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

The Real Estate (Regulation And Development) Act, 2016 – A Game Changer?

Abhishek Kumar


21/06/2017  

What was the need for a new Act?

The Real Estate and Housing sector was, until very recently, in a state of flux. Essentially, in view of the lack of a specialised legislation taking care of the practices of the real estate sector in India, this industry was unregulated, till the introduction of Real Estate (Regulation & Development) Act, 2016. Coupled with this, private players tried to take advantage of this situation which only created more encumbrances for the hapless consumers. Resultantly, consumers were faced with unfair, discriminatory and lopsided contracts whereby they had little option but to sign on the dotted lines. Additionally, they were at the complete mercy of the private players who had an unreasonable amount of control in the relationship, whereby there was a conspicuous absence of competition in the market, giving the benefit of negotiation to the builders. Besides, there was often incomplete and inadequate information compounded by an ineffective mechanism to hold the private players accountable for engaging in such unreasonable and unfair practices

The New Act-: A reason to hope

The Act has been lauded because it is a much needed step towards regulating this industry. Perhaps, the biggest reason behind passing of this Act is to create an effective redressal mechanism to promote greater transparency and accountability in the real estate and housing sector. Some of the most important provisions laid down in the Act, which can truly prove to be a game changer are as follows:

  1. Establishment of “Real Estate Regulatory Authority” (RERA) for monitoring the real estate sector and adjudicating disputes relating to Real Estate Projects;
  2. Registration of Projects with RERA is mandatory before a real estate developer can sell any project/ flat/ housing unit;
  3. Details of the project alongwith necessary approvals have to be maintained on the website of RERA which will increase transparency;
  4. In cases of violation provisions have been made for fine as well as imprisonment;
  5. Any promoter shall not accept a sum more than ten per cent of the cost of the apartment, plot, or building as the case may be, as an advance payment from a buyer without first entering into a written agreement for sale with such person;
  6. It has been made obligatory for the promoters to deposit 70% of the money collected from buyers for a particular project in a separate account;
  7. Both promoter and buyer are liable to pay equal rate of interest in case of any default from either side;
  8. Carpet Area and Common Area have been defined separately;
  9. Where an Offence under this Act has been committed by a company, the Company along with officers responsible of the company;
  10. A fast track dispute resolution mechanism for settlement of real estate disputes through dedicated adjudicating officers and an Appellate Tribunal is also an integral aspect of the Act.

Thus, the Act aims to help the buyers feel protected by law adequately not just from sellers/builder but also brokers, whom it includes in its purview.

Not So Perfect After All?

The drafters believe that the Act is beneficial for all stakeholders and not merely the buyer as it will promote the completion of projects in a timely fashion and boost investors’ confidence in the project developers. However, it is also pertinent to mention that the Act is not without imperfections. The new Act, while laudable, has its share of loopholes that will need to be addressed eventually. Perhaps, the most concerning lacuna is that the Act only covers new projects and the projects where completion certificate is not issued on the date when the Act is notified but fails to include existing projects. The Act also doesn’t make any provision for selling flats/ apartments on carpet area basis, creating scope for manipulation. Lastly, since the Act does not make it mandatory to register projects which are smaller than 500 square meters or has less than 8 apartments a large number of small housing projects which also have great share in the market will remain excluded from the ambit of the Act in its present form.

Nevertheless, the creation of this Act is by itself an extremely encouraging step. The initiation of the Act with the sole objective of protecting the interests of the buyers and promoting transparency in the real estate and housing sector, which was previously plagued with manipulation and discriminatory practices, is in itself a game changer. While the Act is yet to be completely notified, it has already generated a positive response from the consumers. The challenge will now be to ensure effective implementation of this ambitious legislation.

(The author would like to thank Arushi Gupta, Associate of the firm for the valuable assistance in researching for this article.)

Annexure-B: 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.’.

Annexure-A: 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