I. INTRODUCTION
Arbitration is evolving into one of the most preferred methods of dispute resolution, especially for disputes arising out of commercial transactions. As a basic concept in arbitration law, a dispute must be “arbitrable” for it to be adjudicated by a tribunal. Now, the Arbitration and Conciliation Act, 1996 (“AAC”) itself does not provide a list of disputes that are arbitrable; however, Courts have generally allowed arbitrability of all disputes arising out of rights in personam, i.e., those rights enforceable only against specific entities. The moment a dispute touches an erga omnes sphere, wherein the tribunal has to now adjudicate upon a right in rem, the dispute immediately becomes non-arbitrable, as a verdict in such disputes would be enforceable against the world at large.
II. ARBITRABILITY OF BRIBERY
The United Nations Convention against Corruption, 2005 (‘UNCAC’) does not define ‘corruption’ but defines the forms of corruption, principal ones being: i) bribery and ii) money laundering. More specific to the point on bribery, the UNCAC defines public bribery to consist of some sort of promise or gift to a government official that would provide an undue advantage, so that the particular official discharges their duties in a certain way or refrains from doing so.[1]
Traditionally, arbitration was not perceived as an appropriate venue for adjudicating claims of bribery or corruption, and the skepticism surrounding a tribunal’s jurisdiction over such claims stems from their restricted power to compel the production of evidence, as compared to Courts or other regulatory authorities. However, a more contemporary approach towards the arbitrability of disputes alleging bribery is in the decision of Westacre Investments Inc. v. Jugoimport SPDR Holding Co. Ltd., wherein the tribunal after considering bribery allegations disagreed that contract was rendered null or void due to such allegations. When the award was challenged, the English Courts held that the award was enforceable based on the severability of the arbitration clause and the principle of “Kompetenz-Kompetenz”, thereby legitimizing tribunal inquiries into such isses.[2]
As far as the Indian context is concerned, Justice Chandrachud in the Ayyasamy decision had conclusively held that “The Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world.”[3] And, the common law view is that an arbitral tribunal has jurisdiction over bribery allegations to the extent that the tribunal does not have jurisdiction to impose criminal sanctions, but its power is limited to the civil consequences of the conduct, i.e., the declaration of a contract tainted with bribery to be void.
Ayyasamy, however, further held that serious fraud allegations that make a virtual case of a criminal offence are non-arbitrable. Similarly, in Vidya Drolia, the Court held that allegations of fraud are arbitrable as long as they relate to a civil dispute. Matters of criminal fraud fall under the public domain and can therefore only be adjudicated upon by a Court.[4] These holdings essentially restrict the arbitrability of fraud to claims that are “less serious” in nature, but such a distinction finds no statutory basis in the AAC.
Section 23 of the Indian Contract Act, 1872 (“ICA”) stipulates that if the consideration (or even a part of the consideration as per Section 24 of the ICA) is immoral or opposed to public policy, the contract itself is void. There is no question that bribery is wholly against public policy; in fact, ICC Case No. 1110 also makes it evident that such forms of corruption are an international evil and are “contrary to good morals and to an international public policy common to the community of nations.” In the Rashid Raza case, the Supreme Court went on to appoint an arbitrator under Section 11 since the allegations of fraud were “simple allegations” as the allegations were not grave enough to vitiate the agreement as a whole, including the arbitration clause.
Rashid Raza and Ayyasamy rely on a twin test on the arbitrability of fraud. The test entails Courts examining whether the principal agreement, along with the arbitration agreement are void by virtue of this fraud, and whether the fraud has implications within the public domain or is between the parties. If both are in the negative, then such allegations of fraud would be considered as arbitrable as they are simple or less serious in nature. Recent decisions of the Bombay High Court in Nilesh Shejwal[5] and Delhi High Court in Rahul Bhayana[6] show more of an openness towards entrusting the tribunals with examining allegations of fraud; however, no significant change can be made towards the arbitrability of fraud, since if such allegations are “serious” then they would be rendered non-arbitrable. Since this is the case for fraud, other corruption allegations, such as bribery, are bound to be treated the same when discussed by the Supreme Court.
The Devas v. Antrix decision affirmed that the Courts of the seat have the power to investigate allegations of fraud even if those allegations were not raised during the arbitral proceedings.[7] However, the Court held that since this fraud occurred at the very start of the commercial transaction between them, it vitiated all subsequent acts. This position departs from general international standards, since the Courts of the seat usually take a very hands-off approach and avoid substituting their own factual assessment for that of the arbitral tribunal. However, considering the nature of such allegations and transnational public policy towards combatting corruption, the Division Bench’s decision in Devas is welcomed as it ultimately holds Courts responsible in examining such allegations, even at a belated stage.
An increase in judicial responsibility is also reflected in a 2025 judgment of the Dubai International Financial Centre Court (“DIFC”) in Korek Telecom, which had both the arbitral tribunal and DIFC examining corruption allegations levied against the promoters of Korek Telecom. It was alleged that the promoting group of Korek Telecom had obtained a decision unlawfully from the Iraqi Communications and Media Commission (“CMC”), thereby driving out Iraq Telecom Limited (“IT”) from the shareholding structure of Korek Telecom. The reason for this judgment’s significance is the crucial holding of the DIFC calling for international Courts not to be blindfolded from questioning decisions or actions taken in a foreign State involving bribery.
Despite the CMC decision being one taken administratively by the Iraqi authorities, the arbitral tribunal and the DIFC, being in a completely foreign jurisdiction, still took it upon themselves to examine the conduct behind the CMC decision. Moreover, this decision clearly distinguished between overturning government decisions versus awarding damages on the basis of them, and the latter is clearly possible within the purview of the tribunal and ultimately the Courts.[8] Another similar instance of Courts taking a more hands-on approach is the case of Sorelec, where the Paris Court of Appeal in 2020 set aside two awards issued in favour of a French investor against the State of Libya because the underlying transaction was tainted by bribery.[9]
Sorelec is similar to Devas in the sense that allegations of corruption were raised at the cancellation stage for the first time.
The twin tests of arbitrability of fraud can prove to be outdated when examined in light of international jurisprudence. Irrespective of whether the corruption is grave enough to permeate both the principal agreement and the arbitration agreement, Courts generally tend to uphold the principle of separability in order to allow tribunals to examine the same.
III. CONCLUSION
The 246th Report of the Law Commission recommended that fraud and allegations of corruption be made expressly arbitrable by virtue of a legislative amendment.[10] However, in the Draft Arbitration and Conciliation (Amendment) Bill, 2024, no such change has been incorporated. In this context, there is a need to clarify the threshold for allegations of bribery and “serious” fraud are arbitrable in light of international jurisprudence. It may be considered not treating such allegations as non-arbitrable but recognize it as a matter that is arbitrable for limited civil consequences in light of Sections 23 and 24 of the ICA, subject to heightened judicial scrutiny at the annulment stage.
*Vyapak Desai, Counsel – International Disputes & Investigations, Vyapak Desai Law Chambers
**Ruben Zachariah, Student
[1] Article 15(a).
[2] Westacre Investments Inc v. Jugoimport SPDR Holding Co. Ltd., [1998] 3 WLR 770
[3] A. Ayyasamy v. A. Paramasivam and Ors., (2016) 10 SCC 386
[4]Vidya Drolia v. Durga Trading Corp., 2020 SCC OnLine SC 1018
[5] Nilesh Shejwal v. Agrowon Agrotech Industries (P) Ltd., 2024 SCC OnLine Bom 3953
[6] Rahul Bhayana v. Rohit Bhayana, 2024 SCC OnLine Del 5796
[7] Devas Employees Fund US LLC v. Antrix Corporation Limited and Ors, FAO(OS) (COMM) 289/2022
[8] Korek Telecom Company LLC v. Iraq Telecom Limited, CA 016/2024
[9] Sorelec v. Libya, Paris Court of Appeal Decision
[10] Law Commission of India, Amendments to Arbitration and Conciliation Act, 1996, Report No. 246
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