the Act led the Trial Court to grant interim relief, but the High Court on 04.05.2018 reversed that order, recording a prima facie view that the Admission Deed's existence was doubtful and refusing interim protection. The Special Leave Petition against that order was dismissed by this Court, giving finality to the High Court's prima facie assessment. The appellant thereafter filed Suit No.71/2018 seeking declaration and injunction that the Admission Deed was forged; the respondent moved under Section 8 to refer the suit to arbitration. The trial court and first appellate court declined referral, holding the fraud allegations to be complicated and noting failure to produce the original deed as required by Section 8(2). On revision under Article 227 the High Court (24.09.2021) set aside those orders and directed reference to arbitration. Separately, the respondent sought appointment of an arbitrator under Section 11; the High Court dismissed that petition on 11.03.2021, holding that appointment would be premature until the existence of the arbitration agreement was finally determined.

The Supreme Court considered established precedents (including A. Ayyasamy, Avitel Post Studioz, Rashid Raza, and Managing Director, Bihar State Food & Civil Supply Corporation Ltd.) on the impact of fraud on arbitrability and reiterated the two tests for "serious allegations of fraud"—whether the plea permeated the entire contract including the arbitration clause, or whether the allegations raised public law concerns. The Court found substantial and cogent material casting grave doubt on the Admission Deed: the alleged retiring partners were shown to have acted as partners after 2007, the deed did not appear in contemporaneous records for nearly nine years and surfaced only with a 2016 legal notice, and multiple bank and commercial documents portrayed the alleged partners as continuing partners. The Court also relied on the earlier prima facie finding in the Section 9 proceedings that the document's existence was doubtful, observing that such a finding, once final, was relevant to subsequent Section 8 and 11 applications. The Court therefore concluded that the dispute struck at the root of the arbitration agreement and was not fit for arbitration at that stage.

Case Details: Case No.: REPORTABLE 2026 INSC 106; Civil Appeal (@ SLP (C) No.6013 of 2021) & Civil Appeal (@ SLP (C) No.20262 of 2021) Case Title: Rajia Begum v. Barnali Mukherjee; Barnali Mukherjee v. Rajia Begum & Others Appearances: For the Petitioner(s): [Counsel names not specified in the judgment] For the Respondent(s): [Counsel names not specified in the judgment]