2017 (3) TMI 1911 - HC - Indian Laws

Scope and purport of the newly introduced provisions regarding the appointment of arbitrators and challenges to their continuance - whether an arbitrator should stand disqualified or be removed in these circumstances, viz. the arbitrator is a practicing counsel? - arbitrator clarifies in writing that he has never been briefed to appear for that particular party, though he is sometimes briefed in other matters by the law firm in question - counsel having accepted a brief from a particular attorney, advocate-on-record or lawyer for some other client, qualified or not. HELD THAT - The association of the arbitrator must be proximate, not remote. Schedule V contemplates various scenarios - no arbitrator should be involved in any manner with one of the parties to the dispute or a partner with a lawyer or law firm appearing in the arbitration, or representing the law firm or lawyer personally. A law firm 's briefing of counsel in other, unrelated matters is on a very different footing. In our profession it very often happens that on a given day a law firm will brief counsel for one client and on the very next day, or perhaps later that very day, will brief another counsel against the first. At no point in their regular practice do counsel appear 'for ' the law firm that briefs them, leaving aside cases where the briefing lawyer or law firm is itself the litigant. In-house counsel or counsel who receive a fee-paid general retainer or salary from a law firm stand on a different footing - We have seen counsel withdrawing sometimes in court itself because their clients give them fresh instructions contrary to previous ones conveyed to court. In Mumbai at least, counsel from the same chambers often oppose each other in court and there is never a doubt raised about their professional independence. We have, too, in this city an acceptance of a junior counsel being briefed against the senior whose chamber he or she has joined. No one sees this as anything but the fiercest independence; indeed, seniors consider it a badge of honour to be opposed (the more vigorously the better) by their own juniors, for there is perhaps no better indicator of a briefing attorney 's confidence in the capability, integrity and independence of a junior counsel than to field him against his own senior. Independence, therefore, as used in the statute means nothing more than deciding for oneself. Impartiality is lack of bias the ability to decide without tilting to one side on considerations other than the merits of the case. Thus, counsel having accepted a brief from a particular attorney, advocate-on-record or lawyer for some other client is not per se a disqualification or ineligibility. The disqualification connection must be between the arbitrator-counsel and the litigant. That this is of the essence is obvious from Item 3 of the two schedules in a given case, where the law firm or lawyer is itself or himself the client, the arbitrator cannot function as such in an arbitration where that very law firm or lawyer is also engaged, though for some other party; for the arbitrator in question would then have before him a party for whom he is engaged. The Petition are wholly without foundation in fact or law. The Notice of Motion and the Petition stand dismissed.

Summary

Issues Involved:
1. Scope and purport of newly introduced provisions regarding the appointment of arbitrators and challenges to their continuance under the Arbitration Act, 1996.
2. Whether the arbitrators should stand disqualified or be removed based on their professional relationships with law firms representing one of the parties in the arbitration.
3. Procedural requirements for challenging the appointment of arbitrators under Sections 12 and 13 of the Arbitration Act.
4. Interpretation and application of the Fifth and Seventh Schedules of the Arbitration Act regarding arbitrator independence and impartiality.

Issue-wise Detailed Analysis:

1. Scope and Purport of Newly Introduced Provisions:
The judgment primarily addresses the interpretation of Sections 12(1), 12(3), 12(5), and item 3 of Schedule VII of the Arbitration Act after its 2015 amendment. The court examined whether the arbitrators, who are practicing counsel and have been briefed by the law firm representing one of the arbitration parties in other matters, should be disqualified. The petitioner argued that such an association creates a conflict of interest, thereby disqualifying the arbitrators under the amended provisions.

2. Disqualification of Arbitrators Based on Professional Relationships:
The petitioner contended that the arbitrators' periodic receipt of briefs from the law firm representing one of the parties was sufficient to disqualify them, irrespective of whether they had ever been briefed for that particular party. The court, however, clarified that the relationship must be direct and proximate, not remote or general. The court emphasized that the statutory provisions aim to eliminate bias and ensure impartiality, but the mere fact of being briefed by the law firm in unrelated matters does not constitute a conflict of interest.

3. Procedural Requirements for Challenging Arbitrators:
The court highlighted the procedural requirements under Section 13 of the Arbitration Act, which mandates that any challenge to an arbitrator must first be made before the arbitral tribunal. Only if the tribunal rejects the challenge can the matter be brought before the court under Section 34. The petitioner bypassed this procedure, directly approaching the court, which the respondent argued was not maintainable. The court agreed that the statutory process should not be bypassed but chose to address the substantive issue due to its increasing relevance.

4. Interpretation and Application of the Fifth and Seventh Schedules:
The court examined the Fifth and Seventh Schedules, which list grounds for justifiable doubts about an arbitrator's independence and impartiality. The court concluded that the arbitrators' association with the law firm did not fall within the disqualifying categories listed in these schedules. The court emphasized that the association must be direct, such as the arbitrator representing the law firm or having a significant financial interest in the outcome of the dispute. The court also noted that the statutory provisions are designed to prevent even the smallest interest from affecting the arbitrator's impartiality, but the interest must not be too remote or fanciful.

Conclusion:
The court dismissed the petition, concluding that the application and the petition were wholly without foundation in fact or law. The court held that the arbitrators' professional relationship with the law firm did not disqualify them under the amended provisions of the Arbitration Act. The court emphasized the importance of following the procedural requirements for challenging arbitrators and clarified the interpretation of the relevant statutory provisions to ensure impartiality and independence in arbitration proceedings.