No Exit: Bombay HC Tightens Grip on Arbitration

In an era where Indian courts consistently champion arbitration as an efficient dispute resolution mechanism, the Bombay High Court has delivered another robust judgment reinforcing this pro-arbitration stance. The decision in Swayambhu Siddhivinayak v. Harischandra Dinkar Gaikwad and Ors., delivered by the Hon’ble Justice Somasekhar Sundaresan on 4 November 2025 (Arbitration Appeal No. 21 of 2025), sets aside a District Court order that had refused reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act").

The decision provides crucial clarity on two frequently contested issues: the arbitrability of disputes when a supplemental agreement lacks an arbitration clause, and the ever-narrowing "fraud exception" to arbitration. The judgment serves as a strong reminder that judicial intervention at the pre-arbitral stage is minimal and that arbitration clauses are to be interpreted expansively to honour the parties' commercial understanding.

Factual Matrix

The dispute arose from a Development Agreement executed in 2011 between a developer (the Appellant) and landowners (the Respondents). This agreement contained a comprehensive arbitration clause (Clause 30) for resolving all disputes connected with the development. A decade later, in 2021, the parties entered into a Supplemental Agreement, recording the alleged discharge of the developer’s consideration obligations. The Supplemental Agreement notably did not contain its own arbitration clause. Subsequently, disputes emerged, and the landowners filed a civil suit seeking specific performance of the Development Agreement and, critically, the cancellation of the Supplemental Agreement. The landowners alleged that the Supplemental Agreement was a product of fraud, claiming their signatures were obtained on blank papers. The developer responded by applying under Section 8 of the Arbitration Act, seeking to refer the dispute to arbitration based on the clause in the original Development Agreement. The trial court, however, rejected this application. Its reasoning was primarily based on the absence of an arbitration clause in the Supplemental Agreement and a vague reference to the "nature" of the dispute, which involved allegations of fraud. The developer appealed this decision under Section 37 of the Arbitration Act before the Bombay High Court.

Key Issues

1. Whether disputes linked to a supplemental contract — lacking a standalone arbitration clause — remain within the scope of the arbitration clause in the principal agreement.
2. Whether allegations of fraud in the execution of the supplemental instrument render the matter non-arbitrable.
3. Scope of Section 8 jurisdiction following the 2015 amendments.
4. Whether Clause 13 of the Development Agreement, which references adjudication by a “nyayalay” (Court), constituted a contractual carve-out excluding disputes regarding delivery of saleable area from the scope of the general and expansive arbitration clause contained in Clause 30, thereby permitting such disputes to remain within the jurisdiction of civil courts.

The High Court’s Analysis and Findings

The High Court, in a well-reasoned order, overturned the trial court's decision. The judgment meticulously addresses each of the legal hurdles raised by the Respondents and provides a clear exposition of the current legal landscape.

When the arbitration clause under the Main Agreement covers a Supplemental Agreement

The core issue was whether the dispute concerning the Supplemental Agreement, which lacked an arbitration clause, could be referred to arbitration. The High Court held that it could. It reasoned that the Supplemental Agreement was not a standalone contract but was "adjectival" to the principal Development Agreement. It purported to record the discharge of consideration, a key obligation flowing from the main agreement. The Court held that since the dispute over the Supplemental Agreement was intrinsically linked to the rights and obligations under the Development Agreement, the arbitration clause in the latter was expansive enough to cover it. This finding underscores a crucial principle: ancillary or supplemental agreements that modify, confirm, or record the performance of a primary contract will typically be governed by the dispute resolution mechanism of that primary contract, unless the agreement explicitly excludes this.

The Fraud Exception: A Relic of the Past

The most significant part of the judgment is its detailed analysis of the arbitrability of fraud. The Court traced the evolution of jurisprudence, moving decisively away from the old position in N. Radhakrishnan v. Maestro Engineers, where any allegation of fraud was deemed sufficient to oust an arbitrator's jurisdiction. Relying on a consistent line of Supreme Court precedents, including A. Ayyasamy v. A. Paramasivam, Avitel Post Studioz Ltd. v. HSBC PI Holdings, and the three-judge bench decision in Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties, the High Court affirmed that the "fraud exception" is now extremely narrow. The modern test is whether the allegations of fraud are "serious" and have "public overtones." The Court, citing Sushma Shivkumar Daga v. Madhurkumar Ramkrishnaji Bajaj, reiterated the two conditions that must be met to refuse arbitration on grounds of fraud:

a) The plea of fraud must permeate the entire contract, including the arbitration agreement itself, rendering it void.

b) The allegations must touch upon the internal affairs of the parties (inter se) and have no implication in the public domain.

In the present case, the allegation of signatures being taken on blank paper was a classic bilateral dispute between the parties. It was a matter of a civil wrong, akin to fraudulent inducement or misrepresentation, which did not engage any wider public interest. Such disputes, the Court held, are eminently arbitrable. Furthermore, the Court, following Deccan Paper Mills, clarified that a prayer for the cancellation of a written instrument under Section 31 of the Specific Relief Act, 1963, is an action in personam (between the parties) and not in rem (against the world). Therefore, an arbitral tribunal is fully competent to grant such relief.

The Limited Mandate of a Section 8 Inquiry

At the outset, the Court reiterated the settled legal position on the scope of a court's power under Section 8 of the Act. Following the 2015 amendments, a judicial authority's role is confined to a prima facie determination of the existence of a valid arbitration agreement. Once the court is satisfied that such an agreement exists and that the subject matter of the suit falls within its ambit, it is statutorily obligated to refer the parties to arbitration. The High Court found that the trial court had failed to conduct this analysis correctly and was instead being swayed by extraneous factors.

Commercial Common Sense in Contractual Interpretation

The landowners attempted to argue that the Development Agreement itself carved out certain disputes for court adjudication. They pointed to a distinction between Clause 13, which referred to a "nyayalay" (Court) for disputes over the delivery of saleable area, and the general arbitration clause (Clause 30), which referred to "lavaad" (arbitration).

The High Court rejected this argument based on principles of harmonious construction and commercial common sense. It noted four key reasons:

a) There was no express language excluding these specific disputes from the ambit of the broad arbitration clause.

b) It would be commercially illogical to split the dispute resolution process, sending disputes about the development to arbitration while reserving disputes about the consideration for that development for the courts.

c) The relief sought in the suit was for a quantum of saleable area that differed from what was specified in the clauses covered by the purported court-specific provision, thereby bringing it under the general arbitration clause anyway.

d) When parties agree to arbitrate, they are presumed to have intended for all their disputes to be resolved in a single, consolidated forum.

Overall, the Bombay High Court’s ruling strongly reinforces India’s pro-arbitration policy architecture. Where parties have expressly chosen arbitration, that choice governs the entire contractual framework — including supplemental or ancillary agreements — unless a clear exclusion is agreed. The courthouse doors cannot be an escape route to disengage from a contractual promise to arbitrate. Allegations of fraud without serious public ramifications will not suffice to bypass arbitration; nor will strategic pleading aimed at splitting forums. By reaffirming the broad remedial powers of arbitral tribunals and curbing judicial intervention at the Section 8 stage, the Court has advanced commercial certainty and strengthened India’s position as an arbitration-supportive jurisdiction. For businesses entering layered development or investment structures, the message is clear: the arbitration clause in the principal agreement remains the anchor and will hold firm unless explicitly displaced.