Spentex Industries Ltd. vs Indo Ram Synthetics (I) Ltd. and Others

Mukul Mudgal, J.—This appeal challenges the judgment of the learned Single Judge dated 25th May, 2009. Clause 6 of the Arbitration Clause, pursuant to which the appointment of the Arbitrator was made, reads as follows:

Arbitration.

That in case of any dispute or differences arising out of this Agreement, unless settled amicably, the same shall be referred to the sole Arbitrator. Mr. O.P. Lohia or any person nominated by him whose decision shall be final and binding on both the parties and the parties will not raise any objections with regard to the appointment of an arbitrator at any stage.

The case of the appellant is founded on the fact that the respondent No. 1 and the appellant were earlier companies of the same group and a demerger took place and the appellant-company separated from the respondent No. 1 group, pursuant to the scheme approved by the orders of the Madhya Pradesh High Court dated 24th March, 2003 and this Court dated 25th February, 2003. The plea raised by the appellant was that the above arbitration Clause which was contained in the MOU was entered into when the companies were under the same group and since after the demerger the interest of the companies had become different, in such case, Mr. O.P. Lohia, who was appointed as an Arbitrator in the arbitration Clause could not act in a fair and unbiased manner. In the present case, Mr. O.P. Lohia himself did not arbitrate but appointed an advocate of this Court, Sh. Virender Mehta as an Arbitrator.

The OMP u/s 14 was filed by the appellant at the initial stage of the proceeding, before any effective order came to be passed by the Arbitrator. The learned Single Judge had dismissed the application as not maintainable. The findings of the learned Single Judge, both on facts and law, is challenged before us.

During the course of hearing, we asked Mr. Chhabra, learned Counsel for the appellant, to proceed on the basis that this court does have power to remove Arbitrator in appropriate cases on the ground of bias and, therefore, address us on facts to show that the bias can be inferred.

In proof of his submission, the learned Counsel relied on the paragraph 33 of the judgment of the Hon''ble Supreme Court in the case of State of West Bengal and Others Vs. Shivananda Pathak and Others, wherein it has been held as under:

Bias, as pointed out earlier, is a condition of mind and, therefore, it may not always be possible to furnish actual proof of bias. But the courts, for this reason, cannot be said to be in a crippled state. There are many ways to discover bias; for example, by evaluating the facts and circumstances of the case or applying the tests of "real likelihood of bias" or "reasonable suspicion of bias". De Smith in Judicial Review of Administrative Action, 1980 Edn. Pp. 262, 264, has explained that "reasonable suspicion" test looks mainly to outward appearances while "real likelihood" test focuses on the court''s own evaluation of the probabilities.

In our view, the paragraph extracted above, far from supporting the case of the appellant, is in fact, against him because it clearly states that the test is the real likelihood of bias or reasonable suspicion of bias.

Mr. Chhabra, the learned Counsel for the appellant, has also relied upon a judgment in the case of National Highways Authority of India Vs. Mr. K.K. Sarin and Others,

In the present case, the Arbitrator having not passed any effective order in the matter, could not be said to be biased in any circumstance. It was pleaded by the appellant in the OMP and represented before us that the Arbitrator was a regular lawyer engaged or an advocate appearing on behalf of the respondents. However, the appellant has been unable to point out a single instance of the said advocate functioning as an Arbitrator. On the contrary, Mr. Bagai, the learned Senior Counsel appearing on behalf of the respondents state and we record his plea that Mr. Mehta has not appeared on behalf of the respondent even in a single matter nor has he advised them. Mr. Bagai, during the course of hearing, has handed over an e-mail dated 3rd March, 2009, where the following statement by the appellant was made:

Both the Companies in terms of aforesaid MOU had decided to resolve the dispute through the arbitration of Sh. O.P. Lohia Ji, and it remains.

However, we are not ruling on the efficacy or indeed the admissibility of the said e-mail, as such a document has not been filed before us. In this view of the matter, we dismiss the appeal. However, we make it very clear that we are not expressing any view, one way or the other, on the finding of the learned Single Judge, as to whether a question of bias u/s 14 can be gone into or not.

Consequently, we make it clear that the dismissal of the appeal does not tantamount to the affirmation of the view taken by the learned Single Judge qua Section 14. However, we make it clear that if an when any justifiable apprehension of bias arises, it will be open to the appellant to redress it in accordance with law.

Accordingly, the appeal stands disposed of. All the pending applications also stand disposed of.