Even a perception of bias in an Arbitrator would not be fair to the parties: Supreme Court of India

“That apart when one is required to judge the case of another, justice should not only be done, but it should also seem   to   be   done   is   the   bottom   line”, explained the Supreme Court of India in the matter of Vinod Bhaiyalal Jain & Ors. Versus Wadhwani Parmeshwari Cold Storage Pvt. Ltd.. The Supreme Court in the mentioned matter has dealt with and cleared the air over objection to an arbitrator on the perception of bias.

The arbitration stems from a receipt for storage of goods issued by the Wadhwani Parmeshwari Cold Storage Pvt. Ltd. (“Respondent”) to Vinod Bhaiyalal Jain (“Appellant”). The receipt contained an arbitration clause, referring all disputes to one Mr. ST Mandani (“Arbitrator”).

Before the Arbitral Tribunal the Appellant disputed the arbitration clause and also objected to the appointment of the Arbitrator since he was the counsel for the respondent No. 1 and its partners in some other cases. Despite these objections the Arbitral Tribunal proceeded with the arbitration and passed an award dated 08.08.2006 (“award”) against the Appellants.

The Appellants challenged the award before the Principal District Judge, Nagpur under Section 34 of the Arbitration and Conciliation Act, 1996 (“Act”), raising objection to the award, more particularly with regard to   the   conduct   of   the   learned   Arbitrator. The Principal District Judge appreciating the   same was of the opinion that the learned Arbitrator had in fact acted as a counsel for Sri Suresh, a partner of Respondent No. 1, which fact was not disclosed in terms of Section 12 of the Act and also on taking note of Section 13 of the Act, found the objection justified and set aside the award.

The Respondent appealed to the High Court of Bombay under Section 37(1)(b) of the Act. The High Court of Bombay held   that   merely   because   the   learned Arbitrator had appeared as a lawyer in one mesne profits case for Respondent No. 1, it would not make a reasonable man believe that the Arbitrator was biased and there was a possibility that the Arbitrator would rule in favour of the Respondent No. 1. The High Court accordingly set aside the order passed in the proceedings under Sec. 34 of the Act, 1996 and restored the award   passed   by   the   learned   Arbitrator.

The Appellant thereafter appealed before the Supreme Court of India noticed   that issues arising herein for consideration at the threshold is with regard to   the existence or otherwise of the Arbitration clause governing the parties and more particularly with regard to the conduct of the Arbitrator.

The Supreme Court rejected the contention as regards the existence of an Arbitration clause because the Appellant being unsatisfied with the learned Arbitrator had filed a petition under Section 11 of the Act for appointment of the Arbitrator hence the existence of Arbitration clause is undisputed.

It further observed that the learned Arbitrator, on multiple occasions, had been informed about the fact that he had been a counsel for the Respondent in one another case and in that circumstance it is also not a case where the learned Arbitrator had proceeded in the matter by oversight or without having knowledge of such conflict of interest. When the claim was lodged before the learned Arbitrator both the events of, he being appointed as an Arbitrator and also as a counsel in another case had existed, which was well within the   knowledge   of   the learned Arbitrator   and   in   that circumstance, it was the appropriate stage when he ought to have disclosed the same and refrained from entertaining the claim.

The Supreme Court rightly noted, “…in the above background, what is to be seen is that there has been a reasonable basis for   the   appellants   to   make   a   claim   that   in   the   present circumstance the learned Arbitrator would not be fair to them   even   if   not   biased.     It   could   no   doubt   be   only   a perception of the appellants herein.   Be it so, no room should be given for even such a feeling more particularly when in the matter of arbitration the very basis is that the parties get the opportunity of nominating a judge of their choice in whom they have trust and faith unlike in a normal course of litigation where they do not have such choice” and accordingly set aside the award and restored the order passed by the Principal District Judge.

Independence and impartiality of Arbitrators are the hallmarks of arbitration and through this judgment the Supreme Court has made it clear that there is no room for even perception of bias in an Arbitrator.

Published by Pushkar Taimni

Pushkar Taimni heads the practice at Law Chambers of Pushkar Taimni. He can be contacted at pushkar@ptaimni.com or taimnico@gmail.com.

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