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The Interplay between Sections 12,13,14 vis-à-vis Rule of Bias

Updated: Sep 26, 2023

By Ayush Bajpai


Abstract

The challenge surrounding the appointment of an arbitrator after the 2015 amendment has several conundrums, as whether on the ground of bias/impartiality the appointment can only be challenged before the tribunal or it can also be challenged before the court under section 14 as a de-jure ineligibility. Even though as of now HRD Corporation is considered as the settled law on the subject, however, the current conundrum is yet to be resolved.

The author tries to lucidly explain the current scheme of law surrounding around sections 12,13 & 14 of the Arbitration and Conciliation Act, 1996. Further, the author argues whether the appointment of an arbitrator can be challenged solely under section 12 or it can also be challenged under section 14, and the way forward to resolve the conundrum.


Introduction

Independence and impartiality are the inevitable prerequisites for any arbitration proceeding. As it is presumed that for successful adjudication of any proceeding, the adjudicator must be neutral and independent of either of the parties. However, in the Arbitration and Conciliation Act 1996, there was no specific provision concerning the arbitrator's impartiality and procedure for removing the arbitrator in such instances.

With respect to this, certain amendments were made to the Act vide Arbitration and Conciliation (Amendment) Act, 2015 (“the Amendment Act”) to introduce certain safeguards :

Introduction of Schedule V which specifies the grounds that are justifiable doubt as to the independence or impartiality of the arbitrator.

Introduction of Section 12(5) with the simultaneous introduction of the Seventh Schedule, specifying categories that tender the arbitrator to be ineligible.

Amendment to section 14 of the Act to include provision for mandatory substitution of another arbitrator on the termination of the mandate of the present arbitrator.

Now the basic issue which has emerged pursuant to the amendment and due to the peculiar language of section 14 is, Firstly, whether the appointment of an arbitrator can only be challenged before the tribunal via section 13(3) or also before the court via section 14, on the condition of bias or impartiality, whereby considering the arbitrator as de-jure ineligible. Secondly, whether the award passed by the arbitrator under section 13(3) is interim in nature hence it can be challenged before the court even when the final award is pending.


Interplay between sections 12,13,14

Sections 12,13 & 14 of the Arbitration and Conciliation Act 1996 revolve around the grounds of challenge to the arbitrator's appointment, procedure for the challenge, and failure or impossibility to act on the arbitrator's part simultaneously.

Section 12(3) states the ground via which the appointment of the arbitrator can be challenged. Further, Explanation 1 to Section 12 mentions that the grounds of challenge under Section 12 shall be guided by the fifth schedule of the Act. Schedule V of the Arbitration Act is based on the IBA guidelines which consists of certain grounds which give rise to justifiable doubts about the independence and impartiality of the arbitrator. Hence, one of the grounds mentioned under section 12 is the circumstances that give justifiable doubts as to the independence or impartiality of the arbitrator.

Section 13 of the Arbitration and Conciliation Act, of 1996 revolves around the procedure challenging the arbitrator which states that the challenge has to be with respect to the agreement as agreed upon by both the parties, However, failing the same the challenge will lie before the arbitral tribunal. It is pertinent to note that the arbitration proceedings are voluntary proceedings and section 16 of the Act explicitly mentions the jurisdiction of the tribunal to decide upon its competence. However, there has to be a clear balance between the principle of natural justice Nemo in propria causa judex, esse debet (no one should be made a judge in his own cause), rights of the parties, speedy disposal of the arbitration proceedings and powers of the tribunal. Further, the balance has to be with the objective of giving an upper hand to impartiality in the arbitration proceedings, as the foremost intent of the legislature before any special legislation has always been fair and just application of that legislation.

Section 14 of the Arbitration Act 1996 states that the mandate of the arbitration tribunal shall be terminated and a new arbitrator shall be appointed to substitute the previous one, wherein the arbitrator de-jure or de facto becomes ineligible. Section 14 is guided by Schedule VII of the Act which is also based on the IBA guidelines.

The basic differences between Section 12 and Section 14 are:

1. The most essential difference is with respect to the procedure, as under section 12, the appointment of the arbitrator is challenged before the Tribunal, however, under section 14 the challenge with respect to the termination of the mandate of the arbitrator lies before the court.

2. Any challenge under section 12 is regarding the circumstances which give justifiable doubt as to the independence/impartiality of the arbitrator. On the other hand, the challenge under section 14 is regarding the ineligibility of the arbitrator.

3. Under section 12 until the tribunal finally decides whether the justifiable grounds exist or not, the arbitrator cannot be assumed to be biased, however, under section 14 the word “shall” specify that if once it is decided by the Court that the alleged grounds fall under schedule VII then the arbitrator becomes ineligible by itself.


Ambiguity surrounding the procedure for the challenge with respect to the rule of bias

Most of the time the parties to the dispute challenging the appointment of an arbitrator are of the opinion that their request be adjudicated by the court and not by the tribunal as the arbitrator might be unfair in adjudicating its competence. Further, once the issue is decided by the tribunal then the same can only be challenged before the court under section 34 after the award is passed. Henceforth, this gives rise to the issue that whether the grounds of impartiality or independence make the arbitrator de-jure ineligible by which the application for termination of the arbitrator can be challenged before the court u/s 14 or the beforementioned grounds lie exclusively under the ambit of section 12 and the challenge will lie before the tribunal only.

It is pertinent to note that the Arbitration And Conciliation Act, 1996 is primarily based on UNCITRAL Model Law on International Commercial Arbitration 1985 and the UNCITRAL Conciliation Rules, 1980, however, section 13 of the Act is a bit different in comparison to the UNCITRAL Model laws, as once the tribunal decides upon the issue of appointment of the arbitrator then the same can only be challenged before the court once the award is passed whereas under the UNCITRAL model, the remedy of approaching court can be availed at that time itself and the parties don’t have to wait till the time award is passed. In pursuant to this, it must be reiterated that Schedule V & Schedule VII of the Act are based on the IBA guidelines which in itself are not exhaustive in nature.


Judicial Precedent and current status

In deciding the above mentioned ambiguity, there has been a certain disparity in the views of different courts owing to the peculiar language used in Section 14 of the Act.

In a recent judgment, UOI Vs Reliance and Maj Pankaj Rai v. NIIT Ltd, the High Court of Delhi held that any challenge to the mandate of an arbitrator on the ground of bias cannot be raised under Section 14 of the Act, as there is no provision under the Seventh Schedule that includes bias as one of the grounds, therefore, any grounds which are outside the ambit of the seventh schedule will automatically not lie under section 14 of the Act. Further, the court observed, that “Sections 12 and 13 when read together thus appear to constitute a complete and an independent code for the purposes of trial of such an allegation. They clearly mandate and oblige the Arbitral Tribunal to examine whether circumstances exist that give rise to justifiable doubts. The factual enquiry which would necessarily have to be undertaken in connection with the aforesaid clearly appears to be controlled and governed by Sections 12 and 13 exclusively.

Having divergent views, the High Court of Andhra Pradesh in Rashtriya Ispat Nigam v. Space Tech Equipments held that the ground of actual bias is itself one of the de jure factors for ineligibility of the arbitrator hence once the actual bias is proven the appointment can be challenged in the court under section 14.

Moreover, the Apex Court in HRD Corp v. GAIL has settled certain ambiguities as firstly it is held that the decision passed by the tribunal under section 13(3) cannot be construed as an interim award hence it can only be challenged under section 34 after the final award is passed. Secondly, even though the court specified that grounds mentioned under Schedule VII can only be challenged under section 14 as de jure or de facto ineligibility, however, it has also been opined that since the grounds mentioned under Schedule VII are based on IBA guidelines, which in itself is non-exhaustive in nature, therefore, these grounds cannot be said to be sole grounds for de jure or de facto ineligibility of the arbitrator under section 14 of the Arbitration and Conciliation Act 1996. Henceforth, the same has also been held in Bharat Broadband Network Ltd. v. United Telecoms Ltd.


Conclusion

With reference to the above-discussed analysis, To some extent or another, the judicial precedents seem to be more inclined towards the conclusion, that the appointment of an arbitrator on the condition of bias or impartiality, can only be challenged before the tribunal via section 13(3) as the bias being a justifiable doubt is not considered as a ground under Schedule VII, however, due to the Apex court Judgement in HRD Corporation the issue has been left to an open end. Henceforth, it cannot be conclusively said whether the bias of an arbitrator can be considered as a de jure ineligibility of the arbitrator or since the impartiality is mentioned as a ground under section 12(3), henceforth it will strictly lie under section 12 only.

It is pertinent to note that the basic intent of the legislature behind the arbitration proceedings was minimal interference by the court and speedy resolution of disputes, therefore, strict and unambiguous guidelines prescribing an exhaustive list of grounds for removal of an arbitrator with respect to the prescribed schedule under which they will lie and the procedure for adjudication of those grounds must be established, in order to end this ambiguity and minimize judicial interference.


Ayush Bajpai is Third Year Student at Dr. Ram Manohar National Law University, Lucknow at the time of this publication.

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