Arbitration is a process under which the parties resolve the disputes outside the courts where the parties agree to refer the dispute to one or more arbitrators appointed by them, either by mutual consent or with the help of courts, by whose decision they agreed to be bound. Not all disputes are arbitrable and hence there are some categories of disputes that fall outside the purview of arbitration as was held by Supreme Court in the case of Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd (2011) 5 SCC 532. The law regarding arbitration is primarily contained in 1996 act and in order to make arbitration preferred mode of settlement of commercial disputes, amendments were brought in the year 2015 with the latest amendment being introduced recently in the year 2019. There are numerous advantages of arbitration such as lower costs, avoidance of long and technical court procedures, mutually agreed terms, greater flexibility, higher confidentiality, choice of forum with greater chances of settlement. However there are certain disadvantages as well which cannot be ignored such as less scope of appeal, standards used by an arbitrator may not be clear, biasness on the side of arbitrator etc.
The first and foremost requirement for successful arbitration proceeding is independent and impartial arbitrator. The act of 1996 was silent on the law regarding appointment of impartial arbitrator by the parties. Later, by 2015 amendment the legislature introduced safeguards that guarantee fairness in arbitration proceedings and minimization of bias on the side of arbitrators. The amended act postulates various criterias for determination of independence and impartiality of arbitrators. One such criterion is relationship of arbitrator with the parties or counsels. Former employees though as per statute are not disqualified from acting as an arbitrator but courts now have taken more stringent view by taking note of apprehension of bias in former employees. Before examining the cases, it is important to draw a distinction between actual bias and apparent bias. ‘Actual bias’ describes a situation where a judge has been influenced by partiality or prejudice in reaching his decision, ‘Apparent bias’ describes a situation where circumstances exist which gives rise to a reasonable apprehension that the judge may have been, or may be, biased.
In the case of Afcons Infrastructure limited vs. Ircon International Limited [ARB P. 21/2017 decided on May 29, 2017 (High court of Delhi)], the court held that though it is permissible under the statute to appoint an ex-employee as an arbitrator yet the appointment would give rise to the apprehension that independence and impartiality would exist and that the decision would not be fair. Similarly, in Hindustan steel works construction limited vs. Union of India and ors. [ARB P. 596/2018 decided on November 11, 2016 (High court of Delhi)] The court held that the purpose of bringing an amendment was to discard the instances of prejudices and to ensure that the arbitrator appointed is independent, impartial and is able to discharge his duties without hindrances. Therefore, as per seventh schedule of the act, emphasis should be on the position of influence the person has over decision-making in the organization. The court relied on the Supreme Court observation in the case of M/s Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Ltd (2017) 4 SCC 665 where the court highlighted upon one more issue faced during arbitration proceeding which was the dominance of one party to choose the arbitrators constituting panel and thereby giving the opposite party limited choice of picking few arbitrators out of the panel created. Therefore, the court directed that the panel be broad-based and further directed that the panel should have member from legal background apart from the specialized department as it is not necessary that all disputes that arise may be of technical nature. Additionally, the court was of the opinion that limited choice given to the other party would result in no free choice given to nominate a person to act as an arbitrator.
Another important aspect is unilateral arbitration clauses where one party has an option to nominate sole arbitrator and whenever disputes arises, such party with the right to appoint sole arbitrator would appoint arbitrator of its choice which may be beneficial to it in the given circumstances. In various countries, this practice has been declared by the courts as being invalid on grounds of ‘morality, fairness, good faith’ etc. India being hybrid legal system respects the autonomy of the parties only if the parties are given wide choice of arbitrators with neutral credibility. Therefore, the courts have opined that such unilateral arbitration clauses incorporated by parties are against the principles of public policy as provided under section 28 of Indian Contract Act.
Arbitration process in any jurisdiction respects the autonomy of parties to determine the terms but the dominance of one party over the other may disrupt the entire arbitration proceeding resulting in it being favourable to one party than to other. Apart from this, there is one problem, once arbitral tribunal gives an award until there is something which does not falls under the jurisdiction or if there are some misrepresentation/ prejudices which cannot be proved easily then the party right to approach high court is hampered. The court will not entertain such suits and the award will attain finality especially where judges with high stature are involved. The manner of selection of co-arbitrator, therefore, needs to be regulated and each party should be given a fair and equal opportunity to decide the fate of arbitration.
– Purti Sharma
Associate advocate/Legal coordinator
ASC Solicitors and Advocates