Author: Ranak Banerji
Third-year law student at National University of Juridical Sciences (NUJS), Kolkata
Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) allows parties to apply for setting aside a domestic arbitral award on the grounds mentioned therein. Further, Sections 12 and 13 of the Act provide for an arbitral award to be challenged on the grounds of a ‘lack of impartiality’ or ‘bias’ of an arbitrator.
In contrast, Section 48 of the Act provides exhaustive grounds for challenging or resisting the enforcement of foreign arbitral awards in India, and the ‘bias’ of an arbitrator is not one of them.
Despite a seemingly clear position of law, a recent Bombay High Court (‘HC’) judgement in the case of HSBC PI Holdings v. Avitel Post Studioz (‘HSBC’) might allow award debtors to resist the enforcement of foreign awards by alleging bias, citing it as against India's public policy. This raises concerns about the procedure and intended purpose of enforcing foreign arbitral awards in India.
This article aims to answer whether bias on the part of a foreign arbitral tribunal can be a ground for challenging an award under Section 48 of the Act. It argues against permitting such challenges, considering their implications for parties and the arbitration framework in India.
II. The Issue
The Bombay HC, in the HSBC case, addressed challenges posed by Avitel, the award debtor, against HSBC’s attempts to enforce an award passed in Singapore. Avitel’s primary ground for challenging enforcement was an apprehension of bias on the part of the Tribunal due to the Chairman’s failure to disclose the “thick business relationship” it had with HSBC. Avitel claimed that this failure to disclose created a “likelihood of bias”, which was against India's public policy and should thus preclude the enforcement of the award under Section 48(2)(b) of the Act.
The Bombay HC finally dismissed the challenge to the enforcement of the award. However, during the course of its reasoning, it held:
“There can be no doubt about the fact that if the respondents would have been able to demonstrate duty to disclose on the part of the said arbitrators, a likelihood of bias may have arisen, and the award could have been set aside on the ground of it being contrary to the public policy of India.”
The Bombay HC’s assertion, which constitutes the ratio of judgement, suggests that a foreign arbitral award can be challenged during its enforcement stage, citing alleged bias of the foreign tribunal under Section 48(2)(b) of the Act. This decision can open a gateway to challenging the enforcement of every foreign arbitral for a failure to disclose facts leading to any apprehension of bias.
Since determining apprehension or a likelihood of bias is inherently a case-specific exercise, allowing parties to resist the enforcement of a foreign award on such grounds would defeat the intended objectives of India’s arbitration regime. The following section outlines why such a challenge is legally incorrect and undesirable.
III. A Pro-Enforcement Bias
a. Judicial Position
The 2015 Amendment to the Act aimed to establish India as an “international commercial arbitration” friendly jurisdiction. Indian policy, recently, has tried to promote ease of business by facilitating the arbitration of disputes. These policy initiatives have translated into the judiciary recognising the “pro-enforcement” bias in India while enforcing foreign arbitral awards.
The Supreme Court of India (‘SCI’) in Vijay Karia v. Prysmian Cavi E Sistemi SRL encouraged the other Indian Courts to prefer “non-interference” with the foreign arbitral award during its enforcement. The SC in Government of India v. Vedanta Ltd. recognised the “pro-enforcement” bias towards enforcing foreign arbitral awards in India. Such a bias would necessarily imply narrower grounds for successfully challenging the enforcement of foreign arbitral awards under Section 48 of the Act.
The merits of a case cannot be raised again to challenge the enforcement of the foreign award. The Act itself bars a review of the merits of the case in which the award was passed while adjudicating upon the “fundamental policy of law” of India. In practice, courts have recognised that public policy as a ground for challenging the enforcement of a foreign award must be construed narrowly.
If the Court would have to judge the apprehension of bias on part of the Tribunal, it would have to use the prevailing “reasonable third person” test. Establishing any such apprehension would, thus, inevitably involve an analysis of the facts and circumstances of the case at hand. This is a review of the merits of the case at hand. Judging impartiality is not a procedural question. Substantial evidence has to be provided, and witnesses may be summoned to adjudicate on the same. This merits-based review should not be allowed during the enforcement stage of an award in light of the “pro-enforcement” bias of Indian arbitration law and the narrow grounds on which a public-policy challenge can be raised.
b. Legislative Intent
Section 2(2) of the Act clarifies that Part I only applies to domestic arbitrations in India, barring portions of Sections 9, 27 and 37. In contrast, Part II only applies to enforcing foreign awards passed under the New York and Geneva Conventions. These two parts are mutually exclusive. The Courts have identified this dichotomy in various instances, most notably in PASL Wind Solutions v. GE Power Conversion. Even before the 2015 Amendment, the SCI in the landmark BALCO case had specifically held that applying the provisions or jurisprudence of Section 34 to Section 48 would be inconsistent with the intent of the Act.
The grounds for an arbitrator’s alleged lack of impartiality and its procedure are laid down in Sections 12 and 13 of the Act, respectively. Both these sections are contained in Part I of the Act and only provide recourse to setting aside the domestic award under Section 34. They do not contemplate being applicable to Section 48 in any manner.
If the legislature intended to allow parties to resist enforcement of foreign arbitral awards by employing the grounds in Sections 12 of the Act, they would have included it in Section 2(2). So, no challenge brought using Section 12 or its Schedules, as done in HSBC, can be considered under Section 48 of the Act. The Act and subsequent jurisprudence are clear about the mutual exclusivity between the two parts, with only some specified exceptions.
The proposition being forwarded by this article was indirectly held in the case of Perma Container (UK) Line Ltd. v. Perma Container Line (India) Pvt. Ltd. (‘Perma Container’) before HSBC changed its position. In Perma Container, the Bombay HC observed that:
“[T]he provisions applicable to the parties which mandated such disclosure is absent in Part II of the Arbitration and Conciliation Act, 1996.”
The Bombay HC was referring to the provisions mandating disclosure of circumstances by the arbitrator, which could lead to an apprehension of bias. This article maintains that the position in Perma Container is the correct interpretation of Indian arbitration law and its purpose.
IV. Left Remediless?
It might seem that the award debtor, in cases of actual bias on the part of the Tribunal, is left remediless. This is not true. The award debtor can challenge the perceived lack of impartiality of the Tribunal under the laws of the seat of the arbitration where the award was passed. Developed and developing arbitration jurisdictions like the U.S.A., the U.K., Singapore, and the U.A.E. have specific laws to address challenges against awards from biased arbitrators, ensuring a legal remedy for the award debtor.
Thus, challenging the impartiality of an arbitral tribunal is provided under the laws of the State in which the award has been passed. If the award debtor has failed to exercise their right to challenge the award under the laws of the seat or if their challenge has been rejected, they cannot be allowed to bring up this substantive question again at the enforcement stage of the award, especially in a “pro-enforcement” jurisdiction such as India, which is trying to establish itself as a hub for global arbitration.
This article, however, recognises that exceptions do exist to this proposition. If there exist serious inhibitory circumstances that prevented the award debtor from alleging bias of the Tribunal in front of the courts of the seat of the arbitration, then a similar challenge should be allowed under Section 48(2)(b) in India. An example of such a circumstance is discovering the foreign tribunal’s bias after the enforcement proceedings of the award have been initiated in India. Then, it would be against the principles of natural justice and thus contrary to the fundamental policy of Indian law if a party is not given an opportunity to present its case.
This differs from directly challenging the award under Sections 12 of the Act. Therefore, if the award debtor was not prevented by serious circumstances from challenging the award under the laws of the seat, they should not be allowed to allege bias of the Tribunal during the enforcement stage of the award.
Award debtors routinely employ guerrilla tactics to resist the enforcement of foreign awards. Allowing insincere challenges increases delay and costs, might render the award meaningless and add to the strife of the award holder. The legislature and judiciary have transformed the Act into an arbitration-friendly one with a “pro-enforcement” bias and narrow ground for challenging under the vague umbrella of public policy. A host of judicial decisions have made this clear. Considering this, challenging the lack of impartiality of the Tribunal should only be at the seat of the award. Such challenges cannot be allowed at the enforcement stage unless any seriously inhibiting circumstances prevented one.
Note: This article has been reviewed by Mr. Ketan D. Parikh at the Tier - II stage.