Selection and Appointment of Arbitrators in India

Abhishek Kumar


21/06/2017  

The Arbitration and Conciliation (Amendment) Act, 2015 grants the liberty to the parties to appoint an arbitrator mutually.

The Act provides that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number. However, if the parties fail to do so, the arbitral tribunal shall consist of a sole arbitrator.1

The procedure in relation to appointment of arbitrator(s) is provided under Section 11 of the Act. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. The aforesaid section also deals with the contingency wherein the parties fail to appoint an arbitrator mutually. In such a situation, the appointment shall be made, upon request of a party, by the Supreme Court or any person or institution designated by such Court, in the case of an International Commercial arbitration or by High Court or any person or institution designated by such Court, in case of a domestic arbitration.

Before the appointment of arbitrator is made, the concerned Court or the person or institution designated by such Court is required to seek a disclosure in writing from the prospective arbitrator in terms of Section 12(1) of the Act and also give due regard to any qualifications required for the arbitrator by the agreement of the parties and the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

It may be noted that under Section 12(1) of the Act, an obligation has been cast upon the prospective arbitrator to make an express disclosure on (a) circumstances which are likely to give rise to justifiable doubts regarding his independence or impartiality; or (b) grounds which may affect his ability to complete the arbitration within 12 (twelve) months.

The purpose of this provision is to secure the appointment of an unbiased and impartial arbitrator.

Fifth Schedule to the Act (Annexure-A) contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator. The Seventh Schedule (Annexure-B) lays the grounds which make a person ineligible to be appointed as an arbitrator.

The Act provides that in an International Commercial Arbitration, an arbitrator of a nationality other than the nationalities of the parties may be appointed where the parties belong to different nationalities.

Expeditious disposal of application for appointment of an arbitrator(s) is emphasized by the Act and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

Footnote

1 Section 10 of the 2015 Act

India: Arbitration & Conciliation (Amendment) Act, 2015: Whether Applicable To Court Proceedings Arising Out Of Pre-Existing Arbitrations

Abhishek Kumar & Arushi Gupta


21/10/2016  

The Arbitration & Conciliation (Amendment) Act, 2015 (hereinafter known as “Amended Act“) has come into force w.e.f. 23.10.2015 whereby various amendments have been introduced in the Arbitration and Conciliation Act, 1996 (hereinafter known as “1996 Act”). The amendments have largely been lauded as an encouraging step towards making India an arbitration friendly nation and also towards making arbitration/ ADR a speedy, efficacious and cost-effective method of dispute resolution in India. Nonetheless, it has also brought to the fore certain ambiguities with respect to its application on various proceedings. The confusion regarding applicability of the Amended Act is especially noticed in court proceedings which were pending as on date when the Amended Act was notified and fresh court proceedings to be initiated immediately after the Amended Act came into force, arising out of arbitrations, invoked prior to Amended Act coming into force. The lack of clarity in this respect has led to various courts in India giving different interpretations as to the applicability of the amendments to such court proceedings as mentioned above. These conflicting judgments have given rise to further misconceptions regarding the applicability of Amended Act.

BACKGROUND:

The Law Commission1, to its credit, in the proposed Section 85(A), had attempted to create a clear distinction between fresh applications to the court for pending arbitrations and fresh arbitrations to be initiated after the amendments. It was clarified that, fresh applications to the court regarding arbitration matters would come under the purview of the Amended Act even if the arbitration proceedings had been initiated as per the unamended Act. However, this proposal was not incorporated by the legislature while approving and enacting the Amendment Act. Instead, Section 26 was inserted in the Amendment Act regarding the applicability of the amendments to the arbitration proceedings, which states the following:

Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

Had the initial proposal been accepted, there would have been a uniform application of the Amended Act to all petitions/applications/ appeals either pending before the courts or to be filed, after the amendments came into effect. Having said that, there is no doubt that court proceedings arising out of such arbitrations which have commenced or will be commenced subsequent to the amendments coming into force i.e. on or after 23.10.2016, are unquestionably governed by the Amended Act. The lack of clarity is only with respect to applicability of the Amended Act to the court proceedings either pending or fresh in nature, which arose out of such arbitrations which were invoked prior to the Amended Act coming into force. The issue, therefore, which requires clarification, is that whether the provisions of the Amended Act, can be said to be applicable for the court proceedings either pending as on date when the Amended Act came into force or filed afresh, pursuant to the arbitrations invoked prior to the amendments coming into force i.e. before 23.10.2016. This article makes an attempt to deal with the above issue while discussing the conflicting judgments passed by various courts in India on the said issue.

CONFLICTING JUDGMENTS:

Not only there are conflicting judgments by High Courts of different States, but conflicting decisions even within the same high court. The Kolkata High Court was the first court that faced the question regarding the applicability of the provisions of the Amended Act to court proceedings arising out of such arbitrations which were initiated prior to amendments, based on the reading of the aforementioned Section 26 of Amendment Act. The Ld. Single Judge in the matter of Electrosteel Castings Limited vs Reacon Engineers (India) Private Ltd.2 held that the ‘repeal and savings clause of the Amendment Act of 2015 did not make applicable the amendment Act in case of arbitration which commenced before its enactment‘.

Since the subject arbitration commenced much prior to coming into force of the Amendment Act, nothing in it applies to the subject arbitration‘.

Subsequently, in the matter of Sri Tufan Chatterjee vs. Sri Rangan Dhar3, a division bench of Kolkata High Court held in contrast, while arriving at a conclusion that even pending court proceedings relating to such arbitration, which was pending as on date when the amendments were notified, must be governed by the Amended Act and not the unamended one. The Bombay High Court’s decision in the matter of Mahanagar Telephone Nigam v SRV Telecom4 was also congruent to the judgments of Sri Tufan (supra). However, it can be observed that while discussing Section 85(2)(a) of the principal Act i.e. Arbitration & Conciliation Act, 1996 and Section 26 of the Amendment Act, the Ld. Division Bench of Kolkata High Court proceeded on the premise that the words “in relation to” is missing in Section 26, which is ex facie incorrect. A bare perusal of the abovementioned provisions would reveal that the provisions are more or less similar, and the words “in relation to” are very much available in Section 26 as well. Therefore, the judgment may be questioned being based upon incorrect reading of above provisions.

The view taken by Kolkata High Court in the matter of Electrosteel Castings (supra) was followed by Madras High Court in the matter of New Tirupur Area Development Corporation Ltd. vs. M/s Hindustan Construction Co. Ltd5, whereby Madras High Court decided against the use of provisions contained in the Amended Act to court proceedings, for such arbitrations which commenced prior to amendments being notified.

Furthermore, the decisions of Bombay High Court in two connected matters of BCCI vs RSW, Kochi Cricket Private Ltd.6 and BCCI vs Global Asia Venture Co. & Arup Deb adds to the already existing confusion. BCCI contended in both the abovementioned matters that since the petitions challenging the awards under Section 34 of the Act were filed by it, prior to the promulgation of Arbitration Ordinance, the same would be governed by Section 36 of the unamended Arbitration Act, and therefore, the awards can be executed only after the petitions are refused by the Court. Any other interpretation would lead to causing grave prejudice to BCCI. However, the Bombay High Court, rejected the said contention. While holding that amendments brought to Section 36 of the Act has a prospective effect, the Court concluded that it is merely procedural in nature and is removing shadow over the rights of the award holder, which cannot be said to be prejudicial against rights of award-debtor as Section 34 is there in existence giving right to award-debtor to challenge the award, and the same is not being taken away. It was also stated that the amended Section 36 balances the rights of both parties as the aggrieved party can file an application seeking stay on enforcement of the arbitral award, pending which, the other party need not face the negative consequences of the mere filing of the application. Therefore, BCCI was directed to file an application seeking stay against enforcement of arbitral awards under challenge.

The Bombay High Court in the above judgments have given due consideration to Delhi High Court’s judgment in Ministry of Defence, Government of India v. Cenrex SP. Z.O.O. & Ors.7 but ultimately held differently. Delhi High Court while relying upon Section 6 of the General Clauses Act, came to a conclusion that an Act (or an Ordinance for that matter) cannot have retrospective operation unless so provided in the Act and any vested right in such Act/ provision cannot be deemed to be taken away by means of the amending or the repealing Act. It was further held that once the objections are filed under existing Section 34 of the Act, such vested right to have the award set aside on the basis of Section 34 existing on the date of filing of the petition cannot be taken away by holding that by the 2015 amendment Ordinance such a vested right has been impliedly taken away.

Consequent to Bombay High Court’s ruling in BCCI’s cases (Supra) on 22nd June 2016, BCCI has now challenged the said decisions before the Supreme Court of India contending that this issue requires “authoritative backing” by the Apex court. The appeals are presently pending consideration before the Apex Court and have garnered a great deal of importance.

CONCLUSION:

Currently, the question about whether the Amended Act is applicable to court proceedings arising out of arbitrations which commenced prior to the Amended Act coming into force remains ambiguous. It may be opined that, logically, if pending arbitrations are not governed by the new amendments then neither should related court proceedings, whether pending or fresh, however, at the same time, the language of the provision seems flawed. The various judgments which are at odds with one another across the spectrum of High Courts in the country have created great confusion over this important issue. While examining various judgments mentioned above, it is observed that lots of emphasis has been made on the words “in relation to arbitral proceedings”, however, somehow, courts did not appreciate the legality and intention expressed by the Apex Court in the matter of Thyssen Stahlunion v Steel Authority of India8, whereby while dealing with the similar issue of applicability of Arbitration & Conciliation Act, 1996 to the court proceedings arising out of arbitrations commenced under The Arbitration Act, 1940, it was held that if the words “in relation to” are read in conjunction with “the provisions” of the old Act, then the whole ambit of arbitration including enforcement of the award would come under the unamended Act and therefore, old Act will be applicable to all such proceedings despite the fact that award was passed after the amended Act was notified. Applying the same logic, provisions of unamended Act should be applied to all such court proceedings which relate to arbitrations, invoked prior to amendments being notified i.e. prior to 23.10.2016.

Having said so, it is necessary that the confusion is clarified/ settled by either the legislature or the Apex Court, otherwise, the ambiguity will continue to make parties suffer. The unclear nature of this issue requires urgent consideration to provide uniformity to the law and its effective application. The ambiguities relating to this particular question should be cleared up at the earliest to avoid a stockpiling of cases that are facing this hurdle and can potentially defeat the very objective with which the amendments were brought into effect.

Footnotes

1 Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act 1996’ (Report 246), 2014.

2 (2016) 2 Cal LT 277

3 AIR (2016) Cal 213

4Appeal No. 79 of 2016 in Arbitration Petition No. 1543 of 2015 decided on 25 April 2016

5 Application No. 7674 of 2015 in O.P. No. 931/2015

6 Execution application (L) no.2481 of 2015 decided on 22 June 2016

7 2016 (1) Arb LR 81

8 (1999) 9 SCC 334

The Seventh Schedule [Section 12 (5)] – Grounds for Removal of Arbitrators

Abhishek Kumar


21/06/2017  

Arbitrator’s relationship with the parties or counsel

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.

3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.

4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.

5. The arbitrator 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.

6. The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.

7. The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.

8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.

9. The arbitrator 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.

10. 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.

11. The arbitrator is a legal representative of an entity that is a party in the arbitration.

12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.

13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.

14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.

Relationship of the arbitrator to the dispute

15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.

16. The arbitrator has previous involvement in the case.

Arbitrator’s direct or indirect interest in the dispute

17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.

18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.

19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.

Explanation 1.—The term “close family member” refers to a spouse, sibling, child, parent or life partner.

Explanation 2.—The term “affiliate” encompasses all companies in one group of companies including the parent company.

Explanation 3.—For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.’.

The Fifth Schedule [Section 12 (1)(b)] – Grounds for Removal of Arbitrators

Abhishek Kumar


21/06/2017  

The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:

Arbitrator’s relationship with the parties or counsel

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.

3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.

4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.

5. The arbitrator 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.

6. The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.

7. The arbitrator’s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.

8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.

9. The arbitrator 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.

10. 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.

11.The arbitrator is a legal representative of an entity that is a party in the arbitration.

12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.

13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.

14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.

Relationship of the arbitrator to the dispute

15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.

16. The arbitrator has previous involvement in the case.

Arbitrator’s direct or indirect interest in the dispute

17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.

18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.

19. The arbitrator or a close family member of the arbitrator 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 service for one of the parties or other involvement in the case

20. The arbitrator 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 the arbitrator and the party or the affiliate of the party have no ongoing relationship.

21. The arbitrator has within the past three years served as counsel against one of the parties or an affiliate of one of the parties in an unrelated matter.

22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.

23. The arbitrator’s law firm has within the past three 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.

24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties.

Relationship between an arbitrator and another arbitrator or counsel

25. The arbitrator and another arbitrator are lawyers in the same law firm.

26. The arbitrator was within the past three years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same arbitration.

27. 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.

28. 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.

29. The arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm.

Relationship between arbitrator and party and others involved in the arbitration

30. The arbitrator’s law firm is currently acting adverse to one of the parties or an affiliate of one of the parties.

31. The arbitrator had been associated within the past three 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

32. The arbitrator holds shares, either directly or indirectly, which by reason of number or denomination constitute a material holding in one of the parties or an affiliate of one of the parties that is publicly listed.

33. The arbitrator holds a position in an arbitration institution with appointing authority over the dispute.

34. The arbitrator 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.

Explanation 1.—The term “close family member” refers to a spouse, sibling, child, parent or life partner.

Explanation 2.—The term “affiliate” encompasses all companies in one group of companies including the parent company.

Explanation 3.—For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialised pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above.

REMOVAL OF ARBITRATOR

Abhishek Kumar


21/06/2017  

Section 12(3) of the Arbitration and Conciliation (Amendment) Act, 2015 states the circumstances in which an arbitrator may be challenged. These include circumstances that give rise to justifiable doubts as to his independence or impartiality or he does not possess the qualifications agreed to by the parties.

However, a party who has appointed an arbitrator or participated in the appointment of an arbitrator is allowed to challenge such an arbitrator only for reasons of which he becomes aware after the appointment has been made.1

Fifth Schedule to the Act (Annexure-A) contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator. Seventh Schedule to the Act (Annexure-B) lists the grounds which make a person ineligible to be appointed as an arbitrator. Section 12(5) provides that if a person’s relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule, such a person shall be ineligible to be appointed as an arbitrator, irrespective of any prior agreement to the contrary. However, the parties may, subsequent to disputes having arisen between them, waive the applicability to this provision by an express agreement in writing.

Procedure for challenging an arbitrator:

Section 13 of the Act provides liberty to the parties to agree on a procedure for challenging an arbitrator. However, if the parties are unable to reach an agreement for the said purpose, a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware that 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, send a written statement of the reasons for the challenge to the arbitral tribunal. The arbitral tribunal is required to decide on the challenge, if the arbitrator does not withdraw from his office or the other party does not agree to the challenge. In case of failure of challenge, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. Where such an award is made, the party challenging the arbitrator may make an application for setting aside such an award in accordance with Section 34 of the Act and if the award is set aside on such an application, the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.

Termination of mandate of an arbitrator and substitution of arbitrator:

Further, Section 14 of the Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if-

  • He becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
  • He withdraws from his office or the parties agree to the termination of his mandate.

Section 15 provides additional circumstances under which the mandate of an arbitrator shall terminate. These include-

  • Where the arbitrator withdraws from office for any reason; or
  • By or pursuant to agreement of the parties.

It is further provided that where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed. The same rules shall be followed in appointing a substitute arbitrator which were applicable to the appointment of the arbitrator being replaced. Where an arbitrator is replaced, any hearing previously held may be repeated at the discretion of the arbitral tribunal, unless otherwise agreed by the parties. However, it is provided that an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid solely because there has been a change in the composition of the arbitral tribunal, unless otherwise agreed by the parties.

Footnote

1 Section 12(4) of the Arbitration and Conciliation(Amendment) Act, 2015