2017 (9) TMI 56 - SC - Indian Laws

Eligibility of arbitrator - persons who become ineligible to be appointed as arbitrators - Applicability of Sections 12 and 14 of the Arbitration and Conciliation Act, 1996 - Held that - Reading the heading which appears with Item 16, namely Relationship of the arbitrator to the dispute , it is obvious that the arbitrator has to have a previous involvement in the very dispute contained in the present arbitration. Admittedly, Justice Doabia has no such involvement Item 16 cannot be read as including previous involvements in another arbitration on a related issue involving one of the parties as otherwise Item 24 will be rendered largely ineffective. It must not be forgotten that Item 16 also appears in the Fifth Schedule and has, therefore, to be harmoniously read with Item 24. It has also been argued by learned counsel appearing on behalf of the respondent that the expression the arbitrator in Item 16 cannot possibly mean the arbitrator acting as an arbitrator, but must mean that the proposed arbitrator is a person who has had previous involvement in the case in some other avatar. According to us, this is a sound argument as the arbitrator refers to the proposed arbitrator. This becomes clear, when contrasted with Items 22 and 24, where the arbitrator must have served as arbitrator before he can be disqualified. Obviously, Item 16 refers to previous involvement in an advisory or other capacity in the very dispute, but not as arbitrator. It was also faintly argued that Justice Doabia was ineligible under Items 1 and 15. Appointment as an arbitrator is not a business relationship with the respondent under Item 1. Nor is the delivery of an award providing an expert opinion i.e. advice to a party covered by Item 15. The fact that Justice Doabia has already rendered an award in a previous arbitration between the parties would not, by itself, on the ground of reasonable likelihood of bias, render him ineligible to be an arbitrator in a subsequent arbitration. We have not been shown anything to indicate that Justice Doabia would be a person holding a pronounced anti-claimant view The appointment of Justice Doabia was also attacked on the ground that he had not made a complete disclosure, in that his disclosure statement did not indicate as to whether he was likely to devote sufficient time to the arbitration and would be able to complete it within 12 months. We are afraid that we cannot allow the appellant to raise this point at this stage as it was never raised earlier. Obviously, if Justice Doabia did not indicate anything to the contrary, he would be able to devote sufficient time to the arbitration and complete the process within 12 months. Also faintly urged that the arbitrator must without delay make a disclosure to the parties in writing. Justice Doabia s disclosure was by a letter dated October 31, 2016 which was sent to the Secretary General of the International Centre for Alternative Dispute Resolution (ICADR). It has come on record that for no fault of Justice Doabia, the ICADR, through oversight, did not handover the said letter or a copy thereof to the appellant until November 24, 2016, which is stated in its letter dated November 29, 2016. This contention also, therefore, need not detain us. As argued that under Explanation 3 to the Seventh Schedule, maritime or commodities arbitration may draw arbitrators from a small, specialized pool, in which case it is the custom and practice for parties to appoint the same arbitrator in different cases, this is in contrast to an arbitrator in other cases where he should not be appointed more than once. We are afraid that this argument again cannot be countenanced for the simple reason that Explanation 3 stands by itself and has to be applied as a relevant fact to be taken into account. It has no indirect bearing on any of the other items mentioned in the Seventh Schedule. Appeal dismissed.

Issues Involved:

1. Applicability of Sections 12 and 14 of the Arbitration and Conciliation Act, 1996, particularly Section 12(5) added by the 2016 Amendment Act.
2. Validity of the appointment of Justice Doabia and Justice Lahoti as arbitrators.
3. Interpretation of the Fifth and Seventh Schedules of the Arbitration and Conciliation Act in light of the IBA Guidelines.
4. Disclosure requirements and impartiality of arbitrators.

Detailed Analysis:

1. Applicability of Sections 12 and 14 of the Arbitration and Conciliation Act, 1996:

The appeals raised questions regarding the applicability of Sections 12 and 14, specifically Section 12(5) introduced by the 2016 Amendment Act. Section 12 mandates that an arbitrator must disclose any circumstances that might raise justifiable doubts about their independence or impartiality. Section 14 deals with the termination of an arbitrator's mandate if they become de jure or de facto unable to perform their functions.

2. Validity of the Appointment of Justice Doabia and Justice Lahoti:

Justice Lahoti’s appointment was challenged based on Items 1, 8, and 15 of the Seventh Schedule. The appellant argued that Justice Lahoti’s previous legal opinion for GAIL made him ineligible. However, the court held that a single professional opinion did not constitute a "business relationship" under Item 1, nor did it make him a regular advisor under Items 8 and 15.

Justice Doabia’s appointment was challenged under Item 16 of the Seventh Schedule, which states that an arbitrator should not have previous involvement in the case. The court interpreted "the case" to mean the specific dispute at hand, not related previous arbitrations. Thus, Justice Doabia’s previous involvement in earlier arbitrations between the same parties did not disqualify him.

3. Interpretation of the Fifth and Seventh Schedules of the Arbitration and Conciliation Act:

The court emphasized that the Fifth and Seventh Schedules, derived from the IBA Guidelines, should be interpreted to ensure the independence and impartiality of arbitrators. Items 1 to 19 of both Schedules are identical and deal with disclosure requirements. The court clarified that ineligibility under the Seventh Schedule makes an arbitrator de jure unable to perform their functions, which can be directly challenged in court under Section 14(2).

4. Disclosure Requirements and Impartiality of Arbitrators:

The court stressed the importance of disclosures under Section 12 to maintain transparency and trust in the arbitration process. The arbitrator must disclose any potential conflicts of interest, as guided by the Fifth Schedule. The court found that Justice Doabia’s disclosure was adequate and timely, even though there was a delay in the appellant receiving it due to an oversight by the ICADR.

Conclusion:

The court dismissed the appeals, upholding the validity of the appointments of Justice Doabia and Justice Lahoti. The judgment reinforced the importance of maintaining the independence and impartiality of arbitrators through proper disclosures and adherence to the statutory framework provided by the Arbitration and Conciliation Act, 1996, as amended in 2016.

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