Allegations of fraud inter se do not render a dispute non-arbitrable under Section 8.

Respondent No. 1 (Plaintiff) filed a suit (Com.OS.No.121/2023) seeking recovery of ₹4,00,10,000/- from the Defendants

The Plaintiff alleged he invested ₹2,85,00,000/- in the firm M/s Sea Line Trading based on representations that he would be inducted as a partner

While the Plaintiff claimed the money was lent in a personal capacity, he also admitted that the transaction was evidenced by a partnership reconstitution deed dated 26.04.2018 and a retirement deed dated 01.03.2019

Both deeds contained arbitration clauses

Disputes arose regarding the dishonour of settlement cheques, and the Appellant (Defendant No. 3) filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (A Act) to refer the parties to arbitration

The Commercial Court rejected the application, holding that the claim pertained to money lent prior to the agreements and that the Plaintiff was not bound by the arbitration clauses for such personal loans

1. Whether the dispute is covered by the arbitration agreement despite the Plaintiff's claim that the money was lent in a personal capacity prior to the execution of the partnership deeds

2. Whether Section 69(3) of the Partnership Act, 1932, bars a Section 8 application by a partner of an unregistered firm

3. Whether the Commercial Courts Act, 2015, overrides the AC Act and ousts the jurisdiction of the Arbitral Tribunal

4. Whether allegations of fraud by the Plaintiff render the dispute non-arbitrable

The court applied Section 8 of the AC Act, which mandates a judicial authority to refer parties to arbitration if a valid agreement exists

It relied on the "Separability Doctrine" as affirmed in Interplay between Arbitration Agreement... In Re:, establishing that an arbitration clause is a distinct agreement from the underlying contract

Regarding fraud, the court applied the tests from Avitel Post Studioz Ltd. v. HSBC PI Holdings (Mauritius) Ltd. and Vidya Drolia v. Durga Trading Corp., which narrowed non-arbitrable fraud to cases involving the public domain or a total lack of consent to the arbitration clause

It further held that Section 69 of the Partnership Act, 1932, bars the institution of a suit by an unregistered firm but does not bar a defendant from seeking a referral to arbitration under Section 8

The High Court held that the Commercial Court's finding—that the dispute was a personal loan—was erroneous because the Plaintiff’s own pleadings linked the payment directly to his entry into the partnership

The court noted that under Section 8, the judicial authority's role is strictly limited to a prima facie determination of the existence of a valid arbitration agreement

On the issue of non-registration, the court clarified that the Appellant was not suing as a partner to enforce a contract but was defending a suit, thus Section 69 of the Partnership Act was inapplicable

Addressing the Commercial Courts Act, the court observed that Section 10 of that Act explicitly provides for the handling of arbitration matters, thereby reinforcing rather than ousting the AC Act

Finally, regarding fraud, the court determined that the allegations were "inter-party" and did not permeate the arbitration agreement itself or involve the public domain, making them fully arbitrable

The court held that the disputes were connected to the partnership agreements and that the statutory bars raised by the Respondent (non-registration, the Commercial Courts Act, and fraud) were meritless

Consequently, the parties were referred to arbitration as mandated by Section 8 of the AC Act