AUA-06-2022.DOC

Andreza

IN THE HIGH COURT OF BOMBAY AT GOA

APPEAL UNDER ARBITRATION ACT NO. 6 OF 2022

State of Goa, Rep. By Executive Engineer,

Public Works Department, Works Division

VI (NH), Near Patto Bridge, Patto, Panaji,

Goa.

… Appellant

Versus

M/s. U. P. State Bridge Corporation Ltd.,

Setu Bhavan, 16, Madan Mohan Malariya

Marg, Lucknow – 226 001.

…Respondent

Mr. Manish Salkar, Government Advocate for the

Appellant.

Mr. Shivan Desai, Advocate with Ms. Maria Cotta Viegas,

Advocate for the Respondent.

_______________________

CORAM: SUMAN SHYAM, J

RESERVED ON :

PRONOUNCED ON :

5

th

FEBRUARY, 2026

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_______________________

JUDGMENT

1. This Appeal preferred by the State of Goa, under Section 37

of the Arbitration and Conciliation Act, 1996, (hereinafter referred to

as ‘the Act of 1996’), is directed against the Judgment and Order

dated 22.02.2016, passed by the learned Principal District Judge

(PDJ), North Goa, in Arbitration and Conciliation Petition No. 2 of

2012, rejecting the objection filed by the Appellant under Section 34

of the Act of 1996. This case has a chequered history. Therefore, in

order to appreciate the legal issues involved in the matter, it would be

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necessary to briefly narrate the facts and circumstances giving rise to

the filing of the Appeal.

(i) It appears from the record that the State of Goa had floated

a tender inviting bids for construction of the new Mandovi Bridge on

NH-17. On evaluation of the bids, the contract was awarded to the

Respondent-Corporation pursuant where to, a contract was signed by

and in between the parties. Although copy of the contract Agreement

is not available on record, yet, it appears from the material on record

that the Contract Agreement was signed on 21.02.1987. The bridge

was eventually opened for the public on 23.07.1992. However, Span

11 of the bridge had collapsed on 14.10.1990 when the same was still

under construction. During the execution of the contract, sudden

disputes and differences arose by and between the parties. Therefore,

in view of Clause 67 of the Agreement dated 21.02.1987 containing

the Arbitration Clause, the disputes were referred to Arbitration.

(ii) As per the Arbitration Agreement, the Arbitral Tribunal

was required to be constituted by a Committee of three Members of

Arbitrators out of which, one Arbitrator each, was required to be

nominated by each of the contracting parties, whereas the Chairman

was to be nominated by the Director General (Road Development),

Ministry of Surface and Transport, Government of India.

Accordingly, the claimant-contractor i.e. the Respondent herein, had

nominated Shri Shitala Sharan, as its nominee in the Arbitral

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Tribunal, whereas the Appellant had nominated Shri N. N.

Shrikhande. Shri H. R. Bapu Satyanarayana was nominated on

21.07.1993 as the Chairman of the three Member Panel. In this

manner, the three Member Arbitral Tribunal was constituted.

(iii) On 09.01.1996, an objection was filed before the Arbitral

Tribunal by the Appellant raising question pertaining to appointment

of Shri Shitala Sharan as an Arbitrator nominated by the Respondent,

on the ground that his neutrality and independence was under cloud.

Although there is no order of the Tribunal on the said objection

available on record, yet, it is the admitted position of fact that the

Arbitral Tribunal had rejected the objection on 16.01.1996, where-

after, the Arbitration proceedings had proceeded. Eventually, on

08.08.1997, an Arbitral Award was passed by the Tribunal. The

operative part of the Arbitral Award dated 08.08.1997 is re-produced

herein below for ready reference :

“i) a) We award that the Respondent i.e. the State of Goa

represented by the Executive Engineer, Works Division VII

(NH), Panaji, Goa to pay to the Claimant M/s. U.P. State Bridge

Corporation Ltd. the amount of

• Rs.1,31,73,200/- (Rupees One Crore Thirty-One Lakhs

Seventy-Three Thousand and Two Hundred only) against

the various claims, and

• Rs.1,20,34,600/- (Rupees One Crore Twenty Lakhs

Thirty-Four Thousand and Six Hundred only) towards

interest on the above upto the date of the Award.

b) Out of the above Award amount, the amount of Rs.

1,31,73,200/- (Rupees one crore thirty-one lakhs Seventy-

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three thousand two hundred only) shall bear an interest at

18% (eighteen percent) from the date of this Award till the

date of decree by the Competent Court on this Award or till

the date of payment of the Award amount, whichever is

earlier.

ii) a) The Respondent is directed to write to The New India

Assurance Co. Ltd. withdrawing the Respondent's letter No.

1/1/92/Ce (MHP)/PWD/439 dt. 14.81992 addressed by the

Chief Engineer (MBP), PWD to the Manager of the Insurance

Co. at Panaji and asking the Insurance Co. to pay the already

sanctioned claim of Rs. 23.48 lakhs to the claimant.

b) The Respondent shall pay an interest at 18% (eighteen

percent) of the above insurance amount from the date of the

Award to the date of communication to be addressed by the

Respondent to the Insurance Co. as stated in (a) above.

(iii) The Respondent is directed to return the following Bank

Guarantees (since expired) to the Claimant

* No. 3/87 and 5/89 of State Bank of Indore for

performance.

* No. 14/92 of Oriental Bank of Commerce for security.

iv) The parties to bear their own costs.”

(iv) The Arbitral Tribunal had, however, rejected the counter

claims made by the Appellant. The reason for passing the Arbitral

Award was furnished by the Tribunal separately.

(v) It would be pertinent to note herein that when the

Arbitral proceeding had commenced, the Arbitration Act of 1940 was

in force. The Arbitration and Conciliation Ordinance dated

16.01.1996 came into force w.e.f. 25.01.1996, which was subsequently

replaced by the Act of 1996 w.e.f. 22.08.1996. Since the Arbitration

proceedings had commenced under the Arbitration Act of 1940,

hence, the Arbitral Tribunal had filed the Award dated 08.08.1987

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before the Court of Civil Judge, Senior Division, Panaji, for making

the Award a rule of the Court. Based on the same, Civil

Miscellaneous Application no. 280/1997/A was registered. However,

the claimant-contractor-Respondent herein, had filed an application

before the Civil Court for returning the Award on the ground that

after the enactment of the Act of 1996, the provisions of the Act of

1940 would no longer be applicable and, therefore, the Civil Court

would not have any jurisdiction to pass any order on the Award.

(vi) Taking note of the above objection raised by the

Respondent, the learned Civil Court had passed Order dated

20.04.1999 holding that after the coming into effect of the Act of

1996, the Civil Court did not have any jurisdiction to entertain the

said application. Therefore, the Arbitral Award was returned to the

Arbitral Tribunal to be presented before the proper forum.

(vii) Aggrieved by the Order dated 20.04.1999, the Appellant

had preferred Civil Revision Petition No. 149/1999 before the High

Court of Bombay at Goa, which was rejected by the Order dated

17.02.2000, thus upholding the order of the Civil Court. After the

rejection of the Civil Revision, the Appellant had filed objection

against the Award under Section 34 of the Act of 1996 before the

Court of Principal District Judge, on 28.04.2000 i.e. nearly three

years after the Arbitral Award dated 08.08.1997 was passed.

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However, the objection filed under Section 34 of the Act of 1996 was

not accompanied by any application for condonation of delay.

(viii) The Respondent filed affidavit before the learned Court

below questioning the maintainability of the objection filed under

Section 34 of the Act of 1996 on the ground that the same was barred

by time. After taking note of the stand taken by the Respondent, the

learned Principal District Judge, by Order dated 03.10.2001,

dismissed the objection filed by the Appellant under Section 34 of the

New Act by holding that the same was barred by time.

(ix) Assailing the Order dated 03.10.2001, the Appellant had

approached this Court by filing Appeal from Order no. 23/2002,

which was also dismissed by the Order dated 26.09.2002 passed by

this Court, whereby it was held that the objection filed by the State

was barred by time and the provisions of Section 14 of the Limitation

Act, 1963, would not be applicable to a proceeding under the Act of

1996.

(x) The State of Goa i.e. the Appellant herein, had challenged

the Order dated 26.09.2002 by filing Special Leave Petition before

the Hon’ble Supreme Court. It appears that at that stage, a few other

similar Petitions, filed by the Appellant, raising the same issue, were

pending before the Supreme Court. After hearing the parties on the

facts of the leading case, which is State of Goa vs. Western

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Builders

1

, the Apex Court had disposed of all the pending Petitions

by the Judgment dated 05.07.2006, by holding that the provisions of

Section 14 of the Limitation Act would be attracted to matters under

the provisions of the Act of 1996. Liberty was, therefore, granted to

the Appellant-State to prefer applications under Section 14 read with

Section 5 of the Limitation Act, before the Court of Principal District

Judge in the objections under Section 34 of the Act of 1996, which

were filed beyond the time prescribed by Section 34(3) of the Act of

1996.

(xi) In the wake of the Order dated 05.07.2006 passed by the

Apex Court, the objection of the Appellant under Section 34 of the Act

of 1996 was revived. However, significantly enough, there was no

application under Section 14 of the Limitation Act ever filed by the

State, explaining the delay in the case. Be that as it may, considering

the fact that the Respondent-claimant/contractor had also not raised

any objection on the ground of non-filing of application under

Section 14 of the Limitation Act, the learned Principal District Judge

had considered the objection of the Appellant on merit and

thereafter, by Judgment dated 22.02.2016, rejected the objection by

recording reasons with regard to each of the objections. Aggrieved

thereby, the present Appeal has been filed by the State under Section

37(1) of the Act of 1996.

1 (2006) 6 SCC 239

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2. A perusal of the material brought on record goes to show that

the objections raised by the Appellant with regard to the Arbitral

Award dated 08.08.1997 were inter-alia on the grounds that the

Arbitral Tribunal had travelled beyond the reference; that the

Arbitral Tribunal had acted outside the bounds of the contract and,

therefore, the award was without jurisdiction; that the Tribunal had

failed to give reasons with regard to the basis on which the amounts

have been awarded; that the Tribunal did not have jurisdiction to

direct the Government to write to the Insurance Company, that the

appointment of Shri Shitala Sharan was vitiated on account of bias

and, consequently, the Award was liable to be set aside. However, at

the time of hearing of this Appeal, Mr. Salkar, learned Government

Advocate appearing for the Appellant, has confined his submissions

only with regard to one objection i.e. the plea of bias of Shri Shitala

Sharan, having a vitiating effect on the award by submitting that the

other grounds in the Appeal are not being pressed by the Appellant.

In view of the above, it will not be necessary for this Court to record

any finding or to make any comment as regard the other objections

taken by the Appellant before the learned PDJ.

3.In support of the objection of the State pertaining to the

appointment of Shri Shitala Sharan, Mr. Salkar has argued that Shri

Shitala Sharan was earlier working as the Managing Director of the

claimant-contractor and he was also a consultant for the claimant-

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contractor. That apart, Shri Shitala Sharan had also deposed as a

witness before the Commission of Enquiry, which was enquiring into

the incident of collapse of Span 11 of the new Mandovi Bridge before

the Justice Pendse Commission of Enquiry. He was also instrumental

in designing the new Mandovi Bridge. In view of the above, Shri

Shitala Sharan had close links with the claimant and, therefore, he

cannot be said to be an impartial Arbitrator. Consequently, the

Arbitral Award would also stand vitiated due to the bias-ness on the

part of one of the Arbitrator i.e. Shri Shitala Sharan, who was the

nominee of the claimant-Contractor.

4.By referring to the provisions of Section 12 of the Act of 1996,

Mr. Salkar has argued that although the Arbitral proceedings had

commenced before the coming into effect the Act of 1996, yet, by the

own showing of the Respondent, the said Act would govern the

proceedings w.e.f. 25.01.1996 when the ordinance was promulgated

which was later replaced by the Act of 1996. As such, in view of

Section 12 of the Act of 1996, there was a duty cast upon the

Arbitrator Shitala Sharan to disclose all such circumstances, as noted

above, which he had failed to do. Mr. Salkar has further argued that

in view of Section 13(4) and (5), failure on the part of the Arbitrator

to disclose the circumstances as regards his relationship or interest in

any of the parties or in relation to the subject matter of the dispute,

would lead to perceived biasness and hence, would be a valid ground

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to set aside the Arbitral Award. On such count, the Appellant-State

has prayed for setting aside the Arbitral Award dated 08.08.1997.

5.In support of his above arguments, Mr. Salkar has referred to

and relied upon the decisions of the Bombay High Court rendered in

the cases of Union of India vs. Tolani Bulk Carriers Limited

2

,

Mohan Govind Chitale vs. Nirmala Anand Deodhar

3

,

Ganesh Builders, Nagpur vs. Nagorao S/o Motiram Kaware

& Ors.

4

and Murlidhar Roongta & Ors. vs. S. Jagannath

Tibrewala & Ors.

5

6. Per contra, Mr. Shivan Desai, learned Counsel appearing for

the Respondent-Claimant has argued that the appointment of Shri

Shitala Sharan as an Arbitrator was made on 21.07.1993 with due

information to the Engineer of the employer (Appellant), to which

there was no objection. Thereafter, the objection raised by the

Appellant before the Arbitral Tribunal was overruled. But the

Appellant did not avail any remedy under Section 5 or Section 30 of

the Act of 1940 to challenge the said order. Therefore, the plea of the

Appellant is barred by the principles of waiver, estoppel and

acquiescence.

2 (2002) 2 Bom CR 256

3 2008 SCC OnLine Bom 1712

4 2019 SCC OnLine Bom 1730

5 2004 SCC OnLine Bom 727

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7.It is also the submission of Mr. Desai that at the time when the

Arbitrators were appointed, the Act of 1996 was not in force.

Therefore, the provision of Section 12(1) would also not have any

application in the present case. Moreover, according to Mr. Desai, in

the absence of any cogent material brought on record to show that the

award was vitiated by bias-ness, mere allegation of bias would not be

sufficient to set aside the Arbitral Award. Contending that the

Arbitral Award was passed unanimously by the three Member

Arbitral Tribunal, which also included the nominee of the Appellant

as well as the Chairman of the Tribunal nominated by an Authority of

the Government of India, Mr. Desai submits that the allegation that

the Arbitral Award is vitiated by bias, on the part of one of the

Arbitrators, is wholly untenable in the eyes of law.

8.According to Mr. Desai, the learned PDJ has passed the

impugned Judgment, rejecting all the objection of the State, after a

threadbare analysis of all the grounds taken therein including the

objections as regards the neutrality of the Arbitrator Shri Shitala

Sharan by giving sufficient reason. As such, there is no scope for this

Court to interfere with the Arbitral Award.

9. In support of his argument, Mr. Desai, has referred to and

relied upon the following decisions :

(i) Asiatic Salvors vs. Dodsal Private Ltd.

6

6 1987 SCC OnLine Bom 185

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(ii) Ladli Construction Company Pvt. Ltd. vs. Punjab

Police Housing Corporation Limited & Ors.

7

(iii) Jiwan Kumar Lohia & anr. vs. Durga Dutt Lohia &

Ors.

8

(iv) Raipur Development Authority & Ors. vs. M/s.

Chokhamal Contractors & Ors.

9

(v) K. P. Poulose vs. State of Kerala

10

(vi) Central Organisation for Railway Electrification vs.

ECI-SPIC-SMO-MCML (JV)

11

(vii) TRF Limited vs. Energo Engineering Projects

Limited

12

(viii) Perkins Eastman Architects & anr. vs. HSCC

(India) LTD.

13

(ix) Glock Asis – Pacific Limited vs. UOI

14

(x) S. P. Singla Constructions Private Limited vs. State

of Himachal Pradesh & anr.

15

10.At the very outset, it must be noted herein that the objection of

the Appellant pertaining to the Arbitral Award, is only on the ground

that one of the Arbitrators, viz. Shitala Sharan, had failed to disclose

his interest in the subject matter of Arbitration resulting into

biasness having a vitiating effect on the award. Such contention has

been advanced by Appellant by relying upon Section 12 and 13 of the

Act of 1996. Therefore, it would be apposite to reproduce the

aforesaid provisions herein below :

7 (2012) 4 SCC 609

8 (1992) 1 SCC 56

9 (1989) 2 SCC 721

10 (1975) 2 SCC 236

11 (2020) 14 SCC 712

12 (2017) 8 SCC 377

13 (2020) 20 SCC 760

14 (2023) 8 SCC 226

15 (2019) 2 SCC 488

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“Section 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

(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.

Explanation 1.—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.]

(2) An Arbitrator, from the time of his appointment and

throughout the arbitral proceedings, shall, without delay,

disclose to the parties in writing any circumstances referred to

in sub-section (1) unless they have already been informed of

them by him.

(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.

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(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.

Section 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.

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(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.”

11. As has been noted herein above, the Appellant is assailing

before this Court, the impugned Judgment dated 22.02.2016 and to

that extent, the Arbitral Award dated 08.08.1997, on the sole ground

that having failed to make a disclosure as per Section 12(1) & (2) of

the Act of 1996, the Arbitrator-nominee of the Contractor, viz. Shitala

Sharan has demonstrated his bias and pre-disposition towards the

claimant-contractor thus vitiating the Arbitral Award. However,, it

must be noted herein that in the present case, the appointment of

Arbitrators have been made by following the prescription of Clause 67

of the Agreement, which contains the Arbitration clause. Clause 67 is

re-produced herein below for ready reference :

“Clause 67 - All disputes or differences in respect of which the

decision, if any, of the Engineer has not come binding as

aforesaid shall, on the initiative of any party be referred to the

adjudication to the Committee of three Arbitrators. The

Committee shall be composed of one Arbitrator to be nominated

by the employer, one to be nominated by the Contractor and the

third who will also act as the Chairman of the Committee to be

nominated by the Director General (Road Development)

Department of Surface Transport, Government of India. If

either of the parties abstain or fail to appoint his Arbitrator

within 60 days after receipt of the notice for the appointment of

such Arbitrators then the Director General (Road

Development), Ministry of Transport, Department of Surface

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Transport (Road Wing) Government of India himself shall also

appoint such arbitrator.”

12. Under the aforesaid clause, the claimant-contractor and the

State of Goa had the right to appoint/nominate one Arbitrator each.

That was the procedure agreed upon by and between the parties.

Accordingly, the claimant-contractor-Respondent, had nominated

Shri Shitala Sharan to act as an Arbitrator. Therefore, the

appointment procedure has been strictly in accordance with the

Arbitration clause. It is nobody’s case that Shitala Sharan was not

eligible to act as an Arbitrator in this case.

13.Insofar as the allegation brought against Shri Shitala Sharan,

questioning his neutrality by alleging that he was earlier serving as

the Managing Director of the Company and also rendered service as a

consultant, he had deposed before the Commission of Enquiry on

behalf of the claimant-contractor/Respondent and was also

instrumental in designing the Mandovi Bridge, it is to be borne in

mind it is not in dispute that all these facts were well within the

knowledge of the Appellant at the time when Shri Shitala Sharan was

nominated as an Arbitrator. Not only that, when the nomination of

Shri Shitala Sharan as an Arbitrator was intimated to the employer,

no objection was raised by the Appellant-State on such count. The

question of making a disclosure by the Arbitrator would arise only

when certain facts are not within the knowledge of the other party.

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Duty of disclosure, however, will not extend to disclose those facts

which are already within the knowledge of the other side. The fact

that all the above circumstances were within the knowledge of the

Appellant herein is not specifically denied by the Appellant at any

stage.

14.It is also to be noted herein that either on the date on which the

Arbitral Tribunal was constituted or for that matter, the objection

was raised by the Appellant regarding appointment of Shri Shitala

Sharan, neither the Arbitration and Conciliation Ordinance nor the

Act of 1996 were in force. Therefore, it cannot be said that there was

any duty on the part of the Arbitrator(s) under Section 12(1) of the

Act of 1996 to make any disclosure. If that be so, the question of

Section 13(5) of the Act of 1996 having any applicability would also

not arise in the facts of the present case.

15.It would be further pertinent to note herein that the Arbitral

Award is an unanimous Award. There is nothing on record to show

that the award was vitiated by bias or any likelihood of bias on the

part of one of the Arbitrators i.e. Shri Shitala Sharan. Even assuming

that there was any bias on the part of the nominee of the claimant-

contractor, viz. Arbitrator Shri Shitala Sharan, even then, the same

stood sufficiently neutralised and counterbalanced by the presence of

the other two members of the Panel of Arbitrators viz. nominees of

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the Appellant-State as well as the Chairman of the Arbitral Tribunal,

both of whom were admittedly independent and neutral persons and

had unanimously passed the same Award.

16.In the case of TRF Limited vs. Energo Engineering Projects

Limited (supra), a question arose before the Supreme Court as to

whether, the named Arbitrator i.e. the Managing Director of the

Corporation, who falls under the categories specified in the VIIth

Schedule of the Act and therefore, had become ineligible to act as an

Arbitrator in view of Section 12(5) of the Act of 1996, would still

remain eligible to nominate an Arbitrator in his place. By answering

the said question in the negative, the Supreme Court has observed

that a person who is statutorily ineligible, cannot nominate another

person as Arbitrator. However, that was a case where Section 12(5) of

the Act of 1996 was applicable.

17.By considering the decision rendered in the case of TRF

Limited vs. Energo Engineering Projects Limited (supra), and

while drawing a distinction between a three member Arbitral

Tribunal and an Arbitral Tribunal of Sole Arbitrator, in the context of

the (Amendment) Act of 2015, the Supreme Court has observed in the

case of Perkins Eastman Architects (supra), in paragraph 21 as

follows :-

“21. But, in our view that has to be the logical deduction from

TRF Ltd. [TRF Ltd. v. Energo Engg. Projects Ltd., (2017) 8 SCC

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377 : (2017) 4 SCC (Civ) 72] Para 50 of the decision shows that

this Court was concerned with the issue, “whether the Managing

Director, after becoming ineligible by operation of law, is he still

eligible to nominate an arbitrator” The ineligibility referred to

therein, was as a result of operation of law, in that a person

having an interest in the dispute or in the outcome or decision

thereof, must not only be ineligible to act as an arbitrator but

must also not be ineligible to appoint anyone else as an

arbitrator and that such person cannot and should not have any

role in charting out any course to the dispute resolution by

having the power to appoint an arbitrator. The next sentences

in the paragraph, further show that cases where both the parties

could nominate respective arbitrators of their choice were found

to be completely a different situation. The reason is clear that

whatever advantage a party may derive by nominating an

arbitrator of its choice would get counter-balanced by equal

power with the other party. But, in a case where only one party

has a right to appoint a sole arbitrator, its choice will always

have an element of exclusivity in determining or charting the

course for dispute resolution. Naturally, the person who has an

interest in the outcome or decision of the dispute must not have

the power to appoint a sole arbitrator. That has to be taken as

the essence of the amendments brought in by the Arbitration

and Conciliation (Amendment) Act, 2015 (3 of 2016) and

recognised by the decision of this Court in TRF Ltd.”

18. It would be further pertinent to note herein that even as per

the language of Section 12 of the Act of 1996, the duty of an Arbitrator

to make a disclosure arises either at the stage when he is approached

in connection with his possible appointment as an Arbitrator or, in

terms of sub-section (2) of Section 12, from time to time, throughout

the arbitral proceedings, whenever circumstances likely to give rise to

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justifiable doubts as to his independence or impartiality would come

into existence.

19. In the above context, it would be significant to mention herein

that the Arbitration proceeding in this case had evidently and

admittedly commenced before the coming into effect of the Act of

1996. Therefore, one of the pertinent questions that would arise for

consideration of this Court in the present matter is as to whether the

Act of 1996 would at all be applicable in the present case. This

question would have great significance on account of the fact that if

the Act of 1996 is held to be not applicable in this case, then the

question of making disclosures under Section 12 of the Act of 1996,

would also not arise and consequentially, there would be no scope for

setting aside the Arbitral Award on the ground mentioned under

Section 13(5) of the Act.

20.Section 85 of the Arbitration Act, 1940, contains the repeal and

saving provisions. Sub-section (2) of Section 85 reads as follows :

“85. Repeal and Saving -

(1) …

(2) Notwithstanding such repeal,—

(a) the provisions of the said enactments shall apply in relation to

arbitral proceedings which commenced before this Act came into force

unless otherwise agreed by the parties but this Act shall apply in

relation to arbitral proceedings which commenced on or after this Act

comes into force;

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(b) all rules made and notifications published, under the said

enactments shall, to the extent to which they are not repugnant

to this Act, be deemed respectively to have been made or issued

under this Act.

21.By interpreting the said provision, the Supreme Court in the

case of Shetty’s Constructions Co. Pvt. Ltd. vs. Konkan

Railway Construction & anr.

16

has held as follows :

“A mere look at sub-section (2)(a) of Section 85 shows that

despite the repeal of Arbitration Act, 1940, the provisions of the

said enactment shall be applicable in relation to arbitration

proceedings which have commenced prior to the coming into

force of the new Act. The new Act came into force on 26-1-1996.

The question therefore, arises whether on that date the

arbitration proceedings in the present four suits had commenced

or not. For resolving this controversy we may turn to Section 21

of the new Act which lays down that unless otherwise agreed to

between the parties, the arbitration suit in respect of arbitration

dispute commenced on the date on which the request for

referring the dispute for arbitration is received by the

respondents. Therefore, it must be found out whether the

requests by the petitioner for referring the disputes for

arbitration were moved for consideration of the respondents on

and after 26-1-1996 or prior thereto. If such requests were made

prior to that date, then on a conjoint reading of Section 21 and

Section 85(2)(a) of the new Act, it must be held that these

proceedings will be governed by the old Act. As seen from the

afore noted factual matrix, it at once becomes obvious that the

demand for referring the disputes for arbitration was made by

the petitioners in all these cases months before 26-1-1996, in

March and April 1995 and in fact thereafter all the four

arbitration suits were filed on 24-8-1995. These suits were

obviously filed prior to 26-1-1996 and hence they had to be

16 (1998) 5 SCC 599

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decided under the old Act of 1940. This preliminary objection,

therefore, is answered by holding that these four suits will be

governed by the Arbitration Act, 1940 and that is how the High

Court in the impugned judgments has impliedly treated them.”

22.Similar view has been taken by the Supreme Court in a

subsequent decision in the case of Thyssen Stah Lunion GMBH

vs. Steel Authority of India

17

, wherein also, it has been

categorically held that where the arbitration proceedings have

commenced before the coming into force of the new Act, it is open to

the parties to agree that the new Act will be applicable as otherwise,

the provisions of old Act i.e. the Act of 1940 shall apply to such

proceedings.

23.In the present case, there is nothing on record to show that

there was any agreement between the parties providing that the new

Act would be applicable after it comes into force. Rather, as has been

stated above, the Arbitral Award was sent to the Court to make it a

Rule of the Court in terms of the provisions of the Act of 1940. It is a

different matter that the same was returned by the learned Civil

Court on an objection raised by the Respondent claiming applicability

of the Act of 1996. However, such a claim of the Respondent was

after the conclusion of the Arbitration Proceeding and an Award was

passed. Therefore, such a stand of the Respondent cannot be

construed to bring into the fore an agreement to the effect that the

17 (1999) 9 SCC 334

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Act of 1996 would govern the Arbitration Proceeding. It is also not

the case of the Appellant that the parties had at any point of time,

mutually agreed that the Act of 1996 would be applicable to the

Arbitration Proceeding.

24.In view of the law laid down in the case of Shetty’s

Constructions Co. Pvt. Ltd. (supra) and Thyssen Stah Lunion

GMBH (supra), this Court is of the un-hesitant opinion that the Act

of 1996 did not have any application in the Arbitration Proceeding

which had culminated in the Arbitration Award dated 08.08.1997.

Therefore, the question of Sections 12 and 13 of the Act of 1996

having a relevant bearing on the Arbitration Proceeding in question

also did not arise in the eyes of law.

25.In the decisions relied upon by Mr. Salkar, in the case of

Union of India vs. Tolani Bulk Carriers Limited (supra),

Mohan Govind Chitale (supra) and Ganesh Builders, Nagpur

(supra), the Court was dealing with cases where Section 12(1) of the

Act of 1996 was applicable. In those decisions, it was observed that

the Arbitrator had a duty to disclose all such circumstances that may

give rise to a justifiable doubt as regards his neutrality and

independence. There can be no quarrel with the aforesaid proposition

of law. In every arbitral proceeding which had commenced after the

1996 Act came into force or where the Act of 1996 is applicable, the

Arbitrator would be duty bound under Section 12 of the Act of 1996 to

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disclose all such circumstances within his knowledge that may give

rise to a justifiable doubt as to his independence and impartiality to

act as an Arbitrator. Upon such disclosure, it will be open to the

other side either to continue with the said Arbitrator or to seek his

removal. If the challenge to the Arbitrator is turned down, then the

same can be taken as a ground to assail the Arbitral Award itself

under Section 13(5) of the Act of 1996. However, those decisions are

all distinguishable on facts as the Act of 1996 would not have any

application in the present case insofar as the conduct of the

Arbitration Proceeding is concerned.

26.In Jiwan Kumar Lohia (supra), the Hon’ble Supreme Court

has observed 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 attributable to a member of the tribunal might

have operated against him in the final decision.

27.In Ranjit Thakur vs. Union of India & Ors.

18

, the

Supreme Court has laid down that “test of likelihood of bias” is

whether a reasonable person, in possession of relevant information

could have thought that bias was likely.

18 (1987) 4 SCC 611

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28.In the present case, no facts have been brought on record to

show that Shri Shatala Sharan had any personal or financial interest

either in the Respondent-Corporation or in the subject matter of the

Arbitration Proceeding. There is also nothing on record to show that

the previous association or acquaintance of the Respondent company

with Shri Shitala Sharan had, in any manner, translated into

demonstrable bias having a vitiating effect on the Award. It must be

noted herein that the Respondent is not a Private Company but a

State owned Corporation. Therefore, in the absence of any material

brought on record to demonstrate bias-ness, the mere fact that a

former employee of the Corporation has been nominated as an

Arbitrator, by itself, would not be enough to raise a justifiable doubt

as regards his neutrality, so as to vitiate the Award.

29.There are innumerable instances of three Member Arbitral

Tribunal being constituted with each of the parties nominating one

Arbitrator with a Presiding Arbitrator acting as the Chairman. Under

the Act of 1996, in case of a three member Tribunal, the two

Arbitrators nominated by both the parties can nominate the third

Arbitrator referred to as the Umpire. The idea behind composing

such an Arbitral Tribunal, appears to be that both the parties get an

opportunity to nominate an Arbitrator of their choice so as to ensure

a balanced and better understanding of the issues and also to bring

on board the requisite technical knowledge so as to project and

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appreciate the dispute from the perspective of each of the contesting

parties. Such nomination would, however, be subject to the provision

of the Seventh Schedule of the Act of 1996. Therefore, merely

because the Arbitrator so nominated has been a former employee of

the organisation that would not automatically lead to the conclusion

that the Arbitrator would have a predisposition in favour of the party

which has nominated him. Even if there was any element of doubt in

this regard, the fact that there is a nomination of Arbitrator made by

the other party as well, such a possibility would automatically be

neutralised, thus ruling out the possibility of any bias on the part of

the one of the Arbitrators.

30.In the present case, the presence of a neutral Presiding

Arbitrator or a Chairman was sufficient to ensure fairness in the

conduct of the proceedings. It is an unanimous Award and there is

no allegation of biasness against the Presiding Arbitrator. In view of

the above, the grounds urged by the Appellant, in the opinion of this

Court, cannot be said to be of such nature which, in the absence of

any further material to demonstrate bias or lack of neutrality on the

part of Shri Shitala Sharan, can automatically lead to the conclusion

that one of the Arbitrator was bias.

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31. In case of S. P. Singla Constructions (supra), dealing with

an issue of similar nature, the Supreme Court has made the following

observations in paragraph 11, which is re-produced herein below :

“11. Likewise, there is no merit in the contention of the

appellant contractor that the appointed arbitrator is an

employee in service of H.P. PWD which the provision of Section

12(5) of the 1996 Act (as amended w.e.f. 23-10-2015) bars at the

threshold itself. In a catena of judgments, the Supreme Court

held that arbitration clauses in government contracts providing

that an employee of the department will be the sole arbitrator

are neither void nor unenforceable. [Indian Oil Corpn. Ltd. v.

Raja Transport (P) Ltd. [Indian Oil Corpn. Ltd. v. Raja

Transport (P) Ltd., (2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460]

, ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn.

Ltd. [ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum

Corpn. Ltd., (2007) 5 SCC 304] , Union of India v. M.P. Gupta

[Union of India v. M.P. Gupta, (2004) 10 SCC 504] ] The fact

that a named arbitrator is an employee of one of the parties is

not ipso facto a ground to raise a presumption of bias or lack of

independence on his part. The arbitration agreements in

government contracts providing that an employee of the

department or a higher official unconnected with the work or

the contract will be the arbitrator are neither void nor

unenforceable.”

32.From the above it is clear that in the absence of any contrary

stipulation in the Arbitration Agreement, appointment of a former

employee to act as an Arbitrator would be permissible.

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33.By the Amendment Act of 2015, Section 12(5) of the Act of 1996

has been amended. The Seventh Schedule to Section 12(5) contains

the list of persons and their relationship to the parties who shall be

ineligible to be appointed as Arbitrator notwithstanding any prior

agreement to the contrary. However, in the case of S. P. Singla

Constructions Private Limited (supra), the Supreme Court has

clarified that the amendment to Section 12(5) will not have any

retrospective operation in Arbitral Proceedings which had

commenced prior to the amendment unless the parties otherwise

agree.

34.Section 5 of the Act of 1996 puts limitations on the power of

judicial authority to interfere in any matter governed by Part-I of the

Act of 1996. Sections 12, 13 as well as 34 of the Act of 1996 comes

under Part-I of the Act of 1996. If that be so, there is clear legislative

mandate in the Act of 1996 against judicial intervention in

Arbitration Proceedings except as provided by the statute. Therefore,

an Arbitral Award also cannot be interfered with save and except on

such grounds as laid down in Section 34 of the Act of 1996.

35.While dealing with the issue of limited scope of the Court to

interfere with an Arbitral Award, the Hon’ble Supreme Court in the

case of Reliance Infrastructure Pvt Ltd vs. State of Goa

19

, after

taking note of several earlier decisions on the subject, has held that

19 (2024) 1 SCC 479

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the jurisidiction of the Court is even more circumscribed in an appeal

under Section 37 of the Act. The observations made in paragraph 33

are as follows:-

“33. Keeping in view the aforementioned principles enunciated

by this Court with regard to the limited scope of interference in

an arbitral award by a Court in the exercise of its jurisdiction

under Section 34 of the Act, which is all the more circumscribed

in an appeal under Section 37, we may examine the rival

submissions of the parties in relation to the matters dealt with

by the High Court.

36.After a careful reading of the Judgment and Order dated

22.02.2016, this Court is of the opinion that the learned Principal

District Judge has dealt with each of the objection raised by the State

and thereafter, decided the matter in accordance with law by

furnishing proper reasoning. The impugned Judgment and Order

dated 22.02.2016 also does not suffer from perversity of any form,

warranting interference by this Court.

37.For the reasons stated above, this Appeal is held to be devoid of

any merits. The same is accordingly dismissed.

38.Parties to bear their own costs.

39.Records and Proceedings be sent back

SUMAN SHYAM, J

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