Arbitrator Bias and SICA Stay on Arbitration Against Guarantor Do Not Succeed on these facts

A remote past association of an arbitrator with a group company, without any present interest, affiliation, or predisposition, was treated as insufficient to create justifiable doubts about independence or impartiality; the challenge to the arbitrator was rejected. On the scope of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, arbitral proceedings against a guarantor were held not to fall within the statutory bar because the provision, read by its language and object, targets coercive recovery actions and uses "suit" in distinction from "proceeding". The dismissal of the challenge to the award was sustained.

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Issues: (i) Whether the arbitrator was liable to be disqualified on the ground that circumstances existed giving rise to justifiable doubts as to his independence or impartiality. (ii) Whether arbitral proceedings against the guarantor were barred by section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Issue (i): Whether the arbitrator was liable to be disqualified on the ground that circumstances existed giving rise to justifiable doubts as to his independence or impartiality.

Analysis: The governing test was whether the facts, viewed objectively, would lead a fair-minded and informed observer to conclude that there was a real possibility of bias. Past employment with a group company, which had ended many years before the reference, did not by itself create a reasonable apprehension of bias. The connection alleged was remote and no material was shown to establish a present affiliation, interest, or predisposition affecting the reference.

Conclusion: The challenge to the arbitrator's independence and impartiality failed and the objection was rejected.

Issue (ii): Whether arbitral proceedings against the guarantor were barred by section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: Section 22(1) was construed in the light of its language and object, which showed that it was directed against coercive proceedings of a similar nature to winding up, execution, distress, or appointment of a receiver. After the 1994 amendment, the word used for recovery against the company or guarantor was "suit", and the distinction between "suit" and "proceeding" had to be given effect to. Applying the ordinary and contextual meaning of "suit", arbitral proceedings were not treated as a suit for purposes of the bar under section 22(1). The provision did not extend to arbitration against a guarantor.

Conclusion: The arbitral proceedings were not barred by section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Final Conclusion: The appeal was devoid of merit, and the dismissal of the challenge to the award was sustained.

Ratio Decidendi: A remote past association of an arbitrator, without present interest or affiliation, does not by itself establish a reasonable apprehension of bias, and arbitration is not a "suit" within section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

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