Court’s Decision
The Calcutta High Court, presided by Justice Aniruddha Roy, dismissed an application seeking impleadment of the presiding arbitrator in proceedings under Section 36(2) of the Arbitration and Conciliation Act, 1996. The Court held that unless a prima facie case of fraud or corruption under Section 36(3) is established, impleadment of the arbitrator is premature. The Court emphatically observed, “the cart cannot be placed before the horse.”
Facts
The award-debtor sought an unconditional stay of the arbitral award dated 30 November 2023, alleging that the presiding arbitrator had undisclosed associations with the award-holder, thereby demonstrating bias. The award-debtor contended that this undisclosed relationship rendered the award vitiated by fraud and/or corruption under Section 36(3). When the award-holder opposed this during final arguments in the main Section 36(2) application, the award-debtor moved a fresh interlocutory application seeking to implead the presiding arbitrator to address the bias allegations and justify the prayer for an unconditional stay.
Issues
- Whether allegations of “bias” against the presiding arbitrator constitute “fraud” or “corruption” under Section 36(3) of the Arbitration Act to justify an unconditional stay of an arbitral award.
- Whether the arbitrator could be impleaded at this stage of proceedings under Section 36(2) on the basis of such allegations.
Petitioner’s Arguments
The award-debtor, through the Advocate General, argued that:
- The arbitrator failed to disclose his repeated attendance at events connected with the award-holder during the pendency of arbitral proceedings.
- This non-disclosure amounted to bias and fell within the meaning of “fraud” under Section 36(3), justifying an unconditional stay.
- The award-debtor was unaware of these facts during the arbitration but discovered them after the award, and hence could not raise objections earlier.
- In support, reliance was placed on:
- Vinod Bhaiyalal Jain v. Wadhwani Parmeshwari Cold Storage [(2020) 15 SCC 726]
- Microsoft Corporation v. Zoai Founder [2023 SCC OnLine Del 3800]
- Venture Global Engineering v. Satyam Computer Services Ltd. [(2010) 8 SCC 660]
- The petitioner argued that bias was an element of fraud, and hence the arbitrator ought to be impleaded to address these serious allegations.
Respondent’s Arguments
The award-holder opposed the application as a belated, tactical move:
- Bias is not included in the specific grounds enumerated under Section 36(3) for unconditional stay—only “fraud” and “corruption” are.
- The schedules to the Act (Fifth and Seventh) exhaustively list instances requiring disclosure; the present allegation did not fall under any of them.
- There was no prima facie case of fraud made out on the face of the award.
- The award-debtor was aware of the alleged connections in 2022 but failed to object within the statutory 15-day period under Section 13(2), thereby waiving the right.
- Cited Kothari Industrial Corporation Ltd. v. Southern Petrochemicals Industries Corporation Ltd. [2021 SCC OnLine Mad 5325] to argue that arbitrators should not be impleaded unless specific personal allegations are made requiring their response.
- Also referred to SRMB Srijan Ltd. v. Great Eastern Energy Corporation Ltd. [2024 SCC OnLine Cal 2089], to reinforce the limited scope of Section 36(2) compared to Section 34.
Analysis of the Law
The Court reaffirmed the legislative distinction between Section 34 and Section 36 proceedings under the Arbitration and Conciliation Act, 1996. It emphasized that while Section 34 allows for detailed judicial scrutiny to set aside an award, Section 36(2) is restricted in scope and focuses solely on whether prima facie fraud or corruption existed in the making of the award.
The term “bias” does not independently feature in Section 36(3), and the Court declined to conflate it with “fraud” absent clear legislative intent. The Court also held that none of the grounds raised by the petitioner appeared prima facie to establish fraud or corruption warranting an unconditional stay.
Precedent Analysis
- Vinod Bhaiyalal Jain v. Wadhwani Parmeshwari Cold Storage
The Supreme Court held that an arbitrator must be impleaded when fraud allegations are made against them in Section 34 proceedings. - Microsoft Corporation v. Zoai Founder
Followed a similar approach in requiring the arbitrator’s presence in cases involving allegations of misconduct, again in the context of Section 34. - Kothari Industrial Corporation Ltd. v. SPIC Ltd.
The Madras High Court cautioned against routinely impleading arbitrators unless necessary due to specific allegations. - Venture Global Engineering v. Satyam Computer Services Ltd.
Recognized the broad and varied nature of “fraud” in law, but not directly applicable at the pre-threshold stage of a Section 36(2) application. - SRMB Srijan Ltd. v. GEEC Ltd.
Clarified that a prima facie finding of fraud must be visible on the face of the record for invoking the proviso under Section 36(3).
Court’s Reasoning
The Court held that impleadment of the presiding arbitrator was premature in the absence of a prior prima facie finding of fraud or corruption. It reasoned:
- The scope of Section 36(2) does not permit full adjudication of bias unless fraud or corruption is clearly established at the outset.
- The judgments relied upon by both parties were in the context of Section 34, not Section 36.
- The award-debtor failed to make out a prima facie case for fraud or corruption and therefore could not seek impleadment of the arbitrator at this stage.
Conclusion
The Court dismissed the application seeking impleadment of the presiding arbitrator as premature, holding:
“Unless this court arrives at a prima facie finding of fraud or corruption or even bias as alleged… the question of impleadment… does not and cannot arise. The cart cannot be placed before the horse.”
The matter will now proceed on merits under Section 36(2).
Implications
- Reinforces that allegations of bias alone do not justify unconditional stay under Section 36(2).
- Confirms that Section 36(2) has a narrow scope distinct from Section 34 and cannot be used to expand grounds for challenging an award.
- Establishes that impleadment of an arbitrator must be preceded by a prima facie finding of fraud or corruption.
FAQs
Q1: Can allegations of bias alone justify an unconditional stay of an arbitral award under Indian arbitration law?
No. As held in this case, “bias” is not expressly included in Section 36(3) of the Arbitration and Conciliation Act, 1996. A prima facie case of fraud or corruption is essential to justify an unconditional stay.
Q2: Is impleadment of an arbitrator necessary in Section 36 proceedings when bias is alleged?
Not initially. The arbitrator can only be impleaded after the court arrives at a prima facie finding of fraud or corruption under Section 36(3).
Q3: What is the difference between Section 34 and Section 36(2) proceedings under the Arbitration Act?
Section 34 deals with setting aside the award and permits detailed scrutiny, whereas Section 36(2) only addresses enforcement and allows stay of the award based on limited grounds, primarily fraud or corruption.