BIHAR STATE MINERAL DEVELOPMENT CORPN. AND ANR. versus ENCON BUILDERS (I) PVT. LTD.

Citation: [2003] SUPP. 2 S.C.R. 812 · Decided: 21-08-2003 · Supreme Court of India · Bench: V.N. KHARE · Disposal: Dismissed

Judgment (excerpt)

A 
BIHAR STATEMINERAL DEVELOPMENT CORPN. AND ANR. 
v. 
ENCON BUILDERS (I) PVT. LTD. 
AUGUST 21, 2003 
B 
[V.N. KHARE, CJ AND S.B. SINHA, J.] 
Arbitration Act, I 940: 
Arbitration agreement-Bias-Effect of-Held: Actual bias influences 
C the decision, depriving the litigant a fair trial-It would lead to 
. disqualification of the arbitrator-In the facts and circumstances of the case 
bias on the part of the authority goes to the root of his jurisdiction to act 
as an arbitrator rendering his entire action a nullity-High Court rightly 
held that a Managing Director possessing power to impose fine/terminate the 
D contract; could not assume the role of an arbitrator. 
Words and Phrases: 
'Actual bias '-Meaning of-Jn the context of Arbitration Act, 1940. 
E 
Appellant Corporation had given a contract, as per agreement, to 
respondent firm for removal of soil, sandstone etc. to stack the same in a 
dump yard. The respondent failed to fulfil its obligation as a result whereof 
the remaining work was got done by the appellant Corporation from another 
agency; thereby it incurred a huge loss. Therefor it invoked the purported 
arbitration agreement; respondent also made claim against the appellant 
F Corporation. The matter was pending before the arbitrator, Appellant No.2. 
G 
H 
In the meanwhile, respondent questioned the validity of the arbitration clause 
viz. Clause 60 of the agreement. Trial Court allowed the petition restraining 
appellant No.2 from acting as an Arbitrator. Aggrieved, appellant filed appeal, 
which was dismissed by the High Court Hence the present appeal. 
It was contended for the appellant that clause 60 of the agreement 
satisfied the essential ingredients of an arbitration agreement; that an 
employee of the Principal could be named as an arbitrator and bias on his 
part should not be presumed. 
On behalf of the respondent, it was submitted that the appellant 
812 
BIHAR STA TE MINERAL DEV. CORPN. v. ENCON BUILDERS 
813 
Corporation had re-allotted work to another agency illegally. 
A 
Dismissing the appeal, the Court 
HELD: 1.1. There cannot be any doubt whatsoever that an arbitration 
agreement must contain the broad consensus between the parties that the 
disputes and differences should be referred to a domestic tribunal. But the B 
domestic tribunal must be an impartial one. It is a well-settled principle of 
law that a person cannot be a judge of his own cause. It is further well-settled 
that justice should not only be done but manifestly seem to be done. 
(817-F,G) 
1.2. Actual bias would lead to an automatic disqualification where the C 
decision maker is shown to have an interest in the outcome of the case. Actual 
bias denotes an arbitrator who allows a decision to be influenced by partiality 
or prejudice and thereby deprives the litigant of the fundamental right to a 
fair trial by an impartial tribunal. As bias on the part of the second appellant, 
being the Managing Director goes to the root of his jurisdiction to act as an D 
arbitrator, the entire action is a nullity. An order which lacks inherent 
jurisdiction would be a nullity and, thus, the procedura! law of waiver or 
estoppel would have no application in such a situation. 
(817-H; 818-A; 821-D, EJ 
Kumaon Manda/ Vikas Nigam ltd v. Girja Shankar Pant and Ors., E 
1200111 sec 182, relied on. 
The Secretary to the Government, Transport Deptt., Madras v. 
Munuswamy Mudaliar and Ors., AIR (1988) SC 2232; Michael Golodetz and 
Ors. v. Serajuddin & Co. AIR (1963) SC 1044; State of Orissa and Ors. v. 
Narain Prasad and Ors., (19961 5 SCC 740 and State of UP. v. Tipper Chand, F 
[19801 2 sec 341, distinguished. 
Judicial Review of Administrative Action by De Smith, Woolf and Jowell 
(Fifth Edition at page 527); The Law and Practice of Commercial Arbitration 
in England by Sir Michael J. Mustill and Stewart C. Boyd; and 'Russell on 
Arbitration', 22nd Edition, referred to. 
G 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2025of1997. 
From the Judgment and Order dated 10.9.96 of the Patna High Court in 
M.A.No. 176 of 1995 (R). 
H 
814 
SUPREME COURT REPORTS (2003) SUPP. 2 S.C.R. 
A . 
Dinesh Dwivedi, Kumar Rajesh Singh and B.B. Singh for the Appellants. 
B 
c 
E.C. Vidya Sagar (NP) for the Respondent. 
The Judgment of the Court was delivered by 
S.B. SINHA, J. The appellants before the High Court are in appeal 
before us against the judgment and order dated I 0.9.1996 passed by the High 
Court of Patna, Ranchi Bench, Ranchi, in Misc. 

Excerpt shown. Read the full judgment & AI analysis in Lexace.