Arbitration Act | Admitted Facts Don’t Breach ‘Twin-Benchmark’ Of Fraud Or Corruption: Calcutta High Court Declines Stay Of Award

The Calcutta High Court has recently dismissed a plea filed by petitioners West Bengal Small Industries Development Corporation Limited (“WBSIDC”) for unconditional stay of an arbitral award passed against it in 2019, on the grounds of fraud and corruption, under Section 36(3) of the Arbitration & Conciliation Act, 1996 (“Act”).In holding that the facts of the case, along with the arguments made by the petitioners would not satisfy the twin threshold of fraud or corruption under Section 36(3), a single-bench of Justice Moushumi Bhattacharya held:The complaint of the petitioner…by no means touches (or even brushes) the threshold of the award being liable to be unconditionally stayed on the ground of fraud or corruption (or more likely being dragged down to the depths) as envisaged under the second proviso to section 36(3) of the Act. Granting stay of an award without imposing conditions on the award-debtor is a departure from the scheme of the Act and must be established within the strict vocabulary used in the second proviso. Any act which falls short of a certain kind of conduct on the part of the arbitrator or of the proceedings will not amount to fraud or corruption. The failing must be brought within the sharpness and intensity of the parameters as decided in the case-law together with the causal nexus with the award. This Court is not satisfied, prima facie, as to the existence of facts which warrant unconditional stay of the operation of the Award.”Brief facts of the caseThe petitioners herein, had moved a prayer for unconditional stay of the impugned Award under the second proviso to section 36(3) of The Arbitration and Conciliation Act, 1996, “which empowers the Court to unconditionally stay an award where the Court is satisfied, prima facie, that the making of the award was induced or effected by fraud or corruption.”It was argued that the sole-arbitrator had adjudicated on two of the claims of made by the respondent on the basis of an “internal note-sheet” which was taken on record during the arbitration proceedings, “in a manner that would satisfy the benchmark of ‘fraud’ and ‘corruption’ under the second proviso to Section 36(3) of the Act”The petitioners submitted that they had been disallowed from tendering the document during cross-examination of the respondent’s witness, but that it was taken on record after the conclusion of arguments. It was further argued that though the petitioner had been given liberty to file their written objection to the internal note, the impugned Award did not deal with any objections, and that the document could only have been admitted as evidence “after being duly proved under the provisions of the Indian Evidence Act, 1872.”The respondents, on the other hand, argued that the petitioner had not been able to make out any case for unconditional stay, and that the petitioner had earlier concealed the aforesaid document, even after multiple requests by the respondent for its disclosure.It was argued that the question of fraud would only come in where “a party had knowingly suppressed a document to the detriment of the other; whereas in the present case the petitioner has suppressed the document.”The respondents further argued that the petitioner did not dispute the contents of the document, or claim that the document was fake or had been manufacture, and that they were even given liberty to file their opposition to the document after it had been taken on record. Findings of the CourtIn examining the contentions raised by the parties and the provisions under Section 36(3) of the Act, the Court discussed the ingredients of unconditional stay of an arbitral award on grounds of fraud and corruption, under its second proviso, while individual examining each ingredient. It was observed:“The second proviso to section 36(3) hence requires a prima facie case to be made out by the award-debtor and the Court being satisfied of the case made out that the arbitration agreement/contract or the making of the award was induced or effected by fraud or corruption. It is a significant addition made to the Act in 2021. Before the 2021 amendment, the award-debtor could seek stay of the operation of an award and pass such an order without imposing any conditions for stay of the award. Post-amendment, the award-debtor must however, discharge the onerous task of showing, at least prima facie, that the award was induced by fraud or corruption.”Due to the absence of any statutory explanations for the terms of ‘fraud’ or ‘corruption’ within the Act, the Court looked at several settled decisions of the Supreme Court as well as other statutes such as the Indian Contract Act, 1872, and the works of legal scholars in order to ascertain what fraud and corruption under the Act meant. On the threshold for fraud, it was held:“The definition of fraud, as settled in the decisions referred to above, substantially point to a consensus that the facts concealed or suppressed must have a causative link with ...

Arbitration Act | Admitted Facts Don’t Breach ‘Twin-Benchmark’ Of Fraud Or Corruption: Calcutta High Court Declines Stay Of Award

Srinjoy Das

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