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PETITIONER: SECRETARY TO THE GOVERNMENT, TRANSPORT DEPTT.  MADRAS

       Vs.

RESPONDENT: MUNUSWAMY MUDALIAR & ORS.

DATE OF JUDGMENT29/08/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR 2232            1988 SCR  Supl. (2) 673  1988 SCC  Supl.  651     JT 1988 (4)   730  1988 SCALE  (2)1070

ACT:     Arbitration  Act, 1940: S.  5-Chosen  Arbitrator-Removal of-Apprehension of bias-To be based on cogent materials.

HEADNOTE:     The dispute as to the refund of earnest money deposit to the  respondent-contractor  was referred  to  an  arbitrator named  in  the  arbit-ration clause of  the  agreement.  The respondent  filed claim before him. During the  pendency  of the  claim before the said arbitrator, there was  succession to that office by another incumbent. The succeeding  Officer wanted  to continue the arbitration proceedings  but  before that  the respondent made an application under s. 5  of  the Arbitration Act for removal of the arbitrator on the  ground that  he  being  an employee of  the  State  the  petitioner apprehended bias. The Judge, City Civil Court found that the Chief Engineer of the Circle concerned was in favour of  the cancellation of the contract in question and when it came to be terminated the construction was sought to be entrusted at the  risk  and cost of the petitioner on the advice  or  the proposal  of the Chief Engineer. Being of the view that  the arbitrator,  the Superintending Engineer, being  subordinate to the said Chief Engineer, would necessarily have a leaning to  accept  the attitude expressed by latter,  he  concluded that  there could legitimately be a bias in the mind of  the arbitrator. The High Court dismissed the appeal in limine.     Allowing the appeal by special leave,     HELD:  A named and agreed arbitrator cannot  and  should not  be  removed in exercise of a discretion vested  in  the court  under  s.  5 of the Act unless  there  is  allegation either  against  his  honesty or capacity or  mala  fide  or interest  in the subject matter or reasonable  apprehensiors of the bias. [677E-F]     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  based on cogent materials. Mere  imagination                                                   PG NO 673                                                   PG NO 674 of  a  ground  cannot be an excuse  for  apprehending  bias. [677F-G; 678C]

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   International  Authority lndia v.K.D. Bali  &  Anr.,J.T. 1988  2  S.C.1.  and Commercial Arbitration,  by  Mustill  & Boyd.,  [1982] Edn. p.214, Hulsbury’s Laws of  England,  4th Edn. Vol. 2, para 551, p. 282 referred to.     In  the instant case, when the parties entered into  the contract  they  knew  the terms of  the  contract  including arbitration   clause  providing  that   the   Superintending Engineer  of  a particular Circle shall be  the  arbitrator. They  also  knew  the  scheme and the  fact  that  the  said Superintending   Engineer  was  subordinate  to  the   Chief Engineer of the Circle. ln spite of that the parties  agreed and  entered into arbitration  and indeed submitted  to  the jurisdiction  of the arbitrator at that time to begin  with, who  however, could not complete the arbitration because  he was  transferred  and  succeeded by a  successor.  In  these circumstances  no  bias could reasonably be apprehended  and made a ground for removal of a named contractor. In numerous contracts   with  the  Government,  clauses  requiring   the Super"intending Engineer or some official of the  Government to  be the arbitrator are there. It cannot be said that  the Superintending   Engineer as such cannot be  entrusted  with the work or arbitration  and  that apprehension  simpliciter in  the mind of the contractor without any tangible  ground, would he a justification for  removal. [677C-F]     The  case  is  remanded back to the  Judge,  City  Civil Court, Madras to appoint the Superintending Engineer, Trichy to  be  the arbitrator in accordance  with  the  arbitration agreement. [678C-D]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3251  of 1988.     From  the  Judgment" and Order dated  21.9.l984  of  the Madras  High Court in C.R.P. No.3482 of 1984.     A.V.Rangam  for the Appellant     P. Krishna Rao and K.R.Nagaraja for the Respondents.     The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,J.Leave granted and the  appeal  is disposed of by the following judgment.                                                   PG NO 675     This appeal arises out of an order of the High Court  of Madras,  dated 21st September,  1984. The appellant  is  the Secretary to the Government, Transport Deptt. , Madras,  and the  respondent  No.  1 is the  managing   partner  of  M/s. National  Company, which was the successful tenderer of  the work of construction of a bridge across the river Coovum  at Koyambedu within the corporation limit of the city of Madras and accordingly the necessary contract was executed  between the    respondent   No.   2-the   Superintending    Engineer (Highways)  World Bank Project Circle, Madras, and the  said Company on 28th April, 1979.     According to the conditions of the contract between  the parties,  the work should have been completed on  or  before 5th  November,  1980. The said  National  Company,  however, according  to the appellant, did not even commence the  work till   21.9.1981.  and  despite  extension  of  time   until 31.10.1981  the  said  firm failed  and  neglected  even  to commence  the job. Consequently, the contract in  favour  of the  said  firm was determined absolutely at their risk  and cost, according to the appellant. The respondent  herein, in his  individual  capacity as managing partner  of  the  said Company filed a suit in the City Civil Court, Madras,  being O.S.  No.  3996/82  claiming damages alleged  to  have  been

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caused  as  a result of the said determination of  the  said contract  and for refund of earnest money deposit etc.     In  view of the Arbitration Clause under  the  agreement between  the  parties, the appellant filed a   petition  for referring  the  dispute  to   the  arbitrator  for   further proceedings and the City Civil Court?  Madras, accepting the appellant’s prayer, passed orders directing both the parties to  refer  the disputes to the arbitrator,  and  stayed  the suit. As per the order of the City Civil Court, Madras,  the respondent  filed  claim  petition  before  the  arbitrator, namely,  Superintending  Engineer (Highways &  Rural  Works) Rural   Roads  Circle,  Tiruchirapalli,  being  the   second respondent herein.     During  the  pendency  of  the  claim  before  the  said arbitrator,   the  respondent  filed  another    application seeking  to  change the arbitrator  on the ground  that  the arbitrator  being  an employee of the State  Government,  an Engineer from any sector other than the sector of Tamil Nadu or  a  retired  Engineer of the State  Government  might  be appointeded arbitrator.     The contract between the parties, inter alia,  contained the  following Arbitration Clause:                                                   PG NO 676     "(3) The arbitrator for fulfilling the duties set  forth in  the  arbitration  clause  of  the  Standard  Preliminary Specification   shall be Superintending Engineer  (H)  Rural Roads  Tiruchira Palli  Circle."     Pursuant  to  this the Superintending Engineer  of  that Circle,  at  the relevant time, was previously appointed  as arbitrator. There was  succession to that office by ’another incumbent and the succeeding  Superintending Engineer wanted to  continue the arbitration proceedings but before that  an application was made under Section 5 of the Arbitration Act, l940  (hereinafter  called ‘the Act’)  for  removal  of  the arbitrator,  before  the  learned Judge of  the  City  Civil Court, Madras.     The  learned  Judge by his order sought  to  revoke  the authority of the named arbitrator. The learned Judge in  his order dated 6th March,1984, inter alia, observed as follows:     "The apprehension of bias on the part of the  Arbitrator is  made to rest on the ground that the first respondent  in the counter filed before the Arbitrator to the claim made by the  petitioner  referred to G.O.  Ms.  409/Transport  Dated 7.4.83   which  in  turn  made  a  reference  to  a   letter No.114879/D2/81. Dated 30. 10.82 of the Chief  Engineer, H & RW."     In the order of the learned Judge, City Civil Court,  he stated  that the Chief Engineer of the Circle concerned  was in  favour of the cancel-lation of the contract in  question and  the  contract entrusted to the  petitioner came  to  be terminated  and the construction was sought to be  entrusted at the risk and cost of the petitioner on the advice or  the proposal of the Chief Engineer. The Superintending  Engineer is  sub-ordinate  to  the  Chief  Engineer,  therefore,  the learned Judge, City  Civil Court was of the view, as he says in  the  judgment, "It is not unreasonable to say  that  the successive   Superintending  Engineer  of  this   particular department  who  will be subordinate to the  Chief  Engineer will  necessarily  have  a leaning to  accept  the  attitude expressed by the Chief Engineer." The learned Judge came  to the  conclusion that there could legitimately be a  bias  in the  mind  of  the arbitrator  who  was  the  Superintending Engineer against the appellant. The High Court also did  not examine  this  aspect and dismissed the  appeal  in  limine. Hence, this appeal.

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   Apprehension of bias in the mind of the arbitrator is  a good ground for removal of the arbitrator under section 5 of                                                   PG NO 677 the  Act. The learned Judge, City Civil Court, had  directed the  parties to submit a list of three engineers willing  to be  appointed  as  arbitrator and  if  the  parties  express consensus  one of the three from the list of the  petitioner or  from  the list of the respondent would.  be  chosen  and appointed  as arbitrator and in case there is  no  consensus between  the  parties then from among six engineers  to   be mentioned by both the parties three each in a separate  list one  of them will be selected by draw of lots and  appointed as arbitrator. The parties were directed to submit a list of three  engineers of their choice who would be willing to  be appointed  as arbitrator in the matter within  a  stipulated period.     This  is a case of removal of a named  arbitrator  under Section 5 of the Act  which gives jurisdiction to the  Court to revoke the authority of the arbitrator. When the  parties entered into the contract, the parties knew the terms of the contract including arbitration clause. The parties knew  the scheme and the fact that the Chief Engineer is superior  and the  Superintending  Engineer is subordinate  to  the  Chief Engineer  of  the particular Circle. ln spite  of  that  the parties  agreed  and  entered into  arbitration  and  indeed submitted to the jurisdiction of the Superintending Engineer at that time to begin with, who, however, could not complete the arbitration because he was transferred  and succeeded by a  successor. In those circumstances on the facts stated  no bias  can  reasonably be apprehended and made a  ground  for removal  of a named arbitrator. ln our opinion  this  cannot be,  at all, a good or valid legal ground. Unless  there  IS allegation  against the named arbitrator either against  his honesty or capacity or mala fide or interest in the  subject matter  or reasonable apprehension of the bias, a  name  and agreed  arbitrator  cannot  and should not  be  removed   in exercise of a discretion vested in the Court under section 5 of the Act.     Reasonable  apprehension  of  bias  in  the  mind  of  a reasonable   man  can  be  a  ground  for  removal  of   the arbitrator.  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 reasonable apprehension  must  be based  on cogent materials. See the observations of  Mustill and  Boyd, Commercial Arbitration, 1982 Edition,  page  214. Halsbury’s  Laws of England, Fourth Edition, Volume 2,  para 551,  page 282 describe that the test for bias is whether  a reasonable  intelligent  man,  fully appraised  of  all  the circumstances, would feel a serious apprehension of bias.     This  Court in International Authority of lndia v.  K.D. Bali  and Anr., J.T. l9988 2 S.C. I held that there must  be                                                   PG NO 678 reasonable  evidence  to  satisfy  that  there  was  a  real likelihood   of   bias.  Vague  suspicions   of   whimsical, capricious  and unreasonable people should not be  made  the standard  to regulate normal human conduct. In this  country in numerous contracts with the Government, clauses requiring the Superintending Engineer or some official of the Govt. to be  the  arbitrator are there. It cannot be  said  that  the Superintending  Engineer, as such cannot be  entrusted  with the   work   of  arbitration  and  that   an   apprehension, simpliciter  in  the  mind of  the  contractor  without  any tangible  ground, would be a justification for  removal.  No other ground for the  alleged apprehension was indicated  in

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the  pleadings before the learned  Judge or the decision  of the learned Judge. There was, in our opinion, no ground  for removal  of  the arbitrator. Mere imagination  of  a  ground cannot be an excuse for apprehending bias in the mind of the chosen  arbitrator.     In  that  view  of the matter, the  order  made  by  the learned  Judge.  City Civil Court, and the decision  of  the High  Court cannot be sustained and they are set aside.  The appeal  is allowed. We remand the case back to  the  learned Judge,  City Civil Court, to ask the Government  to  appoint the Superintending Engineer. Trichy, to be an  arbitrator in accordance  with the arbitration agreerment. The  arbitrator will  proceed according to the evidence of the  parties  and after   considering all the relevant facts according to  the agreement  and make an award in accordance with  law.  There will be no order as to costs.       P.S.S.                                 Appeal allowed.