# CASE DETAILS CHENNAI METRO RAIL LIMITED ADMINISTRATIVE BUILDING v. M/S TRANSTONNELSTROY AFCONS (JV) & ANR

- **Citation:** 2023 INSC 932
- **Court:** Supreme Court of India
- **Decided:** 2023-10-19
- **Case number:** Miscellaneous Application No. 184 of 2023
- **Bench:** S. Ravindra Bhat, Aravind Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-chennai-metro-rail-limited-administrative-building-v-m-s-36801
- **Pages:** 26

## Headnote

Issue for consideration: Whether revision of fee by an arbitral tribunal
would terminate the mandate of the tribunal on the ground of ineligibility
as per s. 12 of the Arbitration and Conciliation Act, 1996.
Arbitration and Conciliation Act, 1996 - ss. 12, 13 and 14 -
Grounds and procedure of challenge - Failure or impossibility of the
arbitrator or tribunal to act - Arbitration proceedings between the
parties - Tribunal revised the hearing fee for each arbitrator fi xed at
Rs 1,00,000/- per session to Rs 2,00,000/- per session of three hours
- Respondent paid the revised fee for fi ve hearings - Application
u/s. 14 by the appellant challenging the mandate of the tribunal that
the payment of the disputed increased amount by one party, caused
prejudice to the appellant and not be treated in an impartial manner
by the tribunal, resulting in the tribunal to become de jure unable to
perform its functions as required - Dismissal of the application by the
High Court - Correctness:
Held: Fixation of fee, is contractual, and wherever there is no prior
arrangement or court order, the tribunal has to fi x it at the threshold - Fee
increase can be resorted to only with the agreement of parties; in the event
996
SUPREME COURT REPORTS
[2023] 14 S.C.R.
of disagreement by one party, the tribunal has to continue with the previous
arrangement, or decline to act as arbitrator - By insisting that the increase
of fee should prevail does not amount to a per se ineligibility, reaching to
the level of voiding the tribunal's appointment, and terminating its mandate
- Plea of the applicant that the concept of de jure ineligibility because
of existence of justifi able doubts about impartiality or independence of
the tribunal on unenumerated grounds or other than those outlined as
statutory ineligibility conditions in terms of s.12(5), cannot be sustained -
Grounds other than those mentioned in the said schedule, occasioning an
application in terms of s.12(3) cannot be conceived - In case, applicants
plea is upheld, the consequences could well be an explosion in the court
docket and other unforeseen results - Skipping the statutory route carefully
devised by Parliament can cast yet more spells of uncertainty upon the
arbitration process - De jure condition is not the key which unlocks the
doors that bar challenges, mid-stream, and should "not to unlock the gates
which shuts the court out" from what could potentially become causes of
arbitrator challenge, during the course of arbitration proceedings, other
than what the Act specifi cally provides for - Direction to the arbitrators
to resume the proceedings and decide the case in accordance with law.
[Paras 33, 34, 39 and 40]
Arbitration and Conciliation Act, 1996 - s. 12 - Grounds for
challenge of an arbitrator - Determination of ineligibility of an
arbitrator - Elucidated. [Paras 21-24, 28-31]
Arbitration and Conciliation Act, 1996 - Expression 'bias' -
Meaning of:
Held: The Act has deliberately avoided an expression 'bias', instead
the term used is justifi able doubts about the impartiality of an arbitrator,
is an expression with many facets-subject matter bias; pecuniary bias and
personal bias - 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. [Para 18]
LIST OF CITATIONS AND OTHER REFERENCES
ONGC v. AFCONS Gunasa JV 2022 (10) SCR 660; State of West
Bengal vs. Shivanand Pathak (1998) 5 SCC 513: [1998] 1 SCR 811; N.K.
997
Bajpai vs. Union of India (2012) 4 SCC 653 : [2012] 2 SCR 433; State
of Punjab vs. Devenderpal Singh Bhuller (2011) 14 SCC 770: [2011] 15
SCR 540; Supreme Court Advocates on record Association vs. Union of
India (2016) 5 SCC 808: HRD Corporations v. Gas Authority of India
Ltd. [2017] 11 SCR 857; Bharat Broadband Network Limited v. United
Telecoms Ltd [2019] 6 SCR 97; International Airport Authority v. K.D. Bali
& Another [1988] 3 SCR 370; G. Sarana v Univer

## Text

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[2023] 14 S.C.R. 995 : 2023 INSC 932
995
CASE DETAILS
CHENNAI METRO RAIL LIMITED ADMINISTRATIVE
BUILDING
v.
M/S TRANSTONNELSTROY AFCONS (JV) & ANR.
(Miscellaneous Application No.184 of 2023)
In
(Special Leave Petition (Civil) No.8553 of 2022)
With
(Civil Appeal No(s). 4591 of 2023)
OCTOBER 19, 2023
[S. RAVINDRA BHAT AND ARAVIND KUMAR, JJ.]
HEADNOTES
Issue for consideration: Whether revision of fee by an arbitral tribunal
would terminate the mandate of the tribunal on the ground of ineligibility
as per s. 12 of the Arbitration and Conciliation Act, 1996.
Arbitration and Conciliation Act, 1996 - ss. 12, 13 and 14 -
Grounds and procedure of challenge - Failure or impossibility of the
arbitrator or tribunal to act - Arbitration proceedings between the
parties - Tribunal revised the hearing fee for each arbitrator fi xed at
Rs 1,00,000/- per session to Rs 2,00,000/- per session of three hours
- Respondent paid the revised fee for fi ve hearings - Application
u/s. 14 by the appellant challenging the mandate of the tribunal that
the payment of the disputed increased amount by one party, caused
prejudice to the appellant and not be treated in an impartial manner
by the tribunal, resulting in the tribunal to become de jure unable to
perform its functions as required - Dismissal of the application by the
High Court - Correctness:
Held: Fixation of fee, is contractual, and wherever there is no prior
arrangement or court order, the tribunal has to fi x it at the threshold - Fee
increase can be resorted to only with the agreement of parties; in the event
996
SUPREME COURT REPORTS
[2023] 14 S.C.R.
of disagreement by one party, the tribunal has to continue with the previous
arrangement, or decline to act as arbitrator - By insisting that the increase
of fee should prevail does not amount to a per se ineligibility, reaching to
the level of voiding the tribunal's appointment, and terminating its mandate
- Plea of the applicant that the concept of de jure ineligibility because
of existence of justifi able doubts about impartiality or independence of
the tribunal on unenumerated grounds or other than those outlined as
statutory ineligibility conditions in terms of s.12(5), cannot be sustained -
Grounds other than those mentioned in the said schedule, occasioning an
application in terms of s.12(3) cannot be conceived - In case, applicants
plea is upheld, the consequences could well be an explosion in the court
docket and other unforeseen results - Skipping the statutory route carefully
devised by Parliament can cast yet more spells of uncertainty upon the
arbitration process - De jure condition is not the key which unlocks the
doors that bar challenges, mid-stream, and should "not to unlock the gates
which shuts the court out" from what could potentially become causes of
arbitrator challenge, during the course of arbitration proceedings, other
than what the Act specifi cally provides for - Direction to the arbitrators
to resume the proceedings and decide the case in accordance with law.
[Paras 33, 34, 39 and 40]
Arbitration and Conciliation Act, 1996 - s. 12 - Grounds for
challenge of an arbitrator - Determination of ineligibility of an
arbitrator - Elucidated. [Paras 21-24, 28-31]
Arbitration and Conciliation Act, 1996 - Expression 'bias' -
Meaning of:
Held: The Act has deliberately avoided an expression 'bias', instead
the term used is justifi able doubts about the impartiality of an arbitrator,
is an expression with many facets-subject matter bias; pecuniary bias and
personal bias - 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. [Para 18]
LIST OF CITATIONS AND OTHER REFERENCES
ONGC v. AFCONS Gunasa JV 2022 (10) SCR 660; State of West
Bengal vs. Shivanand Pathak (1998) 5 SCC 513: [1998] 1 SCR 811; N.K.
997
Bajpai vs. Union of India (2012) 4 SCC 653 : [2012] 2 SCR 433; State
of Punjab vs. Devenderpal Singh Bhuller (2011) 14 SCC 770: [2011] 15
SCR 540; Supreme Court Advocates on record Association vs. Union of
India (2016) 5 SCC 808: HRD Corporations v. Gas Authority of India
Ltd. [2017] 11 SCR 857; Bharat Broadband Network Limited v. United
Telecoms Ltd [2019] 6 SCR 97; International Airport Authority v. K.D. Bali
& Another [1988] 3 SCR 370; G. Sarana v University of Lucknow & Ors.
[1977] 1 SCR 64; Secretary to Government, Transport Deptt., Madras v.
Munuswamy Mudaliar & Anr [1988] Supp 2 SCR 673; G.N. Nayak v Goa
University [2002] 1 SCR 636; S. Parthasarathi v. State of Andhra Pradesh
[1974 ] 1 SCR 697; Kumaon Vikas Mandal v Girija Shankar Pant (2000)
Supp 4 SCC 248; Ranjit Thakur v Union of India [1988] 1 SCR 512; M/s.
Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd [2017]
1 SCR 798; Manak Lal v Dr. Prem Chand [1957] 1 SCR 575; National
Highways Authority of India & Ors. vs. Gayatri Jhansi Roadways Limited
& Ors [2019] 9 SCR 1001 - referred to.
R. v. Bow Street Metropolitan Stipendiary Magistrate, ex p Pinochet
Ugarte (No. 2) [2000] 1 AC 119; Halliburton Company v Chubb Bermuda
Insurance Ltd. 2021 [2] All E.R. 1175 - referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION: Miscellaneous Application No.
184 of 2023 in Special Leave Petition (Civil) No. 8553 of 2022.
From the Judgment and Order dated 13.05.2022 in SLP (C) No.8553
of 2022 of the Supreme Court of India.
With
C.A. No.4591 of 2023.
Appearances:
R Venkatramani, AG, Darius Khambata, N Venkatraman, Ritin Rai, Sr.
Advs., Manu Seshadri, Anirudh Krishnan, Adith Narayan, Aveak Ganguly,
Abhijit Lal, Ms. Soumya Shering, Anubhav Mishra, Ms. Mithu Jain, Sairam
Arjun Suresh, Chitranshul A. Sinha, Raghavendra Ross Divakar, Jaskaran
Singh Bhatia, Ms. Namrata Langade, M/s. Dua Associates, Raman Yadav,
CHENNAI METRO RAIL LTD. ADMIN. BUILDING v.
M/S TRANSTONNELSTROY AFCONS (JV)
998
SUPREME COURT REPORTS
[2023] 14 S.C.R.
Ms. Neetika Bajaj, Ms. Kopal Mittal, Ms. Astha Garg, Sameer Abhyankar,
Ms. Nishi Sangtani, Ms. Vani Vandana Chhetri, Ms. Sugandh Rathore,
Naman Jain, Amish Tandon, Rahul Kumar, Harsh, Aakash Thakur, Ms.
Anushree Kulkarni, Advs. for the appearing parties.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
S. RAVINDRA BHAT, J.
1. Chennai Metro Rail Limited, the applicant (hereinafter referred to
as "Chennai Metro"), a joint venture between the Central Government and
the Government of Tamil Nadu, had, pursuant to a public tender, awarded
the contract to the respondent (hereafter referred to as "Afcons") have called
for a project the total value of Rs. 1566 crores. The contract was signed on
31.01.2011. Eventually, on 15.04.2021, Afcons sought a reference of several
heads of disputes to arbitration after certain interlocutory proceedings.
Eventually on 29.04.2021, it was agreed that two dispute heads (claim
2(b) to 2(d)) and the Chennai Metro's counter claim would be referred to
a three-member tribunal under the Arbitration and Conciliation Act, 1996
(hereafter "the Act"). The tribunal was then constituted.
2. The tribunal by Minutes dated 14.05.2021 recorded the agreement
of parties, that the hearing fee for each arbitrator (there were three members
of the Tribunal) was fi xed at ₹ 1,00,000/- per session of hearing date. During
the course of the proceedings, one member of the tribunal passed away and
had to be substituted, which was done on 12.08.2021. The parties proceeded
with the conduct of arbitration. In the mean-while, another tribunal had dealt
with two claims of Afcons. The award passed in those proceedings became
the subject matter of challenge (by Afcons) under Section 34 which was
declined by an order of the Madras High Court. The appeal against that
order was thereafter pending.
3. The tribunal in the present case on 13.04.2022 decided that
suspension of its proceedings due to the pendency of the appeal, to await
the outcome of the Division Bench was not in the larger interest of justice
and proceeded with other part of the claim which was pending before it.
The 10th Meeting/hearing was held on 28.06.2022 and its minutes were
999
issued on 01.07.2022. The tribunal sought to revise the fee payable from ₹
1,00,000/- to ₹ 2,00,000/- for each session of three hours. Chennai Metro
objected to this revision on 08.07.2022 through an affi davit. Expressing
its disagreement with the enhancement, Afcons by its affi davit dated
10.07.2022 submitted that the applicability of Schedule IV of the Act, and
the issue of increase of tribunals' fee, after initial fi xation, was sub-judice
before this court and the arguments were concluded on 11.05.2022. Afcons
therefore requested the tribunal to keep its direction for modifi cation of
fee, in abeyance till the decision of this court. In these circumstances, the
proceedings continued and cross-examination of Afcons' witnesses was
taken up by Chennai Metro on three later dates of hearing. According to
Chennai Metro, the issue of fees was not taken up; yet in the minutes of
these proceedings issued on 24.07.2022, the tribunal reiterated its stand
about entitlement of revised fee. The tribunal also stated that the session
would be considered one complete session for four and a half hours i.e.
between 3.30 p.m. to 8 PM. The parties were directed to pay the revised
fee from the 10th Virtual Meeting onwards i.e. in eff ect for the past hearings
too. The Tribunal further stated that it was not known when this court
would deliver its judgment and also raised doubts about the applicability
of the said decision on the present tribunal.
4. Afcons, by its e-mail dated 28.07.2022 informed Chennai Metro
that it had paid the revised fee for fi ve hearings (i.e., for 10th to 14th virtual
hearings). Chennai Metro therefore fi led an application before the Madras
High Court on 10.08.2022. In this proceeding under Section 14, the relief
sought was a declaration that the mandate of the tribunal (whose members
were impleaded as second to the fourth respondents, hereafter collectively
referred to as "the tribunal") was terminated in respect of the disputes
referred to them. It was highlighted in these proceedings, that the payment
of the disputed increased amount by one party, placed Chennai Metro "in
an embarrassing situation and cause the petitioner to be prejudiced and not
be treated in an impartial manner by the Ld. Arbitral Tribunal, resulting in
the Ld. Arbitral Tribunal to become de jure unable to perform its functions
as required."1
1
As per petition fi led by Chennai Metro before HC under section 14 and 15 of the Act.
CHENNAI METRO RAIL LTD. ADMIN. BUILDING v.
M/S TRANSTONNELSTROY AFCONS (JV) [S. RAVINDRA BHAT, J.]
1000
SUPREME COURT REPORTS
[2023] 14 S.C.R.
5. On 15.09.2022, all three members of the tribunal fi led affi davits,
in response to the Section 14 petition acknowledging that this court's
judgment in ONGC v. AFCONS Gunasa JV2 (hereafter "ONGC") delivered
on 30.08.2022 had decided the issue and thus members of the tribunal
decided to revert back to the originally agreed fee i.e., ₹1,00,000. In
identically worded affi davits, members of the tribunal stated that orders
would not create any prejudice to any party and they were in agreement
that they would continue to discharge their duty in an independent and
impartial manner in deciding the dispute and that parties need not have
any apprehensions. Afcons too resisted the application. Initially, the High
Court granted an interim order, staying the proceedings.3 However, after
hearing counsel for the parties, and considering the materials on the record,
the court dismissed the application, fi led by Chennai Metro through the
impugned judgment.
Contentions of Chennai Metro
6. The learned Additional Solicitor General Mr. N. Venkataraman,
(hereafter referred to as "ASG") and Mr. Ritin Rai argued that the unilateral
increase of fee by the tribunal despite the protests or objections of one of
the disputing parties, is impermissible in law, which renders the tribunal
being exposed to the charge that justifi able grounds about their continuing
to be impartial, arises. Reliance was placed on the judgment of this Court
in ONGC (supra). In that judgment the court had emphasized that the entire
philosophy of arbitration is premised on party autonomy; thus parties are at
liberty to fi x the fee payable to the Arbitrator. Furthermore, and importantly
the court had stressed that once the terms of engagement are fi nalized it is not
open to the tribunal to either vary the fee fi xed or the heads under which fee
may be charged. It was urged that this court ruled that any deviation from the
original terms, [which are in the form of a tripartite arrangement, between
the parties and the tribunal], mean that any amendments or modifi cations can
only be with the consent of all the parties; it cannot be unilateral. The ASG
relied upon various observations in ONGC (supra) and highlighted that the
2
2022 (10) SCR 660
3
By interim order dated 25.08.2022 in A. No 3566/2022.
1001
High Court by the impugned order fell into error in selectively considering
portions of the judgment. It is submitted that observations made casually
cannot form the basis of this court's ratio.
7. The Learned ASG relied upon other judgments such as State of
West Bengal vs. Shivanand Pathak4 where it was held that bias has many
forms which includes judicial obstinacy. Likewise, he relied upon N.K.
Bajpai vs. Union of India5, State of Punjab vs. Devenderpal Singh Bhuller6
and Supreme Court Advocates on record Association vs. Union of India7,
to elaborate the various forms or heads of bias. According to the ASG, the
facts of this case satisfy and attract the principle of bias. Despite resistance
by Chennai Metro, the tribunal's insistence that it would continue with the
proceedings and charge the higher amount which was not agreed by both
parties, led to a reasonable apprehension of bias which goes into the root
of the proceedings.
8. It was submitted that Chennai Metro is justifi ed in arguing that the
apprehension that the proceedings or the outcome would not be conducted
and fi nalized with an impartial mind. It was argued that the impugned
judgment is in error in as much as accepted its face value of the affi davits
and the statements contained in it of the members of the tribunal, [who
stated that no prejudice would be caused, and that they would conduct
the proceedings impartially]. It was highlighted that whether there is a
reasonable apprehension of bias or circumstances exist that the conduct of the
arbitrator has led to justifi able doubts as to her or his conduct of proceedings
not being partial are not based on a subjective statement but rather application
of an objective test which is that -'whether the circumstances are such that
a reasonable man having due regard to the facts, would conclude that bias
exists'.
9. It was submitted that the tribunal also withheld and suppressed the
fact that the members had received payment of the revised fee from Afcons
4
(1998) 5 SCC 513
5
(2012) 4 SCC 653
6
(2011) 14 SCC 770
7
(2016) 5 SCC 808
CHENNAI METRO RAIL LTD. ADMIN. BUILDING v.
M/S TRANSTONNELSTROY AFCONS (JV) [S. RAVINDRA BHAT, J.]
1002
SUPREME COURT REPORTS
[2023] 14 S.C.R.
on 25.07.2022. This is one more aspect which ought to have been duly noted
by the High Court. This conduct and the persistence of the members of the
tribunal to insist that the higher fee should be paid - and for the past period
too, would lead any reasonable man to conclude that there was bias or real
likelihood of bias and that the tribunal would not conduct its proceedings
in an impartial manner.
10. It was further submitted that the High Court fell into error in holding
that the issue of non-payment of fees was a mere temporary phenomenon.
The ASG further urged that the reversal of its earlier position by the tribunal
did not remove Chennai Metro's apprehensions that the proceedings would
not be conducted in an impartial manner, or the outcome may not be based
on objective consideration of the merits of the dispute only. It was submitted
that permitting the tribunal to continue the proceedings despite these facts
would set a wrong precedent.
11. Learned counsel submitted that the decisions relied upon by
respondent Afcons which are HRD Corporations v. Gas Authority of India
Ltd.8 (hereafter "HRD") and Bharat Broadband Network Limited v. United
Telecoms Ltd9 (hereafter "Bharat Broad Band") to the extent that the
application under Section 14 is not maintainable unless the party applies to
the Tribunal in the fi rst instance, are inapplicable. It is submitted that this
was a clear case where both de facto and de jure, the conduct of the tribunal's
members had terminated their mandate.
Contentions of Afcons
12. Mr. Darius J. Kambhatta, urged the court not to interfere with the
impugned order. It was submitted that the application under Section 14 was
not maintainable; counsel joined issue with the ASG on the applicability
of Section 14.
13. It was highlighted that Section 12(5) read with Seventh Schedule
[to the Act] provides a comprehensive framework for addressing specifi c
instances of ineligibility and if an arbitrator, is challenged only on those
grounds, the parties can directly approach the court under Section 14. The
8
2017 (11) SCR 857
9
(2019) 6 SCR 97
1003
contents of Fifth Schedule [read with Explanation to Section 12 (1)] on
the other hand provide a list of relationships which can lead to justifi able
grounds that need disclosure at the time of appointment and further, by
Section 12 (2) during the course of proceedings, whenever they occur. It is
contended that this list includes the "orange" and "red" lists from the IBA10
guidelines. There is no doubt about an overlap of about 19 items which are
of the most serious types. If the circumstances fall within those enumerated
19 items [in the seventh schedule] the party aggrieved can directly approach
the court under Section 14; whereas this is not so in other cases. Learned
counsel submitted that all other circumstances of justifi able reason to
doubt the tribunal's impartiality fall within the ambit of Section 12(3). The
remedy in such cases is to approach the tribunal under Section 13(2) and
in the eventuality of no success, challenge the award if it is adverse, under
Section 34 of the Act.
14. Learned Senior Counsel relied upon the observations of this court
in HRD (supra), which he said categorically held that Section 12(5) read
with the Seventh Schedule, render the arbitrator ineligible and that in such
event it is de jure unable to perform its functions under Section 14(1)(a). On
the other hand, if the grounds are those enumerated in the Fifth Schedule
with respect to independence or impartiality, the same has to be decided as a
matter of fact by the Tribunal. If unsuccessful, that becomes the ground for
challenge by virtue of Section 13(5), under Section 34. Learned Counsel also
relied upon the observations in Bharat Broadband (supra), which recognize
that Section 12(5) is a new provision.
15. Refuting the submissions of the ASG that there is a distinction
between two terms "bias and impartiality" it was submitted that bias
is synonymous with partiality and therefore opposed to the concept of
impartiality. If an individual is biased, automatically he cannot be deemed
impartial. Both bias and partiality are interchangeable, and the underlying
premise for both is the existence of a prejudiced outlook which is opposed
to the fundamental tenet of impartiality. Learned counsel points out that
the expression used by the Chennai Metro in its Section 14 petition is only
"impartial".
10 International Bar Association
CHENNAI METRO RAIL LTD. ADMIN. BUILDING v.
M/S TRANSTONNELSTROY AFCONS (JV) [S. RAVINDRA BHAT, J.]
1004
SUPREME COURT REPORTS
[2023] 14 S.C.R.
16. It is pointed out that in two other references, the Tribunal members,
had directed parties to pay revised fees on 09.11.2020 and 15.09.2021. Both
Afcons and Chennai Metro paid the revised fee. It was submitted that the
tribunal's order dated 09.11.2020 in the other arbitration (UAA-01 reference
I-A) and its order dated 15.09.2021 and UAA-05 (reference I-A) and its
order in the present case demonstrate these facts. Learned counsel stated
that on this premise, having regard to the past conduct of Chennai Metro in
paying the revised fee, Afcons informed Chennai Metro by an e-mail dated
28.07.2022 that they had paid the revised fee in the present case. It was lastly
argued that the threshold for establishing bias, is extremely high; reliance
was placed on International Airport Authority v. K.D. Bali & Another11,
where it was underlined that there must be a real likelihood of bias and not
mere suspicion of bias.
Legal provisions
17. The relevant provisions of the Act, after its amendments in 2015
and 2019, read as follows:
"12. Grounds for challenge.-[(1) When a person is approached in
connection with his possible appointment as an arbitrator, he shall
disclose in writing any circumstances,-
(a) such as the existence either direct or indirect, of any past or present
relationship with or interest in any of the parties or in relation to the
subject-matter in dispute, whether fi nancial, business, professional or
other kind, which is likely to give rise to justifi able doubts as to his
independence or impartiality; and
(b) which are likely to aff ect his ability to devote suffi cient time to
the arbitration and in particular his ability to complete the entire
arbitration within a period of twelve months.
Explanation1.-The grounds stated in the Fifth Schedule shall guide in
determining whether circumstances exist which give rise to justifi able
doubts as to the independence or impartiality of an arbitrator.
11 1988 (3) SWWCR 370
1005
Explanation 2.-The disclosure shall be made by such person in the
form specifi ed in the Sixth Schedule.]
(3) An arbitrator may be challenged only if-
(a) circumstances exist that give rise to justifi able doubts as to his
independence or impartiality, or
(b) he does not possess the qualifi cations agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose
appointment he has participated, only for reasons of which he becomes
aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the contrary, any person
whose relationship, with the parties or counsel or the subject-matter
of the dispute, falls under any of the categories specifi ed in the Seventh
Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen
between them, waive the applicability of this sub-section by an express
agreement in writing.
13.Challenge procedure.-(1) Subject to sub-section (4), the parties
are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1), a party who
intends to challenge an arbitrator shall, within fi fteen days after
becoming aware of the constitution of the arbitral tribunal or after
becoming aware of any circumstances referred to in sub-section(3) of
section 12, send a written statement of the reasons for the challenge
to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws
from his offi ce or the other party agrees to the challenge, the arbitral
tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties
or under the procedure under sub- section (2) is not successful, the
arbitral tribunal shall continue the arbitral proceedings and make an
arbitral award.
CHENNAI METRO RAIL LTD. ADMIN. BUILDING v.
M/S TRANSTONNELSTROY AFCONS (JV) [S. RAVINDRA BHAT, J.]
1006
SUPREME COURT REPORTS
[2023] 14 S.C.R.
(5) Where an arbitral award is made under sub-section (4), the party
challenging the arbitrator may make an application for setting aside
such an arbitral award in accordance with section 34.
(6) Where an arbitral award is set aside on an application made under
sub-section (5), the Court may decide as to whether the arbitrator who
is challenged is entitled to any fees.
14. Failure or impossibility to act.-(1) [The mandate of an arbitrator
shall terminate and he shall be substituted by another arbitrator, if]-
(a) he becomes de jure or de facto unable to perform his functions or
for other reasons fails to act without undue delay; and
(b) he withdraws from his offi ce or the parties agree to the termination
of his mandate.
(2) If a controversy remains concerning any of the grounds referred to
in clause (a) of sub-section (1), a party may, unless otherwise agreed
by the parties, apply to the Court to decide on the termination of the
mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator
withdraws from his offi ce or a party agrees to the termination of
the mandate of an arbitrator, it shall not imply acceptance of the
validity of any ground referred to in this section or sub-section(3)
of section 12.
15. Termination of mandate and substitution of arbitrator.-(1) In
addition to the circumstances referred to in section 13 or section 14,the
mandate of an arbitrator shall terminate-
(a) where he withdraws from offi ce for any reason; or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a substitute
arbitrator shall be appointed according to the rules that were
applicable to the appointment of the arbitrator being replaced.
[..]"
1007
Analysis and fi ndings
18. Bias (an expression that the Act has deliberately avoided; instead
the term used is justifi able doubts about the... impartiality of an arbitrator)
is an expression with many facets: subject matter bias; pecuniary bias and
personal bias.12 It is also described as 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."13 It
has also been held, in G.N. Nayak v Goa University14 that:
"Bias may be generally defi ned as partially or preference. It is true that
any person or authority required to act in a judicial or quasi-judicial
matter must act impartially."
19. In S. Parthasarathi v. State of Andhra Pradesh (hereafter,
"Parthasarathi")15 this court observed that:
"The tests of 'real likelihood' and reasonable suspicion' are really
inconsistent with each other. We think that the reviewing authority
must make a determination on the basis of the whole evidence before
it, whether a reasonable man would in the circumstances infer that
there is real likelihood of bias. The Court must look at the impression
which other people have."
Later, in Kumaon Vikas Mandal v Girija Shankar Pant (hereafter,
"Kumaon Vikas Mandal")16 the court while agreeing with the position
taken in Parthasarathi (supra) relied on below observations of this court
in Parthasarathi (supra):
"If right-minded persons would think that there is real likelihood
of bias on the part of an inquiring offi cer, he must not conduct the
inquiry; nevertheless, there must be a real likelihood of bias. Surmise
or conjecture would not be enough. There must exist circumstances
12 G. Sarana v University of Lucknow & Ors., 1977 (1) SCR 64
13 Secretary to Government, Transport Deptt., Madras v. Munuswamy Mudaliar &
Anr.1988 (Supp) (2) SCR 673
14 2002 (1) SCR 636
15 1974 (1) SCR 697
16 2000 Supp (4) SCC 248
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from which reasonable men would think it probable or likely that the
inquiring offi cer will be prejudiced."
The court [in Kumaon Vikas Mandal (supra)], at the same time,
remarked on the futility to 'defi ne or list the factors which may or may not
give rise to a real danger of bias."
The other important judgment, which has enriched the discourse on
what could be a reasonable apprehension of bias, is Ranjit Thakur v Union
of India17:
"The test of real likelihood of bias is whether a reasonable person, in
possession of relevant information, would have thought that bias was
likely and is whether respondent 4 was likely to be disposed to decide
the matter only in a particular way'.
[..]
As to the tests of the likelihood of bias what is relevant is the
reasonableness of the apprehension in that regard in the mind of the
party. The proper approach for the Indian Judge is not to look at his
own mind and ask himself, however, honestly, "Am I biased?"; but to
look at the mind of the party before him."
(emphasis supplied)
20. One of the most signifi cant rulings on the issue of bias, was
rendered in R. v. Bow Street Metropolitan Stipendiary Magistrate, ex p
Pinochet Ugarte (No. 2)18. The court reviewed the jurisprudence, and
several previous precedents, and in Kumaon Vikas Mandal (supra) observed
that:
"The test, therefore, is as to whether a mere apprehension of bias
or there being a real danger of bias and it is on this score that the
surrounding circumstances must and ought to be collated and necessary
conclusion drawn therefrom--in the event however the conclusion is
otherwise inescapable that there is existing a real danger of bias..."
17 1988 (1) SCR 512
18 [2000] 1 AC 119
1009
21. Returning to the present case, Section 12 (1) of the Act applies
at the stage of appointment - which mandates disclosure requirements
applicable to arbitrators; (a) sets out the kinds of infl uence which may lead
to 'justifi able doubts' about 'independence and impartibility'; Section 12 (1)
(b) sets out the disclosure requirement with respect to the arbitrator's ability
to "devote suffi cient time". Explanation (1) refers to the grounds of possible
confl icts, which need disclosure: they are enumerated under separate heads
under Section 34 of the Act, and grouped in seven broad categories in the
Fifth Schedule to the Act. The second explanation to Section 12(1) requires
disclosure in the form set out in the Sixth Schedule.
22. Section 12(2) requires disclosure of any event or circumstance
which is mandatorily to be shared with the parties - if such circumstances
arise after the appointment. Section 12(3) lays out the grounds of challenge
to an arbitrator if "justifi able doubts" exist in relation to his "independence
or impartiality". Section 12(4) restricts challenge by parties - after
appointment "only for reasons which he becomes aware after appointment
is made".
23. Section 12(5) was inserted w.e.f. 23.10.2016; it begins with a
non-obstante clause overriding any "prior agreement to the contrary" and
stipulates that any person with any kind of relationship set out in the Seventh
Schedule (which outlines 19 specifi c heads and types of relationships -
professional, familiar or associational) would be ineligible for appointment
as arbitrator. The proviso to Section 12(5) enables the parties to waive the
ineligibility conditions under Section 12(5) (read with Seventh Schedule)
by express agreement in writing.
24. Section 13 (1) deals with the challenge procedure and enables
parties to agree on a procedure to challenge the arbitrator. By Section 13(2),
if there is no agreement, the party who intends to challenge the arbitrator
has to within 15 days after becoming aware of the tribunal's constitution or
within fi fteen days after becoming aware of any circumstances referred to
in Section 12(3) apply in writing to the reasons for challenge to a tribunal.
Section 12(3), as noticed earlier, states that the grounds of challenge to
existence of circumstances, giving rise to justifi able doubts about tribunal's
independence or impartiality. Section 13(3) states that if the arbitrator does
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not withdraw or the other party does not in the absence of the other party
agreeing according to the challenge; the tribunal has to decide upon it. By
Section 13(4) if the challenge is unsuccessful the tribunal would continue
with the proceedings and fi nalize its award. Section 13(5) states that any
party can challenge the arbitrator's decision, after the award is made under
Section 34. Section 13(6) keeps open the issue of fee to be payable to the
arbitrator in the event, the award is set aside on the ground under Section
13(5).
25. Section 14 deals with the contingency of failure or impossibility of
the arbitrator or tribunal to act and stipulates that the mandate of an arbitrator
shall terminate and he shall be substituted by another "if he becomes de
jure or de facto unable to perform its functions or for other reasons fails to
act without undue delay or withdraws from his offi ce or parties agrees to
the termination of his mandate". By Section 14(2) if a controversy remains,
concerning the grounds referred to in Section 14 (1), the Court may be
approached by the parties to decide upon the issue of termination on mandate.
26. Having regard to the above statutory position it would be
necessary to consider the judgments cited. The fi rst in this series would be
M/s. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd.,19
where taking note of the amendment made to the Act in 2015, the Court
underlined that it was with the objective to induce neutrality of arbitrators
especially their independence and impartiality that the amendment act of
2015 was introduced. The amended provision was enacted to identify the
circumstances that gave rise to justifi able doubts about the independence
or impartiality of the arbitrator and in the event, any of those circumstances
exist, the remedy provided is under Section 12. The court particularly
underlined Section 12(5) which nullifi ed prior agreements to the contrary.
In the facts of that case, it was held that if an advisor had any past or present
business relationship with a party, he was ineligible to act as arbitrator.
27. The next case HRD (supra),needs to be closely analyzed. The court
fi rst examined with some detail, the background of the 2015 amendment,
19 2017 (1) SCR 798
1011
the circumstances leading to it which is the Law Commission Report and
eventually, the amendment. The Court then signifi cantly ruled as follows:
"15. The enumeration of grounds given in the Fifth and Seventh
Schedules have been taken from the IBA Guidelines, particularly from
the Red and Orange Lists thereof. The aforesaid guidelines consist
of three lists. The Red List, consisting of non-waivable and waivable
guidelines, covers situations which are "more serious" and "serious",
the "more serious" objections being non-waivable. The Orange List,
on the other hand, is a list of situations that may give rise to doubts as
to the arbitrator's impartiality or independence, as a consequence of
which the arbitrator has a duty to disclose such situations. The Green
List is a list of situations where no actual confl ict of interest exists from
an objective point of view, as a result of which the arbitrator has no
duty of disclosure. These guidelines were fi rst introduced in the year
2004 and have thereafter been amended, after seeing the experience of
arbitration worldwide. In Part 1 thereof, general standards regarding
impartiality, independence and disclosure are set out.
********************
******************
17. It will be noticed that Items 1 to 19 of the Fifth Schedule are
identical with the aforesaid items in the Seventh Schedule. The
only reason that these items also appear in the Fifth Schedule is
for purposes of disclosure by the arbitrator, as unless the proposed
arbitrator discloses in writing his involvement in terms of Items 1 to
34 of the Fifth Schedule, such disclosure would be lacking, in which
case the parties would be put at a disadvantage as such information
is often within the personal knowledge of the arbitrator only. It is
for this reason that it appears that Items 1 to 19 also appear in the
Fifth Schedule.
********************
******************
20. However, to accede to Shri Divan's submission that because the
grounds for challenge have been narrowed as aforesaid, we must
construe the items in the Fifth and Seventh Schedules in the most
expansive manner, so that the remotest likelihood of bias gets removed,
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is not an acceptable way of interpreting the Schedules. As has been
pointed out by us hereinabove, the items contained in the Schedules
owe their origin to the IBA Guidelines, which are to be construed
in the light of the general principles contained therein - that every
arbitrator shall be impartial and independent of the parties at the
time of accepting his/her appointment. Doubts as to the above are
only justifi able if a reasonable third person having knowledge of the
relevant facts and circumstances would reach the conclusion that there
is a likelihood that the arbitrator may be infl uenced by factors other
than the merits of the case in reaching his or her decision. This test
requires taking a broad common-sensical approach to the items stated
in the Fifth and Seventh Schedules. This approach would, therefore,
require a fair construction of the words used therein, neither tending
to enlarge or restrict them unduly. It is with these prefatory remarks
that we proceed to deal with the arguments of both sides in construing
the language of the Seventh Schedule."
28. At this stage it would be crucial to notice that the court made
a differentiation. It stated, firstly, that a disclosure in writing about
circumstances likely to give justifi able doubts is to be made, at the stage
of appointment, and then stated that the disclosure can be challenged
under Sections 12(1) to 12(4) read with Section 13. The court however
underlined that in the next category where the person became ineligible
to be appointed as arbitrator, there was no need for a challenge to be laid
before the arbitrator. In such circumstances outlined in Section 12(5), the
party aggrieved could directly approach the court under Section 14(1)(a).
It was further underlined that in all cases under Section 12(5), there is no
challenge procedure to be availed of and that if the arbitrator continues at
such, the ground of being unable to perform his function since he falls in
any of the categories enumerated in the Seventh Schedule, the party concern
may apply to the court.
29. It is, therefore, evident that the rules for disqualifi cation or
ineligibility are fairly clear. The ineligibility which attaches to the
appointment is the fi rst category: it is contained in Section 12(1) read with
the explanation and the Fifth Schedule to the Act. As recounted earlier
1013
this schedule has 34 items. In the event any of these circumstances exist,
the appointment of the arbitrator is barred. The second category is where
the arbitrator to start with is eligible but after appointment incurs any,
or becomes subject, to any of the conditions, as enumerated in the Fifth
Schedule. In that event, it is open to the party to claim that there could be
justifi able doubts about his independence or impartiality. The remedy even
then, would be that the party has to seek recourse and apply to the arbitrator
in the fi rst stance by virtue of Section 13(2). The wording of Section 13(2)
clarifi es that a party who intends to challenge the arbitrator, after becoming
aware of certain circumstances which lead to justifi able doubts, that party
has to within 15 days [of becoming aware] approach the tribunal and seek
a ruling. In the event the party is not successful under Section 13(4), the
tribunal is duty bound to continue with the proceedings. When the award
is made, it can be subjected to challenge under Section 34, by operation
of Section 13(5).