What to do if Arbitration is not Working Properly

September 19, 2019

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This article is written by Nancy Patel, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.com. Here she discusses “What to do if Arbitration is not Working Properly”.

Arbitration is only as good as the arbitrators[1]

An effective arbitration process revolves around the chosen Arbitrator. An Arbitrator must be independent, neutral and impartial. Arbitration is a quasi-judicial process; it has to adhere to the laws of the State, chosen institution and principles of natural justice. The UNICITRAL Model Law, Arbitration and Conciliation Act, 1996 amended in 2015 (The Amendment Act)[2] ensure that the entire Arbitral exercise is based on fair play and equity. 

Ensuring Arbitrator’s Independence and Impartiality

The Indian Arbitration and Conciliation Act is modelled on the UNCITRAL Model Laws. The Arbitration and Conciliation (Amendment) Act, 2015 provides the following steps for securing unbiased and impartial Arbitrator which is discussed as under: 

A. Section 11: Normally, Arbitrator is to declare any conflict of interest that would suggest the existence of bias under section 11 of the Act

B. Section 12: Disclosure Statement

An Arbitrator must give disclose the fact if he has any relationship whether past or present, direct or indirect either with the parties or the subject matter in dispute. The VI Schedule annexed to the Arbitration and Conciliation Act, 2015 amendment provides a prescribed form for such disclosure.

C. Section 13: Mode of challenging an Arbitrator  

A challenge can be made by submitting a statement which shows reasons why the party is challenging an Arbitrator within 15 days of the constitution of Arbitral Tribunal. 

D. Section 14: An Arbitrator who becomes de jure or de facto unable to perform his duties can be terminated by the court. 

E. Fifth and Seventh Schedule:  These schedules are based on the international recognized list under International Bar Association that is Green list, Orange List and Red list. The Fifth schedule enumerates the circumstance which could raise doubt about the independence and impartiality of arbitrator due to his relation with the disputant parties, his interest in the dispute, his relation with other arbitrator if there is a panel of three arbitrators and seventh schedule and 7th Schedule contains those grounds which make the Arbitrator ipso facto ineligible to act as an arbitrator, irrespective of agreement between the parties.[3]

Judicial Trend on Conflict of Interest of the Arbitrator

A number of cases are analysed to bring out the contours of section 11, 12,13,14 of the Amended Act read with the schedules annexed to Arbitration and Conciliation Act, 1996 amended in 2015 to understand the legislative mandate on the independence and impartiality of an Arbitrator.

In HRD Corporation Limited,[4] the Supreme Court propounded that if the arbitrator has passed an Award in earlier arbitration between the same parties about the same dispute that does not mean it is justifiable grounds for challenging impartiality as per the fifth schedule,  

The Delhi High Court in D.K. Gupta[5] allowed the unilateral appointment of an arbitrator by one of the parties’ representatives, who was the contractually agreed appointing authority (and not the mandated arbitrator himself). The decision of the Delhi High Court brings to light an unresolved issue which the Amendment Act failed to address, i.e. unilateral appointment of tribunals by one of the parties to the dispute.  

Voestalpine Schienen GMBH v Delhi Metro Rail Corporation Ltd.,[6] the Hon’ble Supreme Court held that amended Act does not bar the appointment of retired officers of any government department, public sector undertaking, and statutory corporation as arbitrators. They must not be related to the government body or disputant part. It should include people from a legal background. 

Reliance Infrastructure Limited Vs. Haryana Power Generation Corporation[7] the Punjab and Haryana High Court held a former employee or consultant or advisor is not included in the Entry 1. Hence, they are not de jure ineligible to be appointed as an arbitrator.

Afcons Infrastructure Limited V. Ircon International Limited,[8] the  Delhi High Court removed the existing panel of retired railway officer and appointed an arbitral panel which was broad-based to work as Railway Arbitrator. Merely appointing ex-employee as an arbitration does not fall within the purview of section 12(5) read with 7th schedule, it gives rise to apprehension in the minds of parties that he may be biased. 

In TRF Ltd. v. Energo Engineering Projects Ltd,[9] the Supreme Court held that nomination by ineligible arbitration is not allowed as it would amount to arbitrating by a proxy. 

In Aravalli Power Company Ltd. v. Era Infra Engineering Ltd.,[10] the Supreme Court held that the employee named as an arbitrator in the arbitration clause should be given effect to if there is no apprehension about his independence and impartiality.

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In Bharat Broadband Network Limited,[11] the Supreme Court has interpreted section 12 and other provisions of the amended Arbitration Act along with three landmark judgments. The ratio can be summarised as under:

  1. An arbitrator should give honest disclosure as per the sixth schedule.
  2. If there are circumstances that raise a justifiable doubt then it can be ground to challenge his/her appointment. The first opportunity is given to the Arbitral Tribunal to adjudicate the challenge and if there is no substance in the challenge, the tribunal will continue with the proceeding and pass Award.  
  3. Section 34 can be used to set aside Award if one of the party does not have faith in the Arbitrator or they had unsuccessfully challenged the appointment of Arbitrator. However there is an exception, the parties to the Arbitration can waive such provision by entering into an express agreement in writing.

Lacuna in the Amendment Act   

Section 13(3) is the dignified way of showing the Arbitrator the door, but if Arbitrator refuses to withdraw and chooses to adjudicate the challenge to Arbitral mandate it will amount to a judge sitting in his own judgment which is against the basic tenets of the law. If an Arbitrator has an ulterior motive, he/she may not adjudge the challenge fairly and continue to be Arbitrate till the end of the proceedings. In such a scenario, the aggrieved party will have to continue to wait for the entire duration of the arbitral process.  The resultant effect will be loss of valuable time because now the aggrieved party has already made up mind to file for setting aside of Award pass by the Arbitrator. By allowing such an Arbitrator to continue with the proceeding, the provision is actually empowering him to continue with the Arbitral proceedings.

Under the UNCITRAL Model Laws, there is an in-built safeguard in the form of Article 6 in case of unfair proceeding as it provides that biased arbitrator can be challenged before the competent Court or the authority. The Indian Arbitration and Conciliation Act 1996, amended in 2015 and now Amendment in 2019 does not provide inbuilt safeguards. The latest amendment does provide provision regarding qualification and bias so as to ensure that the faith in the Arbitration process continues in India. If this aspect regarding the impartiality, neutrality and independence is adequately addressed, it will make India an Arbitral hub which was the very intention of the legislature. 

 The old Arbitration Act, 1940 had an inbuilt safeguard as the aggrieved party could approach the court in India and remove an arbitrator suffering from probable bias at the earliest. 


The latest 2019 amendment to the Indian Arbitration and Conciliation Act has laid down the general norms applicable for the appointment of Arbitration such as impartiality, neutrality, absence of financial relations that might affect the impartiality or create an appearance of bias among the parties. Moreover, the Arbitrator must be conversant with the constitution of India, natural justice, equity, justice, commercial law, international legal system, and international best practice and pass a speaking award to create transparency in the proceedings and ensure impartiality, neutrality and independence of Arbitrator, thus reinforcing the reliability of Arbitration process in India. 


  1. Lalive, ‘Mélanges en l’honneur de Nicolas Valticos’ in Droit et Justice (1989), 289
  2. The Indian Arbitration & Conciliation Act is the only arbitration statute in the world to have adopted the lists contained in the IBA Guidelines on Conflicts of Interest in International Arbitration. It contains a recommendation of the report of the 246th Law Commission of India. 
  3. The list contains a situation which violates principles of natural justice. In such cases, neither disclosure nor previous agreement between the parties will sufficiently cure such circumstance and no party will be given autonomy in case of violation of principles of natural justice. 
  4. CIVIL APPEAL NO. 11126 OF 2017 https://indiankanoon.org/doc/64807864/
  5. D.K. Gupta & Anr. v. Renu Munjal, 2017 SCC OnLine Del 12385
  6. 2017 SCC OnLine SC 172
  7. Arbitration Case No. 166 of 2016 (O&M), decided on 27 October 2016 (High Court of Punjab and Haryana)
  8. ARB.P. 21/2017, decided on May 29, 2017 (High Court of Delhi)] accessed from https://indiankanoon.org/doc/121425092/ on 5th September 2019
  9. 2017 (8) SCC 377
  10. Civil Appeal No. 12627-12628 OF 2017 (SPECIAL LEAVE PETITION (CIVIL) NOS.25206-25207 OF 2016)
  11. Civil Appeal No.3972 of 2019 and https://barandbench.com/bbnl-judgment-on-the-impartiality-and-independence-of-arbitrators/ accessed on 4th September 2019

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