ORDER
D.Y. Chandrachud, J.
1. In these proceedings under Section 34 of the Arbitration and Conciliation Act, 1996, a challenge is sought to be preferred to the award of a sole arbitrator dated 25th August, 2001. Two significant issues arise in the present case. The first arises in the context of an allegation of bias against an Arbitrator appointed under the Arbitration and Conciliation Act, 1996. The Court has to consider as to when it can be said that there are justifiable doubts as regards the independence and impartiality of an Arbitrator within the meaning of Section 12 of the Act. The Court must determine as to what would be the appropriate test to be applied in law. A related issue is as to when the duty of disclosure is attracted so as to warrant a disclosure of a given set of circumstances. The second important issue which arises in this case is as to whether the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 are attracted to arbitral proceedings commenced against a guarantor when the principal debtor has been declared as a sick industrial company.
The facts
2. The First Respondent had granted financial facilities to a company by the name of Gilt Pack Limited. In so far as the Petitioner is concerned, it is common ground that he had furnished a personal guarantee to secure the outstanding dues of the First Respondent. The First Respondent invoked the personal guarantee which was furnished by the Petitioner upon an admitted default by the company in repaying the outstanding dues payable under four Bills of Exchange in the total amount of Rs. 50 lakhs, which were discounted by the First Respondent. On 16th December, 1999, in pursuance of a provision for arbitration contained in Clause23 of the deed of guarantee, the First Respondent referred the disputes which had arisen between the parties to the sole arbitration of Mr. Ashwin Ankhad, a practising Advocate, to act as a sole Arbitrator under the provisions of the Arbitration and Conciliation Act, 1996.
3. 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, that was raised on the ground that the company to which the First Respondent had granted financial facilities had been declared as a Sick Industrial Company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The submission was that under Section 22 of the Act, arbitral proceedings were not maintainable and they could not be proceeded with. Insofar as the second application under Section 12 of the Act was concerned, the independence and impartiality of the Arbitrator was sought to be questioned on the basis of the following averments :
'The Respondent herein submits that the Respondent is aware and verily believe and reliably informed (sic) that the learned Arbitrator appointed by the Claimant is in fact an Advocate engaged by the Claimant and/or its sister concerns in various matters. The Respondent herein submits that Respondent believe and was reliably informed that there exist very close relations between the learned Arbitrator and the Claimant.'
4. The Arbitrator dealt with both the applications and by an order dated 29th September, 1995 rejected the challenge to his jurisdiction and to his continuance on the ground of the alleged bias. The Arbitrator in his order noted that he had not acted as an Advocate for the Claimant, Tata Finance Limited, in any matter. The Arbitrator stated that he had acted as an Advocate only in respect of Tata International Limited, which had no connection with the Claimant. Tata International Limited was stated to be an independent entity having a separate business, and a separate Board of Directors. The Arbitrator recorded that he had only acted as an Arbitrator in a few matters of Tata Finance Limited which was the Claimant before him, and that he had at no stage acted as an Advocate for the said company. The objection that he would not be either independent or impartial was consequently rejected. Insofar as the challenge to his jurisdiction was concerned, the Arbitrator held that Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 is on its plain terms not attracted to arbitral proceedings. The Arbitrator- held that the bar under Section 22 was to a suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. In the present case, the Arbitrator held that there was no suit. Therefore, the bar under Section 22 was not attracted.
5. The final award of the Arbitrator was made on 25th August, 2001 by which the Arbitrator has come to the conclusion that the Petitioner herein was liable to pay to the First Respondent a principal amount of Rs. 50 lakhs covered by the four bills of Exchange which have been discounted by the First Respondent together with overdue discounting charges in the amount of Rs. 51,60,821.92 from the due dates of the Bills until 14th January, 2000. Accordingly, the claim has been allowed in the total amount of Rs. 1,01,60,821.92. The Petitioner has been directed to pay interest at the rate of 18 per cent per annum on the principal sum of Rs. 50 lakhs from 15th January, 2000 till payment or realization.
Submissions
6. Three submissions have been urged in challenging the award of the Arbitrator : (i) The Arbitrator, having regard to the facts and circumstances which have come on the record, was disqualified from continuing to act as such, since within the meaning of Sub-section (1) of Section 12 and Sub-section (3) thereof, there were circumstances which existed to give rise to justifiable doubts as to his independence or impartiality; (ii) In view of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, the arbitral proceedings were not maintainable. Under the provisions of the Arbitration and Conciliation Act, 1996, the arbitral award is enforceable as a decree. Hence, the expression 'suit' for the purpose of Section 22 must include an arbitral proceeding; (iii) Upon the sanctioning of the scheme for the rehabilitation of the Company to whom the First Respondent had advanced financial assistance, the First Respondent as a creditor is bound by the scheme, in which event the proceedings against the Petitioner in his capacity as a guarantor would not be maintainable.
7. Each of the submissions of the learned counsel may now be taken up for consideration seriatim.
The ground of Bias
The allegations of Bias in the Pleadings and Affidavits
8. In the application which was filed before the Arbitrator, the only ground on which there was a challenge under the provisions of Section 12, was that the Arbitrator 'is in fact an advocate engaged by the Claimant and/or its sister concerns in various matters'. Then it is also alleged that it was believed and 'reliably informed that there exist very close relations between the Arbitrator and the Claimant'. The allegation that the Arbitrator had been engaged by the 'Claimant and/or its sister concerns in various matters' has been dealt with in the order dated 29th September, 1995. The Arbitrator has categorically stated that save and except for acting as an Arbitrator in a few matters of Tata Finance Limited, the Claimant before him, he had never acted as an Advocate for the Claimant in any matter or proceeding. The Arbitrator stated that he has acted as an Advocate for Tata International Limited which is an independent entitywith a separate business, and a separate Board of Directors. The Arbitrator, therefore, refuted the allegation that there could be a doubt as regards his impartiality and integrity.
9. When the Arbitration Petition came to be filed before this Court, an affidavit was filed by the Arbitrator on 2nd July, 2002 recording that he was not connected with any of the shareholders or directors of Tata Finance Limited and that he did not hold a retainer of the said company. The Arbitrator has stated that save and except for the Arbitrator's fees he has not received any remuneration from the Claimant before him. He has stated that about five years earlier, he had handled one matter of Tata International Limited with which the Respondent herein had no connection whatsoever. The Arbitrator has, therefore, denied the allegations which were made against him.
10. After the Arbitrator filed his affidavit dated 2nd July, 2002, a further affidavit was filed by the Petitioner on 18th July, 2002 stating that 'upon enquiries he had been reliably informed that the learned Arbitrator namely Respondent No. 2 was originally practising as a Company Secretary and was a Company Secretary to the company known as Tata Exports Limited (and now known as Tata International Limited)'. It is now alleged that the Arbitrator was attached to and working as a Company Secretary of Tata International Limited for a considerable number of years.
11. The allegation which has been made before the Court in the affidavit dated 18th July, 2002 was not urged as a ground of challenge in the application that was moved before the Arbitrator under Section 12 of the Act. Even in the affidavit dated 18th July, 2002 which has been filed before this Court, the Petitioner does not disclose as to when he had learned that the Arbitrator was acting as a Company Secretary and was in that capacity employed by Tata International Limited. This is a matter of some significance because if this knowledge had been acquired by the Petitioner before the Arbitrator passed his order dated 29th September, 1995 or even thereafter before the arbitral proceedings were concluded, it was necessary that this objection be taken before the Arbitrator. The affidavit is completely silent on when the Petitioner acquired knowledge of the aforesaid fact.
12. Be that as it may, this was a matter which, in my view, ought not to rest upon the conduct of the Petitioner since a question regarding the purity of the administration of justice in the course of arbitral proceedings was in issue. Consequently, I called upon the learned counsel for the First Respondent to specifically take instructions and inform the Court whether as a matter of fact the Arbitrator had at any stage served as a Company Secretary to Tata International Limited. The learned counsel has stated before the Court that he has taken instructions from the First Respondent and his instructions are to the effect that the Arbitrator was at no stage employed either by Tata International Limited or by any other companyin the Tata Group of Companies as a Company Secretary. The learned counsel has stated before the Court that between the years 1981 to 1987, the Arbitrator was the Head of the Legal Department of Tata International Limited. However, the Arbitrator ceased to be in the service of Tata International Limited in 1987 and for a period of 15 years thereafter has been independently practising as an Advocate before this Court.
The Duty of Disclosure
13. The question which requires consideration is as to whether the circumstance that the Arbitrator had for six years until 1987 been employed in the position of the Head of the Legal Department of Tata International Limited, would be sufficient to cast doubts on his independence and impartiality under Section 12 of the Act in the Arbitral proceedings which commenced in December 1999. In a decision rendered in 1952, Chief Justice M.C. Chagla, speaking for a Division Bench of this Court in Satyendra Kumar v. Hind Constructions Ltd. : AIR1952Bom227 held that an Arbitrator must show uberrima fides to the parties whose disputes he is going to arbitrate and whose domestic forum he is constituted. The Arbitrator must disclose to the parties all facts which are likely or calculated to bias him in any way in favour of one or the other party. The Learned Chief Justice held that a circumstance or a fact may in fact not bias the decision of the arbitrator for he may have too strong a character, too deep a sense of justice to be influenced by any consideration extraneous or foreign to the evidence which he has got to consider. However, the question is not what is likely in fact to happen, but what is likely to tend or is calculated to tend to a particular result. The principle which was enunciated by the Division Bench in 1952 now finds statutory recognition in Sub-section (1) of Section 12 of the Act which provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Subsection (2) provides that thereafter throughout the arbitral proceedings, the arbitrator must disclose to the parties in writing any circumstances referred to in Sub-section (1) unless they have already been disclosed.
14. The point in this ease is as to whether there was an obligation to disclose the circumstance that at a distant point of time in the past the Arbitrator had been employed in the Legal Department, not of the Respondent to the arbitral proceedings, but of Tata International Limited, a company which as the popular expression goes, falls in the Tata Group of companies. In every case, the obligation to disclose is in respect of circumstances which arc likely to give rise to justifiable doubts as regards the independence or impartiality of the Arbitrator. The obligation to disclose docs not come into existence unless the circumstances of which the disclosure is under consideration are such as would be likely to give rise to justifiable doubts as to the independence or impartiality of the Arbitrator.
The Law laid down by the Supreme Court
15. The law on the subject has been considered in several judgments of the Supreme Court. In International Airport Authority of India v. K.D. Bali : [1988]3SCR370 , Mr. Justice Sabyasachi Mukharji, (as the learned Chief Justice then was) delivering the judgment of a Bench consisting of two learned Judges of the Supreme Court held that the circumstances upon which the independence or impartiality of the Arbitrator is impugned must reflect 'a real likelihood of bias'. The Court held that it was a real likelihood of bias and not merely a suspicion of bias that would lead to a quashing of the proceedings on the ground that the person conducting the proceedings was disqualified by interest. Moreover, the Supreme Court held that the apprehension of bias in the mind of a litigating party must be reasonable and it is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased. Consequently, the apprehension has to be judged from 'a healthy, reasonable and average point of view and not on a mere apprehension of any whimsical person'. The test to be applied by the Court has to be 'the reasonableness and the apprehension of an average honest man'. In a subsequent decision in Secretary to the Government, Transport Departments. Munuswamy Mudaliar : AIR1988SC2232 the Supreme Court held that a reasonable apprehension or 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 party 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.
16. In a subsequent decision of three learned Judges in Jiwan Kumar Lohia v. Durga Dull Lohia : 1991ECR577(SC) , the Supreme Court held that 'with regard to bias in relation to a judicial Tribunal the test that is applied is not whether in fact a bias has affected the judgment, but whether a litigant could reasonably apprehend that a bias attributed to a member of the tribunal might have operated against him in the final decision. The Court cited with approval the test which was laid down in Ranjit Thakur v. Union of India : 1988CriLJ158 that the test of likelihood of bias is whether a reasonable person, in possession of relevant information, would have thought that bias was likely and whether the person concerned was likely to be disposed to decide the matter only in a particular way'.
The Evolution of the law in England
17. An incisive survey of the law on the question of bias in England is to be found in the 2001 edition of Mustill and Boyd on the Law of Arbitration. The authors advert to the fact that regrettably, the subject of interest and bias on the part of Arbitrators has become of much greater contemporary importance than could have been foreseen when the second edition of their book was published. The Authors note that 'the continuing deterioration in the spirit of arbitration entails that objections are now being made on the grounds of supposed interest or bias which would never have been put forward in the past'. Having regard to such objections, the Authors state that 'these are, we hope and believe, largely rejected, and they serve the purpose only of wasting time and money. Still, facts must be faced, and both the statutory and the juridical context in which the problem must be tackled has now markedly changed'.
18. Mustill and Boyd refer in their treatise to the fact that by the early years of the 1990s, there were two streams of authority in England which existed in parallel, unreconciled. On the one hand, there were pronouncements favouring the test of how the proceedings would appear to a reasonable observer; of whether such an observer would suspect that the decision-making process was unfair. In R. v. Sussex Justices, Ex parte McCarthy [1924] 1 KB 256 Lord Hewart, CJ. laid down the famous dictum 'that it is not merely of some importance, but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done'. Therefore, when an allegation of bias is being adjudicated upon 'that question depends not upon what actually was done, but what might appear to be done', The other test concerned, not the appearance but the actuality of injustice, or more accurately the risk that there had been actual injustice. In R. v. Camborne Justices, Ex parte Pearce [1955] 1 QB 41 Lord Goddard, CJ. held that the right test to apply is that in order to disqualify a person from acting in a judicial or quasi-judicial capacity upon the ground of interest other than pecuniary or proprietary interest, in the subject matter of the proceeding, a 'real likelihood of bias'must be shown, The Learned Chief Justice noted that while 'it is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done', this was 'being urged as a warrant for quashing convictions or invalidating orders upon quite unsubstantial grounds and, indeed, in some cases upon the flimsiest pretexts of bias'. Therefore, while endorsing the principle which was laid down by Lord Hewart, the Court held that 'the continued citation of it in cases to which it is not applicable may lead to the erroneous impression that it is more important that justice should appear to be done than that it should in fact be done'.
19. In Hagop Ardahalian v. Unifert International S.A [1984] 2 LLR 84. Ackner, LJ held that the appropriate way of expressing the test was whether there exist grounds from which a reasonable person would think that there was a real likelihood that the Arbitrator would not determine the issue before him on the basis of the evidence and the arguments before him. The Court held that this was 'a satisfactory way of expressing the objective test'. In Bremer Handelsegesellschaft M.B.H. v. ETS Soules ET CIE [1995] 1 LLR 160 the argument was that an employee of an intermediate trader with unresolved disputes ought not to act as an arbitrator in respect of another dispute arising out of the same circumstances. Mr. Justice Mustill who delivered the judgment applied the testlaid down in Hagop (supra) and rejected the challenge to the independence of the arbitrator.
The Real Danger Test : R v. Gough
20. The position came to be examined by the House of Lords in R. v. Gough [1993] AC 645 in which the real danger test came to be formulated. Lord Goff in the course of his judgment held that it is unnecessary in formulating the appropriate test to require that the Court should look at the matter through the eyes of a reasonable man because the Court in cases such as these personifies the reasonable man. Moreover, the Court has first to ascertain the relevant circumstances from the available evidence, knowledge of which would not necessarily be available to an observer in court at the relevant time. Lord Goff then held that for the avoidance of doubt, he would prefer to adopt the test in terms of real danger rather than real likelihood to ensure that the court is thinking in terms of possibility rather than probability of bias. Accordingly, the Court would have to ask itself, 'having ascertained the relevant circumstances', 'whether having regard to those circumstances, there was a real danger of bias on the part of the relevant member of the Tribunal in question, in the sense that he might unfairly regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration before him. Lord Woolf in his judgment observed that in considering whether there is a real danger of injustice the Court examines all the matters available and if having done so, the Court is satisfied that there is no danger of the alleged bias having created injustice, then the application to quash the decision should be dismissed.
21. In R. v. Inner West London Corner Ex parte Dallaglio [1994] 4 All ER 139 Simon Brown, LJ, speaking for the Court of Appeal, deduced the following propositions as emerging from Gough :
'(1) Any court seized of a challenge on the ground of apparent bias must ascertain the relevant circumstances and consider all the evidence for itself so as to reach its own conclusion on the facts.
(2) It necessarily follows that the factual position may appear quite differently as between the time when the challenge is launched and the time when it comes to be decided by the court. What may appear at the leave stage to be a strong case of justice [not] manifestly and undoubtedly being seen to be done, may, following the court's investigation, nevertheless fail. Or, of course, although perhaps less probably, the case may have become stronger.
(3) In reaching its conclusion the court personifies the reasonable man.
(4) The question upon which the court must reach its own factual conclusion is this: is there a real danger of injustice having occurred as a result of bias By real is meant not without substance. A real danger clearly involves more than a minimal risk, less than aprobability. One could, I think, as well speak of a real risk or a real possibility.
(5) Injustice will have occurred as a result of bias if the decision-maker unfairly regarded with disfavour the case of a party to the issue under consideration by him. I take unfairly regarded with disfavour to mean was predisposed or prejudiced against one party's case for reasons unconnected with the merits of the issue.
(6) A decision-maker may have unfairly regarded with disfavour one party's case either consciously or unconsciously. Where, as here, the applicants expressly disavow any suggestion of actual bias, it seems to me that the court must necessarily be asking itself whether there is a real danger that the decision-maker was unconsciously biased.
(7) It will be seen, therefore, that by the time the legal challenge comes to be resolved, the court is no longer concerned strictly with the appearance of bias but rather with establishing the possibility that there was actual although unconscious bias.
(8) In the circumstances of the present case the court must therefore ask itself ; is there a real danger that the coroner unfairly (though unconsciously) regarded with disfavour the case of those seeking a resumption of the inquest Or : is there a real danger that the coroner was unconsciously prejudiced against this group Or, as Neill, LJ put it in the Divisional Court:
.... is there a real danger that in deciding.... not to resume the inquests Dr. Knapman was influenced, consciously or unconsciously, to a material degree by his views... about the Marchioness action group (9) It is not necessary for the applicants to demonstrate a real possibility that the coroner's decision would have been different but for bias: what must be established is the real danger of bias having affected the decision in the sense of having caused the decision-maker, albeit unconsciously, to weigh the competing contentions, and so decide the merits, unfairly.'
Locabail and the Court of Appeal
22. The decision in R. v. Gough came up for consideration in the decision in Locabail (UK) Ltd. v. Bayfield Properties Ltd. 2000 QB 451 in which the Court of Appeal referred to differing instances of vitiating circumstances. These could be (i) actual bias; (ii) circumstances warranting automatic disqualification and (iii) a real danger of bias. Actual bias deals with a situation where a decision maker allows a decision to be influenced by partiality or prejudice and deprives the litigant of a fundamental right to a fair trial by an impartial Tribunal. Automatic disqualification involves a situation where the decision-maker is shown to have an interest in the outcome of the case. The real danger test, according to Mustill and Boyd (supra) involves an assessment to be made in the light of the facts actually known when the challenge comes before the appellate or supervisingcourt, not the appearance of things as they seemed when the challenge was made although that appearance may of course reflect a state of facts which forms an element in the subsequent assessment. According to the decision in Locabail (U.K.) Ltd. 's case (supra), everything will depend on the facts, which may include the nature of the issue to be decided. A real danger of bias might for instance arise if there is a personal friendship or animosity between the judge and any member of the public involved in the case, or if the judge were closely acquainted with any member of the public involved, particularly if the credibility of that individual could be significant in the decision of the case. These are only illustrative situations. The circumstances of each case have to be taken into consideration. The judgment of the Court of Appeal in Locabail (U.K.) Ltd.'s case (supra) is proposition for the principle that 'greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is raised, the weaker (other things being equal) the objection will be.
The Recent Trends in England
23. An interesting recent decision to which it would be necessary to refer, is that of Mr. Justice Long more in A T& T. v. Saudi Cable Company [2000] 1 LLR 22. In that case bids were invited by the Ministry of Posts, Telephones and Telegraphs in Saudi Arabia for a telecommunications expansion project. One of the requirements was that a certain type of cable should be acquired from Saudi Cable Company (SCC). A pre-bid agreement was entered into between SCC and AT & T. AT & T was one amongst seven International Companies which had been invited by the Ministry to submit its bid. The agreement between AT & T and SCC stipulated that upon the award of the contract to AT & T the parties would meet promptly and negotiate in good faith mutually satisfactory agreements. There was an arbitration clause providing for arbitration of the dispute by the International Chamber of Commerce. The contract was concluded between AT & T and the Saudi Arabian Ministry in August 1994. Thereupon, negotiations took place between AT & T and SCC but AT & T terminated the pre-bid agreement with SCC on 10th December 1994. Arbitration proceedings thereupon commenced before the International Chamber of Commerce. One of the bidders whose bid had not been accepted was a Canadian Company by the name of Northern Telecom Ltd. (Nortel). The Chairman of the Arbitral Tribunal was a non Executive Director of the Canadian Company Nortel, but this fact was not disclosed. The Tribunal made two awards in favour of SCC. AT & T sought the removal of the Chairman of the Arbitral Tribunal on the ground of bias in that he was a non Executive Director of Nortel which was a competing Company which had been unsuccessful in its bid for the project.
24. Justice Long more rejected the challenge. The Court held that if an allegation of apparent or unconscious bias is made, it is for the Court to determine whether there is a real danger of bias in the sense that the Judge might have unfairly regarded with favour or disfavour the case of the party under consideration by him or, in other words, might be predisposed or prejudiced against one party's case for reasons unconnected with the merits of the issue. The Court held that the position of the Chairman of the Arbitral Tribunal as a non-executive Director of Nortel was more of an incidental than a vital part of his professional life; he was independent of the management and did not sit on the executive committee of the board; as a member of the Bar and as an international arbitrator he had neither time nor inclination to involve himself in the day to day commercial decisions of Nortel. The Judge emphasised that one of the reasons why parties may choose lawyers as Arbitrators is because of their experience in commercial matters :
'(4) One of the main reasons why parties to arbitration proceedings select as arbitrators experienced lawyers (let alone Queen's Counsel of such evident distinction as Mr. Fortier) is that such lawyers are trained from their earliest days to decide cases on the evidence before them and the submissions made to them and to put aside all extraneous matters. It is axiomatic to any experienced lawyer that he must and will decide cases without fear or favour, affection or ill will. Judges in England take an oath to that effect but no one supposes they would act differently if no oath were sworn. The same applies to experienced legal arbitrators. Another reason for selecting arbitration rather than the Courts is that the parties may actually prefer men of the world to what some may perceive as the cloistered calm of judicial life. It cannot be in the least surprising that an experienced arbitrator will have some interest in business affairs and he may be all the better equipped to arbitrate if he has.'
In the view of the Judge, there was no danger of an unconscious bias on the part of the Chairman of the Arbitral Tribunal.
The Impact of the European Convention on Human Rights : A Modest Adjustment of the Real Danger Test
25. In a recent decision of the Court of Appeal in Medicaments and Related Classes of Goods In re [2001] 1 WLR 700 Lord Phillips considered the impact of the European Convention on Human Rights and of the Strasbourg jurisprudence on the test formulated in Gough's case (supra). The judgment of the Court of Appeal, after referring to the judgment of the Strasbourg Court formulated the principles which emerge as follows :
'83. We would summarise the principles to be derived from this line of cases as follows. (1) If a judge is shown to have been influenced by actual bias, his decision must be set aside. (2) Where actual bias has not been established the personal impartiality of the judge is to be presumed. (3) The court then has to decide whether, on an objective appraisal, the material facts give rise to a legitimate fear that the judge might not have been impartial. If they do the decision of the judge must be set aside. (4) The material facts are not limited to those which were apparent to the applicant. They are those which are ascertained upon investigation by thecourt. (5) An important consideration in making an objective appraisal of the facts is the desirability that the public should remain confident in the administration of Justice.'
Lord Phillips held that in view of the developments that have taken place in the Strasbourg jurisprudence, a 'modest adjustment' of the test in Gough's case (supra) is called for thus :
'The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the Tribunal was biased.'
The Real Danger Test modified by the House of Lords
26. In Porter v. Magill [2002] 1 All ER 465 the House of Lords revisited the correctness of the real danger test laid down by Lord Goff in R. v. Gough, Lord Hope of Craig head took note of the fact that the reasonable likelihood and real danger tests which Lord Goff enunciated in Gough's case (supra) have been criticised by the High Court of Australia on the ground that they tend to emphasise the Court's view of the facts and place inadequate emphasis on the public perception of the irregular incident Webb v. R. [1994] 181 CLR 41per Mason. CJ. and McHugh, J. The Court noted that the reasonable apprehension of bias test, on the other hand, was in line with that adopted in most common law jurisdictions. The view of the Strasbourg Court was that in considering whether there was a legitimate reason to fear that a judge lacks impartiality, the standpoint of the accused is imported but not decisive. What is decisive is whether this fear can be held to be objectively justified. The Court in Porter v. Magill then referred to the judgment of the Court of Appeal in In re Medicaments and related Classes of Goods (No. 2) [2001] 1 WLR 700 in which the Court had taken the view that the test laid down in Gough required a modest adjustment. Lord Hope, in the House of Lords approved the modification of the real danger test which had been propounded in the Medicaments and related Classes of Goods (No. 2)'s case (supra) and held thus :
' 103.1 respectfully suggest that Your Lordships should now approve the modest adjustment of the test in R. v. Gough set out in that paragraph. It expresses in clear and simple language a test which is in harmony with the objective test which the Strasbourg court applies when it is considering whether the circumstances give rise to a reasonable apprehension 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, and 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. '
27. In view of the recent decision of the House of Lords, it is now abundantly clear that in considering the question as to whether an adjudicator, 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 Tribunal was biased.
The Duty of Disclosure revisited
28. In a recent judgment of the Court of Appeal in England delivered by Lord Woolf, CJ. in Taylor v. Lawrence [2002] 2 All ER 353 the question as to when the duty of disclosure can be held to be attracted has been considered. In the case which was decided by the Court of Appeal, the Judge had at the trial informed the parties that many years earlier, he had been a client of the claimants solicitors. There was no objection to the Judge hearing the trial. The defendants, however, after the judgment was delivered, appealed on the ground of bias because of the Judge's relationship with the claimants solicitors. The Judge and his wife, it was disclosed before the appeal was heard, had used the services of the solicitors to amend their will the night before the judgment was delivered. After the appeal was dismissed in January 2001, the defendants applied for the reopening of the trial on the ground that they had learnt that the Judge had not paid for the services of the Solicitors and, therefore, had received a financial benefit from the solicitors which he had failed to disclose. The Court of Appeal held that no case of apparent bias on the part of the Judge had been made out. Lord Woolf held that it was unthinkable that an informed observer would regard it as conceivable that a Judge would be influenced to favour a party in litigation with whom he has no relationship merely because that party happens to be represented by a firm of solicitors which was acting for the judge in a purely personal matter in connection with a will. The Court of Appeal referred to the decision of the House of Lords in Porter's case (supra) and held that in considering as to what a fair-minded and informed observer would think, it would be appropriate to expect that he was aware of the high standard of integrity maintained by the Bar and the Bench in England :
'The fact that the observer has to be fair-minded and informed is important. The informed observer can be expected to be aware of the legal traditions arid culture of this jurisdiction. Those legal traditions and that culture have played an important role in ensuring the high standards of integrity on the part of both the judiciary and the profession which happily still exist in this jurisdiction. Our experience over centuries is that this integrity is enhanced, not damaged, by the close relations that exist between the judiciary and the legal profession. Unlike some jurisdictions the judiciary here does not isolate itself from contact with the profession. Many examples of the traditionally close relationship can be given; the practice of judges and advocates lunching and dining together at the Inns of Court; the Master of the Rolls involvement in the activities of the Law Society; the fact that it is common place, particularly in specialist areas of litigation and on the circuits, for the practitioners to practise together in a small number of chambers and in a small number of firms of solicitors, and for members of the judiciary to be recruited from those chambers and firms.
It is also accepted that barristers from the same chambers may appear before judges who were former members of their chambers or on opposite sides in the same case. This close relationship has not prejudiced but enhanced the administration of justice. The advantages in terms of improved professional standards which can flow from these practices have been recognized and admired in other jurisdictions. Again by way of example, in the United States they have in recent years established the rapidly expanding American Inns of Court modelled on their English counterparts with the objective of improving professional standards.'
Lord Woolf, CJ. then held that the informed observer must be aware of the fact that 'in the ordinary way contacts between the judiciary and the profession should not be regarded as giving rise to a possibility of bias'. On the contrary, 'they promote an atmosphere which is totally inimical to the existence of bias'. On the question as to what facts attract the requirement of disclosure, the judgment of Lord Woolf is significant in that it emphasizes that the question of disclosure arises only if there is a possibility of a relationship being regarded by a fair-minded and informed observer as raising a possibility of bias. Unless this is so, the requirement or disclosure is not attracted. Indeed, a judge has to be circumspect even in making a disclosure because if a relationship is disclosed, even though a fair-minded observer would not regard it as raising the possibility of bias, it unnecessarily gives rise to a perception that the approach of the judge to the case at hand may be affected :
'A further general comment which we would make, is that judges should be circumspect about declaring the existence of a relationship where there is no real, possibility of it being regarded by a fair-minded and informed observer as raising a possibility of bias. If such a relationship is disclosed, it unnecessarily raises an implication that it could affect the judgment and approach of the judge. If this is not the position no purpose is served by mentioning the relationship. On the other hand, if the situation is one where a fair-minded and informed person might regard the judge as biased, it is important that disclosure should be made. If the position is borderline, disclosure should be made because then the judge can consider, having heard the submissions of the parties, whether or not he should withdraw. In other situations disclosure can unnecessarily undermine the litigant's confidence in the judge.'
The Court of Appeal, however, held that if a disclosure is made, then a full disclosure has to be made. A partial disclosure, as the case before theCourt of Appeal revealed, was dangerous because if there is only a partial disclosure and a litigant learnt that this is the position, it may naturally excite suspicion in his mind even though his concerns are unjustified. The judgment of the Court of Appeal does, in my view, indicate the correct line of approach to be followed by the Court when an allegation of bias presents itself for consideration and to be followed by adjudicators, including an Arbitrator, when the question of disclosure is in issue.
Locabail approved in Kumaon Mandal
29. The decision in Locabails case was referred to with approval by the Supreme Court in its judgment in Kumaon Mandal Vikas Nigam Ltd. v. Girja Shankar Pant [2001] 1 SCC 182. The judgment of the Supreme Court in the Kumaon Mandal Vikas Nigam Ltd.'s case (supra) arose in the context of a departmental enquiry. There was a review by the Court of the law on the subject. In paragraph 33 of the Judgment, the Supreme Court extracted from the judgment in Locabail (U.K.) Ltd, 's case (supra) including the observation that the objection will stand to be weaker, other things being equal, the greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is raised. Mr. Justice Banerjee, speaking for a Bench of two Learned Judges held that the surrounding circumstances must and ought to be collated and the administrative decision concerned cannot be sustained if the conclusion is otherwise inescapable that there exists a real danger of bias. There has to be positive and cogent evidence.
The Conclusion
30. The learned counsel appearing on behalf of the Petitioner sought to urge that a distinction must be made in cases such as the present where the arbitral clause does not involve the consent of the person against whom a claim for recovery is made and other cases where there is an element of consensuality in the choice of an Arbitrator. That in my view, should make no difference to the question as to whether there is a justifiable doubt as regards the independence and impartiality of the Arbitrator. If there is a justifiable doubt as regards the independence or impartiality of the Arbitrator, the question as to whether the Arbitrator was named by one of the parties in pursuance of the arbitration clause giving it the right to nominate the Arbitrator or whether the choice of the Arbitrator was consensual should make no difference to the outcome. The requirement of preserving the independence and impartiality of the Arbitrator must apply equally in both cases. I have, therefore, considered the matter by applying the well settled principles which have been accepted in the judgments of the Supreme Court referred to above. Having considered the challenge, I am of the view that in the present case, there were no justifiable doubts as regards 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 theClaimant. The Arbitrator has had no such affiliation, contact 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 belied.
31. Regard must be had to the fact that Tata International Limited is an independent corporate entity duly registered and incorporated under the provisions of the Companies Act, 1956. Tata International Limited, as the Arbitrator has recorded in his order, has a separate Board of Directors and a separate business. Even there, the employment of the Arbitrator, with Tata International Limited, came to an end almost 12 years prior to the reference to arbitration. Hence, in the present case the employment of the Arbitrator in another company, albeit in the Tata Group over a decade prior to the reference to arbitration cannot be regarded as a circumstance which would cast a justifiable doubt on the independence and impartiality of the Arbitrator. In the application that was filed before the Arbitrator the allegation of fact was that the Arbitrator had acted as an Advocate for the Claimant, Tata Finance Ltd., and/or its sister concerns, the Arbitrator has explained both in his order as well as on affidavit before the Court that he has not acted as an Advocate for Tata Finance Ltd. in any matter or case. The Arbitrator had acted in one case, over five years earlier for Tata International Limited, in an unconnected matter which has no bearing whatsoever on the dispute with the Petitioner. The allegation that the Arbitrator has 'close relations' with Tata Finance Ltd. is unsubstantiated and wholly frivolous. This Court must deal strictly with such baseless and unfounded attempts to cast aspersions on the integrity of a professional person who is appointed to act as Arbitrator. Before this Court, an attempt was made to bring in a fresh allegation that the Arbitrator had served as a Company Secretary of Tata International Limited. Even this allegation was made for the first time, after the Arbitrator had filed an affidavit denying the allegations against him in the petition. The allegation that the Arbitrator was a Company Secretary of Tata International Limited (formerly Tata Exports Limited) is factually incorrect. The casual manner in which allegations have been levelled against the Arbitrator must be deprecated. An allegation as regards the independence or impartiality of an adjudicator, be it a Judge or Arbitrator, is a serious matter. The purity of the administration of justice has tobe preserved and it is, therefore, that the Courts hold that the appearance of justice is a value which must be preserved : justice must manifestly be seen to be done. Equally, Arbitration is gaining ground as a means of Alternate Dispute Resolution. Those who take upon themselves the responsibility of discharging the tasks of Arbitrators have to be protected against unwholesome attacks by litigating parties, whereas is the present case, the allegations are found to be untrue and false.
The Second Submission - Whether the bar under Section 22. SICA applies to Arbitral Proceedings against the Guarantor.
32. That leads the Court to the second submission which has been urged which is to the effect that the arbitral proceedings against the Petitioner, who was a guarantor in respect of the financial facilities extended to the constituent of the first Respondent, were not maintainable under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Section 22 of the Act provides thus :
'22. Suspension of legal proceedings, contracts, etc. - (1) Where in respect of an industrial company, an inquiry under Section 16 is pending 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 (1 of 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 and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company shall lie or be, proceeded with further, except with the consent of the Board or, as the case may be the Appellate Authority.'
33. Section 22 of the Act, it must be noted, came to be amended by an Amending Act of 1993. By the Amending Act, the ambit of Section 22 came to be extended so as to include any suit for the recovery of money or for the enforcement of a security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company.
34. After the amendment, there are essentially two parts of Section 22. The first part relates to proceedings (i) for the winding up of the industrial company; (ii) for the execution distress or the like against any of the properties of the industrial company; and (iii) for the appointment of a Receiver in respect thereof. The second part deals with a suit for (i) the recovery of money or (ii) the enforcement of any security against the industrial company or (iii) the enforcement of any guarantee in respect of any loans or advance granted to the industrial company. The Court is not concerned with the first part since, admittedly in the present case, the stage of execution or for distress or the like against the properties of the industrial company has not been sought to be initiated. The question is as to whether the expression 'suit for the recovery of money' can be extended to include arbitral proceedings. Now there can be no doubt about the principle of law which was canvassed on behalf of the Petitioner that the expression 'suit' has to be construed in the context in which it is used. In Patel Roadways Ltd. v. Birla Yamaha Ltd. the Supreme Court construed the provisions of Section 9 of the Carriers Act by which in any suit, brought against a common carrier for the loss, damage or non-delivery of goods entrusted to him for carriage, it is not necessary for the Plaintiff to prove that the loss, damage or non-delivery has taken place due to the negligence or criminal act of the carrier. The Supreme Court held that it was not open to the National Consumer Disputes Redressal Commission to ignore Section 9. The Court held that the term 'suit' is a generic term taking within its sweep all proceedings initiated by a party for realisation of a right under the law.
35. In the context of Section 22 of the Act, it would be necessary to have regard to the circumstance that the same statutory provision does use two different expressions namely proceedings and suit in the same Sub-section, Sub-section (1). Sub-section (1) provides that no proceedings can be adopted for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company. However, when the statute was amended in 1993 so as to extend the ambit of Section 22, the Legislature used the expression 'suit' for the recovery of money or for the enforcement of any security or of a guarantee in respect of loans or advances granted to the industrial company. In the circumstances, it would in my view, be impermissible for the Court by a process of interpretation, to extend the ambit of Section 22 by holding that arbitral proceedings against a guarantor in pursuance of an arbitration clause contained in the deed of guarantee would be within the ambit of the section. This would be contrary to the plain text of Section 22.
36. The point is not res Integra since it has been considered by Division Bench judgments of the High Courts of Delhi and of Calcutta and in several judgments of learned Single Judges of this Court. In Lloyds Insulation India Ltd. v. Cement Corporation of India [2001] 33 SCL 520 a Division Bench of the Delhi High Court held, following the decision of the Supreme Court in Nawab Usmanali Khan v. Sagar Mal : [1965]3SCR201 , that the expression 'suit' in Sub-section (1) of Section 22 must be given the meaning by which it is normally understood, that is, a civil proceeding instituted by the presentation of a plaint. This according to the judgment of the Delhi High Court would refer to a suit as contemplated by Section 9 of the Code of Civil Procedure. Proceedings under Section 14 read with Section 17 of the Arbitration Act, 1940 for a judgment and decree in terms of an award which do not commence with a plaint or a petition in the nature of a plaint were held not to be regarded as a suit. The Division Bench also referred to the fact that while amending Section 22, the Legislature which had before it the use of the expression 'proceeding' in the section as it originally stood has designedly used the expression 'suit' in the amendment. The Division Bench also noted that awards would be covered by the provisions of Sub-section (3) of Section 22 and that, therefore, the expression suit occurring in Sub-section (1) would necessarily exclude an award.
37. The same view has been taken by a Division Bench of the Calcutta High Court in Burn Standard Co. Ltd. v. McDermott International Inc. [1998] Cal. 26 and by a learned Single Judge of this Court in P.S. Shrinivasan v. Mukesh Babu Financial Services Ltd. [2002] 39 SCL 225. The fact that the Arbitration & Conciliation Act, 1996 does dispense with the procedure of a judgment or decree in terms of the award and makes an award enforceable as a decree does not mean that the expression 'suit' in Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 must include an arbitral proceeding. There is, as already noted, intrinsic material in Section 22 which does not support such a construction. Section 36 of the Arbitration and Conciliation Act, 1996 provides as follows :
'36. Enforcement - Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.'
What Section 36 does is to render an arbitral award enforceable in the same manner as if it were a decree. Therefore, unlike the Arbitration Act, 1940, the Act of 1996 dispenses with the requirement of a judgment and decree being passed in terms of the award. The award becomes enforceable as if it were a decree if no challenge is preferred against it within the time prescribed for making a challenge or, when upon a challenge being preferred, it has been dismissed. The fact that an arbitral award is enforceable as if it were a decree, does not render the arbitral proceedings as proceedings in a suit. Nor does it render an arbitration a suit. All that Section 36 has provided is that for the purposes of enforcement an arbitral award can be enforced as if it were a decree.
The Third Submission : The Sanctioned Scheme
38. Finally it was also sought to be urged that a scheme has been sanctioned by the BIFR and that under the scheme the dues which are outstanding to the first Respondent from M/s. Gilt Pack Limited are to bepaid on a deferred basis. Consequently, it was sought to be urged that having regard to the provisions of Section 18(8) of the Sick Industrial Companies (Special Provisions) Act, 1985, the scheme would be binding on the creditors, including the First Respondent. The Arbitrator has dealt with this defence. The Arbitrator has come to the conclusion that it had not been established by the Petitioner that the draft scheme had been circulated to the First Respondent for the purpose of submitting its objections as contemplated by Section 19(2) of the Act. The Arbitrator has noted in paragraph 11(2) of the award that though the Petitioner had undertaken to produce the dispatch register before the arbitral forum, the Petitioner had failed to do so. Besides this, the Arbitrator has come to the conclusion that the liability of the guarantor is independent and the guarantor could not be exonerated by the scheme of BIFR, particularly one which was prepared without the consent of the First Respondent. The sanctioned scheme of the BIFR has not been placed before this court, nor was any reliance placed on the provisions of the scheme. Apart from that, I am of the view that the learned Arbitrator was entirely justified in taking the view that it was open to the First Respondent to independently pursue its remedies against the guarantor in arbitration and the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 would not bar the First Respondent from doing so.
39. However, it is necessary to clarify and it is clarified on the request of the learned counsel for the Petitioner, that this Court has not had occasion to determine what, if any, would be the impact of Section 22 on any execution proceedings that may subsequently be adopted to enforce the award. That stage has not yet arrived and hence, the point has not been canvassed here. The Petitioner would be entitled to raise all appropriate defences in the event of execution proceedings being adopted.
40. Before concluding, the Court would wish to record its appreciation of the able and objective assistance rendered by Mr. N.G. Thakkar, Senior Advocate who was appointed as amicus curiae. Mr. Thakkar has been fair in his submissions and ably assisted the Court by his painstaking research.
41. In the circumstances, therefore, I do not find any merit in the challenge to the award of the learned Arbitrator. No other point other than the aforesaid submissions has been pressed before the Court, the Arbitration Petition, in the circumstances, is dismissed.