New Delhi: The Supreme Court dismissed a plea by Chennai Metro Rail Limited challenging a Madras High Court order, which declined to entertain its plea for a declaration that the mandate of the tribunal, examining disputes between the Metro and Afcons, was terminated regarding the disputes referred to it. A bench comprising justices S Ravindra Bhat and Aravind Kumar said, “The attempt by Chennai Metro to say that the concept of de jure ineligibility because of the existence of justifiable doubts about impartiality or independence of the tribunal on unenumerated grounds or other than those outlined as statutory ineligibility conditions in terms of Sections 12 (5), therefore cannot be sustained”.
Justice Bhat, who retired last week, and authored the judgment on behalf of the bench, said in case, this court were in fact make an exception to uphold Chennai Metro’s plea, the consequences could well be an explosion in the court docket and other unforeseen results, and “skipping the statutory route carefully devised by Parliament can cast yet more spells of uncertainty upon the arbitration process”.
The bench observed that in other words, the de jure condition is not the key that unlocks the doors that bar challenges, mid-stream, and should “not unlock the gates, which shut the court out” from what could potentially become causes of arbitrator challenge, during the course of arbitration proceedings, other than what the Arbitration and Conciliation Act, 1996, specifically provides for.
Chennai Metro Rail Limited, a joint venture between the Central government and the Government of Tamil Nadu, had, pursuant to a public tender, awarded the contract to Afcons have called for a project with a total value of Rs 1,566 crore. The contract was signed on January 31, 2011, and on April 15, 2021, Afcons sought a reference of several heads of disputes to arbitration after certain interlocutory proceedings. It was agreed that the two dispute heads and the Chennai Metro’s counterclaim would be referred to a three-member tribunal under the Act, and the tribunal was then constituted.
The dispute arose regarding the fee of the tribunal members, which was initially fixed at Rs 1 lakh per session of hearing date but later the tribunal sought to revise it to Rs 2 Lakh for each session of three hours. Chennai Metro objected to this revision of the fee. Afcons, by its e-mail dated July 28, 2022, informed Chennai Metro that it had paid the revised fee for five hearings.
Chennai Metro filed an application before the Madras High Court on August 10, 2022. In this proceeding under Section 14, the relief sought was a declaration that the mandate of the tribunal (whose members were impleaded as second to the fourth respondents) was terminated in respect of the disputes referred to them. After a verdict by the apex court in ONGC vs AFCONS Gunasa JV, delivered on August 30, 2022, members of the tribunal decided to revert back to the originally agreed fee of Rs 1 lakhs.
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Additional Solicitor General (ASG) N Venkataraman, representing Chennai Metro, submitted that Chennai Metro is justified in arguing the apprehension that the proceedings or the outcome would not be conducted and finalised with an impartial mind. It was argued that the High Court judgment was in error in as much as accepted its face value of the affidavits and the statements contained in it of the members of the tribunal, who stated that no prejudice would be caused and that they would conduct the proceedings impartially.
It was highlighted that whether there is a reasonable apprehension of bias or circumstances exist that the conduct of the arbitrator has led to justifiable doubts as to her or his conduct of proceedings not being partial are not based on a subjective statement but rather the application of an objective test which is that – ‘whether the circumstances are such that a reasonable man having due regard to the facts, would conclude that bias exists’.
It was submitted that the tribunal also withheld and suppressed the fact that the members had received payment of the revised fee from Afcons on July 25, 2022. The ASG further urged that the reversal of its earlier position by the tribunal did not remove Chennai Metro’s apprehensions that the proceedings would not be conducted in an impartial manner, or the outcome may not be based on objective consideration of the merits of the dispute only. It was submitted that permitting the tribunal to continue the proceedings despite these facts would set a wrong precedent.
The apex court noted that bias (an expression that the Act has deliberately avoided; instead the term used is justifiable doubts about the… impartiality of an arbitrator) is an expression with many facets: subject matter bias; pecuniary bias and personal bias. The bench noted that it is also described as 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 apex court said Parliament’s conscious effort in amending the Act, because of the inclusion of the fifth schedule, as a disclosure requirement, as an eligibility condition [Section 12 (1)] and a continuing eligibility condition, for functioning [Section 12 (2)] and later, through Section 12 (5), the absolute ineligibility conditions that render the appointment, and participation illegal, going to the root of the jurisdiction, divesting the authority of the tribunal, thus terminating the mandate of the arbitrator, as a consequence of the existence of any condition enumerated in the seventh schedule, are to clear the air of any ambiguities. “The only manner of escaping the wrath, so to say of Section 12 (5) is the waiver- in writing by the party likely to be aggrieved”, it said.
Dismissing Chennai Metro’s plea, the apex court, in a judgment passed on October 19, said, “This court holds that Chennai Metro’s application cannot succeed. The arbitrators are directed to resume the proceedings and decide the case in accordance with the law. The impugned order is upheld. The application is accordingly dismissed and the appeal is disposed of…..”.
