Bias Of Even Single Arbitrator "Poisons The Well": Madras HC Sets Aside Railway Arbitral Award

The Court held that the arbitral tribunal adopted an untenable interpretation by ignoring explicit contractual terms and straying beyond the contract, rendering the findings perverse and vitiated by patent illegality. It ruled that the tribunal ought to have applied the same methodology to Item Nos. 1 and 2 as it did for the other items, where measurements were taken track-wise and payments were computed accordingly.

Item Nos. 1 and 2 concerned multi-track work where the dispute was over measurement and payment. While the tribunal adopted track-wise measurement for other items, it departed from this method for Item Nos. 1 and 2, contrary to the contract, an inconsistency the Court found impermissible.

While agreeing to the observations in In re Medicaments and Related Classes of Goods (No 2), (2001) 1 W.L.R. 700 paragraph 99 a bench of Justice N Anand Venkatesh opined, “This is in view of the fact that it is impossible to know whether or to what extent the participation of the biased Member affected the Tribunal’s decision. It cannot be assumed that the presumed impartiality and independence of one of the Co-Arbitrators of the Panel rendered it harmless. In other words, a party is entitled for an independent and impartial Tribunal, which means that all the Members of the Tribunal must be impartial and without bias. In the absence of the same, the bias of even a single Member will necessarily vitiate the award rendered by the Arbitral Tribunal”.

While holding that the award was tainted by bias and was premediated, the bench further held, "...the principle of poisoning the well will apply and the award will be afflicted by bias. In view of the same, it violates Section 18 of the Act and it goes against the fundamental policy of the Indian Law under Section 34(2)(i)(b) of the Act".

For context, the dispute arose out of a works contract awarded by Southern Railway to M/s Muthu Construction for carrying out repair and maintenance works relating to railway tracks, including measurements and payment based on “track meter” units. Differences arose over deductions and the method adopted by the Railways for calculating payable quantities, leading to arbitration.

The Court found bias on the basis that two members of the arbitral tribunal had earlier sat on another tribunal involving the same parties and substantially similar contractual disputes, where a dissenting arbitrator had already flagged serious concerns about the approach adopted by the majority.

In the present case, the tribunal adopted an interpretation that departed from the express terms of the contract, applied inconsistent standards while evaluating similar items of work, and ignored the method it had itself followed for other claims.

Therefore, this pattern, coupled with the prior involvement of the arbitrators in a related dispute and the repetition of the same flawed reasoning, led the Court to conclude that the award was tainted by premeditation and institutional bias, thereby “poisoning the well” and vitiating the entire award.

In light of the above considerations, the Court held that the arbitral award was vitiated by bias and premeditation, attracting the doctrine of “poisoning the well” and violating Section 18 and the fundamental policy of Indian law under Section 34(2)(b) of the Arbitration Act. Consequently, the award was set aside, and the petition was allowed with costs of ₹1.5 lakh payable by the respondent.

Cause Title: M/s.Muthu Construction v. Union of India [Neutral Citation: 2026:MHC:180]

Appearance

Petitioner: Sharath Chandran, Advocate

Respondent: V.J. Latha, SCGSC