Arbitrator’s Non-Disclosure Regarding Representing Affiliate Company In Court Proceedings Raises ‘Real Danger Of Bias’: Calcutta HC Quashes Award

The Calcutta High Court held that the arbitrator's failure to disclose the information that he had previously represented one of the affiliate companies gave rise to justifiable doubts about his independence. The Court noted that the arbitrator's conduct in failing to disclose this information was in breach of the principles of natural justice and gave rise to a ‘real danger of bias’.

The Bench of Justice Rajasekhar Mantha observed, “In the facts and circumstances of the instant case, this Court is of the view that the Arbitrator has rendered himself ineligible by reason of his actions, and non-disclosure thereof. Either bona fide or otherwise, his actions fall foul of the mandate under Section 12 of the Arbitration and Conciliation Act, particularly, grounds 11, 15, and 20 and the Fifth Schedule and ground 15 of the Seventh Schedule read with explanation 2 thereof”.

Senior Advocate Nalin Kohli appeared for the Petitioner and Advocate Dhruba Ghosh appeared for the Respondent.

The Petitioner filed a petition under Sections 34 and 36 Subsections (1) and (2) of the Arbitration and Conciliation Act, 1996 (the Act) challenging the award passed by the arbitrator. The dispute involved two factions: the Bagri group, headed by Gopal Das Bagri and his sons, and the Bhaiya group, led by Bulaki Das Bhaiya. The Bagri group had filed a lawsuit against the Bhaiya group, and the parties agreed to resolve their differences through arbitration. The arbitrator who was appointed had previously represented the Bhaiya group and acted as lead counsel for a company owned by the Bhaiya group during the arbitration. The arbitrator had previously stated that the award had been finalized, but then directed the parties to submit fresh evidence. The Bhaiya group was awarded Rs. 22 crores.

The first issue to be ascertained; whether M/s. SSSMIL was an affiliate of the Bhaiya Group; The Court affirmed that Bulaki Das Bhaiya and his family members have control and management of M/s. SSSMIL and M/s. C&E Ltd and therefore M/s. SSSMIL was an affiliate of M/s. C&E Ltd. The Court placed reliance on Supreme Court Judgement in the cases of Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors., [(2019) 2 SCC 1] and Mansarovar Commercial Pvt. Ltd. Vs. Commissioner of Income Tax, Delhi [(2023) SCC OnLine SC 386] and asserted 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’.

“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 noted.

The second issue to ascertain was whether the Arbitrator has rendered himself ineligible under Section 12(2) & (5) and Grounds 2, 11, 15, and 20 of the fifth Schedule and 24 Grounds 2, 8, and 15 of the Seventh Schedule of the Act. The Court held that the arbitrator had a conflict of interest because he had previously represented an affiliate of M/s. C&E Ltd., in the High Court during the pendency of the arbitration. The Court further noted that the Arbitrator has rendered himself ineligible by reason of his actions, and non-disclosure thereof.

Additionally, the Court asserted, “One need not also enter into the merits of an award while assessing the reasonable likelihood of bias. What is important is as to whether the representation of the Arbitrator before the High Court, on behalf of M/s. SSSMIL, which is a body corporate, exclusively in control and management of Bulaki Das Bhaiya, during the pendency of the arbitration, would reasonably indicate a likelihood and/or danger of bias to an uninformed common man and any of the parties in the arbitration”.

Accordingly, the Court allowed the Petition and set aside the Arbitration Award.

Cause Title: C And E Ltd (Components And Equipments Ltd) And Anr. v. Gopal Das Bagri And Ors.

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