Independence, impartiality & neutrality of the arbitrator is essential for fair, free & unbiased arbitral proceedings while adhering to the principal of natural justice. On December 31, 2015, the Arbitration and Conciliation (Amendment) Act, 2015 was passed (with effect from October 23, 2015) to ensure improved efficiency of international commercial arbitrations in India. The aspect of mutuality, independence & impartiality has been given special emphasis under the scheme of amended Arbitration Act. The 2019 amendment to Arbitration & Conciliation Act 1996 (the Act) also inserted an Eighth Schedule prescribing general norms applicable to the arbitrator emphasizing on the impartial and neutral stand of the arbitrator in the proceedings.
A specific provision requiring disclosure by the arbitrator regarding his impartiality was added to Section 12 of the Act in 2015. As per the provision, any person who is approached for his possible appointment as an arbitrator must disclose in writing any direct or indirect, past or present relationship with the parties, counsel, subject-matter and outcome of arbitration, whether financial, professional, business or any other kind, which is likely to give rise to justifiable doubt as to the independence & impartiality or which would affect his ability to devote sufficient time to the arbitration and his ability to complete the entire arbitration within the period of twelve months. The disclosure is required to be made by such a person as per the form prescribed under the Sixth Schedule. Hence, the onus is upon the arbitrator to make true and correct disclosure. On the basis of such disclosure it shall be determined whether any such circumstances exist or whether it falls under any of the grounds enshrined in Fifth Schedule or Seventh Schedule. Courts vide following judgments have also strengthened the Act for its effective implementation to ensure impartial and neutral arbitrator. In a recent judgment by the hon'ble Supreme Court in, HRD Corporation vs. GAIL (India) Limited [MANU/SC/1066/2017], it was observed that if the person falls under Schedule Seven, the ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes De Jure unable to perform his functions in as much as, in law, he is regarded as "ineligible" and in that case there will be no need to follow the challenge procedure as prescribed under section 13 under the Act. Then the mandate of arbitrator shall be terminated, and he shall then be substituted by another arbitrator under section 14(1) of the Act. On the contrary, if the disclosure falls within the grounds stated in the Fifth Schedule which gives rise to justifiable doubts as to the arbitrator's independence or impartiality, the appointment of such arbitrator may be challenged before the Arbitral Tribunal under section 13. If a challenge is not successful, the Tribunal must then continue the arbitral proceedings under section 13(4) and make an award and the same can be challenged only under section 34 of the Act.
The three-judge bench of Supreme Court in TRF Limited vs Energo Engineering Projects Limited [(2017) 8 SCC 377] has strengthened the statutory mandate of independent, impartial & neutral arbitrator. The apex court has held that if an arbitrator becomes ineligible by operation of law, he cannot nominate another as an arbitrator. The hon'ble court even went ahead and stated, "once the infrastructure collapses, the superstructure is bound to collapse.
The TFR judgment has again been discussed in the recent judgement of hon'ble Supreme Court in Perkins Eastman Architects DPC vs HSCC (India) Limited (26.11.2019 - SC): [MANU/SC/1628/2019], wherein the court while resolving the issue of unilateral appointment of arbitrator by one party, heavily relied on TFR judgment and held that a person having an interest in the dispute or in the outcome or decision thereof, must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator.
In a recent case at the Delhi High Court, in Arvind Kumar Jain vs. Union of India (04.02.2020-DEL.HC): [MANU/DE/0357/2020], the prime issue was that the petitioner wanted the respondent to agree to the appointment of a Gazetted Officer (JAG/SAG) of the respondent/Railways as the arbitrator by waiving Section 12(5) of the Act. The hon'ble court ruled out the appointment of the Gazetted Railway Officer as the arbitrator in view of apprehensions regarding the impartiality of the arbitrator proposed to be appointed and also stated that the respondent cannot compel the petitioner to furnish a waiver from the applicability of section 12(5) of the Act.
Post the 2015 amendment, the Delhi High Court took a robust approach to ensure appointment of an independent & impartial arbitrator, as the court in Dream Valley Farms Private Ltd. & Anr v. Religare Finvest Ltd. & Ors. [2016 SCC OnLine Del 5584] held that a misleading declaration defeats the very purpose of the amended act, the conduct of the arbitrator in withholding at the very outset the true information about his appointment in a number of matters by the same party defeats the very purpose of the Act. Such conduct of the arbitrator is unbecoming and doesn't behoove an Arbitrator who is expected to be impartial and independent.
In the recent judgment of the Bombay High Court, in Swarmal Gadodia vs Tata Capital [2019 SCC OnLineBoM 849], the issue of a vague and ambiguous disclosure made by the arbitral tribunal was discussed. In this case, the appointed arbitrator not following the scheme of the Act, had not disclosed the fact that he was appointed arbitrator in a number of ongoing arbitration proceedings by the same party. The arbitrator even had fixed arrangement of payment from the party. The court ordered the respondent company to ensure compliance of the procedure set out under the Arbitration and Conciliation Act and to ensure that appointed arbitrator shall disclose to the other party, the exact number of ongoing arbitrations he is a part of.
By analyzing the scheme of the aAct and judgments discussed above, three lacunae are apparent. First, the Act doesn't prescribe any procedure for removal of arbitrator by court, but by the parties vide mutual agreement or the Arbitral Tribunal itself. Only the issue of "de-jure" ineligibility shall be decided by the court. Second, if the disclosure falls under Fifth Schedule, then the challenge will lie before the arbitrator himself under section 13 of the Act which indirectly goes against the principal of natural justice "nemo judex in causa sua," which allows the arbitrator to become judge of his own ability & competence. Third, the gravest question, what if the disclosure made is "vague/ arbitrary/unclear" in nature? What if the arbitrator hides such existing circumstances as enlisted in schedule five & seven? In that case the whole scheme falls flat.
Despite all the efforts the Act still requires effective measures and changesto encourage and facilitate a reformed & more independent system of fair & unbiased dispute resolution in the interest of justice and basic fairness for India to become a hub of International Commercial Arbitration.
Originally published on May 2020. Vol. XIII, Issue V
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