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TMI Blog2002 (8) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... ch arises in this case is as to whether the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 are attracted to arbitral proceedings commenced against a guarantor when the principal debtor has been declared as a sick industrial company. The facts 2. The First Respondent had granted financial facilities to a company by the name of Gilt Pack Limited. In so far as the Petitioner is concerned, it is common ground that he had furnished a personal guarantee to secure the outstanding dues of the First Respondent. The First Respondent invoked the personal guarantee which was furnished by the Petitioner upon an admitted default by the company in repaying the outstanding dues payable under four Bills of Exchange in the total amount of Rs. 50 lakhs, which were discounted by the First Respondent. On 16th December, 1999, in pursuance of a provision for arbitration contained in Clause 23 of the deed of guarantee, the First Respondent referred the disputes which had arisen between the parties to the sole arbitration of Mr. Ashwin Ankhad, a practising Advocate, to act as a sole Arbitrator under the provisions of the Arbitration and Conciliation Act, 1996. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Sick Industrial Companies (Special Provisions) Act, 1985 is on its plain terms not attracted to arbitral proceedings. The Arbitrator held that the bar under section 22 was to a suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. In the present case, the Arbitrator held that there was no suit. Therefore, the bar under section 22 was not attracted. 5. The final award of the Arbitrator was made on 25th August, 2001 by which the Arbitrator has come to the conclusion that the Petitioner herein was liable to pay to the First Respondent a principal amount of Rs. 50 lakhs covered by the four bills of Exchange which have been discounted by the First Respondent together with overdue discounting charges in the amount of Rs. 51,60,821.92 from the due dates of the Bills until 14th January, 2000. Accordingly, the claim has been allowed in the total amount of Rs. 1,01,60,821.92. The Petitioner has been directed to pay interest at the rate of 18 per cent per annum on the principal sum of Rs. 50 lakhs from 15th January, 2000 till payment or realization. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partiality and integrity. 9. When the Arbitration Petition came to be filed before this Court, an affidavit was filed by the Arbitrator on 2nd July, 2002 recording that he was not connected with any of the shareholders or directors of Tata Finance Limited and that he did not hold a retainer of the said company. The Arbitrator has stated that save and except for the Arbitrator's fees he has not received any remuneration from the Claimant before him. He has stated that about five years earlier, he had handled one matter of Tata International Limited with which the Respondent herein had no connection whatsoever. The Arbitrator has, therefore, denied the allegations which were made against him. 10. After the Arbitrator filed his affidavit dated 2nd July, 2002, a further affidavit was filed by the Petitioner on 18th July, 2002 stating that "upon enquiries he had been reliably informed that the learned Arbitrator namely Respondent No. 2 was originally practising as a Company Secretary and was a Company Secretary to the company known as Tata Exports Limited (and now known as Tata International Limited)". It is now alleged that the Arbitrator was attached to and working as a Company Secr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his independence and impartiality under section 12 of the Act in the Arbitral proceedings which commenced in December 1999. In a decision rendered in 1952, Chief Justice M.C. Chagla, speaking for a Division Bench of this Court in Satyendra Kumar v. Hind Constructions Ltd. AIR 1952 Bom. 227 held that an Arbitrator must show uberrima fides to the parties whose disputes he is going to arbitrate and whose domestic forum he is constituted. The Arbitrator must disclose to the parties all facts which are likely or calculated to bias him in any way in favour of one or the other party. The Learned Chief Justice held that a circumstance or a fact may in fact not bias the decision of the arbitrator for he may have too strong a character, too deep a sense of justice to be influenced by any consideration extraneous or foreign to the evidence which he has got to consider. However, 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. The principle which was enunciated by the Division Bench in 1952 now finds statutory recognition in sub-section (1) of section 12 of the Act which provides that when a person is approached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt has to be "the reasonableness and the apprehension of an average honest man". In a subsequent decision in Secretary to the Government, Transport Department v. Munuswamy Mudaliar AIR 1988 SC 2232 the Supreme Court held that a reasonable apprehension or bias in the mind of a reasonable man can be a ground for removal of the Arbitrator. Mr. Justice Sabyasachi Mukharji held that a predisposition to decide for or against one party without proper regard to the true merits of the dispute is bias. There must be a reasonable apprehension of that predisposition which must be based on cogent material. 16. In a subsequent decision of three learned Judges in Jiwan Kumar Lohia v. Durga Dutt Lohia [1992] 1 SCC 56, the Supreme Court held that "with regard to bias in relation to a judicial Tribunal the test that is applied is not whether in fact a bias has affected the judgment, but whether a litigant could reasonably apprehend that a bias attributed to a member of the tribunal might have operated against him in the final decision. The Court cited with approval the test which was laid down in Ranjit Thakur v. Union of India [1987] 4 SCC 611 that the test of likelihood of bias is whether a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecuniary or proprietary interest, in the subject matter of the proceeding, a "real likelihood of bias" must be shown. The Learned Chief Justice noted that while "it is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done", this was "being urged as a warrant for quashing convictions or invalidating orders upon quite unsubstantial grounds and, indeed, in some cases upon the flimsiest pretexts of bias". Therefore, while endorsing the principle which was laid down by Lord Hewart, the Court held that "the continued citation of it in cases to which it is not applicable may lead to the erroneous impression that it is more important that justice should appear to be done than that it should in fact be done". 19. In Hagop Ardahalian v. Unifert International S.A. [1984] 2 LLR 84. Ackner, LJ held that the appropriate way of expressing the test was whether there exist grounds from which a reasonable person would think that there was a real likelihood that the Arbitrator would not determine the issue before him on the basis of the evidence and the arguments before him. The Court held that this was "a satisfactory way of expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reach its own conclusion on the facts. (2)It necessarily follows that the factual position may appear quite differently as between the time when the challenge is launched and the time when it comes to be decided by the court. What may appear at the leave stage to be a strong case of justice [not] manifestly and undoubtedly be[ing] seen to be done, may, following the court's investigation, nevertheless fail. Or, of course, although perhaps less probably, the case may have become stronger. (3)In reaching its conclusion the court personifies the reasonable man. (4)The question upon which the court must reach its own factual conclusion is this : is there a real danger of injustice having occurred as a result of bias? By real is meant not without substance. A real danger clearly involves more than a minimal risk, less than a probability. One could, I think, as well speak of a real risk or a real possibility. (5)Injustice will have occurred as a result of bias if the decision-maker unfairly regarded with disfavour the case of a party to the issue under consideration by him. I take unfairly regarded with disfavour to mean was predisposed or prejudiced against one party's case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment to be made in the light of the facts actually known when the challenge comes before the appellate or supervising court, not the appearance of things as they seemed when the challenge was made although that appearance may of course reflect a state of facts which forms an element in the subsequent assessment. According to the decision in Locabail (U.K.) Ltd.'s case (supra), everything will depend on the facts, which may include the nature of the issue to be decided. A real danger of bias might for instance arise if there is a personal friendship or animosity between the judge and any member of the public involved in the case, or if the judge were closely acquainted with any member of the public involved, particularly if the credibility of that individual could be significant in the decision of the case. These are only illustrative situations. The circumstances of each case have to be taken into consideration. The judgment of the Court of Appeal in Locabail (U.K.) Ltd.'s case (supra) is proposition for the principle that "greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is raised, the weaker (other thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an incidental than a vital part of his professional life; he was independent of the management and did not sit on the executive committee of the board; as a member of the Bar and as an international arbitrator he had neither time nor inclination to involve himself in the day to day commercial decisions of Nortel. The Judge emphasised that one of the reasons why parties may choose lawyers as Arbitrators is because of their experience in commercial matters : "(4) One of the main reasons why parties to arbitration proceedings select as arbitrators experienced lawyers (let alone Queen's Counsel of such evident distinction as Mr. Fortier) is that such lawyers are trained from their earliest days to decide cases on the evidence before them and the submissions made to them and to put aside all extraneous matters. It is axiomatic to any experienced lawyer that he must and will decide cases without fear or favour, affection or ill will. Judges in England take an oath to that effect but no one supposes they would act differently if no oath were sworn. The same applies to experienced legal arbitrators. Another reason for selecting arbitration rather than the Courts is that the parties may a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds revisited the correctness of the real danger test laid down by Lord Goff in R. v. Gough, Lord Hope of Craighead took note of the fact that the reasonable likelihood and real danger tests which Lord Goff enunciated in Gough's case (supra) have been criticised by the High Court of Australia on the ground that they tend to emphasise the Court's view of the facts and place inadequate emphasis on the public perception of the irregular incident (Webb v. R. [1994] 181 CLR 41 at 50 per Mason. CJ. and McHugh, J.). The Court noted that the reasonable apprehension of bias test, on the other hand, was in line with that adopted in most common law jurisdictions. The view of the Strasbourg Court was that in considering whether there was a legitimate reason to fear that a judge lacks impartiality, the standpoint of the accused is imported but not decisive. What is decisive is whether this fear can be held to be objectively justified. The Court in Porter v. Magill then referred to the judgment of the Court of Appeal in In re Medicaments and related Classes of Goods (No. 2) [2001] 1 WLR 700 in which the Court had taken the view that the test laid down in Gough required a modest adjustment. Lord H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the re-opening of the trial on the ground that they had learnt that the Judge had not paid for the services of the Solicitors and, therefore, had received a financial benefit from the solicitors which he had failed to disclose. The Court of Appeal held that no case of apparent bias on the part of the Judge had been made out. Lord Woolf held that it was unthinkable that an informed observer would regard it as conceivable that a Judge would be influenced to favour a party in litigation with whom he has no relationship merely because that party happens to be represented by a firm of solicitors which was acting for the judge in a purely personal matter in connection with a will. The Court of Appeal referred to the decision of the House of Lords in Porter's case (supra) and held that in considering as to what a fair-minded and informed observer would think, it would be appropriate to expect that he was aware of the high standard of integrity maintained by the Bar and the Bench in England : "The fact that the observer has to be fair-minded and informed is important. The informed observer can be expected to be aware of the legal traditions and culture of this jurisdiction. Those legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if a relationship is disclosed, even though a fair-minded observer would not regard it as raising the possibility of bias, it unnecessarily gives rise to a perception that the approach of the judge to the case at hand may be affected : "A further general comment which we would make, is that judges should be circumspect about declaring the existence of a relationship where there is no real, possibility of it being regarded by a fair-minded and informed observer as raising a possibility of bias. If such a relationship is disclosed, it unnecessarily raises an implication that it could affect the judgment and approach of the judge. If this is not the position no purpose is served by mentioning the relationship. On the other hand, if the situation is one where a fair-minded and informed person might regard the judge as biased, it is important that disclosure should be made. If the position is borderline, disclosure should be made because then the judge can consider, having heard the submissions of the parties, whether or not he should withdraw. In other situations disclosure can unnecessarily undermine the litigant's confidence in the judge." The Court of Appeal, however, held that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uance of the arbitration clause giving it the right to nominate the Arbitrator or whether the choice of the Arbitrator was consensual should make no difference to the outcome. The requirement of preserving the independence and impartiality of the Arbitrator must apply equally in both cases. I have, therefore, considered the matter by applying the well settled principles which have been accepted in the judgments of the Supreme Court referred to above. Having considered the challenge, I am of the view that in the present case, there were no justifiable doubts as regards the independence and impartiality of the Arbitrator. The apprehension of bias does not arise out of any alleged connection or interest of the Arbitrator in the affairs of the Claimant. The Arbitrator has had no such affiliation, contact or interest with the Claimant, least of all in the dispute with the Petitioner. The employment of the Arbitrator with Tata International Limited ended over twelve years prior to the reference. Employment in the distant past with another public company, albeit in the same group, was not such as would warrant the invocation of the circumstances spelt out in section 12. The Arbitrator is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Limited (formerly Tata Exports Limited) is factually incorrect. The casual manner in which allegations have been levelled against the Arbitrator must be deprecated. An allegation as regards the independence or impartiality of an adjudicator, be it a Judge or Arbitrator, is a serious matter. The purity of the administration of justice has to be preserved and it is, therefore, that the Courts hold that the appearance of justice is a value which must be preserved : justice must manifestly be seen to be done. Equally, Arbitration is gaining ground as a means of Alternate Dispute Resolution. Those who take upon themselves the responsibility of discharging the tasks of Arbitrators have to be protected against unwholesome attacks by litigating parties, whereas is the present case, the allegations are found to be untrue and false. The Second Submission - Whether the bar under section 22. SICA applies to Arbitral Proceedings against the Guarantor. 32. That leads the Court to the second submission which has been urged which is to the effect that the arbitral proceedings against the Petitioner, who was a guarantor in respect of the financial facilities extended to the constituent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial company has not been sought to be initiated. The question is as to whether the expression "suit for the recovery of money" can be extended to include arbitral proceedings. Now there can be no doubt about the principle of law which was canvassed on behalf of the Petitioner that the expression "suit" has to be construed in the context in which it is used. In Patel Roadways Ltd. v. Birla Yamaha Ltd. [2000] 4 SCC 91 the Supreme Court construed the provisions of section 9 of the Carriers Act by which in any suit, brought against a common carrier for the loss, damage or non-delivery of goods entrusted to him for carriage, it is not necessary for the Plaintiff to prove that the loss, damage or non-delivery has taken place due to the negligence or criminal act of the carrier. The Supreme Court held that it was not open to the National Consumer Disputes Redressal Commission to ignore section 9. The Court held that the term "suit" is a generic term taking within its sweep all proceedings initiated by a party for realisation of a right under the law. 35. In the context of section 22 of the Act, it would be necessary to have regard to the circumstance that the same statutory provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssarily exclude an award. 37. The same view has been taken by a Division Bench of the Calcutta High Court in Burn Standard Co. Ltd. v. McDermott International Inc. [1998] Cal. Weekly Notes 26 and by a learned Single Judge of this Court in P.S. Shrinivasan v. Mukesh Babu Financial Services Ltd. [2002] 39 SCL 225 (Bom.). The fact that the Arbitration & Conciliation Act, 1996 does dispense with the procedure of a judgment or decree in terms of the award and makes an award enforceable as a decree does not mean that the expression "suit" in section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 must include an arbitral proceeding. There is, as already noted, intrinsic material in section 22 which does not support such a construction. Section 36 of the Arbitration and Conciliation Act, 1996 provides as follows : "36. Enforcement - Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court." What section 36 does is to render an arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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