1988 (8) TMI 380 - SC - Companies Law

Government employee serving as arbitrator doesn't create bias requiring removal under Section 5 without concrete evidence

SECRETARY TO THE GOVERNMENT, TRANSPORT DEPTT. MADRAS Versus MUNUSWAMY MUDALIAR & ORS.

SC held that mere employment of arbitrator with State Government does not constitute reasonable apprehension of bias warranting removal under section 5. ... Removal of Arbitrator - application seeking to change the arbitrator on the ground that the arbitrator being an employee of the State Government - Reasonable apprehension of bias - HELD THAT:- ln spite of that the parties agreed and entered into arbitration and indeed submitted to the jurisdiction of the Superintending Engineer at that time to begin with, who, however, could not complete the arbitration because he was transferred and succeeded by a successor. In those circumstances on the facts stated no bias can reasonably be apprehended and made a ground for removal of a named arbitrator. ln our opinion this cannot be, at all, a good or valid legal ground. Unless there IS allegation against the named arbitrator either against his honesty or capacity or mala fide or interest in the subject matter or reasonable apprehension of the bias, a name and agreed arbitrator cannot and should not be removed in exercise of a discretion vested in the Court under section 5 of the Act. Reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. A predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias. There must be reasonable apprehension of that predisposition. The reasonable apprehension must be based on cogent materials. This Court in International Authority of lndia v. K.D. Bali and Anr., [1988 (3) TMI 409 - SUPREME COURT], held that there must be reasonable evidence to satisfy that there was a real likelihood of bias. Vague suspicions of whimsical, capricious and unreasonable people should not be made the standard to regulate normal human conduct. In this country in numerous contracts with the Government, clauses requiring the Superintending Engineer or some official of the Govt. to be the arbitrator are there. It cannot be said that the Superintending Engineer, as such cannot be entrusted with the work of arbitration and that an apprehension, simpliciter in the mind of the contractor without any tangible ground, would be a justification for removal. No other ground for the alleged apprehension was indicated in the pleadings before the learned Judge or the decision of the learned Judge. There was, in our opinion, no ground for removal of the arbitrator. Mere imagination of a ground cannot be an excuse for apprehending bias in the mind of the chosen arbitrator. Thus, the order made by the learned Judge. City Civil Court, and the decision of the High Court cannot be sustained and they are set aside. The appeal is allowed. We remand the case back to the learned Judge, City Civil Court, to ask the Government to appoint the Superintending Engineer. Trichy, to be an arbitrator in accordance with the arbitration agreerment. Issues:1. Apprehension of bias in the mind of the arbitrator.2. Grounds for removal of a named arbitrator under Section 5 of the Arbitration Act.3. Legal standards for determining bias in arbitration proceedings.Analysis:The case involved an appeal arising from an order of the High Court of Madras regarding the appointment of an arbitrator in a dispute between the Secretary to the Government, Transport Deptt., Madras, and the managing partner of a construction company. The dispute arose from the termination of a construction contract for a bridge project due to delays by the construction company. The parties had agreed to arbitration, with the Superintending Engineer (H) Rural Roads Tiruchirapalli Circle initially appointed as the arbitrator.The main issue revolved around the apprehension of bias in the mind of the arbitrator, leading to a request for the arbitrator's removal. The City Civil Court had ordered the removal of the arbitrator based on the argument that the successor Superintending Engineer might be biased due to being subordinate to the Chief Engineer who favored contract cancellation. The High Court upheld this decision without further examination, leading to the appeal.The Supreme Court analyzed the legal grounds for removing a named arbitrator under Section 5 of the Arbitration Act. The Court emphasized that bias must be based on concrete evidence and not mere apprehensions. The Court cited legal standards for determining bias, stating that bias exists when there is a predisposition to decide for or against a party without regard to the merits of the dispute. The Court highlighted that reasonable apprehension of bias must be supported by cogent materials.Ultimately, the Supreme Court set aside the decisions of the lower courts, ruling that there was no valid ground for removing the arbitrator. The Court emphasized that unless there are allegations of dishonesty, incapacity, malice, or a direct interest in the subject matter, a named arbitrator should not be removed. The case was remanded back to the City Civil Court to appoint the Superintending Engineer, Trichy, as the arbitrator to proceed with the arbitration process based on the evidence presented by the parties.In conclusion, the judgment clarified the legal standards for determining bias in arbitration proceedings and highlighted that mere apprehensions without substantial evidence are insufficient grounds for removing an arbitrator. The decision underscored the importance of maintaining impartiality and ensuring a fair arbitration process based on facts and legal principles.