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GROWTH OF ARBITRATION MECHANISM IN CRIMINAL CASES

Introduction
In the case of Hindustan Petroleum Corporation v Pink City
1
, the respondent has sought to do
away with the arbitration proceedings by contending that the act was inherently criminal in
nature and the action could not be looked into by an arbitrator. The Supreme Court had ruled
out this contention stating that the claimant had his rights under contractual law and such
provisions could run independent of statutory provisions.
The existence of a dual-procedure; one under criminal law and the other
under contractual law is a well-accepted legal phenomenon in Indian
jurisprudence.
2

What needs to be noted in the above scenario was the fact that an arbitration proceeding ran
parallel to a criminal proceeding. They have never really been intertwined to reach a result.
Normally speaking, arbitration and criminal law seem to come from two completely different
hemispheres, never looking to cross. While the basis of arbitration is based on private
autonomy looking to settle private disputes, criminal law looks after the general public often
restricting private autonomy. However, as was evident in the Hindustan Petroleum case
3
,
criminal law proceedings may have an impact on arbitral proceedings and the result of the
case and both may actually come close to intermingling with each other.
Advantages of Arbitration
Arbitration could be referred to as a more gentle way of resolving disputes, though that
hardly seems to be the case anymore with the flexible and informal approach getting as
complicated as litigious proceedings.
If an onlooker were to glance into the room where arbitration is held, he or
she would be greeted with a sight differing markedly from the solemn
atmosphere of the courtroom. No insignia of state authority and no pomp
just a group of people sitting around a row of tables. Arbitration is, after all,

1
(2003) (6) SCC 503
2
Ibid
3
Ibid
a creation of the parties to the case, and a family atmosphere bodes ill for overt
formality.
4

Even though arbitration has preceded the system of courts, it only received its importance in
the twentieth century, earlier being used mostly as an afterthought.
5
Now it exists in all its
glory, especially in the area of international commercial disputes. The judiciary of a nation
should ideally be as far from partial as if should, but often, sense prevailing, it is best to avoid
any sort of advantage of being at home with the national judiciary might be slightly leaning
towards the domestic parties.
6
However it isnt just neutrality which might force an individual
or body to look to arbitration. Neutrality could always be achieved through the matter being
put in a court of neutral jurisdiction. What really works for arbitration is the fact that there is
an absence of acute formality, easy recognition and enforcement, proceedings remaining
confidential etc. It is the maintenance of confidentiality which particularly appeals to
business parties. They are always keen in protecting their reputation and being in the public
spotlight as a result of court proceedings is hardly something they would enjoy. However,
this confidentiality could also be the preferred choice of resolution when either or both the
parties have gone into the domain of crime. It is rare for arbitration to be used for criminal
matters and the method now chiefly looks towards the settlement of civil disputes.
7
For a
dispute resolution mechanism to thrive, it must not completely ignore a branch of law falling
outside its scope. Doing so could actually affect the pursuit of justice which it ultimately
seeks to address.
Addressing matters of a criminal nature during the course of an arbitral proceedings create a
whole set of problems in themselves. There is an inherent conflict in the way criminal and
civil matters are to be dealt with especially when it comes to arbitration. There is the
confidentiality principles and the duty to report crimes.
Criminal Matters before an Arbitral Tribunal
When a criminal matter appears before an arbitral tribunal, it is generally with regard to one
of the parties having committed an offence. There have been instances where arbitrators

4
A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration 1 (4
th
ed., 2004)
5
D. Hiber and V. Pavic, Arbitration and Crime, 25(4) Journal of International Arbitration (2008)
6
U. Bhattacharya, N. Galpin and B. Haslem, The Home Court Advantage in International Corporate Litigation
(available at http://ssrn.com/abstract=932690) Last visited on August 8, 2014
7
D. Roebuck, Sources for the History of Arbitration: A Bibliographical Introduction, 14(3) Journal of
International Arbitration (1998)
themselves have resorted to fistfights thus putting up another set of issues.
8
However, that is
an incident which is rare.
Under normal circumstances there are several ways where parties may bring in a criminal
dimension in a purely civil international commercial arbitration. Parties have often engaged
in simulated disputes to legitimate payments. This is especially true for money laundering
issues. One party submits a claim and the other party simply contests it either feebly or does
not contest it at all. A judgment is entered and the judgment creditor simply receives a cross-
border payment which of course looks fine. Many countries would exempt such a judgment
from taxes as well.
9
Parties may often bring a dispute before a tribunal which one of the
parties may contest as resembling an illegal contract which has already been finalised. A
party may sue for its fees and the defendant may argue that the fees which are being asked for
is actually intended for bribery in the other country. The service might as well be genuine,
and has been provided by another entity and the contract which is put before the tribunal is to
avoid an unfavourable taxing structure which may be present in that country.
10
The other
issue is being that of false testimony of an expert or a witness which can only be detected at a
much later stage. The manner of settling false testimony in an arbitral court is not a settled
proposition. Finally, a party might make a request to the tribunal to apply a law which is
inherently penal in nature, or to at least being them into consideration.
11

Confidentiality in Criminal Matters
Keeping the proceedings confidential is said to be one of the key strengths of international
commercial arbitration. Parties involved in arbitral proceedings chose this route primarily for
these affairs not to be in public domain. Most legal systems are quite happy with such
arrangement and arbitrators happily make a premium selling their confidential services.
However, crimes are usually prosecuted by the State in most jurisdictions and herein where
the conflict lies An arbitrator would face a dilemma when there is a commercial transaction
where there is an inherent criminal purpose involved. The fact that the proceedings are
confidential, would allow the arbitrator to not report such a finding or there must be another
aspect to it.

8
S.M. Donahey, Defending Arbitration Against Sabotage, 13(1) Journal of International Arbitration (1996)
9
Arbitration: Money Laundering, Corruption and Fraud at 19
10
Ibid
11
Supra n. 5
One must realise that confidentiality does not necessarily mean absolute secrecy.
12
It would
be a silly assumption to make that the existence of arbitration can be shrouded in a way to
show it to have never existed. Confidentiality is perhaps on the higher in to the exact
proceedings of arbitration, but there are varying views as to how much of it is actually
protected under the same. Documents in existence independent of arbitration are not held to
be confidential and the ones which were made during the proceedings are said to be.
13
Again,
there is the issue of where such confidentiality stems from. UNCITRAL Model Law provides
for there being confidentiality only on the award.
14
Certain national laws are completely
silent on the issue of confidentiality.
15
Hence it can be a safe inference that there is a general
expectation for proceedings to remain confidential in nature, but that would be more due to a
set of institutional rules observed due to the administrative function purely. In such a
scenario, dealing with criminal aspects would bring a set of issues needing to be resolved.
There are countries where all citizens are supposed to report crimes which may either be
planned or are committed and prosecution commences on the report.
16
Omission to report a
crime would constitute a crime in itself in case of serious offences and the jurisprudence in
India is well established in that regard.
An arbitrator is not a detective. He or she may be faced with a case where it may look like a
case as a distraction for money laundering, but that does not transform the role of an
arbitrator to go ahead and make investigations. An arbitrator may be performing a judicial
function, but arbitration is quite a separate entity as compared to that of the judicial
mechanism prevalent in the state. Foreigners may serve as arbitrators in an international
dispute and when a tribunal comprises of foreigners, it is difficult to argue in favour of
national laws asking for domestic rules being made applicable which are outside there
purview of what is immediately arbitrable, and allowing for foreign arbitrators implicitly
exempt the nationality issue. If arbitrations are not taken as officials acting in public capacity,
there have no obligation to report a crime as state officials may have to do. But this obligation
would cover a person who is to be representing a juridical person and as such the president of

12
See Bulbank Case
13
H. Sikiric, Confindentiality in Arbitral Proceedings, 13 Croatian Arbitration YB (2006)
14
Article 32(5), UNCITRAL Model Law on International Commercial Arbitration, UN Doc. A/40/17
15
Supra n. 5
16
Supra n. 13
a permanent arbitral institution would have to make a reportage disregarding the duty of
confidentiality.
17

It would be highly unfortunate to state that the duty of proceedings remaining confidential
would triumph over the fact that crime has to be reported in a legal system where reportage of
a crime is an obligation. That would be true in cases where arbitration is part of a public duty.
Reporting a crime is both a right and a duty of individuals in specific jurisdictions. Even if
such a right or a duty may not be imposed compulsorily, it should seek to be enough to avoid
the duty of proceedings remaining confidential in arbitration.
Response of Arbitration Tribunals
When criminal matters are discovered by arbitral tribunals, there are various ways in which
they are approached internationally. One way to do it is in the cases of money laundering
where the case is terminated right at the off, which isnt something the arbitrator has been
appointed to do in the first place.
18

The other way tribunals have dealt with such cases is to adjudicate whether they are
competent to deal with such a case as all. When there is sufficient evidence to show that a
contract is illegal, there are several grounds which the tribunal has used to decline
jurisdiction. An illegal contract automatically invalidates the clause for arbitration.
The traditional presumption of severability and autonomous legal destiny of
an arbitration agreement do not apply.
19

Arbitral tribunals have also resorted to declaring such disputes to be non-arbitrable.
20
This
goes along the principle of a dispute being non-admissible instead of being non-arbitrable.
Non-admissibility means that the claim could be presented neither to
arbitration nor to the state court, while non-arbitrability would leave the latter
option open.71 However, courts and tribunals have generally been fairly
reluctant to use the illegality argument in declaring a dispute non-arbitrable.
21


17
Supra n. 5
18
Supra n. 9 at 183
19
A. Mourre, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, 22(1) The Journal of the
London Court of International Arbitration (2006)
20
See Crivellaro Case
21
Supra n. 19
If a tribunal does not take out the easy way of deciding upon jurisdiction, it gets more
difficult. Arbitration must then find a way to allow parties to be given compensation which
would be just and doing so involves a rather convoluted process to reach any resemblance of
a conclusion where both parties are happy.
Conclusion
It is important to note that parties would commence arbitration proceedings when there is
sufficient trust in the process of arbitration and there is a certain degree of mutuality with
respect to resolution of a dispute.
Every arbitration agreement presupposes a certain delineation of arbitral
tasks. Every arbitration dispute is, at the same time, a derogation of
corresponding judicial competences and, therefore, has to be interpreted
strictly. Tribunals carefully watch the boundaries of their competence, since
such a transgression may lead to annulment of the arbitral award, or to
difficulties in the process of its recognition and enforcement.
22

Arbitrations mainly deal with commercial disputes and hence the issue of confidentiality
forms the very basis of the procedure for arbitration. Initially it may seem that arbitration
does not have a duty to report any criminal proceedings in a particular matter. But as has been
seen, it is the state which entrusts an arbitral tribunal with certain competency. And from
there the principle flows that the tribunal must take up actions in a public role. Confidentiality
ought to protect a dispute which is legal in nature and not one which is illegitimate in itself.
There is no evidence to show that arbitrators are given special privileges to not report activity
which may draw penal code provisions.
23

No body which has been established in law should render any assistance to criminal activity.
The arbitrator, much like how a court functions, must seek to dissuade any attempt at a
simulated or a fictitious contract, even if there is an objection from the parties. The tribunal
must look outside than being bound by just what the parties stipulate and have a right or a
duty to report if necessary. It is in the interest of justice being delivered which is the basis of
any legal system in the world.


22
Supra n. 5
23
Supra n. 19