Important points
A person who tries a cause should be able to deal with the matter placed before him objectively, fairly and impartially- No one can act in a judicial capacity if his previous conduct gives ground for believing that he cannot act with an open mind or impartially- A person, trying a cause, must not only act fairly but must be able to act above suspicion of unfairness and bias- It is not necessary to decide whether the arbitrator was really biased, for it is difficult to prove the mind of a person.

R. NARAYANA PISHARADI, J.

1. Bias means predisposition of an adjudicator to decide for or against one party, without proper regard to the true merits of the dispute. Natural justice is the essence of fair adjudication. It is a fundamental rule of natural justice that the authority empowered to decide a dispute shall act without bias.

2. Bias alleged against an arbitrator is the core issue for consideration in this appeal. The question, whether it is mandatory for an arbitrator to decide on the challenge made to his integrity and impartiality, as provided under Section 13(3) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act'), before he continues the arbitral proceedings, also incidentally arises for consideration.

3. The appellants had availed a loan of Rs.3,00,000/- from the respondent company by name M/s India Cements Capital and Finance Limited (former name of the company was M/s Aruna Sugar Finance Limited). On 09.02.1996, the first appellant had executed a loan agreement. He signed the agreement as the borrower and the other appellants signed it as guarantors. The first appellant also deposited the title deeds of his property with the respondent company with the intention to create equitable mortgage. The appellants also executed a promissory note in favour of the respondent company for the amount of the loan.

4. When the appellants made default in repayment of the loan, the respondent company instituted a suit as O.S.No.279 of 1999 in the Sub Court, Thrissur for realisation of an amount of Rs.2,84,934/- from them. The first appellant filed an application as I.A.No.3103/2001 in the Sub Court to refer the dispute for arbitration. The Sub Court allowed that application. Then, the respondent company appointed an advocate as arbitrator and the Sub Court closed the proceedings in the suit.

5. During the arbitral proceedings, the claimant company examined PW1 and PW2 and marked Exts.C1 to C17 documents. On the side of the appellants, RW1 was examined and Exts.R1 to R4 documents were marked. On 19.12.2005, the arbitrator passed an award directing the appellants to pay Rs.4,01,395/- with interest at the rate of 12% per annum on the principal amount of Rs.2,73,975/-from the date 31.11.2005 till the date of realisation.

6. The appellants filed application under Section 34(1) of the Act in the District Court, Thrissur challenging the award passed by the arbitrator. The District Court dismissed the aforesaid application. The order passed by the learned District Judge is challenged in this appeal.

7. We have heard Sri. C.S. Manilal, learned counsel for the appellants and Dr. George Abraham, learned counsel for the respondents. We have also perused the available records.

8. The agreement executed between the appellants and the respondent company contains an arbitration clause. Clause 10(a) of the agreement deals with appointment of arbitrator. It reads as follows :

“All disputes, differences and/or claims, arising out of this loan agreement whether during its subsistence or thereafter shall be settled by arbitration in accordance with the provisions of Indian Arbitration Act, 1940 or any statutory amendments thereof and shall be referred to be the sole arbitration of an arbitrator nominated by the Managing Director of the company. The award given by such an arbitrator shall be final and binding on all the parties to this agreement. It is a term of this agreement that in the event of such an arbitrator to whom the matter has been originally referred dying or being unable to act for any reason, the Managing Director of the company at the time of such death of the arbitrator or his inability to act as arbitrator shall appoint another person to act as arbitrator. Such a person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor.”

9. The arbitration clause contained in the agreement executed by the appellants specifically states that the sole arbitrator shal