"- The arcing is from the high Lock Rotor Amps going through the bypass contacts that are designed for Full Load Amps."
Not necessarilly. Assuming it was an RS6B starter, those contacts were designed to handle 720A. They could theoretically start a 500HP motor X-Line, but were not specifically rated to do so. If you had a 600HP motor that would have been a problem.
"- The problem is due to the bypass contacts being closed during the initial start up."
I don't think you know enough to determine what happened the 1st time, but being that they closed as soon as you closed the breaker, I'd say there was some sort of problem along those lines. If all 3 were closed prior to closing the breaker, I doubt that you would have seen a flash, but if they were chatterring you definitely would. Why they were chattering is undetermined.
"- The contacts could have been welded closed, stuck closed or given a wrong signal to close."
Most likely the last one, wrong signal. But if only 1 or 2 of the 3 were welded or stuck, it may have affected the bypass control circuit and caused the others to chatter and flash, I don't know.
"- If we disabled the bypass the second time, we would have been able to provide power to the starter to perform a diagnostic test."
Yes. That would have been prudent, especially given that you had just had a failure in one unit.
"If the bypass contacts was open and the motor was shorted between windings or grounded OR if the trigger board missed fired, I assume the bypass would not have arced, but the SCRs would have been damaged (no arcing)?"
Too many if's in there. If the bypass' were open, a short in the motor or leads would have had no effect on it until they were commanded to close. Again, they were likely NOT all closed upon your closing the main CB, but closed shortly thereafter (for some reason), causing a flash.
If the trigger board misfired, it may have affected the bypass control board and caused it to command a bypass closure. Only Benshaw can answer that, but it is true for several other brands that I have seen. Misfiring of SCRs is somewhat rare, but it can happen, usually as a result of condensation on the PC board(s). It is more possible however that the same thing that would cause the trigger board to misfire could also cause the bypass board to freak out as well.
Misfiring does not always result in damaged SCRs. They are usually damaged by voltage spikes, and less often by a current spike or overheating. Misfiring for an extended period can cause the last 2, but not a voltage spike. So I guess you were trying to use the good SCR test as a way of determining if there was a misfire, but that is not valid.
"To disable the bypass for testing should I be disconnecting the motor leads or should I disconnect L1, L2 & L3 to the SCRs?"
If you disconnect either of those you will not be able to test anything! Disable the bypass by disconnecting the control wires going to their coils. That way even if the bypass board is faulty, it should not affect the trigger board. The motor should start and run normally, although Benshaw may have a bypass discrepancy check circuit that would trip you off-line after a few seconds of running at-speed with no bypass. You probably will not be able to run it continuously like that anyway because the heat sinks are not designed for that, but it will tell you if there is a problem with the trigger board or not.
"Venditori de oleum-vipera non vigere excordis populi"