Home Arbitration Arbitration and Conciliation Act Power, duties and functions of an arbitrator

Power, duties and functions of an arbitrator

May 31, 2024

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This article is written by Shalu Gothi and further updated by Shreeji Saraf. This article talks about the powers and functions of an arbitrator given under The Arbitration and Conciliation Act, 1996. This particular article deals in detail with the various responsibilities that an arbitrator possesses and the principles of law that the arbitrator is required to abide by. The article mentions certain case laws relating to power and duties of arbitrators.

Table of Contents

Introduction

The UNCITRAL Model Law, which had a significant contribution in the enactment of the Arbitration and Conciliation Act, 1996 in India, which was passed during the year 1985, by the United Nations Commission on International Trade Law (UNCITRAL). While giving effect to the Model Law, the United Nations General Assembly (UNGA) proposed or offered that all countries must give ample amount of recognition to the said Model Law with the intention of regularity or similarity of the law related to international commercial arbitration and conciliation. This is how Parliament passed the Arbitration and Conciliation Act, 1996, and it came into existence.

The mentioned Act consists of all the laws relating to domestic arbitration, international arbitration, and implementation of foreign awards in India. It further goes on defining conciliation and other matters related thereto. This Act has proved to be beneficial for both the consumers and businesses as it ensures cost-effective resolution to their disputes without any disproportionate delay. The intention behind implementing this Act is that it gives liberty to the parties to solve their dispute without any interference from the court, with the existence of an arbitrator appointed by themselves.

Who is an arbitrator

The role of an arbitrator is like that of a judge who acts as a neutral third party. The decisions made by the arbitrator in a dispute are considered obligatory and final. The arbitrator regulates a hearing, which is conducted in a formal way, and in this meeting, the parties produce evidence and arguments in relation to the dispute. In this case, the decision made by the arbitrator is considered as an award. The decision made by the arbitrator in regard with the dispute is enforceable in the court of law. The arbitrator acts according to the procedure that has been chosen by the parties to a dispute. In other words, an arbitrator is someone to whom the subject matter of the dispute is referred by the conflicting parties.

Appointment of the arbitrator (Section 10 and Section 11)

Section 10 of the Act goes on to state parties have the liberty to determine the number of arbitrators, but the number of arbitrators shall not be an even number. According to Section 11, the parties are at liberty to determine the procedure for appointment of an arbitrator or arbitrators in the arbitration agreement. But when no such procedure is determined or the parties fail to reach a consensus on the appointment procedure, then each party needs to appoint one arbitrator each, and then the appointed two arbitrators have to appoint the third one. If the parties are not able to appoint the arbitrator as per the mentioned procedure within 30 days from the date of request or the appointed arbitrators fail to agree on one person, then any party to the dispute may file an application to the Supreme Court or the High Court or any person or institution designated by such Court for appointment of an arbitrator on their behalf. In any case, if the parties are not able to agree on the method of nominating or designating one arbitrator or are not able to come on consensus on one person within 30 days from the receipt of an appeal made by another party, then the Chief justice shall designate one arbitrator at the demand of one of the parties. In any case where the assignment or arrangement method in relation to the appointment of arbitrator has already been fixed by the parties through the earlier contract and the parties fail to act as required, a party may appeal to the Chief Justice in the matter concerned. The decision taken by the Chief Justice will be considered as binding and final in that regard.

Qualification of arbitrators and requirements for filing a request for appointment of an arbitrator

One of the basic requirements that an arbitrator should possess is that he should be of sound mind, he must have accomplished the age of majority, i.e., he must be 18 years of age or above, and he should not be disqualified by any law in force. The arbitrator could be of any nationality. This is mentioned in Section 11 of the Act.

The parties have the right to regulate or decide the qualifications of the arbitrator according to their arbitration agreement. The arbitrators are required to have 10 years of experience in the field of the dispute. Impartiality, neutrality, and fairness are some of the additional qualifications that an arbitrator must have. He should not develop any profit making business or relationship with that of the parties that is likely to change the outcome of the proceedings or effect the same. The concerned arbitrator must not be a part of any legal proceedings. The arbitrator should not be convicted of any offence as mentioned by uu the law.

The parties have the right to consent upon the course of action adopted for the appointment of the arbitrator as stated under Section 11 of the Act. The same Section even mentions that if any of the parties fails to appoint an arbitrator as per the agreed procedure, then the Supreme Court or the High Court has the power to appoint the arbitrator either by filing an application in the concerned court or on request made by the parties.

Powers and function of arbitrator in an arbitration proceeding

The arbitrator is the one who will give the arbitral award, therefore, the Arbitration and Conciliation Act, 1996 provides several powers to him in order to determine the award.

Power to rule on the jurisdiction of the tribunal [S 16]

Section 16 of the Act deals with the jurisdiction of the arbitral tribunal. It states that the tribunal can rule on its own jurisdiction with reference to or validity of the arbitration agreement. It specifies the time frame when an application for the case of no jurisdiction can be filed and i.e., such application can either be filed at the initiation of the proceedings or when the arbitral tribunal has exercised the excess of jurisdiction. Whenever the party deems fit or correct can file an appeal or plea for the excess of jurisdiction. If the arbitral tribunal has adjudicated beyond what it can actually adjudicate, then it can be considered as excess of jurisdiction.

In the case of Gas Authority of India Ltd v. Keti Construction Ltd.((2007) 5 SCC 38) it was held that if any of the parties raises an appeal or plea on the ground that the arbitral tribunal had no jurisdiction in the concerned matter, it must be raised at the beginning of the proceedings to avoid the expense or setting aside if the arbitral award.

Power to make award

Section 29A of the Act provides that an arbitral tribunal shall pass an award within 12 months from the date of completion of the proceedings of the tribunal. The tribunal could be entitled to additional fees as agreed between the parties if the award has been passed within 6 months of the proceedings. If the parties mutually decide or agree upon, then the time period for passing the award could be increased to a period not exceeding more than 6 months.

Power of the arbitrators or tribunal to decide and the challenge to appointment of any arbitrator

Section 13 of the Act provides an opportunity to the parties to select a procedure on the basis of which the appointment of an arbitrator can be challenged. This Act provides for the settlement of the procedure through which the appointment of an arbitrator can be challenged by the way of agreement between the parties. If there is no agreement in this regard, then the party who is willing to dispute the appointment of the arbitrator has to inform the same to the arbitral tribunal within 15 days of the appointment of the arbitrator, and if the other party is also of the opinion to challenge the same, and after this, even if the arbitrator does not withdraw, the arbitral tribunal is the one who would decide the matter in this regard.

Power of an arbitrator to take interim measures

According to Section 17 of this Act, it provides a layout for various interim measures that can be granted by the arbitral tribunal to the parties. An appeal for the grant of interim measures can be made by any one of the parties at any stage throughout the pendency of suit. ANy part may file an application to arbitration tribunal to grant interim measures for following purposes-

The Appointment of a guardian for the protection of interest and rights of a minor or person of unsound mind and;
For the protection of:-

Interim custody and sale of goods which are subjected to the arbitration agreement;
Detain, preserve and inspect any property or thing which is subjected to arbitration;
Appointment of receiver;
Such other interim measures are necessary in the eyes of the Court.

Power to proceed to ex-parte

If any party fails to comply with the provision of this Act, the arbitrator has the capacity or ability to proceed to ex-parte i.e., in the favour of one party, in any arbitration proceeding. Section 25 of the Act, deals with the defaults on part of any party in regard with submitting the statement of claims or defences.

In any case where the claimant has failed on his part to communicate his statement of claim, then in that case the arbitral tribunal is entitled or permitted to terminate the proceedings. When the respondent is not able to pass on his statement of claim in accordance with Section 23(1) of the Act can proceed ex-parte. In a situation where the party fails at an oral hearing or also fails to put together the document, or turn out documentary evidence, the tribunal shall not conclude the proceeding.

In the case of Hemkunt Builders v. Punjab University ((1997) 1 Arb. LR 348 (Delhi)) the notice of appearance and pre-warning notices with regard to the ex-parte proceedings was served to the petitioner, but there was no interest or reply from the petitioner’s side on the same. The Delhi High Court mentioned that it has been inferred that the petitioner had no interest in the concerned matter, so ex-parte the arbitral award was sustainable.

Power to appoint an expert

Section 26 of the Act specifies that an expert could be appointed for expert evidence on the matters which have been referred before the arbitral tribunal. It empowers the tribunal to designate one or more experts for the matters which have been referred before the tribunal for resolution. The expert can even become a part of oral hearing only after he has submitted its written report and the participation of the expert could be made either on the request of the party or arbitral tribunal. The expert shall not make his report on the basis of the material facts which he is not aware of.

Duties of an arbitrator in an arbitration

In an arbitration, the arbitrator has some specific duties towards the parties of the dispute at the time of appointment. The general duties which the arbitrator is bound to fulfil in all kinds of arbitration are-

To determine time and place of arbitration

Section 20 of the Act comes up with the place of arbitration. It lays down a place where the arbitrator or arbitrators encounter and preside over with the proceedings. The place of arbitration has been left upon the discretion of parties to mutually agree upon and finalise. In such situations where the parties are not able to fix a place, the Act grants the arbitral tribunal with the power to determine the place of arbitration. While determining the place of arbitration, the ease of the parties should be given a thought to in order to avoid any hardship. The arbitrator can administer the meeting at any place which it deems fit for discussion among its members, for the motive of hearing witnesses or experts, inspection of documents, goods, and other property.

Duty to disclose

Section 12 imposes a duty on the arbitrator to reveal all the relevant facts which are essential to be in the knowledge of both the parties at the time of his first encounter with them. The essential knowledge which needs to be disclosed by the arbitrator when approached for appointment and such disclosure must be made in writing and they are as follows:

Any circumstances which might be past or present showing any direct or indirect relationship or interest with any of the parties
Or with regard to the subject matter of the dispute; any of these which could be considered as a ground for impartiality, likely to affect the subject matter of the proceedings.

In the case of Steel Authority of India v. British Marine (2016), the Court laid down that all such facts which are likely to affect impartiality or which might create the appearance of partiality or bias must have to be disclosed by the arbitrator.

Duty to determine the rule of procedure

As specified by Section 19 of the Act, the arbitral proceedings are not compulsory or obligatory to be bound by Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. This Section provides that it is parties’ liberty to agree or select a procedure or method that may be adhered to by the arbitration tribunal. It is always conditional upon the mutual consent of the parties, but if in any case or situation the parties are not able to determine the method of arbitration proceedings, then in that particular case the arbitrators are authorized to make a decision for the procedure of arbitral proceedings.

Duty to act independently and in an impartial manner

Section 12 and Section 18 of the Act have laid down certain duties that an arbitrator is bound to follow, which require him to act in an impartial way and independently during the time of arbitration proceedings. Acting independently means that the arbitrator shouldn’t have any relationship whether direct or indirect, past or present, with the parties concerned or any act or circumstances that display an interest in the parties or in the subject matter of the dispute that would cause or bring about a change in the outcome or decision of the arbitration proceedings. Being impartial clearly states or mentions that the arbitrator must be impartial and honest in performing the functions assigned to him as an arbitrator. The concerned parties of the arbitration must be given an equal opportunity of being heard, presenting their case, and making interim applications in relation to the case without favouring any particular side. As per the Section 12 and Section 18, the principles of natural justice are brought into play in this regard. Also, in regard to Section 12, the arbitrator is duty-bound to disclose any material information to the concerned parties that parties are required to be aware of at the time of the arbitration proceeding.

To interpret or correct the award

As stated in Section 33 of this Act, it lays down the procedure for rectification and clarification of an arbitral award. The Act confers three important functions on the arbitral tribunal. A party with notice to another party may apply for correction of mistakes to the arbitration tribunal. The mistakes could be either clerical or typographical or other mistake and error of the similar kind. A party with a notice to another party may request the arbitral tribunal for the interpretation of any specific point of the award. The Act even mentions that if on a valid or legitimate ground if an appeal is made to the arbitral tribunal, it can rectify the omission or fault or provide a clarification of the award within 30 days from the date of receipt of the request. The Act authorises the arbitral tribunal to amend its own resolution and rather remove faults or mistakes in the award within the time period of 30 days from the date of passing the award.

Functions of an arbitrator

The parties at the time of nominating an arbitrator may lay down certain duties or tasks on the arbitrator. The following mentioned below are things or acts for which the arbitrator could be held accountable for:

Duty to effectively resolve the dispute

The arbitrator is bound to make such judgements and decisions with respect to the dispute without being involved or doing any arbitrariness. Although there is no particular direction or instruction stated for effectively resolving the dispute, its scope depends on or varies from case to case. There should be a proper and effective decision-making process that the arbitrator should be required to follow and abide by the same. The following actions, if executed by the arbitrator, are considered as improper behaviour on the part of the arbitrator, and they are as stated:-

Passing of awards that are against or violate the laws enforced at that particular period.
Failure to act in accordance with terms that are expressly or impliedly given;

Granting awards that is against public policy;
The arbitrator is being bribed by the parties to the dispute;
The arbitrator fails to abide by the principles of natural justice

Selecting date, time, and place of arbitration

According to Section 20 and Section of 21 of the Arbitration & Conciliation Act, 1996, the parties to the arbitration are free and are allowed to choose a place and date of arbitration, respectively, which shall be decided with the mutual consent of the parties. If, in any case, they are not able to select a location for the arbitration, then it is the duty of the arbitrator to choose a place for arbitration. While the arbitrator is selecting the location of arbitration, they need to take into account or consider the convenience of the parties.

Unless the parties have agreed or mutually consented to a particular or specific place, the arbitrator can take into consideration other places for the purpose of inspection of documents, goods, or properties or for hearing the witnesses.

To determine the method that needs to be followed

As per Section 19 of the Act, the arbitral proceedings are not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. This provision of the act gives the parties a liberty to decide which method or procedure they want to follow. It can be considered as one of the most liberal provisions that has been mentioned, and it provides the parties with the freedom to select the procedure that needs to be followed during the arbitration proceeding. The procedure or method that the parties are selecting or choosing should be done with mutual consent between them, and it should be in accordance with the agreement of the parties. In a situation where the parties are not able to decide or determine a procedure that should be followed, the arbitrator is free to conduct the proceedings in a manner that he thinks is appropriate and that he deems fit and proper. The concerned arbitral tribunal, or arbitrator, has been vested with a power through which he can determine the admissibility, materiality, and weight of any evidence produced before it.

Principles to be followed by an arbitrator

Complying with principles of natural justice

Arbitral proceedings are based on the principles of natural justice, which provide such proceedings legality and supremacy as an impartial, fair, and just mechanism for dispute resolution. Starting from the appointment of an arbitrator for arbitral proceedings to dealing with parties in an impartial way, principles of natural justice play a significant role in every step.

The principle of natural justice originated from the word ‘Jus Natural’ in Roman law. In simple terms, the principle of natural justice equates that on a particular issue, such decision-making procedure is followed that is sensible and reasoned. It simply mentions that justice should be fair, just, equal, and impartial and protect the rights of the citizens against irregularity, arbitrariness, and injustice.

The principle of natural justice includes two rules, namely:

Nemo Judex In Causa Sua

The above-mentioned principle is also termed as “Rule against Bias”. The authority making the decision must be a person who is impartial, does not have any interest in the subject matter of the case and makes the decision by following the principles of fairness and transparency. There are several circumstances where the arbitrator or judge can decide the matter on the basis of bias if that person has some sort of financial gain or personal bias (when the concerned authority is hearing a case in which that person’s relative is involved) or when the concerned authority has developed a bias because of the influence of an authoritative person. If any such decision is passed on the basis of bias, that decision can be declared null and void.

Section 12(1) of the Act mentions a part which relates to that of biasness and it further states that a duty on the arbitrator to reveal all the relevant facts which are essential to be in the knowledge of both the parties at the time of his first encounter with them. The essential knowledge which needs to be disclosed by the arbitrator when approached for appointment and such disclosure must be made in writing and they are as follows:

Any circumstances which might be past or present showing any direct or indirect relationship or interest with any of the parties
Or with regard to the subject matter of the dispute; any of these which could be considered as a ground for impartiality, likely to affect the subject matter of the proceedings.

Audi Alteram Partem

This rule means that the other party should be heard. Both sides of the proceedings should be given a fair chance of hearing without being unfair, and then after that, a decision or judgement should be pronounced.

The arbitrator should comply with the principles of natural justice at each and every step of the arbitral proceedings. Even while passing an arbitral award, he must abide by the said principles. The passed award should not violate the laws that are enforced at that particular time, it should be done after a fair hearing, and they should remain neutral. The arbitrator is even bound to maintain the confidentiality of the proceedings.

In Thademal v. Menghraj (AIR 1930 SIND. 190), the court held that if a party fails to appear for the proceedings despite having the knowledge or, in the case of verbal notice of the proceedings, that party does not have the right to challenge the validity of an arbitral award on the ground of absence of written notice. And such grounds do not necessarily terminate or cancel the proceedings.

Reasoned decision

The requirement of expressing the reasons serves as the following grounds:

It makes certain that the authority will apply its mind objectively in the case, considering all the relevant facts and ensuring that all the irrelevant facts have been left behind.
The aggrieved party feels satisfied that the authority before making a decision has considered and examined their views points before reaching any conclusion.
This principle helps in reducing arbitrary action.

Case laws

M. Mariyam U.I. Asia v. T.N. Muslim Women Education & Welfare Association

In the case of M. Mariyam U.I. Asia v. T.N. Muslim Women Education & Welfare Association (2011 (2) W 858 (MAD.)) the Madras High Court was of the view that once the appointed arbitrator had refused not to act or proceed, his mandate stood cancelled. In this case, the first opportunity would be given to the petitioner to appoint another arbitrator that would take the place of the outgoing arbitrator, and if there is a failure of appointment by the petitioner, then the arbitrator shall be appointed by the Indian Council of Arbitration.

Sankar and Sankar v. State of West Bengal

In the case of Sankar and Sankar v. State of West Bengal (AIR 1992 CAL 365), the court observed that if a person has been given the opportunity to appoint an arbitrator under the Arbitration Clause, and he has not appointed nor given any reference and there is no information in this regard for more than 1 year, it would be considered a case of failure for the appointment of an arbitrator on the part of the concerned person. Then, in that case, the court will appoint the arbitrator.

Anuptech Equipment Pvt. Ltd v. Ganpati Co-Operative Housing Society Ltd

In the case of Anuptech Equipment Pvt. Ltd v. Ganpati Co-Operative Housing Society Ltd (1999) the court observed that when an arbitrator has been appointed, and he does not meet the requirements or possess the qualifications that have been agreed upon by the parties at the time of the arbitration agreement, his appointment would be treated as void ab initio. In fact, any order passed by him would stand as cancelled.

In the case of Kesholal Ram Dayal v. Laxman Rao Ram Krishna, (AIR 1940 NAG. 386) the court is of the view that the arbitrator is not bound by any rules or procedures, but this does not give the arbitrator to follow the procedure that is opposed to the principle of natural justice.

Conclusion

The general powers and duties are important for an arbitrator to conduct fair arbitration proceedings, the arbitrator must also ensure that the duties mentioned under the agreement are complied with. These duties vary from case to case so for every particular case it is very impactful in every case. The arbitrator is a person who acts as a neutral party in the arbitration proceedings. The main objective behind arbitration is to act as a medium that provides cost-effective and speedy dispute resolution. The award passed by an arbitrator holds the same value as the decree passed by any court. To avoid intervention from the court, all the arbitrators must take into consideration the principles of natural justice, which are the very basis of any proceedings.

Frequently Asked Questions (FAQs)

Can an arbitrator proceed ex-parte?

Section 25 of the concerned act states that the arbitrator can proceed ex-parte, but before taking any such action, the arbitrator needs to inform the concerned parties about it.

Can parties go to court after receiving an award?

When the award has been passed, the winning party can approach the court to confirm the award if the other party does not want the award.

Is arbitration final or binding?

When the parties have agreed to abide by the decision of the arbitrator in that case it is final and binding, but in other cases, when neither of the parties has agreed to it, it is not final.

Can arbitration proceedings be challenged in the court of law?

Under Section 34 of the Act, an application has to be filed to challenge the arbitral award.

Is arbitration better than court?

Arbitration proceedings are faster as compared to court cases. The arbitration proceedings even provide confidentiality for the parties. The arbitration process is less expensive.

How many types of arbitration are there?

In India, three types of arbitration proceedings are practised: ad-hoc arbitration, fast-track arbitration, and institutional arbitration.

References

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