Madras HC Sets Aside Arbitration Award, Finding Bias After Tribunal Failed To Address Contractor’s Challenge To Railway Corporation’s Arbitrator Panel

The petitioner challenged an arbitral award dated 14 April 2022 under Section 34 of the Arbitration and Conciliation Act, 1996.

It contended that the arbitral tribunal’s constitution was invalid, relying on the Constitution Bench decision in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV).

The respondent opposed the challenge, noting that one arbitrator had been nominated by the petitioner and arguing that the Constitution Bench ruling applied prospectively.

The petitioner had previously raised the tribunal-composition issue in a Section 14 application; that application was rejected with liberty to raise the grounds in the Section 34 proceedings.

The petitioner also sought leave to raise additional grounds, which the Court considered unnecessary to determine separately because the issues were questions of law that could be raised at the final hearing.

Section 34(2)(b)(ii) of the Arbitration and Conciliation Act, 1996 permits an award to be set aside where it conflicts with the public policy of India, including where it contravenes the fundamental policy of Indian law or the most basic notions of morality or justice.

Relying on Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), (2025) 4 SCC 641, the Court referred to the principles that unilateral control over arbitral appointments in public-private contracts may create a real possibility of bias and undermine equality and impartiality; the judgment also recognised bias as relevant to public policy under Section 34.

The Court noted that the Constitution Bench ruling was prospective, but treated Section 34 review of the impugned award as a separate basis for considering whether the proceedings disclosed bias or violated public policy.

The Court considered the respondent’s arguments that the Constitution Bench ruling was prospective and that the petitioner had nominated one arbitrator.

It nevertheless found that the petitioner had raised the tribunal-composition issue after obtaining liberty to do so, but the tribunal had failed to address it.

The Court treated that failure as substantiating bias and, applying Section 34’s public-policy grounds, held that the award could not stand.

It also found no impediment to allowing the additional grounds, since the relevant questions of law could be raised at the final hearing.

It left the parties at liberty to pursue remedies available in law, including commencing fresh arbitral proceedings, and made no order as to costs.