2003 (4) TMI 407 - HC - Companies Law

Summary

Issues Involved:
1. Independence and impartiality of the arbitrator under Section 12 of the Arbitration & Conciliation Act, 1996.
2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to arbitral proceedings against a guarantor.

Detailed Analysis:

1. Independence and Impartiality of the Arbitrator:
The appellant challenged the arbitrator's independence and impartiality under Section 12 of the Arbitration & Conciliation Act, 1996. The appellant argued that the arbitrator had a past association with Tata International Ltd., a company related to the respondent, which was not disclosed, thereby raising justifiable doubts about his impartiality. The arbitrator denied any current association with the respondent and clarified that his past employment with Tata International Ltd. ended in 1987, long before the arbitration proceedings began. The court emphasized that the test for bias is whether a fair-minded and informed observer would conclude that there was a real possibility of bias, considering the facts and circumstances. The court found that the arbitrator's past employment did not create a reasonable apprehension of bias, especially given the significant time lapse since his employment ended. The court upheld the arbitrator's independence and impartiality, agreeing with the learned single judge that no right-thinking person would perceive bias in this case.

2. Applicability of Section 22 of SICA to Arbitral Proceedings:
The appellant contended that under Section 22 of SICA, arbitral proceedings against the guarantor were not maintainable. The court examined whether the term "suit" in Section 22(1) of SICA included arbitration proceedings. The court referred to various precedents and noted that the term "suit" typically refers to civil proceedings initiated by a plaint in a court of law and does not encompass arbitration proceedings. The court highlighted that the legislative intent behind the amendment to Section 22(1) of SICA was to include specific types of coercive proceedings, such as suits for recovery of money or enforcement of security, but not arbitration proceedings. The court also referenced the Supreme Court's decision in Kailash Nath Agarwal v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd., which distinguished between "suit" and "proceeding," emphasizing that the word "suit" should be given its ordinary meaning and not an extended one. Consequently, the court concluded that arbitral proceedings against the guarantor were not barred by Section 22 of SICA.

Conclusion:
The court dismissed the appeal, upholding the arbitrator's independence and impartiality and ruling that Section 22 of SICA did not apply to arbitral proceedings against the guarantor. The court emphasized the importance of a fair-minded and informed observer's perspective in assessing bias and clarified the legislative intent behind the term "suit" in Section 22 of SICA.