SAURABH KALANI Vs. TATA FINANCE LTD

JUDGEMENT

(1.) THIS appeal arises out of a petition filed by the Appellant under section 34 of the Arbitration and Conciliation Act, 1996 to set aside an award. Chandrachud, J. dismissed this petition and it is from that order of dismissal that this appeal is preferred. Respondent No. 1 had granted financial facility to a company by name Gilt Pack Ltd. (GPL ). Insofar as the Appellant is concerned, it is common ground that he had furnished a personal guarantee to secure the outstanding dues of the respondent No. 1. Respondent No. 1 invoked the personal guarantee which was furnished by the Appellant upon default of the company in paying the outstanding dues payable under four Bills of Exchange in the total amount of Rs. 50 lacs, which were discounted by respondent No. 1. On 16/12/1999, in pursuance of the provisions of arbitration contained in clause 23 of the Deed of Guarantee Respondent No, 1 referred the dispute which had arisen between the parties to the sole arbitration of Mr. Ashwin Ankhad, a practicing advocate under the provisions of Arbitration and Conciliation Act, 1996. In February, 2000, two applications came to be filed before the arbitrator. The first questioning the jurisdiction of the arbitrator under section 16 of the Act and the second, under section 12 on the ground that there was a justifiable doubt as regards the independence and impartiality of the arbitrator. Insofar as the challenge to the jurisdiction of the arbitrator under section 16 was concerned, it was contended that the company to which the respondent no. 1 granted financial facility has been declared sick industrial company under the provisions of Sick Industrial Companies (Special Provisions)Act, 1985 ( SIC A' for short ). The contention was that under section 22 of the SICA arbitral proceedings were not maintainable and they could not be proceeded with. Insofar as the second challenge under section 12 of the Act was concerned, the independence and impartiality of the arbitrator was sought to be questioned alleging that the arbitrator appointed by the respondent No. 1 was in fact an advocate engaged by the respondent no. 1 and/or its sister concern in various matters. It was further averred that the Appellant was reliably informed that there exists very close relation between the arbitrator and the respondent No. 1. The arbitrator dealt with both the applications and by an order dated 28/04/2000 rejected the challenge to his jurisdiction and alleged bias. The arbitrator in his order stated that he has not acted as Advocate for respondent No. 1 in any matter. The arbitrator further stated that he has acted as an advocate in respect of only one company viz. Tata International Ltd. which has no connection with the respondent No. 1. The arbitrator recorded that he has only acted as an arbitrator in few matters of the Tata finance Ltd. and that he had never acted as Advocate for the said company. The objection that he would not be independent and impartial was consequentially rejected. Insofar as the challenge to his jurisdiction was concerned, the arbitrator held that section 22 of the SICA is attracted to a suit for recovery of money and for enforcement of any security against the industrial company or any company in respect of any loan or advance granted to the industrial company. In the present case, the arbitrator held that there was no suit, therefore, bar under section 22 was not attracted. The final award of the arbitrator was made on 25th August, 2001, by which the arbitrator has come to the conclusion that the Appellant was liable to pay to respondent No. 1 the. principal amount of Rs. 50,00,000/-covered by the four Bills of Exchange, which have been discounted by the respondent No. 1 and overdue discounting charge in the amount of rs. 51,60,821. 92 from the due date of the bill until 14-1-2000. Accordingly claim was allowed in the total amount of Rs. 1,01,60,821. 92. The Appellant has been directed to pay interest at the rate of 18% p. a. on the principal amount of Rs. 50,80,000/- from 15/01/2000 till payment or realisation. The award was challenged on various grounds, but only two grounds have been pressed before this Court. The first ground was that the arbitrator was disqualified from continuing to act as such, since within the meaning of sub-section (1) of section 12 and sub-section (3) thereof, there were circumstances which existed to give rise to justifiable doubts as to his independence or impartiality. The second ground was that in view of the provisions of section 22 of SICA the arbitral proceedings were not maintainable. The learned single Judge rejected both the grounds and dismissed the petition.

(2.) MR. Chinoy, learned Counsel appearing for the Appellant strenuously submitted that independence and impartiality of an arbitrator, when it goes to the root of the matter has to be treated with the greatest circumspection and in view of the vast and untrammelled power of an arbitrator under the Arbitration and Conciliation Act, 1996, the independence and impartiality of an arbitrator must be beyond all reasonable doubts. He submitted that the arbitrator had merely stated at the hearing of the application that 5 years earlier he had handled one matter of Tata International Ltd. and that he had not disclosed that he was the Head of the legal Department of the group company of the respondent No. 1. When the arbitrator was confronted with the allegation, an oral statement was made at the bar that the arbitrator was engaged by Tata International ltd. He submitted that there is duty of disclosure cast upon the arbitrator and such disclosure ought to be made by the arbitrator, for which section 12 of the Arbitration and Conciliation Act. 1996 has been enacted. He placed heavy reliance on the decision of this Court in Satyendra Kumar v. Hind Constructions Ltd. , ' where Chief Justice Chagla speaking for the bench observed that an arbitrator must show uberrima fides to the parties whose disputes he is going to arbitrate and who have constituted him their domestic forum. The arbitrator must disclose to the parties all facts which are like or calculated to bias him in any way in favour of one or the other party. A circumstance or a fact may in fact not bias the decision of the arbitrator. The arbitrator may have too strong a character, too deep a sense of justice to be influenced by any consideration extraneous to or foreign to the evidence which he has got to consider. But the question is not what is likely in fact to happen. But what is likely to tend or is calculated to tend to a particular result. Therefore, if the Court comes to the conclusion that there are any facts or any circumstances which are likely to bias him, it would be incumbent upon the arbitrator to disclose these facts to the parties. If he fails to disclose these facts, then his award would be liable to be successfully challenged.

(3.) SECTION 12 of Arbitration and Conciliation Act, 1996 provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Sub-section (2) of section 12 provides that the arbitrator must disclose to the parties any circumstances referred to sub-section (1) unless they have been disclosed. The question which falls for our consideration is whether there was an obligation to disclose the circumstance that at a distant point of time the arbitrator was employed in the Legal Department not of the respondent No. 1 in the arbitral proceedings, but of Tata International ltd. , a company which is a Tata Group of Companies. In International airport Authority of India v. K. D. Bali, Sabyasachi Mukharji J, (as he then was) speaking for the Bench observed that there must be purity in the administration of justice as well as in administration of quasi justice as are involved in the adjudicatory process before the arbitrator. It is well said that once the arbitrator enters into the arbitration the arbitrator must not be guilty of any act which can possibly be construed as indicative of partiality or unfairness. It is not a question of the effect which misconduct on his part had in fact upon the result of the proceeding, but of what effect it might possibly have produced. It is not enough to show that, even if there was misconduct on his part, the award was unaffected by it, and was in reality just; arbitrator must not do anything which is not itself fair and impartial. The learned Judge, then proceeded to observe as follows: