Vinod Bhaiyalal Jain & Ors. v. Wadhwani Parmeshwari Cold Storage Pvt. Ltd. Through its Director & Anr.
Background
The appellants, commission agents in agricultural produce, stored goods at the respondent's cold storage facility, which they later claimed were damaged due to improper storage. A dispute arose, and under an arbitration clause printed on the storage receipt, the respondent referred the claim to an arbitrator, Mr. S.T. Madnani, Advocate. The appellants objected that this arbitrator was unfit to act because he had separately appeared as a lawyer for the respondent's own partner in another case, but the arbitrator proceeded anyway in their absence and ruled against them, including imposing costs.
Decision Breakdown
The Supreme Court held that although a formal objection to the arbitrator's role was raised through the appellants' father rather than the appellants directly, it was undisputed that the arbitrator had, in fact, filed a vakalatnama (formal appearance) for one of the respondent's partners in another case shortly after the storage receipt was drawn up, creating a genuine conflict of interest that he was obligated under Section 12 of the Act to disclose but did not. The Court rejected the High Court's reasoning that this amounted to mere perception without real bias, holding instead that in arbitration, where parties specifically choose a decision-maker they trust, unlike in ordinary litigation, justice must not only be done but must be seen to be done, and that the arbitrator should have recused himself once the conflict became apparent. The Court restored the District Judge's order setting aside the arbitral award, but did not examine the underlying merits of the storage-damage claim itself, leaving the parties free to pursue arbitration afresh with a properly impartial arbitrator.
Lesson Learnt
An arbitrator who has previously acted as a lawyer for one of the parties (or their close associates) in another matter must disclose this conflict and ordinarily should step aside; failing to do so can get the entire award thrown out, regardless of who technically raised the objection or how the dispute might ultimately be decided on its merits.