A two-Judge Bench of the Supreme Court, comprising Justice P.S. Narasimha and Justice Manoj Misra, has drawn a line between two kinds of fraud allegation in arbitration. In The Managing Director, Bihar State Food and Civil Supply Corporation Limited v. Sanjay Kumar (2025 INSC 933), decided on 7 August 2025, the Court held that fraud simpliciter, such as an allegation of fraud about particular terms of a contract, remains arbitrable, because the arbitration agreement stands independent of the contract.
Serious fraud is different. The Court held that disputes involving serious allegations of fraud with public-law implications are not suited to arbitration. These are allegations that go beyond a dispute between the contracting parties and carry criminal implications that affect non-parties or the integrity of public governance.
The Court also noted an exception: where the fraud alleged is aimed at the arbitration agreement itself, the matter is not arbitrable and must be examined by the court, but only to the extent needed to decide whether the arbitration agreement is valid. The Bench referred to Swiss Timing for the proposition that arbitration and criminal proceedings can run side by side without inherent prejudice.
The appeals arose from orders of the Patna High Court appointing arbitrators under Section 11 of the Arbitration and Conciliation Act, 1996. The Supreme Court dismissed the appeals and left the jurisdictional questions open for the arbitral tribunal to consider at the preliminary stage.