JUDGMENT : 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. 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 shall be nominated by the Managing Director of the company. The appellants have got a plea that the arbitrator was appointed not by a competent person. This contention is without any merit. The stipulation in the arbitration clause that the Managing Director of the company shall appoint the arbitrator only means that the company, being a juristic person, which can act only through a representative, had nominated a person to act on behalf of it. Such a person can delegate that power to another person, if authorised to do so by a resolution of the Board of Directors of the company. Such a person can delegate that power to another person, if authorised to do so by a resolution of the Board of Directors of the company. The company may also appoint another person, other than the Managing Director, to do a specific act on behalf of it. It was the first appellant who filed application before the Sub Court to invoke the arbitration clause in the agreement. The hyper technical contention raised by the appellants that the arbitrator was appointed not by a competent person does not merit acceptance. 10. The arbitrator appointed in the case, an advocate, was a junior of Adv. Sri. P.D. Jose. The appellants had got a plea, from the very beginning, that the suit O.S.No.279 of 1999 in the Sub Court, Thrissur was filed against them by the respondent company through Adv. Sri. P.D. Jose and that the arbitrator, in his capacity as a junior of Adv. Sri. P.D. Jose, had assisted him in conducting the aforesaid case and therefore, the arbitrator was biased and not impartial. 11. On 10.08.2003, the first appellant had sent a letter to the respondent company stating that the arbitrator appointed was a junior of Adv. Sri. P.D. Jose who represented the company in the suit field against him and that he did not expect an independent and impartial enquiry being conducted by the arbitrator. He had also sought appointment of a person from his side as arbitrator. 12. On 18.08.2003, the first appellant had filed a written statement before the arbitrator. He has stated therein that the arbitrator was a junior of Adv. Sri. P.D. Jose who appeared for the respondent company in the Sub Court, Thrissur in O.S.No.279 of 1999 and that the arbitrator had assisted Sri. P.D. Jose in conducting the aforesaid case and that he was certain that the arbitrator would not take an independent and impartial decision. 13. The arbitrator did not take any decision on the challenge made to his integrity and impartiality before continuing the arbitral proceedings. The arbitrator dealt with the objection raised by the first appellant in this regard only in the final award passed by him. 14. The amended provisions of the Act have come into force on 23rd October, 2015. The arbitration proceedings in the case had come to an end long before that date. The arbitrator dealt with the objection raised by the first appellant in this regard only in the final award passed by him. 14. The amended provisions of the Act have come into force on 23rd October, 2015. The arbitration proceedings in the case had come to an end long before that date. Therefore, the statutory provisions that would govern the present controversy are those which were in force before the amendment of the Act. The provisions of the Act hereinafter mentioned would be as they stood before the amendment. 15. Section 12(1) of the Act states that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Section 12(2) provides that an arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. Section 12(3) of the Act states that an arbitrator may be challenged only if -(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. Section 12(4) of the Act provides that a party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. 16. Section 13(1) of the Act provides that subject to subsection (4), the parties are free to agree on a procedure for challenging an arbitrator. Section 13(2) states that failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. Section 13(3) mandates that unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. Section 13(3) mandates that unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. Section 13(4) provides that if a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. Section 13(5) states that where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34. 17. The arbitrator did not withdraw when challenge was made to his impartiality. He did not decide on the challenge as provided under Section 13(3) of the Act. He continued the arbitral proceedings. 18. What is the consequence of non-compliance with the provision contained in Section 13(3) of the Act by the arbitrator? The Act does not provide for any consequence. Absence of any decision by the arbitrator, on the challenge made to his independence or impartiality, leads to no specific consequence. Section 13(4) of the Act provides that when the challenge made to the arbitrator is not successful, he shall continue the arbitral proceedings. When the arbitrator does not decide on the challenge made and when he continues the arbitral proceedings, the implication is that the challenge made is not successful. In such circumstances, it cannot be found that the arbitral proceedings conducted by the arbitrator, without deciding on the challenge made to him, were vitiated or that the proceedings had become null and void. The object of the provision in Section 13(3) of the Act is not rendered otiose on account of the absence of decision by the arbitrator on the challenge made to him. Since there is no consequence provided in the said provision in case of non-compliance thereof, the said provision cannot be considered as mandatory but only directory. The unsuccessful party can challenge the award passed by the arbitrator by filing application under Section 34 of the Act as provided under Section 13(5) of the Act. Since there is no consequence provided in the said provision in case of non-compliance thereof, the said provision cannot be considered as mandatory but only directory. The unsuccessful party can challenge the award passed by the arbitrator by filing application under Section 34 of the Act as provided under Section 13(5) of the Act. The expression ”such an arbitral award” in subsection (5) of Section 13 of the Act indicates that challenge to the award is permitted even on the grounds taken by the aggrieved party on which the challenge to the arbitral tribunal was made, as in the instant case, on the ground of bias and partiality of the arbitrator. 19. Now, the question arises whether the award passed by the arbitrator is vitiated on account of real likelihood of bias. At this juncture, we shall advert to how the arbitrator has dealt with this issue in the award. 20. The arbitrator has stated in the award as follows: “The respondent filed a preliminary objection regarding the appointment of present arbitrator because the present arbitrator was a former junior of Adv. P.D. Jose who filed O.S.279/1999 before Sub Court, Thrissur. Copy of the objection served to the claimant and the claimant filed a statement stating that they have no objection in appointing an additional arbitrator in this matter. So the arbitrator allowed the respondent to appoint an additional arbitrator also to conduct the arbitration. But instead of appointing an additional arbitrator the respondent filed a statement dated 24.11.2003 stating that respondents did not want to appoint an additional arbitrator as they prayed for in the objection filed in this regard. So with the consent of the both parties the arbitration continued by the present arbitrator”. 21. The statement in the award that the arbitrator continued the arbitral proceedings with the consent of both parties cannot be accepted as correct. In the first place, the prayer made by the first appellant in the preliminary objection or statement filed before the arbitrator under Section 13(2) of the Act was not for the appointment of an additional arbitrator on his part. The first appellant had stated therein that he had objection to the arbitrator already appointed continuing the proceedings and that arbitrator may be appointed from his side. It was not a prayer for appointment of additional arbitrator by him. The first appellant had stated therein that he had objection to the arbitrator already appointed continuing the proceedings and that arbitrator may be appointed from his side. It was not a prayer for appointment of additional arbitrator by him. In the second place, the fact that the appellants did not want the appointment of an additional arbitrator, as suggested by the respondent company, did not mean that they had no objection to the arbitrator already appointed continuing the proceedings and that they gave consent for the continuance of the arbitral proceedings by the arbitrator appointed by the respondent company. There is no material at all to indicate that the first appellant had withdrawn the challenge made by him to the arbitrator appointed by the respondent company. 22. There is no dispute with regard to the fact that the arbitrator was a junior of Adv. Sri. P.D. Jose. There is also no dispute with regard to the fact that the suit O.S.No.279 of 1999, with regard to the subject matter of dispute in the arbitration, was filed against the appellants by the respondent company through Adv. Sri. P.D. Jose. 23. The first appellant had raised the allegation of bias against the arbitrator not on the ground that once upon a time the arbitrator was a junior of Adv. Sri. P.D. Jose but on the specific ground that he was the junior of Adv. Sri. P.D. Jose when the suit was filed and that the arbitrator had assisted Adv. Sri. P.D. Jose in conducting the suit. It is significant that the award is silent on the aforesaid aspects. While dealing with the challenge made to him by the first appellant on the ground of bias, the arbitrator has not stated anything in this regard. He has not denied the allegation that he was a junior of Adv. Sri. P.D. Jose at the time of institution of the suit against the appellants by the respondent company. He has also not denied the allegation that he had assisted Adv. Sri. P.D. Jose in conducting that suit. The arbitrator was not fair enough to admit or deny any professional involvement by him in the proceedings of the aforesaid suit. Sri. P.D. Jose at the time of institution of the suit against the appellants by the respondent company. He has also not denied the allegation that he had assisted Adv. Sri. P.D. Jose in conducting that suit. The arbitrator was not fair enough to admit or deny any professional involvement by him in the proceedings of the aforesaid suit. The silence of the arbitrator in this regard assumes significance in the context of his inaction in making a decision on the challenge made to his independence and impartiality as provided under Section 13(3) of the Act. 24. Neutrality of arbitrator, namely, his independence and impartiality, is critical to the entire arbitration process. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. They are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. The test is not whether, given the circumstances, there is any actual bias but whether the circumstances in question give rise to any justifiable apprehensions of bias (See M/s Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited : AIR 2017 SC 939 ). 25. Justice should not only be done, but should manifestly and undoubtedly be appear to be done. The question is not, whether in fact the arbitrator was or was not biased. The test is not whether in fact bias has affected the judgment; the test always is and must be whether a litigant could reasonably apprehend that a bias attributable to the adjudicator might have operated against him in the final decision (See Manak Lal v. Dr. Prem Chand Singhvi : AIR 1957 SC 425 ). An arbitrator must not do anything which is not in itself fair and impartial. The purity in administration requires that the party to the arbitration proceedings should not have apprehension that the arbitrator is biased and is likely to decide against him. The proper approach for the Judge is not to look at his own mind and ask himself, however, honestly, "Am I biased” but to look at the mind of the party before him (See Ranjit Thakur v. Union of India: AIR 1987 SC 2386 ). But, suspicion of bias must be rested on reasonable grounds. It shall not be a mere apprehension of a whimsical person. The fancy of a party is not sufficient. But, suspicion of bias must be rested on reasonable grounds. It shall not be a mere apprehension of a whimsical person. The fancy of a party is not sufficient. Reasonableness of the apprehension in the mind of the party is one of the tests of likelihood of bias. Reasonable apprehension must be based on cogent materials. 26. The test is whether there was a real likelihood of bias even though such bias has not in fact taken place. Whether there was a real likelihood of bias depends not upon what actually was done but upon what might appear to be done. A real likelihood of bias means at least substantial possibility of bias. It is well settled law that 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. If a reasonable man would think on the basis of the existing circumstances that the adjudicator was likely to be prejudiced, that is sufficient to quash the decision. What has to be seen is whether there is a reasonable ground for believing that he was likely to have been biased. In deciding the question of bias, human probabilities and ordinary course of human conduct have to be taken into consideration. 27. In the instant case, from the very beginning, the first appellant had expressed his apprehension that the arbitrator would be prejudiced and that he was certain that the arbitrator would not act fairly. He had intimated the respondent company that the arbitrator was not independent and impartial. The apprehension expressed by him was not merely a suspicion but based on materials. The first appellant had got a definite plea from the very beginning that the suit O.S.No.279 of 1999 in the Sub Court, Thrissur was filed against him by the respondent company through Adv. Sri. P.D. Jose and that the arbitrator, in his capacity as a junior of Adv. Sri. The first appellant had got a definite plea from the very beginning that the suit O.S.No.279 of 1999 in the Sub Court, Thrissur was filed against him by the respondent company through Adv. Sri. P.D. Jose and that the arbitrator, in his capacity as a junior of Adv. Sri. P.D. Jose, had assisted him in conducting the aforesaid case and that he was certain that the arbitrator would not take an independent and impartial decision. The apprehension entertained and expressed by the first appellant was not a fancy or imagination of a whimsical person. Admittedly, the suit O.S.No.279 of 1999, pertaining to the very same subject matter of dispute referred to arbitration, was filed against the appellants by the respondent company through Adv. Sri. P.D. Jose. Admittedly, the arbitrator was a junior of Adv. Sri. P.D. Jose. The arbitrator did not decide on the challenge made to his independence and impartiality as required under Section 13(3) of the Act. He postponed that decision to the stage of passing award in the case. Even at that time, he did not show the fairness to specifically admit or deny the allegation raised against him by the first appellant that he had assisted his senior in conducting the suit O.S.No.279 of 1999 which pertained to the very same subject matter of dispute referred to arbitration. There is no material to show that the first appellant had withdrawn his allegation against the arbitrator or that he expressed consent for the continuance of the proceedings by the very same arbitrator. We are of the opinion that the cumulative effect of the circumstances stated above is sufficient to create in the mind of a reasonable man the impression that there was a real likelihood of bias on the part of the arbitrator. We do not even for a moment say that there was actual bias on the part of the arbitrator in passing the award. We only find that there is substantial possibility of bias and there are reasonable grounds for believing that the arbitrator was likely to have been biased. Real likelihood of bias is sufficient to set aside the award. 28. Accordingly, the appeal is allowed. The impugned order of the learned District Judge and the award passed by the arbitrator are set aside. No costs in the appeal.