Bias of an arbitrator: Can challenge be raised in enforcement of a foreign award.

This issue was decided in the case of AVITEL POST STUDIOZ LIMITED V. HSBC PI HOLDINGS (MAURITIUS) LIMITED wherein the AVITEL had challenged the enforcement proceedings of a SIAC arbitration award…

Brief Facts:

This issue was decided in the case of AVITEL POST STUDIOZ LIMITED V. HSBC PI HOLDINGS (MAURITIUS) LIMITED¹ wherein the AVITEL had challenged the enforcement proceedings of a SIAC arbitration award under S. 48 of the Indian Arbitration Act, 1996 on the premise that presiding arbitrator of the tribunal failed to make a full and frank disclosure of material facts and circumstances concerning conflict of interest and therefore the Award rendered by the tribunal cannot be enforced as it is against public policy in terms of Section 48(2) (b)of the Indian Arbitration Act.

Avitel case of bias against the arbitrator:

1. Presiding arbitrator was an independent director and chairman of the audit and risk committee of a company called Wing Tai. HSBC (Singapore) Nominees Pte Ltd held 6.29% of Wing Tai’s equity capital on a trustee/nominee basis.
2. This relationship of the presiding arbitrator with HSBC (Singapore) Nominees Pte Ltd through Wing Tai constitutes bias.

Arguments of HSBC PI HOLDINGS (MAURITIUS) LIMITED:

1. The award holder and HSBC (Singapore) Nominees Pte Ltd are different companies and the relationship of Wing Tai with HSBC (Singapore) Nominees Pte would not constitute bias.
2. The presiding arbitrator is not an employee of Wing Tai and therefore it is contended that it is wrong to say that he cannot discharge responsibility as an independent arbitrator or was incapacitated in any manner, in rendering the final Award.
3. Wing Tai had no relationship with the Award Holder and was not part of the HSBC Group

Decision of Supreme Court of India

1. There can be no difficulty in holding that the most basic notions of morality and justice under the concept of ‘public policy’ would include bias. However, Courts must endeavour to adopt international best practices instead of domestic standards, while determining bias. It is only in exceptional circumstances that enforcement should be refused on the ground of bias.
2. None of the other grounds now being pressed were raised during the arbitration or in the time period available to the appellants to apply, to set aside the Award in Singapore
3. It needs emphasizing that bonafide challenges to arbitral appointments have to be made in a timely fashion and should not be used strategically to delay the enforcement process. In other words, the Award Debtors should have applied for setting aside of the Award before the Singapore Courts at the earliest point of time.
4. This sort of challenge where arbitral bias is raised at the enforcement stage, must be discouraged by our Courts to send out a clear message to the stakeholders that Indian Courts would ensure enforcement of a foreign Award unless it is demonstrable that there is a clear violation of morality and justice. The determination of bias should only be done by applying international standards. Refusal of enforcement of foreign award should only be in a rare case where non- adherence to International Standards is clearly demonstrable.

Conclusion

Supreme Court of India took the right decision in holding that concept of “public policy” would include bias. In the facts of the given case, Supreme Court of India took the correct step in refusing to set aside the enforcement proceeding as Avitel neither raised these grounds bias before the tribunal nor did they challenge the award before courts in Singapore.

Footnote

1. 2024 INSC 242

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