Calcutta High Court sets aside arbitral award by senior lawyer-arbitrator for failure to disclose appearance for affiliate company

The failure of a senior lawyer and arbitrator to disclose that he had appeared for a company affiliated to a party to an arbitration recently led the Calcutta High Court to set aside the arbitral award passed by him. [C and E Ltd and ors v. Gopal Das Bagri and ors].In its judgment rendered on July 27, the Court emphasised that Section 12 of the Arbitration Act casts a continuous obligation on the arbitrator to remain neutral and to continue to disclose any acts likely to cloud his independence or qualifications.Any act on the arbitrator’s part that would suggest a likelihood of bias would lead the termination of the arbitrator’s mandate, Justice Rajasekhar Mantha observed.The Court also noted that the need for the arbitrator to remain neutral assumes the highest importance, particularly since courts have very limited powers to interfere with arbitral awards.“Such strict, compulsive, and rigorous imposition of the mandate of Section 12 is necessary to ensure that the institution of the arbitration remains sacrosanct. After all, the parties are deemed to have imposed pious and reverent faith in one individual or persons to resolve their disputes,” the judgment said..The arbitral award in question was passed in a dispute between the Bagri Group headed by Gopal Das Bagri and his sons on one side, and the Bhaiya Group, headed by Bulaki Das Bhaiya on the other side.Pertinently, the senior lawyer had, at the very first arbitration sitting, disclosed that he had earlier represented Bulaki Das Bhaiya and his group of companies in court. However, since both sides to the dispute expressed their full faith in him, the senior lawyer continued to serve as the arbitrator.Complications emerged when there was a hiatus in arbitration proceedings between December 2017 and January 2019, and the senior lawyer appeared in court during this break for a company named M/s. SSSMIL, which had ties to the Bhaiya family.The ₹22 crore arbitral award he passed subsequently was in favour of the Bhaiya group..The Bagri Group, meanwhile, 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, however, disagreed and concluded that the arbitrator had rendered himself ineligible to continue as an arbitrator. It found that his actions fell afoul of the conditions for independence and qualification of an arbitrator under Section 12 of the Arbitration Act, 1996, whether or not they were bona fide.It found that SSSMIL, formerly known as Chemcrown India was controlled and managed by BG Chemicals Private Limited, in which entity the Bhaiya family held a 25.68% stake. As such, the Bhaiya family held direct or indirect control over the affairs of SSSMIL, the Court noted.Consequently, the Court concluded that it was not difficult to believe that Bulaki Das Bhaiya would have personally attended meetings with the senior lawyer-arbitrator during case briefings in the litigation concerning SSSMIL.The Court proceeded to hold that SSSMIL was an “affiliate” company of the Bhaiya group. The effect was that the senior lawyer had rendered himself ineligible to continue as arbitrator in a dispute concerning the Bhaiya group, particularly in view of his failure to disclose his court appearances for SSMIL..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 said while setting aside the arbitral award..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.Advocates Surabhi Banerjee, Biswaroop Bhattacharya, Sulagna Mukherjee, and Shristi Sharma also appeared for the petitioners.The respondents were represented by Senior Advocate Dhruba Ghosh and Advocates Sananda Ganguly, Ajaya Choudhury, Soumyajit Ghosh, Rajarshi Dutta, Arindam Halder and Shubradip Roy..[Read Judgment]