The principle that arbitrators must be impartial and independent from the parties is vital to ensure that people view arbitration as a viable option to resolve disputes. The legal principle –Nemo judex in causa sua, which states that no person should be a judge in their own cause, applies mutatis mutandis to arbitration. However, unlike traditional courts, arbitrators are, in most cases, appointed by the parties to the disputes, hence always possessing a hint of bias as the parties would consider various factors before appointing an arbitrator of their choice. It was this bias that was alleged by the Ministry of Petroleum and Natural Gas in Union of India v. Reliance Industries Ltd.
The Ministry of Petroleum and Natural Gas filed a petition before the Hon’ble Delhi High Court against Reliance Industries Ltd. alleging the biasedness of the Arbitrators, citing the manner of the proceedings and biased procedural orders as reasons. The ministry instituted proceedings under Section 14(2) read with Section 15(2) of the Arbitration and Conciliation Act, 1996, for a declaration that the majority of the members of the Arbitral Tribunal, specifically the two Arbitrators nominated by the respondents, are de jure/de facto unable to discharge their functions, and consequently their mandate stands terminated in terms of Section 14 of the Act.
Before hearing the merits of the allegations of bias, the court delved into a preliminary objection by Reliance, that the petition was not maintainable. The contention of the respondents was that allowing a Section 14 application to challenge an arbitrator’s bias would be in contravention of established jurisprudence. The respondent asserted that a de jure disqualification, which could possibly form the subject matter of a petition under Section 14, would have to necessarily be confined to the arbitrator suffering a disqualification by virtue of the provisions contained in the Seventh Schedule and that de jure disqualification cannot extend to bias or justifiable cause, which would necessarily be subjects which would stand confined to Sections 12 and 13 of the Act. Since the ministry’s challenge was confined to challenging only the bias of the arbitrator, this should be challenged in front of the tribunal itself, as is mentioned in the Act.
The court heavily relied on the judgement in HRD Corporation (Marcus Oil and Chemical Division) versus GAIL, wherein a dichotomy was made by the Act between persons who become “ineligible” to be appointed as arbitrators and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5), read with the Seventh Schedule, makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes “ineligible” to act as arbitrator.
The Bharat Broadband Network Ltd. v. United Telecoms Ltd. case established that Section 12(5) of the Indian Arbitration and Conciliation Act deals with the legal incapacity of an arbitrator to act as such. If a person’s relationship with the parties, counsel, or the subject matter of the dispute falls under the Seventh Schedule, any prior agreement to the contrary is invalidated. This person is declared “ineligible” to be appointed as an arbitrator. If a person falls under any of the categories in the Seventh Schedule, they are ineligible to be appointed as an arbitrator, according to the law, regardless of any prior agreement between the parties. The parties may waive this ineligibility by an “express agreement in writing” after a dispute has arisen between them.
In Alcove Industries Ltd. v. Oriental Structural Engineers Ltd, it was held that the procedure for the challenge to the authority of the arbitrator is contained in Section 13. The Arbitrator is empowered to rule on this issue. However, his decision (if he overrules the objection) is not final and is open to judicial review by a competent Court in the exercise of the power conferred. The Delhi High court, in Progressive Career Academy Pvt Ltd V FIIT Jee Ltd, has pointed to the intention of Parliament in creating Section 13(5) of the Indian Arbitration and Conciliation Act, holding that it was not to allow courts to terminate an arbitration tribunal on the basis of bias at an intermediate stage, instead requiring any challenge to an arbitrator’s authority based on bias to be raised immediately before the tribunal itself. If the challenge is not resolved satisfactorily, it must then be raised as an objection under Section 34 of the Act.
The court upheld the preliminary objection of the and the petition was consequently dismissed as being not maintainable. The court further clarified that it has neither considered nor ruled upon the allegations that have been levelled by the petitioner against the members of the Arbitral Tribunal.
The court further added to the discussions regarding the provisions of the Act dealing with the issue of an Arbitrator’s bias. It explained that the 7th schedule of the Act contains non-negotiable disqualifications for arbitrators, based on their relationship with parties, counsel, or dispute. If a dispute is raised based on this schedule, it automatically disqualifies the arbitrator, as mandated by law. Sections 12, 13, and 14 of the Act form a combined legal framework for contesting an arbitrator’s appointment and termination. While sections 12 and 13 outline the process for challenging an arbitrator before the arbitrator, Section 14 covers challenges that can be brought before the court.
The Fifth Schedule provides guidance in determining whether circumstances exist that create doubts about an arbitrator’s independence or impartiality. If justifiable doubts arise, the appointment of the arbitrator can be challenged under subsection (3) of Section 12, subject to the caveat of subsection (4) of Section 12. The issue of bias falls under this schedule and needs to be established in fact and circumstances. A challenge of bias under the 5th schedule must be raised before the arbitrator, following the procedure set out in Section 13(2), which provides for a written statement of the challenge with reasons. If the challenge fails, the arbitrator can continue the proceedings and make an award. It maintained that the allegation of bias would not fall within the scope of a challenge under Section 14 before the court as it falls within the 5th schedule, and the specific procedure set out above would need to be followed before the arbitrator.
Violating principles of natural justice
The principle of natural justice is a fundamental legal principle that requires all legal proceedings to be conducted in a fair and impartial manner. One of the key components of natural justice is the principle that “no person can be a judge in his own cause”. This principle means that a person cannot be a judge in a matter in which they have a personal interest or bias, as this would undermine the fairness and impartiality of the proceedings.
In the context of arbitration, allowing arbitrators to rule on their own impartiality potentially violates this principle of natural justice. If an arbitrator is asked to rule on their own impartiality, they are effectively acting as a judge in their own cause, as they have a personal interest in the outcome of the proceedings. This can undermine the fairness and impartiality of the arbitration process and may lead to a perception that the process is biased or unfair.
To ensure that the principles of natural justice are upheld in the arbitration process, it is important to have clear rules and procedures in place for addressing allegations of bias or impartiality. This may include allowing parties to challenge the impartiality of arbitrators directly to the court, rather than through the Arbitral Tribunal, something which is currently in contravention to the interpretations of Indian courts.
The law is clear that if a challenge on the grounds of bias fails before the Arbitral Tribunal, parties must continue with the process until an award is made. However, it is important not to forget that in limiting judicial interference, one cannot sacrifice having a fair process. If bias is evident at an early stage and is likely to undermine the process, the court may need to intervene and remove the arbitrator; however, if one party has lost faith in the arbitrator deciding the matter, forcing them to persist with it renders the whole exercise futile. It is a natural assumption that a party who has questioned the impartiality of the arbitrator, loses that challenge in a hearing presided by the very arbitrator, will file an application under section 34 to set aside the award passed by that arbitrator. Considering the rising costs of arbitrations these days, both parties would seemingly be better off presenting their challenges before a court in the first instance and then abide by the decision of the court with finality in their minds.
Requiring an arbitrator to be independent and impartial, as envisaged in the Arbitration and Conciliation act, is the foundation of any arbitration process. One would be excused from assuming that both these requirements are of equal importance in the eyes of the law, as they are definitely equally important to the parties involved in the arbitration. The courts, however, as they have in this case, treated “independence” and “impartiality” differently, allowing arbitrators to be removed under certain circumstances listed in Schedule 7, deeming them not to be independent, but requiring parties to raise allegations of bias, i.e., impartiality before the Arbitral Tribunal. This means that a party may be forced to participate in an arbitration process that they believe lacks impartiality. It would be better to decide on allegations of bias when presented to avoid compelling a party to proceed with a process they do not believe is fair. The stance of not interfering where a question of ‘alleged bias’ is raised and allowing the arbitrators, upon whom such allegations are made, to make the call over their own bias, requires rethinking. The principles of natural justice, which require a fair and impartial process, are crucial in the arbitration process and must be kept in mind when giving meaning to the provisions of any statute. While arbitrators must be independent and impartial, it is also important to ensure that parties have a fair opportunity to challenge both, the independence and the impartiality of the arbitrator.
(This post has been authored by Aditya Singh and Rahul Kumar. Aditya Singh is an undergraduate law student at Dr. Ram Manohar Lohiya National Law University, Lucknow. Rahul Kumar is an Advocate at Sarvada Legal.)
CITE AS: Aditya Singh & Rahul Kumar, ‘Judging One’s Own Bias- the Peculiar Case of the Indian Arbitrator’ (The Contemporary Law Forum, 02 April 2023) <tclf.in/2023/04/03/judging-ones-own-bias-the-peculiar-case-of-the-indian-arbitrator/> date of access.