PSUs biggest victims of fraud in arbitration; Devas-Antrix is example: Justice Satish Chandra Sharma

Public Sector Undertakings (PSUs) are the biggest victims of financial fraud and irregularities in arbitral proceedings, Supreme Court Justice Satish Chandra Sharma recently said. 

Justice Sharma stated that at almost every stage of agreement drafting and the arbitral process, there are people in the PSUs ensuring that the balance always tilts in favour of the other side. 

“One mole in a public sector undertaking ensures that the agreement is drafted to help the other side. Another mole ensures that during arbitral proceedings, the award is passed in favour of the other party. And it becomes very difficult for a 34 and 37 Court [Sections of the Arbitration and Conciliation Act dealing with setting aside of the award or appeals],” he said on September 16.

The judge stated that though the Court can smell the fraud and financial crime, but it is difficult to set aside the order. 

He said that the Devas-Antrix case was a good example of such an instance.

“I am speaking from my personal experience that Devas-Antrix was one such case,” he said. 

He added that the argument that a probe into these allegations may prolong the arbitration process cannot be an excuse to let the financial fraud pass. 

Justice Sharma was speaking at the discussion organised by Quadrant Chambers on the topic ‘From Autonomy to Accountability: Safeguarding Arbitral Procedure Against Fraud and Financial Crime’ during the Delhi Arbitration Weekend (DAW). 

John Passmore KC of Quadrant Chambers, Jonathan Leach of Evershed and Professor Steve Ngo, International Arbitrator, participated in the discussion. 

The session was moderated by Senior Advocate and Quadrant Chamber’s Prashanto Chandra Sen.

Passmore explained the case of Nigeria v P&ID and illustrated the vulnerabilities governments face in international arbitration when contracts are imbalanced, evidence is flawed, or proceedings lack transparency. 

In the said case, a 20-page gas supply and processing contract between Nigeria and P&ID had led to arbitral proceedings which produced a $6.6 billion award against Nigeria, despite questionable evidence. ‘

The award was finally set aside by the English High Court. 

Leach said that Nigeria v P&ID case shows the importance of supervisory courts in arbitral proceedings. 

“We talk a lot in arbitration about the advantages compared to litigation. So, you have the finality of the award, you have the limited grounds of appeal and courts, quite rightly, normally stay out and they don't intervene. And that concept of non-intervention flows from the principle of party autonomy and party autonomy is the cornerstone of arbitration,” he said. 

He added that while business people and companies have a right to manage their affairs as they see fit but there are policy limits to such autonomy. 

“Often, the English courts are referred to as pro-arbitration because they minimize intervention. But, and it is a big but, there are policy limits to party autonomy. Pro-arbitration does not mean no intervention. Sometimes judges are needed and intervention is in public interest,” Leach said. 

Meanwhile Professor Ngo said that issues involving fraud and corruption evoke an emotive response but at the same time party-autonomy is important to arbitration proceedings and, therefore, there is a need to balance the two. 

He referred to a 2021 case of Bloomberry Resorts v. Global Gaming Philippines at the Singapore Court of Appeal where the Court tried to balance the two.

“Now in this in the Bloombury case, the Court held that even if fraud exists, the three month time limit in Article 34 of UNCITRAL Model Law on International Commercial Arbitration cannot be extended for setting aside an award. Now, again, that can evoke that sense of emotive reaction and response. The Court of Appeal in Singapore was concerned about this potential reaction and said that although the parties cannot set aside the award after three months, yet at the same time the parties can still resist enforcement later on. So it's not exactly the end of the road, and it would not be seen as an absurd act of the court not allowing an extension beyond three months,” he said.