Arbitration In IndiaUncategorizedUnconditional Stay on Arbitral Award can be granted only when Fraud or Corruption can be proved prima facie

The Calcutta High Court, in West Bengal Small Industries Development Corporation Limited (WBSIDC) V Kaushalya Infrastructure Development Corporation Limited (KIDCO), [AP 174 OF 2022, decided on 26.07.2023], held that proving of prima facie fraud and corruption in the Arbitral Award is a sine qua non for staying the award.

FACTS

The West Bengal Small Industries Development Corporation Limited (hereinafter referred to as the  “Petitioner”) sought an unconditional stay of operation of an Arbitral Award dated 22.04.2019 (hereinafter referred to as “impugned award”), which directed the Petitioner to pay an amount of Rs. 13.06 crores to Kaushalya Infrastructure Development Corporation Limited (hereinafter referred to as “Respondent”). The Petitioner has filed the present petition under the second proviso to Section 36(3) of the  Arbitration and  Conciliation  Act, 1996 (hereinafter referred to as the “A&C Act”), wherein an unconditional stay on impugned award can be granted where prima facie the impugned award was induced or effected by fraud or corruption.

ISSUES BEFORE CALCUTTA HIGH  COURT

1. Whether an unconditional stay can be granted on the impugned award on the allegations of fraud and corruption under the proviso of Section 36(3) of the A&C Act?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the internal note sheet based on which the impugned award was passed, was taken on record during the arbitral proceedings in a way that would fall under fraud and corruption as the exception carved out under second proviso to Section 36(3) of the A&C Act.

It was also argued that the Petitioner was not allowed to place the document on record during the cross-examination of the Petitioner’s witness and was taken on record only after conclusion of arguments. Moreover, the impugned award nowhere deals with the objections raised by the Petitioner.

It was also submitted that a document can only be admitted in accordance with the provision of the Indian Evidence Act, 1872 and the same has not been adhered to by the Ld. Arbitrator.

The  Respondent contended that the Petitioner had concealed the documents despite of several requests of the Respondent. Moreover, fraud can only be invoked when any of party has knowingly suppressed a document. Whereas, in the present case the Petitioner has suppressed the document.

It was argued that the Petitioner had merely alleged that it was a manufactured document, but has nowhere objected to the contents of the document. Therefore, none of the facts placed by the Petitioner would vitiate the impugned order.

DECISION AND FINDINGS

The Calcutta High Court observed the provisions of Section 36 of the A&C Act and further examined the second proviso to Section 36(3) of the A&C Act which was inserted retrospectively with effect from 23.10.2015, vide Amendment Act of 2021.

It was also held that the onus was on the Petitioner to prove that the impugned award was prima facie fraudulent or corrupted. Further the provisions of fraud under Section 17 of the Indian Contract Act, 1872 was observed and further “corrupt” was considered.

It was observed that the element of “fraud” shall be proved beyond concealment. Moreover, the conduct of “corruption” cannot be mere dishonesty of the Ld. Arbitrator, but shall be of moral turpitude and the decision shall render unjust enrichment to the award holder. It was further held that neither of the elements were apparent in the impugned award.

The Calcutta Pradesh High Court dismissed the Petition on the ground that prima facie neither fraud nor corruption was apparent as per proviso of Section 36(3) of the A&C Act.

AMLEGALS REMARKS

The Calcutta High Court dismissed the Petition due to failure to discharge prima facie existence of fraud and corruption in the impugned order and hence, the impugned award cannot be stayed under proviso of Section 36(3) of the A&C Act.

Furthermore, the Amendment made in 2015 in the A & C Act, states that mere filing of an application under Section 34 would not render a domestic arbitral award unenforceable. So, if an unconditional stay on the operation of the Award is being sought, it has to be sought specifically from the relevant court under 36(3) A & C Act.

– Team AMLEGALS, assisted by Ms. Aradhana Jain (Intern)