Does absence of arbitration clause in an agreement render the dispute non-arbitrable? Bombay High Court answers

Introduction

This article presents a detailed case analysis of the judgement rendered by the Bombay High Court in Om Swayambhu Siddhivinayak v. Harischandra Dinkar Gaikwad and Ors. [Arbitration Appeal 21/2025] (“Judgement”), delivered by Justice Somasekhar Sundaresan on 04.11.2025. The appeal, filed under Section 37 of the Arbitration and Conciliation Act, 1996 (“A&C Act, 1996”) challenged an order dated 11.03.2025, in which the District Court rejected the Appellant-Developer’s application under Section 8 of the Act, thereby retaining jurisdiction over a commercial dispute.

The analysis of this judgment is crucial as it reaffirms the binding, pro-arbitration stance mandated by the 2015 amendments to the A&C Act, 1996, particularly concerning the limited scope of judicial scrutiny under Section 8.

Facts

The dispute originated from commercial transactions between the Appellant/Developer (Om Swayambhu Siddhivinayak) and the Respondent/Owners concerning a Development Agreement dated 03.05.2011. Clause 30 of the Development Agreement contained the arbitration clause covering “all disputes and differences between the parties in connection with the development contracted”. A subsequent Supplemental Agreement dated 25.05.2021, was executed to record the satisfaction and flow of consideration under the Development Agreement.

The Owners filed Special Civil Suit No. 157 of 2024, seeking two main reliefs: specific performance for the delivery of developed area and cancellation of the Supplemental Agreement. One of the major contentions for seeking cancellation of Supplemental Agreement that the same was a product of fraud, alleging misuse of signatures on blank papers. On the contrary, the Developer filed an Application under Section 8 of the A&C Act, 1996 to refer the dispute to arbitrator.

The Ld. District Court rejected the Application filed by the Developer under Section 8 of A&C Act, 1996 vide the Impugned Order dated 11.03.2025, based on the reasoning that the Supplemental Agreement did not contain an arbitration clause, thereby concluding that the arbitrator was not competent to arbitrate the disputes arising out of the Supplemental Agreement.

Issues

• Whether the disputes arising from the Supplemental Agreement fell within the scope of the arbitration clause (Clause 30) of the Development Agreement.
• Whether allegations of fraud concerning the execution of Supplemental Agreement render the dispute non-arbitrable.

Analysis and Reasonings

The High Court found the Impugned Order to be unsustainable as the District Court failed to analyze the commonality of the subject matter under the broad terms of the arbitration agreement. The reasoning/findings of the High Court are summarized under the below heads:

Nexus of the Supplemental Agreement

The High Court examined the substantive purpose of the Supplemental Agreement and reasoned that since the Supplemental Agreement’s entire purpose was to record the discharge of consideration, i.e. a core obligation under the Development Agreement, it was inextricably linked and covered by the language of Clause 30 of the Development Agreement.

The Court emphasized that Clause 30 is a “conventional and expansive arbitration clause without any exclusions in its language” and thus covers disputes relating to the primary instrument. Consequently, the Supplemental Agreement which merely addresses a consequential element of the main contract, is considered an “adjectival element of the substance of the Development Agreement” and thus covered by the arbitration clause of the main contract, notwithstanding the absence of an independent clause in the Supplemental Agreement.

Harmonization of the Contractual clauses

The Respondents’ argument relied heavily on the contradiction between Clause 13 (referring to a nyayalay or Court, for specific area delivery) and Clause 30 (referring to lavaad or arbitration, for general disputes) of the Development Agreement.

Firstly, the High Court determined that for a provision like Clause 13 to operate as a binding exclusion from arbitration, it must contain clear, explicit carve-out language in either Clause 13 or Clause 30. However, since no such exclusionary language existed, reading the contract with commercial common sense dictated that the reference to nyayalay need not be read as exclusively contra-distinguished from arbitral tribunal. ‘Nyayalay’ could be referred to as the dispute resolution forum.

Secondly, the Court opined that the argument that the parties intended to resolve development matters by arbitration, but consideration/delivery matters by Court was commercially illogical, as it is not reasonable for parties to compartmentalize disputes arising from one unified commercial contract in fragmented manner.

Arbitrability of Fraud

Another major argument before the High Court was that the allegations of fraud and request for cancellation of the Supplement Agreement are covered under Section 31 of the Specific Relied Act, 1963, thus rendering the dispute non-arbitrable.

The High Court relied on the following Supreme Court judgements, which have been summarized hereunder:

- Sushma Shivkumar Daga v. Madhurkumar Ramkrishnaji Bajaj & Ors: This case was cited for reaffirming that the basic purpose of the 2015 amendments was to minimize judicial intervention in arbitration matters, except where a valid arbitration agreement prima facie does not exist. Furthermore, the judgment established the narrow legal test for ousting arbitration jurisdiction based on fraud, stating that the allegation of fraud must satisfy one of two conditions:

(1) it must permeate the entire contract, including the arbitration agreement, rendering it void; or

(2) it must involve implications in the public domain (in rem), as opposed to internal affairs (inter partes).

- Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties: It was held in the present judgement that fraud related to contract inducement under Section 17 of the Indian Contract Act, 1872, or performance, is considered a civil wrong and is eminently arbitrable. Disputes involving mutual rights and obligations (in personam), even if they possess “criminal overtones”, are arbitrable.

Applying the principles established in the abovementioned judgements, the High Court noted that the allegation that the Supplemental Agreement was obtained by taking signatures on blank paper is a dispute which is strictly inter parties. Such fraud, concerning the inducement or performance of the contract, amounts to a civil wrong. To oust the arbitrator’s jurisdiction, the fraud must be “serious in nature”, permeate the arbitration agreement itself, or involve implications in the public domain. Since the dispute over the Supplemental Agreement’s validity and consideration flow was entirely between the Developer and the Owners, it did not meet the high threshold for non-arbitrability.

Decision of the High Court

The Bombay High Court decisively resolved the jurisdictional conflict in favor of arbitration, allowing the Appeal and setting aside the Impugned Order. The judgment mandates that the parties be referred to arbitration, emphasizing that the existence of an expansive arbitration clause in the principal contract covers all subsequent disputes relating to that transaction, even if they involve complex legal questions of fraud or statutory relief.

Further, the High Court clarified that, subsequent to its judgement, the District Court is “denuded of jurisdiction”. Furthermore, to ensure the integrity of the arbitral process and prevent conflicting orders, the District Court was expressly directed not to pronounce its reserved judgment on the interim application. This direction is vital, ensuring that any necessary interim measures are considered by the arbitral tribunal under Section 17 of the A&C Act, 1996, which is the proper forum once jurisdiction is established.

Conclusion

This judgement has settled the position for arbitrability of the disputes that arise in contemporary commercial reality where several subsequent contracts may stem from a primary Principal contract, by affirming their arbitrability. It is a welcome step for the current arbitration landscape in India which is leaning towards minimal judicial intervention and thus, upholds the substance and spirit of the Arbitration Act.