2023 INSC 932 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

MISCELLANEOUS APPLICATION NO(S). 184 OF 2023

IN

SPECIAL LEAVE PETITION (CIVIL) NO(S). 8553 OF 2022

CHENNAI METRO RAIL LIMITED

ADMINISTRATIVE BUILDING …APPELLANT(S)

VERSUS

M/S TRANSTONNELSTROY

AFCONS (JV) & ANR. …RESPONDENT(S)

WITH

CIVIL APPEAL NO(S). 4591 OF 2023

J U D G M E N T

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,

2

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 fixed 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 10

th

Meeting/hearing was

held on 28.06.2022 and its minutes were 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 affidavit. Expressing its disagreement with the enhancement, Afcons by its

affidavit dated 10.07.2022 submitted that the applicability of Schedule IV of the

Act, and the issue of increase of tribunals’ fee, after initial fixation, 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 modification 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

3

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 10

th

Virtual Meeting onwards i.e. in effect 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 five hearings (i.e., for 10

th

to 14

th

virtual hearings).

Chennai Metro therefore filed 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

5. On 15.09.2022, all three members of the tribunal filed affidavits, in

response to the Section 14 petition acknowledging that this court’s judgment in

ONGC v. AFCONS Gunasa JV

2

(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 affidavits,

members of the tribunal stated that orders would not create any prejudice to any

1

As per petition filed by Chennai Metro before HC under section 14 and 15 of the Act.

2

2022 (10) SCR 660

4

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, filed 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 justifiable 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 fix the fee payable to the Arbitrator.

Furthermore, and importantly the court had stressed that once the terms of

engagement are finalized it is not open to the tribunal to either vary the fee fixed

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

modifications 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 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.

3

By interim order dated 25.08.2022 in A. No 3566/2022.

5

7. The Learned ASG relied upon other judgments such as State of West

Bengal vs. Shivanand Pathak

4

where it was held that bias has many forms which

includes judicial obstinacy. Likewise, he relied upon N.K. Bajpai vs. Union of

India

5

, State of Punjab vs. Devenderpal Singh Bhuller

6

and Supreme Court

Advocates on record Association vs. Union of India

7

, 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 justified in arguing that the

apprehension that the proceedings or the outcome would not be conducted and

finalized with an impartial mind. It was argued that the impugned judgment is in

error in as much as accepted its face value of the affidavits 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 justifiable 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 on 25.07.2022.

This is one more aspect which ought to have been duly noted by the High Court.

4

(1998) 5 SCC 513

5

(2012) 4 SCC 653

6

(2011) 14 SCC 770

7

(2016) 5 SCC 808

6

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 Ltd

9

(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 first 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 specific instances of

8

2017 (11) SCR 857

9

(2019) 6 SCR 97

7

ineligibility and if an arbitrator, is challenged only on those grounds, the parties

can directly approach the court under Section 14. The contents of Fifth Schedule

[read with Explanation to Section 12 (1)] on the other hand provide a list of

relationships which can lead to justifiable 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 IBA

10

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 justifiable 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

10

International Bar Association

8

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”.

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 & Another

11

, 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 financial, business, professional or other kind, which

is likely to give rise to justifiable doubts as to his independence or impartiality;

and

11

1988 (3) SCR 370

9

(b) which are likely to affect his ability to devote sufficient 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 justifiable doubts as

to the independence or impartiality of an arbitrator.

Explanation 2.—The disclosure shall be made by such person in the form

specified in the Sixth Schedule.]

(3) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence

or impartiality, or

(b) he does not possess the qualifications 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 specified 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 fifteen 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

office 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.

(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.

10

(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 office 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 office 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 office 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.

[..]”

Analysis and findings

18. Bias (an expression that the Act has deliberately avoided; instead the term

used is justifiable 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

12

G. Sarana v University of Lucknow & Ors., 1977 (1) SCR 64

11

reasonable apprehension of that predisposition.”

13

It has also been held, in G.N.

Nayak v Goa University

14

that:

"Bias may be generally defined 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 officer, 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 from which reasonable men would think it

probable or likely that the inquiring officer will be prejudiced.”

The court [in Kumaon Vikas Mandal (supra)], at the same time, remarked on the

futility to ‘define 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 India

17

:

"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

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

17

1988 (1) SCR 512

12

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 significant 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…”

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 influence which may lead to ‘justifiable

doubts’ about ‘independence and impartibility’; Section 12 (1)(b) sets out the

disclosure requirement with respect to the arbitrator’s ability to “devote sufficient

time”. Explanation (1) refers to the grounds of possible conflicts, 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.

18

[2000] 1 AC 119

13

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

“justifiable 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 specific 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 fifteen 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

justifiable doubts about tribunal’s independence or impartiality. Section 13(3)

states that if the arbitrator does 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 finalize 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).

14

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 office 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 first 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 justifiable

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 nullified 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 first

examined with some detail, the background of the 2015 amendment, the

circumstances leading to it which is the Law Commission Report and eventually,

the amendment. The Court then significantly 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-

19

2017 (1) SCR 798

15

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 conflict of interest exists from

an objective point of view, as a result of which the arbitrator has no duty of

disclosure. These guidelines were first 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, 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 justifiable 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 influenced 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 justifiable 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)

16

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 disqualification or ineligibility are

fairly clear. The ineligibility which attaches to the appointment is the first

category: it is contained in Section 12(1) read with the explanation and the Fifth

Schedule to the Act. As recounted earlier 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 justifiable 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 first stance by virtue of Section 13(2). The wording of Section

13(2) clarifies that a party who intends to challenge the arbitrator, after becoming

aware of certain circumstances which lead to justifiable 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). Clearly,

then the substantive grounds and the procedure applicable in relation to situations

17

where justifiable reasons exist or arise, for questioning the eligibility of a tribunal

to decide the reference are enumerated in Sections 12 and 13.

30. As clarified in HRD (supra), the grounds of ineligibility which would apply

at the appointment stage, would also continue during the proceedings by virtue

of Section 12(2). In other words, if during the continuance of the proceedings,

the arbitrator becomes subject to any eligibility condition outlying in the Fifth

Schedule, the application for his removal on the grounds of justifiable doubts

about his impartiality and independence, can be made. According to the

procedure outlined in Section 13(2) read with Section 12, such a procedure has

to first be followed which means that the party should first appear before the

arbitrator and object to his continuance. In case of ineligibility which goes the

root of the appointment - and this is the consequence of the introduction of

Section 12(5) [which is in emphatic terms and overrides other previous

agreements], the arbitrator’s relationship with the parties or counsel or the subject

matter of the dispute or the existence of any of the categories of the Seventh

Schedule (which are 19 specific enumerated grounds) render that tribunal

ineligible to even continue. The only exception is if the party waives that

ineligibility expressly in writing in terms of the proviso to Section 12(5). Per HRD

(supra), in that event, the Arbitral Tribunal becomes de jure, unable to perform

its functions.

31. The analysis in HRD (supra), and the subsequent decision in Bharat Broad

Band (supra), therefore are clear enunciations of law in that any legal disability

which attaches on the grounds enumerated in the Fifth Schedule [or any other

circumstance, given the terminology of Section 12 (3) which is not restricted to

fifth schedule ineligibility], the aggrieved party has to first apply before the

tribunal as a matter of law. In other words, the tribunal should be given the

opportunity to deal with the party’s reservations and decide whether or not to

continue with the proceedings. This view is in accord with the long line of

18

decisions of this court rendered in the context of reasonable apprehension of bias

by courts and quasi-judicial authorities starting from Manak Lal v Dr. Prem

Chand

20

to raise the issue, at the earliest opportunity before same forum.

32. The decisions in HRD (supra) and Bharat Broadband (supra) are

unequivocal and to the effect that the issue of bias should be raised before the

same tribunal at the earliest opportunity. The advertence of the time limit of 15

days is nothing but a statutory incorporation of that idea. However, when the

grounds enumerated in the Seventh Schedule occur or are brought to the notice

of one party unless such party expressly waives its objections, it is ipso facto

sufficient for that party, to say that the Tribunal’s mandate is automatically

terminated. The party aggrieved then can go ahead and challenge the tribunal’s

continuation with the proceedings under Section 14.

33. In the present case, this court is conscious of the fact that ONGC (supra) is

the authority for the proposition that the issue of fixation of fee, is contractual,

and wherever there is no prior arrangement or court order, the tribunal has to fix

it at the threshold. The arrangement is by way of a tripartite agreement, which

means that regardless of what mode of payment (ad-valorem or sitting fee, or

different rates, depending upon the number of hearings, or the issue of fee

increase being contemplated allowing the tribunal to revise its fee at a later stage),

any revision or revisiting of the fee condition, should be based on consultation,

and agreement of both contesting parties, and the tribunal. This is clear from the

directives enunciated by ONGC (supra), through the majority opinion, which has

the concurrence of the third judge as well:

“1. [..]

2. In cases where the arbitrator(s) are appointed by parties in the manner set

out in the arbitration agreement, the fees payable to the arbitrators would be in

accordance with the arbitration agreement. However, if the arbitral tribunal

20

1957 [1] SCR 575

19

considers that the fee stipulated in the arbitration agreement is unacceptable,

the fee proposed by the arbitral tribunal must be indicated with clarity in the

course of the preliminary hearings in accordance with these directives. In the

preliminary hearings, if all the parties and the arbitral tribunal agree to a

revised fee, then that fee would be payable to the arbitrator(s). However, if any

of the parties raises an objection to the fee proposed by the arbitrator(s) and no

consensus can be arrived at between such a party and the tribunal or a member

of the tribunal, then the tribunal or the member of the tribunal should decline

the assignment.

3. Once the Terms of Reference have been finalised and issued, it would not be

open for the arbitral tribunal to vary either the fee fixed or the heads under

which the fee may be charged.

4. The parties and the arbitral tribunal may make a carve out in the Terms of

Reference during the preliminary hearings that the fee fixed therein may be

revised upon completion of a specific number of sittings. The quantum of

revision and the stage at which such revision would take place must be clearly

specified. The parties and the arbitral tribunal may hold another meeting at the

stage specified for revision to ascertain the additional number of sittings that

may be required for the final adjudication of the dispute which number may then

be incorporated in the Terms of Reference as an additional term.”

34. The ruling in ONGC (supra) is undoubtedly clear that fee increase can be

resorted to only with the agreement of parties; in the event of disagreement by

one party, the tribunal has to continue with the previous arrangement, or decline

to act as arbitrator. Yet, whether the breach of that rule, as in the present case, by

insisting that the increase of fee should prevail does not in this court’s opinion,

amount to a per se ineligibility, reaching to the level of voiding the tribunal’s

appointment, and terminating its mandate. This can be illustrated with the facts

in HRD (supra), where the challenge was on the ground of existence of factors

mentioned in the fifth schedule, i.e. rendering of opinion by a former Chief

Justice, to one of the parties to the dispute, in relation to an unconnected case.

The court rejected the plea of ineligibility. Similarly, the objection to the

continuance of another arbitrator, a former judge, because he had rendered an

award in a previous reference between the same party, and the assumption that he

would have some kind of subject matter bias, was overruled. The other case,

where this court noted that a fee increase was sought and was warranted, because

of revision of fee in a schedule referred to for the purpose of ascertaining fee,

20

became the focus of dispute. The tribunal noted the need to increase the fee; yet

after justifying it, declined to actually direct its increase, because of a previous

High Court judgment to the contrary. This court held that such conduct did not

render the tribunal ineligible from continuing and deciding the reference. It would

be useful to advert to the decision of this court in National Highways Authority

of India & Ors. vs. Gayatri Jhansi Roadways Limited & Ors.

21

where in an

analogous fact situation, where the tribunal felt that fee increase was justified, its

mandate was challenged. The court overruled the plea, and held that:

“12. We have heard learned Counsel for the both the sides. In our view, Shri

Narasimha, learned senior Counsel, is right in stating that in the facts of this

case, the fee Schedule was, in fact, fixed by the agreement between the parties.

This fee schedule, being based on an earlier circular of 2004, was now liable to

be amended from time to time in view of the long passage of time that has ensued

between the date of the agreement and the date of the disputes that have arisen

under the agreement. We, therefore, hold that the fee Schedule that is contained

in the Circular dated 01.06.2017, substituting the earlier fee schedule, will now

operate and the arbitrators will be entitled to charge their fees in accordance

with this Schedule and not in accordance with the Fourth Schedule to the

Arbitration Act.

13. We may, however, indicate that the application that was filed before the

High Court to remove the arbitrators stating that their mandate must terminate,

is wholly disingenuous and would not lie for the simple reason that an arbitrator

does not become de jure unable to perform his functions if, by an order passed

by such arbitrator(s), all that they have done is to state that, in point of fact, the

agreement does govern the arbitral fees to be charged, but that they were bound

to follow the Delhi High Court in Gayatri Jhansi Roadways Limited case which

clearly mandated that the Fourth Schedule and not the agreement would

govern.

14. The arbitrators merely followed the law laid down by the Delhi High Court

and cannot, on that count, be said to have done anything wrong so that their

mandate may be terminated as if they have now become de jure unable to

perform their functions. The learned Single Judge, in allowing the Section 14

application, therefore, was in error and we set aside the judgment of the learned

Single Judge on this count.”

35. In a recent decision of the UK Supreme Court, in Halliburton Company v

Chubb Bermuda Insurance Ltd

22

., (hereafter, “Halliburton”) it was held, that

21

2019 [9] SCR 1001

22

2021 [2] All E.R. 1175

21

arbitrators were under a duty of disclosure under the English law. The principle

of party autonomy, the court concluded that, by an agreement, could be waived

by the parties. This duty itself is implied in a mandatory provision of the UK

Arbitration Act (of 1996).

36. Halliburton (supra) was concerned an ad hoc arbitration governed by the

laws of New York but seated in London. The removal of the presiding arbitrator

became the subject of an application on various grounds, including his failure to

disclose certain appointments had given rise to justifiable doubts regarding his

impartiality. The applicant alleged this duty meant that he should have disclosed

various previous arbitration engagements by the insurance company, which

nominated him, especially in some cases, where the claims were somewhat

similar to those that the applicant had been exposed to, but the insurer had denied

its liability for. The Supreme Court underlined that arbitrators perform judicial

functions and are required to act as judges would, without fear or favour, affection

or ill-will. One way of satisfying the parties as to an arbitrator’s impartiality is

disclosure. The role of disclosure was summarised by the Lord Hodge who

delivered the opinion of the Court:

“70. An arbitrator, like a judge, must always be alive to the possibility of

apparent bias and of actual but unconscious bias. … One way in which an

arbitrator can avoid the appearance of bias is by disclosing matters which could

arguably be said to give rise to a real possibility of bias. Such disclosure allows

the parties to consider the disclosed circumstances, obtain necessary advice,

and decide whether there is a problem with the involvement of the arbitrator in

the reference and, if so, whether to object or otherwise to act to mitigate or

remove the problem…”

The UK Act does not place any express obligation on potential or serving

arbitrators to disclose to parties regarding matters that concern their independence

or impartiality. This duty was not previously recognized by the courts in the UK.

The Supreme Court in Halliburton (supra) had to uniquely determine where such

a duty existed in English law. The Court found that the duty of disclosure for

arbitrators was implicitly based on section 33 of the 1996 Act (Arbitration Act,

22

1996), which provides that arbitral tribunals shall act fairly and impartially as

between the parties. As the Court said that the legal obligation to disclose matters

that could give rise to justifiable doubts as to an arbitrator’s impartiality

was “encompassed within the statutory obligation of fairness” it was “also an

essential corollary of the statutory obligation of impartiality.”

37. Discussing the duty, the UK Supreme Court considered if an arbitrator with

a financial relationship with a party to the dispute in which he or she was

appointed was under a duty to disclose it; and held that it would “be incumbent

on the arbitrator to disclose the relationship in order to comply with his statutory

duty of fairness under section 33 of the 1996 Act.” The court held that there was

a legal duty of disclosure in English law which was “encompassed within the

statutory duties of an arbitrator under section 33,” while adding that this was “a

component of the arbitrator’s statutory duty to act fairly and impartially,” and

that it did not override the separate duty of privacy and confidentiality under the

English law.

38. Our enactment is in a sense, an improvement. Parliament’s conscious effort

in amending the Act, because of the inclusion of the fifth schedule, as a disclosure

requirement, as an eligibility condition [Section 12 (1)] and a continuing

eligibility condition, for functioning [Section 12 (2)] and later, through Section

12 (5), the absolute ineligibility conditions that render the appointment, and

participation illegal, going to the root of the jurisdiction, divesting the authority

of the tribunal, thus terminating the mandate of the arbitrator, as a consequence

of the existence of any condition enumerated in the seventh schedule, are to clear

the air of any ambiguities. The only manner of escaping the wrath, so to say of

Section 12 (5) is the waiver- in writing by the party likely to be aggrieved.

39. The attempt by Chennai Metro to say that the concept of de jure

ineligibility because of existence of justifiable doubts about impartiality or

independence of the tribunal on unenumerated grounds [or other than those

23

outlined as statutory ineligibility conditions in terms of Sections 12 (5)], therefore

cannot be sustained. We can hardly conceive of grounds other than those

mentioned in the said schedule, occasioning an application in terms of Section 12

(3). In case, this court were in fact make an exception to uphold Chennai Metro’s

plea, 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. In other

words, the 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”

23

from what could potentially become causes of arbitrator challenge, during

the course of arbitration proceedings, other than what the Act specifically

provides for.

40. For the foregoing reasons, this court holds that Chennai Metro’s

application cannot succeed. The Arbitrators are directed to resume the

proceedings and decide the case in accordance with law. The impugned order is

upheld. The application is accordingly dismissed and the appeal is disposed of in

above terms.

....................................................J.

[S. RAVINDRA BHAT]

...................................................J.

[ARAVIND KUMAR]

NEW DELHI,

OCTOBER 19, 2023.

23

Union of India v Hindustan Development Corporation 1993 (3) SCR 108- so said in a different context, about

the applicability of the doctrine of legitimate expectation.