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Issues: (i) Whether the arbitrator was disqualified for bias or lack of independence and impartiality under section 12 of the Arbitration and Conciliation Act, 1996; (ii) Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred arbitral proceedings against a guarantor where the principal debtor had been declared sick; (iii) Whether a sanctioned rehabilitation scheme bound the creditor so as to preclude proceedings against the guarantor.
Issue (i): Whether the arbitrator was disqualified for bias or lack of independence and impartiality under section 12 of the Arbitration and Conciliation Act, 1996.
Analysis: The governing test was held to be whether the circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility of bias. The obligation of disclosure arises only where the circumstances are such as could give rise to justifiable doubts about independence or impartiality. A remote, stale, or unsubstantiated professional connection, especially one ending many years before the reference, does not by itself establish bias. The allegations of prior association were found to be unsupported, and the belated claim of service as a company secretary was rejected as factually incorrect.
Conclusion: No justifiable doubt as to the arbitrator's independence or impartiality was established, and the challenge on bias failed.
Issue (ii): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred arbitral proceedings against a guarantor where the principal debtor had been declared sick.
Analysis: Section 22 was construed according to its text, which refers to winding-up proceedings, execution and distress against the industrial company, and suits for recovery or enforcement of security or guarantee. The Court held that an arbitral reference is not a suit, and the mere fact that an award becomes enforceable as a decree under section 36 of the Arbitration and Conciliation Act, 1996 does not convert arbitration into a suit. The statutory language did not justify extending the suspension under section 22 to arbitral proceedings against a guarantor.
Conclusion: Section 22 did not bar the arbitral proceedings against the guarantor, and the objection failed.
Issue (iii): Whether a sanctioned rehabilitation scheme bound the creditor so as to preclude proceedings against the guarantor.
Analysis: The Court accepted that the guarantor's liability is independent and that, on the materials placed, the scheme did not establish a bar to independent recourse against the guarantor. The absence of a demonstrated basis showing that the creditor was bound in the manner contended meant that the defence could not succeed in these proceedings.
Conclusion: The sanctioned scheme did not preclude the creditor from proceeding against the guarantor, and the contention was rejected.
Final Conclusion: The challenge to the arbitral award failed on all substantive grounds, and the award was sustained.
Ratio Decidendi: For disqualification of an arbitrator on bias, the test is whether a fair-minded and informed observer would see a real possibility of bias, and section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 does not extend to arbitral proceedings against a guarantor because such proceedings are not a suit.
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