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Independence And Impartiality Of Arbitrators In India

This essay examines the critical principles of independence and impartiality in the context of arbitrators in India. Arbitration, as an alternative dispute resolution method, offers a streamlined and cost-effective approach compared to traditional litigation. The Arbitration and Conciliation Act, 1996, governs these processes, ensuring fairness.

Recent amendments, notably in 2015, have highlighted the necessity for arbitrators to assert and maintain their independence and impartiality. The inclusion of the Fifth and Seventh Schedules, coupled with the emphasis on arbitrators declaring their independence, marks a significant shift towards a more credible arbitration framework.

Key cases like Voestalpine Schienen GmBH v. Delhi Metro Rail Corporation Limited and Perkins Eastman Architects DPC &Anr v. HSCC (India) Ltd., underscore the Supreme Court's stance on preserving the neutrality and integrity of arbitral tribunals. Upholding these principles is crucial for ensuring trust and confidence in arbitration, further solidifying its role as a fair and effective mechanism for dispute resolution in India.

An arbitrator is nothing but just a neutral third party which decides a particular dispute between the two parties. When two parties are in dispute and despite going to the court of law they decide to go before an arbitrator or a panel of arbitrators then it is called as the arbitration. An arbitrator does not just give a decision in a matter like the courts/judiciary instead it tries to settle the dispute between the parties i.e., he satisfies both the parties by his decision.

If both the parties are agreeing to go for the arbitration then only the dispute goes to the arbitration proceedings. The fact that whether the parties are companies or individuals do not affect the option of going to the arbitrator instead of litigation. As the litigation process is so heavy for the general public to address their disputes as it costly as well as time consuming, the arbitration is the best alternative and attractive way of dispute resolution.

The arbitrator's decision in an arbitration proceeding is binding on the parties, it may be challenged by way of appeal but generally the order of the arbitrator is final. That is why when it comes to arbitrator, they must be independent of any control be it internal or external as well as impartial to both the parties to the dispute because it is the question of justice to the public. Even though arbitration is not the judiciary but it plays a great role in settling the dispute between the parties by satisfying them.

In India, Arbitration and Conciliation Act, 1996 governs all the arbitration proceedings. Basically, it is divided into two parts- First part deals with all arbitration proceedings which are conducted in India and the second deals with the enforcement of foreign awards.

Impartiality And Independence Of Arbitrators

When it comes to dispute resolution the arbitrator must be impartial and independent in nature as it is an alternative of judicial process only. Impartiality and Independence are two different principle and have their own scope of application. Impartiality means to give the equal opportunity to both the parties to present their matter whereas the independence means that there is no interest of arbitrator in the matter.1 And the need arose for effective standards with respect to independence and impartiality of arbitrators is emerged from the IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines).2 Definitely there are many other international conventions also which talk about the standard of impartiality and independence as SCC Arbitration Rules, ICC Arbitration Rules, UNCITRAL Arbitration Rules and ICSID Convention. There are different ways through which the impartiality and independence of the arbitrators is tried to be ensured:

Amendments Made Into The Arbitration And Conciliation Act, 1996

In the year of 2015 the government of India to maintain a standard level of arbitration decided to amend the Arbitration and Conciliation Act, 1996 by introducing the Arbitration and Conciliation Bill (Amendment) Bill, 2015 in the parliament. And it was approved by the union cabinet through the way of taking into consideration the Law Commission's recommendation in light of the general standards made under the IBA guidelines laying the principles that should guide arbitrators, parties and arbitral tribunal in deliberating over issues of possible bias and suggestions received from stake holders.

In an effort to promote arbitration as the preferred method for resolving commercial disputes and to establish India as a centre for international commercial arbitration, changes to Section 123 have been made under the new law. These changes now place a greater emphasis on arbitrators declaring their independence and impartiality. Act 3 of 2016 introduced a Fifth Schedule4, which outlines specific grounds that could cast doubt on the independence and impartiality of an arbitrator. Anyone not falling within the criteria listed in the Fifth Schedule is presumed to be unbiased and fair.

Furthermore, a Seventh Schedule has been introduced, and a provision has been included explicitly stating that regardless of any previous agreement between the parties, an arbitrator is ineligible if their relationship with the parties, their legal representatives, or the subject of the dispute falls under any category in the Seventh Schedule. However, parties can later waive this provision by explicitly agreeing to it in writing after a dispute has arisen, thus adopting the standard of independence and impartiality set out in the Act.

Consequently, it is now impossible for government authorities to appoint their own employees or consultants as arbitrators in arbitration cases under any circumstances. The recent amendment to Section 12 of the Arbitration and Conciliation Act, 1996, signifies a shift where the arbitrator's declaration of independence and impartiality holds more weight, moving beyond a mere procedural formality seen in the earlier system.5 This change indicates a significant step towards enhancing the credibility and reliability of arbitration processes in India.

aligning with the International Bar Association (IBA) Guidelines has played a crucial role in this evolution, emphasizing the importance of robust standards of independence and impartiality. It reflects a commitment to ensuring fairness and trust in arbitration proceedings, which is essential for businesses and individuals seeking resolution through these methods.

This move is likely to garner positive feedback from stakeholders, as it signals a proactive approach to address potential conflicts of interest and uphold ethical standards within the arbitration landscape. It also underscores India's aim to become a more attractive destination for international commercial arbitration, where parties can have confidence in the neutrality and integrity of the process.

Landmark Cases Of Supreme Court On Impartiality And Independence Of Arbitrators

The Supreme Court emphasized the significance of ensuring that the arbitral tribunal's neutrality, impartiality, and independence are not questioned by any of the involved parties. In various rulings, the Supreme Court has cited respected commentators and highlighted that qualifications, experience, and integrity should serve as the benchmarks for selecting an arbitrator.6

In this light, it is pertinent to mention Section 107 of the Act, which grants the Chief Justice of India broad discretion to appoint an arbitrator in arbitration proceedings. This discretion takes into account all essential factors aimed at maintaining the integrity of the arbitration process.

Voestalpine Schienen GmBH v. Delhi Metro Rail Corporation Limited 8

The judgment in this particular case by the supreme court mainly focused on interpreting the amendment made in Section 12 of the the Arbitration and Conciliation Act, 1996 and also reinforces the importance of constituting an arbitral tribunal which is "neutral", "impartial" and "independent" in order to deliver justice to the parties involved in the arbitration proceedings.

The central issue in this case was 'Whether panel of arbitrators, as constituted by the respondent, violates the amended provisions of Section 12 of the Act?' And the Hon'ble Supreme court held that sub-clauses (b) and (c) of clause 9.2 of the SCC should be removed, and parties should have the freedom to nominate any individual from the entire pool of arbitrators. Additionally, the two arbitrators selected by the parties should have complete autonomy in choosing the third arbitrator from this panel.

Furthermore, the Court emphasized the necessity of having a diverse and comprehensive panel to eliminate any apprehensions regarding the compromise of impartiality and independence during any stage of the arbitration process, particularly during the formation of the arbitral tribunal. Consequently, the parties were instructed to create a broad-based panel following the outlined approach within a span of two months.

Perkins Eastman Architects DPC &Anr v. HSCC (India) Ltd.9

Supreme Court held that the scope of standards of independence and impartiality is also extended to the procedure adopted for constitution of arbitral tribunal and appointment of arbitrator. Thus, making way to purge the ills of unilateral appointments in India, especially where such appointments are often muddled in opaque processes.

Reliance Industries Ltd. & Ors v Union of India 10
The Supreme Court had held that it was important to ensure that no doubts were cast on the neutrality, impartially and independence of the arbitral tribunal therefore the Supreme Court held that qualification, experience and integrity should be considered as important parameters for deciding the appointment of an arbitrator.

Independence and impartiality are crucial aspects of any system of judgment as they directly affect the perception and delivery of justice. Independence implies that the arbitrator has no personal interest or obvious conflict related to the parties involved or the amount at stake in the proceedings. On the other hand, impartiality means that the arbitrator provides an equal opportunity for both parties to present their case fairly.

In the Voestalpine Schienen GmBH v. Delhi Metro Rail Corporation Limited case, the Supreme Court referred to O.P. Malhotra's book on the Law and Practice of Arbitration and Conciliation, noting the fundamental principle of the Arbitration and Conciliation Act, 1996: "party autonomy in the choice of procedure." This principle allows parties to follow the procedure outlined in their arbitration agreement. Even when appointing a substitute arbitrator, this general rule applies, meaning that the appointment should align with the provisions of the original agreement for the initial arbitrator.

However, the full realization of this party autonomy, in terms of selecting their arbitrator and procedure, hinges on the person chosen to act as the arbitrator being neutral, impartial, and independent. Therefore, this judgment aims to solidify the Supreme Court's stance on the neutrality, impartiality, and independence of the arbitral tribunal. Its implications are expected to extend beyond domestic arbitration, also impacting international commercial arbitration.

While it is acknowledged that arbitration operates within a private framework, it is crucial to recognize that arbitration is not inherently inferior to the traditional justice system. Instead, both methods of dispute resolution complement each other, making it inappropriate to compare them directly. It is essential to understand that arbitration and the judiciary serve distinct paths toward achieving justice, and thus, there should not be futile attempts to establish a hierarchy between the two.

From this perspective, it is clear that arbitration serves as a means to achieve justice. Therefore, it is vital to ensure that arbitration proceedings are not misused or compromised by the partiality of the arbitrator or the arbitral panel under any circumstances.

  1. Manasi Arora, Impartiality and Independence of Arbitrators, (accessed on Mar. 02, 2024)
  2. Suvigya Awasthi, The Standard of Independence and Impartiality of an Arbitrator and Conflict of Interests surrounding it, PSL CHAMBERS (accessed on Mar. 05, 2024)
  3. Arbitrations and Conciliation Act, 1996, s 12.
  4. Arbitrations and Conciliation (Amendment) Act, 2015, 5th schedule.
  5. Arbitration and Conciliation (Amendment) Act, 2015, s 12 (5).
  6. Sneha Bhawnani & Swatilekha Chakraborty, VINOD KOTHARI CONSULTANTS (last accessed on Mar. 5, 2024)
  7. Arbitration and Conciliation Act, 1996, s 10.
  8. Voestalpine Schienen GmBH v. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665.
  9. Perkins Eastman Architects DPC &Anr v. HSCC (India) Ltd (2019) 17 SCR 275.
  10. Reliance Industries Ltd. & Ors v Union of India (2018) EWHC 822 (Comm).
Written By: Akash Kumar Goyal, Second Year (B.A. LL.B.) Law Students, Faculty of Law, Marwadi University, Rajkot (Gujrat).
Email Id: [email protected], Contact No: 9024601521

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