Appointment of Arbitrator
Arbitration is an alternative dispute resolution mechanism. The Arbitration and Conciliation Act, 1996 (‘Act’ for short) provides the procedure for appointment of arbitrator, conducting of arbitration proceedings, passing award, enforcement of award. Section 11 of the Act provides for the appointment of arbitrators either with the consent of the parties or with the intervention of the Court. In case of domestic arbitration, the High Court shall appoint an arbitrator if the High Court is approached for the parties to the arbitration agreement. In case of international commercial arbitration the Supreme Court shall appoint an arbitrator if the same is approached by the parties to the arbitration agreement.
Independence of arbitrator
The arbitrator, appointed to decide the dispute between the parties to the arbitration agreement, is usually expected to be impartial and independent. If there is any doubt by any party to the agreement, after the appointment of arbitrator, that the arbitrator is biased and doubts his independence and impartiality, the aggrieved party may challenge the appointment of arbitrator.
Section 12 of the Act provides the grounds for challenge of the appointment of arbitrator.
Disclosure by arbitrator
Section 12(1) of the Act provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances-
- such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
- which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of 12 months.
In ‘Indian Oil Corporation Limited v. Raja Transport (P) Limited’ – 2009 (8) TMI 1075 - SUPREME COURT, the Supreme Court held that section 12(1) of the Act requires an Arbitrator when approached in connection with his appointment, to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence and impartiality.
The disclosure shall be made by the Arbitrator in the form specified as below-
- Name;
- Contact Details;
- Prior experience (including experience with arbitrations);
- Number of ongoing arbitrations;
- Circumstances disclosing any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute;
- Whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to the independence or impartiality (if any, list out);
- Circumstances which are likely to affect the ability of arbitrator to devote sufficient time to the arbitration in particular his ability to finish the entire arbitration within twelve months (if any, list out).
The arbitrator is to disclose only if there exist grounds which would give rise to justifiable doubts about his independence or impartiality as held in NTPC LIMITED VERSUS WIG BROTHERS BUILDERS & ENGINEERS LIMITED 2009 (4) TMI 899 - DELHI HIGH COURT
Section 12(2) of the Act 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 unless they have already been informed of them by them.
Challenge
Section 12(3) of the Act provides that an arbitrator may be challenged only if-
- circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or
- he does not possess the qualifications agreed to by the parties.
In ‘SBP Company v. Patel Engineering Limited’ – 2009 (10) TMI 971 - SUPREME COURT the Supreme Court held that section 12(3) speaks of the grounds of challenge to the appointment of an arbitrator. In ‘Indian Oil Corporation’ (supra) the Supreme Court held that Section 12(3) enables the arbitrator being challenged if-
- the circumstances give rise to justifiable doubts as to his independence or impartiality; or
- he does not possess the qualifications agreed to by the parties.
In ‘Vipul Agarwal v. Atul Kanodia & Co’- 2003 (3) TMI 764 - ALLAHABAD HIGH COURT, it was held that the legislative intent underlying the provisions of the Act is that the decision of the arbitrator against whom allegations have been made attracting the challenge of the nature as indicated in sub section (3) of section 12, if negativated by the arbitrator has to be taken to be final and not open to challenge in the proceedings under section 34 except on the limited grounds mentioned therein.
Section 12(4) provides that a party may challenge an arbitrator by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
Section 12(5) provides that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified below, that shall be ineligible to be appointed as an arbitrator-
Relationship with the parties or counsel
- The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.
- He current represents or advises one of the parties or an affiliate of one of the parties.
- He currently represents the lawyer or law firm acting as counsel for one of the parties.
- He is a lawyer in the same law firm which is representing one of the parties.
- He is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.
- The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.
- The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.
- He regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his firm derives a significant financial income there from.
- He has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.
- A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties.
- He is a legal representative of an entity that is a party in the arbitration.
- He is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
- He has a significant financial interest in one of the parties or the outcome of the case.
- He regularly advises the appointing party or an affiliate of the appointing party and he or his firm derives a significant financial income there from.
Relationship to the dispute
- He has given a legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.
- He has previous involvement in the case.
Direct or indirect interest in the dispute
- He holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.
- A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.
- He or a close family member has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Previous services for one of the parties or other involvement in the case
- He has within the past three years served as counsel for one of the parties or an affiliate of one of the parties or has previously advised or been consulted by the party or an affiliate of the party making the appointment in an unrelated matter, but he and the party of the affiliate have no ongoing relationship.
- He has within the past 3 years served as counsel against one of the parties or an affiliate of one of the parties in an unrelated matter.
- He has within the past 3 years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.
- The arbitrator’s law firm has within the past 3 years acted for one of the parties or an affiliate of one of the parties in an unrelated matter without the involvement of the arbitrator.
- He currently serves, or has served within the past 3 years, as arbitrator in arbitration on a related issue involving one of the parties or an affiliate of one of the parties.
Relationship with another arbitrator or counsel
- The arbitrator and another arbitrator are lawyers in the same law firm.
- He was within the past 3 years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same arbitration.
- A lawyer in the arbitrator’s law firm is an arbitrator in another dispute involving the same party or parties or an affiliate of one of the parties.
- A close family member of the arbitrator is a partner or employee of the law firm representing one of the parties, but is not assisting with the dispute.
- He has within the past 3 years received more than three appointments by the same counsel or the same law firm.
Relationship with the party and others involved in the arbitration
- The arbitrator’s law firm is currently acting adverse to one of the parties or an affiliate of one of the parties.
- He has been associated within the past 3 years, with a party or an affiliate of one of the parties in a professional capacity, such as a former employee or partner.
Other circumstances
- He holds shares, either directly or indirectly, which by reason of number or de-nomination constitute a material holding in one of the parties or an affiliate of one of the parties that is publicly listed.
- He holds a position in an arbitration institution with appointing authority over the dispute.
- He is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the arbitration.
The parties may, subsequent to disputes having arisen between them waive the applicability section 12(5) by an express agreement in writing.
Where except for raising vague and general objections that the arbitrator was biased and had predisposition to decide the case against the contractor, no material, much less the cogent material was placed on record, the Court shall not remove such an arbitrator since the test of reasonable apprehension of bias in the mind of a reasonable man is satisfied. [M/S. LADLI CONSTRUCTION CO. (P) LTD. VERSUS PUNJAB POLICE HOUSING CORPN. LTD. & OTHERS 2002 (11) TMI 744 - SUPREME COURT]
In SAURABH KALANI VERSUS TATA FINANCE LTD. 2003 (4) TMI 407 - BOMBAY HIGH COURT an arbitrator was challenged on the ground that he had worked as the Head of Law Department of the sister concern of one of the parties to the arbitration agreement more than 15 years ago. He had thereafter started his independent practice as an advocate. It was held that the allegation of bias cannot be sustained in such like cases.
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