Forgery, Fraud, and the Threshold of Arbitrability: Supreme Court Clarifies When Courts Must Decide Before Arbitration

Supreme Court Decision on Forgery and Fraud: Clarifying Court Involvement Before Arbitration Proceedings.

INTRODUCTION

The Supreme Court of India, in Rajia Begum v. Barnali Mukherjee & Ors. (2026 INSC 106), has delivered a significant and clarificatory judgment on the interplay between allegations of forgery, fraud, and the doctrine of arbitrability under the Arbitration and Conciliation Act, 1996. The Court was confronted with a situation where the same High Court, on identical facts, had adopted two contradictory approaches—one referring the dispute to arbitration under Section 8 and another refusing appointment of an arbitrator under Section 11.

At the heart of the controversy lay a disputed partnership “Admission Deed” which allegedly inducted one party as a partner and contained an arbitration clause. The opposing party categorically denied the execution and authenticity of this document, asserting that it was forged and fabricated. The judgment therefore presented the Court with a crucial question: whether a dispute can be referred to arbitration when the very existence of the arbitration agreement itself is seriously in doubt.

The decision reaffirms that arbitration, being a consensual mechanism, cannot be imposed where the foundational document containing the arbitration clause is under a grave cloud of suspicion. The ruling harmonises prior jurisprudence and provides much-needed clarity on the limits of court intervention at the referral stage.

NARRATION OF FACTS

A partnership firm styled M/s RDDHI Gold was constituted on 01.12.2005 by Barnali Mukherjee, Aftabuddin, and Raihan Ikbal. Several years later, Rajia Begum asserted that on 17.04.2007, Aftabuddin and Raihan Ikbal executed a power of attorney in her favour, pursuant to which she executed a deed of admission and retirement (the “Admission Deed”). According to her, by virtue of this deed, the original partners retired and she was inducted as a partner holding 50.33% share in the firm.

Barnali Mukherjee completely denied these assertions and contended that no such Admission Deed was ever executed. It was further asserted that the business of the partnership firm was subsequently absorbed into a company, RDDHI Gold Pvt. Ltd., in 2011. The first time Rajia Begum relied upon the Admission Deed was in October 2016, almost nine years after its alleged execution, when she issued a legal notice claiming partnership rights. This delay, coupled with consistent denial by the appellant, laid the foundation of the dispute.

APPLICATION UNDER SECTION 9 OF THE ACT

Rajia Begum approached the Trial Court under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim protection, including appointment of a receiver. The Trial Court allowed the application.

However, the High Court, by order dated 04.05.2018, set aside this decision and held that the very existence of the Admission Deed and the arbitration agreement contained therein was in serious dispute. The Court observed that Rajia Begum had failed to demonstrate, even prima facie, that a valid arbitration agreement existed. Consequently, no interim relief could be granted.

An SLP against this order was dismissed by the Supreme Court, thereby allowing the High Court’s prima facie finding regarding doubtful existence of the Admission Deed to attain finality.

 

APPLICATION UNDER SECTION 8 OF THE ACT

Subsequently, Barnali Mukherjee instituted a civil suit seeking a declaration that the Admission Deed was forged and void, along with consequential injunctions. Rajia Begum filed an application under Section 8 of the Act seeking reference of the suit to arbitration.

The Trial Court dismissed the application, holding that the allegations of fraud were serious and complex and that Rajia Begum had failed to produce the original Admission Deed or a certified copy as mandated under Section 8(2). The First Appellate Court affirmed this view.

In revision under Article 227 of the Constitution, however, the High Court set aside both orders and referred the dispute to arbitration.

APPLICATION UNDER SECTION 11 OF THE ACT

Parallelly, Rajia Begum also filed a petition under Section 11 of the Act seeking appointment of an arbitrator. The High Court dismissed this petition, holding that until the issue regarding the very existence of the arbitration agreement was finally decided, appointment of an arbitrator would be premature.

 

SUBMISSIONS

Rajia Begum contended that allegations of fraud are arbitrable, and that the High Court, in exercise of supervisory jurisdiction, had rightly referred the matter to arbitration. Reliance was placed on decisions such as A. Ayyasamy v. A. Paramasivam, Rashid Raza v. Sadaf Akhtar, Vidya Drolia v. Durga Trading Corporation, and Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd.

Conversely, the appellant argued that there was no privity of contract and that the Admission Deed was a manufactured document. It was submitted that the High Court had already doubted the document in earlier Section 9 proceedings and that such finding could not be brushed aside.

ISSUE

The Supreme Court framed the core issue as whether, in the given factual matrix, disputes could be referred to arbitration under Section 8 and whether an arbitrator could be appointed under Section 11 when the existence of the arbitration agreement itself was seriously disputed.

IMPACT OF FRAUD ON ARBITRABILITY

The Court reiterated settled principles that mere allegations of fraud do not bar arbitration. However, where fraud is alleged against the arbitration agreement itself or where it permeates the entire contract, the dispute becomes non-arbitrable.

Relying on Ayyasamy, Rashid Raza, Avitel, and reaffirmed in Managing Director, Bihar State Food and Civil Supply Corporation Ltd. v. Sanjay Kumar (2025), the Court emphasised that when a party contends that it never consented to arbitration, the court must decide this jurisdictional issue.

ANALYSIS

On examining the material, the Court found substantial circumstances casting serious doubt on the Admission Deed. Rajia Begum herself admitted that her husband, allegedly retired in 2007, continued as a partner till 2010. The document remained absent from all contemporaneous records for nearly nine years. Banking documents showed Rajia Begum only as a guarantor and continued to reflect the original partners as partners.

The Court held that arbitration cannot be founded on a document whose existence itself is under a grave cloud. Consent is the cornerstone of arbitration, and without prima facie proof of an agreement, arbitral jurisdiction cannot be invoked.

Further, the High Court, while exercising Article 227 jurisdiction, exceeded its supervisory limits by reappreciating evidence and overturning concurrent findings of two courts.

CONCLUSION

The Supreme Court held that the dispute relating to the Admission Deed involves serious allegations going to the root of the arbitration agreement and is not amenable to arbitration at this stage. The order referring the suit to arbitration was quashed, while the order refusing appointment of an arbitrator was affirmed.

AUTHOR’S OPINION

This judgment represents a principled reaffirmation that arbitration cannot be used as a shield to bypass judicial scrutiny where the very foundation of consent is contested. While Indian arbitration jurisprudence has progressively moved towards minimal judicial interference, this decision underscores that such deference presupposes the existence of a valid arbitration agreement. By insisting that courts must first be satisfied about the existence of consent before relegating parties to arbitration, the Supreme Court has struck a careful balance between pro-arbitration policy and procedural fairness. The ruling will serve as an important safeguard against misuse of arbitration clauses embedded in disputed or fabricated documents.

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