SECRETARY TO THE GOVERNMENT, TRANSPORT DEPTT., MADRASversusMUNUSWAMY MUDALIAR & ORS.

              SECRETARY TO THE GOVERNMENT, TRANSPORT                                A
                          DEPTT., MADRAS
                                 v.

                         MUNUSWAMY MUDALIAR & ORS.

                                    AUGUST 29, 1988                                 B

           [SABYASACi-II MUKHARJI AND S. RANGANATHAN, JJ.]

               Arbitration Act, 1940: S. 5-Chosen Arbitrator-Removal of-
          Apprehension of bias-To be based on cogent materials.

                The dispute as to the refund of earnest money deposit to the
                                                                                    c
          respondent-contractor was referred to an arbitrator named in the arbit-
         ration clause of the agreement. The respondent filed claim before him.
          During the pendency of the claim before the said arbitrator, there was
          succession to that office by another incumbent. The succeeding officer
          wanted to continue the arbiiration proceedings but before that the D
          respondent made an application under s. 5 of the Arbitration. Act for
         removal of the arbitrator on the ground that he being an employee of
         the State the petitioner apprehended bias. The Judge, City Civil Court
         found that the Chief Engineer of the-Circle concerned was in favour of
          the cancellation of the contract in question and when-11 came to. be
          terminated the construction was sought to be entrusted at the risk and E
          cost of the petitioner on the advice or the proposal of the Chief
          Engineer. Being of the view that the arbitrator, the Superintending
          Engineer, being subordinate to the said Chief Engineer, would neces-
          sarily have a leaning .to accept the attitude expressed by latter, he
         ·concluded that there could legitimately be a bias in the mind of the
          arbitrator. The High Court dismissed the appeal in limine.              F

                Allowing the appeal by special leave,

                HELD: A named and agreed arbitrator cannot and should not be
                   '                                                            '
          removed in exercise of a discretion vested in the court under s. 5 of the
          Act unless there is allegation either against his honesty or capacity or ·G
          ma/a fide or_ interest in the subject matter or reasonable .apprehension
          of the bias. [677E-F]

                   A predisposition to decide for or against one party, without
...:.,;.._. _ proper regard to the true merits of the di~pute is. bias. T.here must be '
   . "'--~r'reasunable apprehension of that predisposition based on cogent 111ate- H,
                                             673
     674         SUPREME COURT REPORTS                 [1988] Supp. 2 S.C.R.

     rials. Mere imagination of a ground cannot be an excuse for apprehend-
A
     ing bias. l677F-G; 678C]                    ·

           InternatL ;al Authority of India v. K.D. Bali & Anr., J.T. 1988 2
     S.C.1. and Commercial Arbitration, by Mustill & Boyd., [1982] Edn. p.
     214, Halsbury's Laws of England, 4th Edn. Vol. 2, para 551, p. 282
     referred to.

           In the instant case, when the parties entered into the contract they
     knew the terms of the contract including arbitration clause providing
     that the Superintending Engineer of a particular Circle shall be the
     arbitrator. They also knew the scheme and the fact that the said
     Superintending Engineer was subordinate to the Chief Engineer of the
c    Circle. In spite of that the parties agreed and entered into arbitration
     and indeed submitted to the jurisdiction of the arbitrator at th;it time to
     begin with, who however, could not complete the arbitration because he
     was transferred and succeeded by a successor. In these circumstances
     no bias could reasonably be apprehended and made a ground for
Q    removal of a named contractor. In numerous contracts with the Gov-
     ernment, clauses requiring the Superintending Engineer or some offi-
     dal of the Government to be the arbitrator are there. It cannot be said
     that the Superintending Engineer as such cannot be entrusted with the
     work of arbitration and that apprehension simpliciter in the mind of the
     contractor without any tangible ground, wonld be a justification for
B    removal. [677C-F]

           The case is remanded back to the Judge, City Civil Com;, Madras
     to appoint the Superintending Engineer, Trichy to be the arbitrator in
     accordance with the arbitration agreement. [678C-D]

F          CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3251
     of 1988.

          From the Judgment and Order dated 21. 9 .1984 of the Madras
     High Court in C.R.P. No. 3482 of 1984.

(j         A. V. Rangam for the Appellant.

           P. Krishna Rao and K.R. Nagaraja for the Respondents.

           The Judgment of the Court was delivered by

H         SABYASACHI MUKHARJI, J. Leave granted and the appeal is
     disposed of by the following judgment.
          SECY., TYT. DEPTT. v. M. MUDALIAR IMUKHARJI, J.]            675

       This appeal -arises out of an order of the fiigh Court of Madras, ·A
 dated 21st September, 1984. The appellant is the Secretary to the
 Gover.nment, Transport.Dept!., Madras, and the respondent-No. 1 is
 the· managing partner of M/s. National Company, whieh was the
 successful tenderer of the work of construction of a bridge across the
 river Coovum at Koyambedu witliin the corporation limit of the City of
 Madras and accordingly the necessary contract was executed between B
 th~ responde1H No. 2-the Superintending Engineer (Highways)
 Wprld Bank Project Circle, Madras, and the said Company on 28th
 April, 1979.

       According to the conditions of the contract between the parties,
 the work should have been completed on or before 5th November,              C
 1980. The said National Company, however, according to the appel-
 lant, did not even commence the work till 21.9.1981 and despite exten-
 ~ion of time until 31.10.1981 the said firm failed and neglected even to
 commence the job. Consequently, the contract in favour of the said
 firm was determined absolutely at their risk and cost, according to the
 appellant. The respondent herein, in his individual capacity as manag-      D
 ing partner of the said Company filed a suit in the City Civil Court,
 Madras, being O.S. No. 3996/82 claiming damages alleged to have
 been caused as a result of the said determination of the said contract
 and for refund of earnest money deposit etc.

       In view of the Arbitration Clause under the agreement betweeri E
 the parties, the appellant filed a petition for referring the dispute to
 the arbitrator for further proceedings and the City Civil Court,
 Madras, accepting the appellant's prayer, passed orders directing both
 the parties"to refer the. disputes to the arbitrator, and stayed the suit,
 As per the order of the City Civil Court, Madras, the respondent filed.
 claim petition before the arbitrator, namely, Superintending Engineer F
 (Highways & Rural Works), Rural.Roads Circle, Tiruchirapalli, being
 the second respondent herein.

        · During the pendency of the ciaim before the said arbitrator, the
. respondent filed another application seeking to change the arbitrator
 . on the· ground that ·the arbitrator· being an employee of the· State      G
   Government, an Engineer froin any ·sector other than t!H,. sector of
  Tamil N adu or a retired Engineer of the State Government might be
   appilintedas -arbitrator.

       The contract between the parties, inter. alia, contairted the
 following Arbitration Clause:                                               H
      676         SUPREME COURt.REPORTS                [1988] Supp. 2 S.C.R.

                  "(3) The.atgitrator for fulfilling the duties set forth in the
                  arbitratioi'i clause of the Standard Preliminary Specification
                  shall be Superintending Engineer (H) Rural. Roads
                  Tiruchira Palli Ci_rcle."

            Pursuant to this the Superintending Engineer of that Circle, at
B     the relevant time, was previously appointed as arbitrator. There was
      succession to that office by another incumbent and the succeeding
      Superintending Engineer. wanted to continue the arbitration proceed-
      ings but before that an application was made under Section 5 of the
      Arbitration Act, 1940 (hereinafter called 'the Act') for removal of the
      arbitrator, before the learned Judge of the City Civil Court, Madras.

             The learned Judge by his order sought to revoke the authority of
      the named arbitrator. The learned Judge in his order dated 6th March,
      1984., inter a/ia, observed as follows:

                 "The apprehension of bias on the part of the Arbitrator is
0                made to rest on the ground that the first respondent in the
                 counter filed before the Arbitrator to the claim made by
                 the petitioner referred to G.O. Ms. 409/Transport Dated
                 7.4.83 which in tum made a reference to a letter No ..
                 114879/D2/81. Dated 30.10.82 of the Chief Engineer, H &
                 RW."

            In the order of the learned Judge, City Civil Court, he stated that
      the Chief Engin~er of the Circle concerned was in favour of the cancel-
      lation of the contract in question and the contract entrusted to the
      petitioner came to be terminated and the construction was sought to be
      entrusted at the' risk and cost of the petitioner on the advice or the
JP    proposal of the Chief Engineer. The Superintending Engineer is sub-
      ordinate to the Chief Engineer, therefore'· the learned Judge, City
      Civi!Court was of the view, as he says in the judgment, "It is not
      unreasonable to say that the successive Superintending Engineer of
      this particular department who will be subordinate to the Chief
      Engineer will necessarily have _a leaning to accept the attitude expres-
(jJ   sed by the Chief Engineer." The learn!>d Judge came to the cor1clusion
                                       a
      tharthere could legitimately be bias in the mind Of the arbitrator w!Jo
      was the Superintending Engineer against the appellant. The High
      Court also did not examine this _aspect and dismissed_ the appeal in
      1imine. H'ence, this appeal.

!fl         Apprehensiew-of bias in the ,rii,ind .of the arbitrator is a good
          SECY., TPT. DEPTI. v. M. MUDALlAR [MUKHARJI, J.]               677

ground for reinovaf of~the ·arbitrator under section 5 of the Act. The
learned Judge, City Civil Court, had directed the parties to submit a · A
list of three engineers willing to be appointed as arbitrator and if the
parties ex1>ress consensus one of the three from the list of the
petitioner or from the list of the respondent would. be chosen and
appointed.as arbitrator and in case. there is no consensus between..the.
parties then from among six.engineers to bt mentioned by both the B
parties three el!ch in a separate list one of them will be selected by
                               as
draw of lots and ·appointed arbitrator. The parties were directed to
submit a list of three engineers of their choice who would be willing to
be appointed as arbitrator"in the.matter within.a stipulated period.

       This is;li. case of removal ofa n'!ffied arl:iitrat9r under Section 5 of .
the kct which gives jurisdi!'tion to the.Cciubto revoke the authorit)' of·· C
 the •arbitrator. ·when the parties entered into the contract., the parties
 knew the terms of the contract includihg arbitration ·~lause. The
 parties knew the scheme and· the fact that ·tlie <:;hief Engineer is
 superior and .the Stipe5intending'Engfr1eer is subordinate to the Chief
 Engineer of the particular Circle. ln spite cif that the parties agreed and o
.enterl'd irtto arbitration an_d indee,d submitted to the,jurisdiction of the
 Superintending Engineer at thai time·tobegin with, who, however,
 could. not· complete the arbitration be~ause' he was transferred and
 suc<;eeded by a successor. In. those circum~tance.s on the facts stated no
 bias can reasonably be ·apprehended and made a ground for removal of
 a named arbitrator. ln our opin;(on thi.s cannoJ_b_e, at all, a good or . E.
 valid legal ground. Unless there is allegation against the named arbi-
 trator either against his honesty or capacity or ma/a fide or interest in
 the subject matter or reasonable apprehension of the bias, a named
 and agreed arbitrator cannot and should not be removed in exercise of
 a discretion vested in the Court under section 5 of the Act.
                                                                                  F
       Reasonable apprehension of bias in the mind of a reasonable
 man can be a ground for removal of the arbitrator. A predisposition to
 decide for or against one party, without proper regard to the true
 merits of the dispute is bias. There must be reasonable apprehension
 of that predispositipn. The reasonable apprehension must be based on
 cogent material~. ~ee the observations of Mustill and Boyd, Commer- G
 cial Arbitration, 1982 Edition, page 214. Halsbury's Laws of England,
 Fourth Edition, Volume 2, para 551, page 282 describe that the test for
 bias is whether a reasonable intelligent man, fully appraised of all the
 circumstances, would feel a serious apprehension of bias.

       This Court in International Authority of India v. K.D. Bali and          H
    678         'UPREME COURT REPORTS               I 1988] Supp. 2 S.C.R.

A   Anr., J.T. 1988 2 S.C. l held that there must be reasonable evidence to
    satisfy that there was a real likelihood of bias. Vague suspicions of
    whimsical, e<apricious and unreasonable people should not be made the
    standard to regulate normal human conduct. In this country in numer-
    ous contracts with the Government, clauses requiring the Superintend-
    ing Engineer or some official of the Govt. to be the arbitrator are
B   there. It cannot be said that the Superintending Engineer, as such,
    cannot be entrusted with the work of arbitration and that an apprehen-
    sion, simpliciter in the mind of the contractor without any tangible
    ground, would be a justification for removal. No other ground for the
    alleged apprehension was indicated in the pleadings before the learned
    Judge or the decision of the learned Judge. There was, in our opinion,
c   no ground for removal of the arbitrator. Mere imagination of a ground
    cannot be an excuse for apprehending bias in the mind of the chosen
    arbitrator.

          In that view of the matter, the order made by the learned Judge,
    City Civil Court, and the decision of the High Court cannot be
D   sustained and they are set aside. The appeal is allowed. We remand
    the case back to the learned Judge, City Civil Court, to ask the
    Government to appoint the Superintending Engineer, Trichy, to be an
    arbitrator in accordance with the arbitration agreement. The arbi-
    trator will proceed according to the evidence of the parties and after
    considering all the relevant facts according to the agreement and make
E   an award in accordance with law. There will be no order as to costs.

    P.S.S.                                                Appeal allowed.