Disqualification of Arbitrators & Procedure for challenging Arbitrator

Introduction

In the face of an astounding backlog of civil matters pending in various courts across India, the Arbitration and Conciliation Act, 1996 emerged as a beacon of hope. This mechanism sought to provide a quicker and more efficient alternative for dispute resolution.?

For arbitration proceedings to truly serve as a reliable alternative, the selection of unbiased arbitrators is necessary. The Supreme Court of India has empathetically asserted that the independence and impartiality of arbitrators stands as the cornerstone of the arbitration process, representing the fundamental principles of natural justice. Businesses while entering into any agreement include arbitration clauses or sometimes even sign a separate arbitration agreement this signifies the importance of arbitration in the world of businesses.

The massive backlog of civil disputes in Indian Courts intensifies the importance of ensuring fairness in arbitration processes, particularly in terms of arbitrator selection, disqualification procedures, and the nuanced steps involved in challenging arbitrator’s appointment. This article deep dives into the intricacies of these procedures, recognizing their vital role in the pursuit of timely justice within the Indian legal framework.?

Grounds for challenging Arbitrator’s appointment:

The appointment of an arbitrator can only be challenged if the grounds given under the Act are satisfied. Recently, in the case of McLeod Russel India versus Aditya Birla Finance Limited (2023 SCC Online Cal 330), the Hon’ble Calcutta High Court ruled that an arbitrator's eligibility to oversee arbitration proceedings is not automatically compromised merely because one of the disputing parties appointed them. The court emphasized that an arbitrator can only be deemed ineligible if their appointment is affected by any of the grounds specified in the Seventh Schedule.

Section 12 and 13 of the Act lays down a set of provisions for the disqualifications of an arbitrator and the procedure for a challenge. The challenge to an arbitrator's appointment unfolds in two stages. Initially, scrutiny arises at the time of appointment when the arbitrator must disclose information mandated by the Fifth Schedule of the Act. Subsequently, a second window for challenge opens during the course of the arbitral proceedings, allowing ongoing assessment and maintaining transparency throughout the arbitration process.

According to Section 12(1) of the Act, an arbitrator, upon being appointed, must reveal:

1. Any direct or indirect connections with either party.
2. Any relationships with the subject matter in dispute, encompassing financial, business, professional, or other affiliations that might impact the impartiality of the resolution process.

For example, an arbitrator, Mr. Sharma, is appointed to preside over a dispute between Company A and Company B. As per Section 12 of the Act, Mr. Sharma is obligated to disclose any direct or indirect connections he may have with either Company A or Company B. Additionally, he must reveal any financial, business, or professional relationships with the subject matter in dispute, such as prior consulting work for either company.

For instance, if Mr. Sharma had previously served as a consultant for Company A or had financial interests in a business affiliated with Company B, these connections should be disclosed. This transparency ensures that the arbitrator's role remains impartial and free from potential conflicts of interest.

Under Section 12(2) of the Act, challenging the appointment of an arbitrator is permissible only if:

1. There are circumstances raising justifiable doubts about the arbitrator's independence or impartiality.
2. The appointed arbitrator lacks the qualifications agreed upon by the parties involved.?

The procedure for challenging an arbitrator

The procedure is outlined in Section 13 of the Act. While the parties have the liberty to establish their own method for challenging arbitrators, in the absence of such an agreement, Section 13 of the Act dictates the prescribed process.

If a party, within 15 days of discovering information under Section 12 that raises concerns about the arbitrator's impartiality or independence, or within 15 days of the Tribunal's constitution, fails to agree on an alternative procedure, they must submit a written statement detailing the reasons for the challenge to the Tribunal.

This written statement should comprehensively present all relevant facts contributing to the suspicion, accompanied by a reasoned explanation of the arbitrator's conduct that gives rise to the challenge. The 15-day timeframe is crucial, serving as a limitation period, and any delay beyond this period may be considered an implied waiver. This timeframe is not only significant for challenging the arbitrator but also in assessing the arbitrator's conduct. Instances have been noted where arbitrators proceeded hastily without waiting for the completion of the 15-day buffer period, accepting references and conducting procedural meetings. The failure to disclose information promptly, despite repeated requests, formed the basis for challenge applications under Sections 12 and 13 of the Act.

Conclusion

The Act's focus on impartial arbitrator appointments and well-defined challenge procedures underscores its commitment to fairness and efficiency. Legal principles, as illustrated by past cases, further affirm the significance of maintaining the integrity of the arbitration process. In essence, the Act provides a robust framework for navigating the complexities of dispute resolution, contributing to a more responsive and equitable legal landscape.