Arbitrator Can't Be Impleaded In Application U/S 36(2) Of A&C Act Unless Prima Facie Case Of Fraud Or Corruption Is Established: Calcutta HC

The Calcutta High Court bench of Justice Aniruddha Roy has held that when an application under Section 36(2) seeking unconditional stay of the award on the ground of fraud or corruption is pending adjudication, the question of impleading the person who delivered the award does not arise at such a premature stage. Unless the court, upon examining the application, arrives at a prima facie finding that the award was indeed procured by fraud or corruption, impleadment is neither necessary nor maintainable. Brief Facts: This GA No. 1 of 2025 is an application taken out by the award-debtor (WBIDC) as an interlocutory application in a proceeding filed by it under Sub-Section 2 to Section 36 of the Arbitration and Conciliation Act, 1996. In the application filed by the award-debtor under Sub-Section 2 to Section 36 of the Arbitration Act, an unconditional stay of operation of the award dated November 30, 2023 passed by the Arbitral Tribunal and the consequential interim order have been prayed for. The Award Debtor submitted that the award dated October 30, 2023, was passed by a three-member arbitral tribunal. The award-debtor has filed a petition under Section 34 of the Arbitration Act to set aside the award, along with an application under Section 36(2) seeking an unconditional stay. The present interlocutory application has been filed in that proceeding. It was further submitted that under the second proviso to Section 36(3) of the Arbitration Act, the award-debtor seeks an unconditional stay, alleging that the arbitral award was induced by fraud or corruption. It is submitted that one arbitrator repeatedly attended car launch events organized by the award-holder during the pendency of the proceedings—facts unknown to the award-debtor until after the award was published. Citing non-disclosure and alleged bias, these grounds were raised in the Section 34 challenge and the present application under Section 36(2). It was further argued that the fraud cannot be put in a straight jacket and has a very wide connotation in legal parlance and fraud is infinite in variety, he has placed reliance upon a decision of the Hon'ble Supreme Court in Venture Global Engineering vs. Satyam Computers Services Limited, (2010). In reply, the Award Holder submitted that the instant application, filed by the award-debtor at the final stage of the Section 36(2) hearing, is contended to be a delaying tactic and an afterthought. It was further submitted that if fraud is alleged against an arbitrator in a Section 34 proceeding, the arbitrator must be impleaded to afford them an opportunity to respond to the allegation. It was also argued that Bias is not a ground contemplated under the second proviso to Section 36(3) of the Arbitration Act, which permits unconditional stay only where fraud or corruption is prima facie established. The statutory framework, including the relevant schedules, defines fraud and corruption but does not include bias. Since the award-debtor has not pleaded specific instances of fraud or corruption as per the statute, and no prima facie case is evident from the record or the award itself, the requirements of Section 36(3) are not satisfied. Observations: The court noted that at the outset, it appears that the instant application is premised on the Supreme Court's judgments in Vinod Bhaiyalal Jain and Microsoft Corporation, both of which were rendered in the context of Section 34 proceedings. While a Section 34 court may review the award in detail within its limited jurisdiction, the grounds of fraud, corruption, or bias must be adjudicated at that stage. For an unconditional stay under Section 36(2), the applicant must clearly establish fraud or corruption by the tribunal as defined under Section 36(3); mere allegations of bias do not suffice. It further added that at that stage the setting aside court in exercise of its power under Section 36 (2) and (3) of the Arbitration Act, shall first has to arrive at a prima facie view that there has been an element of fraud or corruption as defined under sub-Section (3) to Section 36 of the Act. The scope of adjudication under Section 34 and Section 36(2) and (3) of the Arbitration Act are totally different. The court held that by the instant application, the award-debtor seeks to implead the concerned arbitrator even before the Section 36(2) application is adjudicated. However, unless the court first arrives at a prima facie finding of fraud, corruption, or even bias on the facts, such impleadment is premature and unwarranted. As reiterated, the cart cannot be placed before the horse. The court concluded that the Section 36(2) application is still pending, and it is only in the course of adjudicating that application that the court can determine whether a prima facie case of fraud or corruption exists to warrant an unconditional stay. Until such a finding is made, ...

Arbitrator Can't Be Impleaded In Application U/S 36(2) Of A&C Act Unless Prima Facie Case Of Fraud Or Corruption Is Established: Calcutta HC

Mohd Malik Chauhan

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