Bias of Even One Arbitrator Taints Entire Arbitral Award: Madras High Court

The Madras High Court has set aside an arbitral award, holding that the bias of even a single arbitrator is sufficient to vitiate the entire award, even where the decision is unanimous.

Justice N. Anand Venkatesh said parties are entitled to an arbitral tribunal that is impartial in its entirety and not merely a neutral majority. Bias, the court held, violates Section 18 of the Arbitration and Conciliation Act, 1996, which requires equal treatment of parties, and also goes against the fundamental policy of Indian law.

The court observed, “It is impossible to know whether or to what extent the participation of the biased member affected the tribunal's decision. It cannot be assumed that the presumed impartiality and independence of one of the co-arbitrators of the panel rendered it harmless. In other words, a party is entitled to an independent and impartial tribunal, which means that all the members of the tribunal must be impartial and without bias. In the absence of the same, the bias of even a single member will necessarily vitiate the award rendered by the Arbitral Tribunal.”

The ruling came on a petition filed by Muthu Construction-Salem under Section 34 of the Arbitration Act, challenging an arbitral award passed in a dispute with the Union of India.

Before the arbitral tribunal, only one issue survived. It concerned payment under Schedule B of the contract, where work was to be paid on the basis of the unit of measurement “per track meter.”

The contractor argued that while most items under Schedule B were measured separately for each railway track, the tribunal treated Item Nos. 1 and 2 differently by clubbing the up and down tracks together. This method, it said, resulted in denial of part of its claim.

The Union of India defended the award and argued that the tribunal's interpretation was a reasonable one and could not be interfered with by the court.

The High Court rejected this defence. It held that the tribunal failed to apply the same yardstick to Item Nos. 1 and 2 as it did to other items with the same unit of measurement. The interpretation, the court said, was not a possible view and amounted to patent illegality, as the tribunal ignored the clear terms of the contract.

A significant part of the judgment dealt with allegations of bias. In a connected arbitration involving the same parties and identical issues, one arbitrator had recorded a dissent alleging that the other members of the tribunal had acted with a preconceived mind.

The court noted that two arbitrators from the earlier tribunal were also part of the tribunal that passed the present award. Although the award under challenge was unanimous, the court said the dissent could not be ignored where it raised serious concerns of bias.

The court clarified that while courts ordinarily need not examine dissenting opinions once an award is passed by a majority, an exception arises where the dissent alleges bias. In such cases, the issue must be examined, as bias vitiates the award and violates principles of natural justice.

Applying the principle often described as “poisoning the well,” the court held that the participation of even one biased arbitrator taints the entire arbitral process. The arbitral award was accordingly set aside.