12 May 2023 10:47 AM GMT
Independence and impartiality of the arbitrator are the most important requirement of arbitration proceedings. Fairness in the adjudication and rule against bias form part of the basic notions of justice and morality. Natural justice demands the adjudication of a dispute in an impartial way and the same squarely applies to arbitration proceedings also. Therefore, the importance of...
Independence and impartiality of the arbitrator are the most important requirement of arbitration proceedings. Fairness in the adjudication and rule against bias form part of the basic notions of justice and morality. Natural justice demands the adjudication of a dispute in an impartial way and the same squarely applies to arbitration proceedings also. Therefore, the importance of an independent and impartial arbitral tribunal cannot be gainsaid.
Section 12, 13 and 14 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) form the composite scheme as regards the challenge to an arbitrator and termination of his mandate. There has been a significant jurisprudence regarding the challenge to an arbitrator under the Arbitration Act.
A common concern that arises is whether a challenge would fall under Section 13 or Section 14 as the former confers the jurisdiction to decide on the arbitral tribunal itself while the latter allows the parties to approach a court. In light of this, there has been a lot of debate around the termination of the mandate of the arbitrator on account of bias, misconduct, etc. This article seeks to analyse the interplay of Section 12, 13 and 14 of the Arbitration Act in light of the relevant judicial developments, with regard to a challenge to an arbitrator on account of bias.
Scheme of the Arbitration Act
Broad structure of Section 12, 13 and 14 is based on the corresponding Articles 12, 13 and 14 of the UNCITRAL Model Law on Arbitration (“Model Law”). Section 12(3) of the Arbitration Act states that an arbitrator can be challenged only if circumstances exist that give rise to the justifiable doubts as to his independence or impartiality or he does not possess the qualifications agreed to by the parties. Explanation 1 to Section 12(1) of the Arbitration Act states that the grounds stated in the Fifth Schedule shall guide the determination of whether circumstances exist to give rise to justifiable doubts as to the independence and impartiality of the arbitrator.
Section 13 of the Arbitration Act provides for the procedure to challenge an arbitrator, unless the parties have agreed on a procedure for challenging an arbitrator. Any challenge under Section 13 is decided by the arbitral tribunal itself, failing which, the aggrieved party may make an application for setting aside the award under Section 34. This is a deviation from Article 13 of the Model Law which allows the parties to challenge an arbitrator before the court at that stage itself, if its challenge fails before the arbitral tribunal.
In addition, Section 14 provides for the termination of the mandate of the arbitrator if he has become de jure or de facto unable to perform his functions. In this regard, Section 12(3) states that a person shall become ineligible to be appointed as an arbitrator if any of the conditions set out in Seventh Schedule are satisfied.
It is pertinent to note that the Articles 12 to 14 of the Model Law do not enumerate any grounds / criteria akin to the Fifth Schedule and Seventh Schedule of the Arbitration Act. These schedules are based on the IBA Guidelines on Conflict of Interest in Arbitration. The Fifth Schedule is akin to the Orange List that lists down circumstances that give rise to justifiable grounds as to independence and impartiality of the arbitrator, and the Seventh Schedule is based on the Red List that lists down the circumstances that render a person ineligible to act as an arbitrator.
Interplay between Section 12, 13 and 14
Pursuant to the peculiar language of the aforesaid provisions, different courts have arrived at different interpretations of the interplay between Section 12, 13 and 14 of the Arbitration Act. For instance, in National Highways Authority of India v. K.K. Sarin, the Delhi High Court held that the challenge has to be first made before the arbitrator in accordance with the Section 13 of the Arbitration Act and upon such challenge being unsuccessful, the challenging party has a remedy of either waiting for the award and if against him, to apply under Section 34 of the Act or to immediately after the challenge being unsuccessful, approach the court under Section 14 of the Arbitration Act.
However, the position has been settled by the ruling of the Supreme Court in HRD Corp v. GAIL. The petitioner in the HRD case was seeking termination of the mandate of two arbitrators on the grounds that one arbitrator had previously given a legal opinion and advised the respondent on a matter, although unconnected, while the other arbitrator had delivered an award on the same dispute between the parties. The Supreme Court held that giving a legal opinion on an unconnected manner would not attract the vires of the Seventh Schedule. Similarly, merely acting as an arbitrator in a previous arbitration on the same issue would not make the arbitrator de jure ineligible.
As regards the interpretation of Section 12, 13 and 14, the Supreme Court held that 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 an arbitrator and accordingly becomes de jure unable to perform his functions. On the other hand, when a challenge enumerated in the Fifth Schedule is disclosed, that gives rise to justifiable doubts as to the arbitrator’s independence and impartiality, such a challenge is decided in accordance with the procedure laid down in Section 13 of the Arbitration Act.
However, what is important to understand is that the Court did not rule that the grounds mentioned under the Seventh Schedule are the only grounds that can be entertained under Section 14 as the said schedule is based on the IBA Guidelines that are not exhaustive and it does not intend to be the sole indicator of de jure disqualifications.
The Supreme Court has also given a similar ruling in the case of Bharat Broadband Network Ltd. v. United Telecoms Ltd.
Distinction between Independence and Impartiality
It is also pertinent to note the difference between ‘independence’ and ‘impartiality’. While the former relates to the relationship of the arbitrator with the parties, counsels, or the subject matter of the dispute and is more of an objective concept, the latter is more subjective and can be deducted from the conduct of the arbitrator. The Supreme Court in Voestalpine Schienen GmbH v. DMRC highlighted the difference between the two concepts, and held as under:
“22. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.”
This is crucial because the entries in the Fifth Schedule, which also contains all the entries enumerated in the Seventh Schedule, seem to primarily cover the concept of ‘independence’ of the arbitrator in the context of its relationship with the parties or the subject matter and they might not sufficiently address the concerns of actual bias or procedural misconduct by an arbitrator who may well be independent in terms of the fifth and the seventh schedule. Also, the Supreme Court in Voestalpine has recognized that impartiality of the arbitrator is something that will surface during the arbitral proceeding unlike a situation of independence which could be objectively determined by applying the tests laid down in both the schedules.
In a similar way, bias would be an issue which would have to be established in fact. An allegation of bias would have to be alleged and proven. This causes a confusion as regards the challenge to the arbitrator is whether a challenge on account of bias or misconduct is adjudicated under Section 13 or Section 14 of the Arbitration Act as neither Section 12(3) nor Section 14 addresses an issue of bias. In other words, the issue is whether an allegation of bias can be considered a de jure inability of an arbitrator to perform his functions. This question is crucial since it decides whether an aggrieved party can approach the court instantly or has to wait till the passing of the award.
Challenge to an arbitrator on account of bias
A challenge to an arbitrator on account of actual bias could entail a number of situations which may include an arbitrator pre-judging the dispute, arbitrator litigating with one of the parties, arbitrator filing a criminal case against one of the parties, arbitrator’s unilateral communication and exchange of documents with a party, arbitrator giving undue leniency to a party in filings, arbitrator’s pre-conceived notions, arbitrator’s unrecorded and unilateral conversations with the witnesses during the arbitration proceedings, and discussion of the merits of the case by an arbitrator prior to his appointment, etc. However, these grounds are just illustrative and may not be equally relevant as few of the cases mentioned above either arose under the 1940 Act which provided for interlocutory removal of the arbitrator or decided by the foreign Courts.
There has been a polarity in views on the challenge to an arbitrator on account of bias. While in some rulings, the Delhi High Court has held that a challenge to an arbitrator u/s 14 before a court on account of bias is maintainable, the court has taken an opposite view in other cases. Finally, the Delhi High Court in the recent case of Union of India v. Reliance Industries, while dealing with an application for the removal of the arbitrator on the ground of actual bias reflected in the conduct of the arbitral proceedings, attempted to answer this question. The court held that allegations of bias of an arbitrator cannot be a ground for the termination of the mandate of the arbitrator under Section 14 of the Arbitration Act.
The Court relied on the judgment of the Apex Court in HRD Corp (supra) and Bharat Broadband (supra) to hold that only the grounds mentioned under the Seventh Schedule can be decided under Section 14 and the bias of an arbitrator relates to the justifiable grounds as to independence and impartiality and must be decided by the tribunal under Section 13 of the Act, failing such challenge, the arbitrator shall continue with the arbitration proceedings and the parties aggrieved by the award can challenge it under Section 34 of the Act on the ground of bias also.
The Delhi High Court also relied on the case of Progressive Career Academy Pvt. Ltd. v. FIIT Jee Ltd. wherein a division bench of the Delhi High Court had observed that the Indian Parliament did not want curial interference at an interlocutory stage of the arbitral proceedings on perceived grounds of alleged bias.
While one would infer that this question has been put to rest, there are certain inconsistencies insofar as the position of law on this issue is concerned. First, it could be argued that the Delhi High Court in Union of India v. Reliance Industries (supra) has misread the rulings in HRD Corp (supra) and Bharat Broadband (supra) as the Supreme Court has not specifically addressed the issue of bias in the aforesaid judgments. Instead, the Supreme Court has laid down the broad position of law on the interplay between Section 13 and 14 of the Arbitration Act vis-à-vis the fifth and the seventh schedule.
Secondly, the co-ordinate bench of the Supreme Court in Punj Lloyd v. West Bengal Medical Services terminated the mandate of an arbitrator on the ground of actual bias. The Supreme Court set aside an order of the Calcutta High Court wherein the High Court also took the view that the challenge related to bias of an arbitrator must only be decided under Section 13 of the Arbitration Act. The Apex Court held that the High Court erred in not deciding the application itself and forgot it was exercising powers under Section 14 of the Act. It is incredibly interesting to note that both the judgments in HRD Corp (supra) and Punj Lloyd (supra) have been authored by Justice R.F. Nariman and the order in Punj Lloyd (supra) has been passed subsequent to that of HRD Corp (supra).
Lastly, other high courts seem to have a different view on this issue at times. For instance, the Andhra Pradesh High Court in Rashtriya Ispat Nigam v. Space Tech Equipments held that when actual bias is proved against an arbitrator, he becomes de jure disqualified to continue with the arbitration proceedings and his mandate shall be terminated under Section 14 of the Act. Similarly, the Madhya Pradesh High Court in Shivhare Roadlines v. Gammon India, terminated the mandate of the arbitrator during the arbitration proceedings on the ground that the arbitrator had allowed the respondent to file its Statement of Defence after the examination of the witness of the appellant.
On a separate note, the Delhi High Court in Union of India v. Reliance Industries (supra) also erred in its ruling that the disqualifications set out in the Seventh Schedule alone which can be recognised as being the de jure disqualifications under the Arbitration Act since the Supreme Court in HRD Corp (supra) has categorically observed that the Seventh Schedule is not exhaustive as regards the de jure disqualifications under Section 14(1)(a) of the Arbitration Act.
In view of the above discussion, the position of law on the issue of bias needs more elucidation in light of the divergent views taken by the Courts across India. While the Delhi High Court has done a comprehensive analysis of the issue in Union of India v. Reliance Industries (supra), clarity is likely to emerge with an authoritative ruling by the Apex Court on this subject. It is an important question since it leads to a conflict between two competing values of arbitration. On the one hand, it can be argued that the outright rejection of the application challenging the arbitrator might prove to be counterproductive. This is because if the award is ultimately set aside on the ground of bias of the arbitrator, the parties may have to undergo another round of litigation. This will be against the mandate of the Arbitration Act, i.e., speedy disposal of cases. On the other hand, there has been a constant endeavour to minimize the interference of courts in the process of arbitration. It may therefore be expedient for a court, when faced with an application for removal of the arbitrator on the grounds of actual bias, to not outrightly reject the application but to undertake a prima facie examination of the merits of the application and remove the arbitrator if the bias is ex-facie apparent. However, a clear and coherent test on the determination of a challenge to an arbitrator on account of bias may be instrumental to avoid the floodgates of judicial interference in arbitration.
Views are personal.
 Nigel Blackaby and Constantine Partasides QC, Redfern and Hunter on International Arbitration 4.75 (Oxford University Press, 6th Ed.)
 2009 SCC OnLine Del 764. See also, Alcove Industries Ltd. v. Oriental Structural Engineers Ltd., 2007 SCC OnLine Del 1709.
 (2018) 12 SCC 471.
 (2019) 5 SCC 755.
 (2017) 4 SCC 665.
 Mark R. Joelson, A CRITIQUE OF THE 2014 INTERNATIONAL BAR ASSOCIATION GUIDELINES ON CONFLICTS OF INTEREST IN INTERNATIONAL ARBITRATION, American Review of International Arbitration, 2016 (the author highlighted the insufficiency of the IBA Guidelines regarding impartiality of the arbitrator)
 Koshy v. K.S.E. Board, 1983 SCC OnLine Ker 117.
 State of Orrisa v. Modern Construction, 1972 SCC OnLine Ori 47.
 Raj Kumar Dua v. Naresh Adlahkha, 2010 SCC OnLine Del 2519; Parshotam Lal v. State, AIR 1990 JK 47
 Jaichandlal Ashok Kumar v. Abdul Gaffar,, 1999 SCC OnLine Cal 601.
 Shivhare Roadlines v. Gammon India, 2013 SCC OnLine MP 10762.
 Catalina (Owners) v. Norma (Owners), (1938) 61 Llyod’s Law Reports 360
 Norbrook Laboratories v. Tank, (2006) 2 Lloyd’s Rep 485.
 Metropolitan Property & Cas. Ins. v. Jc Penney Cas. Ins., 780 F. Supp. 885 (D. Conn. 1991)
 Interstate Constructions v. NPCC Limited, 2004 (3) R.A.J. 672 (Del); Indira Rai v. Vatika Plantations (P) Ltd., (2006) 127 DLT 646; National Highways Authority of India v. K.K. Sarin (supra); Raj Kumar Dua v. Naresh Adlahkha, 2010 SCC OnLine Del 2519.
 Neeru Walia v. Inderbir Singh Uppal, (2009) 160 DLT 55 and of Aruna Suresh J. in Ahluwalia Contracts (India) Ltd. v. Housing and Urban Development Corporation, (2008) 100 DRJ 461.
 2022 SCC OnLine Del 4310.
 2011 SCC Online Del 2271.
 Civil Appeal No. 8242 of 2018.
 2020 SCC OnLine AP 147.
 2013 SCC OnLine MP 10762.