Background
In the matter at hand, a dispute arose between Gopal Das Bagri & his sons’ group and Bulaki Das Bhaiya’s group which was referred to arbitration, and on the first sitting the arbitrator informed the parties that he had earlier represented Bulaki Das Bhaiya in the cases, despite that the parties showed faith and confidence in the Arbitrator. The Arbitrator declared that the draft of the award was ready and after proofreading would be declared soon. However, during the same period the Arbitrator appeared before the High Court in the capacity of Senior Advocate representing Standard Shoe Sole & Mould (India) Ltd. (SSSMIL), which was owned, controlled, and managed by BG Chemicals Pvt. Ltd. with ownership of 25.68% shares. It is pertinent to note that B.G. Chemicals was owned, controlled, and managed by Bulaki Das Bhaiya group. and SSSMIL, C & E Ltd, and Bhaiya group have same registered office.
However, the parties were not informed by the Arbitrator that he had represented SSSMIL in the High Court several times during the hiatus period of the arbitration. Later, on 23-2-2019, the arbitrator directed the parties to make fresh submissions, despite already informing them that the award was ready on 3-1-2019. Finally, the award passed after one year 29-02-2020 in favour of Bhaiya Group for an overall sum of Rs. 22 crores together with interest.
Issues Raised
- Whether SSSMIL was an affiliate of the Bhaiya Group?
- Whether the Arbitrator rendered himself ineligible under Sections 12(2) & (5) and Grounds 2, 11, 15, and 20 of the Fifth Schedule and Grounds 2, 8, and 15 of the Seventh Schedule of the Act?
- Whether during the pendency of the arbitration, the Arbitrator representing M/s. SSSMIL, an affiliate of M/s. C&E Ltd. and Bulaki Das Bhaiya would constitute bias on the part of the arbitrator?
Court Findings
The Court observed that Bulaki Das Bhaiya had overall Control and Management of SSSMIL and C&E Ltd. and also the managers, directors, and employees were accustomed to acting as per the Bhaiya group’s directions. The Court opined that upon lifting of the corporate veil the family was in control and the management of the company and would qualify as an ‘affiliate’ under Explanation 2 of the Fifth and Seventh Schedule read with Section 12 of the Act of 1996.
The Court remarked that “the incident leading to the likelihood of ineligibility of the Arbitrator occurred during the pendency of the arbitration proceedings and there was no formal disclosure of the same in the Arbitration”. The Court observed that the Arbitrator had not disclosed he was also representing SSSMIL in the first seating. The Court pointed out that due to the limited scope of the challenge of an arbitral award under Section 34 of the Act, the neutrality of the Arbitrator assumes the highest importance. It doesn’t matter how fair and judicious the award might be, one could not ignore that one side had the advantage of receiving huge financial benefits while the other could be liable for the same.
The Court observed that Section 12(2) of the Act obligates the Arbitrator to remain neutral and to disclose to the parties any acts or omissions that were likely to fall foul of the mandate. The Court noted that in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd., (2017) 4 SCC 665, the principles of nemo debet esse judex in propria causa sua, i.e. no one shall be a judge in his own cause, and audi alteram partem, i.e. no one ought to be condemned unheard, were pronounced.
However, the Court said that the non-disclosure by the Arbitrator representing SSSMIL in the High Court during the pendency of the arbitration did not amount to fraud and to establish fraud a very high degree of proof was necessary which was not present in the affidavit filed under the application. Therefore, the Court didn’t find any fraud being committed by the Arbitrator.
The Court referred Hasmukhlal H. Doshi v. M. L. Pendse, 2000 SCC OnLine Bom 242, where it was held that “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”. Thus, the Court noticed that the Arbitrator, after making disclosure in the first sitting that he was connected and represented the Bhaiya group, was obliged not to represent any further.
The object and purpose of the disclosure in terms of Section 12(2) meant that the Arbitrator should not continue any such association during the subsistence of the proceedings. The Court rejected the arguments that the Arbitrator after the disclosure that he was associated with one of the parties in litigation would be given carte blanche by the parties to continue to do it during proceedings and said that it was preposterous with disdain. Therefore, the Court held that the Arbitrator representing the Bhaiya group during the hiatus period had committed a breach of the abovementioned provision.
Additionally, the Arbitrator also suppressed and failed to disclose that he had appeared for M/s. SSSML before the parties during arbitration and this chain of events give rise to the apprehension that the Arbitrator might have compromised and certainly raised doubts regarding his independence. Thus, the Court held that there was a clear breach of the principle that ‘justice must not only be done but manifestly seem to have been done’. Hence, the Court said that Sections 12(2) and (5) must be strictly enforced and imposed in the instant case.
Further, the Court said that the Arbitrator has a continuous obligation to disclose such information. Any act that depicts bias on the part of the Arbitrator would lead to the termination of the mandate of the Arbitrator, the actual bias need not be proved or demonstrated. The Court reiterated that the real test of the likelihood of bias should not amount to fanciful apprehension.
The Court said that Associated Picture Houses Ltd. v. Wednesbury Corporation would not apply in the instant case because here there are codified rules like Section 12 and Fifth and Seventh Schedules of the Act. Secondly, the Arbitrator has fouled off the duty of disclosure of facts that could lead to justifiable doubts. The Court accepted the danger and probability of the bias test in comparison to the real danger of the bias and probability test. Therefore, the Court held that the Arbitrator’s conduct was foul in the instant on grounds 2, 11, 15, and 20 of the Fifth Schedule and grounds 2, 8, 15 of the Seventh Schedule under Section 12(2) and 12(5) of the Act.
The Court further said that there was no need to enter into the merits of an award while assessing the reasonable likelihood of bias, what was important was whether the representation of the Arbitrator before the High Court on behalf of M/s. SSSML during the pendency of arbitration would indicate a likelihood or danger of bias to an uninformed common man and any of the parties in the arbitration.
Thus, the Court set aside the arbitration award and allowed the arbitration petition while dismissing the execution cases and the general application.
*Judgment authored by: Justice Rajasekhar Mantha
[C and E Ltd. v. Gopal Das Bagri, 2023 SCC OnLine Cal 2166, Judgement dated 27-07-2023]
Advocates who appeared in this case:
Counsel for the petitioner: Senior Advocate Nalin Kohli, Advocate Sandip Agarwal, Advocate Abhishek Swaroop, Advocate Tanay Agarwal, Advocate Naman Kandar, Advocate Vasu Manchanda, Advocate Nimisha Menon, Advocate Surabhi Banerjee, Advocate Biswaroop Bhattacharya, Advocate Sulagna Mukherjee, Advocate Shristi Sharma;
Counsel for the respondent: Advocate Dhruba Ghosh, Advocate Sananda Ganguly, Advocate Ajaya Choudhury, Advocate Soumyajit Ghosh, Advocate Rajarshi Dutta, Advocate Arindam Halder, Advocate Shubradip Roy.
Buy Arbitration and Conciliation Act, 1996 HERE
