In A.P. No. 833 of 2015-BOM HC- Bombay HC enforces foreign arbitral award after dismissing plea alleging bias on part of arbitrator, says party failed to raise doubts as contemplated under clause 3(c) of IBA’s guidelines on Conflicts of Interest in International Arbitration
Justice Manish Pitale [25-04-2023]

Read Order: HSBC PI Holdings (Mauritius) Limited v. Avitel Post Studioz Limited and others 

Tulip Kanth

Mumbai, April 26, 2023: The Bombay High Court has dismissed a challenge against the enforcement of a foreign arbitral award while observing that if the respondents would have been able to demonstrate duty to disclose on the part of the arbitrators, a likelihood of bias may have arisen and the award could have been set aside on the ground of it being contrary to the public policy of India. 

Enforcing the award in question, Justice Manish Pitale said, “The respondents in the present case, have also indulged in such speculative litigation with the hope that some of the mud they have flung on the foreign arbitral award, would stick. This Court is of the opinion that the position of law, in the backdrop of the IBA guidelines, is crystal clear and there is no question of any mud sticking to the foreign award in the present case.”

In this case, a share A Share Subscription Agreement was executed between the petitioner-HSBC PI Holdings (Mauritius) Limited and the first respondent- Avitel Post Studioz Limited, whereby the petitioner made an equity investment of about US$ 60 million in exchange of 7.8% shareholding in the first respondent. 

Later, the petitioner engaged its own independent investigation agency, which gave rise to serious concern with regard to the legitimacy of the Avitel Post Studioz FZ LLC and its management. It was found that the monies invested by the petitioner were siphoned out of the Avitel Group by the first respondent through payments made to fake suppliers and/or service suppliers, allegedly owned by the said respondent. In this backdrop,  disputes arose between the parties, which led to initiation of arbitration proceedings.

The arbitration agreement between the parties provided that the law governing the contract would be Indian law and that the jurisdiction would be that of Singapore. The arbitration proceedings were conducted at Singapore, wherein the respondents participated. The tribunal rendered its final award and directed the respondents to pay to the petitioner an amount of US$ 60 million as damages for fraudulent misrepresentations and other adverse findings against the respondents.

When the matter reached the Supreme Court, it was found that the respondents had deliberately and willfully disobeyed its order. Ultimately, respondents surrendered and despite tendering an unconditional apology, the respondents were sentenced to imprisonment. It was in this backdrop that the petition came up for consideration. 

Referring to the International Bar Association (IBA) on Conflicts of Interest in International Arbitration (IBA guidelines), the Bench held that from clause 3(c) of the guidelines,it was clear that if there is any doubt as to whether an arbitrator should disclose, it is to be resolved in favour of disclosure.

The Bench further made it clear that when a party alleges that the arbitrator was under a duty to disclose, on the basis of facts and circumstances put forth by such a party, it is necessary to first examine as to whether such facts and circumstances are covered under the red, orange or green list appended to the IBA guidelines. If the situation is covered under any of the lists, the answer would be readily available. But, if the individual case that comes up for consideration before the Court, throws up a situation, which may not fit into the said lists, it would be appropriate to apply the test of a reasonable third person, as contemplated under Article 12(2) of the UNCITRAL Model Law. 

It was alleged in this case that since one of the affiliates of the petitioner was holding large number of shares in the two companies and another affiliate was an underwriter, lead manager and book-runner for the companies when funds worth thousands of crores of rupees were raised for the two companies, the said Chairman of the arbitral tribunal was a director and a person having considerable influence in the companies.

It was alleged that there was an obvious likelihood of bias and that in any case, sufficient doubt was raised to the effect that he ought to have disclosed the said relationship before taking up the assignment of arbitration or continuing with the same. 

It was observed by the Bench that the respondents were not justified in invoking the specific clauses of the non-waivable red list, waivable red list and orange list. “A close scrutiny of the said lists and particularly, the specific entries referred to hereinabove, would show that a duty to disclose would arise and likelihood of bias could be alleged, if there was a relationship or identity between the arbitrator and a “party” or an “affiliate” of the party and this would extend to a “close family member”, the Bench said.

In the case of the chairman of the arbitral tribunal, even if the circumstances alleged by the respondents were to be taken into consideration, the petitioner before this Court, being the party, or any of its affiliates including the holding company i.e. HSBC PLC (UK), couldnot be said to be having an identity with the arbitrator or demonstrating any situation of any conflict of interest, the High Court opined.

The Bench also observed that the circumstances alleged on behalf of the respondents did not even indicate that the arbitrator had any relationship with the petitioner or its affiliates. Therefore, the circumstances alleged by the respondents gave rise to a situation, at worst, covered under the green list, wherein there was no duty upon the arbitrator to disclose, the Bench added.

The High Court was of the opinion that by applying the said reasonable third person test, the respondents had failed to demonstrate that the arbitrator was under a duty of disclosure and having failed to do so, a likelihood of bias had arisen.

Noting that the the respondents had failed to raise any doubts as contemplated under clause 3(c) of the IBA guidelines for resolving the situation in favour of disclosure, the Bench remarked, “…the respondents have failed to demonstrate any such circumstance and therefore, they cannot claim that public policy of India has been violated, thereby rendering the award unenforceable.”

“The respondents in the present case, have also indulged in such speculative litigation with the hope that some of the mud they have flung on the foreign arbitral award, would stick”, the Bench said while holding that the arbitral award would be enforceable against the respondents.