Alternative Dispute Resolution and Legal Aid

- PROJECT REPORT

Topic- Conflict of Interest of Arbitrators in

Arbitration

In partial fulfillment of 5 year B.A.LLB Course

Submitted to : Submitted by:

Dr.Kulpreet Bhullar Gunsimran Kaur

Roll No.- 1666

ACKNOWLEDGEMENT

I would like to express my heartfelt gratitude to Dr.Kulpreet Kaur for giving me this
opportunity to make a project on the topic-“Conflict of Interest of Arbitrators in Arbitration ”. I
would like to thank her for her constant motivation and guidance while the making of this
project.

This project not only enabled me to hone my research skills but also enabled me to gather some
valuable nuggets of knowledge. I would gain like to thank each and everyone who helped me in
making this project.

Thank you!
 INDEX

S. No. Topic Page no.

1 Introduction ……………………………………………………………………….

2 IBA Guidelines on Conflict of Interest ……………………………………………

3 Grounds for challenging appointment as arbitrator .............................................

4 Noteworthy Case Laws ………………………………………………………….…

5 Position of Law ……………………………………………………….…………

6 Conclusion…………………………………………………………………………

7 References ……………………………………………………………………….
Introduction-

Arbitration is a part of the Alternative Dispute Resolution mechanism that benefits parties who
want to avoid the normal lengthy recourse to the local courts for settlement of disputes. It is in
fact a legal technique for the resolution of dispute outside the courts, wherein the parties to a
dispute refer it to one or more persons namely arbitrator(s) by whose decision (award) they agree
to be bound.Advancement, liberalisation and globalisation of international business relations
necessitated the invention of a flexible, reasonable, favourable and time saving method of
resolution of disputes without making the parties to go through the rigorous, time consuming and
resource exhausting procedure of the traditional justice delivery system. The Indian law with
respect to the arbitration is largely based on the English Common Law. The Indian arbitration is
governed and regulated by the Arbitration and Conciliation Act 1996, which derives its basis
from the 1985 UNCITRAL model on International Commercial Arbitration and the UNCITRAL
Arbitration Rules of 1976.1In Section 12(1) of the Arbitration and Conciliation Act, 1996, it is
given that on what grounds the appointed arbitrator can be challenged. There are some
conditions under the following, from which if the arbitrator satisfied then he can be
challenged:Arbitrator’s relationship with any of the party,Arbitrator’s relationship to the
dispute,Arbitrator’s interest in the dispute,Relationship of arbitrator between each other,Any
other situation can be happen.India revised its Arbitration and Conciliation Act, 1996
incorporating amendments on the basis of the 20 long years of experience with the 1996 Act.
The said amending Act has taken the effectiveness of the arbitration proceedings seated in India
to greater heights by fixing timelines for various activities, by fixing the fees for arbitrators,
reducing the scope of interference by the courts into the arbitration awards by reducing the scope
of interpretation of “public policy” etc., But the most important amendment is the mandatory
declaration to be done by the arbitrators under S.12. The said amendment also has incorporated
three lists of relationships between the arbitrators and parties & counsels by way of Schedule V
to the Act to avoid confusion in interpreting the above said S.12. Now the parties can question
the impartiality of the arbitrator on the basis of their declarations. The said Schedule V is similar
to the list mentioned in the above said IBA guidelines. Hence Indian legislature has come
forward to endorse the international view of encouraging transparent, impartial and independent
arbitration system. A cornerstone of procedural fairness is the impartiality and independence of
the decision-maker and this is as fundamental an ingredient of arbitration as it is of litigation. It
is reflected both in domestic arbitration laws to act fairly and impartially and in international
institutional arbitration. The enactment of the Arbitration and Conciliation (Amendment) Act,
2015 has resulted in the introduction of certain stringent and objective parameters for
determining the independence and impartiality of an arbitrator.The fifth schedule and the seventh

1
www.uncitral.un.org.
schedule of the Arbitration and Conciliation Act, 1996 now postulate various criteria for
determining independence and impartiality of arbitrators.As explained by the Supreme Court in
HRD Corporation (Marcus Oil and Chemical Division) v. Gail (India) Limited 2 the existence of
circumstance(s) falling within the seventh schedule immediately renders a person ineligible to
act as an arbitrator. In the case of circumstance(s) falling within the fifth schedule, the same can
be made the basis for an application seeking recusal to be filed before, and considered by, the
arbitrator concerned. This project report further enumerates as to what and where can a conlict of
interest of an arbitrator may arise and the provisions provided for elimination of same.

THE IBA GUIDELINES ON CONFLICT OF INTEREST IN ARBITRATION

The Indian arbitration law underwent a complete overhaul in 2015. Various important
amendments were made to the Arbitration and Conciliation Act 1996 (the Act). One such
amendment was the incorporation of the Red and Orange List of the International Bar
Association Guidelines on Conflicts of Interest in International Arbitration 2014 (IBA
Guidelines) as part of the Act. These Guidelines have been in details as follows.

The Interntional Bar Association recently revised its Guidelines in 2014 on Conflicts of Interest
in International Arbitration. This was the culmination of a review by the IBA Arbitration
Committee, which began in 2012. The salient changes address the rise of advance declarations
by arbitrators; third-party funding; increasing significance of arbitral secretaries; and the
possibility that an arbitrator, and counsel to one of the parties, operate from the same chambers.
The Guidelines are widely consulted when arbitrators evaluate whether they can accept
appointments, or if they first need to make disclosures to the parties about potential conflicts.3

Structure of the Guidelines

The revised Guidelines retain the previous structure comprising Part I: General Standards and
Part II: Application Lists. The General Standards contain seven sets of principles to which
arbitrators should adhere in order to ensure that they are not subject to a material conflict of
interest. The Application Lists give practical examples of when an arbitrator cannot act at all (the
Non-Waivable Red List); when the arbitrator can only act if he or she first makes disclosures and
the parties expressly agree to the appointment (the Waivable Red List); when the arbitrator has a
duty to disclose but can nonetheless act unless the parties make a timely objection (the Orange
List); and when disclosure is not necessary (the Green List).

Key changes to the General Standards

Advance declarations by arbitrators: The new General Standard 3(b), which is the most
prominent addition to the revised Guidelines, addresses the increasing use by prospective

2
(2018) 12 SCC 471.

3
www.ibanet.org.
arbitrators of advance declarations or waivers in relation to possible future conflicts of interest.
While the Guidelines state that the validity and effect of such advance declarations or waivers
will depend on the case in question, the applicable law and the specific wording of the waiver,
they make clear that they do not discharge the arbitrator from his or her ongoing duty of
disclosure.

Arbitrator’s law firm: The revised Guidelines make clear that “the arbitrator is in principle
considered to bear the identity of his or her law firm” (General Standard 6(a)). The explanatory
note says that a balance has to be struck between a party’s desire to appoint an arbitrator who
may be a partner in a large international law firm and the importance of maintaining confidence
in the independence and impartiality of arbitrators. In determining any potential conflicts,
consideration should be given to the involvement that a firm has with a party beyond
representation in a legal matter.

Third-party funders: The previous Guidelines provided that managers, directors or persons
having a controlling interest of a legal entity that is a party to an arbitration shall be considered to
be the equivalent of that same legal entity. This General Standard now says that the relevant
party must make the notifications “at the earliest opportunity,” whereas before the duty applied
“before the beginning of the proceeding or as soon as [the party] becomes aware of such
relationship.”

Identity of counsel: General Standard 7(b) is new and provides that each party is obliged to state
the identity of its counsel as well as any relationship, if such exists, between its counsel and the
arbitrator by virtue of being members of the same barristers’ chambers. This should be done at
the earliest opportunity and upon any change in its counsel team.

Practical Application of the General Standards

Non-Waivable Red List: It is now explicitly stated that in situations covered by the Non-
Waivable Red List, arbitrators should not act even when there is no timely objection by the
parties. The list now clarifies that the arbitrator cannot be an employee of a party, have a
controlling interest in a third-party funder or have his or her firm regularly advise a party.

Waivable Red List: The definition of an arbitrator’s “close family member” who has a significant
financial interest in the outcome of the dispute has been widened to include not only a spouse,
sibling, child, parent or life partner but also “any other family member with whom a close
relationship exists.” Regular advice by the arbitrator to any party or affiliate which is not a
significant source of income for the arbitrator or his firm is now flagged. Previously, only regular
advice to the appointing party or its affiliate was flagged. Where an arbitrator derives significant
financial income from advising a party regularly, this is dealt with in the non-waivable red list.

Orange List: The Guidelines now state that the Orange List is a non-exhaustive enumeration of
specific circumstances that “may give rise to doubts” about the arbitrator’s impartiality or
independence. New entries in the Orange List include instances where enmity exists between on
the one hand, an arbitrator and, on the other hand, counsel, a senior representative of a party, or a
third-party funder. There is also a new entry in the event where the arbitrator, within the past
three years, has acted as co-counsel with another arbitrator or counsel for one of the parties. The
arbitrator publicly advocating a position on the case is now flagged – it no longer need be a
specific position to be relevant.

INDIAN LAW AS AMENDED ON BASIS OF THESE GUIDELINES-

So by the way of amendment to this Act in 2015 these guidelines have been incorporated to
make the arbitration process more refined and unbiased. On the basis of these guidelines India
incorporated them within the Arbitration and conciliation Act,1966 via an amendment. A
specific provision in regards to impartiality and disclosure by the arbitrator was added under
Section 12 of Arbitration and Conciliation Act, 2015. Under this provision, any person who has
been approached for the appointment of an arbitrator by the disputant partiers must disclose all
the facts in writing, any direct or indirect, about the past or present relationship with the parties,
counsel or subject matter and the outcome of the arbitration which may be financial,
professional, business or any other kind which may probably give rise to justifiable doubt so as
to impartiality and independence which would also lead to the incapability to devote sufficient
time for the arbitration and the arbitrator ‘s ability to accomplish and provide a decision to the
parties within 12 months.4 The disclosure is necessary to be made by the arbitrator under the
norms and conditions prescribed under the sixth schedule. Thus, it is the responsibility of the
arbitrator to disclose all the facts before the commencement of the arbitration proceedings. On
the basis of the disclosure made by the arbitrator, it would be determined whether any such
circumstance exists or whether it falls under any of the grounds prescribed in the 5th or 6th
Schedule.Before the appointment of arbitrator is made, the concerned Court or the person or
institution designated by such Court is required to seek a disclosure in writing from the
prospective arbitrator in terms of Section 12(1) of the Act and also give due regard to any
qualifications required for the arbitrator by the agreement of the parties and the contents of the
disclosure and other considerations as are likely to secure the appointment of an independent and
impartial arbitrator.Also, under Section 12(1) of the Act, an obligation has been cast upon the
prospective arbitrator to make an express disclosure on (a) circumstances which are likely to give
rise to justifiable doubts regarding his independence or impartiality; or (b) grounds which may
affect his ability to complete the arbitration within 12 (twelve) months.The purpose of this
provision is to secure the appointment of an unbiased and impartial arbitrator.Fifth Schedule to
the Act (Annexure-A) contains a list of grounds giving rise to justifiable doubts as to the
independence or impartiality of an arbitrator. The Seventh Schedule (Annexure-B) lays the
grounds which make a person ineligible to be appointed as an arbitrator.

Grounds for challenging the appointment of the Arbitrator

4
Section 12 of Arbitration and Cociliation Act,1966.
Disclosure of certain circumstances-Section 12(1) of the Act, amended in 2015, compels a
prospective arbitrator to provide a written disclosure of certain circumstances which may give
rise to suspicions to his independence or impartiality. Whether a circumstance is suspicious to
the independence of an arbitrator, is to be decided by the arbitrator himself.

Section 12(1)(a) states that the arbitrator should disclose if he has any direct, indirect, past or
present relationship to the parties, or if he has any financial, business, professional or any other
kind of interest in the subject-matter of the dispute, which would affect his impartiality in the
case.

For example, Company X and Company Z while entering into a particular contract, add an
arbitration clause naming Mr. A as an arbitrator. Mr. A is the owner of Company C. A dispute
concerning payment of bills to Company X by Company Z arose and Mr. A was approached for
presiding as an arbitrator. Company Z is a client of Company C and forms a considerable part of
its income.In such a scenario, Mr. A would have an interest in the dispute and that might give
rise to doubts to his impartiality.Section 12(1)(b) similarly points to any circumstances that
would affect an arbitrator’s capacity to devote enough time to finish the arbitration within twelve
months.There are two explanations given under the sub-section. The first one states that the Fifth
Schedule should be referred to understand whether circumstances under Section 12(1)(a) exist.
The second one states that such a disclosure should happen in the format under Sixth Schedule.

Fifth Schedule

The fifth schedule deals with following types of relations which might give rise to reasonable
doubts:

 Arbitrator’s relationship with parties or counsel

 Arbitrator’s relationship to the dispute
 Arbitrator’s interest in the dispute
 Arbitrator’s past involvement with the dispute
 Relationship of co-arbitrator’s
 Relationship of the arbitrator with parties and others in the dispute

Other Circumstances

If the factual scenario of a case falls under any of the above headings, then the arbitrator may be
challenged. These are extensive headings which cover many scenarios to ensure maximum
impartiality. However, ‘Explanation 3’ to this schedule, points out that if it’s a specialized
arbitration involving niche fields, and it’s a custom to appoint same arbitrators from a small
specialized pool, then this should be noted by applying these rules. None of these headings
provides for an immediate bar to the appointment of an arbitrator.Section 12(2) reinforces sub-
section 1, by stating that unless a written disclosure has already been given, an appointed
arbitrator should disclose any conflict of interest as soon as possible.
Other Grounds for Challenge

The actual grounds for challenge under this section are illustrated under Section 12(3).If an
arbitrator’s independence and impartiality are doubted due to the circumstances under Section
12(1) then he may be challenged or in the event that he doesn’t possess the necessary
qualifications agreed to by the parties.A party to the dispute which appoints an arbitrator may
challenge such appointment for reasons he becomes aware only after the appointment.

Section 12(5), inserted by the 2015 amendment, automatically disqualifies any potential
arbitrator who falls in any category under the Seventh Schedule of the Act.

Seventh Schedule-This schedule also covers most of the headings under the Fifth Schedule. The
list isn’t as exhaustive as the Fifth Schedule but as stated above, simply acts as a bar to
appointment as arbitrator. However, this bar can be waived by the parties by an agreement in
writing.

The Schedule covers:

 Arbitrator’s relationship with the parties or counsel

 Relation of Arbitrator to the dispute
 Arbitrator’s interest in the dispute.

INTERPRETATION OF SECTION 12 IN RECENT CASE LAWS

Recently, the Supreme Court of India in the case of HRD Corporation (Marcus Oil and
Chemical Divisions) v GAIL (India) Limited 5, considered a challenge to appointment of a party
nominated arbitrator and the chair. This case reflects how India has adopted the IBA Guidelines
and interpretation of certain grounds as stated in the Red and Orange list by the Supreme Court
of India.

The case reflects the application of the test of whether a reasonable third person having
knowledge of the facts and circumstances would reach the conclusion that there is a likelihood
that the arbitrator may be influenced. The Supreme Court has affirmed that this test requires one
to take a broad commonsensical approach.

FACTS -GAIL (India) Limited (GAIL) entered into a contract with HRD Corporation (Marcus
Oil and Chemical Division) (HRD) on 1 April 1999 (the Agreement) for supply of wax
generated at GAIL’s plant for a period of 20 years. A similar dispute arose between the parties
on various occasions and consequently HRD invoked the arbitration clause in the Agreement at
various times. In total, four separate arbitrations took place. The present case before the Supreme

5
Supra Note 2.
Court concerned the Fourth Arbitration. Justice Lahoti’s (Chair) appointment was challenged on
the following grounds:

Items 201 (3.1.1 of the Orange List of IBA Guidelines) and 222 (3.1.3 of the Orange List of the
IBA Guidelines) of the Fifth Schedule to the Act were applicable thereby giving rise to
justifiable doubts as to his independence and impartiality;

HELD

The Supreme Court highlighted the difference in the role of the Fifth Schedule and Seventh
Schedule to the Act. The Supreme Court referred to the 246th Report of the Law Commission of
India (the Report). As per the report, the Fifth Schedule is intended to contain a broader list for
disclosures (i.e. circumstances provided under the Red and Orange list) to be made by the
arbitrator at the time of appointment. On the other hand, the Seventh Schedule incorporates a
smaller sub-set covering egregious situations (i.e. circumstances provided under the Red list)
which automatically render the arbitrator ineligible for appointment.

It observed that where a challenge is based on the circumstances identified under the Fifth
schedule, the issue i.e. whether there are justifiable doubts as to the arbitrator’s independence
and impartiality, should be separately determined given the facts of the case. On the other hand,
the occurrence of circumstance provided under the Seventh Schedule itself renders a person
ineligible to be appointed as the arbitrator. It further held that while a challenge based on the
grounds mentioned in Seventh Schedule can be made directly to the court, the appointment of an
arbitrator based on circumstances under the Fifth Schedule can be questioned only post the
award, i.e. at the setting aside stage. Accordingly, the Supreme Court held that any challenge on
the basis of Fifth Schedule against appointment of the two arbitrators could not be considered at
the given stage (i.e. pre-award).

Importantly, the Court held that since the Fifth and Seventh Schedules owe their origins to the
IBA Guidelines, they should be construed considering general principles contained therein, i.e.
(i) every arbitrator shall be impartial/independent at the time of his/her appointment; (ii) doubts
with respect to the appointment are justifiable only if a third party would reach a conclusion that
an arbitrator is likely to be influenced by factors other than the merits of the case. Accordingly, it
requires a fair construction of words used in the schedules neither tending to enlarge or restrict
them unduly. It was against this backdrop that the court considered the matters listed in the
Seventh Schedule and the underlying facts.

Justice Lahoti had earlier issued a legal opinion to GAIL in another dispute and he was also an
arbitrator in another matter involving GAIL. This was the basis of HRD’s challenge to his
appointment. However, the Court dismissed the challenge and held that: HRD’s challenge to the
appointment of Justice Doabia was primarily on the ground that he had previously rendered an
award in the third arbitration. Therefore, he is hit by item 16 of the Seventh Schedule which
entails that *Int. A.L.R. N-3 arbitrator should not have previous involvement in the case. The
Court held that: (i) the arbitrator’s previous involvement in the case meant involvement in some
other capacity and not as an arbitrator; (ii) previous involvement must be in the very dispute in
arbitration where he is appointed as an arbitrator and not a different dispute/arbitration; and (iii)
any other interpretation would render Item 24 of the Fifth Schedule largely ineffective.
Accordingly, asJustice Doabia was acting in capacity of an arbitrator and that the involvement in
Third Arbitration would constitute involvement in a different case, the facts would not fall within
the circumstance provided under Item 16 of the Seventh Schedule.

 Voestalpine Schienen v. Delhi Metro Rail Corporation6

This was the first case adjudicated by the Supreme Court after the 2015 amendment was passed.
It is thus significant in clarifying the scope of this important section.

Facts: The Delhi Metro Rail Corporation (DMRC), a public sector undertaking, had entered into
a contract with M/s Voestalpine. Due to some disputes that arose in the course of business, the
arbitration clause was invoked and as per the contract. In the contract, it was provided that,
arbitration proceedings should be done in compliance of Clause 9.2 of the DMRC General
Conditions of Contract (DMRC GCC) and Clause 9.2 of the special conditions of the contract
(DMRC SCC).According to these clauses, DMRC was to make a list of arbitrators consisting of
serving or retired engineers with requisite qualifications and professional experience. These
engineers were to be from ‘government departments or public sector undertakings’. Furthermore,
DMRC and Voestalpine were to choose one arbitrator each from this list and both of these
arbitrators shall choose the third arbitrator from the same list.The petitioner, Voestalpine
challenged this provision under Sections 11(6) and 11(8) of the Act.

Held-The Supreme Court pointed that the main purpose of amending Section 12 was to maintain
a higher level of arbitrator impartiality. In light of this, it stated that in the event that the
arbitration clause was in contradiction to Section 12 (5), the latter would prevail. In such a case
the court would appoint an arbitrator and a party cannot claim appointment as per the
agreement.However, in the case, the Court held that only because of the fact that the suggested
arbitrators were former or current government employees they won’t be automatically
disqualified from being arbitrators. If they didn’t have any relation to any of the parties, they
were not barred under Section 12(5).

The court differentiated between the concepts of ‘impartiality’ and ‘independence’. Thus, the
court held, any question on impartiality or independence would surface when the arbitrator
discloses any interest in writing. The Court declined jurisdiction in the case.The Court directed
DMRC to delete the clauses from SCC and GCC and asked it to constitute a broader panel.

6
(2017) 4 SCC 665.
  DBM Geotechnics v. Bharat Petroleum Ltd7

Facts: In 2003, the respondent BPCL had issued an e-tender for construction works. In 2014,
DBM Geotechnics, the applicant was given the letter of intent and subsequently, an agreement
was concluded.In October 2015, BPCL abruptly terminated the agreement by alleging
performance delays and appointed another contractor. In June 2016, BPCL initiated arbitration
proceedings under the Agreement. As per the terms of the agreement, the Director of Marketing
(DM) was to be the sole arbitrator or he was to appoint another person as an arbitrator.

Issues -Whether such a clause in the arbitration agreement would be rendered ineffective in light
of Section 12 (5) of the Arbitration Act.

Held-The applicants argued that the nomination procedure would be unlawful in light of Section
12. The Court rejected this argument and held that in spite of the fact that the DM was barred
from presiding as the arbitrator, he could still nominate someone else as the presiding arbitrator.

 TRF Ltd v. Energo Engineering Projects8

Facts: Energo Engineering Projects, the respondent-company dealt in the procurement, handling
and installation of equipment in thermal power plants, for various clients like NTPC, Moser Baer
etc.In 2014, the respondent issued a purchase order to the appellant for various articles. The
appellant had also given an advance bank and performance guarantee. The dispute arose with the
enforcement of the bank guarantee. The appellant approached the High Court to restrain the
encashment of the guarantee.

In the meanwhile, the appellant invoked the arbitration clause of the General Terms and
Conditions of the Purchase Order (GTCPO). It also argued that the HC should appoint the
arbitrator under Section 11 (6) because in light of Section 12 (5) the Managing Director was
ineligible to act as an arbitrator and thus ineligible to arbitrate as well. The High Court rejected
this argument and stated that merely because the MD is disqualified to act as an arbitrator, he
isn’t devoid of his power to nominate. The nominated arbitrator will have his own independent
views. This ruling was challenged in the Supreme Court.

Held-The Supreme Court analyzed the clause under GTCPO which mentioned the MD as the
sole arbitrator or any of his nominees. It arrived at the conclusion that, although the MD may be
a respectable person and otherwise eligible to arbitrate, he is ineligible in the present case. Thus,
that makes him ineligible to nominate anyone else as an arbitrator as well. The Court said, once
the infrastructure collapses, the superstructure collapses as well.

PRESENT POSITION OF LAW

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CIVIL APPEAL NO. 10628 OF 2017.
8
(2017) 8 SCC 377.
The position under the act is that a disclosure must be made by a person approached as a possible
arbitrator. If he or she discloses circumstances which fall under any of the categories specified in
the Seventh Schedule, then that person cannot be appointed as an arbitrator. Since such person
would lack the inherent jurisdiction to proceed as an arbitrator, the court of appropriate
jurisdiction can terminate the mandate of such person under Section 14(2) of the act. The
Supreme Court has held that since ineligibility goes to the root of the appointment, Section
12(5)9, read with the Seventh Schedule, clarifies that if the arbitrator falls under any of the
categories specified in the Seventh Schedule, he or she becomes ineligible to act as an arbitrator.

However, if the circumstances fall under the Fifth Schedule, giving rise to justifiable doubts as to
the person's independence or impartiality, it would not make the person de jure ineligible for
appointment as an arbitrator. Any challenge to his or her independence or impartiality would lie
only before the arbitral tribunal under Section 13 of the act. If such challenge is unsuccessful and
the arbitral tribunal decides that there are no justifiable doubts as to the independence or
impartiality of the arbitrator, it must continue the proceedings and make an award. No challenge
to the appointment of the arbitrator would lie before a court of law at that stage. It is only after
such award is made that the party challenging the arbitrator's appointment on the grounds
contained in the Fifth Schedule may apply to set aside the arbitral award in accordance with
Section 34 of the act on the aforesaid grounds. This position of law was succinctly laid down by
the Supreme Court in HRD Corporation.

However, a party may argue that an arbitrator cannot be a judge in his or her own cause and only
a court of law can examine whether he or she is biased or impartial. In addition, it may be
contended that Section 13 provides no remedy for a party to challenge the appointment of an
arbitrator on the grounds of bias before a court of law. The Supreme Court indicated that doubts
as to the independence and impartiality of an arbitrator are justifiable only if a reasonable third
person having knowledge of the relevant facts and circumstances would reach the conclusion
that there is a likelihood that the arbitrator may be influenced by factors other than the merits of
the case in reaching his or her decision.

The courts are yet to encounter a situation where an award is challenged on any of the grounds or
circumstances mentioned under the Fifth Schedule raising justifiable grounds on the
independence or impartiality of the arbitrator(s). In HRD Corporation the Supreme Court held
that such cases will be decided by applying the test of objectivity. It will be interesting to see
how this test will be applied by the courts when faced with such a situation.

9
Section 12(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the
parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh
Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-
section by an express agreement in writing.
Inserted by the Arbitration and Conciliation (Amendment) Act, 2015 (w.e.f 23.10.2015.)
CONCLUSION

The 2015 Amendment to the Act is aimed to promote arbitration in India and to provide for
greater transparency and reliability on the same. Section 12 gains more importance in light of the
new amendment and hopefully, it contributes to making arbitration a more popular recourse than
judicial courts. The said amendment also has incorporated three lists of relationships between the
arbitrators and parties & counsels by way of Schedule V to the Act to avoid confusion in
interpreting the above said S.12. Now the parties can question the impartiality of the arbitrator on
the basis of their declarations. The said Schedule V is similar to the list mentioned in the above
said IBA guidelines. Hence Indian legislature has come forward to endorse the international view
of encouraging transparent, impartial and independent arbitration system. By way of the
amended Section 12 of the Act, the grounds which are likely to give rise to justifiable grounds of
bias have been identified in Fifth Schedule. Further, by virtue of Section 12(5) of the Act, any
person who falls under any of the categories specified in the Seventh Schedule shall be ineligible
to be appointed as the arbitrator.Interestingly, categories in Fifth Schedule and Seventh Schedule
have attempted to include all possible aspects so as to reduce preliminary disputes arising from
independence and impartiality of an arbitrator. However, there has been less emphasis by the
courts on continuous duty of arbitrators to disclose potential conflicts of interest. It is necessary
that a proper disclosure also includes the information that the arbitrators could have known
through a reasonable investigation. In fact, Section 12 of the Act does not address the question
that what if there was a duty to disclose which has been breached by the arbitrator. Does that
breach automatically debar the arbitrator? Unfortunately, there is no provision for any
interlocutory challenge before a court to a bias situation and the party has to wait until the award
is pronounced. Efficiency is dependent on the availability of the arbitrator and hence, it is crucial
for the parties to inquire whether the prospective arbitrator can devote sufficient time to resolve
the dispute in an efficient manner. Even though the arbitrator in the disclosure may provide that
he will be able to finish the entire arbitration in twelve months and will give sufficient time to the
arbitration, however, it is not unusual to see that the arbitrator’s diary is full and the dates are
given after 3-4 months.

Currently, there is no mechanism or a database that contains all information/past record

pertaining to the prospective arbitrator to check whether the prospective arbitrator has been given
a correct disclosure in terms of Schedule VI of the Act and has not concealed any information.

REFERENCES

 www.lexisnexis.com
 www.scconline.com
 www.manupatra.in
 www.ibanet.org
 Arbitration and Conciliation Act,1996