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TMI Blog2003 (4) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-12-1999, in pursuance of the provisions of arbitration contained in clause 23 of the Deed of Guarantee Respondent No. 1 referred the dispute which had arisen between the parties to the sole arbitration of Mr. Ashwin Ankhad, a practising advocate under the provisions of Arbitration & Conciliation Act, 1996. In February 2000, two applications came to be filed before the arbitrator. The first questioning the jurisdiction of the arbitrator under section 16 of the Act and the second, under section 12 on the ground that there was a justifiable doubt as regards the independence and impartiality of the arbitrator. Insofar as the challenge to the jurisdiction of the arbitrator under section 16 was concerned, it was contended that the company to which the Respondent No. 1 granted financial facility has been declared sick industrial company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA' for short). The contention was that under section 22 of the SICA arbitral proceedings were not maintainable and they could not be proceeded with. Insofar as the second challenge under section 12 of the Act was concerned, the independence and impartiality of the arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were circumstances which existed to give rise to justifiable doubts as to his independence or impartiality. The second ground was that in view of the provisions of section 22 of SICA the arbitral proceedings were not maintainable. The learned single Judge rejected both the grounds and dismissed the petition. 2. Mr. Chinoy, learned Counsel appearing for the Appellant strenuously submitted that independence and impartiality of an arbitrator, when it goes to the root of the matter has to be treated with the greatest circumspection and in view of the vast and untrammelled power of an arbitrator under the Arbitration & Conciliation Act, 1996, the independence and impartiality of an arbitrator must be beyond all reasonable doubts. He submitted that the arbitrator had merely stated at the hearing of the Application that 5 years earlier he had handled one matter of Tata International Ltd. and that he had not disclosed that he was the Head of the Legal Department of the group company of the Respondent No. 1. When the arbitrator was confronted with the allegation, an oral statement was made at the bar that the arbitrator was engaged by Tata International Ltd. He submitted that there is dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e involved in the adjudicatory process before the arbitrator. It is well said that once the arbitrator enters into the arbitration the arbitrator must not be guilty of any act which can possibly be construed as indicative of partiality or unfairness. It is not a question of the effect which misconduct on his part had in fact upon the result of the proceeding, but of what effect it might possibly have produced. It is not enough to show that, even if there was misconduct on his part, the award was unaffected by it, and was in reality just: arbitrator must not do anything which is not itself fair and impartial. The learned Judge, then proceeded to observe as follows:- ". . . The purity of administration requires that the party to the proceedings should not have apprehension that the authority is biased and is likely to decide against the party. But we agree with the learned Judge of the High Court that it is equally true that it is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased. The apprehension must be judged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a nullity and trial "coram non Judice". In a subsequent decision in The Secretary to the Government, Transport Department v. Manuswamy Mudaliar AIR 1988 SC 2232 the Supreme Court held that a reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. Mr. Justice Sabyasachi Mukharji held that a predisposition to decide for or against one part without proper regard to the true merits of the dispute is bias. There must be a reasonable apprehension of that predisposition which must be based on cogent material. 6. Recently, the Supreme Court in the case of Kumaon Mandal Vikas Nigam Ltd. v. Girija Shankar Pant [2001] 1 SCC 187, after examining the English cases in R. v. Gough [1993] AC 646; and Locabail Ltd. v. Bayfield Properties [2000] 1 All ER 65 and other relevant English decisions, summed up the legal position as follows:- "The Court of Appeal judgment in Locabail though apparently as noticed above sounded a different note but in fact, in more occasions than one in the judgment itself, it has been clarified that conceptually the issue of bias ought to be decided on the facts and circumstances of the individual case a slight shif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsion of bias. It removes any possible conflict with the test which is now applied in most Commonwealth countries and in Scotland. I would however delete from it the reference to a real danger. Those words no longer serve a useful purpose here, any they are not used in the jurisprudence of the Strasbourg court. The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the Tribunal was biased." [Emphasis supplied] 8. In the light of the decided cases, it is abundantly clear that in considering the question as to whether a Judge or an arbitrator, is liable to be disqualified in the facts of a given case on the ground of bias the test to be applied is whether the circumstances are such as would lead a fair minded and informed observer to conclude that there was a real possibility that the Judge or Tribunal was biased. In the application under section 12, only allegations that are made against the arbitrator were that the arbitrator was an advocate engaged by the Respondent No. 1 or his sister concern in various matters. Then, it is also alleged that the arbitrator has very close relations with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egards the independence and impartiality of the Arbitrator. The apprehension of bias does not arise out of any alleged connection or interest of the Arbitrator in the affairs of the Claimant. The Arbitrator has had no such affiliation, contract or interest with the Claimant, least of all in the dispute with the Petitioner. The employment of the Arbitrator with Tata International Limited ended over twelve years prior to the reference. Employment in the distant past with another public company, albeit in the same group, was not such as would warrant the invocation of the circumstances spelt out in section 12. The Arbitrator is a member of the Bar for over fifteen years now since he ceased to be in the service of Tata International Limited. A professional in the legal profession, who discharges the role of an Arbitrator is expected to bring to his task a sense of objectivity and a high degree of dispassionateness. No facts have been placed before the Court in these proceedings which would lead it to believe that this expectation has been belief." We are entirely in agreement with the conclusion of the learned Single Judge that no right thinking person knowing of the connection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further except with the consent of the Board or, as the case may be, the Appellate Authority." 12. In Maharashtra Tubes Ltd.'s case (supra), when a question arose whether a State Financial Corporation could take action under section 29 and/or section 31 of the State Financial Corporation Act, 1951, notwithstanding the bar of section 22 of SICA, the Supreme Court held that the expression "proceedings" in section 22(1) should not be limited to "legal proceedings" as understood in the narrow sense, but woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whereby recovery of dues is sought to be made by way of execution, distress or similar proceedings against the property of the company." 15. It is thus clear from the wording of section 22(1) and above observations of the Supreme Court that only proceedings of coercive nature, be that legal or otherwise, would come within the purview of the expression "proceedings" as mentioned in section 22(1) and not all proceedings and the words "or the like" should be construed ejusdem generis with the preceding words namely, 'execution' and 'distress' or in the other words, the said words or the like should be read as proceedings analogous to execution or distress proceedings against any of the properties of the industrial company. It is not the case of the Appellant that his case is covered by section 22(1) of the Act. 16. It is to be noted that the Legislature in introducing the aforesaid amendment has used the word "suit" only and not "suit and other proceedings". The word "suit" has not been defined in SICA nor any extended meaning of the word "suit" has been given under any other provisions of the said Act. In Bouvier's Law Dictionary, 3rd Revision (1984) Volume-1, the word "arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions (India) Ltd. v. Cement Corporation of India Ltd. [2001] 105 Comp. Cas. 729 (Delhi), a question arose before the Division Bench of the Delhi High Court as to whether the proceedings under sections 14 and 17 of the Arbitration Act, 1940 can be treated as "suit" for recovery of money and therefore would be covered by a bar of section 22 of the SICA. The Division Bench answered this question in negative. The reasons for the decision were summarised as follows:- "(1) The expression 'suit' under sub-section (1) of section 22 of the SICA is to be given the meaning in which it is normally understood, i.e., civil proceeding instituted by the presentation of a plaint. This would refer to the suit as contemplated by section 9 of the Civil Procedure Code. Proceedings under section 14 read with section 17 of the Indian Arbitration Act, for the passing of a judgment and decree of an award do not commence with a plaint or a petition in the nature of a plaint and, therefore, cannot be regarded as a suit. This is the authoritative pronouncement of the Supreme Court in the case of Nawab Usmanali Khan v. Sagar Mal AIR 1965 SC 1798, and is sufficient to annihilate all arguments of CCI Ltd. to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended by the Appellant. 20. In P.S. Shrinivasan v. Mukesh Babu Financial Services Ltd. 2001 Comp. Cas. 597 to which one of us (Deshmukh, J.) was a party, it was held following the decision in Madalsa International Ltd. v. Central Bank of India [1998] Mah. LJ 666 and the decision of the Delhi High Court in Lloyd Insulations (India) Ltd.' case (supra ) that section 22 of the SICA extends protection to the guarantor only in relation to the suit and the execution proceedings on the basis of award made against the guarantor would not be barred by the provisions of section 22 of the Act. It was further held that issuance of insolvency notice is an independent proceedings and cannot be termed as further proceedings in the suit. 21. In a recent decision of the Supreme Court in BSI Ltd. v. Gift Holdings (P.) Ltd. [2000] 24 SCL 351 , 436 the question to be decided was whether the proceedings under section 138 of the Negotiable Instruments Act, 1881 were in the nature of suit for recovery of money. The Court held that the word "suit" envisaged in section 22(1) cannot be a criminal proceeding. The term "suit" mentioned therein restricts "recovery of money" or enforcement of any security aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. Apart from the semantic difference between the words 'suit' and 'proceeding' there is the absence of expansive words 'or the like' which appear after the expression proceedings, after the word 'suit'. The exclusion of such 'omnibus expression' after the word 'suit' must be given some weight in interpreting the word. As held by this Court in LIC v. Escorts Ltd.'s case (supra): "The distinction made by Parliament. . . . . in the several provisions of the same Act cannot be ignored or strained to be explained away by us. That is not the way to interpret statutes. The proper way is to give due weight to the use as well as the omission to use the qualifying words in different provisions of the Act the significance of the use of the qualifying word in one provision and its non-use in another provision may not be disregarded." 27. Since the Legislature has expressly chosen to make a distinction between the suits for recovery of the money and enforcement of guarantees and proceedings for the recovery of money, that must be given effect to. 28. Furthermore, the Parliament must be taken to be aware of the decision in Maharashtra Tubes and the fact that the word 'proceeding' used in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion observed in paragraph 49 as follows:- "49. From the above it is clear that the term "suit" is a generic term taking within its sweep all proceedings initiated by a party for realisation of a right vested in him under law. The meaning of the term "suit" also depends on the context of its user which in turn, amongst other things, depends on the Act or the Rule in which it is used. No doubt the proceeding before a National Commission is ordinarily a summary proceeding and in an appropriate case where the Commission feels that the issues raised by the parties are too contentious to be decided in a summary proceeding it may refer the parties to a civil Court. That does not mean that the proceeding before the Commission is to be decided ignoring the express statutory provisions of the Carriers Act (S. 9) in a proceeding in which a claim is made against a common carrier as defined in the said Act. Accepting such a contention would defeat the object and purpose for which the Consumers Protection Act was enacted. A proceeding before the National Commission, in our considered view, comes within the term "suit". Accordingly we reject the contention raised by Shri Ashok Desai in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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