Court rules that arbitrators are not disqualified merely for prior adjudication on related issues; affirms limited grounds for challenging international commercial arbitration awards under Indian law
In a significant judgment dated 17th September 2026, the Delhi High Court (Division Bench) dismissed the appeal filed by Steel Authority of India Limited (SAIL) challenging an arbitral award in a maritime arbitration dispute with British Marine PLC, a UK-based ocean freight company. The Court upheld the arbitral award dated 13th September 2018, reinforcing key principles governing arbitrator independence, contractual interpretation, and grounds for setting aside international commercial arbitration awards under Indian law.
The dispute arose from a Contract of Affreightment (CoA) executed in 2007 between SAIL and British Marine PLC for shipment of coking coal from Australia/New Zealand to Indian ports. The CoA contained an arbitration clause specifying arbitration in India under the Arbitration and Conciliation Act, 1996, and the Maritime Arbitration Rules of the Indian Council of Arbitration (ICA). The contract also included a Default Clause (Clause 62), which allowed termination without liability if suppliers failed to provide or ship materials as agreed.
SAIL terminated the contract invoking Clause 62, leading to arbitration where British Marine PLC claimed damages for breach. The arbitral tribunal consisted of three members, including two arbitrators-Captain S.M. Berry and Mr. Niranjan Chakraborty-who had previously adjudicated a related dispute involving SAIL and another shipping company, SeaSpray Shipping Co. Ltd. SAIL contended that this prior involvement created a conflict of interest and challenged the arbitrators' independence under Section 12 of the Arbitration and Conciliation Act, 1996, and the Fifth Schedule thereto, which lists grounds giving rise to justifiable doubts about arbitrator impartiality.
The Delhi High Court, analyzing the issue of arbitrator independence, emphasized that prior adjudication by the same arbitrators on related issues involving a party does not automatically disqualify them or create justifiable doubts about their impartiality. The Court relied on the Supreme Court's guidance in HRD Corporation v. GAIL (India) Ltd. and other precedents, holding that mere prior knowledge or decision on similar issues is insufficient to prove bias unless there is substantive evidence that the arbitrator cannot decide the case with an open mind or has a closed mind. The Court also noted the specialized nature of maritime arbitration, where a limited pool of expert arbitrators necessitates repeated appointments in related disputes.
Further, the Court underscored the importance of procedural timelines and held that SAIL waived its right to challenge the arbitrators by failing to raise objections within the prescribed 15-day period after becoming aware of the tribunal's constitution, as mandated by Section 13 of the Act and the ICA Maritime Arbitration Rules.
On the merits, the Court upheld the arbitral tribunal's interpretation of Clause 62 of the CoA, rejecting SAIL's argument that it could terminate the contract without liability for its own breach. The tribunal found that Clause 62 was intended to address supplier failure or frustration of contract conditions, not to confer an unfettered right to terminate by one party arbitrarily. The Court agreed that interpreting Clause 62 otherwise would lead to absurdity, allowing a party to benefit from its own breach, and would render other contractual provisions redundant.
Regarding damages, the Court found the tribunal's calculation-based on the difference between contractual rates and spot market rates for shipping-as reasonable and consistent with Section 73 of the Indian Contract Act, 1872. The award of interest at rates aligned with precedent was also upheld.
The judgment further clarified the limited scope for judicial interference with international commercial arbitration awards under Indian law. The Court reiterated that challenges based on patent illegality are not available for international commercial arbitration awards, and setting aside an award on public policy grounds requires demonstrating contravention of the fundamental policy of Indian law, or conflict with basic notions of morality or justice. Mere errors in contract interpretation or reappreciation of evidence are insufficient for setting aside awards.
In conclusion, the Delhi High Court affirmed the arbitral award, dismissed the appeal filed by SAIL, and emphasized the importance of respecting specialized arbitrator appointments, strict adherence to challenge timelines, and judicial restraint in reviewing international commercial arbitration awards.
Bottom Line:
Arbitration - Interpretation of clause in contract - Arbitrators not disqualified merely because they previously adjudicated a related issue in another arbitration involving one of the parties - Familiarity with technical subject matter and prior adjudication do not automatically render arbitrators partial or biased.
Statutory provision(s):
Arbitration and Conciliation Act, 1996 Section 12, Section 13, Section 34, Indian Contract Act, 1872 Section 73
Steel Authority of India Limited v. British Marine PLC, (Delhi)(DB) : Law Finder Doc Id # 2980695
