-Questions of Law -

-Defence-

TABLE OF CONTENTS
QUESTIONS OF LAW
I.

WHETHER THE COURT CAN REFER THE PARTIES TO ARBITRATION

WHEN IT INVOLVES SERIOUS ALLEGATION OF FRAUD?

II.

DOES

SECTION

26

OF

THE

AMENDMENT

RETROSPECTIVELY OR PROSPECTIVELY?

10

ACT

OPERATE

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-Defence-

SUMMARY OF ARGUMENTS
1.

COURTS

CANNOT

REFER

THE

PARTIES

TO

ARBITRATION

IN

SERIOUS

ALLEGATION OF FRAUD ?

It is humbly stated that arbitral tribunals do not have the substantive jurisdiction to adjudicate
upon complex issues of fact such as those arising out of serious allegations of fraud in the
interest of justice1
In the case of Abdul Qadir v. Madhav Prabhakar 2 which is only an authority for the
proposition that a party against whom an allegation of fraud is made in a public forum, has a
right to defend himself in that public forum. Therefore, these cases conclude that issues
concerning fraud are not arbitrable in Inasia

2.

DOES SECTION

26

OF THE AMENDED ACT APPLY RETROSPECTIVELY OR

PROSPECTIVELY?

The Madras High Court in Delphi TVS Diesel Systems v Union of Inasia W.P. No. 37355 of
2015 issued a notice to the Central Government seeking a clarification on whether the
provisions of the Ordinance had a prospective or a retrospective application.
The Bombay High Court too in Kochi Cricket v BCCI issued notice to examine whether 34
of the ordinance dealing with setting aside of domestic awards would be applicable to
pending cases.
a clarification in the form of 26 was introduced in the Amendment Act which settles the
issue that unless the parties agree otherwise, the Amendment Act will not apply to arbitrations
that were initiated prior to the commencement of this Amendment Act. 1(2) of the
Amendment Act states that it shall be deemed to be applicable from 23 October 2015. The
bill was passed by the Rajya Sabha on 23 December 2015 without any debate.

ARGUMENTS ADVANCED
1 N. Radhakrishnan v Maestro Engineers(2010) 1 SCC 72
2AIR 1962 SC 406
2

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WHETHER THE ARBITRAL TRIBUNAL CAN ARBITRATE UPON ISSUES OF

FRAUD AND CORRUPTION?
Respondent contends that the arbitral tribunal cannot arbitrate upon issues of fraud and
corruption. It is a well-established that national laws determine the matters that are subject to
arbitration. Depending on the applicable law and the disputed matter, disputes about fraud
allegations3, patents, copyright, anti-trust and competition matters may or may not be
arbitrable.56 Since the issues of fraud and corruption are not arbitrable as per the laws of
Inasia the tribunal cannot arbitrate on the same. The lex arbitri in the present case are laws of
Inasia and fraud and corruption are not arbitrable under the laws of Inasia and hence
advancing with the proposed arbitration would be futile.
The lex arbitri in the present case are the laws of Inasia.
Where allegations of fraud and serious malpractices are alleged, the matter can only be
settled by the Court and such a situation cannot be referred to an arbitrator 4.Fraud, financial
malpractice and collusion are allegations with criminal repercussions and as an arbitrator is a
creature of the contract, he has limited jurisdiction 5. The Courts are more equipped to
adjudicate serious and complex allegations and are competent to offer a wider range of reliefs
to the parties in dispute6. The Court may refuse to refer the matter for arbitration and refuse to
stay the proceedings wherever the dispute involves consideration of substantial questions of
law or complicated questions of fact which would depend upon detailed oral and
documentary evidence7. This line of reasoning seems to suggest that fraud is not arbitrable in
Inasia. Therefore, it can be concluded that that since this dispute pertains to fraud and
corruption; the same should be tried in court.
Arbitration Focuses On Settlement Of Disputes Without Going Into The Merits Of The
Case
3
4N. Radhakrishnan v. M/S Maestro Engineers
5RRB Energy Limited vs. Vestas Wind Systems and Ors.
6Id. at 4
7N. Radhakrishnan vs Maestro Engineers,
3

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Arbitration is by nature a private and consensual dispute resolution mechanism, and is illequipped to handle the challenges thrown up by serious allegations of fraud. Matters relating
to allegations of fraud of a serious nature can only be settled in court through a detailed
review of evidence from both parties8. Therefore, it can be concluded that the dispute
involving fraud requires a detailed view of evidence to be taken into account and hence must
not be arbitrated upon.

Fraud and corruption are not arbitrable in Inasia.

Since fraud and corruption are not arbitrable as per the lex arbitri, the dispute must be
advanced in a domestic court. The main issue in referring such matters to arbitration is that
they require details analysis on the merits of the case that arbitration does not provide and
since this disputes entails public consequences hence it should have been advanced in a
domestic court.
Serious allegations of fraud are sufficient ground for not making a reference to arbitration 9.
Reliance was put on the decision of chancery division in Russell vs Russell . that was a case
where a notice for the dissolution of a partnership was issued by one of the partners , upon
which the other partner brought an action alleging various charges of fraud, and sought a
declaration that a notice of dissolution is void. The partner who was charged with fraud
sought reference to dispute to arbitration. The court held that where fraud is charged the court
in general will refuse to refer. But where the objection to arbitration is by the party charging
the, the court will not necessarily accede to it and would not do so unless a prima facie case
of fraud was proved.
An issue of fraud requires adducing and the elaborate examination of evidence, which an
arbitrator is not competent to adequately adjudicate upon. Such questions of fraud and
malpractice ought to be tried by a court of law10.
Court of law may decline an application for reference to arbitration, should the party against
whom allegations of fraud have been raised desire that the same be tried in open court. 11

8 Kapil Chopra v. Satish Chopra

9
10 N.Radhakrishnan v. Maestro Engineers & Ors.,
11 Abdul Kadir Shamshuddin Bubere v. MadhavPrabhakar Oak ("Abdul Khadir")
4

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Disputes concerning allegations of fraud, which involve adducing oral and / or documentary
evidence, civil courts may refuse to refer the dispute to arbitration12.
Existence of a valid and enforceable arbitration agreement is a condition precedent before an
arbitrator can be appointed under Section 11 of the Act. When serious allegations of fraud and
fabrication are made, it is not possible for the Court to proceed to appoint an arbitrator
without deciding the said issue which relates to the very validity of the arbitration
agreement13.
Even though the arbitral tribunal under section 16 has the power to decide whether there is a
valid arbitration agreement between the parties and it also has the power to rule on own its
own jurisdiction this would not take away the right of civil court to decide whether the
arbitration agreement itself is a creature of fraud and undue influence14.
The division bench relied on the judgment where it was held before making a reference to
arbitration the judicial authority can examine the question whether the arbitral agreement was
in fact obtained by playing fraud.

THAT SECTION 26 OF THE AMENDMENT ACT OPERATES PROSPECTIVELY.

The Madras High Court in Delphi TVS Diesel Systems v Union of India issued a notice to
the Central Government seeking a clarification on whether the provisions of the Ordinance
had a prospective or a retrospective application.
The Bombay High Court too issued notice to examine whether section 34 of the ordinance
dealing with setting aside of domestic awards would be applicable to pending cases.

12 oomarsait
13 Bharat Rasiklal v. Gautam Rasiklal
14 Asset recovery management yard pvt. Ltd vs M.V.L.D Bharathi
5

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Subsequently a clarification in the form of section 26 was introduced in the Amendment Act
which settles the issue that unless the parties agree otherwise, the Amendment Act will not
apply to arbitrations that were initiated prior to the commencement of this Amendment Act

Thus, it is humbly submitted to the court that amendment Act of 2015, which came into force
with effect from 23rd October, 2015, would apply to arbitral proceedings which commenced
after 23rd October, 2015 but not to arbitral proceedings which commenced before 23rd
October, 2015. The Amendment Act of 2015 would apply to all Court proceedings on and
from 23rd October, 2015. The repeal and savings clause of the Amendment Act of 2015 did
not make applicable the amendment Act in case of arbitration which commenced before its
enactment.
Since the subject arbitration commenced much prior to coming into force of the Amendment
Act, nothing in it applies to the subject arbitration.
It is a well-established principle of statutory interpretation that unless an Act expressly/
clearly provides for retrospective operation, it is prospective in nature.15
It is a cardinal principle of construction that every statute is prospective unless it is expressly
or by necessary implication made to have retrospective operation, but the rule in general is
applicable when the object of the statute is to affect vested rights or to impose new burdens or
to impair existing obligations. Unless there are words in the statute sufficient to show the
intention of the legislature to affect existing rights, it is deemed to be prospective only.
The golden rule of construction is that, in the absence of anything in the enactment to show
that it is to have retrospective operation; it cannot be so construed as to have the effect of
altering the law applicable to a claim in litigation at the time when the Act was passed.
In Jumbo Bags v New India Assurance Ltd., the question was whether procedure for
appointment of arbitrators should be followed as per the unamended Act or the amended Act
when the notice of arbitration was issued in July 2015. The Chief Justice held that since
arbitration commenced under the unamended Act, the procedure to be followed is as per the
unamended Act.

15 Electrosteel Castings Limited Vs. Reacon Engineers (India) Private limited

6

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Section 26 uses the expression to the arbitral proceedings instead of in relation to arbitral
proceedings, the legislative intent was not to apply Section 26 even to arbitration related
court proceedings that were pending or that existed before the 23rd of October, 2015.
As the proceedings of the case started in August 2015 and the Arbitration Amendment Act,
2015 applies to cases on or after the 23rd of October, 2015 the Amendment act would not
apply to the same.