[Cites 22, Cited by 0]
Calcutta High Court
C & E Limited And Others vs Feather Touch Limited And Others on 21 January, 2026
Author: Supratim Bhattacharya
Bench: Sabyasachi Bhattacharyya, Supratim Bhattacharya
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In the High Court at Calcutta
Civil Appellate Jurisdiction
Original Side
The Hon'ble Mr. Justice Sabyasachi Bhattacharyya
And
The Hon'ble Mr. Justice Supratim Bhattacharya
A.P.O. No. 184 of 2023
In
AP No. 402 of 2020
IA No: GA 2 of 2023
C & E Limited and Others
Vs.
Feather Touch Limited and Others
With
A.P.O. No. 185 of 2023
In
AP No. 364 of 2020
IA No: GA 2 of 2023
C & E Limited and Others
Vs.
Gopal Das Bagri and Others
For the appellants : Mr. S. N. Mookherjee, Sr. Adv.,
Mr. Dhrubo Ghosh, Sr. Adv.,
Mr. Rajarshi Dutta,
Mr. Rahul Poddar,
Mr. Yash Singhi,
Mr. Ajeya Choudhury,
Mr. Arindam Halder,
Mr. Sarbesh Choudhury... Advs.
For the respondents : Mr. Dhruv Dewan,
Mr. Sandip Agarwal,
Mr. Abhishek Swaroop,
Mrs. Sulagna Mukherjee,
Mr. Tanay Agarwal,
Ms. Priyansha Agarwal,
Mr. Manav Sharma,
Mr. Bharath Krishna... Advs.
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Heard on : 19.11.2025, 26.11.2025,
03.12.2025, 10.12.2025,
& 24.12.2025.
Reserved on : 24.12.2025.
Judgment on : 21.01.2026.
Sabyasachi Bhattacharyya, J.:-
1. The genesis of the present appeals under Section 37 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act") is
an award dated February 29, 2020 passed by a learned Senior Advocate
of this Court in the capacity of Arbitrator, who was appointed by Court
on consent, as recorded in the order dated August 1, 2014 passed in a
suit between the parties bearing CS No. 344 of 2014.
2. AP No. 364 of 2020 was filed by one Gopal Das Bagri and AP No. 402 of
2020 by Feather Touch Limited, both award debtors, under Section 34
of the 1996 Act, challenging the said award. The said two applications
appeared before the learned Single Judge along with two connected
applications for enforcement of the award, bearing EC No. 145 of 2020
and EC No. 81 of 2022, and interlocutory applications filed therein.
3. The learned Single Judge took up both the applications under Section
34 for hearing on a preliminary issue as to whether the award was
tainted by fraud, corruption and bias. By a judgment dated July 27,
2023, which is under challenge in the present appeals, the learned
Single Judge held the preliminary issue against award holders, thereby
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allowing the applications under Section 34 of the 1996 Act and setting
aside the impugned award, coming to a finding that the same fell foul of
the mandate under Section 12 of the 1996 Act, particularly Grounds
11, 15 and 20 of the Fifth Schedule and Ground 15 of the Seventh
Schedule, read with Explanation 2 thereof.
4. The award debtors/applicants under Section 34 had initially challenged
the jurisdiction of the learned Single Judge to take up the same on the
ground that the learned Arbitrator (since deceased) was a Senior
Advocate of this Court having considerable practice, which might sway
the court in upholding his award. Such challenge was turned down by
the learned Single Judge with a token cost of Rs. 11/-. The award
debtors filed Transfer Petition (Civil) Nos. 1173-1174 of 2021, Transfer
Petition (Civil) Nos. 1203-1204 of 2021 and Transfer Petition (Civil) Nos.
282-283 of 2021 for transfer of the Section 34 applications to some
other High Court, which were dismissed by the Hon‟ble Supreme Court
vide order dated September 24, 2021. While dismissing the same, the
Hon‟ble Supreme Court held, inter alia, that even assuming that the
learned Arbitrator was a very respected member of the Bar, it was sure
that the High Court at Calcutta would examine the allegations of
misconduct without being influenced by the alleged status of the
learned Arbitrator. It was also observed that even assuming that five
Hon‟ble Judges of the Calcutta High Court had recused themselves,
that was no ground to express an apprehension about the entire High
Court at Calcutta, then consisting of more than 30 Judges, by
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contending that the petitioners therein would not get justice from the
said Court.
5. Immediately before the hearing of the present appeals were taken up by
this Court, the Court made it clear to learned counsel for both sides
that the learned Arbitrator was an eminent counsel of this Court and
known to the Bench in such capacity; although none of the members of
the Bench had any personal kinship with the Arbitrator, but since
allegations of fraud and bias were made against the learned Arbitrator,
the parties should express at the outset whether they had any objection
to this Court taking up the matter. Upon such option being given, the
appellants expressed through counsel that they had no objection in the
matter being taken up by this Court; however, the respondents herein
raised an objection on the ground that the learned Arbitrator
commanded respect from the Judges of this Court in view of his
standing at the bar at the relevant point of time.
6. By an order dated August 13, 2025, the then Bench taking up the
appeal, which also included one of us (Sabyasachi Bhattacharyya, J.),
turned down the challenge by a detailed order by relying on the earlier
observations of the Hon‟ble Supreme Court. Thereafter, the matter was
heard on several days, culminating in the present judgment.
7. Learned senior counsel appearing for the appellants argues that the
plinth of the challenge to the award was the appearance of the learned
Arbitrator for a company by the name of M/s. SSSMIL, which was
allegedly an affiliate of C & E Limited and Bulaki Das Bhaiya, since
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deceased (for short, "BDB"), who were the respondents in the arbitral
proceeding. However, M/s. SSSMIL is not and cannot be an affiliate of
BDB, since an "affiliate" under the Fifth and Seventh Schedules of the
1996 Act must be restricted to corporate entities. The entries in the
Fifth Schedule, along with the definition of "affiliate", have been
borrowed from the IBA Guidelines on Conflicts of Interest in
International Arbitration (in brief, "the 2014 IBA Guidelines"), which
was adopted on October 23, 2014. It was held in HRD Corporation
(Marcus Oil and Chemical Division). v. GAIL (India) Limited (formerly Gas
Authority of India Limited), reported at (2018) 12 SCC 471 that
justifiable doubts as to the independence and impartiality of the
proposed Arbitrator requires adopting a broad, commonsensical
approach, requiring a fair construction of the words used in the Fifth
Schedule. However, the argument that the items in the Fifth and
Seventh Schedules must be construed in the most expansive manner,
so that the remotest likelihood of bias gets removed, was not an
acceptable way of interpreting the Schedules.
8. It is argued by the appellants that the IBA Guidelines are revised every
ten years, lastly on May 25, 2024 (2024 IBA Guidelines), which
included within the definition of the term "affiliate" "an individual
having a controlling influence on the party in the arbitration", which is
not merely clarificatory but in the nature of a subsequent updation
incorporated by revision and amendment. Since such revised
guidelines have not been adopted in the Indian statutory framework, it
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is argued, there is no question of an individual having an „affiliate‟ in
terms of the definition of the said term in the 2024 IBA Guidelines.
9. Learned senior counsel for the appellants distinguishes judgments cited
by the respondents in that regard and argues that, properly read,
Explanation 2 of the Fifth Schedule contemplates that an affiliate must
be a company in a group of companies and would include the parent
company.
10. Learned senior counsel for the appellants cites Black Law‟s Dictionary
(11th Edition) which defines "affiliate" as a corporation that is related to
another corporation by shareholdings or other means of control,
subsidiary, parent or sibling corporation.
11. Next relying on West‟s Legal Thesaurus/Dictionary, the appellants
contend that "affiliate" means (when used as a noun), a branch, a
company controlled by another company, division, sub-division, wing,
subsidiary, unit, part, etc.
12. In Cox & Kings Ltd. v. SAP India (P) Ltd., reported at (2024) 4 SCC 1, the
definition of "group of companies" clearly supports the control by a
parent company or a common entity over the other companies in the
group - supporting the formulation of a solar system arrangement in
the group of companies. In the present case, no parent company is
identifiable to support a „group of companies‟ arrangement.
13. Thus, it is reiterated that only a corporate entity can be an affiliate of
another corporate entity, linked together by shareholding or a parent
company, neither of which is applicable in the present case.
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14. Secondly, learned senior counsel for the appellants argues that BDB
does not have control over M/s. SSSMIL. The shareholding of the
promoter and promoter group in M/s. SSSMIL is 35.42%, the remaining
64.58% shareholding being held by the public as M/s. SSSMIL is a
public-listed company.
15. Out of 35.42%, individuals hold shares of 9.67% and body corporates,
the remaining 25.75%.
16. Even out of the 25.75% shareholding by body corporates, 25.68% is
held by B.G. Chemicals Private Ltd., in which BDB himself held 80
equity shares and the BDB HUF held 1900 equity shares out of its
issued share capital of 10,000 equity shares.
17. Citing ArcelorMittal India Private Limited v. Satish Kumar Gupta,
reported at (2019) 2 SCC 1, the appellants contend that positive control
arises from a shareholding of above 50%, which confers a proactive
power upon the shareholder.
18. In Vodafone International Holdings BV v. Union of India and another,
reported at (2012) 6 SCC 613, it was held that control is a mixed
question of law and fact, and must be determined from the voting power
of the shareholders and the extent of influence that shareholders
command in the management of the company.
19. In Universal Cables Limited v. Arvind Kumar Newar and Ors. (APO No.
89 of 2020) a Division Bench of this Court held that a controlling
interest is an incidence of ownership of shares in a company, something
which flows out of the holding of such shares. Hence, it is argued, it
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would be incorrect to say that BDB exerted any control over the
management in M/s. SSSMIL through his shareholding in B.G.
Chemicals Private Ltd., which only has a shareholding of 25.75% in
M/s. SSSMIL.
20. Learned senior counsel for the appellants controverts the reliance of the
respondents on the Achutan Report of the Take Over Regulations
Advisory Committee dated July 29, 2010, in terms of which 25%
shareholding by the promoter is enough for a deemed presumption of
positive control. Rule 13 of the Competition (Criteria for Exemption of
Combination) of Competition Rules has also been cited by the
respondents to show that an affiliate is an enterprise having 10% or
more of the shareholding or voting rights of the enterprise. The
appellants argue that reliance on the said documents is misplaced,
since the said provisions concern special legislations in the field of
acquisition of shares of a target company and combinations to prevent
appreciable adverse effects to competition in the relevant market,
respectively.
21. It is contended by the appellants that the Notification dated July 17,
2008 issued by the Petroleum and Natural Gas Regulatory Board, also
relied on by the respondents, is also not relevant, as the definition of
„affiliate‟ therein is in a completely different context. Thus, it is argued
that even if the 2024 IBA Guidelines were to be made applicable, it
cannot be said that BDB has a controlling influence, let alone
controlling interest, over M/s. SSSMIL, for which the learned Arbitrator
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appeared on eleven occasions in an unrelated matter during a hiatus
between the conclusion of the hearing in the arbitral proceeding and
the delivery of the award.
22. Learned senior counsel appearing for the appellants further submits
that BDB was not an affiliate of M/s. SSSMIL, since an affiliate is to be
considered qua a party to the arbitration agreement. The Entries of the
Fifth and Seventh Schedules of the 1996 Act, it is contended, support
such submission. Thus, it is submitted that it was not proper for the
learned Single Judge to conclude that BDB, either as an individual or
through his group of family members, would qualify as an affiliate. In
fact, the question was wrongly formulated, as an individual can have no
affiliate. Further, it is nobody‟s case that M/s. SSSMIL controls BDB or
any of his family members are controlled by M/s. SSSMIL. Thus, BDB
cannot be an affiliate of M/s. SSSMIL.
23. It is also argued that C & E Limited and M/s. SSSMIL are not affiliates,
since there is no cross-holding of shares between the two.
24. The respondents seek to refer to factual documents in a bid to establish
control of BDB and C & E Limited over M/s. SSSMIL and to
demonstrate how the two companies operate within an alleged group of
companies. However, it is argued, such ground has not been
substantiated by the respondents.
25. Learned senior counsel for the appellants then argues that Entry 2 of
the Fifth and the Seventh Schedules cannot apply in any event since
the Arbitrator did not currently represent an affiliate. „Current
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representation‟ means a continuous engagement to act for a party or its
affiliate, and not appearance in one matter. „Legal representation‟ is not
covered by Entry 2, as Entry 11 of the Fifth and Seventh Schedules of
the 1996 Act relates to the same. It is submitted that „legal
representation‟ is confined to only a party and not its affiliate. As such,
Entry 2 cannot cover a case of an arbitrator representing an affiliate in
a litigation, which is already covered by Entry 11.
26. Relying on HRD Corporation (supra)1, the appellants contend that the
term "currently represents" has to connote some degree of regularity. It
was held in the said judgment that the term "currently" requires
something more, which is an element of being connected in an advisory
capacity with the party.
27. Entry 8 of the Seventh Schedule is also not applicable, as the same
deals with a scenario where the Arbitrator „regularly‟ advised either the
appointing party or an affiliate thereof, none of which applies here.
Moreover, this Entry envisages a scenario where the appointment of the
Arbitrator is made consensually by the parties. In the present case,
however, the learned Arbitrator was appointed pursuant to an order of
the Court.
28. Again, Entry 15 of the Fifth and Seventh Schedules cannot apply,
because it is nobody‟s case that any advice or opinion had been given
by the Arbitrator "in the dispute".
1
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
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29. Entry 20 of the Fifth Schedule is not attracted as it envisages a
situation where the Arbitrator had previously advised an affiliate of a
party making the appointment in an unrelated matter within the past
three years but there is no ongoing relationship. The Arbitrator, in the
present case, had no past relationship with the alleged affiliate (M/s.
SSSMIL) to invoke the said Entry.
30. The judgments cited by the respondents regarding the continuous duty
of disclosure of the Arbitrator are also not applicable, since the
impartiality of Arbitrators in a curated panel by public sector
undertakings or in private-public contracts, as opposed to the present
case, was considered in such cases.
31. Moving on to his next contention, learned senior counsel for the
appellants submits that several findings of the learned Single Judge in
the impugned judgment under Section 34 of the 1996 Act are without
any basis at all.
32. By way of example, the learned Single Judge held that BDB has overall
control and management of M/s. SSSMIL and that the Managers,
Directors and employees are accustomed to act as per the sole wish and
dictate of BDB. It was further held that BDB would have attended most
of the conferences at the time of the appearance of the Arbitrator for
M/s. SSSMIL in connection with APD No. 252 of 2015.
33. All the above findings, it is submitted, are without any basis
whatsoever.
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34. The learned Single Judge, after having held that he was hesitant to hold
that M/s. SSSMIL is an affiliate of C & E, went on to observe that an
individual, group of persons or a family in control and management of a
company can qualify as an affiliate. Such finding, it is argued, is
contrary to the statutory framework.
35. Learned senior counsel appearing for the appellants next submits that
the respondents cannot rely on documents which were not referred to
or relied on upon by the learned Single Judge. A Convenience
Compilation, comprised of 77 volumes of paper books, were filed before
the learned Single Judge, as recorded in the order dated March 14,
2023. Extracts of some affidavits/petitions/evidence were furnished to
establish that BDB controlled M/s. SSSMIL, formerly known as
Chemcrown India Private Limited. These documents, however, were not
part of the petitions under Section 34 of the 1996 Act. Thus, those
cannot be looked into by this Court. Moreover, neither such
affidavits/petitions nor the evidence was relied on by the respondents
in the Section 34 petitions to constitute grounds of challenge to the
award.
36. Learned senior counsel relies on Mica Export Promotion Council and
Others v. G.C.L. Joneja & Ors., reported at 72 C.W.N. 117, for the
proposition that parties cannot rely on materials which were not placed
in the body of petitions or applications.
37. Thus, it is argued that the Arbitrator‟s conduct does not fall foul of the
mandate under Section 12 of the 1996 Act, read with Entries 2, 11, 15
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and 20 of the Fifth Schedule and Entries 2, 8 and 15 of the Seventh
Schedule, for which the appeals deserve to be allowed by setting aside
the impugned judgments.
38. Learned counsel appearing for the respondents in both the appeals, on
the other hand, while controverting the contentions of the appellants,
reiterates that the learned Arbitrator represented M/s. SSSMIL as
counsel on as many as eleven occasions between June, 5, 2018 and
July 19, 2018 in connection with APD No. 252 of 2015.
39. The hearing in the arbitration proceedings stood concluded in the 124th
sitting of the Arbitral Tribunal on December 9, 2017 and the award was
reserved by the learned Arbitrator. On January 3, 2019, another sitting
was held, where the learned Arbitrator apprised the parties that the
draft award was ready and it would take a few days to do the proof-
reading of the same as well as to make necessary corrections of
typographical mistakes and he expected the final copy of the award to
be ready very soon. However, the award was ultimately passed on
February 29, 2020. In the interregnum, the appearances of the learned
Arbitrator for M/s. SSSMIL took place.
40. While highlighting the relation between M/s. SSSMIL with BDB and C
& E Limited, learned counsel points out that admittedly M/s. SSSMIL
(former name, "Chemcrown India Private Ltd.") was incorporated by
BDB in the year 1973 and he was an initial subscriber to the
Memorandum and Articles of Association of the said company. BDB,
simultaneously, was the promoter and largest shareholder of M/s.
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SSSMIL, which was a listed company, through B.G. Chemicals Private
Limited, which is a company of BDB. The shareholding pattern of M/s.
SSSMIL reflects the promoter and promoter group holding 35.42% of
the total paid-up capital, whereas the balance 64.58% is held by public.
Out of such 35.42%, B.G. Chemicals Private Limited holds 25.68%.
The balance promoter and promoter group shareholding, it is alleged, is
held by around 105 individuals, who are all family members of BDB.
41. Learned counsel for the respondents relies on Regulation 2(1)(e) of the
Securities and Exchange Board of India (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011 (for short, "the SEBI Takeover
Code"), which defines "control" to include the right to appoint majority
of the directors or to control the management or policy decisions
exercisable by a person or persons acting individually or in concert.
Regulation 2(1)(q) thereof defines "persons acting in concert" and
provides in Regulation 2(1)(q)(2)(iv) that promoters and members of the
promoter group shall be deemed to be acting in concert, unless the
contrary is established. Thus, a rebuttable presumption is created that
a promoter and promoter group constitute one single block in exercising
control over the affairs of a company.
42. The report of the "Takeover Regulation Advisory Committee" under the
Chairmanship of Mr. C. Achutan dated July 19, 2010 concluded that
since a holding level of 25% permits the exercise of de facto control over
a company, this could be fixed as the appropriate open offer trigger
threshold in the Indian context. The Committee felt that 25%
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shareholding would be an appropriate level at which a new incumbent
shareholder could reasonably expect positive control in the current
environment.
43. Such recommendation was ultimately accepted and Regulation 3 of the
SEBI Takeover Code provides 25% as the threshold at which an
acquirer is required to make an open offer.
44. Further arguing on the alleged nexus between the appellants and M/s.
SSSMIL, learned counsel for the respondents submits that BDB‟s e-
mail address is "[email protected]", which is on the domain name of C
& E Limited. In the shareholding structure of M/s. SSSMIL, individuals
comprising the Bagri Group (respondents) were holding a nominal
share capital in the public category up to Rs. 2 lakh only.
45. From the MCA Master Data of M/s. SSSMIL, it is evident that Renu
Bhatter, the daughter of BDB, and Mukund Bhatter, his son-in-law,
were Directors of M/s. SSSMIL since February 14, 2018.
46. Again, Mr. Rajiv Issar, an employee of C & E Limited, which is under
the control of BDB and his family and where BDB was the Executive
Chairman, was another Director of M/s. SSSMIL.
47. Furthermore, the registered office of M/s. SSSMIL, that is, 95, Park
Street, Kolkata, is the same as that of C & E Limited.
48. Even the e-mail address of M/s. SSSMIL provided to the Ministry of
Corporate Affairs used the domain name of C & E Limited, that is
"@cel.co.in".
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49. One Mr. Arindam Halder, the legal head/law officer of C & E Limited,
while appearing for the claimants in the arbitration, it is submitted, had
instructed the learned Arbitrator on the M/s. SSSMIL in APD No. 252 of
2015, which indicates deep operational and structural inter-
connectedness between the companies, evidencing the structure of
"group of companies". This is sought to be established by the
respondents on the basis of a purported screenshot of the LinkedIn
profile of Mr. Halder and the evidence of Mr. Vijay Kumar Bagri, the
third witness of the claimant in the arbitration proceedings.
50. BDB‟s son Manoj Kumar Bhaiya, it is alleged, was the authorised
signatory of M/s. SSSMIL in WPA No. 46471 of 2006 filed before the
Madras High Court. He was also appointed as the CEO of C & E
Limited on August 18, 2011.
51. The appellants, in their pleadings, have also admitted that M/s.
SSSMIL and C & E Limited were group companies and that BDB had
overarching control over the affairs of M/s. SSSMIL. In support of such
submission, learned counsel for the respondents relies on BDB‟s reply
to CP No. 180 of 2013 affirmed on January 17, 2014 and on Case No.
C/12072 of 2012, filed by C & E Limited against two persons before the
court of the Chief Metropolitan Magistrate at Calcutta in June, 2012, as
well as the cross-examination of BDB before the learned Arbitrator on
December 15, 2015.
52. It is submitted that the general public, which holds around 64.58%
shares of M/s. SSSMIL, can never be said to have or exercise any
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control over the company, as opposed to the 35.42% shares owned by
the promoter BDB and the promoter‟s group.
53. It is contended that the documents referred to above were filed along
with the Section 34 applications before the learned Single Judge and,
as such, ought to be taken into consideration by this Court as well,
being a part of the records.
54. Those are not new materials but admitted documents, there being no
controversy regarding the veracity of those. Given the nature of the
objection to the arbitral award in the present case, there cannot be any
bar, it is argued, for this Court to consider the said documents.
55. Learned counsel for the respondents also places reliance on the
language of Section 34(2)(b) of the 1996 Act, where the expression "the
court finds that" is used, as well as on State of Chhattisgarh and
another v. SAL Udyog Private Limited, reported at (2022) 2 SCC 275, to
argue that the court, acting on its own while deciding a petition under
Section 34 of the 1996 Act, exercises powers which would also be
available in an appeal preferred against a judgment passed under such
provision, within the contemplation of Section 37 of the 1996 Act.
56. The above proposition laid down in SAL Udyog Private Limited (supra)2
was followed by the Hon‟ble Bombay High Court in a decision dated
November 19, 2025 in the case of Shri. Ravi Raghunath Khanjode & Ors.
v. Harashiddh Corporation.
2
State of Chhattisgarh and another v. SAL Udyog Private Limited, reported at (2022)
2 SCC 275
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57. Mica Export Promotion Council (supra)3, relied on by the appellants, is
not applicable, it is contended, since the same was rendered in relation
to a suit in respect of the election of the committee members of Mica
Export Promotion Council and a question of suppression of material
facts was raised, which was sought to be met on the ground that there
was no suppression since the documents were annexed to the petition.
The court did not accept such defence and held that in the facts of that
case it was not enough and the petitioners therein should have clearly
stated these facts in the body of the petition. Such factual matrix, it is
argued, is different from the present case.
58. Moreover, in view of the expression "the court finds that" used in
Section 34(2)(b) of the 1996 Act, which did not come up for
consideration in Mica Export Promotion Council (supra)3, the decision is
not relevant in the context.
59. Learned counsel for the respondents next argues that it is common
ground between the parties that if Entry 2, which is common to the
Fifth and Seventh Schedules of the 1996 Act, applies, then the arbitral
award dated February 29, 2020 would be in violation of Section 12(5) of
the said Act and also in violation of the fundamental policy of Indian
law under Explanation 1 of Section 34(2)(b)(ii) of the 1996 Act.
60. Arguing on the interpretation of the Entries in the Fifth and Seventh
Schedules of the 1996 Act, learned counsel argues that four principles
3
Mica Export Promotion Council and Others v. G.C.L. Joneja & Ors., reported at 72
C.W.N. 117
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have to be kept in mind while interpreting the various items in the said
Schedules, which are as follows:
(i) Entries should be construed in the light of General Standards
contained in the IBA Guidelines;
(ii) A broad commonsensical approach of the Entries has to be taken;
(iii) Entries must be construed purposively keeping in mind the
objective behind the amendment to the Arbitration Act;
(iv) The construction of the Entries should be elastic and flexible.
61. Learned counsel relies on HRD Corporation (supra)4 and ArcelorMittal
India Private Limited (supra)5, in support of the above contentions. It is
contended that HRD Corporation (supra)4 was also referred with
approval in Central Organisation For Railway Electrification v. ECI SPIC
SMO MCML (JV), reported at (2025) 4 SCC 641.
62. Entry 2 of the Fifth and Seventh Schedules of the 1996 Act, it is
submitted, does not use the expression "counsel" or "legal
representative", although "counsel" is used in Entry 3. However, this is
because the said expression is used in Entry 3 to denote the
Arbitrator‟s representation of the lawyer or the law firm which is acting
as counsel for one of the parties. Entry 3 of the Seventh Schedule,
therefore, does not cover cases where the Arbitrator is acting as counsel
for one of the parties.
4
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
5
ArcelorMittal India Private Limited v. Satish Kumar Gupta, reported at (2019) 2
SCC 1
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63. In the same vein, the appellants‟ reliance on Entry 11 of the Seventh
Schedule, which provides for a situation where the Arbitrator is a legal
representative of an entity, that is, a party in the arbitration, to suggest
that "legal representation" is outside the purview of Entry 2, also does
not stand to reason. Entry 11, it is argued, deals with a situation
where the Arbitration is the legal representative of an "entity", in the
sense of being the Power of Attorney holder, a person nominated under
a Board resolution or in any other way representative of a body
corporate in the way body corporates appoint representatives for
carriage of business operations.
64. The expression "represents" in Entry 2, it is argued, is used in a broad
sense to cover all manners of representation by an Arbitrator, including
professional representations as counsel/legal advisor.
65. If such professional representation is excluded from Entry 2, there will
be no entry in either of the Schedules which would cover a case where
an Arbitrator represents a party or its affiliate as a lawyer. Such a
result of the appellants‟ contention cannot be countenanced generally,
and more specifically in the light of Entry 20 of the Fifth Schedule,
which covers a situation where the Arbitrator has served as counsel for
one of the parties or an affiliate or has previously advised or been
consulted by the party or an affiliate of the party making the
appointment in an unrelated matter, but does not have any ongoing
relationship. It would be rather odd for the Arbitrator to be obliged to
make a disclosure under Entry 20 of the Fifth Schedule in relation to
21
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previous service as counsel, and yet to be completely at liberty to have
an ongoing relationship with a party or its affiliate. Thus, it is argued,
Entry 2 squarely covers the present case.
66. The expression "currently" in Entry 2 as well as Entries 3, 7, 24 and 30
of the Seventh Schedule has been used to denote a point of time in
praesenti and should be contradistinguished from the expression
"previous", occurring in Entries such as Entries 16 and 20, and/or the
expression "past three years" occurring in Entries 20, 29, 31, etc. It,
therefore, cannot be said that the expression "currently‟‟ only refers to a
retained lawyer or standing counsel.
67. Learned counsel for the respondents submits that it is undisputed that
the learned Arbitrator had appeared on behalf of M/s. SSSMIL on
eleven instances, which shows a regularity in professional
representation by the Arbitrator on behalf of the said company.
68. It is submitted that HRD Corporation (supra)6 was rendered in a different
context, where there was a single instance of opinion being given by a
retired Judge on a professional basis at arm‟s length in advisory
capacity.
69. Learned counsel for the respondents next deals with the scope of the
term "affiliate" used in Entry 2 of the Fifth and Seventh Schedules of
the 1996 Act. Explanation 2 uses the expression "encompasses" (seen
in contrast with the term "refers" in Explanation 1), thus, enlarging the
6
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
22
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ambit of the expression "affiliate" by including certain Entries while
preserving the otherwise ordinary, natural and popular meaning of the
word "affiliate". The expression "affiliate" is used 29 times in the Fifth
Schedule and 9 times in the Seventh Schedule and it would be
important to note that the same has been used qua the parties to the
arbitration, whereas the expression "close family members" is used qua
the Arbitrator personally.
70. There is nothing in the IBA Guidelines or the 246th Law Commission‟s
report which recommends amendment to Section 12 of the Arbitration
Act, to suggest that only companies were intended to be affiliates.
71. As is clear from Entry 26 of the Fifth Schedule, it is not the way in
which the term "affiliate" is sought to be understood by the Legislature,
since the word "affiliated with‟‟ has been used therein between the
Arbitrator and a partner of or another Arbitrator or any of the counsel
in the same arbitration, that is, between individuals. Thus, close
connection and association is synonymous with the expression
"affiliated with" in Entry 26.
72. An interpretation restricting the term "affiliate" to corporate entities
would be undesirable, as it would severely constrict the nature of
relationships which are sought to be subjected to
disclosure/ineligibility under the Schedules. If such a construction was
to be lent, it would be perfectly acceptable for an Arbitrator to represent
or advice the immediate family members of an individual who happens
to be a party to the dispute. Again, it would be alright for the
23
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Arbitrator‟s Law Firm to have a significant commercial relationship with
the close family members of an individual who happens to be a party to
an arbitration, reading Entry 7 in the manner under discussion. The
same problem would arise with a large number of other Entries in the
Schedules where "affiliate" is used.
73. Another problem which would arise is that persons in control of a
company, such as Key Managerial Personnel (KMP), as referred to in
Section 2(51) of the Companies Act, 2013, including majority
shareholders, etc., would be left out of the loop, which again will create
completely unintended consequences.
74. A construction of the expression "affiliate" which dilutes the protection
sought to be provided by the Schedules has to be eschewed in favour of
a construction which promotes and takes forward the purpose sought
to be achieved by the Schedules.
75. Taking the court through several Entries of both the Schedules, learned
counsel for the respondents seeks to reiterate the above proposition. It
is argued that such manner of construction would be in keeping with
the principle expounded in Paragraph No. 20 of HRD Corporation
(supra)7 that a fair construction of the words used therein, neither
tending to enlarge or restrict them undoubtedly, ought to be made.
76. Referring next to the 2024 IBA Guidelines, learned counsel for the
respondents contends that under the same, individuals having a
7
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
24
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controlling influence on the party in the arbitration and/or any person
or entity over which a party has a controlling influence have been
included within the term "affiliate". Such definition is to be seen in the
light of General Standard 6(b) of the 2014 IBA Guidelines and the
Explanation to the same, which would make it clear that a natural
person having a controlling influence over a legal entity, being a party
to an arbitration, is considered to bear the identity of such party.
Therefore, non-party individuals, who have controlling influence on a
party to the arbitration, were always within the contemplation of the
2014 IBA guidelines, even though the definition of the expression
"affiliate" therein did not explicitly say so.
77. As per HRD Corporation (supra)8, an unduly formalistic interpretation
ought not to be lent to the provisions of the Schedules.
78. In brief, it is argued that the expression "affiliate" can encompass
individuals as well. In the present case, M/s. SSSMIL is an affiliate of
BDB as also C & E Limited.
79. It is further argued by the respondents that a company can be an
„affiliate‟ even where the party to an arbitration does not have control
over it.
80. Importing the Indian test of control into the meaning of "affiliate" is
counterintuitive, since the Schedules to the 1996 Act have been
borrowed from the IBA Guidelines, which are made in the context of
8
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
25
2026:CHC-OS:14-DB
International Commercial Arbitration by arbitration practitioners and
users who come from several jurisdictions, representing diverse legal
cultures and a range of perspectives, which is stated in the 2014 IBA
Guidelines itself.
81. Where the expression "control" was intended, the draftsman specifically
did so, as exemplified in Entries 5 and 9 of the Seventh Schedule,
where such expression has been categorically used. Thus, by specific
exclusion, Entry 2 does not require controlling interest to exist for
attracting the term "affiliate".
82. Learned counsel for the respondents argues that C & E Limited and
M/s. SSSMIL are also group companies as envisaged in Cox & Kings
Ltd. (supra)9.
83. The only reason why the expression "parent company" is specifically
used in Explanation 2 to the Fifth and Seventh Schedules is because in
ordinary parlance, a parent company is not referred to as an "affiliate"
of its group companies.
84. However, the choice of the word "group companies" is significant
because it is intended to cover a much larger gamut of corporate
entities than those which are merely subsidiaries of a parent
corporation. The appellants‟ arguments, it is contended, reduces the
complex reality of corporate relationships by oversimplifying the same.
85. Learned counsel for the respondents contends that the learned
Arbitrator disregarded his own initial disclosure dated August 10, 2014,
9
Cox & Kings Ltd. v. SAP India (P) Ltd., reported at (2024) 4 SCC 1
26
2026:CHC-OS:14-DB
where he himself stated about his previous appearances for BDB and
companies within his management and control. Thus, even as per the
perception of the learned Arbitrator, M/s. SSSMIL, which was such a
company, came within the purview of an „affiliate‟ of BDB. The
continuing appearances for the said entity, thus, had to be disclosed,
since a continuous duty of disclosure is envisaged under Section 12 of
the 1996 Act, as stressed by the Hon‟ble Supreme Court in Central
Organisation for Railway Electrification (supra)10.
86. In Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd.,
reported at 2017 SCC OnLine Del 7228, it has been highlighted that a
violation of the disclosure requirement under the 1996 Act is a ground
for setting aside an award under Section 34(2)(b)(ii) of the said Act.
87. Moreover, the award, it is argued, is in contravention of the
fundamental policy of Indian law and most basic notions of justice. The
test as provided in General Standard 2(c) of the 2014 IBA Guidelines is
highlighted in this regard. It is submitted that the said test carries
forward the old line of Indian cases where the standard to recon bias is
reasonable likelihood of bias. The test of a reasonable and fair-minded
person is highlighted in this regard, for which Vinod Bhaiyalal Jain v.
Wadhwani Parmeshwari Cold Storage (P) Ltd., reported at (2020) 15 SCC
726 is relied on.
10
Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV),
reported at (2025) 4 SCC 641
27
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88. In support of the real likelihood case, learned counsel also cites A.K.
Kraipak & Ors. v. Union of India & Ors., reported at (1969) 2 SCC 262
and International Airports Authority of India v. K.D. Bali & Anr., reported
at (1988) 2 SCC 360.
89. It is lastly pointed out by learned counsel for the respondents that the
learned Single Judge committed an obvious inadvertent error in
paragraph No. 69 of the impugned judgment in recording that the
"corruption and bias" grounds were given up. The other portions of the
judgment would go on to show that the ground of "fraud and
corruption" had been given up, and not "bias". Thus, learned counsel
for the respondents seeks the dismissal of the present appeals.
FINDINGS OF THE COURT
90. Extensive, at times convoluted, arguments have been advanced by the
parties in support of their respective cases. However, the crux of the
matter boils down to the following core issues:
(i) Whether the impugned judgment is sustainable on the grounds
cited by the learned Single Judge;
(ii) Whether the impugned judgment is perverse, being founded on
inferences not supported by materials available before the Section
34 Court;
(iii) Whether this Court, under Section 37 of the 1996 Act, can look into
additional materials not cited before the Section 34 Court;
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(iv) Whether this Court, under Section 37 of the 1996 Act, can examine
independently grounds of setting aside the arbitral award not cited
by the Section 34 Court; and
(v) Whether the learned Arbitrator violated Entries 2 or 8 of the Fifth
and Seventh Schedules of the 1996 Act.
91. The above issues are discussed below:
(i) Whether the impugned judgment is sustainable on the
grounds cited by the learned Single Judge
92. The learned Single Judge summed up his conclusions in Paragraph No.
107 of the impugned judgment. In the said paragraph, it was held that
the actions of the learned Arbitrator fell foul of the mandate under
Section 12 of the 1996 Act, particularly Grounds 11, 15, and 20 of the
Fifth Schedule and Ground 15 of the Seventh Schedule, read with
Explanation 2 thereof.
93. Whereas the Fifth Schedule contains more Entries than the Seventh
Schedule, all the grounds set forth in the Seventh Schedule also find
place in the Fifth Schedule and the language of the respective Entries in
both are identical to that extent.
94. Entry 11 in both the Schedules contemplates a bar when the Arbitrator
is a legal representative of an entity that is a party in the arbitration.
However, it is the case of none of the parties that the learned Arbitrator
appeared for any of the parties to the arbitration during the
continuance of the arbitral proceeding. Conspicuously, the term
29
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"affiliate" is missing in the said Entry. Thus, the legal representation in
the Entry is restricted only to "a party" in the arbitration. Since M/s.
SSSMIL, for which the learned Arbitrator appeared, is not a party to the
proceeding, Entry 11 is automatically excluded.
95. Entry 15 provides for a situation where the Arbitrator has given legal
advice or provided expert opinion on the dispute to a party or an
affiliate of one of the parties.
96. The appearances of the learned Arbitrator, which are set forth as the
ground of challenge by the respondents, was not in connection with the
present dispute at all but in a completely different proceeding where
none of the present parties were impleaded. Thus, the expression "on
the dispute", as used in Entry 15, is not satisfied in the present case.
97. Insofar as Entry 20 is concerned, the same refers to previous services of
the Arbitrator. To come within the purview of the same, the Arbitrator
had to serve as counsel within the "past three years" for one of the
parties or an affiliate thereof or had to previously advise or been
consulted by the party or an affiliate making the appointment in an
unrelated matter, but where the Arbitrator and the party or the affiliate
of the party "have no ongoing relationship".
98. Thus, three different scenarios are contemplated in Entry 20. First, the
Arbitrator had served as counsel within the past three years for a party
or its affiliate; secondly, he/she had previously advised or been
consulted by the party or an affiliate making the appointment in an
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unrelated matter and thirdly, that the Arbitrator and the party or its
affiliate do have any ongoing relationship.
99. Insofar as the previous appearances of the Arbitrator as counsel for one
of the parties, namely BDB and his companies, is concerned, the said
fact was clearly disclosed in the initial disclosure of the Arbitrator,
despite which both parties consented to his appointment. Thus, the
said ground cannot be cited anew to vitiate his appointment.
100. In the present case, none of the parties appointed the Arbitrator, thus,
taking the facts of the case outside the ambit of the second scenario as
well. Both parties had agreed in a pending suit between them to the
reference of the dispute to arbitration, upon which it is the Court which
appointed the learned Arbitrator. Thus, no question of previous advice
to or consultation with the "appointing party" or its affiliate arises.
101. Moreover, the umbrella provision governing both the first and second
scenarios, that is, the Arbitrator and the party or its affiliate have no
ongoing relationship, is also not attracted in the present case, since the
very premise of the challenge to the Arbitrator‟s mandate is that the
learned Arbitrator had an ongoing relationship with M/s. SSSMIL.
102. In view of the above, none of the criteria stipulated in Entry 20 are also
applicable to the present case.
103. Hence, all the Entries cited by the learned Single Judge in the
impugned judgment for holding the learned Arbitrator to be ineligible or
there being a reasonable apprehension of bias fall flat.
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104. The learned Single Judge also referred in general to Section 12, but
qualified such reference with the expression "in particular", restricting
such reference to the mentioned Entries of the Fifth and Seventh
Schedules.
105. In any event, the Fifth Schedule acquires relevance in the context of
Section 12(1)(a), Explanation 1 in the present case. For a proper
adjudication of the matter, Section 12 of the 1996 Act is set out in its
entirely hereinbelow:
"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,--
(a) such as the existence either direct or indirect, of any past or
present relationship with or interest in any of the parties or in relation to the
subject-matter in dispute, whether financial, business, professional or other
kind, which is likely to give rise to justifiable doubts as to his independence
or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to
the arbitration and in particular his ability to complete the entire arbitration
within a period of twelve months.
Explanation1.--The grounds stated in the Fifth Schedule shall guide in
determining whether circumstances exist which give rise to justifiable doubts as
to the independence or impartiality of an arbitrator.
Explanation 2.--The disclosure shall be made by such person in the
form specified in the Sixth Schedule.
(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.
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(5) Notwithstanding any prior agreement to the contrary, any person
whose relationship, with the parties or counsel or the subject-matter of the
dispute, falls under any of the categories specified in the Seventh Schedule
shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an express
agreement in writing."
106. Thus, where a person is approached in connection with his possible
appointment as an Arbitrator, such person is to disclose any
circumstances such as contemplated in Clause (a) of sub-section (1) of
Section 12 which is likely to give rise to justifiable doubt as to his
independence or impartiality.
107. Clause (b), pertaining the ability of the Arbitrator to devote sufficient
time to the arbitration, is not applicable in the present case at all.
108. Explanation 1 to Section 12(1) provides that the grounds stated in the
Fifth Schedule shall guide in determining whether circumstances exist
which give rise to justifiable doubts as to the independence or
impartiality of an Arbitrator, thus, tying up the Fifth Schedule
exclusively to Section 12(1) of the 1996 Act.
109. Under Section 12(2), the liability of such disclosure is continuous, from
the time of appointment of the learned Arbitrator throughout the
arbitral proceedings. Thus, in the facts of the present case, there was a
continuous liability of the learned Arbitrator to disclose his appearance
for any party or its affiliate, even if in a different proceeding, within the
contemplation of the Fifth Schedule, if at all.
33
2026:CHC-OS:14-DB
110. On the other hand, the Seventh Schedule is to be read in the context of
sub-section (5) of Section 12 which provides that notwithstanding any
prior agreement to the contrary, any person whose relationship with the
parties or counsel or the subject-matter of the dispute falls under any
of the categories specified in the Seventh Schedule shall be ineligible to
be appointed as an arbitrator, which can be subsequently waived by an
express agreement in writing.
111. The marked difference between sub-sections (1) and (5) of Section 12 is
that whereas the former provides for situations which are likely to give
rise to justifiable doubts as to the independence or impartiality of the
Arbitrator, saddling the Arbitrator with a continuous liability under
sub-section (2) of Section12 to disclose to the parties in writing such
circumstances, thereby permeating throughout the arbitral proceedings
till the award is passed, sub-section (5) is a threshold bar, which hits at
the very eligibility of the Arbitrator to be so appointed.
112. Thus, Section 12(5), read in conjunction with the Seventh Schedule,
operates at the threshold level of appointment of the Arbitrator. The
placement of sub-section (2) after sub-section (1) and its language,
which casts a liability of disclosure on the Arbitrator only in respect of
circumstances referred to in sub-section (1) and not sub-section (5),
clearly shows that, as opposed to Section 12(1), read with the Fifth
Schedule, Section 12(5) read with the Seventh Schedule only debar an
Arbitrator at the appointment stage and not thereafter. Thus, the
Entries in the Seventh Schedule, read in the light of sub-section (5) of
34
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Section 12, cannot operate beyond the appointment of the Arbitrator
and/or continue throughout the arbitration proceeding till the award.
Thus, by necessary implication, sub-section (5), read with the Seventh
Schedule, can at best invalidate the appointment of the Arbitrator at
that stage and cannot be a subsequent ground for vitiating the award.
113. In the present case, the learned Arbitrator categorically disclosed his
links with BDB and his companies at the stage of his appointment,
despite which such appointment was accepted and none of the parties
raised objection to the same. Hence, the Seventh Schedule cannot be a
guiding factor in vitiating the award on the ground of subsequent
appearances by the learned Arbitrator, during the arbitral proceedings,
for M/s SSSMIL.
114. Thus, it is only the Fifth Schedule which, in the light of sub-sections (1)
and (2) of Section 12, acquires relevance for considering whether the
award was vitiated by justifiable doubts as to the independence or
impartiality of the Arbitrator on the grounds set forth in the Fifth
Schedule, regarding which the learned Arbitrator had a continuous
liability to disclose in writing any circumstances coming within the
ambit of the same throughout the arbitration proceeding. Accordingly,
this Court confines its examination only to the Fifth Schedule.
115. Even otherwise, the language of the Entries in the Seventh Schedule is
identical with the corresponding Entries in the Fifth Schedule. Hence,
consideration of one would automatically amount to consideration of
the other.
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116. Going by the above discussions, we find that the impugned judgment is
not sustainable, since none of the Entries of the Fifth Schedule, read
with Section 12(1) of the 1996 Act (or for that matter the Seventh
Schedule), which were cited by the learned Single Judge, fits the
allegations against the learned Arbitrator in the present case.
117. This issue, thus, is held in the negative.
(ii) Whether the impugned judgment is perverse, being founded
on inferences not supported by materials available before
the Section 34 Court
118. From the impugned judgment, several premises for the final conclusion
of the learned Single Judge are reflected. For example, in Paragraph
No. 49 of the said judgment, the learned Single Judge held outright that
from the shareholding pattern of M/s. B.G. Chemicals Private Ltd., that
is, 27-odd percentage shareholding in M/s. SSSMIL and the other
holders of the said entity, it could be inferred that BDB had overall
control and management of M/s. SSSMIL and M/s. C & E Limited.
However, there is no preceding reason or discussion in the impugned
judgment to back up such findings or any examination of the inter-
relation between the companies-in-question and BDB to substantiate
the finding as to such control. More importantly, the learned Single
Judge went on to hold that it can also be inferred that the Managers,
Directors and employees are accustomed to acting as per the "sole wish
36
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and dictate" of BDB, which is also not borne out by the records, nor any
reason therefor was attributed by the learned Single Judge.
119. Again, in Paragraph No. 50 of the impugned judgment, it was observed
that BDB was personally present in most of the sittings in the
arbitration and it could, therefore, not be difficult to believe that he
"must have personally attended most of the conferences" with the
learned Arbitrator at the time of his appearances in connection with
APD No. 252 of 2015 between January and December, 2018.
120. With utmost respect, the above observations are without any material
basis whatsoever, being not substantiated by any material and or
preceding advertence to facts by the learned Single Judge.
121. Again, in Paragraph No. 54 of the impugned judgment, the learned
Single Judge held that BDB and his family members, directly or
indirectly, do control and manage M/s. SSSMIL and M/s. C & E
Limited and "the latter two companies function as per the wishes and
dictates of" BDB. The above findings are also not borne out by any
reasoning or materials.
122. In view of the above findings being patently perverse, being not
supported by evidence and falling in the realm of conjecture, the same
could not form the basis for reaching the conclusion that a reasonable
apprehension of bias was raised against the learned Arbitrator.
123. Thus, the impugned judgment is perverse, being founded on inferences
not supported by the materials available or discussed by the learned
Single Judge.
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(iii) Whether this Court, under Section 37 of the 1996 Act, can
look into additional materials not cited before the Section
34 Court
124. The 1996 Act, like most other appellate hierarchies, provides for a
pyramidal structure of challenge, tapering off as it goes upwards.
125. Section 5 of the 1996 Act precludes judicial intervention except as
provided for in Part-I of the said Act, pertaining to domestic
arbitrations. Thus, unlike the general powers of a civil appellate court,
the contours of interference under Section 34 of the 1996 Act are to be
strictly construed, being confined within the limits of the said provision.
126. An appeal under Section 37 against a judgment passed under Section
34 derives colour from the parameters of Section 34. In fact, the scope
of interference under Section 37, being an appellate court, is stricter
than the Section 34 Court itself.
127. There is nothing in the 1996 Act comparable to the provisions of Order
XLI Rule 27 of the Code of Civil Procedure, which is available in a
regular civil appeal, in order to permit the production of additional
evidence in a Section 37 Appeal under the 1996 Act. Furthermore,
Order XLI Rule 33 of the Code of Civil Procedure lends wings to the
appellate court in a regular civil suit to travel beyond the contours of
the specific challenge before it and explore whether further or other
decrees can be granted, even in cases there is no challenge to a
particular portion or component of the decree impugned therein.
38
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However, such luxury is not available to an appellate court under
Section 37 of the 1996 Act. Hence, the scope of an appeal under
Section 37 is extremely limited and cannot accommodate the
consideration of further and new documents which were not specifically
available before the Section 34 Court, unless there is some completely
new development subsequent to the disposal of a Section 34 application
which hits at the root of the matter, in which case there might be a
restricted power of the Section 37 Court to consider the same.
128. Hence, completely new materials, which could be obtained during
pendency of the Section 34 application but were not furnished before
the court taking up the challenge under Section 34, cannot be
permitted to be produced before the Section 37 court for the first time.
129. A question which arises consequentially is whether documents which
were not specifically referred to in the Section 34 applications but were
produced before the Section 34 Court can be looked into under Section
37. The answer to that is, in our opinion, in the positive. It is well-
settled that proof need not be pleaded and if the rudiments of pleadings
to support evidence are there, the court is duty-bound to look into the
materials produced in support of such pleadings. Hence, there is no
reason as to why documents which were produced before the Section
34 Court and thus were available for consideration by the said Court,
although not specifically mentioned in the Section 34 applications,
cannot be looked into by the Section 37 Court.
39
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130. Such proposition holds true particularly in the facts of the present case,
where the challenge under Section 34 of the 1996 Act was on the basis
of acts of the learned Arbitrator which came to the knowledge of the
award debtors only after the passing of the award.
131. The reliance of the appellants on Mica Export Promotion Council (supra)11
is not quite apt in the context of the present case. In the said case, the
court was considering whether the suppression of material facts from
the court was bona fide. In such context, it was held that the
petitioners should have clearly stated the relevant facts in the body of
the petition and should have offered their explanation with regard to
the same if they had any to offer. Thus, the facts of the said case were
different from the case at hand and the said report cannot be an apt
precedent for the present consideration.
132. As opposed thereto, the documents relied on by the present
respondents were produced in support of their contentions before the
Section 34 Court and were available for consideration by the said court.
No useful purpose would be subserved insofar as the present
respondents are concerned in withholding such documents or not
mentioning them specifically in the pleadings, since such documents
could only enure to their benefit. Thus, the context of Mica Export
Promotion Council (supra)11 is not applicable in the present case at all.
Although it is well-settled that there cannot be any proof beyond
11
Mica Export Promotion Council and Others v. G.C.L. Joneja & Ors., reported at 72
C.W.N. 117
40
2026:CHC-OS:14-DB
pleadings, in the present case, the rigours of the Code of Civil Procedure
are not applicable per se to an arbitral proceeding or a proceeding in
connection therewith. In fact, it was the duty of the Section 34 Court to
look into the materials produced before it in the backdrop of the
allegation that the present respondents, the challengers in the Section
34 applications, only came to know about the alleged offending acts of
the learned Arbitrator after the passing of the award. Hence, for all
practical purposes, the Section 34 Court was the original court taking
up the said issues and it was the incumbent duty of the said court to
look into the same. Thus, the said court had power to look into the
documents produced before it to ascertain whether the yardsticks of the
Fifth and Seventh Schedules were met.
133. The language of sub-sections (2) and (2A) of Section 34 of the 1996 Act
make it abundantly clear that if the court finds, in an application under
Section 34, the infraction of any of the Entries in the said Schedules,
there might be an interference on the ground of patent illegality or
contravention of the public policy of law in India and/or basic
principles of morality and justice. The expression "if the court finds"
confers wide powers on the court itself to look into the materials placed
before it, without being unnecessarily fettered by the restrictions of the
pleadings of the parties.
134. The powers available to the Section 34 Court are, in any event,
applicable to the court taking up an appeal under Section 37 from the
judgment passed under Section 34 of the 1996 Act. Such proposition is
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strengthened by the observations made by the Hon‟ble Supreme Court
in SAL Udyog Private Limited (supra)12, as followed by a learned Single
Judge of the Bombay High Court in the matter of Shri. Ravi Raghunath
Khanjode (supra)13.
135. A careful examination of the above go on to show that although the
court, under Section 34 and under Section 37 (in an appeal from a
Section 34 judgment) can look into the materials produced before the
Section 34 Court, additional materials not before the Section 34 Court
cannot, for the first time, be considered by the Section 37 Court at all.
(iv) Whether this Court, under Section 37 of the 1996 Act, can
examine independently grounds of setting aside the arbitral
award not cited by the Section 34 Court
136. As discussed while deciding Issue No. (iii) above, in terms of the ratio of
SAL Udyog Private Limited (supra)13, followed by different High Courts,
the Section 34 Court and, consequentially, the appellate court in an
appeal under Section 37 against a Section 34 judgment, are not fettered
by the restrictions of the pleadings and can, by themselves, look into all
materials produced before the Section 34 Court.
137. In view of the expression "the court finds" as used in sub-sections (2)(b)
and (2A) of Section 34 of the 1996 Act, the Section 34 Court as well as
the Section 37 Court can independently examine whether the grounds
12
State of Chhattisgarh and another v. SAL Udyog Private Limited, reported at (2022)
2 SCC 275
13
Shri. Ravi Raghunath Khanjode & Ors. v. Harashiddh Corporation
42
2026:CHC-OS:14-DB
stipulated in law for setting aside an arbitral award, even if not cited by
the Section 34 Court, can be looked into.
138. In view of the above, this Court can, sitting in judgment over the
decision of the Section 34 Court, independently consider as to whether
the tests laid down in the relevant Entries under the Fifth and Seventh
Schedules as well as Section 12 of the 1996 Act are met in the present
case, to ascertain whether justifiable doubts as to the independence
and integrity of the learned Arbitrator were raised.
(v) Whether the learned Arbitrator violated Entries 2 or 8 of the
Fifth and Seventh Schedules of the 1996 Act
139. This issue comprehensively covers the merits of the case and can be
sub-divided into several sub-issues, which we proceed to deal with
hereinbelow:
(a) HRD Corporation (supra) principle
140. The Two-Judge Bench decision in HRD Corporation (supra)14 is the
guiding light for interpretation of the Fifth and Seventh Schedules of
the 1996 Act. Paragraph No. 20 of the said judgment is set forth
hereinbelow for the sake of convenience:
"20.However, to accede to Shri Divan's submission that because the
grounds for challenge have been narrowed as aforesaid, we must
construe the items in the Fifth and Seventh Schedules in the most
expansive manner, so that the remotest likelihood of bias gets
removed, is not an acceptable way of interpreting the Schedules. As
has been pointed out by us hereinabove, the items contained in the
14
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
43
2026:CHC-OS:14-DB
Schedules owe their origin to the IBA Guidelines, which are to be
construed in the light of the general principles contained therein--that
every arbitrator shall be impartial and independent of the parties at
the time of accepting his/her appointment. Doubts as to the above are
only justifiable if a reasonable third person having knowledge of the
relevant facts and circumstances would reach the conclusion that there
is a likelihood that the arbitrator may be influenced by factors other
than the merits of the case in reaching his or her decision. This test
requires taking a broad commonsensical approach to the items stated
in the Fifth and Seventh Schedules. This approach would, therefore,
require a fair construction of the words used therein, neither tending to
enlarge or restrict them unduly. It is with these prefatory remarks that
we proceed to deal with the arguments of both sides in construing the
language of the Seventh Schedule."
141. The Hon‟ble Supreme Court, in the above judgment, laid stress on the
"reasonable third person" test. Such reasonable third person, however,
has to have knowledge of the relevant facts and circumstances to
assess whether there was a likelihood of the Arbitrator being influenced
by extraneous factors other than the merits of the case in reaching
his/her decision.
142. The contours of such test are defined to incorporate a "broad
commonsensical approach" to the items stated in the Fifth and Seventh
Schedules. It was further stressed by the Hon‟ble Supreme Court that
this approach would require "a fair construction of the words used
therein, neither tending to enlarge or restrict them unduly". The
Hon‟ble Supreme Court recognized in Paragraph No. 14 of the said
report the fact that the enumeration of grounds given in the Fifth and
Seventh Schedules of the 1996 Act, as amended with effect from 2015,
have been taken from the IBA Guidelines, particularly from the Red and
Orange Lists thereof.
44
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143. The said judgment of the Hon‟ble Supreme Court was delivered on
August 31, 2017, when the 2014 IBA Guidelines were in force. It is
relevant to note that the Fifth and Seventh Schedules were incorporated
by the 2015 Amendment to the 1996 Act, which was notified on
November 12, 2018, with retrospective effect from October 23, 2015.
By bodily lifting provisions from the 2014 IBA Guidelines, the
Legislature resorted to the doctrine of "legislation by incorporation",
thereby incorporating portions of the then existing 2014 IBA
Guidelines, to the extent as chosen by the Legislature, into and as a
part of the 1996 Act. Once incorporated, as opposed to "legislation by
reference", the said provisions became a part of the statute and derived
force therefrom.
144. In legislation by incorporation, as opposed to legislation by reference,
the incorporated portion of a piece of legislation/guidelines becomes a
part of the incorporating statute. On the other hand, in case of
legislation by reference, the incorporating statute merely refers to the
other statute and, as a result, if the other statute is subsequently
amended or undergoes a change or is repealed, the same would affect
the incorporating statute.
145. However, in the present case, since the relevant provisions of the 2014
IBA Guidelines were made a part of the 1996 Act, the subsequent
changes to the 2014 Guidelines or amendments thereto could not have
any effect on the Fifth and Seventh Schedules, which had already
become a part of the 1996 Statute and derived force therefrom.
45
2026:CHC-OS:14-DB
146. In such view of the matter, construed in proper context, it is the 2014
Guidelines which was prevalent at the time when the amendment with
effect from October 23, 2015 took place and the judgment in HRD
Corporation (supra)15 was delivered, which is germane for the present
consideration. The subsequent amendments to the IBA Guidelines in
the year 2024 do not have any material bearing whatsoever in
construing the Fifth and Seventh Schedules. Hence, the reference of
the respondents to the 2024 IBA Guidelines is completely misplaced.
147. In such backdrop, the court has to adopt a fair construction of the
words used in the Fifth and Seventh Schedules, neither tending to
enlarge nor restrict them unduly, in the light of the general principles
contained in the then-existing 2014 IBA Guidelines.
(b) Whether Seventh Schedule of the 1996 Act is
applicable
148. As discussed above, Section 12(5) of the 1996 Act provides that any
person whose relationship with the parties or counsel or the subject-
matter of dispute falls under any of the categories specified in the
Seventh Schedule shall be ineligible to be appointed as an Arbitrator.
Again, the Seventh Schedule refers to Section 12(5) as its source. In
view of the language employed in sub-section (5) of Section 12, the
Entries in the Seventh Schedule pertain only to the eligibility at the
15
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
46
2026:CHC-OS:14-DB
juncture of appointment of an Arbitrator and not thereafter. Hence, the
Seventh Schedule is not germane in the present context at all.
149. As opposed thereto, the Fifth Schedule refers to Section 12(1).
Complementarily, Explanation 1 to Section 12(1) also provides that the
grounds stated in the Fifth Schedule shall guide in determining whether
circumstances exist which give rise to justifiable doubts as to the
independence or impartiality of an Arbitrator.
150. Section 12 (1)(a) speaks about circumstances which are likely to give
rise to justifiable doubts as to the independence or impartiality of an
Arbitrator which are mandatorily to be disclosed at the time of his
appointment.
151. Sub-section (2) of Section 12 extends the time of such disclosure
throughout the arbitral proceedings by referring specifically to the
circumstances referred to in sub-section (1), unless the parties have
already been informed of the circumstances of the Arbitrator.
152. Thus, the requirement of continuous disclosure as envisaged in Section
12 (2), throughout the arbitral proceedings, pertains only to the
circumstances relating to justifiable doubts as to the
impartiality/independence of the Arbitrator, as specified in Section 12,
sub-Section (1), read with the Fifth Schedule, of the 1996 Act and not
to the threshold ineligibility of appointment as Arbitrator as stipulated
in Section 12 (5), read with the Seventh Schedule.
153. Hence, it is the Fifth Schedule which is to be looked into in the present
case, and not the Seventh Schedule. In any event, since the relevant
47
2026:CHC-OS:14-DB
Entries are identical in both the Schedules, such distinction does not
make much of a difference insofar as the present consideration is
concerned.
(c) Entry 2 of the Fifth Schedule of the 1996 Act
154. Both the parties have laid pivotal stress on Entry 2 in their arguments.
155. Entry 2 of the Fifth Schedule provides that the Arbitrator currently
represents or advises one of the parties or the affiliate of one of the
parties and comes under the head "Arbitrator‟s relationship with the
parties or counsel".
156. There are two aspects of consideration here - the connotation of the
expression "currently represents" and the term "affiliate". The term
"advises" is not germane as such, since the allegations of the
respondents primarily concerns the appearance of the learned
Arbitrator for M/s. SSSMIL on eleven occasions during the pendency of
the arbitral proceedings, and not any advice given by him to the said
company.
157. Insofar as the expression "currently represents" is concerned, the
appellants have placed reliance on HRD Corporation (supra)16. However,
the context of the said case was entirely different, where a single
instance of legal advice in an unrelated matter was cited as a ground of
ineligibility of the Arbitrator, which was turned down by the Hon‟ble
16
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
48
2026:CHC-OS:14-DB
Supreme Court by observing that such single instance could not be
construed as the services of the learned Arbitrator as a regular advisor
or a person who currently advises a party to the arbitration. In such
context, it was held that the element of being connected in an advisory
capacity with a party is to be looked into. Hence, HRD Corporation
(supra)17 is not squarely applicable in the facts of the present case.
158. The allegation in the instant case is that the learned Arbitrator had
appeared as counsel for M/s. SSSMIL in an unrelated proceeding
during the arbitration proceeding. The expression "currently
represents" has two facets - „currently‟ and „represents‟, both of which
have a flavour of the present continuous tense.
159. Borrowing the principles of Order III of the Code of Civil Procedure, a
person can act as a representative of a party before a court of law if
given a Power of Attorney to do so or a Vakalatnama as an Advocate on
Record. An Arbitral Tribunal is a judicial forum for all practical
purposes and, as such, the same principle should be applied for
construction of the term "representation".
160. A counsel, as opposed to an Advocate on Record, is engaged for specific,
discrete and isolated appearances, on each such occasion. It may very
well be that a particular counsel of preference is engaged for appearing
for a party on several occasions. However, neither does a counsel, as
opposed to an Advocate on Record, have the liability to mandatorily
appear on each and every occasion on behalf of a party, nor does a
party to a litigation have the duty to engage a particular counsel on
49
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every occasion when the matter is taken up for hearing. It may
perchance happen that a particular preferred counsel is engaged for
appearing on several occasions, consecutive or otherwise, while in some
other cases, there may be an off-and-on engagement, to appear for
important hearings or on particular occasions. Thus, there is no
mutual liability or relationship between a party and its counsel to
engage or act for each other respectively in a case on a continuous
basis. The very nature of the engagement of a counsel has, thus, an
element of independence on behalf of both the counsel and the party
and a counsel or a party may choose not to represent or engage, as
applicable, each other continuously. Hence, the expression "currently
represents" is not strictly applicable to a counsel-party relationship.
161. The matter would be otherwise in respect of an Advocate on Record,
who has the continuous liability, unless a change is given, to act on
behalf of the party who empowers him to so appear by executing a
Vakalatnama. The party also cannot appear through other advocates
unless a „No Objection‟ is specifically given or obtained from its
Advocate on Record or engaged law firm. Hence, the expression
"currently represents", as used in Entry 2 of the Fifth Schedule, is
strictly not applicable to a counsel, irrespective of the number of
occasions on which such counsel was engaged in a particular matter
during a particular period.
162. Moreover, unless the same counsel is consistently engaged over a
period of time to appear for a particular party in all or most of its
50
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litigations, no element of regularity can be attributed to such
representation.
163. The argument of the appellants that Entry 2 does not take within its
fold "legal" representation, however, cannot be accepted, since the
expression "represents or advises" has been kept by the Legislature
deliberately wide enough to encompass relationships of all natures, be
it representation or advice in the field of law or otherwise.
164. Yet, in view of the above discussions, the expression "currently
represents" could not be said to be applicable to the learned Arbitrator
in the present case, who was engaged in the capacity of counsel to
represent M/s. SSSMIL in a particular case during the relevant period.
165. Moving on to the next component, it is to be ascertained whether M/s.
SSSMIL was an "affiliate" of any of the parties to the arbitration within
the contemplation of Explanation 2 to the Fifth Schedule of the 1996
Act.
166. Elaborate arguments have been extended by both parties on the said
question. However, certain arguments can be eliminated at the
threshold. Reliance of the respondents on S. Sundaram Pillai and
Others v. V.R. Pattabiraman and Others, reported at (1985) 1 SCC 591 is
not apt in the context of the case. In the said case, the Supreme Court
laid down the proposition that the Explanation is merely to incorporate
an instance of the main provision and cannot negate rights conferred by
the main provision. Explanation 2 of the Fifth Schedule does not do
anything of that sort and in no way negates the effect of the main
51
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Entries to the Fifth Schedule where the term "affiliate" has been used;
rather, it elaborates and illustrates the applicability of the term
"affiliate" as used in the relevant Entries of the Fifth Schedule. Thus,
the S. Sundaram Pillai17 proposition is not applicable at all in the facts
of the present case.
167. The respondents seek to rely on several documents in a bid to explain
the expression "affiliate‟‟, which however, have no direct bearing on the
present consideration. For example, the Achutan Report of the
Takeover Regulations Advisory Committee operates in an entirely
different field than the present one, in respect of corporate takeovers
within the contemplation of the SEBI Guidelines. The context and
perspective of the term „affiliate‟ in a special delegated legislation in the
specific context of acquisition of shares of a target company has no
manner of bearing in interpreting the provisions of the 1996 Act, where
the expression is used merely to establish a nexus between the
Arbitrator and one of the parties.
168. As held in HRD Corporation (supra)18, an unnecessarily expansive
construction cannot be attributed to the provisions of the Fifth
Schedule, even going by the 2014 IBA Guidelines.
169. Again, Rule 13 of the Competition Rules operates in a completely
different field, in respect of the effects of competition in the market.
17
S. Sundaram Pillai and Others v. V.R. Pattabiraman and Others, reported at (1985)
1 SCC 591
18
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
52
2026:CHC-OS:14-DB
The definition of "affiliate" in such specific and limited context cannot
be equated with the normal connotation of the term „affiliate‟ in
corporate law, insofar as the eligibility of an Arbitrator is concerned.
The same ratio applies to the Notification dated July 17, 2008 issued by
the Petroleum and Natural Gas Regulatory Board, which operates in its
own sphere and cannot be imported to a completely unrelated
consideration than that under the 1996 Act.
170. Rather, in construing the said provision, the "Group of Companies"
doctrine, as laid down in Cox & Kings Ltd. (supra)19, also relied on by
the respondents, is required to be looked into. Certain paragraphs of
the said judgment are of utmost importance in understanding the
concept laid down therein. The said paragraphs are set out
hereinbelow:
"87. The phenomenon of group companies is the modern reality of
economic life and business organisation. Group companies are a set of
separate firms linked together in formal or informal structures under the
control of a parent company. The group companies can be defined in the
Indian context as
"an agglomeration of privately held and publicly traded firms
operating in different lines of business, each of which is incorporated as
a separate legal entity, but which are collectively under the
entrepreneurial, financial, and strategic control of a common authority,
typically a family, and are linked by trust-based relationships forged
around a similar persona, ethnicity, or community." [ Jayati Sarkar,
"Business Groups in India" in Asli Coplan, Takashi Hikino & James
Lincoln (Eds.), The Oxford Handbook of Business Groups (2010) 299]
A group company involving the parent and subsidiary companies is
created for myriad purposes such as limiting the liability of the parent
corporation, facilitating international trade, entering into business
ventures with investors, establishing domestic corporate residence, and
avoiding tax liability.
19
Cox & Kings Ltd. v. SAP India (P) Ltd., reported at (2024) 4 SCC 1
53
2026:CHC-OS:14-DB
***
90. The separateness of corporate personality will be ignored by courts
in exceptional situations where a company is used as a means by the
members and shareholders to carry out fraud or evade tax liabilities. If
the Court, on the basis of factual evidence, determines that the company
was acting as an agent of the members or shareholders, it will ignore
the separate personality of the company to attribute liability to the
individuals. In Telco Ltd. v. State of Bihar [Telco Ltd. v. State of Bihar,
1964 SCC OnLine SC 111 : (1964) 6 SCR 885] , the issue before a
Constitution Bench of this Court was whether a company could be
treated as a citizen for the purposes of maintaining a writ petition under
Article 32 of the Constitution. The Company urged that the corporate veil
should be lifted to treat the petition as one filed by the shareholders.
This Court held that the veil of a corporation can be lifted where fraud is
intended to be prevented or trading with an enemy is sought to be
defeated.
***
92. The application of the doctrine of lifting the corporate veil rests on
the overriding considerations of justice and equity. [DDA v. Skipper
Construction Co. (P) Ltd., (1996) 4 SCC 622] Often, the Courts pierce the
corporate veil when maintaining the separateness of corporate
personality is found opposed to justice, convenience, and public
interests. [Kapila Hingorani (1) v. State of Bihar, (2003) 6 SCC 1 : 2004
SCC (L&S) 586] In Balwant Rai Saluja v. Air India Ltd. [Balwant Rai
Saluja v. Air India Ltd., (2014) 9 SCC 407 : (2014) 2 SCC (L&S) 804] ,
this Court cautioned that the principle of piercing the corporate veil
should be applied in a restrictive manner and only in scenarios where it
is evident that the subsidiary company was a mere camouflage
deliberately created by the holding company for the purpose of avoiding
liability. It was further observed that the intent of piercing the corporate
veil must be such that would seek to remedy a wrong done by the
holding company. In the context of arbitration, the principle of piercing
the corporate veil has been sparingly used because it disregards the
intention of the parties by emphasising on the overriding considerations
of good faith and equity to bind the non-signatories to an arbitration
agreement.
93. Moreover, since the companies in a group have separate legal
personality, the presence of common shareholders or Directors cannot
lead to the conclusion that the subsidiary company will be bound by the
acts of the holding company. The statements or representations made
by promoters or Directors in their personal capacity would not bind a
company. Similarly, the mere fact that the two companies have common
shareholders or a common Board of Directors will not constitute a
sufficient ground to conclude that they are a single economic entity. The
single economic entity or the single economic unit theory imposes
general enterprise liability on the corporate group. In D.H.N. Food
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Distributors Ltd. v. Tower Hamlets London Borough Council [D.H.N.
Food Distributors Ltd. v. Tower Hamlets London Borough Council, (1976)
1 WLR 852 (2) (CA)] , Lord Denning held that a group of three companies
should be treated as a single economic entity on the basis of two factors
: first, the parent company owned all the shares of the subsidiary
companies to the extent that it controlled every movement of the given
subsidiary companies; and second, all the three companies in the group
virtually acted as partners and could not be treated separately. Thus,
the determination of whether two or more companies constitute a single
economic entity depends upon the concerted efforts of the companies to
act in pursuance of a common endeavour or enterprise."
171. The Group of Companies doctrine was propounded and explained in the
said judgment while considering whether non-signatories to an
arbitration agreement can, under certain circumstances, be brought
within the fold of arbitration between the signatories. The Hon‟ble
Supreme Court, in Paragraph No. 87, categorically laid down that the
phenomenon of group companies is a modern reality of economic life
and that group companies are a set of separate firms linked together in
formal or informal structures under the control of a parent company
(emphasis supplied). Companies under the strategic control of a
common authority, typically a family, were taken into consideration. At
the same time, involvement of parent and subsidiary companies or a
parent corporation was highlighted in the said report. In fact, the
Hon‟ble Supreme Court, in Paragraph No. 91 of the decision, took note
of situations where a holding company completely dominates the affairs
of the subsidiary company to the extent of misusing its control, to avoid
or conceal the liability.
172. In Paragraph No. 92, again, it was observed that the intent of piercing
the corporate veil must be such that would seek to remedy a wrong
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done by the holding company. Under the normal company
jurisprudence, only in cases of fraud or manifest evasion of tax
liabilities, the doctrine of piercing of corporate veil is used. However,
the Hon‟ble Supreme Court cautioned that in the context of arbitration,
the said principle has been sparingly used because it disregards the
intention of the parties by emphasising on the overriding considerations
of good faith and equity to bind the non-signatories to an arbitration
agreement. It was highlighted that, as opposed to the doctrine of alter-
ego or piercing the corporate veil, which operates in the sphere of
misuse of control to avoid or conceal liability, the Group of Companies
doctrine would be deployed to test the intention of parties by
emphasising on considerations of good faith and equity.
173. Read in such context, an affiliate has to be the part of a "solar system"
revolving around the parent/holding company, as rightly argued by the
appellants in the present case, there being a parent company or a
holding company under which there are subsidiary companies which
are sibling companies inter se.
174. Such an interpretation is also in consonance with Explanation 2 to the
Fifth Schedule of the 1996 Act, which provides that the term "affiliate"
encompasses all companies in one group of companies including the
parent company.
175. Although the expression "encompasses" has been used in Explanation
2, it is a sufficient indicator as to the meaning intended to be lent to the
term "affiliate" in the relevant Entries of the said Schedule. The use of
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the expression "encompasses" is only to highlight that not only all
companies in a group of companies are covered by affiliate but that the
parent company is also included. Such choice of language has been
deliberately used since, in general, the parent company itself is
sometimes excluded in the common perception from the group of
companies which are subsidiaries thereto. The expression
"encompasses", although indicating under normal circumstances that
the definition is inclusive, such inclusivity simultaneously indicates
that the expression is intended to be applied only to corporate entities.
Otherwise, there would be no need for the Legislature to provide for
Explanations 1 and 2 separately. Explanation 1 defines the term "close
family member" and refers to biological individuals or natural entities.
On the other hand, Explanation 2 defines "affiliate", which refers to
corporate entities. The segregation of Explanations 1 and 2 is also an
indicator of the intention of the Legislature to refer respectively to
natural persons and corporate entities in the said two Explanations.
176. There would be no necessity for the Legislature to use the term
"affiliate" if it was intended to be used for natural entities, in which case
the term "family member" or "close family member" could very well be
used. The expression "close family member" and "close family
relationship" has, in fact, been used in several entries of the Fifth
Schedule and the Seventh Schedule where it refers to biological entities,
where the intention of the Legislature was to refer to natural persons.
As opposed thereto, the expression "affiliate" has been used only with
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reference to corporate entities. Nothing prevented the Legislature, in its
wisdom, to use the expression "affiliate or family members", if it
intended to do so in Entry 2 as well. Having deliberately not done so, it
is clear that only corporate entities were sought to be covered by the
umbrella term "affiliate".
177. Even otherwise, if applied to natural persons or biological entities, the
term "affiliate", as derived from its etymological root, refers to a filial
relationship only and cannot refer to a cross-relation between a natural
person and a corporate entity. Thus, the interpretation sought to be
lent to the term "affiliate" by the present respondents is not tenable in
the eye of law.
178. If the term "affiliate" is construed to apply in the context of natural
persons too, it would not only go against the grain of Explanation 2 to
the Fifth Schedule, but would then throw open a wide variety of
possible relationships between individuals, without any governing
parameter being provided in the Statute. Since the Legislative intent, as
evident from Explanation 1 of the Fifth Schedule and the Entries where
the expression "close family relation" has been deployed, is to
specifically use such term within the limits defined by Explanation 1
where natural persons are concerned, the interpretation sought to be
lent to "affiliate" in respect of natural persons would defy such
intention. In that event, a Pandora‟s Box would be cracked open,
permitting the expression "affiliate" to be applied to an infinite range of
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relations of the parties to an arbitration proceeding, without there being
any legislative boundary or parameter to restrict it.
179. Hence, the term "affiliate" has to be used in respect of corporate entities
only. Furthermore, since Explanation 2 of the Fifth Schedule
contemplates a "solar system" structure (borrowing from the expression
as used by learned senior counsel for the appellants), where there is a
parent/holding company having sibling companies under it, an element
of „control‟ exerted by the parent company over the group companies is
also required to be established to bring a corporate party within the fold
of "affiliate", as envisaged in Entry 2 of the Fifth Schedule.
180. As such, we now proceed to assess whether such element of „control‟
has been established in the present case.
(d) Control
181. It has been argued by the appellants that for an entity to be an
"affiliate" of a party to the arbitration, there has to be an element of
control exerted by such party on its affiliate. Such view is supported by
the definition of the term "affiliate" as given in Explanation 2 to the
Fifth Schedule.
182. Thus, the next aspect which is required to be considered is the meaning
of "control", as construed generally in Indian company jurisprudence.
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183. As explained in ArcelorMittal India Private Limited (supra)20 as well as
Vodafone International Holdings BV (supra)21 and referred to in the
unreported judgment of this Court in Universal Cables Limited (supra)22,
the control over a company is the direct fall-out of the shareholding of a
person or entity in a company and is tied up inextricably with the
shareholding and the incidents of shareholding.
184. The respondents in the instant case have not produced any document
to show cross-holdings among C & E Limited and M/s. SSSMIL. Even
going by the admitted position in the present case, the shareholding of
the so-called promoter group of BDB in M/s. SSSMIL comes to about
35.42%, which is much less than 50%. The argument of the
respondents that the remaining 64.58% shareholding, being held by the
public, cannot be said to confer any control on the other shareholders,
cannot be accepted. It can very well be that the public in general is an
unorganised body of persons. However, fact remains that even if the
promoter and promoter group of M/s. SSSMIL wanted to have positive
control over the decisions of the said company, the mere shareholding
of 35.42% would not confer such power on the said group.
185. Even otherwise, individuals in the promoter group have a shareholding
of only 9.67% and the remaining 25.75% is held by body corporates.
Among the body corporates, 25.68% is held by B.G. Chemicals Private
ArcelorMittal India Private Limited v. Satish Kumar Gupta, reported at (2019) 2
SCC 1
Vodafone International Holdings BV v. Union of India and another, reported at
(2012) 6 SCC 613
Universal Cables Limited v. Arvind Kumar Newar and Ors. (APO No. 89 of 2020)
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Limited, where BDB himself has only 80 equity shares and his HUF
holds 1900 equity shares out of the total issued share capital of 10,000.
Thus, even in the capacity of shareholders, it cannot be said that BDB
had unfettered and pervasive control over B.G. Chemicals Private
Limited. The tertiary relationship, thus, between BDB and M/s.
SSSMIL, for which the learned Arbitrator appeared, is extremely remote
and in the absence of any positive proof of the cross-shareholdings
between the said companies, or between M/s. C & E Limited, the other
party to the arbitration proceeding, and M/s. SSSMIL to such an extent
to vest absolute controlling power on BDB or M/s. C & E Limited, it
cannot, by any stretch of imagination, be held that M/s. SSSMIL was
an affiliate of M/s. C & E Limited or BDB or vice versa.
186. In fact, the context in which Cox & Kings Ltd. (supra)23 laid down the
proposition of Group of Companies was that a non-signatory to an
arbitration agreement, under certain circumstances, by application of
such doctrine, can be construed to be a party to the arbitration.
However, in the present case, no proof comes forth before any of the
forums that the cross-holdings of shares between BDB, M/s. C& E
Limited and M/s. SSSMIL was of such a nature that the group of
companies doctrine would be applicable and M/s. SSSMIL would be
elevated to the platform of a party to the arbitration proceeding even
without being a signatory to the arbitration clause. Hence, per se, the
Cox & Kings Ltd. v. SAP India (P) Ltd., reported at (2024) 4 SCC 1
2026:CHC-OS:14-DB
Cox & Kings Ltd. (supra)23 principle cannot come to the aid of the
respondents at all.
187. In the light of the above discussions, this Court is of the firm opinion
that the respondents have failed to prove the criteria set out in Entry 2
of the Fifth Schedule to be applicable to the present case merely in view
of the appearance on certain occasions by the learned Arbitrator as
counsel of M/s. SSSMIL during the present arbitral proceedings.
188. For the sake of completion, even though the respondents have not
argued specifically the applicability of Entry 8 of the Fifth Schedule, for
the ends of justice, this Court chooses to look into the said aspect of the
matter as well.
189. However, the said Entry is also not attracted in the present case, since
it is the case of neither party that the learned Arbitrator advised the
appointing party or an affiliate. First, there was no "appointing party"
in the present case, as the appointment was by the court. Secondly,
appearance as counsel does not tantamount to "advising" a party or its
affiliate. Thirdly, the question of regularity of any such "advice" does
not arise at all, having not been pleaded by the respondents at any
stage.
190. Thus, this issue is held in favour of the appellants and against the
respondents.
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CONCLUSION
191. There cannot be any manner of doubt that an Arbitrator has the
continuous duty to disclose any circumstances which might create
justifiable doubts to his independence and integrity throughout the
arbitral proceedings. Such duty is cast by Section 12 (2) and has been
reaffirmed in Central Organisation For Railway Electrification (supra)24.
However, in view of our finding that none of the Entries in the Fifth
Schedule, read with Section 12 (1) of the 1996 Act, are attracted in the
instant case, such duty did not arise at all insofar of the learned
Arbitrator in the present case is concerned.
192. Before parting with the matter, another facet of the same is required to
be adverted to.
193. During arguments, learned counsel for the respondents insinuates that
the standard of fairness of the Arbitrator has to be such that it
eliminates any reasonable apprehension of bias. The learned Single
Judge also proceeded on the premise that Justice must not only be
done but must be manifestly seen to have been done. Yet, we have to
draw a line of distinction in that regard between the standards to be
applied to an Arbitrator and those applicable to courts of law.
194. In respect of the latter, the Bangalore Principles of Judicial Conduct is
generally taken to be the touchstone of judicial independence and
integrity. Yet, such strict yardsticks cannot be made applicable in
Central Organisation For Railway Electrification v. ECI SPIC SMO MCML (JV),
reported at (2025) 4 SCC 641
2026:CHC-OS:14-DB
respect of Arbitrators, for the simple reason that the premise of the
Alternative Dispute Resolution mode of arbitration is party autonomy.
The parties to an arbitration agreement are free to choose any person
whomsoever as their chosen arbiter. Thus, arbitrators may come from a
wide pool of people, from varied walks of life. By the very nature of such
choice, arbitrators are generally chosen from the specific field of
knowledge pertaining to the disputes involved and, as such, have
current and/or past professional engagements in the very domain of
expertise involved in such disputes, as opposed to Judges in courts of
law, who are expected by and large to abstain not only from public life
and to refrain from expressing their opinions in public about subject-
matters which are or might come before them for adjudication, but also
to avoid having involvements which may give rise to conflicting interests
in the adjudicatory process. After all, judges are supposed to be
exemplary in conduct, both in and out of the court, rising above any
shadow of doubt regarding their integrity.
195. However, if such strict restrictions are imposed on arbitrators, who are
otherwise largely chosen from a pool of professionals having prior or
current engagements in the specific domain of expertise involved in the
dispute, the very core of party autonomy would be frustrated, since
then the range of choice of arbitrators will get severely restricted to
persons having little or no practice in the field, which will in turn give a
premium to incompetent persons having little experience in the domain
being left to be appointed as arbitrators. This would be counter-
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productive to the very purpose of the 1996 Act, which is to give a fillip
to Alternative Dispute Resolution in order to make India a hub of
international arbitration and mediation.
196. Viewed from such perspective, while assessing whether circumstances
exist to raise justifiable doubts as to the independence/impartiality of
an arbitrator, it would be profitable to stick to the specific grounds and
guidelines provided in the Fifth and Seventh Schedules of the 1996 Act
and not enlarge the scope of Section 12, sub-Sections (1) and (5) by
leaving it to the personal perspectives of the Courts dealing with
proceedings under Sections 34 and 37 of the said Act, as to what
relations would come within the term „affiliate‟, if used with regard to a
natural person, as the statute does not provide any parameter in that
regard. In fact, in HRD Corporation (supra)25, the Hon‟ble Supreme
Court encouraged a commonsensical approach, requiring a fair
construction of the words used in the Fifth Schedule, turning down the
argument that the items in the Fifth and Seventh Schedules must be
construed in the most expansive manner so that the "remotest
likelihood of bias" gets removed and holding that the same was not an
acceptable way of interpreting the Schedules.
197. Such view is also in consonance with the mandate of least judicial
interference (in the present context, under Section 34 of the 1996 Act),
HRD Corporation (Marcus Oil and Chemical Division). v. GAIL (India) Limited
(formerly Gas Authority of India Limited), reported at (2018) 12 SCC 471
2026:CHC-OS:14-DB
except where statutorily provided for, as incorporated in Section 5 of
the 1996 Act.
198. In the light of the above observations, this Court comes to the
conclusion that the learned Single Judge committed a perversity and
erred in law in allowing the applications under Section 34 of the 1996
Act, thereby setting aside the arbitral award dated February 29, 2020.
199. Accordingly, APO No. 184 of 2023 and APO No. 185 of 2023 are allowed
on contest, thereby setting aside the impugned judgment allowing AP
No. 364 of 2020 and AP No. 402 of 2020 and dismissing EC No. 145 of
2020 and EC No. 81 of 2020.
200. The preliminary issue is, thus, decided in favour of the present
appellants, turning down the challenge to the arbitral award on the
ground of fraud/corruption/bias of the learned Arbitrator. The two
applications under Section 34 of the Arbitration and Conciliation Act,
1996, bearing APO No. 184 of 2023 and APO No. 185 of 2023 shall now
be heard by the learned Single Judge having determination for
adjudication on merits on the other grounds, if any, on which challenge
has been preferred to the arbitral award.
201. Consequential to the setting aside of the judgments impugned in the
present appeals, EC No. 145 of 2020 and EC No.81 of 2020 are hereby
revived and it will be open to the award holders to proceed with the said
applications for enforcement of the arbitral award before the
appropriate Bench having determination. It will also be open to the
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award debtors to seek appropriate orders of stay of the award before the
court taking up the enforcement applications.
202. Accordingly, two applications, bearing GA 2 of 2023, filed in connection
with both the appeals, stand disposed of as well.
203. There will be no order as to costs.
204. Urgent certified copies, if applied for, be supplied to the parties upon
compliance of all requisite formalities.
(Sabyasachi Bhattacharyya, J.)
I agree.
(Supratim Bhattacharya, J.)
Later
After the above judgment is passed, a stay of the same for four weeks
is prayed for on behalf of the award debtors. However, since we have already
granted liberty to the award debtors to approach the Executing Court for
seeking such stay, the prayer for stay is refused.
(Supratim Bhattacharya, J.) (Sabyasachi Bhattacharyya, J.)
