Arbitration Petn., (Lodg) No. 102 of 2000,Arbitration Suit No. 1930 of 1987

17th April, 2000

Petitioner Counsel: Mr. ARVIND BOBDE with Mr. KIRIT J. HAKANI
Respondent Counsel: Mr. D. R. ZAIWALA with Mr. S. R. PANDIT and Mr. J. P. DALAL i/by M/s. BACHUBHAI MUNIM & Co.

Cases Cited:
Ranjit Thakur Vs. Union of India, (1987) 4 SCC 611 [Para 5]
State of West Bengal Vs. Shivananda Pathak , (1998) 5 SCC 513 [Para 5]
Rv Bow Street Metropolitan Stipendiary Magistrate Vs. Ex parte Pinochet Ugarte (No.2), 1999 1 ALL E.R. 578 [Para 5]
Locabail (UK) Ltd. Vs. Bayfield Properties Ltd. , (2000) 1 ALL E.R. 65 [Para 5]
Sundaram Finance Limited Vs. NEPC India Limited., AIR 1999 SC 565 [Para 6]
Ashalata S. Lahoti Vs. M/s. Hiralal Liladhar, Shares & Stock Broker, 1999 (1) Mh. L.J. 352 [Para 10]
M/s. Anuptech Equipments Pvt. Ltd. Vs. M/s. Ganpati Co-op. Housing Society Ltd. , 1999(3) ALL MR 580 =AIR 1999 Bom. 219 [Para 10]
M/s. Kitiku Imports Trade Pvt. Ltd. Vs. M/s. Savitri Metals Ltd. , 1999(1) ALL MR 39=1998 Vol. 103 BLR 833 [Para 11]

JUDGMENT

JUDGMENT :- Admit.

2. Respondents waive service. By consent, heard forthwith. All the Petitions involve similar facts and common question of law and therefore are being decided by a common judgment.

3. The Petitioners by Arbitration Petition (Lodg.) No. 102 of 2000 in Arbitration Suit No. 1930 of 1987 has prayed that the mandate of the Sole Arbitrator appointed by this Court by an Order dated 2nd August, 1996 stands terminated. Similar, relief is prayed for in Arbitration Petition (Lodg.) No. 104 of 2000 in respect of Arbitration Suit No. 1928 of 1987 where appointment was made by order of this Court dated 2nd August, 1996. The same relief has also been prayed for in Arbitration Petition (Lodg.) No. 105 of 2000 in Arbitration Suit No. 1926 of 1987 wherein appointment was done by an order dated 2nd August, 1996.

The Petitioners have invoked Section 14 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as 'the Act'. It is contended that from the facts on record, circumstances have arisen, which give rise to justifiable doubt as to the independence or impartiality of the Arbitrator. In these circumstances, it is pointed out from the pleadings as set out in the petitions and supported by the documents, the Petitioners have been able to make out a case of bias. This must specifically result, it is contended, in this Court exercising its jurisdiction under Section 14 of the Act. Let me at this stage itself, point out, that I do not propose to set out the facts based on which the Petitioners have based their contentions. The objections as to impartiality are firstly, based on proceedings before the Arbitrator was appointed, which objections were known to the Petitioners when they appointed the Arbitrator. The other objections are after a particular stage in the Arbitral proceedings. I say particular stage because before that the Petitioners had reposed full faith in the Arbitrator and had called upon him to decide the matter on the material as it stood. The facts will be dealt with, if the need arises, after considering the contention raised on behalf of the Respondents. Once a challenge is determined under Section 13(3) of the Act, it is argued, this Court cannot in the exercise of its jurisdiction under Section 14 of the Act, set aside or interfere with a decision of the Arbitral Tribunal taken under Section 13 of the Act. It is contended that on a perusal of Section 5 of the Act read with Sections 12 and 13 any ground as contained in Section 12(3) can only be a subject matter of a challenge under Section 13 and once that challenge is decided and if not accepted the only remedy for a party aggrieved is to agitate the point whilst challenging the award under Section 34 of the Act.

Meeting this contention on behalf of the Petitioners, their Counsel contends that in so far as Section 12 is concerned, it would deal with pre-referential challenges and not challenges arising in the course of arbitral proceedings. Even otherwise it is contended, considering the language of Section 14, if an Arbitrator de jure or de facto is unable to perform his functions, this Court would have jurisdiction to entertain the Petition. It is contended that Petitioners had invoked the jurisdiction of this Court under Section 14 of the Act, before the purported decision of the Arbitrator. The Petitioners had not moved for removal of the Arbitrator in terms of Section 12 (3). All that was done was to raise objection about the impartiality of the Arbitrator and once the Petitioners had invoked the jurisdiction of this Court, the mere fact that Arbitrator chose to decide the matter can be no answer. The decision would be a nullity in the eyes of law. The Petitioners by invoking the jurisdiction of this Court have raised a plea of personal bias. Bias it is contended would vitiate every act and once that be the case, even if a decision is taken under Section 13, that would be a nullity at law and this Court would still retain jurisdiction to hear and decide the present Petition.

4. With the above background, the first issue that would have to be decided is whether, Sections 12 and 13 by themselves are exclusive in nature, for deciding a challenge as to the independence or impartiality of the Arbitrator and/or his qualification as set out under Section 12(3) of the Act. In the alternative whether this Court would have jurisdiction to entertain and decide a challenge as to disqualification as set out under Section 12(3), in a petition filed under Section 14 of the Act.

5. For the purpose of understanding the concept of bias involved herein, I may briefly advert to some of the case law cited at the Bar as to what would constitute bias on the part of the judicial or quasi judicial authority. This is for the limited purpose of examining as to whether under Section 14 of the Act this Court if it arrives at the conclusion that the challenge is also available under section 14, can terminate the mandate of an Arbitrator. The Apex Court in the case of Ranjit Thakur Vs. Union of India and Others : (1987) 4 SCC 611, while considering the challenge of bias on the facts, of that particular case posed a question as under :-

"The test of real likelihood of bias is whether a reasonable person, in possession of relevant information, would have thought that bias was likely and is whether Respondent No. 4 was likely to be disposed to decide the matter only in a particular way."

The Apex Court thereafter considered various Judgments as reflected in paragraphs 18, 19, 20 and 21 and has set out the various tests laid down by Courts, in England and in the United States of America. It would be gainful to reproduce some of the tests as set out by the Apex Court in the case of State of West Bengal and Others Vs. Shivananda Pathak and Others : (1998) 5 SCC 513.

"25. Bias may be defined as a preconceived opinion or a predisposition or predetermination to decide a case or an issue in a particular manner, so much so that such predisposition does not leave the mind open to conviction. It is in fact, a condition of mind, which sways judgments and renders the judge unable to exercise impartiality in a particular case.

26. Bias has many forms. It may be pecuniary bias, personal bias, bias as to subject-matter in dispute, or policy bias, etc. In the instant case, we are not concerned with any of these forms of bias. We have to deal, as we shall presently see, a new form of bias, namely, bias on account of judicial obstinacy.

27. Judges, unfortunately, are not infallible. As human beings, they can commit mistakes even in the best of their judgments reflective of their hard labour, impartial things and objective assessment of the problem put before them. In the matter of interpretation of statutory provisions or while assessing the evidence in a particular case or deciding questions of law or facts, mistakes may be committed bona fide which are corrected at the appellate stage. This explains the philosophy behind the hierarchy of courts. Such mistake can be committed even by a judge of the High Court which are corrected in the letters patent appeal, if available."

Another judgment cited and which needs to be considered is the case of Rv Bow Street Metropolitan Stipendiary Magistrate and Others Vs. ex parte Pinochet Ugarte (No.2) : 1999 1 All E. R. 578. That was a case of extradition for trial to Spain of a former President of Chile. The House of Lords had by a majority allowed his extradition. A review thereafter came to be filed on the ground that one of the Law Lords who comprised the Bench was associated with Amnesty International Limited which had been allowed to intervene in the matter. Review was allowed. While so holding the House of Lords held that the Judge was automatically disqualified from hearing a case from his own cause. It was not restricted to cases in which he had a pecuniary interest in the outcome, but also applied to cases where the judge's decision would be promotional of a cause in which the judge was involved together with one of the parties. That did not mean that Judges could not sit on cases concerning charities in whose work they were involved. Judges would normally recuse themselves or disclose the position to the parties only where they had an active role as trustee or director of a charity which was only allied to and acting with a party to the litigation. The House of Lords held that as one of the Lords was a Director of a Charitable Trust with which Amnesty International Limited was connected he stood automatically disqualified.

The law pertaining the bias has been explained in detail in case of Locabail (UK) Ltd. Vs. Bayfield Properties Ltd. & Anr., (2000) 1 All E.R. 65. An important observation made in that case is that while applying the test, what the Court must consider is the real danger rather than real lacunas to ensure that the Court is thinking in terms of possibility rather than probability of bias. While applying the real test of danger or possibility it will very often be appropriate to inquire whether the judge knew of the matter relied on as appearing to undermine his impartiality, because if it is shown that he did not know of it the danger of it having influenced his judgment is eliminated and the appearance of possible bias is dispelled. Again dealing with real bias, the Court observed a real danger of bias might well be thought to arise if there were personal friendship or animosity between the Judge and any member of the public involved in the case; or if the judge were closely acquainted with any member of the public involved in the case, particularly if the credibility of that individual could be significant in the decision of the case, or if in a case where the credibility of any individual were an issue to be decided by the judge, he had in a previous case rejected the evidence of that person in such outspoken terms as to throw doubt on his ability to approach such persons' evidence with an open mind on any later occasion; or if on any question at issue in the proceedings before him the judge had expressed views, particularly in the course of the hearing, in such extreme and unbalanced terms as to throw doubt on his ability to try the issue with an objective judicial mind ; or if, for any other reason, there were real ground for doubting the ability of the judge to ignore extraneous considerations, prejudices and predilections and bring an objective judgment to bear on the issues before him. The mere fact that a judge, earlier in the same case or in a previous case, had commented adversely on a party or witness, or found the evidence of a party or witness to be unreliable, would not without more found a sustainable objection in most cases. If in any case there is real ground for doubt, that doubt should be resolved in favour of recusal. The Court thereafter observed that every case must be decided on the facts and circumstances of the individual case. The greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is raised, the weaker the objection will be.

6. With that we may now proceed to consider as to whether this Court can entertain the present Petition under Section 14 of the Act. In Sundaram Finance Limited Vs. NEPC India Limited : AIR 1999 SC 565, the Apex Court has held that while considering the provisions of the Arbitration and Conciliation Act, 1996 the provisions must be construed independently of any reference to the 1940 Act which may actually lead to misconstruction. In other words, the provisions of the 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act. In order to get help in construing the provisions of the Act, it is more relevant to refer to Uncitral Model Law, rather than the 1940 Act.

7. Section 5 of the Act sets out that no judicial authority shall intervene except where provided under the Act. In so far as Part I is concerned, the judicial interference can be under Sections 14, 16, 34 and 37. Section 9 is the power to grant interim reliefs. Under Section 12 grounds under which the appointment of an arbitrator can be challenged, have been set out. Under Section 13(3) if there is a challenge to the continuance of the arbitrator or his appointment the Arbitral Tribunal must decide the challenge. Under section 16, the Arbitral Tribunal is competent to decide on its own jurisdiction. Similarly under Section 14 in situation contemplated therein. I am only making a passing reference to these provisions to point out that the Act, contemplated two situations. A challenge to the appointment which must be decided by the Arbitral Tribunal itself and the other when the Court invokes its authority to remove an arbitrator.

8. Therefore let us first examine, whether it is possible to accept the contention advanced on behalf of the Petitioners that Section 12, refers to pre-Reference and not post-Reference matters warranting removal of the arbitrator, on the ground which gives rise to doubts about independence or impartiality. Learned Counsel has tried to take me through the provisions of the Arbitration Act, 1940 to point out, under what circumstances an Arbitrator could be appointed under the old Act by referring to Section 8 and Section 20. To my mind, even without considering the test laid down by the Apex Court in Sundaram Finance Ltd. (supra), a perusal of the Act, 1996 would indicate that Section 12 cannot be restricted only to what is known as pre-Reference dispute. Section 12(2) sets out that an Arbitrator at the time of his appointment and throughout the arbitral proceedings shall without delay disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have been already informed. Section 12(3)(a) sets out the circumstances likely to give rise to justify the doubts as to independence or impartiality. A reading of Sections 12(1) and 12(2) would indicate that the disqualification cannot be only to pre-Reference disputes. Otherwise the expression through out the arbitral proceedings would be rendered otiose. Throughout the arbitral proceedings must mean that even in the course of arbitral proceedings if circumstances arise or exist which give rise to any doubt as to the independence of the Arbitrator.

9. We now come to the contention, whether after a decision is rendered under section 13(3), this Court can interfere in a petition under Section 14. Let us therefore look at the provisions. The Arbitrator is bound to disclose circumstances which may give rise to justifiable doubts about his impartiality or independence to the parties under Section 12(1) and 12(2). Under Section 12(3) the challenge can be two fold. One if the circumstances give rise to justifiable doubts as to his independence or impartiality and second if he does not possess the qualifications agreed to by the parties. Under Section 13 if a challenge is thrown, there are two courses open to the Arbitrator. One to immediately withdraw from the office and the other to decide on the challenge. The importance of a challenge and decision under sections 12(3) and 13(3) in the case of bias becomes important as bias can be waived, by a party participating in the proceedings even though aware of the circumstances of possible bias. The second could be that there may be circumstances under which a party in order to delay or to avoid an arbitration may move the Court under Section 14. Under Section 14 the Court, on the material before it, may be in a position to examine the real possibility of bias. There could be other situations in which the Court may have to gather material for the purpose of finding out whether in fact there was any real possibility of bias. In these circumstances, a decision under Section 13(2) would throw light on the matter. As an illustration an Arbitrator may not be aware of the material giving rise to a possibility of bias, and may conduct the proceedings. In these circumstances the real possibility of bias may diminish or the possibility itself may disappear. An Arbitrator confronted with material as to circumstances which give rise to justifiable doubt as to independence or impartiality would be the best person if circumstances so warrant to meet the contentions raised or to answer the same. Reference at this stage may be made to Section 14(3). This is only for the purpose of deciding whether the ground of possibility of bias can be decided by this Court, without the Arbitrator first deciding the issue under Section 13(3). Section 14(3) is reproduced as under :-

"If, under this Section or Sub-Section (3) of Section 13, an Arbitrator withdraws from his office or a party agrees to the termination of the mandate of an Arbitrator, it shall not imply acceptance of the validity of any ground referred to in this Section or sub-section (3) of Section 12."

Will therefore the mere reference to Sections 12(3) or 13(3) result in this Court coming to a conclusion that such a challenge is also open under Section 14 of the Arbitration and Conciliation Act, 1996. The language only indicates that if the Arbitrator withdraws or recuses himself then that would not mean acceptance of the allegations or ground. It is founded on the principle, that the Arbitrator in order to maintain impartiality of a proceedings and despel any probability of real bias wants to recuse himself. If the language was otherwise then it may have been difficult for an Arbitrator to recuse himself. Merely because they are found in Section 14 cannot lead to the conclusion, that the challenge always be made under Section 14. The entire scheme of the Act will have to be examined.

There could be no dispute that bias may constitute a ground to hold that de jure the Arbitrator cannot perform his function. However, what happens once there is a specific provision provided by the Act for a challenge to a decision under Section 13(3) of the Act and the embargo created by Section 5 that no judicial authority shall intervene except as provided under the Act. Will this Court still have jurisdiction to hear and decide the matter. What happens in a case where the Arbitral Tribunal though objections have been raised chooses not to decide on the objection. Would then the provisions of Section 14 apply. If Section 14 could apply in such excepted cases, then would that make a difference in a case where the Arbitral Tribunal decides the objection. If the Court prima facie can entertain a petition on failure by the Arbitral Tribunal to decide the objections, will the Court be precluded to decide in a case where the Arbitral Tribunal decides the objections. Presently we are not dealing with a case on the failure of an Arbitral Tribunal to decide an objection in respect of the circumstances that give rise to justifiable doubts about his independence or impartiality. We are dealing with a situation where the Arbitral Tribunal has decided the objections even when a petition was filed for his removal. The Petitioners specifically had not called on the Arbitrator to decide the objections.

A separate argument has also been advanced, that the said decision was taken without giving notice to the Respondents and behind their back. Such a decision it is contended would be a nullity in law and this Court will have jurisdiction to hear and decide this petition under Section 14. Therefore, two situations may possibly emerge (1) where an Arbitrator decides on notice and (2) where Arbitrator decides without notice. Will that make a difference in so far as the provision of Section 13 are concerned.

Sub-Section (4) of Section 13 may now be reproduced :-

"If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award."

Will giving or non-giving of a notice before deciding on a challenge to his removal make a difference. In the instant case, the Petitioner have raised objection setting out their apprehension as to circumstances which according to them give rise to justifiable doubts as to the independence or impartiality of the Arbitrator. The said objections were heard on the date when proceedings had been adjourned for further recording of evidence. The Petitioners had made it known that they would not participate in the further proceedings. Learned Counsel, however, seeks to make a distinction, that what they said was that they would not participate in so far as further conduct of the arbitral proceedings. It is contended that in so far as the objections raised were concerned, before deciding the same the Arbitral Tribunal was duty bound to give notice to the Petitioners as it involved his impartiality. It is true that no orders can be passed behind the back of a party. One of the basics of our judicial system lies in the fact that before any order is passed a party likely to be aggrieved must be heard. On the facts of the present case, it is true that a specific notice in respect of personal hearing was not given. The fact however remains that the matter was decided on an adjourned date of hearing, which the Petitioner had notice. The Petitioners had given notice that they would not participate further in the proceedings. The Arbitrator in these circumstances was not duty bound to give notice to such a party. Would that make any difference in so far as exercise of jurisdiction under Section 14 is concerned. In these circumstances, I do not propose to answer the question at this stage, as to the justifiability of an order where before a decision no notice was given to the Petitioners. In the instant case, the matter has proceeded exparte and the only question is whether this Court can intervene in a case where the Arbitrator has admittedly decided the matter.

10. Learned Counsel to buttress his contention that the Court can interfere under Section 14, has drawn my attention to the Judgment in the case of Ashalata S. Lahoti Vs. M/s. Hiralal Liladhar, Shares and Stock Broker 1999 (1) Mh. L.J. 352. It is contended that in that case this Court has invoked Section 14 of the Act. On a perusal of the Judgment in Ashalata S. Lahoti (supra), it would be apparent that the challenge thrown was not a challenge as contemplated under sub-section (3) of Section 13. Next my attention is invited to a judgment in the case of M/s. Anuptech Equipments Pvt. Ltd. Vs. M/s. Ganpati Co-operative Housing Society Ltd. & Ors., : AIR 1999 Bombay 219 : (1999(3) ALL MR 580). There again the question was the action of the Arbitral Tribunal in closing proceedings under Section 25. The issue before this Court was the remedy available to a party when Arbitral proceedings were closed and ex facie the order was a nullity at law as one of the Arbitrator had no qualification. Not being an Award the decision could not be challenged under Section 34. The issue was whether such a party had no remedy. The closure of proceedings under Section 25 was held not to be an Award which could be subject to a challenge under Section 34. It is in these circumstances after reviewing the case law and the provisions of the Arbitration and Conciliation Act, 1996 that the Court came to the conclusion that an Arbitral Tribunal, if not a tribunal as contemplated under Part III of the Constitution of India would at least be other person to whom a writ would go under Article 226 of the Constitution of India.

11. In the instant case, it is not as if the parties are without a remedy. If Section 13(4) is construed the Legislature in its wisdom has provided for a remedy whilst challenging the Award. In these circumstances, in my opinion the Judgment in the case of M/s. Anuptech Equipments Pvt. Ltd. (supra) would not apply nor would this be a case where this Court should invoke its extra ordinary jurisdiction under Article 226 and/or for that matter under Article 227 of the Constitution of India.

My attention was also invited to the Judgment of the another learned Single Judge of this Court in the case of M/s. Kitiku Imports Trade Pvt. Ltd. Vs. M/s. Savitri Metals Ltd. & Ors. 1998 Vol. 103 BLR 833 : (1999(1) ALL MR 39). In that case, the issue before the learned Single Judge was whether if a plea of bias had not been raised before the Arbitral Tribunal, could such a challenge be raised under Section 34. The learned Single Judge has taken a view that such a challenge would not be available. I am not called upon to decide the issue raised in that Judgment. Suffice it to say that if a party was not aware of the ground pertaining to doubts about the impartiality of an Arbitrator during the course of the arbitral proceedings. In my opinion prima facie a party could not be precluded from raising a challenge under Section 34. However, as pointed out, I am not called upon to decide that issue on the facts of the present case.

Considering the above and considering the object of the Legislation which is to restrict judicial interference, can it be said that this Court in a case decided under Section 13(3) can entertain and maintain a petition under Section 14. In my opinion, as discussed above and after considering the language of the Sections, when a specific challenge is provided and the forum which has to decide the challenges is also provided, it would not be open to this Court to decide and consider that the mandate of the Arbitrator has been terminated under Section 14. That challenge in a case where the Arbitrator decides the objections will have to be, taken as a ground in a challenge to the Award under Section 34. The object seems to be to allow the Arbitral proceedings to be concluded at the earliest. If the challenge is successful finally, the remedy is not lost as time is saved by virtue of Section 43(4) of the Act.

I must make it clear that the issue as to whether in a case where the Arbitrator does not decide the challenge or a case where parties are participating in the proceedings and the objections are decided without hearing the parties have not been decided in the present case as admittedly the Arbitrator in the present case has decided the challenge in an exparte proceedings.

12. Once I so hold, the Petition would not be maintainable. In so far as merits of the challenge are concerned, I have refrained from saying anything as I am not called upon to do so at this stage.

13. For the aforesaid reasons, I accept the contention on behalf of the Respondents and accordingly dismiss the Petitions.

14. In the circumstances of the case, however, there shall be no order as to costs.

15. At this stage learned Counsel for the Petitioners seeks stay of the order for a period of four weeks. Considering the questions involved, order not to be given effect to for a period upto 9th June, 2000.

16. P. A. to give ordinary copy of this order to the parties concerned.

17. Issuance of certified copy expedited.

Petition dismissed.