CAN ‘APPREHENSION OF BIAS’ PROVE TO BE FATAL TO ‘ARBITRATION AWARD’ CHALLANGED UNDER SECTION 34 OF ARBITARTION ACT, 1996?

‘Justice cannot be for one side alone, but must be for both’ as rightly quoted by the famous First Lady Eleanor Roosevelt, still holds sanctity and validity in the current realm of arbitration as means of resolving disputes. ‘Fairness ‘and ‘Unbiased Approach’ are vital tenets that need to be traced in an ‘Arbitrator’. They are quintessential for an efficient and fair ‘arbitral proceedings’ to be carried out, ultimately culminating in an effective ‘arbitral award’, leaving very limited or no scope of challenging the same in the courts subject to the satisfaction of the parties. But what if an ‘Arbitral Award’ suffers from the vices of ‘unfairness’ and ‘biasness’? Can the same be challenged if there is just an ‘apprehension of bias’ rather than ‘actual bias’ being alleged by one of the parties to the dispute?  Such questions have been dealt by the Hon’ble Kerala High Court, in the case of P.V. Jojo and Others. v. Indian Cements Capital and Finance Ltd[i].The case involving contentious issue as to whether ‘real likelihood of bias’ rather than ‘actual bias’ reflected by the ‘arbitrator’ while passing an ‘arbitral award’ is a valid ground to vitiate the entire ‘arbitral proceedings’ and whether the above said ‘arbitral award’ challenged by the aggrieved party is likely to be set aside or not, has been aptly dealt with by the Hon’ble High Court.

The intricacies involved in the case have been dealt by the court keeping in mind the bare provisions of the Section 34, Section 13 and Section 12 of the Act[ii]and relying upon the judgements of the apex court. The award in the above said case was passed before the amendment of 2015; hence the provisions prior to the amendment of 2015 shall stand applicable in the present case.

 

PROVISONS OF THE ACT[iii] APPLICABLE IN THE PRESENT CASE

Before delving into the facts of the case it is important to read out the provisions of the Act[iv](prior to amendment of 2015) which are as follows:-

  1. Section 34- Application for setting aside arbitral award

(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).

(2) An arbitral award may be set aside by the Court only if—

(a) the party making the application furnishes proof that—

(i) a party was under some incapacity, or

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

(b) the Court finds that—

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or

(ii) the arbitral award is in conflict with the public policy of India.

Explanation. —Without prejudice to the generality of sub-clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.

(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.

  1. Section 12. Grounds for challenge

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from 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 already been informed of them by him.

(3) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

  1. Section 13- Challenge procedure

(1) Subject to subsection (4), the parties are free to agree on a procedure for challenging an arbitrator.

(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.

(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

(4) 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.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

 

FACTS OF THE CASE

 

The appellants entered into a loan agreement with the respondent company, namely, M/s India Cement Capital and Finance Ltd. On failing to pay the loan amount, the respondent filed a civil suit in the Sub Courts of Thirussar, to which the appellant moved an application for appointment of an arbitrator as the loan agreement contained an arbitration clause thereby invoking the arbitration proceedings. An arbitral award was rendered by the Arbitrator which was challenged by the appellants under section 34(1)[v]and the said arbitral award was rightly dismissed by the District Court of Thirussar. An appeal was filed against the above-said order which has been allowed by the Hon’ble High Court in the present case.

 

LEGAL OPINION OF THE COURT

 

The High court after hearing the arguments advanced by the learned counsels of both the parties gravitated towards the observation that in order to reach a ‘fair’ and ‘just decision’ it is important to expound the term ‘Bias’ which can be enumerated in the following manner :-

  1. Implication of ‘Actual Bias’ and ‘Real Likelihood of Bias’

Bias means predisposition of an adjudicator to decide for or against one party, without proper regard to the true merits of the dispute. ‘Bias’ is in violation of the principles of natural justice which forms the bedrock of the concept of ‘Arbitration’.

The Court opined that the ‘real likelihood of bias’ should be based on ‘cogent material’ and not on ‘mere whimsical apprehension’. The real test to see whether the ‘arbitrator’ smacks of ‘bias’ can be made out if the same was brought to the notice of the ‘arbitrator’ from the initial stage of the arbitration and has not been addressed by the ‘arbitrator’before or during the said ‘arbitral proceedings’.The court dismissed the plea of the respondent contending that the appellants gave their consent in the statement in ‘arbitral award’ thereby vitiating their challenge to the ‘appointment of the arbitrator’.

 

  1. Challenge made under Section 13(3) does not vitiate if the arbitration proceedings are going on and the same has not been addressed by the arbitrator.

In the present case, the appellants challenged the ‘appointment of the arbitrator’ under Section 13 (3) of the Act[vi], on the grounds that the ‘arbitrator’ had assisted his senior counsel in the suit involving the same subject matter to the dispute but the ‘arbitrator’ did not decide the challenge to the same till the final passing of the ‘arbitral award’. The appellant challenged the above-said order by virtue of Section 13(3) and Section 12 of the Act[vii]in the High Court of Kerala and according to the court if the same has not been addressed by the arbitrator then it shall not stand vitiated.

The court while evaluating the scope of the Section 13(3) of the Act[viii] was of the view that the provisions of the section are merely ‘directory’ and not ‘mandatory’ in nature and there is no provision for any consequences thereof. The object of the provision in Section 13(3) does not render otiose on account of the absence of the decision by the arbitrator.

 

  1. Conjoint reading of provisions of Section 13(5)[ix]and Section 34is necessary while interpreting the scope of ‘arbitral award’ under challenge

The court while redefining the limitations of the ‘arbitral award’ challenged under Section 34[x]is of the view that the expression ‘such an arbitral award’ can be challenged on the ground of ‘biases’ and ‘partiality of the arbitrator.’

 

  1. No adverse inference can be drawn against the aggrieved party if the party complies to the statement in the arbitral award whilst the challenge to the ‘appointment of the arbitrator’ is still subsisting

The court is also of the view that simply because the statement in the arbitral award was made, the challenge to the said appointment shall not be rendered useless.  In the absence of any express consent for the continuance of the arbitration proceedings or in the absence any cogent material to show that the allegation has been withdrawn by the aggrieved party, no adverse inference can be made against the aggrieved party challenging the award. The cumulative effect is sufficient to create ‘substantial possibility of bias’. Moreover the arbitrator never specifically denied or accepted the allegation levelled against his appointment and an adverse inference has been taken by the court.

 

  1. ‘Neutrality’- A paramount prerequisite for rendering an effective ‘arbitral award’

The High Court relied on the findings of the Apex Court in the case of Ranjit Thakur vs. Union of India[xi], wherein it has been observed that purity in administration demands party to arbitration proceedings should not have any apprehension that the arbitrator is biased and is likely to decide against him.

In the instant appeal, the previous conduct of the arbitrator has  put serious doubt in the minds of the aggrieved party in relation to the ‘neutrality’ of the arbitrator while conducting the arbitration proceedings and rendering an effective ‘arbitral award’.Furthermore, the High court while relying onVoestalpine case[xii]has laid emphasis on the ‘independence’ and ‘impartiality’ of the arbitrator which is very critical to arbitration process. Similarly in the case of ManakLal vs. Dr.Prem Chand Singhvi[xiii], the Apex Court has laid the test to ascertain the ‘biasness’ of an arbitrator.

 

 

 

CRITICAL EVAULATION OF THE JUDGEMENT

The High Court of Kerala has rightly inferred that in the absence of any ‘cogent material’ available against the aggrieved party to show that the challenge to arbitral award has been withdrawn during arbitral proceedings, the ‘arbitral award’ is likely to be set aside on the grounds of the ‘mere apprehension of bias’ rather than ‘actual apprehension of bias’. Also, an adverse inference has to been drawn against the ‘arbitrator’ if the same has not been either ‘denied’ or ‘admitted’ by the ‘arbitrator’, while conducting the ‘arbitral proceedings’ thereby rendering the arbitrator award as ‘ineffective’.

Principles of Natural Justice demand that an arbitrator has to ensure that ‘fairness’ and ‘neutrality’  is maintained at all the times and even if an iota of doubt arises in the minds of the party, the same has to be addressed as soon as possible without any undue delay. It is incumbent upon the arbitrator to ensure that ‘justice should not only be done but must appear to have been done.’ The judgment passed by the Hon’ble High Court has certainly to a great extent instilled more faith and trust in the minds of the parties who wish to resolve disputes via arbitration as an alternative mode of redressal. The scope of the word ‘bias’ has been redefined keeping in mind the satisfaction of the parties and ensuring that the ‘arbitral award’ rendered does not reflect a prejudiced mindset of an ‘unfair arbitrator’.

[i]2019 (6) Arb. LR 365 (Kerala) (DB)

[ii]  The Arbitration and Conciliation Act of 1996

[iii]  Ibid

[iv]  ibid

[v]  Ibid

[vi]  ibid

[vii]  Ibid

[viii]  ibid

[ix]  ibid

[x]  ibid

[xi] AIR 1987 SC 2386

[xii] 2017 (2) Arb. LR 1(SC)

[xiii]  AIR 1957 SC 425

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