Case: Secretary To The Government, Transport Department Vs. Munuswamy Mudaliar and Others

The appellant is the Secretary to the Government, Transport Deptt. , Madras, and the respondent No. 1 is the managing partner of M/s. National Company, which was the successful tenderer of the work of construction of a bridge across the river Coovum at Koyambedu within the corporation limit of the city of Madras and accordingly the necessary contract was executed between the respondent No.Superin tending Engineer (Highways) World Bank Project Circle, Madras, and the said Company on 28th April, 1979.3. According to the conditions of the contract between the parties, the work should have been completed on or before 5th November, 1980. The said National Company, however, according to the appellant, did not even commence the work till 21.9.1981. and despite extension of time until 31.10.1981 the said firm failed and neglected even to commence the job. Consequently, the contract in favour of the said firm was determined absolutely at their risk and cost, according to the appellant. The respondent herein, in his individual capacity as managing partner of the said Company filed a suit in the City Civil Court, Madras, being O.S. No. 3996/82 claiming damages alleged to have been caused as a result of the said determination of the said contract and for refund of earnest money deposit etc.4. In view of the Arbitration Clause under the agreement between the parties, the appellant filed a petition for referring the dispute to the arbitrator for further proceedings and the City Civil Court? Madras, accepting the appellants prayer, passed orders directing both the parties to refer the disputes to the arbitrator, and stayed the suit. As per the order of the City Civil Court, Madras, the respondent filed claim petition before the arbitrator, namely, Superintending Engineer (Highways &Rural Works) Rural Roads Circle, Tiruchirapalli, being the second respondent herein.During the pendency of the claim before the said arbitrator, the respondent filed another application seeking to change the arbitrator on the ground that the arbitrator being an employee of the State Government, an Engineer from any sector other than the sector of Tamil Nadu or a retired Engineer of the State Government might be appointeded arbitrator.Thelearned Judge by his order sought to revoke the authority of the named arbitrator. The learned Judge in his order dated 6th March, 1984, inter alia, observed as follows: "The apprehension of bias on the part of the Arbitrator is made to rest on the ground that the first respondent in the counter filed before the Arbitrator to the claim made by the petitioner referred to G.O. Ms. 409/Transport Dated 7.4.83 which in turn made a reference to a letter No.114879/D2/81. Dated 30. 10.82 of the Chief Engineer, H &RW."5. In the order of the learned Judge, City Civil Court, he stated that the Chief Engineer of the Circle concerned was in favour of the cancellation of the contract in question and the contract entrusted to the petitioner came to be terminated and the construction was sought to be entrusted at the risk and cost of the petitioner on the advice or the proposal of the Chief Engineer. The Superintending Engineer is subordinate to the Chief Engineer, therefore, the learned Judge, City Civil Court was of the view, as he says in the judgment, "It is not unreasonable to say that the successive Superintending Engineer of this particular department who will be subordinate to the Chief Engineer will necessarily have a leaning to accept the attitude expressed by the Chief Engineer." The learned Judge came to the conclusion that there could legitimately be a bias in the mind of the arbitrator who was the Superintending Engineer against the appellant. The High Court also did not examine this aspect and dismissed the appeal in limine. Hence, this appeal.

Reasoning:
6. This is a case of removal of a named arbitrator under Section 5 of the Act which gives jurisdiction to the Court to revoke the authority of the arbitrator. When the parties entered into the contract, the parties knew the terms of the contract including arbitration clause. The parties knew the scheme and the fact that the Chief Engineer is superior and the Superintending Engineer is subordinate to the Chief Engineer of t he particular Circle. In spite of that the parties agreed and entered into arbitration and indeed submitted to the jurisdiction of the Superintending Engineer at that time to begin with, who, however, could not complete the arbitration because he was transferred and succeeded by a successor. In those circumstances on the facts stated no bias can reasonably be apprehended and made a ground for removal of a named arbitrator. In our opinion this cannot be, at all, a good or valid legal ground. Unless there IS allegation against the named arbitrator either against his honesty or capacity or mala fide or interest in the subject matter or reasonable apprehension of the bias, a name and agreed arbitrator cannot and should not be removed in exercise of a discretion vested in the Court under section 5 of the Act.Reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. A predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias. There must be reasonable apprehension of that predisposition. The reasonable apprehension must be based on cogent materials.This Court in International Authority of India v. K.D. Bali and Anr., J.T. l9988 2 S.C. I held that there must be reasonable evidence to satisfy that there was a real likelihood of bias. Vague suspicions of whimsical, capricious and unreasonable people should not be made the standard to regulate normal human conduct. In this country in numerous contracts with the Government, clauses requiring the Superintending Engineer or some official of the Govt. to be the arbitrator are there. It cannot be said that the Superintending Engineer, as such cannot be entrusted with the work of arbitration and that an apprehension, simpliciter in the mind of the contractor without any tangible ground, would be a justification for removal. No other ground for the alleged apprehension was indicated in the pleadings before the learned Judge or the decision of the l earned Judge. There was, in our opinion, no ground for removal of the arbitrator. Mere imagination of a ground cannot be an excuse for apprehending bias in the mind of the chosen arbitrator.