The court sets aside the arbitral decision citing bias and patent illegality, marking a significant judgment in arbitration proceedings.
In a landmark judgment, the Madras High Court has set aside an arbitration award involving M/s. Muthu Construction and the Union of India. The decision, delivered by Justice N. Anand Venkatesh, underscores the pivotal role of impartiality in arbitration tribunals, aligning with principles of natural justice.
M/s. Muthu Construction had entered into a contract with the Union of India, specifically for the repair and maintenance of railway tracks. Disputes arose regarding the interpretation of contract terms, particularly concerning the measurement unit "per track metre," which led to arbitration. The Arbitral Tribunal's decision to reject the contractor's claims was challenged by M/s. Muthu Construction on grounds of bias and patent illegality.
The court noted that two members of the Arbitral Tribunal had previously exhibited bias in a similar dispute, which tainted the impartiality of the tribunal. This was further compounded by the tribunal's deviation from the explicit terms of the contract, substituting them with a presumed mutual understanding between the parties, which the court deemed a patent illegality.
Justice Venkatesh emphasized that even the bias of a single arbitrator could compromise the entire tribunal’s decision, applying the "poisoning the well" doctrine. The court ruled that the tribunal's majority decision was influenced by preconceived notions, thus violating Section 18 of the Arbitration and Conciliation Act, 1996, and the fundamental policy of Indian law.
Consequently, the court nullified the arbitration award, ordering the Union of India to bear the costs of ?1,50,000, payable to M/s. Muthu Construction. The judgment reinforces the necessity for unbiased and independent arbitration panels, ensuring fairness and adherence to contractual terms.
Bottom Line:
Arbitration award vitiated due to bias - Even bias of a single Arbitrator affects the impartiality of the entire Arbitral Tribunal, leading to the award being set aside.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34(2)(i)(b), Section 34(2A), Section 18
M/s.Muthu Construction v. Union of India, (Madras) : Law Finder Doc id # 2841033
