Threshold To Prove Fraud & Corruption By Arbitrator Much Higher Than Criticism Of His Findings: Calcutta High Court
The Calcutta High Court was hearing an Application filed by a bank under Section 36(2) of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Calcutta High Court observed that the threshold to prove fraud and corruption by the Arbitrator in the making of the Award would be much higher than a criticism of his findings.
The Court observed thus in an Application filed by a bank under Section 36(2) of the Arbitration and Conciliation Act, 1996 (A&C Act).
A Single Bench of Justice Shampa Sarkar held, “Under such circumstances, this court holds that the petitioner has failed to discharge the onerous duty to, prima facie, satisfy from the records that, the making of the award was vitiated by fraud and corruption. The threshold to prove fraud and corruption on the part of the learned Arbitrator in the making of the award would be much higher than a criticism of the findings of the learned Arbitrator. The petitioner would have to demonstrate unethical behaviour of the Arbitrator, which surpassed all moral standards.”
Senior Advocate Rupak Ghosh appeared on behalf of the Petitioner while Advocate Swatarup Banerjee appeared on behalf of the Respondent.
Brief Facts
The dispute referred to arbitration in this case, arose out of an agreement for assignment (AFA) and a designated account agreement (DAA). The Claimant/Respondent referred the dispute by invoking the arbitration clause in the AFA. The Petitioner-Bank prayed for an unconditional stay of the award passed by the Sole Arbitrator. The case of the Respondent before the Arbitrator was that the Petitioner had extended a credit facility to the Respondent. The Respondent assigned the right, title, and interest of the rent payable by Mahalaxmi Infra Contract Limited under the Master Lease Agreement to the Petitioner under the AFA. In furtherance to the AFA, the parties entered into the DAA and Mahalaxmi was to deposit the lease rentals which included applicable GST (Goods and Services Tax) directly in the escrow account maintained with, held, and operated by the Petitioner.
The Petitioner was supposed to transfer the amount of indirect tax (CGST and SGST) to the Respondent’s account that was received from Mahalaxmi. It was alleged by the Respondent that the Petitioner had illegally and unlawfully withheld a sum out of the GST amount. As the Petitioner did not revert to the letters and demand notices, the dispute was referred to arbitration. The Sole Arbitrator withdrew himself from the arbitration and then the Respondent proposed the name of another Arbitrator who passed the Award. The Petitioner challenged this award before the High Court.
Reasoning
The High Court in view of the above facts, noted, “An honest mistake or the incorrect appreciation of the terms of the contract cannot be either fraud or corruption. Moreover, the petitioner has also failed to substantiate that the respondent had intentionally withheld documents in order to mislead the learned Arbitrator and had obtained the award by unfair means. The petitioner was permitted to produce documents and calculations including the sanction letter and the RBI circular, which the petitioner failed to do. After closure of arguments, a unilateral statement of account was sought to be produced, which the learned Arbitrator held could not be looked into.”
The Court said that the Petitioner had failed to show, prima facie, that the Respondent had deliberately, in a premeditated way and with an intention to gain undue advantage, had suppressed and concealed documents from the Arbitrator or had misled the Arbitrator into the making of the award.
“The law is well settled. An award debtor will have to secure the entire amount awarded, which includes the principal as also interest. This court does not find any reason to grant unconditional stay of the award”, it added.
The Court further observed that the Petitioner must secure the sum of Rs. 8,40,52,832/- by furnishing a bank guarantee to the satisfaction of the Registrar Original Side, Calcutta and that the bank guarantee shall be kept renewed from time to time.
“There shall be unconditional stay of the award for a period of four weeks from date and the stay shall continue till disposal of the application under Section 34 of the Arbitration Conciliation Act, 1996, upon compliance of this order. In case of default, the stay shall be vacated”, it also ordered.
Accordingly, the High Court directed the parties to act on the server copy of its Judgment.
Cause Title- Karur Vysya Bank v. SREI Equipment Finance Limited (Case Number: AP-COM/947/2024)
Appearance:
Petitioner: Senior Advocate Rupak Ghosh and Advocate Sweta Gandhi.
Respondent: Advocates Swatarup Banerjee, Sariful Haque, Rajib Mullick, and Biswaroop Ghosh.
