Expansion of Court’s Inherent Powers to Remove Arbitrators in Bias Situations: State Of Orissa v. Modern Construction Co.

Introduction

The case of State Of Orissa And Another v. M/S. Modern Construction Co. Opposite Party decided by the Orissa High Court on March 27, 1972, addresses the critical issue of arbitral impartiality. The dispute arose from a contractual relationship between the State of Orissa and Modern Construction Co., wherein arbitration was stipulated as the method for resolving disagreements. The appointment of Sri N.K. Misra, a retired state employee, as the sole arbitrator was challenged by the State on grounds of potential bias due to Misra's prior conviction and ongoing trial for offenses under the Essential Commodities Act and the Prevention of Corruption Act.

Summary of the Judgment

The Orissa High Court ultimately revoked the appointment of Sri N.K. Misra as the arbitrator. The court held that inherent judicial powers extend beyond the specific provisions of Section 11 of the Arbitration Act, allowing for the removal of an arbitrator in situations where bias is reasonably apprehended. The judgment emphasized the necessity of maintaining the integrity and impartiality of the arbitration process to ensure justice and fair play, leading to the affirmation of the court's inherent authority to intervene in cases lacking explicit statutory guidance.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents to support its decision:

• AIR 1925 Pat 720 (Lachhman Machhua v. Moghal Mian): Established the principle of inherent court powers to prevent miscarriages of justice even in the absence of specific statutory provisions.
• AIR 1933 Pat 566 (Anand Das v. Rambhushan Das): Reinforced the inherent powers doctrine, allowing courts to remove arbitrators in cases of potential bias.
• AIR 1952 Cal 294 (Bhuwalka Bros. v. Fatehdhand): Highlighted the criteria for revoking an arbitrator's authority based on the probability or reasonable apprehension of bias.
• Kemp v. Rose (1858) 1 Giff 258: Cited for foundational principles regarding impartiality and the appearance of justice.
• AIR 1962 SC 527 (Manohar Lal Chopra v. Rai Bahadur Rao Raja Hiralal): Emphasized the court's duty to uphold justice and fair play by exercising inherent powers when statutory provisions are insufficient.

Legal Reasoning

The Orissa High Court’s legal reasoning centered on the insufficiency of Section 11 of the Arbitration Act to address all scenarios of potential bias. Section 11 primarily deals with the removal of arbitrators due to misconduct or failure to act, but does not explicitly cover situations where bias is merely apprehended without overt misconduct. The court posited that the intrinsic obligation to ensure impartiality in judicial and quasi-judicial proceedings necessitates the use of inherent powers to remove arbitrators who may inherently possess bias, thereby safeguarding the integrity of the arbitration process.

Furthermore, the court underscored the principle that justice must not only be done but must also appear to be done. This principle extends to arbitration, where the arbitrator must be free from any prejudice that could undermine the fairness of the proceedings. By invoking inherent powers, the court ensured that parties retain confidence in the arbitration process, thereby preventing scenarios where the arbitrator's potential bias could lead to unfair outcomes.

Impact

This judgment significantly broadens the scope of judicial oversight in arbitration proceedings. By affirming the court's inherent authority to remove arbitrators on grounds of potential bias beyond what is specified in statutory provisions, the decision reinforces the commitment to impartiality and fairness in arbitration. Future cases can rely on this precedent to challenge the appointment of arbitrators who exhibit or may exhibit bias, ensuring that arbitration remains a credible and just method for dispute resolution.

Complex Concepts Simplified

Inherent Powers: These are powers that courts possess implicitly, allowing them to ensure justice even in the absence of explicit statutory authorization. In this case, the court used its inherent powers to remove an arbitrator when statutory provisions were inadequate.

Section 11 of the Arbitration Act: This section outlines the conditions under which an arbitrator can be removed by the court, specifically focusing on misconduct or failure to act adequately. However, it does not explicitly address removal based solely on potential bias.

Apprehension of Bias: This refers to a reasonable perception that an arbitrator might not be impartial, even if no actual bias is proven. The judgment highlights that the mere possibility of bias is sufficient grounds for removal to preserve the integrity of the arbitration process.

Conclusion