What should arbitrators do when fraud is suspected? CJI BR Gavai, Justice Vikram Nath and SG Tushar Mehta explain

Chief Justice of India (CJI) BR Gavai, Supreme Court’s Justice Vikram Nath and Solicitor General Tushar Mehta on Wednesday advised the arbitrators about what they should do in case fraud or corruption is suspected in arbitral proceedings but is not pleaded by any of the parties..They spoke at a panel discussion in London on the topic 'Arbitrators, fraud concerns, and the courts: What can and should Arbitrators do when Fraud/Corruption is suspected (but not pleaded), and how can and should the Courts help or restrain Arbitrators?'.CJI BR Gavai said that arbitrators should take reasonable procedural steps when fraud is suspected. “These steps must be taken carefully to balance efficiency with due process, and to avoid prejudicing either party without evidentiary justification,” he said. The CJI observed that when a party raises a tacit case of alleged corruption through red flags, it may be in the hope that it will be picked up by an arbitral tribunal, thereby leading to a finding of a corrupt practice. “In such scenarios, arbitrators may take measures such as ordering further fact-finding or expert analysis, suspending proceedings during parallel investigations, and reporting confirmed corruption findings to relevant state authorities, with disclosure of information sometimes required by public policy, including anti-money laundering regulations, despite the confidentiality of arbitration,” he said. .Justice Nath referred to the case of Nigeria v P&ID in which the United Kingdom High Court ruled in favour of Nigeria and set aside a US$ 11 billion arbitral award against the nation. The Court found that the award was obtained through fraud and contravened public policy, specifically citing bribery, improper retention of privileged documents and perjury. The Supreme Court judge said one cannot lose sight of the fact that such fraud and corruption will have larger implications in international commercial arbitration when the government is a party and public funds are involved. “Consider the travesty of justice that would have been caused where the arbitral award imposed a liability of $11 billion, and to put things in perspective, this amounted to nearly half of Nigeria's annual budget of 2023. To think that such an award was attained by using deceitful means, and would have been enforced if not for the court's decision,” he said. Justice Nath said that the endeavour of truth seeking in disputed matters cannot be abandoned in the name of arbitration. He further said that in international arbitration, arbitrators must also consider the imbalance in power and resources as an important factor. “Therefore, honesty and integrity should be made the bedrock of the profession, and then only the arbitration process will bear fruit for results,” he said. .Meanwhile, Mehta argued that the cases of fraud in arbitral proceedings may not be committed only against the government but even private parties can collude with each other and get the transaction legitimised through an arbitrator. “What would happen if the arbitrator were to notice such a collusion? There has to be an answer. The answer is definitely that he has to intervene. He owes a duty to himself, first of all, to intervene and he owes a duty to the parties to intervene. But the problem will be to what extent he will do that,” he said. He stated that in arbitral contracts or contracts containing an arbitration clause, drafting is extremely important, but is often found lacking. Mehta added that another important consideration is the absolute impartiality of the tribunal. .The panel discussion was also attended by Steven P Finizio (Partner at Wilmer Hale), Genevieve Poirier (Partner at Lalive), Siddharth Dharmadhikari (Additional Advocate General of State of Uttar Pradesh) and Abhikalp Pratap Singh (Partner at APSAK Consultants LLP and Standing Counsel of State of Meghalaya).