Arbitrator Appeared As Counsel For An ‘Affiliate Company’ Of The Claimant, Award Liable To Be Set Aside : Calcutta HC

The High Court of Calcutta has held that an arbitration award is liable to be set aside for violation of Sections 12(1), 12(2) and 12(5) of the Arbitration and Conciliation Act, 1996 when the arbitrator appeared in court for an ‘affiliate company’ of the claimant during the pendency of the arbitration without disclosing such an engagement to the respondent. The bench of Justice Rajshekhar Mantha held that Section 12(2) of the A&C Act cast a continuous duty on the arbitrator to remain neutral and continue to disclose to the parties any acts or omissions that are likely to fall foul of the mandate under Section 12, in the course of the Arbitration. The Court further held that a disclosure by the arbitrator of his past association with a party under Section 12(1) does not mean that he shall continue with such associations during the pendency of the arbitration. It held that Section 12(2) essentially mean that the Arbitrator shall not, during the subsistence of the proceedings, continue such association and also give disclosure as and when any such associated is formed during the pendency of arbitration proceedings. The Court also held that the definition of “affiliate”, under section 12 of the Act, encompasses all the companies including the parent company within its fold. It held that an individual or a group of persons, including a family, in control and management of a company, upon lifting of its corporate veil, can definitely qualify as an “affiliate”, within the meaning of the Explanation 2 to the Fifth and Seventh Schedules, read with Section 12 of the Act of 1996. Facts Certain disputes arose between the parties pursuant to which the petitioners (award debtor) filed a suit before the High Court. In the suit, the respondents (award holder) moved an application under Section 8 of the A&C Act. Accordingly, the Court relegated the parties to arbitration and the parties by consent appointed Mr. X, Senior Advocate, as the sole arbitrator. In the first sitting of arbitration dated 10.08.2014, the ld. Arbitrator disclosed that he had in past represented the claimant (respondent/award holder herein) in various proceedings. The petitioners (award debtor/respondent before the tribunal) submitted that they had full faith in the independence of the tribunal. The arbitrator held several sittings between 10.08.2014 and 9.12.2017. Thereafter, on 03.01.2019, the arbitrator informed the parties that he has prepared a draft award and the final award would be released soon. However, between June-July 2018, the arbitrator had appeared as an advocate before the Hon’ble High Court for an ‘affiliate company’ of the claimant and this fact was not disclosed by the arbitrator to the respondents. Thereafter, the arbitrator requested the parties to for further hearings due to lapse of time and difficulty in recollecting the particulars of the dispute. Accordingly, several sittings took place and the impugned award was finally passed on 29.02.2020. That vide the impugned award, the arbitrator had partly allowed the claims of the respondent. However, after the award was made, the petitioner became aware of the non-disclosure by the arbitrator of the fact of his appearance as an advocate for an ‘affiliate company’ of the claimant/award holder during the arbitration proceedings. Accordingly, it challenged the award under Section 34 of the A&C Act. Contention of the Parties The petitioner challenged the award on the following grounds: The claimant i.e., Bulaki Das Bhaiya, was in direct control of the affairs and management of the company for whom the arbitrator appeared as an advocate. The award is vitiated by fraud and hence in conflict with public policy and/or fundamental policy of India for non-disclosure and active concealment by the arbitrator of having represented the ‘affiliate company’ of the claimant.Non-disclosure by the arbitrator give rise to justifiable doubts, within the meaning of Section 12 (1), (2), and (5), as regards the independence and impartiality of the Learned Arbitrator, and hence the award is vitiated.Section 12(1)(a) requires the Arbitrator to disclose any past or present relationship with the parties in terms of section 12(2) of the Act and such obligation to disclose continues from the time of his appointment throughout the arbitral proceedings until the end.The arbitrator stood de jure ineligible to continue as arbitrator for violation of Section 12 r/w 5th and 7th schedule of the Act. The respondent made the following counter-arguments: That the allegations of fraud and corruption have been made out without any particulars and hence no credence whatsoever should be given to the argument of the award debtors.Fraud must be established beyond reasonable doubt and the standard of proof is of a high degree, that has not been discharged by the award debtorsThe award debtors have not...

Arbitrator Appeared As Counsel For An ‘Affiliate Company’ Of The Claimant, Award Liable To Be Set Aside : Calcutta HC

ausaf ayyub

Tags