2002 (8) TMI 770 - HC - Companies Law

Court dismisses arbitration petition over Arbitrator's impartiality, clarifies Section 22 application for guarantor.

Saurabh Kalani Versus Tata Finance Ltd.

The court found no justifiable doubts regarding the Arbitrator's independence and impartiality, dismissing the arbitration petition. It held that the ... Composition of Arbitral Tribunal Issues Involved:1. Allegation of bias against the Arbitrator.2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 to arbitral proceedings against a guarantor.Detailed Analysis:1. Allegation of Bias against the Arbitrator:The Ground of Bias:The petitioner challenged the independence and impartiality of the Arbitrator under Section 12 of the Arbitration and Conciliation Act, 1996, alleging that the Arbitrator was an advocate engaged by the claimant and had close relations with the claimant. The Arbitrator refuted these allegations, stating he had never acted as an advocate for the claimant, Tata Finance Limited, but had acted for Tata International Limited, an independent entity with no connection to the claimant.The Duty of Disclosure:The court examined whether the Arbitrator's past employment with Tata International Limited until 1987 would cast doubts on his impartiality in the arbitral proceedings commencing in December 1999. The court cited the principle that an Arbitrator must disclose any circumstances likely to give rise to justifiable doubts about his independence or impartiality. The court concluded that the Arbitrator's past employment did not necessitate disclosure as it was too distant in time and unrelated to the current dispute.The Law Laid Down by the Supreme Court:The court referred to several Supreme Court judgments, emphasizing that the test for bias is whether there is a real likelihood of bias, not merely a suspicion. The apprehension of bias must be reasonable and based on cogent material, judged from the perspective of a fair-minded and informed observer.The Evolution of the Law in England:The court discussed the development of the law on bias in England, noting the shift from the appearance of bias to the real danger test. The court cited various English cases, including R. v. Gough, which formulated the real danger test, and subsequent cases that refined this test.The Conclusion:The court concluded that there were no justifiable doubts regarding the Arbitrator's independence and impartiality. The Arbitrator's past employment with Tata International Limited, which ended over twelve years before the arbitration, did not warrant disqualification. The court emphasized that baseless allegations against the integrity of an Arbitrator must be strictly dealt with.2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:The Legal Provisions:Section 22 of the Act suspends legal proceedings against a sick industrial company or its guarantors during the pendency of an inquiry or implementation of a sanctioned scheme. The petitioner argued that arbitral proceedings against him as a guarantor were not maintainable under this section.Judicial Interpretation:The court noted that Section 22 distinguishes between 'proceedings' and 'suits.' The term 'suit' refers to civil proceedings initiated by a plaint, while 'proceedings' include actions like execution or distress against the properties of the industrial company. The court held that arbitral proceedings do not fall within the ambit of 'suit' as used in Section 22.Judicial Precedents:The court referred to judgments from the Delhi and Calcutta High Courts, which held that arbitral proceedings are not covered by the term 'suit' in Section 22. The court also noted that the Arbitration and Conciliation Act, 1996, makes an arbitral award enforceable as a decree, but this does not transform arbitration into a suit.The Conclusion:The court concluded that Section 22 does not bar arbitral proceedings against a guarantor. The Arbitrator was justified in pursuing the claim against the petitioner, and the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, did not apply to arbitral proceedings.The Third Submission - The Sanctioned Scheme:The petitioner argued that a sanctioned scheme by the BIFR deferred the payment of dues to the first respondent, and thus, the arbitral proceedings were not maintainable. The Arbitrator found that the petitioner failed to prove that the scheme was circulated to the first respondent for objections. The court upheld the Arbitrator's view that the guarantor's liability is independent and not exonerated by the BIFR scheme.Clarification on Execution Proceedings:The court clarified that it had not determined the impact of Section 22 on any future execution proceedings to enforce the award. The petitioner could raise appropriate defenses if such proceedings were initiated.Conclusion:The court dismissed the arbitration petition, finding no merit in the challenges to the Arbitrator's award. The court appreciated the assistance of the amicus curiae in the case.