This article is written by Aanya Kameshwar, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho. This article has been edited by Aatima Bhatia (Associate, Lawsikho) and Smriti Katiyar (Associate, Lawsikho).
One of the important reasons why parties involved in a dispute decide to opt for arbitration as an alternative dispute resolution is that they are given the opportunity to select their own decision-maker. The fact that parties get to nominate their own arbitrator is one of the most distinctive characteristics of the arbitral process. As the parties to a dispute are allowed to choose their own decision-maker, they try to nominate the person who would best support their position in the disputed matter. In layman’s terms, an arbitrator is someone who, being neutral to the matter between the parties, provides an objective, unbiased and wise solution to the dispute in the proceedings of arbitration.
In the midst of the parties opting more for arbitrations, the issue of repetitive appointments of arbitrators is gaining more and more significance. The fact that the neutrality of an arbitrator is directly compromised when he is appointed by the same party on several occasions, makes this situation a sensitive matter. Item 22 of the fifth schedule of the 1996 Act deals with ‘repetitive appointment of arbitrators’ as a ground to challenge the appointment. The said item no. is reproduced hereunder: –
“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.”
A person entrusted with a duty to judge a matter must be impartial & independent. The fifth schedule of the Arbitration and Conciliation Act, 1996 (“1996 Act”) lays down various grounds giving rise to justifiable doubts as to the independence and impartiality of the nominated arbitrator(s) and the seventh schedule of the 1996 Act lays down the grounds which immediately renders a person ineligible to act as an arbitrator. The intention of this article is to offer a brief description of one of the important grounds to challenge the appointment of the arbitrator i.e. ‘repetitive appointment of arbitrators’ and to analyse the findings of the Court in the case HRD Corporation (Marcus Oil and Chemical Division) v. Gail (India) Limited (“HRD Corporation”) and how its interpretation of the Schedules and the challenge procedure can affect the arbitration in India.
Can arbitrators be reappointed?
The issue of ‘repeat arbitrators’ is the situation where an arbitrator has been previously appointed on several occasions by the same party.
For example, if Mr. A has been nominated or is proposed to be nominated by party X as an arbitrator in March 2021 (third arbitration) and it was found from the declaration made by the nominated arbitrator under Section 12 of the Act, that he had also been appointed by the said party A in July 2019 (second arbitration) and in 2017 (first arbitration), then while determining the nominated arbitrator’s independence and impartiality in the third arbitration, would the appointment of Mr. A be challenged under item 22 of the fifth schedule of the Act or can Mr. A be reappointed as an arbitrator for the third time as an arbitrator?
In the case of Sudesh Prabhakar and Ors. v. EMAAR Constructions Pvt. Ltd., the Delhi High Court, while relying on HRD Corporation (supra), has held that even an arbitrator who has been appointed on two or more occasions by a party or its affiliates in the past three years, may yet not be disqualified if it is shown that the nominated arbitrator was impartial and independent on the earlier two arbitrations.
Rule to make disclosure
As per Section 12 of the Arbitration Act, 1996, the person who is nominated in connection with his possible appointment as an arbitrator should make a disclosure under section 12. This disclosure should be in the format prescribed in the Sixth Schedule which requires the person to disclose:
- whether there are any circumstances that may give rise to justifiable doubts as to his independence or impartiality; and
- whether the person can devote sufficient time to complete the entire arbitration within a period of twelve months.
The Hon’ble Supreme Court in the case of HRD Corporation (Marcus Oil and Chemical Division) v. Gail (India) Limited, has interpreted Sections 12, 13, and 14 of the Act and the said Schedules. The Supreme Court has also interpreted the procedure for a challenge to the appointment of an arbitrator. Below we try to analyse the findings of the Court in the HDR Corporation case and how its interpretation of the Schedules and the challenge procedure can shape Arbitration in India.
Background of the case
On the 1st of April, 1999, HRD corporation and GAIL entered into a contract for the wax supply which was produced at GAIL’s plant in Uttar Pradesh. The contract was for a time period of twenty years. During the business few disputes arose between the parties which resulted in three arbitrations. For the first two arbitrations, the tribunal consisted of Justice N.N. Goswamy, Justice J.K. Mehra, and Justice A.B. Rohtagi as the presiding arbitrator. Even for the third arbitration, the same tribunal was chosen by the parties, but due to the sudden demise of Justice Goswamy during the pendency of the proceedings, Justice T. Doabia was appointed in his place. Also, Justice. S.S. Chadha was appointed in the place of Justice Rohtagi because he resigned from his position. The third arbitration proceedings came to end in the year 2015.
In the fourth arbitration, GAIL nominated Justice Doabia whereas Justice K. Ramamoorthy was nominated by HRD. As the presiding arbitrator Justice K.K. Lahoti was appointed by the two judges. Subsequently, Justice K. Ramamoorthy resigned, and to fill his vacancy, Justice Mukul Mudgal was appointed by HRD. Justice Lahoti disclosed after his appointment that he had previously given a legal opinion to GAIL in an unrelated matter. HRD challenged the appointment of Justice Justice Doabia and K.K. Lahoti before the Arbitral Tribunal. The challenge was dismissed. Thereafter, before the Hon’ble Delhi High Court, HRD challenged the appointment of the said two arbitrators which was also dismissed. Then, before the Hon’ble Supreme Court, the dispute was appealed on the grounds mentioned below.
Grounds for challenge
It was argued by the HRD corporation that the appointment of Justice K.K. Lahoti is unfavourable because of the appointment of K.K. Lahoti attracts Item 20 of the Fifth Schedule and Items 1, 8, and 15 of the Seventh Schedule as previously he has given a legal opinion to GAIL in an unrelated matter. Further, the appointment of Justice Doabia also attracted Items 1, 15, and 16 of the Seventh Schedule because Justice Doabia was an arbitrator in the previous rounds of arbitration in the same dispute.
Outcome of the case
The Court held that to attract any items mentioned under the Fifth Schedule to a challenge, the appointment of the arbitrator is not permissible before the Court until and unless an award is issued by the Arbitral Tribunal. This is so because the parties are allowed under Section 13 of the Act to raise the issues of “impartiality” and “independence” before the Arbitral Tribunal only. However, parties can approach the Court directly to raise issues attracting Seventh Schedule. This is so because the items in Seventh Schedule, when attracted, can make the arbitrator de jure ineligible to act as an arbitrator. Hence, the Court proceeded with the allegations in respect to the items mentioned in the Seventh Schedule only which were raised against the two arbitrators.
The Court ruled that merely providing a legal opinion in an unrelated matter will not attract Items 1, 8, and 15 of the Seventh Schedule in respect to the challenge to the appointment of Justice K.K. Lahoti. The Court also said that to attract these items the advice should be “regular” and the opinion should be “qua the dispute at hand.” Furthermore, the court said that to constitute a professional relationship and not a business relation the advice should be related to business relationships and a legal opinion on a matter only. Hence, the challenge against Justice K.K. Lahoti was dismissed.
The Court ruled in respect of the appointment of Justice Doabia, that his involvement in a previous arbitration between the same parties would not, by itself make him ineligible to be an arbitrator in a subsequent arbitration. The fact that an arbitrator has previously decided a case is not enough to lead to a conclusion of apparent bias. What is required is that the involvement should be in that particular dispute. Accordingly, the Apex Court ruled that Justice Doabia and Justice Lahoti’s appointment cannot be terminated.
The decision in HRD Corporation (Marcus Oil and Chemical Division) v. Gail (India) Limited., will be looked upon in the future for adjudication of disputes on the issue of appointment of arbitrators. The major takeaways of this judgment are that the fact that an arbitrator has been on a panel of an arbitral tribunal in a different dispute, but amongst the same parties, should not lead to an automatic assumption of bias against that arbitrator. In order to further promote arbitration as an efficacious process, clearly, there has to be a belief in their ability to be neutral and impartial.
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