The Supreme Court in its ruling held that the concept of de jure ineligibility due to the existence of justifiable doubts about impartiality or independence of an Arbitral Tribunal on grounds not explicitly outlined in the statutory provisions cannot be sustained. The decision stems from a fee dispute that led to arbitration, raising questions about the impartiality of the Arbitral Tribunal.
Brief Facts:
Chennai Metro Rail Limited (Chennai Metro) awarded a contract to Afcons following a public tender. Disputes between the parties arose, leading to arbitration where a fee dispute emerged.
The Arbitral Tribunal initially set a hearing fee at ₹1,00,000 per session. However, when Chennai Metro objected to a proposed fee revision, the Tribunal insisted on the change, creating concerns about partiality. Afcons requested the Tribunal to hold off on the fee revision, but despite this, the Tribunal proceeded with the revised fee and changed the definition of a session.
Chennai Metro filed an application to terminate the Tribunal’s mandate, alleging potential prejudice. Following a key judgment, the Tribunal members reverted to the original fee. The High Court, after considering the situation and hearing both parties, dismissed Chennai Metro's application.
Contentions of the Appellant:
The contentions of Chennai Metro Rail Limited are as follows:
- Chennai Metro asserted that the unilateral increase in arbitration fees by the Tribunal, despite protests from one disputing party, was legally impermissible and raised concerns about the Tribunal’s impartiality relying on the ONGC v. AFCONS Gunasa JV judgment, which underlines party autonomy in arbitration and the need for fee changes to have the consent of all parties, not unilateral action.
- They argued that the circumstances fulfil the principle of bias, referring to various forms of bias, including judicial obstinacy in judgments like the State of West Bengal v. Shivanand Pathak.
- They pointed out that the Tribunal failed to disclose that its members had received payment of the revised fee from Afcons, reinforcing the apprehension of bias.
Contentions of the Respondent:
The contentions presented by AFCONS are as follows:
- The respondent contested the maintainability of the application under Section 14 of the Arbitration and Conciliation Act 1996 (hereinafter referred to as ‘The Act’), emphasizing the comprehensive framework provided by Section 12(5) read with the Seventh Schedule of the Act, which deals with specific instances of ineligibility.
- The Fifth Schedule, along with Section 12(1) Explanation, lists significant relationships requiring disclosure, allowing direct Section 14 Court challenges. Cases of impartiality fall under Section 12(3) and subsequent sections.
- It was argued that bias is synonymous with partiality, countering the appellant’s distinction between "bias and impartiality" and asserting that if an individual is biased, they cannot be impartial.
- The respondent argued that demonstrating bias requires an exceptionally high standard, as emphasized in the case of International Airport Authority v. K.D. Bali & Anr. This standard necessitates a genuine likelihood of bias, not just mere suspicion.
Observations of the Court:
The Supreme Court conducted an analysis of the relevant sections of the Arbitration and Conciliation Act pertaining to arbitrator eligibility, challenge procedures, and the termination of an arbitrator's mandate. The Court relied on M/s. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., which emphasized the 2015 amendment to the Act's objective of ensuring arbitrator neutrality, independence, and impartiality. The amendment introduced circumstances leading to justifiable doubts about an arbitrator's independence or impartiality, with Section 12(5) of The Act nullifying prior agreements to the contrary.
The Court highlighted two distinct categories of ineligibility conditions: those in Section 12(1) (fifth schedule disclosure requirements) and those in Section 12(2) (eligibility conditions that persist during proceedings). It clarified that Section 12(5) of The Act established absolute ineligibility conditions based on specific relationships listed in the Seventh Schedule, with parties having the option to waive them in writing.
The Court clarified the challenge procedure outlined in Sections 13(1) to 13(6), emphasizing that challenges based on doubts about independence or impartiality should be raised promptly before the same Tribunal, integrating the 15-day limit in Section 13(2) of The Act into the statutory framework. The Court also explained that specific circumstances, like those in the Seventh Schedule, can trigger the automatic termination of the arbitrator's mandate referencing the National Highways Authority of India & Ors. v. Gayatri Jhansi Roadways Limited & Ors. judgement to illustrate that deviations from agreed fee schedules don't necessarily render the arbitrator ineligible.
The Decision of the Court:
Finally, the Supreme Court concluded that the concept of de jure ineligibility due to unenumerated grounds or conditions beyond the statutory provisions could not be upheld. Such exceptions, the court noted, might disrupt the arbitration process and circumvent the specific procedures set by Parliament.
The Court upheld the impugned order and dismissed the application brought by Chennai Metro Rail Limited. The Court directed the arbitrators to resume the proceedings and proceed with the case in accordance with the law.
Case Title: Chennai Metro Rail Limited Administrative Building vs. M/s Transtonnelstroy Afcons (JV) & Anr.
Coram: Hon’ble Justice S. Ravindra Bhat and Aravind Kumar
Case No.: Special Leave Petition (Civil) No(s). 8553 of 2022
Citation: 2023 Latest Caselaw 807 SC
Advocate for the Appellant: Gopal Sankaranarayanan, Sr. Adv., Chitranshul A. Sinha, B. Kishor, Jaskaran Singh Bhatia, and Namrata Mohoptra
Advocate for the Respondent: C.A. Sundaram Sr. Adv., V. Giri Sr. Adv., Manu Seshadri, D. Balaraman, Aveak Ganguly, Pallavi Anand, and Mithu Jain
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