AN ARBITRATOR…A JUDGE IN HIS OWN CASE

Under the Indian Law of Arbitration

The Arbitration & Conciliation Act, 1996 is an Act to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto.

Ever since the Arbitration & Conciliation Act, 1996 came into force on 22.8.1996, demands have been voiced requesting amendments in various spheres of the law of arbitration. It was considered by the Law Commission in 1998, that it would not be appropriate to take up amendments of the Act of 1996 in haste and that it would be desirable to wait and see how the courts would grapple with the situations that might arise.

Five years after the enactment of the legislation, the Commission felt that it was appropriate to review its working by obtaining representations and views from the various concerned quarters and propose the requisite amendments to the Act by way of the 176th Report on Arbitration & Conciliation Amendment Bill, 2001.

There were deviating views expressed with respect to the stage at which jurisdictional issues should be decided. It was also pointed out that where the arbitrator rejects objections relating to jurisdiction or rejects pleas of bias, by way of interim decision, no immediate right of appeal is provided and parties have to go ahead with the arbitration proceedings till the award is made. Therefore it of paramount importance to point out certain ambiguities or flaws in the provisions of the present 1996 Act on account of which divergent views were expressed.

Challenge procedure under scrutiny

Conventionally under the 1996 Act, where there are circumstances, which give rise to justifiable doubts as the independence or impartiality of the arbitrator or where he lacks the qualifications, agreed to by the parties, the office of the arbitrator might be challenged.[2] In case, there is a disagreement as to the procedure of challenge, the party intending the challenge sends a written statement of the reasons for the challenge to the arbitral tribunal, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances as referred above.[3]

Here, the arbitral tribunal assumes the role of an adjudicatory authority to decide on the challenge, unless the challenged arbitrator himself withdraws from the office or the other party agrees to the challenge.

An appraisal of the clauses of Section 13 of the 1996 Act makes it clear that in cases where the arbitral tribunal consists of one sole arbitrator and only one of the parties have challenged his appointment and the other has not agreed with the challenge, the arbitrator becomes ‘a judge in his own cause’ and decides his own fate. This is rather unfortunate and contrary to the accepted principle of natural justice ‘nemo judex in causa sua’ i.e. no man shall be a judge in his own cause.

In such a situation if the sole arbitrator decides to withdraw, no problem would arise but in case he decides otherwise and rejects the challenge, then he would continue the arbitral proceedings and make the award, which would be binding on the parties including the one who had objected to his appointment. This blatant violation of principle of natural justice creates a rather dysphoric situation, which the framers of the 1996 Act should have been mindful off. In such a state the only remedy available to the aggrieved party is to make an application to the court to set aside the arbitrator’s award.

Oppugn the procedure

The significant question that comes up is ‘whether the decision of the arbitrator rejecting the plea of bias and lack of qualifications should be decided as preliminary issues with a right of appeal or whether they can be challenged only after the award?

Before responding to the above question it would be pertinent to mention that although Section 13 sub-section (5) contemplates an application to set aside the award in accordance with Section 34, no such right to question the award on these grounds has been included in Section 34. Moreover, the phraseology used in Section 34, i.e. “an arbitral award may be set aside by the court only if”, suggests that recourse to court for setting aside the award can be had by a party on ‘an exclusive list of limited grounds’.

Therefore, to clear the air regarding this ambiguity, the Law Commission in its 176^th Report, (Arbitration Amendment Bill, 2001) has proposed an amendment to Section 34(2) to clarify the existing position by adding Explanation II:

“In sub-section (2), the ‘Explanation’ shall be numbered as ‘Explanation I’ and after Explanation I so renumbered, the following Explanation shall be inserted namely: -

Explanation. -II For the removal of doubts, it is hereby declared that while seeking to set aside an award under sub-section (1), the applicant may include the pleas questioning the decision of the arbitral tribunal rejecting –

i. A challenge made under sub-section (2) of Section 13;

ii. The plea made under sub-section (2) or sub-section (3) of Section 16.”

Another noteworthy question is ‘whether it is desirable to provide for an immediate appeal to the Court under Section 37 of the Act against the decision of the arbitral tribunal rejecting the plea of bias or disqualification?’

The UNICTRAL Model Law on International Commercial Arbitration[4] (hereinafter referred to as the ‘Model Law’) in Article 13 provides for an immediate appeal against an interlocutory order of the arbitral tribunal rejecting a plea of bias or disqualification within 30 days, while the said remedy has been omitted in the 1996 Act in Section 13 as well as in sub-section (2) of Section 37.

Regarding this issue, distant views have emerged when discussed among jurists and legal luminaries, one view stating that it would be waste of money and time if there is no immediate appeal and if ultimately the award is set aside under Section 34. The other view, equally vehement, was that any immediate court interference would be abused by filing frivolous objections against the award. Hence, the first view is supported by the fact that there is a similar provision in the Model law.

The Model Law that provides for an immediate appeal under Article 13 (4) also elucidates that pending appeal arbitral proceedings ‘may’ go on. On the other hand, the 1996 Act uses the word ‘shall’ that makes it obligatory for the arbitral tribunal to continue with the proceedings and make an award.

There are several countries that have adopted the Model Law providing immediate appeal against an order rejecting a plea of bias and have also used the word ‘may’ in relation to continuance of proceedings by the arbitral tribunal[5]. The UN Commission in its Report (1985) on the adoption of the Model Law observed that ‘the prevailing view, however, was to retain the system adopted in Article 13 of the Model Law since it would strike an apparent balance between the need for preventing obstruction or dilatory tactics and the desire of avoiding waste of time and money.’[6]

Mr. Aron Broches, Kluwer[7] has no doubt said:

“At the Working Group’s fourth session, a resolution was adopted which, on one hand, permitted immediate recourse to the Court, with the attendant risk that such recourse may be used a delaying tactic and on the other hand, permitted (but did not oblige) the arbitral tribunal to continue the arbitral proceedings. This enables the tribunal either to limit the adverse effects on an unjustified challenge for dilatory purposes by continuing the proceedings, or to suspend the proceedings where it considers that the interest of the parties is best served by getting the challenge question out of the way rather than letting them run the risk of waste of time and money on an award which may ultimately be set aside under Article 34.”

Adverting to the procedure followed in United States where immediate Court intervention is rejected in matters where the plea of bias is raised, Redfern and Hunter in Law and Practice of International Arbitration,[8] state that there the procedure is unsatisfactory as parties are not allowed to challenge the decision till the award is made. They opine:

“This means that a party with a valid objection to the composition of the tribunal would have to make an objection ‘on the record’ and then wait until the end of the case before challenging the award (with the attendant waste of time and money if the challenge is successful).”[9]

In this context, they have suggested as follows:

“Usually the appropriate course for an arbitral tribunal is to issue an interim award on jurisdiction, if asked to do so. This enables the parties to know where they stand at an early stage; and it will save them spending time and money on arbitral proceedings that prove to be invalid.”[10]

While the argument in favour of providing an immediate appeal under Section 37 against an order of the tribunal refusing a plea of bias or disqualification is strong and it will be rather unfortunate if one has to question the rejection of the plea only after the award is passed, but on the other hand, if an immediate appeal is provided, the party who wants to delay the arbitral proceedings will, in almost every case, file an objection at the commencement and then, file an appeal under Section 37 (2). There is indeed a lot of scope for abuse.

Moreover, it is pertinent to point out that supervision by the Court in the case of international arbitrations should be kept at the minimum as in the Model Law but that so far as domestic arbitration is concerned, supervision could be more intense having regard to the lack of qualifications and also experience of arbitrators in India who are not necessarily judges or lawyers.

Redfern and Hunter observed as follows:

“Amongst states which have a developed arbitration law, it is generally recognised that more freedom may be allowed in an international arbitration that is commonly allowed in a domestic arbitration. The reason is evident. Domestic arbitration usually takes place between the citizens or residents of the same state, as an alternative to proceedings before the courts of law of that state…it is natural that a state should wish (and even need) to exercise firmer control over such arbitration, involving its own citizens or residents than it would wish (or need) to exercise in relation to international arbitration which may only take place within the state’s territory because of geographical convenience.”[11]

It is therefore, necessary to provide additional supervision by the Court by way of appeal in case of domestic arbitration but at the same time limiting the supervision of international arbitral awards to the minimum. It is permissible to have firmer control on domestic arbitration awards, as pointed out in the above passage.

Conclusion

The provisions of Section 13 have to be brought in conformity with the Model Law, which maintains a reasonable balance between speedy disposal of arbitral proceedings and immediate decision on issues of bias and disqualification, so that time and money could be saved. The arbitrators are to be given discretion to go ahead with the arbitration proceedings pending appeal so that they will have control as to the manner in which the appellant is conducting his case in the appeal preferred by him against the order rejecting the pleas of bias or disqualification.

Perhaps a solution to the problem regarding the adjudication by a sole arbitrator deciding his case could be addressing the challenge to an independent panel, body or board following the pattern of the American Arbitration Association (AAA). Moreover, in case of an institutional arbitration where the arbitrator has been appointed by a permanent arbitral institution, the objections as to appointment of arbitrator should be referred to such institution.

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[1] Rohan Bagai is a law student at Amity Law School, New Delhi.

[2] Section 12 sub-section (3)

[3] Section 13 sub-section (2)

[4] Adopted by the United Nations Commission on International Trade Law on 21^st June, 1985.

[5] See Sec.1037 (3), German Arbitration Act, 1998, Sec. 13 (2) of Schedule to the Australian Act, Art. 13 (3), Canadian Act, 1985, Art. 13 (3) of the Schedule to the Ireland Act, 1998, Art. 1393 of the first schedule of the New Zealand Act, 1999.

[6] UN Commission Report on the adoption of the Model Law (1985)

[7]Commentary on UNCITRAL Model law, (1990)

[8] Redfern and Hunter, Law and Practice of International Arbitration, 2^nd Edition.

[9] Ibid, para 4.65 referring to Florsynth Inc. v. Rickhote, 750 F.2d. 171 (1984); Hunt v. Mobil Oil Corp., 583 F. Suppl. 1092 (1984); Morelite Construction Corp. v. New York City District Carpenters Benefit Funds, 748 F. 2d. 79 (1984)

[10] Ibid, para 5.42

[11] Ibid, pg. 14, 15