*Arnav Doshi
Introduction
The growing tendency of corruption employed as a ground for non-enforcement of arbitral awards has awoken tribunals and judiciaries alike from adopting a head-in-the-sand approach to addressing the issue on a war footing. The creeping roots of corruption in arbitration are a potential minefield that “leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and other threats to human security to flourish”. Thus, with the increasing disputes pivoting around corruption and “the convergence of obligations around its prevention, detection, and remediation in both the public and private sectors, corruption has increasingly figured as an issue in international arbitration”.
In the Indian context, the enforcement of the International Chamber of Commerce’s [‘ICC’] award in Devas Multimedia Private Limited v. Antrix Corporation Limited was tainted by the allegations of corruption put forth by Antrix Corporation Limited [‘Antrix’], an Indian government-owned company, is the prime and recent most example of the growing tendency of corruption as a basis on preventing the enforcement of awards. This post demonstrates the approach of tribunals and courts towards dealing with corruption allegations in international arbitration and further analyses and critiques the approach by the Indian courts in the Antrix-Devas case. The essay illustrates the general principles and international precedents concerning corruption allegations. Further, the burden and standards of proof adopted by international tribunals are examined (I) to scrutinize the decision of the National Company Appellate Tribunal [‘NCLT’] and Supreme Court of India in affirming the corruption allegations against Devas Multimedia Private Limited [‘Devas’] (II). In conclusion, the approach adopted by the Indian courts in adjudicating corruption allegations will be juxtaposed with the approach by foreign tribunals in relation to the burden and standard of proof being met in the aforesaid dispute.
I. Corruption Allegation in International Arbitration
More than 50 years ago, Judge Lagergren refused jurisdiction in International Chamber of Commerce [‘ICC’] Case No. 1110 on the grounds of corrupt payments, based on his observation that “corruption is an international evil… contrary to good morals and to an international public policy common to the community of nation”. In furtherance of Judge Lagergren’s observation, the forerunners in the battle against corruption in the international arena are the UN Convention against Corruption, 2003 and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 1997 which have adopted “a comprehensive and multidisciplinary approach is required to prevent and combat corruption effectively”. The conventions to combat this issue have recognized the “problem of corruption as part of international (and transnational) public policy”. Moreover, the International Centre of Settlement of Investment Disputes [‘ICSID’] in Metal Tech, World Duty-Free v Republic of Kenya observed that bribery is contrary to the international public policy of most, if not all, States or, to use another formula, to transnational public policy.
The ICSID witnessed a catena of cases namely- African Holding v Congo, TSA Spectrum v Argentina, EDF v Romania, Niko Resources v Bangladesh, and MetalTech v Uzbekistan-wherein the parties have alleged corruption as the basis for claims or jurisdictional defences. However, the vague and ambiguous scope of corruption, burden and standards of proof and the duties of a tribunal coupled with the “rules of attribution, and the effect of host country investigation and/or prosecution” have been under immense scrutiny owing to various approaches adopted by tribunals. The traditional approach to the standard of proof for corruption allegations is the well-accepted principle that the burden of proof rests on the party “who advances a proposition affirmatively (‘actori incumbit probatio’)”.[1] However, a paradigm shift from the traditional approach can be observed.
In addressing corruption allegations in international arbitration, however, five significant challenges can be observed: (a) definitional challenge; (b) standard and burden of proof; (c) role of an arbitral tribunal; (d) consequences of corruption allegations; and (e) emerging issues from greater compliance. However, for the purposes of this post, the standard and burden of proof will be critically examined to highlight the inadequate approach taken by the Indian Courts vis-à-vis international standards and practices.
A major challenge in proving an allegation of corruption in international arbitration is owing to the standard, methods and burden of proof. Barring the UNCITRAL Arbitration Rules, none of the established arbitration rules contain provisions on the burden and standard of proof.[2] Through a jurisprudence of tribunals in consonance with international law principles and applicable law, two traditional standards of proof can be evidenced:
(i) High Standard of Proof:
The high standard of proof refers to proving corruption allegations beyond a reasonable doubt and is applicable when a rigorous standard of proof is needed to tackle the party allegations. For instance, bribery is deemed as conduct contra bonos mores that requiring application of the heightened standard of proof. In Westinghouse v Philippines, the ICC in relation to allegations of corruption held that fraud in civil cases must be proven to exist “by clear and convincing evidence amounting to more than a mere preponderance, and cannot be justified by a mere speculation”. Further, in EDF (Services) Limited v Romania, arguing that the breach of BIT between the United Kingdom and Romania was caused by the investor's refusal to comply with demands for immense bribes by Romanian government officials, the arbitral tribunal found that the “seriousness of the accusation of corruption demands clear and convincing evidence”.
(ii) Balance of Probabilities or Preponderance of Evidence:
Gary Born notes that although there is little discussion of the issue, in most international arbitrations, the standard of proof appears to be (or is assumed to be) a ‘balance of probabilities’ or ‘more likely than not’ standard.[3] The classic or typical approach to the standard of proof was observed in the ICC Case No. 8891 wherein not only did the tribunal acknowledge the difficulties of proving corruption, but it also adopted the appropriate standard of proof owing to the difficulties. Additionally, the Tribunal in Kardassopoulos and Fuchs v Georgia recognized that “the principle articulated by the vast majority of arbitral tribunals in respect of the standard of proof in international arbitration proceedings does not impose on the parties any standard of proof beyond a balance of probabilities”.
There exists an evident dichotomy regarding international tribunals adopting standards of proof. In relation to the High Standard of Proof, commonly, arbitral tribunals have expressed that a case for corruption would not exist if the party with the burden of proof could neither prove it “beyond a reasonable doubt” nor yield “clear and convincing evidence” displaying an act of corruption or corrupt intent. However, a limitation subject to the application of the balance of probabilities would be that a party seeking relief from contractual obligations can exploit the ease in which corruption may be invoked due to a lower standard of proving corruption allegations. In light of these standards, Part II examines the decision taken by the NCLT and Supreme Court in the Antrix-Devas case and determines the standard of proof the Indian courts adopt.
II. Proving Corruption Allegations in India
A. Arbitrability of Fraud and Corruption in India
Prior to the enactment of the Arbitration and Conciliation (Amendment) Act, 2021 [‘2021 Amendment’], the judiciary in Avitel Post Studio Limited v HSBC PI Holdings (Mauritius) Limited [‘Avitel’] laid a two-fold test to determine the arbitrability of fraud. On allegations of fraudulent activities, the subject-matter of a dispute would become non-arbitrable upon (1) the plea on fraud relating to the entire contract, including the arbitration agreement, and thereby rendering it void; and (2) whether the allegations pertained the internal affairs of the parties inter se having no implication in the public domain. Moreover, Vidya Drolia and Others v Durga Trading Corporation and Others reaffirmed the decision in Avitel on non-arbitrability on the arbitration clause being tainted with fraud, and further stated that when allegations of fraud relate to a civil dispute, they can be made a subject matter of arbitration.
The position on the arbitrability of fraud allegations that progressed to widen the scope of tribunals and enforcement of arbitral awards was hindered by the 2021 Amendment. The amendment to Section 36 of the Arbitration and Conciliation Act, 1996 diluted the enforcement of arbitral awards. The amended Section 36 read to effectuate an unconditional stay on the enforcement of an arbitral award pending disposal under a Section 34 application on account of fraud or corruption. Furthermore, the efficient enforcement system set in place by the jurisprudence was overhauled by the amendment’s ability to provide non-enforcing party to the arbitral proceedings the option to seek indefinite stay on the award.
The 2021 Amendment provided for the retrospective application of the amended Section 36, and paved way for the influx of fraud or corruption allegations to set aside the enforcement of arbitral awards on a prima facie basis. In light of otiose jurisprudence and new statutory guidance, the post examines the inadequate method and standard proving of corruption allegations in arbitral proceedings.
B. Brief Background: Antrix-Devas dispute
Antrix is the commercial arm of the Indian Space Research Organization [‘ISRO’] which is wholly owned by the Government of India under the Department of Space. On 28.07.2003, Antrix entered into a Memorandum of Understanding with Forge Advisors LLC [‘Forge Advisors’], a Virginia Corporation. Thereafter, Forge Advisors proposed an Indian joint venture known as DEVAS (Digitally Enhanced Video and Audio Services) in which ISRO would potentially invest.
On 17.12.2004, Devas Multimedia Private Limited was incorporated as a private company. Immediately thereafter, Antrix entered into an agreement with Devas to provide multimedia services to mobile platforms in India using S-band spectrum transponders on two ISRO satellites for an investment of Rs. 576 crores. However, the Agreement was terminated by Antrix on the grounds of force majeure and policy.
Devas initiated arbitration against Antrix before the ICC and two separate arbitral proceedings were initiated under the India-Mauritius BIT and India-Germany BIT by Devas’ investors- Mauritius investors and Deutsche Telekom respectively. India lost all three disputes and the ICC tribunal ordered India to pay $1.2 billion to Devas. Antrix filed a petition before the NCLAT that granted authorization to initiate the winding up of Devas which was upheld by the Supreme Court of India.
C. Corruption Allegations
In view of the corruption allegations, the Central Bureau of Investigation [‘CBI’] filed a First Information Report on 16.03.2015 against Devas for the criminal conduct of fraudulently misappropriating property and cheating under provisions of the Prevention of Corruption Act, 1988 and Indian Penal Code, 1860. The bone of contention presented by Antrix was that Devas was formed for fraudulent and unlawful purposes, and the transactions were tainted with corruption. Thus, contending the winding up in liquidation of Devas under Section 231 of the Companies Act, 2013 was on account of fraud.
Devas argued before the Supreme Court that the NCLT and NCLAT [collectively ‘Tribunals’] applied an incorrect standard of proof- the findings were recorded to be only prima facie, which is not sufficient to order the winding up of the company. In terms of evidence, the forerunning contention on corruption was that the agreement entered into between both parties was a result of fraudulent and criminal conspiracy between the management of affairs of Devas and the officials of Antrix/Government of India to award the lease of scarce and valuable S-band spectrum without necessary approvals. The Tribunals recorded concurrent findings on facts and the Member (Technical) of the NCLAT classified the evidence on fraud into eight categories which succinctly concluded that the formation of Devas and the conduct of affairs by personnel and conduct of the management of its affairs are guilty of fraudulent activities.
In view of the evidence recorded by NCLAT, Devas challenged the recording of evidence and consequently application of the standard of proof to arrive at the decision to be based on prima facie findings. Devas mooted for a higher standard of proof to be applicable considering the matter was for the winding up of a company. However, the Supreme Court refused to re-appreciate the evidence and through a head-in-the-sand approach stated that the detailed findings recorded by the Tribunal show that they are final and not prima facie. Therefore, it can be observed that the Court did not appreciate the High Standard of Proof in the present case. Although, in analysing the decision of the Court in relation to the standard of proof adopted to prove corruption allegations, it can be postulated that the Court, per contra, did not adopt the traditional balance of probabilities standard as well. It expressly stated that merely because the NCLAT used erroneous expression of the findings being prima facie, those findings are not in actuality prima facie and are detailed enough to be of a standard higher than the normal rule.
Conclusion and Recommendation
The vague and ambiguous language of the judgment invites the conundrum of the standard of proof adopted for corruption allegations. A recommendation for resolving the conundrum would be for Indian courts to seek guidance from the European Continental tradition of “conviction intimate” or “inner conviction” for establishing a standard of proof for corruption disputes in India. According to this tradition, the threshold standard is whether submitted evidence is sufficient to convince the judge or arbitrator of the existence of a fact. In other words, the inner conviction standard rests upon the answer to the question: was the evidence enough to persuade? The standard can be evidenced in the Westacre v. Jugoimport case wherein the ICC Tribunal held if the claimant’s claim is based on the contract is to be voided by the defence of bribery, the arbitral tribunal, as any state court, must be convinced that there is indeed a case of bribery. The Supreme Court in the Antrix-Devas matter, had the opportunity of planting the roots of the inner conviction standard in the Indian context to resolve the conundrum. However, the ‘parchment’ standard of proof dictated in the aforesaid case has muddied the waters regarding the burden and standard of proof parties need to adhere with to prove corruption charges. The inner conviction standard sets a middle ground between the extremes of the high and low standard of proof which Indian courts may concretize and apply for corruption allegation disputes and thereby remedy the conundrum.
*Arnav Doshi is a Junior Staff Editor for the Arbitration Workshop. He is a third-year student pursuing B.B.A. LL.B. (Hons.) at O.P. Jindal Global Law School. He can be reached at 19jgls-arnav.jd@jgu.edu.in. [1] Andreas Reiner, ‘Burden and General Standards of Proof’ in Alan Redfern et al., The Standards and Burden of Proof in International Arbitration (10 Arbitration International 1994) 320. [2] Alan Redfern, ‘The Practical Distinction Between the Burden of Proof and the Taking of Evidence – An English Perspective’ in Alan Redfern and others (eds.), The Standards and Burden of Proof in International Arbitration, (Arbitration International 1994) 320. [3] Gary Born, International Commercial Arbitration (2nd edn., Kluwer Law International 2014) §15.09B.