[Arbitration Act] To Prove Corruption Of The Arbitrator, It Should Be Evident From The Award Itself That He Tried To Curb The Course Of Justice

Background Facts

In 2016, the Railways floated a tender for leasing of parcel cargo express train from Chitpur to Kalyan on a round–trip basis for a period of six years, in which the Respondent appeared as the highest bidder. On February 17, 2017, an agreement was executed between the Petitioners and the Respondents, and the Respondent started operation from February 28, 2017.

The allegations of the Petitioners against the Respondent were that frivolous issues were raised, compelling the Petitioners to come up with a timetable for the departure and arrival of trains and to ensure stoppage at the en-route station. When differences regarding this persisted between the parties, the Respondent terminated the agreement and invoked the arbitration clause. The arbitral award was passed by the Sole Arbitrator on October 9, 2023. The present application under Section 36(2) of the Arbitration and Conciliation Act, 1996 sought an unconditional stay of the said award.

Contentions

The Additional Solicitor General submitted that this was a fit case for an unconditional stay of award as the Arbitrator had allowed the claims beyond the scope of the agreement. The Arbitrator relied on a circular of the Railways, which did not form part of the contract. Such reliance on extraneous materials which did not form part of the record rendered the award perverse and unreasonable, and such findings by the Arbitrator would shock the conscience of a reasonable man.

According to the ASG, the Arbitrator was swayed by the concocted and fabricated story of the Respondent and proceeded to pass the award without looking into cogent evidence. Thus, the award was induced by an untrue statement of the Respondent and vitiated by fraud. The fact that the Respondent persuaded the Arbitrator to make and publish the award on the basis of the said inapplicable circular makes the award vulnerable to the allegation of the same being effected or induced by fraud.

The Senior Advocate for the Respondent submitted that the arguments advanced by the Petitioners were on the merits of the award. Consideration of the merits of an award or the probability of the success of the award- debtor in getting the award set aside, could not be a ground for unconditional stay of the award. The entire submissions by the Petitioners were on how the Arbitrator had gone wrong in appreciating the evidence adduced by the parties, wrongly applied the circular and misinterpreted the provisions of law while holding the Petitioners to be in breach of the contract.

Observations

The Court observed that if it prima facie appears to the court that either the arbitration agreement or the contract which formed the subject-matter of the arbitral proceedings or the making of the award was affected or induced by fraud or corruption, an unconditional stay of the award can be granted. In the present case, the Respondent had not argued that the arbitration agreement was effected or induced by fraud or corruption. Rather the allegation was that the making of the Award was induced by fraud and corruption as the Arbitrator had acted on the misrepresentation of the Respondent and relied on extraneous documents.

The Court observed that fraud and corruption should be ex facie available from the face of the records. The views of the Arbitrator in the present case were based on the records and evidence. Whether such views are plausible views or are unreasonable and shocking to the conscience of the court could not be decided at the stage of dealing with the prayer for an unconditional stay of the award.

The Court observed that the expression “making of the award” would mean that the award must have been obtained by a party to the arbitration upon suppressing material evidence or by making false statements before the arbitrator in order to take an unfair advantage over the other party. In the present case, the petitioners have not been able to, prima facie; establish that any of these situations had arisen in the making of the award. There was nothing on record to show that vital documents had been either concealed or that false statements had been made before the Arbitrator, which had a causative link with the facts constituting and culminating in the award.

The Court clarified that corruption by an Arbitrator will mean a moral obliquity. However, an honest mistake or erroneous appreciation of law might not appear to be reasonable to the court, but such defects in the award could be an act of corruption on the part of the arbitrator.

It was further held that corruption of the Arbitrator should be such that it would be, prima facie, evident from the award itself that the Arbitrator had tried to curb or prevent the course of justice. The burden of proof is rather high. The Petitioners were required to discharge the burden by at least bringing to the notice of this court from the records and from the award that either the respondent had concealed relevant materials or had made false statements, which led the Arbitrator to pass the award in their favour. The Petitioners would have to show, prima facie, that the Arbitrator deliberately passed the award in abuse of the process of law and had illegally obstructed the course of justice.

Accordingly, the Court observed that in the present case, there was no reason to grant an unconditional stay of the award. It further directed that the award would remain stayed until the disposal of the application under Section 34, Arbitration and Conciliation Act, 1996.

Case Title: Union of India v. Rahul Kumar Thakur

Case Number: AP-COM 657/2024

Appearance:

Petitioner - Mr. Asok Kumar Chakraborty, Ld. ASG, Mr. Souvik Nandi, Sr., Adv. Ms. Amrita Pandey, Adv.

Respondent - Mr. Krishnaraj Thaker, Sr. Adv. Mr. Debrup Bhattacharjee, Adv. Mr. Rohan Kumar Thakur, Adv.

Date: 05.03.2025

Click Here To Read/Download The Order