CJI Gavai seeks vigilance in arbitration amid concerns of fraud corruption

New Delhi, Jun 4 (PTI) When public funds are at stake, both arbitrators and courts must act not merely as neutral adjudicators, but as custodians of public trust, Chief Justice of India B R Gavai said, as he flagged corruption in arbitration matters.
     Speaking at a panel discussion at the Centre for International Legal Studies, Gavai said the increasing prominence of arbitration has lent a heightened focus on the integrity of the arbitral process, particularly in cases involving suspicions of fraud or corruption.
     "Today, arbitrators are no longer passive adjudicators but are increasingly expected to proactively address suspicions of illicit activities, even when not formally pleaded.
     "Courts, in turn, serve both as guardians of arbitral integrity and as safety nets. The challenge is most pressing when the state is involved and public funds are at stake. In such scenarios, both arbitrators and courts must act not merely as neutral adjudicators, but as custodians of public trust," he said.
     The CJI underlined the delicate balance arbitrators must maintain when dealing with suspicions of fraud that are not formally pleaded.
     He noted that while arbitration has become a preferred mechanism for resolving commercial disputes due to its efficiency and confidentiality, it must not serve as a shield for illicit conduct.
     "This concern becomes especially acute when public funds are at stake, such as when the state is a party. While arbitration is designed to be efficient and party-driven, it must not become a vehicle to shield illicit conduct from scrutiny," he said.
     He added that in cases involving suspected fraud, arbitrators must uphold a set of minimum standards to preserve the legitimacy and enforceability of the arbitral process, including the duty to identify and validate red flags.
     "Practically, when fraud is suspected, arbitrators should take reasonable procedural steps. These steps must be taken carefully to balance efficiency with due process, and to avoid prejudicing either party without evidentiary justification," he said.
     Gavai said that because of insufficiency of evidence, or other considerations (political repercussions or otherwise), a party may raise a defence against a claim of nonperformance of a contract, citing red flags relevant to corruption, but without making an explicit case.
     "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," he said.
     "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," the CJI said.
     Even as arbitrators are increasingly expected to address red flags, national courts retain a critical role in reviewing arbitral outcomes, he said.
     "Courts are also empowered to grant or enforce interim measures, such as asset freezing (interim attachment) and evidence preservation. Furthermore, as arbitral tribunals cannot compel third parties, they may depend on national courts to compel witness testimony or order depositions, particularly when witnesses are outside the tribunal's jurisdiction," The CJI added.

(This story has not been edited by THE WEEK and is auto-generated from PTI)