Independence of Arbitrator

INTRODUCTION

‘Arbitration’ refers to ‘a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.’– WIPO.

Although arbitration is often referred to as part of the new wave of ‘alternative’ dispute resolution techniques, such as mediation, it is one of the oldest forms of dispute resolution. Arbitration was practised in ancient Greece and Rome. The first English Arbitration Act was passed in 1698.

But there is always some debate about an arbitrator’s objectivity when they make a ruling or an award. Arbitrators are thought to have an unconscious bias toward the parties since they are familiar to counsel or parties and because they are typically chosen by the parties themselves. Each contesting party names an arbitrator, which is a distinguishing trait of arbitration, a rising type of legal adjudication.

However, some commentators claim that arbitrators chosen by a party often exhibit bias in their favour.

STATE OF INDEPENDENCE

Independence refers to objective and external manifestation of the relationship between the parties, counsels and coarbitrators. An arbitrator shall not only be independent but he shall also be perceived as independent by third parties.

Impartiality of an arbitrator refers generally to the state of mind, subjective and abstract concept which is difficult to measure and can be deduced from his/her external conduct. It entails an “absence of external control” as well as any “bias and predisposition towards a party.” The adage “with great power comes great responsibility” is true in a sense that when parties are given the authority to choose the arbitrators, it is assumed that they will act honestly and responsibly.

Taking reference from Cambridge dictionary, state of being independent means you are capable of taking your own decisions without getting influenced from others. It can be referred to as a state of free mind. It determines your autonomy on state of things and decisions you make. It also excluded external control, which means you are able to excuse other people who try to dominate your decisions and control your freedom of independence.

The arbitrator must be viewed as being independent by both the parties and the authorities involved. Therefore, it makes complete sense that an arbitrator must not only be unbiased but also be seen as independent by a 3rd party. Arbitrator is obligated to act impartially toward the parties and refrain from acting in a way that serves the interests of just one of them. An arbitrator’s job/obligation calls for him to always work in the best interests of justice.

LEGISLATURE ON THE INDEPENDENCE AND IMPARTIALITY OF ARBITRATORS

The Act does not specifically exclude any category of disputes as being non-arbitral, i.e. not amenable to arbitration, although, it is clear that an arbitral award will be set aside or enforcement refused if the court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force. Whether or not a dispute is arbitral, depends on:

i.Whether the dispute can be resolved by a private forum chosen by parties, or it pertains to an issue in rem (i.e. in relation to a right exercisable against the world at large, as contrasted from a right in persona, i.e. in relation to an interest protected solely against specific individuals, in which case it will fall within the domain of public fora;

II.Whether there is any statutorily constituted court or tribunal with exclusive jurisdiction i.to deal with such disputes, for example rent control, insolvency etc., in which case the dispute will not be arbitral;

ii.Whether in the facts of the case, the dispute is covered by the arbitration agreement and / or whether the dispute falls within the term of reference.

The 246th Law Commission Report of India, which was published in 2014, noted, among other things, that the independence and impartiality of arbitrators are essential qualities that cannot be compromised. The Commission also acknowledged that the Act’s flaw was the lack of a formula for identifying conditions that raise “justifiable suspicions.”

Article 11 of CIArb also says that, “When a person is approached in connection with his or her possible appointment as an arbitrator, he or she shall disclose any circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence”.

These same principles are incorporated in Indian legislation related to arbitration in section 12 of the related act by the virtue of the Arbitration and Conciliation (Amendment) Act, 2015. Article 12 specifies that either direct or indirect connection with parties or subject matter of the dispute makes it difficult for the person to be appointed as arbitrator.

In addition to that, there exists 7th schedule, which is based on IBA guidelines,[1] that lay down certain criteria or circumstances which can bar any person to be appointed as arbitrator or raise any claim against any such arbitrator if any circumstance is fulfilled.

These are some of the prohibited circumstances. As per section 12 (5) of the Arbitration Act, 2015, if any person who is to be appointed as arbitrator, falls under any category as specified under 7th schedule then such person shall not be appointed as arbitrator. However this could be waived off if parties agree in writing.

JUDICIAL PRECEDENTS W.R.T. INDEPENDENCE OF ARBITRATOR:
Trf Ltd v. Energo Engineering Projects Ltd

The court observed that when a law /authority declares a person ineligible to be appointed as an arbitrator, it also disentitles that person to nominate any person to be appointed as an arbitrator. Further, in case of HRD Corporation Ltd., apex court held that if any circumstance under 7th schedule exists, it makes the person ineligible to be appointed as arbitrator.

Bharat Brodband Network v. United Telecom Limited

The Court held that “Section 26 of the Amendment Act, 2015 makes it clear that the Amendment Act, 2015 shall apply in relation to arbitral proceedings commenced on or after 23.10.2015. Indeed, the judgment itself set aside the order appointing the arbitrator, which was an order dated 27.01.2016, by which the Managing Director of the respondent nominated a former Judge of this Court as sole arbitrator in terms of clause 33(d) of the Purchase Order dated 10.05.2014. It will be noticed that the facts in the present case are somewhat similar. The APO itself is of the year 2014, whereas the appointment by the Managing Director is after the Amendment Act, 2015, just as in the case of TRF Ltd. (supra). Considering that the appointment in the case of TRF Ltd. (supra) of a retired Judge of this Court was set aside as being non-est in law, the appointment of Shri Khan in the present case must follow suit.”

Central Organization for Railway v. M/s Eci Spic Smo Mcml(Jv)

The Court held that when the agreement specifically provides for appointment of Arbitral Tribunal consisting of three arbitrators from out of the panel of serving or retired Railway Officers, the appointment of the arbitrators should be in terms of the agreement as agreed by the parties. That being the conditions in the agreement between the parties and the General Conditions of the Contract, the High Court was not justified in appointing an independent sole arbitrator ignoring Clauses 64(3)(a)(ii) and 64(3) of the said contract.

Monica Khanna & Ors. v. Mohit Khanna & Anr.

The Hon’ble Delhi High Court observed that arbitrator should be independent of parties and should maintain integrity in order to ensure justice and fair adjudication of disputes between the parties without any influence.

CONCLUSION

Biases cannot be eradicated by rules and regulations but only by a conscious mind which fulfils duty or is willing to fulfil its duty and thus this fear of biases raises a doubt on impartiality and independence of arbitrators. In case of Reliance Industries Ltd. v. Union Of India, apex court observed that with respect to neutrality, impartiality, independence of arbitrators, it is important that no doubts on such principles are raised.

Article by
T.S. AHUJA
(Managing Partner)
M/S Ahuja Law Offices
A – 219 , Defence Colony,
New Delhi – 110024