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NPAC's Arbitration Review: The article delves into the sustainability of an arbitral award which has been passed by a three-member tribunal wherein one of the members is biased
Under the regime brought into force by the Arbitration and Conciliation Act, 1996 (Arbitration Act), the existence of bias on the part of an arbitral tribunal has always been recognised as a ground to set aside an arbitral award . Furthermore, to have disputes adjudicated upon by an impartial and neutral arbitral tribunal is also recognised as one of the pillars of the Arbitration Act. The ruinous impact that the bias of the arbitral tribunal has upon the legitimacy of the arbitration process and the eventual validity of the award is relatively straightforward in the case of an arbitral tribunal comprised of a sole arbitrator. However, an interesting question arises as regards the validity of an arbitral award rendered by a three-member arbitral tribunal wherein one of the arbitrators is demonstrated to have been biased, though the arbitral award in question is a unanimous one having the imprimatur of the other two co-arbitrators as well. Could it be successfully argued by the party that seeks to defend the validity of the arbitral award that irrespective of the presence of the concerned biased arbitrator (biased arbitrator), there was ultimately no ground to interfere with the arbitral award inasmuch as the two other unbiased co-arbitrators had also signed on to, and thereby, ultimately sanctified the arbitral award.
In order to examine this issue, it is relevant at the outset to revisit the elementary principle applicable to arbitration proceedings conducted by a three-member arbitral tribunal viz. all three arbitrators are required to collaborate as equal stakeholders at all stages of the arbitration proceedings ultimately culminating in the pronouncement of an arbitral award. What is important to detail at this juncture is the critical role played by all of the individual arbitrators in the deliberations and discussions held within a three-member arbitral tribunal, and which deliberations and discussions ultimately result in the findings and conclusions in the arbitral award. In light of the aforesaid process, the resultant arbitral award though unanimous, loses the individual stamp of influence of the individual arbitrators and reflects an indivisible ‘melting pot’ of all the inputs, deliberations, conclusions and findings of the individual arbitrators. In such a situation, it is very difficult, nigh impossible, to be able to sever any particular finding or portion of the award as belonging to or emanating from the inputs provided or stands taken by the biased arbitrator in question. As is trite, the question of severability would come into play only when severance can be made by using the “blue pencil” test i.e., where the offending part is clearly severable, and not in cases where the offending part cannot be severed.
One may, of course, argue with reference to Section 31(2) of the Arbitration Act that the agreement of the other two unbiased co-arbitrators, thereby representing a majority on their own, is sufficient to sustain the arbitral award. However, such an argument, thought attractive on first blush would also be difficult to sustain for two major reasons:
First, it is not possible to obviate in a conclusive manner the possibility of the biased arbitrator’s viewpoint and his/her contribution in the deliberations having steered the other co-arbitrators, and the arbitral award with them, to the ultimate destination.
Second, in the case of a unanimous award, the reliance on Section 31(2) is inapposite inasmuch as there is no award of the ‘majority’ and there is only one unanimous award agreed to by all of the arbitrators. The position might be different though if the biased arbitrator in question renders a distinct minority award thereby reflecting his/her distinct opinions and findings on certain issues as juxtaposed with the distinct opinion of the majority arbitrators as contained in the majority award.
With the aforesaid background in mind, it would now be apposite to turn to the relevant precedent on the issue. In the realm of administrative law, the Constitution Bench judgment of the Supreme Court in A.K. Kraipak v. Union of India is an authority for the proposition that in a deliberative exercise, the infusion of bias in the form of even one of the members of a larger panel is fatal to the validity of the ultimate decision. In A.K. Kraipak (supra), the evident bias and lack of impartiality of one of the members of a five-member selection board resulted in the Court finding that the ultimate unanimous decision taken by the selection board was vitiated. It is interesting to note that though the other members of the selection board filed affidavits before the Supreme Court to indicate that their decision would remain the same de-hors the participation of the biased member, the Court in Paragraph No. 16 rejected this approach in the following words:
“16. The members of the selection board other than [the biased member], each one of them separately, have filed affidavits in this Court swearing that [the biased member] in no manner influenced their decision in making the selections. In a group deliberation each member of the group is bound to influence the others, more so, if the member concerned is a person with special knowledge. Bias is likely to operate in a subtle manner. It is no wonder that the other members of the selection board are unaware of the extent to which his opinion influenced their conclusions. We are unable to accept the contention that in adjudging the suitability of the candidates the members of the board did not have any mutual discussion. It is not as if the records spoke of themselves. We are unable to believe that the members of selection board functioned like computers.”
In the specific context of arbitration proceedings, the issue in question came up for consideration before the High Court of Delhi wherein the Court was faced with award-challenge proceedings under Section 34 of the Arbitration Act in a case wherein one of the arbitrators who had participated in the proceedings that ultimately culminated in a unanimous arbitral award was demonstrated to have an undisclosed relationship with the party which had prevailed on the merits. In the judgment in Lanco-Rani (JV) v. National Highways Authority of India, the Court relying inter-alia on A. K. Kraipak unequivocally held that once the aspect of bias on the part of one of the arbitrators was established, the mere fact that the arbitral award in question was a unanimous one by a three-member arbitral tribunal would not be sufficient to save the arbitral award. The Court observed in this regard inter-alia as under:
“27. The fact that the Award may have been unanimous and that [the biased arbitrator] was only one of the Members of the AT does not make even one bit of a difference to the above conclusion…
…In other words, even if one of the Members of the AT has compromised the essential requirement of fairness by failing to disclose the circumstances which may give rise to justifiable doubts as to independence and impartiality, the Award of the AT would get vitiated.”
As already noted hereinabove, the deliberative function is inherent to arbitral proceedings involving a three-member arbitral tribunal. In this light, the aforesaid judgements and the principles they expound serve as yet another cautionary tale of the ruinous impact that bias can have on the validity of the arbitration proceedings and the high standard of care and due diligence that parties must adhere to before identifying a nominee arbitrator.
The authors are Advocates practicing before the High Court of Delhi.
 See Section 13(5) read with Section 34(2)(b)(ii) of the Arbitration Act, and the judgments in Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd. [(2007) 5 SCC 304] and Mcdermott International Inc. v. Burn Standard Co. Ltd. & Ors. [(2006) 11 SCC 181].