TMI Blog2017 (9) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... roposed arbitrator is a person who has had previous involvement in the case in some other avatar. According to us, this is a sound argument as “the arbitrator” refers to the proposed arbitrator. This becomes clear, when contrasted with Items 22 and 24, where the arbitrator must have served “as arbitrator” before he can be disqualified. Obviously, Item 16 refers to previous involvement in an advisory or other capacity in the very dispute, but not as arbitrator. It was also faintly argued that Justice Doabia was ineligible under Items 1 and 15. Appointment as an arbitrator is not a “business relationship” with the respondent under Item 1. Nor is the delivery of an award providing an expert “opinion” i.e. advice to a party covered by Item 15. The fact that Justice Doabia has already rendered an award in a previous arbitration between the parties would not, by itself, on the ground of reasonable likelihood of bias, render him ineligible to be an arbitrator in a subsequent arbitration. We have not been shown anything to indicate that Justice Doabia would be a person holding a pronounced anti-claimant view The appointment of Justice Doabia was also attacked on the ground that he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iliation Act, 1996, in particular with respect to sub-section (5) of Section 12 added by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) (hereinafter referred to as the 2016 Amendment Act). 3. Briefly stated, the relevant facts necessary to decide this case are as follows. The respondent, GAIL (India), issued a notice inviting tenders for supply of wax generated at GAIL s plant at Pata, Uttar Pradesh for a period of 20 years on an exclusive basis. The appellant successfully tendered for the said contract and the parties entered into an agreement dated April 1, 1999. Disputes arose between the parties, the appellant claiming that GAIL had wrongfully withheld supplies of wax, as a result of which the appellant invoked the arbitration clause included in the agreement. 4. Three earlier arbitrations have taken place between the parties. The present dispute arises from the fourth such arbitration. For the period 2004-2007, an Arbitral Tribunal consisting of Justice A.B. Rohatgi (presiding arbitrator), Justice J.K. Mehra and Justice N.N. Goswamy published an award on April 8, 2006 in which they directed specific performance of the agreement dated April 1, 1999 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule thereby making him ineligible to act as arbitrator. He also argued that Items 20 and 22 contained in the Fifth Schedule are also attracted to the facts of this case, thereby giving rise to justifiable doubts as to his independence or impartiality. He further argued that if for any reason Justice Doabia s appointment is held to be bad, Justice Lahoti s appointment must follow as being bad as an ineligible arbitrator cannot appoint another arbitrator. He has argued before us that the 2016 Amendment Act, which substituted Section 12(1), read with the Fifth and Seventh Schedules and introduced Section 12(5), has to be read in the context of the grounds for challenge to awards being made narrower than they were under Section 34 of the Act. This being so, it is extremely important that the independence and impartiality of an arbitrator be squarely and unequivocally established, and for this purpose, the grounds contained in the Fifth and Seventh Schedules should be construed in a manner that heightens independence and impartiality. According to learned counsel, once a Seventh Schedule challenge is presented before the Court, the arbitrator becomes ineligible and consequently bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,- (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1. The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2. The disclosure shall be made by such person in the form specified in the Sixth Schedule. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12. 12. Under Section 12, it is clear that when a person is approached in connection with his possible appointment as an arbitrator, he has to make a disclosure in writing, in which he must state the existence of any direct or indirect present or past relationship or interest in any of the parties or in relation to the subject matter in dispute, which is likely to give justifiable doubts as to his independence or impartiality. He is also to disclose whether he can devote sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dispute in the arbitration. (Waivable Red List) 2.3.4 The arbitrator is a manager, director or member of the supervisory board, or has a controlling influence in an affiliate of one of the parties, if the affiliate is directly involved in the matters in dispute in the arbitration. 6. The arbitrator s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself. (Waivable Red List) 2.3.5 The arbitrator s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself. 7. The arbitrator s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties. (Waivable Red List) 2.3.6 The arbitrator s law firm currently has a significant commercial relationship with one of the parties, or an affiliate of one of the parties. 8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a signi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefrom. (Non-Waivable Red List) 1.4 The arbitrator or his or her firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm derives significant financial income therefrom. 15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties. (Waivable Red List) 2.1.1 The arbitrator has given legal advice, or provided an expert opinion, on the dispute to a party or an affiliate of one of the parties. 16. The arbitrator has previous involvement in the case. (Waivable Red List) 2.1.2 The arbitrator had a prior involvement in the dispute. 17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held. (Waivable Red List) 2.2.1 The arbitrator holds shares, either directly or indirectly, in one of the parties, or an affiliate of one of the parties, this party or an affiliate being privately held. 18. A close family membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n unrelated matter without the involvement of the arbitrator. (Orange List) 3.1.4 The arbitrator s law firm has, within the past three years, acted for or against one of the parties, or an affiliate of one of the parties, in an unrelated matter without the involvement of the arbitrator. 24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties. (Orange List) 3.1.5 The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties, or an affiliate of one of the parties. 25. The arbitrator and another arbitrator are lawyers in the same law firm. (Orange List) 3.3.1 The arbitrator and another arbitrator are lawyers in the same law firm. 26. The arbitrator was within the past three years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same arbitration. (Orange Lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one of the parties, this party or affiliate being publicly listed. 33. The arbitrator holds a position in an arbitration institution with appointing authority over the dispute. (Orange List) 3.5.3 The arbitrator holds a position with the appointing authority with respect to the dispute. 34. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the arbitration. (Orange List) 3.5.4 The arbitrator is a manager, director or member of the supervisory board, or has a controlling influence on an affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the arbitration. Explanation 1.-The term close family member refers to a spouse, sibling, child, parent or life partner. Footnote 3.- Throughout the Application Lists, the term close family member refers to a: spouse, sibling, child, parent or life partner, in addition to any other family member with w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties. 4. The arbitrator is a lawyer in the same law firm which is representing one of the parties. 5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. 6. The arbitrator s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself. 7. The arbitrator s law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties. 8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom. 9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company. 10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties. 11. The arbitrator is a legal representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as ineligible . In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the arbitrator s independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If a challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator/arbitrators, the Tribunal must then continue the arbitral proceedings under Section 13(4) and make an award. It is only after su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erious sub-set of situations (as set out in the Fifth Schedule, and as based on the Red list of the IBA Guidelines). 60. The Commission, however, feels that real and genuine party autonomy must be respected, and, in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective justifiable doubts regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to section 12 (5), where parties may, subsequent to disputes having arisen between them , waive the applicability of the proposed Section 12 (5) by an express agreement in writing. In all other cases, the general rule in the proposed section 12 (5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of section 12 (1) and in which context the High Court or the designate is to have due regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... likelihood that the arbitrator may be influenced by factors other than the merits of the case as presented by the parties in reaching his or her decision. (d) Justifiable doubts necessarily exist as to the arbitrator s impartiality or independence in any of the situations described in the Non-Waivable Red List. 16. In Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd. , (2017) 4 SCC 665 at 687-689, in the context of a Section 11 application made under the Act, this Court had occasion to delve into the independence and impartiality of arbitrators and the guidelines that are laid down in the Fifth and Seventh Schedule. This Court stated: 20. Independence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which applied to all judicial and quasi-judicial proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from the agreement entered into between the parties, notwithstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is based on IBA guidelines which are clearly regarded as a representation of international based practices and are based on statutes, case law and juristic opinion from a cross-section on jurisdiction. It is so mentioned in the guidelines itself. 24. xxx xxx xxx 25. Section 12 has been amended with the objective to induce neutrality of arbitrators viz. their independence and impartiality. The amended provision is enacted to identify the circumstances which give rise to justifiable doubts about the independence or impartiality of the arbitrator. If any of those circumstances as mentioned therein exists, it will give rise to justifiable apprehension of bias. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Likewise, the Seventh Schedule mentions those circumstances which would attract the provisions of sub-section (5) of Section 12 and nullify any prior agreement to the contrary. In the context of this case, it is relevant to mention that only if an arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). Justice or morality has been tightened and is now to be understood as meaning only basic notions of justice and morality i.e. such notions as would shock the conscience of the Court as understood in Associate Builders v. Delhi Development Authority , (2015) 3 SCC 49. Section 28(3) has also been amended to bring it in line with the judgment of this Court in Associate Builders (supra), making it clear that the construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one. 19. Thus, an award rendered in an international commercial arbitration whether in India or abroad is subject to the same tests qua setting aside under Section 34 or enforcement under Section 48, as the case may be. The only difference is that in an arbitral award governed by Part I, arising out of an arbitration other than an international commercial arbitration, one more ground of challenge is available viz. patent illegality appearing on the face of the award. The ground of patent illegality would not be established, if there is merely an erroneous application of the law or a re-appreciation of evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase that Justice Lahoti regularly advises the respondent. And Item 15 cannot apply as no legal opinion qua the dispute at hand was ever given. On reading Item 1 of the Seventh Schedule, it is clear that the item deals with business relationships . The words any other show that the first part of Item 1 also confines advisor to a business relationship . The arbitrator must, therefore, be an advisor insofar as it concerns the business of a party. Howsoever widely construed, it is very difficult to state that a professional relationship is equal to a business relationship, as, in its widest sense, it would include commercial relationships of all kinds, but would not include legal advice given. This becomes clear if it is read along with Items 2, 8, 14 and 15, the last item specifically dealing with legal advice . Under Items 2, 8 and 14, advice given need not be advice relating to business but can be advice of any kind. The importance of contrasting Item 1 with Items 2, 8 and 14 is that the arbitrator should be a regular advisor under items 2, 8 and 14 to one of the parties or the appointing party or an affiliate thereof, as the case may be. Though the word regularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. Also, if he currently serves or has served within the past three years as arbitrator in another arbitration on a related issue, he may be disqualified under Item 24, which must then be contrasted with Item 16. Item 16 cannot be read as including previous involvements in another arbitration on a related issue involving one of the parties as otherwise Item 24 will be rendered largely ineffective. It must not be forgotten that Item 16 also appears in the Fifth Schedule and has, therefore, to be harmoniously read with Item 24. It has also been argued by learned counsel appearing on behalf of the respondent that the expression the arbitrator in Item 16 cannot possibly mean the arbitrator acting as an arbitrator, but must mean that the proposed arbitrator is a person who has had previous involvement in the case in some other avatar . According to us, this is a sound argument as the arbitrator refers to the proposed arbitrator. This becomes clear, when contrasted with Items 22 and 24, where the arbitrator must have served as arbitrator before he can be disqualified. Obviously, Item 16 refers to previous involvement in an advisory or other capacity in the very dispute, but n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as before, he does not give as careful a consideration on the second occasion as on the first. He will, however, be expected to give such reconsideration of the matter as is reasonably necessary for him to be satisfied that his first decision was correct. As I have said, it will be a most unusual case where the second hearing is for practical purposes an exact rerun of the first. 21. The mere fact that the tribunal has decided the issue before is therefore not enough for apparent bias. There needs to be something of substance to lead the fair-minded and informed observer to conclude that there is a real possibility that the tribunal will not bring an open mind and objective judgment to bear. 27. Those comments apply with as much force to arbitrators in international reinsurance arbitration as they do to adjudicators in building disputes. Just as an arbitrator or adjudicator can be expected to bring an open mind and objective judgment to bear when redetermining the same question on the same evidence between the same parties, it is all the more so where the evidence is different and heard in a reference between different parties. 28. The position in Bermuda Form arbitrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 1 All E.R. 65 at 92-93) against a judge was successful on this basis. The judge had written four strongly worded articles which led the Court to conclude that an objective apprehension of bias may arise on the part of one of the parties. However, a challenge against a sole arbitrator in a trade arbitration which alleged apparent bias because the arbitrator had previously been involved in a dispute with one of the parties failed. The judge found this on the facts to be no more than an ordinary incident of commercial life occurring in the relatively small field of trade arbitrations where it was thought the parties and arbitrators were quite likely to have had prior dealing with each other ( Rustal Trading Ltd. v . Gill and Duffas SA [2000] 1 Lloyd s Rep. 14). Similarly, the fact that an insurance arbitrator had previously given a statement in another arbitration (and may have been called to give evidence subsequently) about the meaning of a standard form clause which might have had a tentative bearing on the present arbitration would not give grounds for removal ( Argonaut Insurance Co v . Republic Insurance Co [2003] EWHC 547). 27. The judgment referred to in Russell is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Doabia s disclosure was by a letter dated October 31, 2016 which was sent to the Secretary General of the International Centre for Alternative Dispute Resolution (ICADR). It has come on record that for no fault of Justice Doabia, the ICADR, through oversight, did not handover the said letter or a copy thereof to the appellant until November 24, 2016, which is stated in its letter dated November 29, 2016. This contention also, therefore, need not detain us. 31. It was then argued that under Explanation 3 to the Seventh Schedule, maritime or commodities arbitration may draw arbitrators from a small, specialized pool, in which case it is the custom and practice for parties to appoint the same arbitrator in different cases. This is in contrast to an arbitrator in other cases where he should not be appointed more than once. We are afraid that this argument again cannot be countenanced for the simple reason that Explanation 3 stands by itself and has to be applied as a relevant fact to be taken into account. It has no indirect bearing on any of the other items mentioned in the Seventh Schedule. 32. This being the case, we are satisfied that the learned single Judge s judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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