Calcutta High Court: Arbitrator’s Duty to Disclose Information Commences & Continues from his Appointment till Passing of Award

Calcutta High Court: Arbitrator’s Duty to Disclose Information Commences & Continues from his Appointment till Passing of Award

The Calcutta High Court while noting the failure of a senior lawyer and arbitrator to disclose that he had appeared for a company affiliated to a party to an arbitration, set aside the arbitral award passed by him.

The single judge Justice Rajasekhar Mantha observed from the language of Section 12(2) of the Arbitration and Conciliation Act of 1996 (the Act of 1996) that the provision castes a continuous obligation 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 observed, “….that the conduct of an Arbitrator and his duty to disclose commences and continues from the time of appointment of the Arbitrator till the award is passed. It is a continuous obligation. Any act on the part of the Arbitrator, that would suggest a likelihood of bias would, in the most uncertain terms, lead to the termination of the mandate of the Arbitrator.”

In the present case, the arbitral award in question was passed in a dispute between the Bagri Group headed by Gopal Das Bagri (Respondent) and his sons on one side, and the Bhaiya Group (Affiliated to Petitioners-M/s. C&E Ltd), headed by Bulaki Das Bhaiya on the other side.

In the first sitting of the arbitration, held on 10 August 2014, the senior lawyer/learned Arbitrator disclosed in writing to the parties that he had earlier represented Bulaki Das Bhaiya and his group companies who was evidently a claimant in the proceedings. However, since both sides to the dispute expressed their full faith in him, the senior lawyer continued to serve as the arbitrator.

As many as 126 sittings were held in the Arbitration between 10 August 2014 and 9 December 2017. After a year-long hiatus, on 3 January 2019, the Arbitrator declared that a draft of the award was ready and after corrections and proofreading, the final Award would be ready soon.

Between 5 June 2018 to 19 July 2018, the Learned Arbitrator, in his capacity as a Senior Advocate, appeared in the High Court for a company named M/s. SSSMIL, which had ties to the Bhaiya family.

The Arbitrator, admittedly did not disclose or inform the parties that he had appeared several times in the High Court, for the said M/s. SSSMIL during the aforesaid hiatus period. The award was declared in favor of the Bhaiya group and its associates for an overall sum of Rs. 22 crores together with interest.

The Bagri Group, asserted that the senior lawyer had failed to disclose these Court appearances during the hiatus period and that they only became aware of this development after an internet search.

Therefore, they challenged the arbitral award before the High Court, which was also seized of various other connected matters.

The Bhaiya Group countered that the arbitrator’s representation of M/s. SSSMIL was, at best, legal advice at arm’s length and in a matter not related to the arbitration.

The Court on perusal of the comprehensive facts and submissions of the case disagreed with Bhaiya Group and concluded that the arbitrator had rendered himself ineligible to continue as an arbitrator.

The Judge commented that, ‘family-controlled’ companies are commonplace in India. The control of the family is exercised either through direct shareholding of the family members or through other companies controlled by the same family or a member of the same.

The Court for the above proposition referred the expression ‘control and management’ as explained succinctly in the case of Arcelormittal India Pvt. Ltd. vs. Satish Kumar Gupta and Ors., (2019).

In this regard, the Court observed that the definition of ‘affiliate’, under Section 12 of the Act, encompasses all the companies including the parent company. The Court was unable to accept that an individual i.e., Bulaki Das Bhaiya in control and management of M/s. SSSMIL, does not qualify as an affiliate of M/s. C&E Ltd. of the Bhaiya group, in the Arbitration.

“The said Bulaki Das Bhaiya and his family members directly or indirectly do control and manage M/s. SSSMIL and M/s C&E Ltd. and the latter two companies function as per the wishes and dictates of Bulaki Das Bhaiya. This Court is, therefore, of the view 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,” the Court observed.

Next, the Court determined that whether the Arbitrator had fallen foul of any of the grounds under the Fifth Schedule, in terms of Section 12(2) of the Act, and the Seventh Schedule in terms of sub-Section 5 of Section 12(5).

The Court categorically emphasized that given the very limited scope of challenge of an award under section 34 of the said Act of 1996, the requirement of neutrality of the Arbitrator had assumed the highest importance.

The Court held that, no matter how fair and judicious an award may be, one cannot be oblivious to the fact that there is one side who will succeed in receiving the huge financial benefit and the other side shall be liable for the same. The consequence of the award and the limited scope of challenge for the same are far-reaching on the parties.

The Court further opined that after his initial disclosure at the first arbitral sitting, the arbitrator had an obligation not to represent the Bhaiya group further.

“The object and purpose of the disclosure in terms of section 12(2) essentially mean that the Arbitrator shall not, during the subsistence of the proceedings, continue such association…A disclosure by the Arbitrator of past association with one party to the Arbitration would essentially impose an undertaking on the Arbitrator not to do so, during the pendency of the Arbitration,” the Court discerned.

The Court remarked that any Court or any reasonable man would have to invariably doubt as to why the Learned Arbitrator has taken the other plausible view. However, this is not permitted under section 34 of the Act. Hence, Section 12(2) and (5) must be strictly enforced and imposed in the instant case, opined the judge.

The Court was not inclined to enter into the merits of an award while assessing the reasonable likelihood of bias. The Court held that any act on the arbitrator’s part that would suggest a likelihood of bias would lead the termination of the arbitrator’s mandate.

Accordingly, the Court set aside the impugned order.

The petitioners were represented by Senior Advocate Nalin Kohli, who was instructed by Saraf and Partners Law Offices and Sandip Agarwal & Co.

The team at Saraf and Partners was led by Partner Abhishek Swaroop and assisted by Advocates Naman Kamdar, Vasu Manchanda and Nimisha Menon.

The team from Sandip Agarwal & Co was led by Advocates Sandip Agarwal and Tanay Agarwal.

Moreover, the petitioners were also represented by Advocates Surabhi Banerjee, Biswaroop Bhattacharya, Sulagna Mukherjee, and Shristi Sharma.

The respondents were represented by Senior Advocate Dhruba Ghosh and Advocates Sananda Ganguly, Ajaya Choudhury, Soumyajit Ghosh, Rajarshi Dutta, Arindam Halder and Shubradip Roy.