In this blog post, Sanjay Khan Chowdhury, who is pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the conflict that may arise while appointing an arbitrator.
Arbitration is an alternate method of settlement of dispute and is faster compared to the traditional litigation process. The method involved in settlement of dispute is like conciliation, mediation, negotiation etc. Still, arbitration is the most used form of alternate dispute resolution. The Arbitration and Conciliation Act was enacted in 1996 after amending the old Arbitration Act 0f 1940.The arbitration is enforced only after a clause in agreement is stated to settle their dispute through arbitration, in ‘Shyam Sundar Agarwal V. P. Narotham Rao’ – (2011) CLA 105 (Snr.) AP 2. The Arbitration and Conciliation Act has many stages through which they are followed.
Provision for Appointment of Arbitrator:
The parties to agreement are free to determine the number of arbitrators. Section 10(1) provides that parties are free to determine the number of arbitrators provided that they are equal in both sides of the party. If there is an absence of such an agreement, then there would be only one (sole) arbitrator.
Section 11 deals with the appointment of arbitrators.
- A person of any nationality may be an arbitrator, unless otherwise agreed by the parties – Sec. 11(1);
- The parties are free to agree on a procedure for appointing the arbitrator or arbitrators – Sec. 11(2);
- If there is no agreement, in an arbitration with three arbitrators, each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator who shall act as the Presiding Arbitrator – Sec. 11(3);
- In the above case if a party fails to appoint an arbitrator within thirty days from the receipt of request to do so from the other party or the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made upon request of a party, by the Chief Justice or any person or institution designated by him – Sec. 11(4);
- In an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice/his designate – Sec. 11(5);
- Under an appointment procedure agreed upon by the parties-
- A party fails to act as required under the procedure; or
- The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under the procedure; or
- A person, including an institution, fails to perform any function entrusted to him or it under that procedure
A party may request the Chief Justice or his designate to take necessary measures unless the agreement or the appointment procedure provides other means for securing the appointment – Sec. 11(6);
- The decision of the Chief Justice/his designate in appointing an arbitrator is final-Sec. 11(7);
- The Chief Justice/his designate while appointing an arbitrator shall take regard to-
- Any qualifications required of the arbitrator by the agreement of the parties; and
- Other considerations as are likely to secure the appointment of an independent and impartial arbitrator- Sec. 11(8);
- In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice/his designate may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities – Sec.11(9);
Section 12 deals with the ground for challenge of the appointment of an arbitrator. This section provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall decide in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. An arbitrator may be challenged only if:
- 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.
A party may challenge an arbitrator appointed by him, or in whose appointment he has participated only for reasons of which he becomes aware after the appointment has been made.
Section 15 deals with the substitution of arbitrator. It provides that where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
‘Bharat Rasiklal Ashra V. Gautam Rasiklal Ashra and another’ – 2014 (5) TMI 372. The honorable supreme court held that it’s a well-established principle that the arbitrator can be appointed under Section 11 only if there is agreement to the contract in question.
‘Jagdish Chander V. Ramesh Chander’ – 2007 (4) TMI 624. It was held that the existence of an arbitration agreement as defined under Section 7 of the Act is a condition precedent for exercise of power to appoint an arbitrator/arbitral tribunal under Section 11 of the Act by the Chief Justice or his designate. It is not possible to appoint arbitrator to settle the disputes between the parties in the absence of an arbitral agreement or mutual consent.
‘Gujarat Security Services V. DSC Limited’ – 2009 (9) TMI 908. It was held that the prayer of the petitioner for appointment of sole independent arbitrator, different from the one given in the arbitration clause, is not tenable and cannot be granted since once the parties have agreed upon a named arbitrator they are bound by the arbitration clause.
Number of arbitrators
Where the arbitration clause in the agreement between the parties is silent as to the number of arbitrators, Section 10 (5) would apply where the arbitral tribunal is to consist of a sole arbitrator in default of the determination of number as held by the Supreme Court in ‘Sime Darby Engineering SDN.BHD V. Engineers India Limited’ – 2009 (7) TMI 1199. The plea as to the appointment of panel of three arbitrators raised on the basis of use of the expression ‘arbitrator(s)’ in the arbitration clause of the arbitration agreement is not tenable.
Sole arbitrator in international commercial arbitration
In ‘Omnia Technologies (P) Limited V. W.M.A. Van Loosreek’ – 2011 (3) TMI 1511, it was held that where the parties to an original international commercial agreement containing arbitration clause have finally agreed to the appointment of sole arbitrator by the Chief Justice of India or his designate to adjudicate all disputes between them under the original agreement as well as termination agreement including the dispute as to the existence of arbitral dispute, the designate Judge will have no reason not to make appointment of sole arbitrator to adjudicate the disputes between the parties.
The procedure prescribed under Section 11 for approaching the court for appointment of arbitrator being mandatory, the question of party preferring an application under Section 11 (4) or Section 11(6) to the Chief Justice or his designate does not arise unless the procedure of giving notice is followed and without such procedure being followed there would be no cause of action for the petition. Thus, the limitation for filing an application under Section 11(4) would commence running only from the expiry of 30 days from the receipt of request mentioned in clause (a) or (b) thereof and limitation for an application under Section 11(6) would commence running from the happening of the contingencies mentioned in clause (a) or (b) or (c) thereof.
In ‘Rajesh Kumar Garg V. MCD’ – 2008 (3) TMI 655, it was held that where in terms of contract the final bill was required to be submitted within three months of completion of work, seeking the appointment of arbitrator for reference of alleged disputes after expiry of 6 to 8 years from the date of accrual of cause of action would be stale and barred by limitation.
Eligibility of arbitrator
In ‘Northern Railway Administration V. Patel Engineering Co. Limited’ 2008 (8) TMI 801, it was held that where the High Court has not kept in view the twin requirement of Section 11(8) while making the appointment of arbitrator(s), the appointment becomes vulnerable.
Bias of the arbitrator
Either of the parties to the agreement may challenge the appointment of arbitrator on the ground of bias on the part of the arbitrator. At the initial stage, a party cannot agitate on the biased nature of the arbitrator.
In ‘National Highways Authority of India V. K.K. Sarin and others’ – (2009) 26 CLA-BL Supp (Snr.) 17 (Delhi) it was held that a party alleging bias is required to first follow the procedure as laid down in Section 12 and 13. If the party is unsuccessful, he has a choice of either waiting till the stage of Section 34 or if he feels bias can be summarily established or shown, should approach the court immediately under Section 14 after the challenge being unsuccessful, for court to render a decision.
Thus, there are many conflicts in appointing Arbitrator by parties but such disputes depend upon each facts and circumstances of the case.