This article was written by Sumaiyya Anas. It covers the grounds for removal of an arbitrator under the Arbitration and Conciliation Act, 1996. The article provides a detailed insight as to who can be appointed as an arbitrator, the prescribed qualities and characteristics and disqualifications, as well as the composition of tribunals. It covers an in-depth analysis of the procedures prescribed for the appointment, challenge, removal, termination, and substitution of arbitrators with case laws and explanations. 

Introduction

The vast demographic of the people of India often results in the overcrowding of the legal system, especially the judiciary. In order to bypass this, alternate methods of dispute resolution are used, with arbitration being one of the most common. It is widely and well established, providing parties to dispute with an alternate route towards dispute resolution and justice. A key aspect of arbitration is the incorporation of the advantages of litigation, while removing the drawbacks. An advantage includes the parties contributing to the selection and appointment of the arbitrator or arbitrators, in accordance with The Arbitration and Conciliation Act, 1996. 

The Act provides extensive guidelines for various steps of the process of the appointment of an arbitrator in Section 10 and Section 11, including the conditions under which an entity can be appointed as an arbitrator, the conditions failing which the appointment of the arbitrator can be challenged, under Section 12 and Section 13. It also includes the procedure and grounds for the removal of an arbitrator and the termination of their mandate. Following this, the Arbitration and Conciliation Act provides for the prescribed procedure for the substitution of the removed arbitrators in Section 15. 

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Who is an arbitrator

The arbitration procedure is incomplete without a neutral party to oversee and resolve the dispute. Arbitrators are independent, just and impartial third party entities unrelated to the dispute at hand, appointed to pass an award that resolves the issue. Section 18 of the Arbitration and Conciliation Act states that the parties to the dispute must be treated with equality, and the arbitrators must provide them with full opportunities to present their sides.

Qualifications of an arbitrator

The Arbitration and Conciliation Act, 196, does not provide any qualifications or characteristics that an entity must satisfy in order to become an arbitrator. As stated in Section 11 Sub-section(1), it is the parties’ discretion to choose to appoint a person of any nationality to be the arbitrator to their dispute. Sub-section(2) of Section 11 provides the parties with the freedom to not only appoint the arbitrators of their choice, but to also determine the procedure to do so as well. This means that the ambit and scope for any entities or individuals to be arbitrators to a dispute is vast as long as the parties to dispute consent to the appointment, they are eligible. 

Composition of an Arbitral Tribunal

The conditions and regulation of the composition of arbitral tribunals are covered under Chapter III of the Act. 

Number of arbitrators

Section 10 of the Act – “Number of Arbitrators” grants freedom of choice to the parties as to the number of arbitrators, with the condition that it must be an odd number. If the parties are unable to agree on the number of arbitrators, there could be a sole arbitrator. 

Appointment of arbitrators

The procedure for the appointment of arbitrators is covered under Section 11 of the Act. In case that the parties are unable to choose the arbitrators in accordance with the arbitration agreement that has been signed between the parties, then the procedure prescribed is:

  1. Each party appoints one person as an arbitrator, 
  2. Then, the chosen arbitrators will appoint the final singular person, who will act as the presiding arbitrator.

In accordance with Section 11 Sub-Section (4) (a) of the Arbitration and Conciliation Act, the parties must attempt to appoint the arbitrators within thirty days of receiving the request to arbitrate from the opposite party. If the parties to the dispute fail to choose within the limit, an appointment must be made to either the High Court, the Supreme Court, or the arbitral institution assigned by the court, as per Section 11 Sub-Section (4) (b). These authorities must verify arbitrators’ expert qualifications, independence or affiliation, and impartiality before appointing them. Written disclosures are also taken from the arbitrators regarding the above-mentioned qualities. 

For cases of international arbitration, the Hon’ble Supreme Court or the person or entity authorised by them will appoint an arbitrator. This arbitrator must be of a different nationality than the parties to dispute to ensure absolute impartiality. 

The application for the appointment made under Section 11 Sub-Section (13) to the Supreme or High Court or arbitral institution must be disposed of within thirty days from the date of serving mentioned on the notice for the opposite party. 

Who cannot be an arbitrator

Certain persons are not eligible to be appointed as arbitrators in a dispute to achieve a successful arbitration procedure that is impartial and just. Section 12 Sub-Section (5) of the Act directs that unless there is a prior agreement, individuals who have a personal or professional connection in any capacity with the parties, counsel, or the dispute, cannot be arbitrators in the relevant proceedings. 

The Seventh Schedule of the Act provides the conditions that disqualify a person from being chosen as an arbitrator in a particular dispute, listed exhaustively:

  1. If there exists a relationship between the arbitrator and counsel or parties or other arbitrators:
    1. If the arbitrator has previously been or is presently an employee, consultant, or advisor or has any other professional relationship with either of the parties. 
    2. If the arbitrator is presently representing or advising either of the parties or their affiliate. 
    3. If the arbitrator is presently representing a lawyer or the firm that is acting as counsel for either of the parties. 
    4. If the arbitrator is employed as a lawyer in the same firm that is currently representing either of the parties. 
    5. If the arbitrator has a managerial, influential, or controlling professional position in an affiliate of either of the partners if said affiliate is involved in the dispute at hand. 
    6. If the law firm the arbitrator is employed with was previously involved in the dispute at hand, even if the arbitrator was not assisting or it was terminated. 
    7. If the arbitrator’s firm is presently involved in a significant business or financial relationship with either of the parties or their affiliates.
    8. If the arbitrator is in the habit of regularly providing advice to the appointing party or their affiliate, regardless of whether either entity gains a substantial financial profit from it.
    9. If the arbitrator has an immediate relative who possesses a substantial monetary interest in one of the parties or their affiliates.
    10. If either of the parties or the management of the parties is an immediate relative of the arbitrator.
    11. If either of the parties is being represented by the arbitrator.
    12. If the arbitrator holds a substantial monetary interest in either of the parties or the outcome of the proceedings. 
  1. Existence of a connection between the arbitrator and the dispute at hand:
    1. If the arbitrator has previously provided legal advice or expertise on the dispute at hand to either of the parties or their affiliates.
    2. If the arbitrator has had any previous involvement in the current dispute. 
  2. The Arbitrator’s interest in the dispute at hand:
    1. If the arbitrator owns any shares, be it direct or indirect, in either of the parties or their affiliates, held privately. 
    2. If an immediate relative of the arbitrator has a substantial monetary interest in the outcome of the proceedings.
    3. If the arbitrator or their immediate relative has a close connection with an unrelated third party who may be liable to recourse on behalf of the party receiving an unfavourable award. 

Removal of an arbitrator

Various circumstances may arise that may make one or more arbitrators to become unqualified to be an arbitrator. This might be due to them being either partial, biassed, unjust or as a result of their requisite unavailability. Removal of arbitrators can be broadly separated into two categories. 

Challenge against appointment of an arbitrator

When an individual is approached to be appointed as an arbitrator, they are obliged to disclose certain information. Section 12 of the Act regulates the grounds for challenge of appointment. It states that the person must, in writing, detail any circumstances or relationships, be it direct or indirect, that they have in the interest of the parties or the dispute at hand. Said interest could be past or present, and can be of a business, financial, professional, familial, or any other nature. There must be no situation that can create or develop doubt in the arbitrator’s impartiality and independence. The individual must also disclose whether they are capable of undertaking the procedure and devote sufficient time in order to optimally finish it within twelve months. 

This disclosure must be done without any delay. Section 12 Sub-Section (1) (b) directs that such disclosures must be made in the form that is provided under the Sixth Schedule of the Act. 

Termination of an arbitrator

When an arbitral award is set aside based on an application made under Section 13 Sub- Section (5), the court will decide on whether the challenged arbitrator in default is entitled to any fees. 

Apart from the challenge of the arbitrator, their mandate is liable to be terminated under certain circumstances, resulting in their “removal”. Section 14 and Section 15 of the Arbitration and Conciliation Act 1996 provide guidelines regarding this. 

Grounds for removal of an arbitrator

Various circumstances and issues make an arbitrator liable for removal by way of challenge or termination. This includes the arbitrators withdrawing from the proceedings, or the parties having a justifiable reason to doubt the arbitrator’s impartiality and independence over the case. 

Grounds for challenge

Once an arbitrator is appointed, it can be challenged under Sub-Section (3) of Section 12 of the Arbitration and Conciliation Act, on the condition that:

  1. There exists a situation that provides a justifiable reason to doubt the independence, lack of interest, and impartially that is necessary for a just resolution, or
  2. The arbitrator does not possess the expertise or qualifications desired and agreed to by the parties. 

The Fifth Schedule of the Act provides a detailed look into the grounds that are considered justifiable doubts regarding the impartiality and affiliation of the arbitrator:

  1. The Arbitrator’s relationship with either of the parties or the counsel involved. This includes but is not limited to:
    1. If the Arbitrator is a legal representative of either party to the arbitration proceedings or has a significant interest financially in the outcome of the dispute resolution. 
    2. Any past or present business relationship – employee, consultant, etc. 
    3. If the arbitrator presently represents either party or a connection of either parties including the lawyer or firm acting as counsel for one of the parties. 
    4. If the arbitrator is employed as a lawyer in the same firm representing or acting as counsel for either party or the firm was previously involved in the issue. 
    5. If the firm employing the arbitrator or a close family member of the arbitrator is currently involved financially with a significant stake in one of the parties or their affiliates.
    6. If the arbitrator has a managerial, influential, or controlling position in either of the parties involved.
    7. If the arbitrator has a managerial, influential, or controlling position in an affiliate firm of either party that is directly interested in the dispute at hand.
    8. If the appointing party or their affiliate regularly receives advice from the arbitrator and his/her firm does or does not gain a significant financial income from it. 
  2. The Arbitrator’s involvement or relationship to the Dispute at hand:
    1. If the arbitrator has been previously involved directly or indirectly in the case.
    2. If the arbitrator has either provided legal or expert opinion previously to either of the parties or their affiliates regarding the dispute at hand. 
  3. A direct or indirect interest in the dispute by the Arbitrator:
    1. If the arbitrator privately holds shares, either directly or indirectly in either of the parties or their affiliates.
    2. If the Arbitrator has an immediate relative who holds a substantial financial interest in the outcome of the process. 
    3. If either the arbitrator or an immediate relative holds a close relationship with a third unrelated party that is potentially liable to recourse on behalf of the party that gets an unfavourable decision in the dispute. 
  4. Arbitrator’s involvement in dispute by way of previous services or otherwise:
    1. If the arbitrator has acted as counsel or provided advice or consulted either of the parties or their affiliates within the last three years, even if there no longer exists a relationship.
    2. If either of the parties or their affiliates have previously appointed the arbitrator for other arbitration proceedings two or more times. This is applicable even if the arbitrator is presently serving in another related arbitration proceeding that involves either of the parties or their affiliates in the dispute. 
    3. If the firm employing the arbitrator has acted as counsel or on behalf of either of the parties or their affiliates without the involvement of the arbitrator, and in an unrelated matter. 
  5. The existence of a relationship or affiliation between arbitrators or with a counsel:
    1. If the arbitrators are employed in the same firm. 
    2. The arbitrator was affiliated with or a partner of another arbitrator or counsel within the last three years.
    3. If a lawyer employed in the same firm of the arbitrator is representing in another dispute in which the party or parties are the same or their affiliates. 
    4. If an immediate relative of the arbitrator is involved or employed in the law firm that is representing either of the parties, regardless of if they are not working on the dispute. 
    5. If the arbitrator has been appointed three or more times by the same company or counsel within the last three years. 
  6. If there exists a relationship between an arbitrator and either of the parties or any others involved in the procedure:
    1. If the firm that the arbitrator is employed at is currently representing against either of the parties or their affiliates in a different matter.
    2. If the arbitrator had been associated, in a professional capacity, with either of the parties or their affiliates in the past three years. 
  7. Other circumstances:
    1. If the arbitrator holds a material or substantial number of shares in either of the parties or their affiliates – if it is a publicly listed entity.
    2. If the arbitrator enjoys a position in any arbitral institution that holds appointing power in the dispute.
    3. If the arbitrator holds a controlling, managerial, or influential position such as director, or manager, or is part of the management, in an affiliate of either of the parties, even if said affiliate is not directly involved in the dispute at hand. 

The Schedule provides explanations for certain phrases for better clarification as well, similar to that detailed in the Seventh Schedule. 

However, the challenge can be only made if the above information becomes available to the parties after the appointment. If they were aware of the arbitrator being impartial or underqualified before the appointment and still chose to appoint them, then the appointment cannot be challenged. 

M&A

Grounds for termination

To remove an arbitrator from the proceedings, there are certain grounds that the arbitrator must satisfy.

Section 14 of the Act – outlines the consequences of the default of the arbitrator in the case that they fail to carry out their duties or find it impossible to do so. It states that the authority and mandate of the arbitrator will be terminated, and will be replaced with another arbitrator if:

  • They become unable to carry out their functions de jure, which means in accordance with the law or legally.
  • They become unable to carry out their functions de facto, which refers to something that exists in fact but is potentially illegal or unacceptable as per societal norms. 
  • The arbitrator withdraws from their position.
  • The parties to the dispute agree to terminate their mandate/authority. 

If a circumstance arises wherein the issues under Clause (a) of Sub-Section (1) remain unresolved, either of the parties may apply to the relevant Court to determine the termination of the arbitrator’s mandate unless the parties have agreed differently. Additionally, an arbitrator withdrawing from their mandate or being terminated does not automatically mean that the grounds mentioned in Sub-Section (3) of Section 12 are accepted.

Procedure of removal of an arbitrator

Section 13 and Section 14, which in addition to giving the parties to dispute a free reign regarding the procedure of the resolution, also provide extensive guidelines regarding the removal of the arbitrators. 

Procedure for challenge

Similar to most other aspects of Arbitration, the parties are allowed to agree upon a procedure for challenging the arbitrator. However, in the circumstance that the procedure agreed on fails, Section 13 of the Act provides guidelines for challenging the arbitrator. It is directed that the challenge must be made within a period of 15 days of receiving the knowledge of either the constitution of the tribunal, the appointment of the arbitrator, or the justifiable reasons for doubting their impartiality. This must be done through: 

  1. A written letter containing the reasons for the challenge must be sent to the arbitral tribunal,
  2. Followed by the arbitrator withdrawing, or the opposite party accepting the challenge.

If challenges, under either procedure, are not successful, then the appointed arbitrators must continue with the dispute resolution process and pass an arbitral award. After the award is passed, parties can make an application to the authorities to set it aside. 

Procedure for termination and substitution of an arbitrator’s authority in a case or proceeding

Section 15 of the Arbitration and Conciliation Act, 1996, talks both about the termination of the Arbitrator’s authority in a case/proceedings and addresses the aspect of substitution. It states that the authority and mandate of the arbitrator will be terminated when the arbitrator agrees to withdraw from their position, or the parties agree to drop them as an arbitrator. 

The termination of an arbitrator is followed by a substitute arbitrator being appointed to the proceedings. The appointment procedure will follow the rules that were previously established by the parties. The proceedings and hearings, at the discretion of the arbitral tribunal, will either continue where it was interrupted or will repeat from the beginning. However, if the parties to the dispute have agreed on the procedure regarding this, it will be followed. Additionally, the mere substitution of an arbitrator will not imply that any orders or rulings by the arbitral tribunal will be invalidated – this also will be agreed to by the parties. 

Case laws 

Antrix Corporation Ltd v. Devas Multimedia Pvt. Ltd 

The landmark case Antrix Corporation Ltd. v. Devas Multimedia Pvt. Ltd  (2018), decided by the Delhi High Court, is based on Section 11 Sub-Section (4) of the Arbitration and Conciliation Act, 1996. This case deals with the discussion on the jurisdiction and authority of CJI under Section 11 Sub-Section (6) of the Act. 

Facts 

In January 2005, Devas Multimedia Private Limited (Devas) entered into an agreement with Antrix Corporation Limited (Antrix), the commercial arm of the Indian Space Research Organisation (ISRO). It was regarding the lease of a space segment capacity on the spacecraft ISRO-Antrix S-Band by Devas. Devas invoked arbitration proceedings when Antrix terminated the agreement on the 25th of February, 2011. The petitioner company then sent a cheque of Rs. 58.37 Crore as a refund for the Upfront Capacity Reservation Fee that Devas paid; however, the Respondents returned the check, stating that the Agreement was still in place. 

The Petitioner, in response, nominated the senior management to discuss and resolve the issue between the parties in a mediation procedure. However, in contravention to the procedure agreed to, and without notice to the Petitioners, the Respondents submitted a request for Arbitration to the International Court of Arbitration (ICC) and nominated Mr V.V. Veedar as its arbitrator. The petitioner only became aware of the request when it was forwarded to them by the ICC. As the Respondents had made the request unilaterally, the Petitioners invoked Arbitration proceedings under the UNCITRAL Rules, and appointed Justice Sujata V. Manohar as its Arbitrator; it then called upon Devas to appoint their Arbitrator within thirty days of receiving the notice. 

While Devas did not respond to the notice, the ICC replied stating the request would be submitted for consideration. This application was then received by the Supreme Court. 

Issues 

Several issues were posed to the larger bench to which the case was referred:

  1. Whether the Court has the authority under Section 11 of the Act to declare a tribunal invalid, considering that the arbitrators have been appointed by an Institution that is acting as per the Arbitration agreement?
  2. Whether the jurisdiction of the arbitral tribunal can be questioned only before said tribunal or can be taken before the Court as under Section 11?
  3. Whether the Court has the jurisdiction to interfere with an arbitral tribunal that has already been appointed and appoint a new one.

Judgment

The Hon’ble Supreme Court stated that while the appointment of an Arbitrator can definitely be challenged by the pirates involved, it must only be done in the procedure prescribed by Sections 12-15 (Grounds for challenge, Challenge procedure, Failure or impossibility to act, of the Act, and Termination of mandate and substitution of arbitrator), and not Section 11. The Bench was very clear in holding that the CJI does not have the jurisdiction to replace an arbitrator who was already appointed in the exercise of the Arbitration agreement in question. 

Oyo Hotels & Homes Pvt. Ltd. v. Rajan Tewari & Anr

In the landmark case of Oyo Hotels & Homes Pvt. Ltd. v. Rajan Tewari & Anr (2021) which was heard before the High Court of Delhi, the bench dealt with the appointment and setting aside of an Arbitrator under Section 11 of the Act. 

Facts 

The petitioner, Oyo Hotels & Houses Pvt. Ltd. (Oyo), filed a case under Section 11 Sub- Section (6) of the Act in order for the Court to appoint a sole arbitrator to determine their claims in the proceedings. This was after the previously appointed arbitrator had no jurisdiction or authority to judge the matter between the parties. The issue was that there was a lease deed drawn up between the parties, and due to the COVID-19 Pandemic and the subsequent lockdown, the petitioner’s functioning was severely affected. Hence, he invoked the Force Majeure clause through an email to the respondent. 

The petitioners submitted that the respondent failed to complete and update a set of documents regarding their obligations in the agreement. They additionally demanded a sum of money by misrepresenting certain clauses of the Deed, initiated arbitration proceedings, nominated an arbitrator, and communicated the same with the Petitioner in July 2020. However, as the petitioner was logistically affected by the pandemic and resultant lockdown, he was unable to respond to the notice to confirm the recommended arbitrator. 

The issue arose when the respondents chose the arbitrator, without the approval of the petitioners, and instead of approaching the court. The petitioner became aware of the  appointment of the sole arbitrator when the notice for the primary hearing was sent to him. Following this, he objected to the proceedings and sought cancellation. Despite this, the sole arbitrator proceeded with the hearing as scheduled – where he raised his objections again, claiming that the appointment was both de facto and de jure. 

The respondents submitted that the petitioner seeking termination of the award granted under Section 11 of the Act was invalid as he did not prove his claims, as well as he attended all the hearings – claiming that this implied consent.  They additionally contended that Section 11(6) cannot be invoked without following the prescribed procedure in Sections 12 to 15 of the Act and that the petitioner did not serve prior notice. Hence, the respondents concluded that the petition itself was expedient. 

Issues 

The crux of the matter is regarding the appointment of an arbitrator – whether an arbitral proceeding and its subsequent award are valid if the other party has not consented. 

Judgment

The Delhi High Court, upon hearing the case, accepted the petitioner’s claims. They held that if there is no confirmation of the arbitrator from the opposite party, an application under Section 11 of the Act can be maintained. The petition was allowed by the court, and a sole arbitrator was consequently appointed by the Delhi High Court. 

Conclusion

Arbitration is an essential part of the justice system – it takes off a huge burden from the courts and the judiciary and allows them to hear cases of a more severe nature. However, it is important to ensure that the arbitrator appointed is capable enough to take on the role that is given to them – they must not only have certain qualifications and characteristics, but they must also be impartial, independent, and just. In the case that the arbitrator is unable to fulfil their obligations by either maintaining their independence or dedicating time and energy, they must be removed effectively. The regulations provided in the Arbitration and Conciliation Act, 1996 outline guidelines that ensure a fair process. The removal of arbitrators and the ability to do so is as essential an aspect of arbitration as the other steps – it allows for the parties in dispute to have more say in the resolution, as well as aids in making sure that the proceedings are as just as possible. While India has a long way to go before arbitration is recognised as a dispute resolution mechanism, there remains a guarantee that remedies are always available. 

Frequently Asked Questions (FAQs)

What are the different stages of arbitration?

Contrary to court proceedings, arbitral proceedings are typically flexible and decided on by the parties to the dispute. It can be broadly broken down into four rough steps:

  1. Either of the parties requests arbitration, followed by a notice to the opposing party.
  2. Arbitrators are appointed by both parties to decide on the dispute in question.
  3. Both parties are given opportunities to present their sides, evidence, and claims – either by themselves or through legal representatives. This can be either orally or through written submissions. 
  4. The arbitral tribunal hears both sides, considers the submissions and evidence, and decides on the dispute before passing an award. 

There can be how many arbitrators in the process of arbitration?

As stated in Section 10 of the Arbitration and Conciliation Act, 1996, the parties to dispute have the authority to choose any number of arbitrators, as long as the number remains an odd number.

Is the award in arbitration binding?

The finality and binding nature of arbitral awards is regulated under Sections 35 and 36 of the Act. Awards are as enforceable as court decrees and judgements – the parties are bound to do as the award directs. 

Can an award be appealed?

There are two ways in which an arbitral award can be challenged; either through an appeal or through a request to set aside the award. Section 34 of the Act provides for the application, process, and reasons for setting aside an arbitral award. Section 37 directs on the rare circumstances in which appeals will be allowed. 

What is the cost of arbitration?

There are various factors to consider and pay for in arbitral proceedings, including the arbitral institution, the arbitrators/tribunal, the lawyers or legal representatives, and other expenses. 

References

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