1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.266 OF 2006 Dodsal Engineering & Construction Pvt.Ltd ....Petitioner Versus Voltas Limited & Ors. ....Respondents Mr.Soli Cooper with Ms.E. Pareria and Mr.Mohan Salian i/b Gagrats for the Petitioner. Mr.Gaurav Joshi with Mr.Avinash Joshi i/b Mulla & Mulla & C. B. & C. for Respondent No1. CORAM : S.J. VAZIFDAR, J. DATE : 26TH SEPTEMBER, 2008. ORAL JUDGMENT :- This is a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the said Act”) to set aside an award dated 18.1.2006 along with an order dated 16.3.2006 made and published by the aribtral tribunal. The members of the arbitral tribunal are impleaded as Respondent Nos.2, 3 and 4, who did not appear at the hearing. The reference in this judgment to the Respondent will be to Respondent No.1. 2 2. The challenge to the award falls mainly in two categories. There is a challenge to the award on merits. There is also a challenge to the award on the basis that the arbitral tribunal rejected the challenge to the continuation of the presiding arbitrator despite the Petitioner challenging his doing so under Sections 12 and 13 of the said Act. 3. A letter of intent dated 29.10.1999 was issued by the Petitioner to the Respondent for design, engineering, manufacturing, testing and supplying a pump station package for the Ahmedabad Municipal Corporation water pipe line project. The Respondent by a letter dated 1.11.1999 requested the Petitioner to place three separate orders for the supply of equipment, installing, commissioning and for operation and maintenance for two years. The Petitioner by a purchase order dated 21.1.2000 placed the order for manufacturing, testing and supplying of a pump station package. I will refer to the terms of the LOI/purchaser order at the appropriate stage while dealing with the merits of the matter. Suffice it to note at this stage, clause 18 of the supply order which pertains to arbitration and reads as under :- 3 “18 ARBITRATION LAW If the parties, Dodsal and Supplier fail to settle any dispute or difference arising between them, touching or concerning the interpretation or performance of this order or relative to this order or in connection therewith or the rights and liabilities of either of the parties, the same shall be finally settled by arbitration at the request of either of the parties. The arbitration shall be conducted by a panel of two (2) arbitrators, with one (1) arbitrator selected by the two (2) arbitrators. The arbitration shall be in accordance with the Indian Arbitration Act 1996 and as amended from time to time. Venue of arbitration is Mumbai.” 4. Disputes and differences arose between the parties which I will refer to while dealing with the challenge on the merits of the award. I will first deal with the Petitioner's challenge to the presiding arbitrator on the ground that he was a member of an arbitral tribunal that had made an award in which one of the issues was similar to an issue in the present reference. 5. It is necessary to preface a consideration of the submissions in this regard with the manner in which the reference proceeded upto the time the Petitioner challenged the presiding arbitrator. 4 (a). The arbitrators were appointed by the Respondent and the Petitioner on 4.4.2001 and 20.4.2001 respectively. The arbitrators nominated the presiding arbitrator shortly thereafter. (b). A preliminary meeting was held on 18.10.2001. Between 28.11.2001 and 11.1.2002 the pleadings were filed. On 17.3.2002 the points for determination were framed and on 29.8.2002 certain directions were issued by the arbitral tribunal. (c). Between 17.3.2003 and 11.2.2004 the witnesses of both the parties were examined and cross-examined. (d). On 12.2.2004 the arguments on behalf of the Respondent commenced. The same concluded on 22.7.2004 after being heard for four days. On 28.7.2004 the arguments on behalf of the Petitioner commenced. Between 28.7.2004 and 2.12.2004 arguments were heard on behalf of the Petitioner on six days. (e). The award in the other arbitration was made and published on 11.1.2005. 5 (f). Thereafter the arguments on behalf of the Respondent continued on 1.3.2005 and concluded on 4.3.2005 after having been heard for four days. (g). Written submissions on behalf of the Respondents were filed thereafter which inter-alia referred to the award dated 11.1.2005 made in the other arbitration by the arbitral tribunal, of which the presiding arbitrator in the present arbitration was also a member. 6. On 5.7.2007 the Petitioner filed an application before the arbitral tribunal contending that the presiding arbitrator should not act as an Arbitrator in the proceedings and ought to recuse himself therefrom. It was contended that the common issue was whether or not the opening of an irrevocable letter of credit constitutes conditional payment and if so whether a seller can demand payment from a buyer if he fails to comply with the conditions of the letter of credit. The Respondent contended that it was never informed and had no knowledge of the said award dated 11.1.2005 prior to it having been relied upon on behalf of the Respondent before the arbitral tribunal. It was contended that the presiding arbitrator having expressed an opinion in the award dated 11.1.2005, had prejudged the issue and 6 made up his mind as regards the common issue before the present matter had been fully argued. Mr.Cooper submitted that in view of these facts, the presiding arbitrator rendered himself incapable of acting as an Arbitrator in the present matter independently and impartially. He further submitted that the fact that the presiding arbitrator did not himself disclose this fact established that he deliberately suppressed the same with a view to conceal his bias. 7. Mr.Cooper's submission that the arbitral tribunal ought to have decided in favour of the presiding arbitrator recusing himself is unfounded. His allegation that the presiding arbitrator “suppressed” the fact of the said award dated 11.1.2005 is unfortunate. 8. Mr.Joshi submitted that non-disclosure by the Arbitrator is not even a ground taken either before the arbitral tribunal or in the Petition. I will however, presume that it was taken before the arbitral tribunal as well as in this petition. 9. Sections 12 and 13 of the said Act read as under :- “12. Grounds for challenge.—(1) When a person is approached in connection with his possible ap- pointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to jus- tifiable doubts as to his independence or impartial- ity. 7 (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 justifi- able 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 participat- ed, only for reasons of which he becomes aware after the appointment has been made. 13. Challenge procedure.—(1) Subject to sub- section (4), the parties are free to agree on a pro- cedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-sec- tion (1), a party who intends to challenge an arbi- trator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances re- ferred 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. 8 (4) If a challenge under any procedure agreed up- on by the parties or under the procedure under sub-section (2) is not successful, the arbitral tri- bunal 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. (6) Where an arbitral award is set aside on an ap- plication made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.” 10. The question that arises for consideration is whether a person is precluded from acting as an arbitrator merely because he has either in a judgment, opinion, article or otherwise expressed or taken a view on a question of law. In other words, whether having taken or expressed a view on a question of law a person would not be capable of acting as an arbitrator independently or impartially. 11. I am clearly of the view that the answer must be in the negative. The present arbitral tribunal comprised of three retired judges of this country. Former judges during their years on the bench and lawyers in the course of their practice are bound to have dealt with questions of law which arise in arbitration proceedings regularly. 9 Indeed they would be appointed in view of their training, discipline and experience in the field of law and for their ability to deal with disputes and differences between parties in accordance with well established principles. It is but natural that such arbitrators would entertain views on the questions that they may have dealt with. It must be a particularly vacuous Judge who does not entertain any view on the questions of law that he has dealt with in his career. That by itself can by no stretch of imagination render him incapable of acting independently and impartially as an arbitrator. 12. The fact that a judge or a lawyer entertains a view on a question of law does not imply or indicate that he would not be open to changing the same if he is persuaded to do so in the course of the proceedings. 13. If an arbitrator is bound by precedent, he must naturally follow the same. If not, he is free to decide the matter on the basis he considers correct. The mere fact that he may have taken a particular view in any other matter does not preclude him from taking a different view in a subsequent case. If an arbitrator is not aware of this he can be so informed by the parties or their advocates. 10 14. Most experienced arbitrators especially those connected with the legal profession either as the lawyers or as former judges are aware that if they are not bound by precedent, they are free, in fact bound to decide a question of law in accordance with their understanding and appreciation of it unfettered by any view that they may have taken in the past or any impression that they may presently entertain. Their experience, training and discipline enhances the probability of their inclination and willingness to change their mind if they are convinced by a view contrary to the one they entertain. 15. Judges do not have any proprietary interest in questions of law decided by them. If a judge is bound by his own decision, he must follow it. If not, he is free to decide the matter independent of it and afresh. It must be presumed that he would do so. 16. There may indeed be aberrations. The law however cannot be based upon aberrations. The law, unless it provides otherwise, must be based on the assumption that people will discharge their duties as they must. If in a given case an arbitrator is established to be aberratant in this regard it may well be a ground to seek his removal. That however would depend upon the facts of the case, the 11 burden of establishing the same being on the party asserting the point. 17. There is nothing in this case to suggest that the presiding arbitrator had made up his mind and had refused to consider the point afresh. In the circumstances the arbitral tribunal was entirely justified in rejecting the Petitioner's application for removing the presiding arbitrator. 18. I am also conscious that the point involves an element of subjectivity as it relates to individuals each of whom has his own mind, personality and individuality. The extent of flexibility varies between people. There is no absolute standard in this regard. The level of each persons flexibility cannot be a basis for challenging an arbitrator. 19. A view to the contrary would for instance in the case of former judge require him in every matter in which he is appointed as an arbitrator to sift through his judgments on every point that is likely to arise in the arbitration and place it before the parties. When during the course of the arbitration questions of law arise which were not foreseen earlier, he must again sift through his judgments and place 12 the same also before the parties. Anyone who has any experience of such matters is only too aware of the frequency with which new points of law keep arising not merely in the matter in general but on specific issues as well. Each such point often leads to another and so on. Mr.Cooper's submission if accepted, would frustrate almost every arbitration. 20. Mr.Cooper submitted that if a lawyer has given an opinion on a question of law,he would never be able to decide a matter involving a similar question impartially or independently. In support of this submission Mr. Cooper relies on the fact that the lawyer is paid a fee for his opinion. 21. The submission is contrary to the very basis of the profession of law equating it to a business. A lawyer has no greater proprietary interest in a question of law on which he has expressed an opinion as does a judge on a question of law he has decided by a judgment. Mr.Cooper's reliance upon the fact of a fee being paid for an opinion is contrary to the basis on which a lawyer or a former member of the judiciary gives an opinion. An opinion is sought from a former judge or a member of the legal profession with the 13 expectation that he would express his opinion on the query on the basis of his knowledge and perception of the law. An opinion is not meant to favour or please the querist. It is a frank expression of ones view on the query raised. The fee that is paid for the opinion is for the discharge of this professional duty. The fallacy in Mr.Cooper's submission is that he considers the fee to be a remuneration for an opinion favourable to the querist. The fee is paid for the discharge of the person's professional experties and not to favour the querist who pays it with a suitable opinion. 22. I am conscious there may well be aberrations too and that the element of subjectivity I referred to earlier would be equally applicable where opinions are given. But for the reasons I have already given these elements would not be an obstacle in the way of their being appointed as arbitrtors. 23. Mr.Cooper then submitted that the rule however would be different in cases where the question involved is a novel one. 24. I see no basis for the distinction. If an Arbitrator is expected and presumed to keep an open mind on some questions of law, I do not understand by what process of reasonings he must be deemed 14 not do the same on “novel” questions of law. He must keep an open mind on all questions, on all notions, on all views and be prepared to change them if he is convinced to the contrary. Indeed, in the case of a “novel point” he is bound to be even more receptive than in respect of points which have been dealt with on a regular basis. 25. I am entirely in agreement with the following commentary relied upon by Mr. Joshi in The law and Practice of Commercial Arbitration in England, Second edition, by Mustill and Boyd at page 252 :- “More troublesome are the cases where the arbitrator has nothing personally to win or lose, but has already taken up a position in relation to some or all of the issues which casts doubt on his ability to assess them fairly. This can happen where, in advance of the reference, the arbitrator has already expressed himself on the very matter which is in dispute. This is unusual. Rather less so is the situation where the arbitrator has decided the same issue of fact or law in the course of an arbitration between different parties. Here, we suggest that there is no necessary obstacle to the appointment of the arbitrator: for he can be reminded that it is his duty to approach the issue afresh in the light of the evidence and arguments addressed to him on each occasion. It is only if his conduct at the hearing discloses that his mind has been closed from the outset that the Court might, in 15 extreme cases, be willing to interfere. Coming to the case with some preconceived ideas is not necessarily undesirable: indeed, it may be a positive benefit. Very often an arbitrator is chosen precisely because his skill and expertise make it unnecessary to inform him by evidence of all the elements and details of the subject. Such an arbitrator is bound to have his own opinions on matters concerning the trade, and some of these may prove to be relevant to the arbitration. There is nothing wrong in this, provided that the arbitrator is willing to change his mind if the evidence and argument so require.” 26. Mr.Joshi's reliance upon the observations of the Supreme Court in G.N. Naik v. Goa University and others, 2000 (2) SCC 712, although in a case on administrative law is also well founded. The observations of the Supreme Court apply with equal if not greater force in the present case. It is important to note the facts of this case. The post of Professor Marine Science was to be filled in. The Appellant and Respondent No.5 were Readers in the department of Marine Science, Respondent No.5 being senior. They both applied for the post. Respondent No.2 as head of the department addressed a note extolling the qualities of the Appellant and recommended his appointment. In the first interview neither of them was found suitable. Thereafter a fresh advertisement was issued for the post after 16 amending the essential qualifications. Respondent No.2 was also appointed as a member of the selection committee. This was objected to by Respondent No.5 on the ground of bias in view of his having addressed the said letter recommending the appointment of the Appellant. The committee recommended the appointment of the Appellant. The same was accepted by the Executive Council and an order was issued appointing him. Respondent No.5 filed a Writ Petition challenging the selection of the Appellant on various grounds including bias. The Supreme Court held as under :- “32. This brings us to the issue of bias. 33. Bias may be generally defined as partiality or preference. It is true that any person or authority required to act in a judicial or quasi-judicial matter must act impartially. “If however, ‘bias’ and ‘partiality’ be defined to mean the total absence of preconceptions in the mind of the Judge, then no one has ever had a fair trial and no one ever will. The human mind, even at infancy, is no blank piece of paper. We are born with predispositions and the processes of educa- tion, formal and informal, create attitudes which precede reasoning in particular instances and which, therefore, by definition, are prejudices.” 34. It is not every kind of bias which in law is taken to vitiate an act. It must be a prejudice which is not founded on reason, and actuated by self-interest 17 — whether pecuniary or personal. Because of this element of personal interest, bias is also seen as an extension of the principles of natural justice that no man should be a judge in his own cause. Being a state of mind, a bias is sometimes impossible to determine. Therefore, the courts have evolved the principle that it is sufficient for a litigant to success- fully impugn an action by establishing a reason- able possibility of bias or proving circumstances from which the operation of influences affecting a fair assessment of the merits of the case can be inferred. 36. As we have noted, every preference does not vitiate an action. If it is rational and unaccompa- nied by considerations of personal interest, pecu- niary or otherwise, it would not vitiate a decision. For example, if a senior arbitrator expresses ap- preciation of the work of a junior in the confidential report, it would not amount to bias nor would it pre- clude that senior arbitrator from being part of the Departmental Promotion Committee to consider such junior arbitrator along with others for promo- tion.” 27. The Respondent's case in this Petition is far stronger. Likelihood of bias would be even less in the case of a trained judicial mind. Judges and lawyers are only too aware that the same question may be dealt with differently by different counsel; that research each time may lead to a new look at the same question; that a thought or a reference may have escaped them earlier and that a different perspective may lead to a different perception of the same question 18 on another occasion. They are only too aware that a fresh approach to a question leading to a different conclusion is always possible. 28. I would therefore reject the Petitioner's challenge to the presiding arbitrator's continuing as an arbitrator in the reference after he made the award dated 11.1.2005. 29. Mr.Cooper then submitted that the other two members of the arbitral tribunal did not decide the question as to whether the presiding arbitrator ought to be removed. They merely based their decision on the stand taken by the presiding arbitrator. He further submitted that the arbitral tribunal did not furnish any reasons for their decision rejecting the Petitioner's application challenging the presiding arbitrator. He also submitted that the purported reasons furnished by the other two members of the arbitral tribunal were beyond the period fixed by the learned single Judge of this Court. Lastly, he submitted that the Respondent is barred from contending that no reasons are required on the question as to whether the presiding arbitrator ought to have recused himself in view of an order dated 29. 8.2006 passed by this Court which I will refer to later. 19 30. It is necessary to note the facts relevant to the consideration of these submissions. (A). On 5.7.2005 the Petitioner filed the application before the arbitral tribunal challenging the presiding arbitrator. By an order dated 6.7.2005, the arbitral tribunal rejected the application. There is no dispute that this order was passed by all three arbitrators although it was signed by only the presiding arbitrator. This, it was agreed, he was entitled to do. (B). The above petition was filed on 4.5.2006. It appears that when the matter was taken up for admission, it was contended on behalf of the Petitioner that the arbitral tribunal had disclosed no reasons for the order dated 6.7.2005 and that the award was liable to be set aside on this ground alone. As both the counsel referred to this order extensively I will set it out fully. It reads as under :- 20 “1. By this petition, petitioners are challenging the award dated 18th January, 2006. First submission made by the counsel for the petitioners is that the petitioners had filed application dated 5th July, 2005