Arbitration In IndiaImpartiality of Arbitrator Cannot Be Challenged Post-Award If Not Raised During Arbitral Proceedings

The Hon’ble Delhi High Court in Allied-Dynamic JV v. Ircon International Ltd [Judgment dated January 10, 2024,in O.M.P.(COMM)451of 2016] held that a party cannot challenge an arbitral award on the grounds of arbitrator bias under Section 34 of the Arbitration and Conciliation Act (hereinafter referred to as “A&C Act”) if they failed to raise such objections during the arbitration itself. The Court stressed that by participating in the arbitration without questioning the tribunal’s impartiality or jurisdiction, the party forfeits the right to later contest the award based on claims of bias.

FACTS

Allied-Dynamic Joint Venture,(hereinafter referred to as “the Petitioner”) filed this petition in order to challenge the learnt Arbitral Tribunal’s 28 June 2016 Arbitral Award. Ircon International Ltd 

Ircon International Ltd. (hereinafter referred to as “the Respondent”), awarded a contract  Letter of Acceptance (hereinafter referred to as “LOA”) on  25.10.2010, to the Petitioner for earthwork inside the Thermal Power Plant in connection with Railway siding.

Following this, on 1.12. 2010, the parties signed an  Agreement amounting to  total value of Rs. 21,97,61,199/- (Rupees Twenty-one crore ninety-seven lakh sixty-one thousand one hundred ninety-nine only) The contract specified that the work was to be finished in 11 months, from 25.10.2010, to 24.09.2011. The Petitioner furnished 5% of the contract value as retention money and 2% of the contract value as performance security in accordance with Clause 8 of the General Conditions of Contract (hereinafter referred to as “GCC”).

After the Petitioner started working at the site, a number of problems appeared, which the petitioner alleges delayed the project’s completion. The delay in the site’s transfer was one of the main issues brought up by the Petitioner. On the contrary, the Respondent argued that although the Petitioner did not fulfil its contractual responsibilities for the portions of the project in which the site was given to him.

The record shows that there were many times when the parties involved mutually agreed to extend the project’s completion deadline. The Respondent’s letter from 30.10.2014, which moved the initial completion date from 24.09.2011, to 31.03.2014, confirms this. The letter further states that Rs. 23,09,58,770 (Rupees Twenty-three crore nine lakh fifty-eight thousand seven hundred seventy) was the entire amount paid up to the final bill, which was dated 25.03.2014.

Although the work was delayed, it was eventually completed in March 2014. However, the Petitioner raised several claims against the Respondent, primarily concerning improper deductions and compensation for the delay in handing over the project site. These claims were referred to the Sole Arbitrator, Mr. Yogesh Kumar Mishra. The Sole Arbitrator issued  Impugned Award, rejecting all of the claims of the Petitioner’s claims.

Under Section 34 of the A&C Act, the Petitioner, Allied-Dynamic Joint Venture, has filed this petition in order to challenge the learnt Arbitral Tribunal’s 28.06.2016 Arbitral Award. The Tribunal has rejected all of the Petitioner’s allegations with this Award.

Hence, being aggrieved by the Impugned Award, the Petitioner has filed the present petition under Section 34 of the A&C Act.

ISSUES BEFORE THE COURT

1. whether under section 34 of Arbitration and Conciliation the issue of biasness of the arbitrator can be raised if no objection can be taken during the proceeding?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the Ld. Arbitrator was award by expressing that The Arbitrator, being an employee of the Respondent, acted with bias in rendering the Award; and Despite the Respondent admitting delays in handing over the project site, the Arbitrator did not grant any compensation for this delay also The Respondent acknowledged causing the delay, yet the Arbitrator unjustly rejected claims for compensation and improper deductions, ignoring the evidence submitted in support of these claims.

The Respondent argued that the Arbitrator concluded that both parties contributed to the delay and no substantial evidence was presented to support the claims, and the compensation sought was based on speculative calculations. Therefore, the Arbitrator did not erred in dismissing the Petitioner’s claims. Regarding the issue of bias, it is contended that arbitration was initiated on 06.05.2014, under Section 21 of the A&C Act, before the Arbitration and Conciliation (Amendment) Act, 2015 took effect on 23.10.2015. As such, the unamended A&C Act applies to the Arbitrator’s appointment.

DECISION AND FINDINGS

The Hon’ble Delhi High Court referred to Clause 72.2.3 of the Agreement and observed that the clause provided a safeguard in cases where an employee of the Respondent is appointed as an arbitrator, stating that such an individual must not be connected with the work in question. The Hon’ble High Court further contended that the Respondent had appointed the learned sole arbitrator on 21.10.2014, and while the Petitioner had raised concerns about bias in letters, no formal adjudication or request for a replacement was ever made. Under these circumstances, it was held that the Petitioner could not wait until the arbitral award was rendered to raise the issue of bias.

Additionally, the Hon’ble High Court ruled that the disqualification of an employee from being appointed as an arbitrator under Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, as established in M/s. Shree Vishnu Constructions v. The Engineer in Chief Military Engineering Service [2023 LiveLaw (SC) 417], was not applicable in this case because the arbitral proceedings had been invoked before the 2015 amendments to the Act came into effect.

The Hon’ble High Court also held that the claim of bias could not be entertained at this stage, as such conduct could potentially amount to a waiver under Section 4 of the A&C Act. Furthermore, it was established that the parties had mutually agreed to extend the completion date, as reflected in the letter dated 30.10.2014.

Regarding the issue of wrongful deductions, the Hon’ble High Court noted that the Respondent had paid a sum of Rs. 1,08,32,013/- (Rupees One crore eight lakh thirty-two thousand thirteen) in accordance with the Price Variation Clause, and thus, the Petitioner’s claim of wrongful deductions could not be upheld.

Lastly, the Hon’ble High Court cited the Hon’ble Supreme Court’s decision in Haryana Urban Development Authority, Karnal v. M/s. Mehta Construction Company [2022 LiveLaw (SC) 348], which established that a court cannot undertake a fact-finding exercise under Section 34 of the A&C Act. An award cannot be set aside on the grounds of mere misappreciation of evidence, as the current petition sought to do.

As a result, the Hon’ble High Court found no grounds for the Petitioner to challenge the arbitral award, and the petition was dismissed.

AMLEGALS REMARKS

The Hon’ble Delhi High Court has provided a detailed and fair analysis of the issues raised in the petition, particularly addressing the concerns regarding the arbitrator’s appointment and the alleged bias. While the Hon’ble High court did not find merit in the specific grounds raised for challenging the arbitral award, it is important to acknowledge that the petition allowed for a comprehensive examination of the procedural and substantive aspects of the arbitration process. The judgment reinforces the significance of adhering to legal frameworks while ensuring that parties have the opportunity to present their case.

-Team AMLEGALS, assisted by Ms. Mugdha Morey

For any query or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com