AMBIT OF SECTION 156(3) CR.P.C REDEFINED

 

AMBIT OF SECTION 156(3) Cr.P.C Redefined

The judgment of M/s Supreme Bhiwandi Wada Manor Infrastructure Pvt. Ltd has laid down the principles

The hon’ble Supreme Court has adjudicated upon four appeals as “batch appeals” including the present one as depicted above, defining the legal aspect. The judgment was pronounced on 26^th July 2021. The Section 438 of Cr.P.C was revisited emanating from the judgments u/s 156 (3) Cr.P.C has been redefined in M/s Supreme Bhiwandi Wada Manor Infrastructure Pvt. Ltd Vs State of Maharashtra Criminal Appeal No. 680 of 2021. The judgment is significant also, owing to the fact that even principles of granting or cancellation of bail is also discussed by hon’ble Supreme Court.

One of the appellant in Bhiwandi (Supra) was a company incorporated under the Companies Act 1956 and engages in infrastructure projects and as such was awarded a contract for constructing a road ‖ The accused were employees of the company . The statement of complainant u/s 161 of the CrPC was recorded. The accused were responsible for identifying farmers on the basis of a list provided by governmental authorities and to disburse compensation to them after verifying the authenticity of the claims. The fraud had surfaced and hence complaint was filed in the Court of the Magistrate at Andheri, Mumbai. The ld Magistrate was pleased to pass order under Section 156(3) of the CrPC thereby directing the police to investigate into the complaint. It is alleged by complainant that accused persons in collusion with each other prepared false documents in respect of the land meant for construction of road and handed over to complainant for the said purpose. The accused had allegedly induced the complainant to part with and pay amounts to other accused showing them to be land owners. Further it was alleged that accused have prepared fraudulent report and used a forged documents, as a genuine. Since alleged offence was cognizable, hence, investigation was prayed for.  The direction u/s 156(3) Cr.P.C was thus issued to the Police for investigation. The prayer also was limited to the aforesaid extent. It was thus treated as miscellaneous application and finally disposed off. The F.I.R being FIR No 2 of 2016 was registered with the Powai Police Station, for alleged offences under Sections 418,419,420, 405, 467,468, 471, 474, 120 B read with Section 34 of the Indian Penal Code. The substance of the allegation is that the accused did not hand over the cheques due to the farmers for their lands taken over for the project and got the cheques released in the names of other persons thereby defrauding the company and misappropriating its fund. It has been further alleged that the accused in the name of 10 fake occupants withdrew an amount of Rs. 1,84,30,400/- by forging and fabricating documents for their personal gain. There are allegations in the complaint to the effect that the accused were also involved in a fraud of around Rs 5.28 crores by fabricating documents pertaining to the occupants of lands and making nominal payments to villagers.

Two of the accused named in the FIR moved the Sessions Court for the grant of anticipatory bail and bail was granted to some of the accused. The  Bombay High Court had granted interim protection to other accused. The complain ant had challenged all such orders. Eventually, the High Court granted anticipatory bail to four (4) accused. The High Court has justified the grant of anticipatory bail in a brief order of two paragraphs to the effect that the record indicates that the complainant had filed a complaint bearing in the Court of Metropolitan Magistrate and an Order under Section 153(3) has been passed by the concerned Court. In pursuance of the said Order, a Crime No.02/2016 was registered by the Powai Police Station. The police had been seeking custody of the accused in the said crime, which is registered in pursuance of the Order passed under Section 156(3) of Cr.P.C. as noted earlier. The record indicated that, the complaint filed by first informant was supported with affidavit and the mandate of law as contemplated under Section 200 of Cr.P.C. i.e. the said complainant has not been examined on oath by the concerned Magistrate. The basic tenet of law as contemplated under Section 200 of Cr.P.C. has not been complied with, it raises a serious doubt about the validity of issuance of the said Order passed under Section 156(3) of the Cr.P.C. by the concerned Magistrate.

The case of complainant:

(i)          The High Court while granting anticipatory bail failed to even prima facie notice the nature and gravity of the allegations against the accused;

(ii)        The Magistrate passed an order under Section 156(3) of the CrPC directing the complaint to be investigated and accordingly FIR was registered by the Powai Police Station;

(iii)        The order of the High Court proceeds on the basis that the mandate of Section 200 of the CrPC has not been complied with by the Magistrate. since the complainant was not examined on oath;

(iv)       The High Court has failed to notice judgments of Supreme Court that has clarified the legal position that the Magistrate is justified in ordering an investigation under Section 156(3) before taking cognizance of a complaint under Section 200 and the nature of the enquiry by the police which the Magistrate may order under Section 202 is distinct from the power under Section 156(3) Cr.P.C;

(v)         There was no challenge to the order passed by the Magistrate ordering an investigation under Section 156(3) and hence there was no occasion for the High Court to doubt its validity; and

(vi)        The High Court has even waived the condition imposed in the interim order to attend the concerned Police Station as a result of which the investigation has been thwarted.

CONTENTION OF ACCUSED

(i)          The accused were protected from arrest by an interim orders and they were called for investigation on several occasions;

(ii)         The accused having co-operated in the investigation, there may not be any justification to interfere with the grant of anticipatory bail in pursuance of the orders which passed years back; and

(iii)        The view of the High Court on the interpretation of the provisions of Section 202 is correct, as  proviso to sub-Section (1) of Section 202 under which an enquiry by the police can be ordered only after the complainant’s statement has been recorded on oath under Section 200 of the CrPC.

These submissions have been adopted in the other cases as well.

What is of importance is that the primary basis on which the High Court has allowed the applications under Section 438 Cr.P.C is that the complaint filed by the first informant was to be examined on oath under Section 200 of the CrPC and thus it raises a serious doubt about the validity of the order which has been passed under Section 156(3) Cr.P.C.

According to hon’ble Supreme Court there is a serious error in the view of the high court. The order of Magistrate under Section 156(3) was not under challenge before the High Court and had attained finality. Further, the High Court fell in error in raising a doubt about the correctness of the order under section 156(3) Cr.P.C passed by the Metropolitan Magistrate in the course of considering the complaint filed by the complainant. Secondly, the position in law as set out in the order of the high court is not in consonance with the principles which have been consistently enunciated in the decisions of Supreme Court, specifically in the context of Chapter XV of the CrPC.

Sections 200 and 202, which form a part of Chapter XV, are extracted below:

200. Examination of complainant.—A Magistrate taking cognizance of an offence on complaint shall examine upon oath the complainant and the witnesses present, if any, and the substance of such examination shall be reduced to writing and shall be signed by the complainant and the witnesses, and also by the Magistrate: Provided that, when the complaint is made in writing, the Magistrate need not examine the complainant and the witnesses—

(a) if a public servant acting or purporting to act in the discharge of his official duties or a Court has made the complaint; or

(b) if the Magistrate makes over the case for inquiry or trial to another Magistrate under section 192: Provided further that if the Magistrate makes over the case to another Magistrate under section 192 after examining the complainant and the witnesses, the latter Magistrate need not re-examine them.

 

202. Postponement of issue of process.—

(1) Any Magistrate, on receipt of a complaint of an offence of which he is authorised to take cognizance or which has been made over to him under section 192, may, if he thinks fit, and shall, in a case where the accused is residing at a place beyond the area in which he exercises his jurisdiction, postpone the issue of process against the accused, and either inquire into the case himself or direct an investigation to be made by a police officer or by such other person as he thinks fit, for the purpose of deciding whether or not there is sufficient ground for proceeding: Provided that no such direction for investigation shall be made,—

(a) where it appears to the Magistrate that the offence complained of is triable exclusively by the Court of Session; or (b) where the complaint has not been made by a Court, unless the complainant and the witnesses present (if any) have been examined on oath under section 200.

                 (2) In an inquiry under sub-section (1), the Magistrate may, if he thinks fit, take evidence of witnesses on oath: Provided that if it appears to the Magistrate that the offence complained of is triable exclusively by the Court of Session, he shall call upon the complainant to produce all his witnesses and examine them on oath.

(3)    If an investigation under sub-section (1) is made  by a person not being a police officer, he shall have for that investigation all the powers conferred by this Code on an officer in charge of a police station except the power to arrest without warrant.‖

    

    

                              LAW

S.N	PARTICULARS		REMARK
1.	Suresh Chand Jain v. State of MP (2001) 2 SCC 628		The investigation contemplates steps to be adopted as is elaborated in Chapter XII of the Code. The investigation would start with making the entry in a book to be kept by the officer in charge of a police station. The substance of the information relating to the commission of a cognizable offence is recorded. The investigation starts thereafter can end up only with the report filed by the police as indicated in Section 173 of the Code. The investigation under the chapter can be commenced by the police even without the order of a Magistrate. However, when a Magistrate orders an investigation under Section 156(3) Cr.P.C, such investigation must also end up only with the report contemplated in Section 173 of the Code. But the significant point is that when a Magistrate orders investigation under Chapter XII he does so before he takes cognizance of the offence.
2.	Dilawar Singh v. State of Delhi (2007) 12 SCC 641		The principles of Suresh Chand (Supra) was reiterated.
3.	Tilak Nagar Industries Limited v. State of Andhra Pradesh (2011) 15 SCC 571		Power under Section 156(3) can be exercised by the Magistrate even before he takes cognizance provided the complaint discloses the commission of cognizable offence.‖
4.	Anju Chaudhary v. State of Uttar Pradesh (2013) 6 SCC 384		A Magistrate is competent to treat even a complaint termed as an application and pass orders under Section 156(3), but where it takes cognizance, there it would have to be treated as a regular complaint to be tried in accordance with the provisions of Section 200 onwards falling under Chapter XV of the Code. There also the Magistrate is vested with the power to direct investigation to be made by a police officer or by such other person as he thinks fit for the purposes of deciding whether or not there is sufficient ground for proceeding. This power is restricted and is not as wide as the power vested under Section 156(3) of the Code.
5.	Rameshbhai Pandurao Hedau v. State of Gujarat  (2010) 2 SCC (Cri) 801]		Section 202 would apply only to cases where Magistrate has taken cognizance and chooses to enquire into the complaint either himself or through any other agency. But there may be circumstances where the Magistrate, before taking cognizance of the case himself, chooses to order a pure and simple investigation under Section 156(3) of the Code. These cases would fall in different class.
CANCELLATION OF BAIL
6.		Sushila Aggarwal v. State (NCT of Delhi) 2020 5 SCC 1		…While considering an application (for grant of anticipatory bail) the court has to consider the nature of the offence, the role of the person, the likelihood of his influencing the course of investigation, or tampering with evidence (including intimidating witnesses), likelihood of fleeing justice (such as leaving the country), etc. Courts ought to be generally guided by considerations such as the nature and gravity of the offences, the role attributed to the applicant, and the facts of the case, while considering whether to grant anticipatory bail, or refuse it. Whether to grant or not is a matter of discretion; equally whether and if so, what kind of special conditions are to be imposed (or not imposed) are dependent on facts of the case, and subject to the discretion of the court.‖ An appellate court or a superior court can set aside the order granting bail if the court granting bail did not consider relevant factors.
7.		Myakala Dharmarajam v. The State of Telangana (2020 2 SCC 743		It is trite law that cancellation of bail can be done in cases where the order granting bail suffers from serious infirmities resulting in miscarriage of justice. If the court granting bail ignores relevant material indicating prima facie involvement of the Accused or takes into account irrelevant material, which has no relevance to the question of grant of bail to the Accused, the High Court or the Sessions Court would be justified in cancelling the bail.‖

 

Dealing specifically with the provisions of Chapter XV, hon’ble Supreme Court observed that once the Magistrate takes cognizance of an offence, the procedure which is enunciated in Suresh Chand (Supra),  Section 156 of the CrPC is extracted below:-

156. Police officer's power to investigate cognizable cases.—

(1) Any officer in charge of a police station may, without the order of a Magistrate, investigate any cognizable case which a court having jurisdiction over the local area within the limits of such station would have power to inquire into or try under the provisions of Chapter XIII.

(2) No proceeding of a police officer in any such case shall at any stage be called in question on the ground that the case was one which such officer was not empowered under this section to investigate.

(3) Any Magistrate empowered under Section 190 may order such an investigation as above mentioned.‖ Chapter XV has to be followed. The investigation which the Magistrate can direct under Section 202(1) either by a Police officer or by any other person is for a limited purpose of enabling the Magistrate to decide whether or not there is sufficient ground to proceed further.

The hon’ble Supreme Court held: ―

“ But a Magistrate need not order any such investigation if he proposes to take cognizance of the offence. Once he takes cognizance of the offence he has to follow the procedure envisaged in Chapter XV of the Code. A reading of Section 202(1) of the Code would convince that the investigation referred to therein is of a limited nature. The Magistrate can direct such an investigation to be made either by a police officer or by any other person. Such investigation is only for helping the Magistrate to decide whether or not there is sufficient ground for him to proceed further. This can be discerned from the culminating words in Section 202(1) i.e. ―or direct an investigation to be made by a police officer or by such other person as he thinks fit, for the purpose of deciding whether or not there is sufficient ground for proceeding‖. This is, because he has already taken cognizance of the offence disclosed in the complaint, and the domain of the case would thereafter vest with him.‖

The legal position has been summarized in thus: ―

 The position is thus clear. Any Judicial Magistrate, before taking cognizance of the offence, can order investigation under Section 156(3) of the Code. If he does so, he is not to examine the complainant on oath because he was not taking cognizance of any offence therein. For the purpose of enabling the police to start investigation it is open to the Magistrate to direct the police to register an FIR. There is nothing illegal in doing so. After all registration of an FIR involves only the process of entering the substance of the information relating to the commission of the cognizable offence in a book kept by the officer in charge of the police station as indicated in Section 154 of the Code. Even if a Magistrate does not say in so many words while directing investigation under Section 156(3) of the Code that an FIR should be registered, it is the duty of the officer in charge of the police station to register the FIR regarding the cognizable offence disclosed by the complaint because that police officer could take further steps contemplated in Chapter XII of the Code only thereafter.‖

Still another situation that can possibly arise is that the Magistrate is competent to treat even a complaint termed as an application and pass orders under Section 156(3), but where it takes cognizance, there it would have to be treated as a regular complaint to be tried in accordance with the provisions of Section 200 onwards falling under Chapter XV of the Code. There also, the Magistrate is vested with the power to direct investigation to be made by a police officer or by such other person as he thinks fit for the purposes of deciding whether or not there is sufficient ground for proceeding. This power is restricted and is not as wide as the power vested under Section 156(3) of the Code. The power of Dilawar Singh (Supra), Tilak Nagar Industries Limited (Supra) and Anju Chaudhary (Supra).

Thus it emerges that the Magistrate under Section 156(3) of the Code to order investigation by the police have not been touched or affected by Section 202 Cr.P.C because these powers are exercised even before the cognizance is taken. In other words, Section 202 would apply only to cases where Magistrate has taken cognizance and chooses to enquire into the complaint either himself or through any other agency. But there may be circumstances where the Magistrate, before taking cognizance of the case himself, chooses to order a pure and simple investigation under Section 156(3) of the Code. These cases would fall in different class. This view was also taken by a Bench of Supreme Court in Rameshbhai Pandurao Hedau v. State of Gujarat [(2010) 4 SCC 185 : (2010) 2 SCC (Cri) 801] . The distinction between these two powers had also been finally stated in the judgment of Supreme Court in Srinivas Gundluri v. SEPCO Electric Power Construction Corpn. [(2010) 8 SCC 206 : (2010) 3 SCC (Cri) 652] wherein the Court stated that :

“to proceed under Section 156(3) of the Code, what is required is a bare reading of the complaint and if it discloses a cognizable offence, then the Magistrate instead of applying his mind to the complaint for deciding whether or not there is sufficient ground for proceeding, may direct the police for investigation.‖ But where it takes cognizance and decides as to whether or not there exists a ground for proceeding any further, then it is a case squarely falling under Chapter XV of the Code”.‖

 It is observed by Supreme court, in the Supreme Bhiwandi (Supra0 that the High Court has evidently not been apprised of the above judgments. It was further held that the High Court, in granting anticipatory bail under Section 438 of Cr.P.C, has evidently lost sight of the nature and gravity of the alleged offence. In Sushila Aggarwal (Supra) has enunciated the considerations that must govern the grant of anticipatory bail in the following terms:

…While considering an application (for grant of anticipatory bail) the court has to consider the nature of the offence, the role of the person, the likelihood of his influencing the course of investigation, or tampering with evidence (including intimidating witnesses), likelihood of fleeing justice (such as leaving the country), etc.

Courts ought to be generally guided by considerations such as the nature and gravity of the offences, the role attributed to the applicant, and the facts of the case, while considering whether to grant anticipatory bail, or refuse it. Whether to grant or not is a matter of discretion; equally whether and if so, what kind of special conditions are to be imposed (or not imposed) are dependent on facts of the case, and subject to the discretion of the court.‖ An appellate court or a superior court can set aside the order granting bail if the court granting bail did not consider relevant factors.

In Myakala Dharmarajam (Supra)  the Supreme Court has held : ―

 It is trite law that cancellation of bail can be done in cases where the order granting bail suffers from serious infirmities resulting in miscarriage of justice. If the court granting bail ignores relevant material indicating prima facie involvement of the Accused or takes into account irrelevant material, which has no relevance to the question of grant of bail to the Accused, the High Court or the Sessions Court would be justified in cancelling the bail.‖

In the case in hand, the hon’ble Supreme Court has held that as there are serious allegations against the accused of a fraudulent misappropriation of amounts intended to be paid by the company to the famers affected by the work of road widening being undertaken by the complainant. The FIR sets out details of the alleged acts of fraud and misappropriation of funds, as explained earlier. Having regard to the seriousness of the allegations no case for anticipatory bail was made out. The High Court has erred both in law and in its evaluation of the facts.

REMARK

The hon’ble Supreme Court has consistently laid down law, whether, it is as regards law u/s 156 (3) Cr.P.C or for granting or cancellation of anticipatory bail u/s 438 of Cr.P.C. The present case is a testimony that law laid down successively by the hon’ble Supreme Court could not be followed. Ironically,  the judgments/precedents were not even placed before the high court and the judgment, in any case, appears to be per incuriam. However, what is baffling is that not only the correct and basic principles of section 156(3) Cr.P.C could not be appreciated by high court, but while granting bail, even if it is discretionary, still, the courts has to be guided by certain established norms and the bail was granted without adhering to the norms and hence the hon’ble Supreme court has not only set aside the bail granted to the accused, but in very unequivocal term has again set out the parameter of section 156 (3) Cr.P.C.

 

                                  Anil K Khaware

Founder & Sr Associates

societylawandjustice.com

ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2021: PROS & CONS

The Arbitration and Conciliation Act, 1996 (“Act”) in India has been a subject of continuous and periodic amendments. The idea has always been to make India a pro-arbitration hub and portrayal of her as a vibrant business destination by providing an effective and robust dispute resolution mechanism that may send clear signal relating to ease of doing business in India. A recent attempt to revamp the Act vide promulgation of the Arbitration and Conciliation (Amendment) Ordinance, 2020 and subsequently replacing it by the Arbitration and Conciliation (Amendment) Act, 2021 (“2021 Amendment”) is a step intended to achieve the desired result. What are noteworthy is that the 2021 Amendment has added the following text to Section 36(3) of the Act, after the proviso, which pertains to the enforcement of the arbitral award, the same is as under:

“Provided further that where the Court is satisfied that a prima facie case is made out that, —

(a) the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award, was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under Section 34 to the award.

Explanation – For the removal of doubts, it is hereby clarified that the above proviso shall apply to all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015.”

On 11^th March, 2021, the Central Government has notified the Arbitration and Conciliation (Amendment) Act, 2021' and the Amendment Act is deemed to have come into effect from 4^th November, 2020.

The 2021 Amendment resurrects the power of the Indian Courts to grant an unconditional stay on the enforcement of an arbitral award, where the underlying arbitration agreement or contract or making of the arbitral award is induced by fraud or corruption. The 2021 Amendment, hence, has attracted much attention, criticism, and disconcert within the arbitration community. This is because, such power to grant an unconditional stay on the enforcement of an arbitral award existed even prior to the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”), which resulted in an onslaught of challenges to delay the enforcement proceedings. It may be noted that the probable mischief was addressed by the 2015 Amendment, which had scrapped the unconditional stay on the enforcement proceedings and instead empowered the courts to impose conditions on the stay of the enforcement proceedings to avoid losing parties from filing frivolous and unwarranted challenges. It was in that point of time was hailed as progressive and confidence boosting measure. However, the 2021 Amendment appears to have undone the impact of the 2015 Amendment to a great extent and has revived somewhat unconditional stay regime, again, on the vague grounds of fraud or corruption. Since the 2021 Amendment has now already been notified by the Central Government, the implications of the 2021 Amendment on India’s dream to become a pro-arbitration jurisdiction and whether it contributes to making a conducive environment for the businesses to operate in India, when the 2021 Amendment is implemented into practice is a debatable issue, in fact this raises a concern.

There may be following implications to the amendment:

(i)          Scheme of Addition ladder of Judicial Scrutiny

The first part of the 2021 Amendment seeks to address, inter alia, two situations: First, unconditional stay on the enforcement of the arbitral award, if the “arbitration agreement or the contract, which is the basis of the award,” was induced or effected by fraud or corruption. Second, unconditional stay on the enforcement of the arbitral award if the “making of the award by the arbitral tribunal” was induced by fraud or corruption. What causes a concern is the fact that existing provisions of section 34 of the Act was categorical that any award against the public policy shall not be enforceable. However, to amplify the issue and specifying the ground tantamount to putting spoke in the wheel. The provision is likely to be misused by the unscrupulous element with a view to place fetter in the way of enforcement of arbitral word. Whether, the amendment shall aid or facilitate the solution or shall add to the woes is anybody’s guess.

                                         LAW

(1) In this perspective, some judgments passed by hon’ble court may be analysed. In a matter reported as ONGC Vs Saw Pipes Ltd 2003] 5 SCC 705, the Supreme Court has elucidated the concept of public policy. It is held that:

“The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the court, the plea of the defendant should not prevail.

(2)  The Supreme Court further held

“in our view, the phrase 'Public Policy of India' used in Section 34 in context is required to be given a wider meaning. It can be stated that the concept of public policy connotes some matter which concerns public good and the public interest. What is for public good or in public interest or what would be injurious or harmful to the public good or public interest has varied from time to time. However, the award which is, on the face of it, patently in violation of statutory provisions cannot be said to be in public interest. Such award/judgment/decision is likely to adversely affect the administration of justice. Hence, in our view in addition to narrower meaning given to the term 'public policy' in in Renusagar Power Co. Ltd Vs .General Electric Co. [1994 Supp. (1) SCC 644], this Court considered Section 7(1) of the Arbitration (Protocol and Convention) Act, 1937 which inter alia provided that it is required to be held that the award could be set aside if it is patently illegal. Result would be - award could be set aside if it is contrary to: -

(a) fundamental policy of Indian law; or

(b) the interest of India; or

(c) justice or morality, or

(d) in addition, if it is patently illegal.

Further, illegality must go to the root of the matter and if the illegality is of trivial nature it cannot be held that award is against the public policy. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such award is opposed to public policy and is required to be adjudged void.

(3)     The trend that has emerged post amendment (2015 amendment) that courts are somewhat reluctant in according a wide interpretation to "public policy" or courts were hardly interfering the merit of the case. The Supreme Court Judgment reported as Venture Global Engineering LLC and Ors v Tech Mahindra Ltd. and Ors [2017] 13 SCALE 91 (SC) is a pointer in that regard. The Court observed –

"The Award of an arbitral Tribunal can be set aside only on the grounds specified in Section 34 of the A&C Act and on no other ground. The Court cannot act as an Appellate Court to examine the legality of Award, nor it can examine the merits of claim by entering in factual arena like an Appellate Court."

(4)  Similarly, in Sutlej Construction v. The Union Territory of Chandigarh. 2017] 14 SCALE 240 (SC), the hon’ble Supreme Court has held:

“It has been opined by this Court that when it comes to setting aside of an award under the public policy ground, it would mean that the award should shock the conscience of the court and would not include what the court thinks is unjust on the facts of the case seeking to substitute its view for that of the arbitrator to do what it considers to be “justice.”

These judgments, even on the basis of cursory perusal shall reveal that the courts has often been interpreting "public policy "by keeping in mind that arbitral award should not be examined on merit and if two possible views are possible and one is adopted by the arbitrator, may be less plausible, then too, the award shall not be interfered with, unless, it shocks the conscience of court.

The present amendment of 2021 however, opens the vista completely, in as much as in its purview comes, even awarding of contract and if it is properly obtained or not and whether fraud and corrupt practices was adopted in obtaining contract or award. Even the making of award itself may be subject to scrutiny , thus, it implies that even it is to be ascertained if making of the award is vitiated due to corrupt practices. The amendment therefore has ominous portent.

DECIPHERING FRAUD IN CONTRACT

The net result of the aforesaid amendment is that the arbitration regime, post amendment, is beset with “spoke in wheel” and timely enforcement of award may suffer and thus upholding the legislative mandate of "minimal intervention of the Courts in the arbitral process" as reflected by the changes brought by the Arbitration and Conciliation (Amendment) Act, 2015 appears to have been relegated.  

The Section 16 of A & C Act 1996 is a forum where itself the allegations of fraud or corruption pertaining to the arbitration agreement or the contract could be raised i.e at the stage of reference or before the statement of defence. It is also no longer res integra that an arbitral tribunal is competent to determine the issues of fraud alleged by the parties. Thereafter, appeal objection u/s 34 of A & C to the award can be preferred and yet again second appeal u/s 37 of A & C Act shall also lie.

What is of pertinence is that award was challengeable, if it was found to be contrary to public policy. The public policy was categorically defined and its ambit was amplified in various judicial pronouncements. To add further fetter in the Act is therefore not desirable in the face of the twin objective i.e early resolution of disputes may suffer due to laches, in view of amendments and secondly, when public policy was well defined over the years, adding further ladder of adjudication may be prone to causing more obstacles in the way of enforcement of award. The 2021 Amendment does not seem to provide any justifiable additional ground or relief that an aggrieved party Therefore it appears that enactment of the 2021 Amendment is merely akin to instituting an additional level of judicial scrutiny in the form of an extra layer of judicial review and that too in the form of an interim measure without any worthwhile, necessity.

The very object of doctrine of minimal judicial intervention shall therefore take a body blow. The invocation of 2021 Amendment may lead to an increase in the excessive judicial interference in an arbitration proceeding which is contrary to what was envisaged under the scheme of the Act. The object of minimal judicial intervention is set out under section 5 of the Act. The likely strain on already overburdened courts with huge backlogs of cases piled up should have been factored. The protracted arbitral process and enforcement of the arbitral awards shall be more likely in this backdrop. The 2021 Amendment may provide a delinquent party a handle, to beat the successful party with. The probable costs inconvenience and delay of the dispute resolution process shall be the obvious fallout, besides it may aid in accentuating the trauma of the innocent parties.

India has over the years provided good business ambience and 1996 Act was a pointer and in fact a fillip in that direction. Though, the 2021 Amendment may end up only accord incentive to procrastination. It may be unintentional, but proper remedy is awaited. The unscrupulous element should be discouraged to approach the courts without any checks and balances. The commerce and global business has to thrive with proper and effective judicial ladder which may lead commercial parties to have confidence over continuing their business in India and robust dispute resolution mechanism should not be compromised. The 2021 Amendment seems to be marred with several inconsistencies and ambiguities and that may be prone to undesirable consequences. It is worthwhile to point out that the 2021 Amendment may provide option to the parties to plead fraud or corruption even at the time of the enforcement of award proceedings, though, the parties might not have pleaded fraud or corruption before the arbitral tribunal. In this backdrop, order of unconditional stay on the enforcement of an award may be passed, though, it may have been raised for the first time. Moreover, just when the succeeding party was to reap the fruit of success, further impediment is carved out, which is not desirable. In the absence of a clear prescribed standard, there is ambiguity, uncertainty, and vagueness in invoking and justifying the grounds under Section 36 of the Act induced by the 2021 Amendment. This is important, because if the parties are allowed to adduce additional evidence at the stage of filing an application for stay of the award, effectively, the Act will then enable two-time scrutiny of an arbitral award with similar grounds but different standards and at different stages. Since, under a Section 34 challenge a party may only rely on the record of the tribunal, but under a Section 36(2) proceeding, a party can adduce additional evidence. This may appear illogical in practice, create an unwarranted hierarchy, increase the complexity of the process, and of course, prolong the enforcement of the award. Moreover, there may not be any fundamental difference between a Section 34 proceeding and a Section 36 proceeding which may amount to an unjustified and inexplicable multiplicity of proceedings. Assuming that the courts does not allow the parties to adduce additional evidence, it will be practically difficult for the courts to form a prima facie view and satisfy itself that the arbitration agreement or the contract which is the basis of the award, or the making of the award itself are induced by fraud or corruption, unless the courts examine the dispute on merits which, if taken resort to, is inimical to the pith and substance of Section 34 and Section 36 of the Act.

The arbitrator’s reputation and that being sullied, some time for no reason may be one such consequence, if the courts rushes to grant an unconditional stay merely on a prima facie view that the making of the award was induced by fraud or corruption. The immunity to arbitration and arbitrator may be diluted and the arbitrator may remain under constant pressure of prospective unconditionally stay on the grounds of fraud or corruption. What is further worrisome is that the Act is sought to be applied retrospectively. That may open lid of Pandora box as a party may have license to make an application under Section 36(2) of the Act and invoke the grounds of fraud or corruption envisaged under the additional proviso to Section 36(3) of the Act. It states: “all court cases arising out of or in relation to arbitral proceedings, irrespective of whether the arbitral or court proceedings were commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015”.

The 2021 Amendment, when implemented may give rise to multiple scenarios owing to lack of procedural clarity. Firstly, the parties may invoke the fresh grounds of fraud, though, may not have been alleged before, and seek unconditional stay under by way of an amendment application. The application may be filed in the pending applications u/s 36(2) of the Act. What may further be taken recourse to, is that a party way withdraw the section 36(2) application with liberty to file fresh plea and the fresh grounds may be incorporated such as fraud by invoking 2021 Amendment. Yet another mode may be by way of filing a fresh Section 36(2) application claiming a fresh cause of action.al such measures may result into delaying the enforcement of the arbitral award. The safeguards for eliminating false and frivolous pleas to filter out vague application replete with mala fide shall be the need of the hour. What is of utmost importance is that the uniform standards amongst various Commercial Courts, High Courts and the Supreme Court shall be crucial, so that floodgates of cases are not opened. The object of A& C Act i.e speedy disposal of disputes are the very theme and that should not be allowed to be compromised. The corresponding situation and provisions across the globe, if analysed, then what is of significance is that no corresponding provisions existed in many arbitral friendly regime and there are no provisions for unconditional stay of the domestic arbitral award at the stage of enforcement.

REMARK

It appears that what the Arbitration & Conciliation ( Amendment) Act 2015 had achieved, has subtly been undone by the 2021 enactment. The focus on arbitration and leveraging the arbitral process with more sanctity and least space for challenge should be the theme, but vide the 2021 amendment, rule of the game appears to have changed. The holistic impact of the amendment shall only be felt in due course. Probably, the 2021 amendment appears to be treating an ailment with antibiotic with probable side effect to accentuate the malaise further, whereas the ailments may remain. The probable delay in resolution of dispute, in the ultimate analysis, appears to be a foregone reality. The dilution of the 2015 Amendment, which is the obvious effect of 2021 amendment is not warranted. An unconditional stay on the enforcement of an arbitral award is detrimental to the prospect of finality and binding nature of an arbitral award. The provisions by way of 2021 amendment, therefore,  deserve a fresh look.

                              ANIL K KHAWARE

Founder & Sr Associate

societylawandjustice.com

 

-----------------