Fraud: A Dispute Eliminator – LexForti Authorized Information & Journal

Fraud: A dispute eliminator written by a Diksha Sharma student at Government Law College in Mumbai

Ayyasamy versus Paramsivam & Ors.


Ayyasamy versus Paramsivam & Ors. is a case based on the Arbitration and Conciliation Act 1996. Whereby the discretion lay with the Supreme Court and it was decided that the case is only non-arbitral in cases of serious fraud. Just a mere allegation of fraud cannot be regarded as a reason for a dispute between parties that cannot be settled by an arbitration agreement.

Facts of the case

The parties in this case were brothers who had signed a partnership deed agreeing to run a hotel business called Hotel Arunagiri in Tirunelveli, Tamil Nadu. The applicant had filed a civil action with the Munsif Court Additional District Court, Tirunelveli, Tamil Nadu for imposing an injunction to prevent the respondents from running the company’s business. The respondents stood before the court and applied for the right to participate as a partner in the management. Believing that since this case involved part of the fraud it should be sorted out by the civil court.
The dispute arose when the complainant failed to adhere to the partnership agreement and failed to deposit the money into the bank account and allegedly wrote a check for Rs. 10,00,050 / – from the bank account in the name of the hotel in favor of his son without informing the other partners. Respondents also stated that the complainant’s wife, Dhanapalraj, was reportedly questioned by CBI about a raid on his dormitory in which he falsely claimed that the amount seized was Rs. 45,00,000 / – belonged to the hotel .
After the complainant had received a subpoena, she applied for the application under Section 8 of the Arbitration and Conciliation Act of 1996 by questioning the continuation of the claim under the arbitration agreement in accordance with Section (8) of the partnership agreement.
Respondents relied on N. Radhakrishnan’s verdict against Maestro Engineers & Ors. and the complainant’s plea was accordingly rejected. An appeal lodged with the Madras Supreme Court was then dismissed, with the finding that Swiss Timing Ltd. (The applicant’s order) was an order of a single Supreme Court judge, while in N. Radhakrishnan the decision was made by a Supreme Court divisional bank, so it had to follow the judicial precedent.
However, the applicant appealed to the Supreme Court of India.


The question that arose before the court was whether the matter was arbitral or non-arbitral and should be resolved by the court taking into account the involvement of fraud, which makes it an exception for the arbitral tribunal.


The Tribunal began by closely observing the Arbitration and Conciliation Act of 1926, whereas it did not preclude any specific provision that precludes a category of disputes that they designate as non-arbitral, but several provisions have been made that determine the scope of the define judicial intervention. The law contains provisions against the arbitration award [Section 34 and Section 48] and it can be overturned if the court determines that the matter in dispute cannot currently be settled through arbitration under current law.
On the interpretation, the court found that the alleged fraud allegation was not grave and could not be seen as a grave reason for the arbitral tribunal’s inability to resolve it. The question of accounting could easily have been settled by the arbitrators. However, the respondents’ allegation against Dhanapalraj is not taken into account and is therefore not to be dealt with by the arbitral tribunal. The judgment was pronounced in favor of the applicant, with all previous judgments of the courts below being reversed. The complaint was allowed, so the complainant’s request under Section 8 in the lawsuit was confirmed.


The court upheld the decision in favor of the complainant after legitimizing all areas of the case and the related concepts. In this case, the gravity of the fraud allegation has been examined, which nullifies the case before it is heard by a court other than an arbitration tribunal. As mentioned earlier, the arbitral tribunal does not rule out civil or commercial matters, but there are some matters that, while reserved for the courts, do not make the arbitral tribunal unsolvable.
Section 5, Section 8, Section 11, Section 16, Section 34 (2) (b) and Section 48 are mainly highlighted in this case and dealt with respectively. The principle of fraud was taken into account in order to make the distinction between a mere and a serious allegation clearer.

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