Source: Rajasthan High Court 

Why in News? 

A bench of Justice Munnuri Laxman and Justice Pushpendra Singh Bhati held that per se ineligibility was not in existence under the unamended Section 12 of the Arbitration and Conciliation Act, 1996 (A & C Act).             

• The Rajasthan High Court held this in the case of M/s Anik Industries Ltd v. M/s Shree Rajasthan Sintex Ltd.  

What was the Background of M/s Anik Industries Ltd v. M/s Shree Rajasthan Sintex Ltd. Case? 

• The Claimant here was engaged in the business of Coal Trading amongst other businesses. 
• The Respondent had an Industrial Plant at Durgapur (Rajasthan). 
• The Claimant supplied coal to the Respondent Industrial Plant for generation of power under various purchase orders placed by respondent from time to time. 
• The claimant had raised a claim of certain balance amount before the Tribunal. 
• The Respondent denied the above claim and asserted that the coal supplied was not upto the quality expected which resulted in damage to the industrial plant and machinery of the respondent. Therefore, the Respondent after adjusting the above two amounts claimed a counter claim of certain amount as damages. 
• Proceedings before the Courts: 
  • The Tribunal partly allowed the claim of claimant and dismissed the counter claim of the respondent. 
  • The above order was assailed before the Commercial Court, Udaipur under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act). 
  • The Commercial Court set aside the award on the following grounds: 
    • Perversity in the findings of the Tribunal with regard to the counter claim. 
    • Disqualification incurred by the Arbitrator on the ground of non-disclosure of his affiliation with the sister concern of Claimant-Company. 
• The present appeal was filed against the above order passed by the Commercial Court. 
• Thus, in the present case there are two issues for consideration: 
  • Whether the findings of Tribunal in granting the part claim to the claimant and rejecting the counterclaim of the respondent suffers from any perversity. 
  • Whether non-disclosure of one of the Arbitrator about his affiliation with the sister-concern results in any apparent bias so as to vitiate the award. 

What were the Court’s Observations?

• With Respect to Issue (i): 
  • The Court held that the interference of commercial Court will only arise when award suffers from perversity. 
  • The Court held that the findings of the Commercial Court were based on the Chartered Engineer Assessment and such findings were well reasoned and did not suffer from any perversity. 
  • Therefore, the Court held that the Commercial Court was wrong in holding that the Tribunal has not considered the counter claim in right perspective. 
  • Therefore, the finding of the Commercial Court with regard to this issue was set aside. 
• With Respect to Issue (ii): 
  • The Court held in this case that the concept of affiliation with the affiliate company was specifically introduced by way of the Amendment Act of 2015. 
  • No such concept was there prior to the Amendment. 
  • It is to be noted that in the present case the Arbitrator was not an advisor or acted as a counsel to the parties to the arbitration proceedings. He only filed Vakalatnama in the case pending before the concerned court representing the sister-concern of the claimant-Company. 
  • The Court held that prior to the Amendment Act of 2015, there is no ineligibility with regard to existence of specific circumstances as referred in Fifth and Seventh Schedule after Amendment of 2015. 
  • Finally, the following was held by the Court with regard to the facts and circumstances of the case: 
    • The appointment of one of the arbitrator as a legal counsel to one of the case of the sister-concern of the claimant-Company is not worse than allowing an employee to engage to act as an arbitrator. 
    • This principle of apparent bias by virtue of the affiliation of arbitrator with the parties to the proceedings on the basis of employment and/or engagement was not a recognized principle by the Apex Court prior to the 2015 Amendment. 
  • Thus, the Court held that the order of the Commercial Court is liable to be set aside. 

What are the Provisions with Regards the Ineligibility of Arbitrators added by way of Amendment of 2015 to A & C Act?  

• It is to be noted that the grounds for ineligibility have been introduced mainly by way of Amendment Act of 2015. 
• Following is the comparison between the provisions (Section 12 of A & C Act) pre and post amendment of 2015:

• Further, two Schedules, Fifth and Sixth, were also added specifying the existence of relationship of the Arbitrator with the parties to the proceedings and the circumstance which gives rise to justifiable doubt as to his independence and impartiality. 

What is the Approach of Courts Pre and Post Amendment of 2015 with Regards to Ineligibility of Arbitrators?  

• It is to be noted that by way of 2015 Amendment specific circumstances have been introduced which give rise to justifiable doubt as to his independence and impartiality. 
• Post 2015 Amendment there is a specific reference of ineligibility in the circumstances referred under Seventh Schedule. This means that a per se ineligibility has been statutorily recognized which is not in existence under the old Act. 
• The non-disclosure per se is not a ground to incur disqualification or ground of annulment under old provision. In case, non-disclosed facts and circumstance is a material, it may result disqualification or annulment. 
• Difference between ‘Actual bias’ and ‘Apparent bias’

• • It is to be noted that the concept of apparent bias has been introduced by way of 2015 Amendment Act. 
• The concept of affiliation with the affiliate company was introduced by way of 2015 Amendment. 
• In the cases of Aravali Power Co. Pvt. Ltd v. Era Infra Engineering Ltd. (2017) and Indian Oil Corporation Ltd v. Raja Transport Pvt. Ltd. (2009) , the Supreme Court held that an employee of the parties to the proceedings was considered to be not a circumstance, which would give rise to a reasonable apprehension of bias.