A PRIMA FACIE CASE OF FRAUD MUST BE ESTABLISHED BEFORE AN ARBITRATOR CAN BE IMPLEADED IN APPLICATION UNDER SECTION 36(2): CALCUTTA HC HOLDS

In a recent judgment delivered on June 19, 2025, the Calcutta High Court in the case titled West Bengal Industrial Development Corporation Ltd. v. TATA Motors Ltd. 2025 SCC OnLine Cal 4969, examined whether an arbitrator accused of bias could be impleaded in proceedings seeking an unconditional stay of an Arbitral Award under Section 36(2) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Bench presided by Justice Aniruddha Roy held that unless a prima facie case of fraud or corruption is established, impleadment of the Arbitrator is impermissible at this stage.

Background of the Case

The dispute arose from arbitral proceedings between West Bengal Industrial Development Corporation Ltd. (WBIDC), the Award-Debtor, and Tata Motors Ltd. (TML), the Award-Holder. The Arbitral Award was challenged by WBIDC under Section 34 of the Act, seeking to set aside the award on grounds including bias. Separately, WBIDC filed an application under Section 36(2) praying for an unconditional stay of enforcement of the award.

In the stay proceedings, WBIDC alleged that the presiding Arbitrator had demonstrated bias, citing the Arbitrator’s attendance at multiple launch events organized by TML during the pendency of arbitration. According to WBIDC, these circumstances amounted to bias, undermining the independence of the Tribunal. Consequently, WBIDC filed an interlocutory application seeking to implead the Arbitrator as a party, contending that without his participation, the Court could not fully adjudicate the allegations.

Arguments Advanced

The Advocate General for WBIDC argued that Section 36(3) of the Arbitration Act requires an unconditional stay if the Court is satisfied that the making of the award was induced or affected by fraud or corruption. He contended that bias is an element of fraud and thus falls within this provision. To support this assertion, he relied on decisions such as Vinod Bhaiyalal Jain v. Wadhwani Parmeshwari Cold Storage (2020) 15 SCC 726 and Microsoft Corporation v. Zoai Founder 2023 SCC OnLine Del 3800, where allegations of bias had led to impleadment of the Arbitrator in Section 34 proceedings. He further submitted that the Arbitrator’s presence as a party was necessary to enable him to respond to the allegations.

On the other hand, counsel for TML opposed the application, arguing that it was a belated attempt to derail the proceedings, filed only at the tail end of final arguments in the Section 36(2) Application. He further emphasized that the incidents complained of had occurred well before the award was passed. WBIDC had knowledge of the same and since it failed to raise objections during the arbitral proceedings itself, therefore, has now waived its right to take this plea at this belated stage.

Additionally, TML’s counsel contended that “bias,” even if established, does not fall within the scope of the second proviso to Section 36(3), which explicitly refers only to fraud and corruption as grounds warranting an unconditional stay. The counsel further submitted that Section 36(2) proceedings are limited in scope and are not intended to become mini-trials of broader challenges that properly belong in Section 34 proceedings.

Court’s Analysis and Findings

Justice Roy noted at the outset, that the scope of adjudication of ‘Fraud’ under Section 34 and Sections 36(2) and (3) of the Arbitration and Conciliation Act are fundamentally different. While Section 34 permits a comprehensive review of the Arbitral Award, including an inquiry into fraud and corruption, Section 36(2) is narrowly focused on whether there is a prima facie case of corruption or fraud, sufficient to justify staying enforcement of the award.

The Court observed that the Supreme Court precedents cited by WBIDC arose in the context of Section 34 proceedings, where the merits of allegations against the arbitrator were directly under scrutiny. By contrast, in Section 36(2) applications, the Court’s task is limited to identifying whether a prima facie finding of fraud or corruption can be made. Permitting impleadment of an Arbitrator, before prima facie finding of fraud or corruption or even bias as alleged by the Award-Debtor, in the facts of this case would invert the statutory process.

The Court also declined to rule definitively on whether bias can be treated as a subset of fraud within the meaning of Section 36(3), stating that this issue must be addressed at a later stage, if necessary.

On the issue of timing, the Court agreed with the Award-Holder’s submission that the application was filed at a late stage of the hearing, lending credence to the argument that it was a delaying tactic. The Court noted that WBIDC had been aware of the Arbitrator’s attendance at TML events much earlier and failed to object contemporaneously. The Court ultimately held that unless it first arrives at a prima facie determination that the Award was induced or affected by fraud or corruption, there is no occasion to implead the Arbitrator. Accordingly, the application to implead the Arbitrator as a party was dismissed as premature.

Conclusion

This Decision underscores that in proceedings under Section 36(2), the threshold for impleading an Arbitrator remains high, and mere allegations of bias without a prior prima facie finding cannot justify impleadment. The Judgment also illustrates the distinction in scope between challenges to enforcement of an Award and proceedings to set it aside.

 

Yash Hari Dixit

Associate

The Indian Lawyer and Allied Services

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