Dispute not Arbitrable if Arbitration Agreement is alleged to be forged

Introduction

Arbitration is fundamentally a creature of consent. But what happens when the very document containing the consent, the arbitration agreement, is alleged to be a forgery? In the recent judgment of Rajia Begum v. Barnali Mukherjee, decided on February 2, 2026, the Supreme Court of India clarified the threshold for refusing arbitration when the existence of the arbitration agreement is under a “grave cloud of doubt”. The Court held that where serious allegations of fraud strike at the root of the arbitration agreement itself, the dispute becomes non-arbitrable and must be adjudicated by a civil court.

The Factual Matrix

The dispute originated from a partnership firm, “M/s RDDHI Gold,” constituted in 2005. The appellant, Barnali Mukherjee, contended that the firm was later absorbed by a company. However, the respondent, Rajia Begum, claimed rights based on a “Deed of Admission and Retirement” (Admission Deed) dated April 17, 2007, which allegedly inducted her as a partner and retired others.

Crucially, this Admission Deed surfaced for the first time in 2016 i.e., nearly nine years after its purported execution. The appellant categorically denied the execution of this deed, labelling it a forged and fabricated document. The appellant pointed out that contemporaneous records, including bank documents from 2009-2010, showed the original partners continuing in their roles, contradicting the claim that they had retired in 2007.

The Procedural History

The litigation saw a fractured history across different sections of the Arbitration and Conciliation Act, 1996 (the Act):

1. Section 9 (Interim Relief): The High Court previously denied the respondent interim relief, prima facie finding the existence of the Admission Deed doubtful. This order attained finality.
2. Section 8 (Reference to Arbitration): When the appellant filed a civil suit declaring the deed forged, the respondent sought a reference to arbitration. The Trial Court rejected this, citing serious fraud. However, the High Court, exercising jurisdiction under Article 227, overturned this and referred the matter to arbitration.
3. Section 11 (Appointment of Arbitrator): Conversely, the High Court rejected the respondent’s separate application to appoint an arbitrator, holding that the validity of the agreement needed resolution first.

Issue involved

The Supreme Court was tasked with reconciling these conflicting approaches. The central issue was whether a dispute could be referred to arbitration under Section 8, or an arbitrator appointed under Section 11, when the “very existence of the arbitration agreement itself is seriously disputed on the allegations of forgery and fabrication”.

The Supreme Court’s Verdict

The Bench, comprising Justices Pamidighantam Sri Narasimha and Alok Aradhe, ruled in favor of the appellant, setting aside the High Court’s order referring the matter to arbitration.

1. The “Permeation” Test for Fraud

Reaffirming the principles laid down in A. Ayyasamy and Avitel Post Studioz, the Court distinguished between fraud simpliciter and serious fraud. A dispute is non-arbitrable if the fraud “permeates the entire contract and above all, the agreement of arbitration, rendering it void”. The Court noted that allegations of fraud regarding the arbitration agreement itself stand on a different footing and fall within the realm of non-arbitrability.

2. Factual Inconsistencies Negated Consent

The Court found that the Admission Deed was not merely challenged on weak grounds but was surrounded by suspicious circumstances:

• Inconsistency: The respondent’s husband continued to act as a partner years after the deed claimed he retired.
• Delay: The document was absent from records for nine years.
• Role: Documentary evidence suggested the respondent acted only as a guarantor, not a partner.

3. Finality of Section 9 Findings

The Court held that while Section 9 findings are prima facie, they cannot be ignored when they attain finality. The High Court’s earlier determination that the deed was doubtful was a relevant consideration for the Section 8 and 11 proceedings.

4. Limits of Supervisory Jurisdiction

The Supreme Court criticized the High Court for using Article 227 to upset concurrent findings of the Trial Courts regarding the serious nature of the fraud. The Court emphasized that where the existence of the agreement is in serious dispute, appointing an arbitrator is “premature and legally impermissible”.

Conclusion

The Supreme Court quashed the Section 8 referral and upheld the rejection of the Section 11 application. The judgment serves as a stern reminder that while arbitration is favored, it cannot be used to bypass judicial scrutiny when the foundational contract is credibly accused of being a fabrication. As the Court eloquently stated, “Arbitration… is founded upon consent,” and where that consent is forged, arbitral jurisdiction cannot exist.