In the Eyes of Justice: Exploring Concerns of Bias in Arbitration Proceedings
Adv. Abhishek Bhushan Singh
Advocate Litigation & Disputes Resolution
Assisted by: Khushi Bansal
4th year, B.A. LL.B., Symbiosis Law School, NOIDA
Introduction
Arbitration, often hailed as a cornerstone of alternative dispute resolution, serves as a vital mechanism for resolving conflicts outside the traditional courtrooms. Its allure lies in its perceived efficiency, confidentiality, and flexibility. However, beneath its facade of impartiality, concerns linger regarding the specter of bias that may permeate arbitration proceedings. In the pursuit of justice, parties engage in arbitration with the expectation of fair treatment and unbiased decision-making. Yet, the inherent human element within the arbitration process introduces the potential for partiality, conscious or unconscious, which can undermine the very essence of its objective.
To deal with the concerns regarding the reasonable apprehension of bias in arbitration, the Arbitration and conciliation Act 1996, (Arbitration Act), through the provisions found in Sections 12, 13, and 14[1] which are modeled after Articles 12, 13, and 14 of the UNCITRAL Model Law on Arbitration. According to Section 12(3) of the Arbitration Act, an arbitrator can be challenged if there are circumstances that create justifiable doubts about their independence or impartiality, or if they lack the qualifications agreed upon by the parties involved.[2] Explanation 1 to Section 12(1) specifies that the criteria listed in the Fifth Schedule should be used to assess whether there are grounds for such doubts regarding the arbitrator’s independence and impartiality.[3]
Section 12 (3) of the Arbitration Act read as:
12 (3) An arbitrator may be challenged only if—
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties.[4]
In the following judgements, the apex court has extensively deliberated on the principles of impartiality and the apprehension of bias within judicial and quasi-judicial proceedings. It has emphasized that judgments must adhere to natural justice, ensuring they are free from bias or even the appearance of partiality. Furthermore, it has been stressed that decisions should be made by impartial individuals acting fairly and without bias.
In the case of Ranjit Thakur Vs. UOI [5] the Hon’ble Supreme Court observed that
- It is the essence of a judgment that it is made after due observance of the judicial process; that the Court or Tribunal passing it observes, at least the minimal requirements of natural justice, is composed of impartial persons acting fairly and without bias and in good faith. A judgment which is the result of bias or want of impartiality is a nullity and the trial “coram non-judice”.
- As to the tests of the likelihood of bias what is relevant is the reasonableness of the apprehension in that regard in the mind of the party. The proper approach for the judge is not to look at his own mind and ask himself, however, honestly. “Am I biased? “but to look at the mind of the party before him.
- The question is not, whether in fact he was or was not biased. The Court cannot inquire into that In the administration of justice, whether by a recognised legal court or by persons who, although not a legal public court, are acting in a similar capacity, public policy requires that, in order that there should be no doubt about the purity of the administration any person who is to A take part in it should not be in such a position that he might be suspected of being biased.”
In Metropolitan Properties Co. (F.G.C.) Ltd. vs. Lannon,[6] Lord Denning M.R. observed “…..Even if he was as impartial as could be, nevertheless if right-minded persons would think that, in the circumstances, there was a real likelihood of bias on his part, then he should not sit.”.
Further in the judgment of HRD Corporation Vs. GAIL India[7], the Hon’ble Supreme Court had while analyzing Fifth and Seventh schedule of 1996 Act held that “As has been pointed out by us hereinabove, the items contained in the Schedules owe their origin to the IBA Guidelines, which are to be construed in the light of the general principles contained therein that every arbitrator shall be impartial and independent of the parties at the time of accepting his/her appointment. Doubts as to the above are only justifiable if a reasonable third person having knowledge of the relevant facts and circumstances would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case in reaching his or her decision. This test requires taking a broad common- sensical approach to the items stated in the Fifth and Seventh Schedules.”.
The above cited judgments clearly states that in case there is a reasonable apprehension of bias in the mind of the party affected, the right decision for the tribunal is to recuse itself from the case.
The Supreme Court of India in the case of Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd.[8], while embarking on the “apprehension of bias” held that “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.”
Quest to achieve impartiality and fairness
It was astonishing to learn that, prior to 2015 Amendments; the Arbitration act did not contain any provisions to scrutinize the independence or impartiality of the arbitrators while adjudicating disputes between the parties. In order to resolve this, the 2015 amendment act introduced certain changes to ensure that the arbitrator who was appointed to resolve a conflict was fair in all respects.
Sub-section 1 of Section 12 was amended to require that arbitrators disclose, in writing, any direct or indirect, past or present relationships with any parties involved in the dispute.[9] It is like a self-assessing mechanism wherein a person appointed as an arbitrator has to write his interests even in the case of slightest form of biasness. This disclosure must cover any type of relationship that could reasonably raise doubts about the arbitrator’s independence or impartiality. It is pertinent to note that independence and impartiality are two distinct concepts. While independence is to be tested on an objective assessment, impartiality is a subjective concept which becomes relevant during the arbitration proceedings.
Another prominent amendment was made in Sub-section 5 of Section 12 wherein a person whose relationship with the parties, their counsel, or the subject matter of the dispute falls within any of the categories outlined in the Seventh Schedule shall be deemed ineligible for appointment as an arbitrator.[10] In furtherance to this, Section 14 was amended to allow substitution of another arbitrator in case of ineligible to perform his functions. In the case of HRD Corporation Ltd.,[11] it was held by the Hon’ble Supreme Court the presence of circumstances outlined in the Seventh Schedule automatically disqualifies an individual from serving as an arbitrator, and challenges regarding these items may be brought directly before a court.
In the landmark case of Vinod Bhaiyalal Jain v. Wadhwani Parmeshwari Cold Storage Pvt. Ltd.[12], the Apex court setting aside the order passed by the Bombay HC held that not even the slightest apprehension for bias should be given room especially in cases where parties have the unique opportunity to select an arbitrator of their choice in whom they have trust and confidence.
Challenge Procedure under the Arbitration Act
It is settled law that a party alleging “apprehension of bias” against an arbitrator(s) can avail the remedy only in terms Section 13 of the Act.[13] A reading of the said section will reveal that the aggrieved party has three (3) options to avail the remedy. Firstly, the parties can agree on how to challenge an arbitrator before any problem arises. Secondly, sending a written statement within 15 days after becoming aware about there being a bias in the proceedings. However, this remedy is a rather a failed one because the tribunal, which may already exhibit bias or partiality against the challenging party, is tasked with adjudicating the challenge. Consequently, the impartiality of the tribunal in deciding on its own potential bias is inherently questionable, thereby undermining the effectiveness of this remedy. Even if this remains unsatisfactory to the parties, a challenge under Section 34 is another remedy provided under the act.[14] An alternate remedy is with respect to Section 14 of the act, which deals with substitution of an arbitrator in case he becomes unable to perform his functions. However, in the case of Union of India v Reliance Industries Ltd.[15], it was held that Section 14 cannot be resorted to for challenging an arbitrator’s ruling on the grounds of biasness. It was held that when provisions under Section 12, 13 and 14 were to be read together, through literal interpretation; it is understood that these provide separate causeways to challenge a decision. While section 12 and 13 can be read together to give effect to the entirety of the code against bias, section 14 has to be read independently.[16]
Furthermore, it was held that if an award under Section 12(3) was to be challenged, it can be done under Section 13 of the act, wherein challenge procedure is laid down. If such a challenge fails, the arbitration must continue and can only be questioned after an award is given in accordance with Section 34. Since these sections already cover the process of investigating bias, it would be unnecessary and incorrect to have the court investigate bias again under Section 14. Doing so would conflict with previous legal decisions and the clear intention of the law. Furthermore, the Delhi HC in Vivek Aggarwal v Hemant Agarwal and Ors.[17] held that an issue related to the bias of an arbitrator in conducting the arbitral proceedings cannot be determined by a Court while dealing with the application under Section 29A of the A&C Act as this provision is very limited, i.e. as to whether the extension of the mandate ought to be given or not.[18]
This implies that an arbitral award on the basis of biasness can only be challenged under Section 13 of the act, and once the final arbitral award is passed, under Section 34 of the act.
Conclusion
Arbitration, as a method is celebrated for its efficiency, confidentiality, and flexibility, it is not immune to concerns of bias that can undermine its integrity. Sections 12–14 of the Arbitration and Conciliation Act, 1996 addresses these concerns by establishing mechanisms for challenging arbitrators whose impartiality or independence is in doubt.
In order to cater to the same; significant rulings, such those in Ranjit Thakur v. UOI and HRD Corporation v. GAIL India, have reaffirmed the need for arbitrators to be beyond any reasonable doubt as to their impartiality. These protections have been reinforced by the 2015 Amendment Act mandating comprehensive disclosures and introducing the Seventh Schedule and substitution in cases of ineligibility.
The court decided in Union of India v. Reliance Industries Ltd (Supra) that Section 14 does not allow for the challenge of accusations of bias against an arbitrator, neither does Section 29A as laid in Vivek Aggarwal v Hemant Aggarwal’s case. Alternatively, the relevant methods are provided in Sections 12 and 13. If these are unsuccessful, additional challenges may be filed under Section 34 following the granting of an award, preserving the organized procedure of the act.
References:
[1] The Arbitration and Conciliation Act, 1996, §12–14, No. 26, Acts of Parliament, 1996 (India).
[2] The Arbitration and Conciliation Act, 1996, §12(3), No. 26, Acts of Parliament, 1996 (India).
[3] The Arbitration and Conciliation Act, 1996, §12(1), No. 26, Acts of Parliament, 1996 (India).
[4] Id. at 2.
[5] Ranjit Thakur v. UOI 1987 (4) SCC 611.
[6] Metropolitan Properties Co. (F.G.C.) Ltd. v. Lannon [1968] 3 All ER 304.
[7] HRD Corporation v. GAIL India 2018 (12) SCC 471.
[8] Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd.(2017) ibclaw.in 270 SC
[9] Id. at 3.
[10] The Arbitration and Conciliation Act, 1996, §12(5), No. 26, Acts of Parliament, 1996 (India).
[11] Id. at 3.
[12] Vinod Bhaiyalal Jain v. Wadhwani Parmeshwari Cold Storage Pvt. Ltd. 2020 (15) SCC 726.
[13] The Arbitration and Conciliation Act, 1996, §13, No. 26, Acts of Parliament, 1996 (India).
[14] The Arbitration and Conciliation Act, 1996, §34, No. 26, Acts of Parliament, 1996 (India).
[15] Union of India v. Reliance Industries Ltd. (2022) ibclaw.in 444 HC.
[16] The Arbitration and Conciliation Act, 1996, §14, No. 26, Acts of Parliament, 1996 (India).
[17] Vivek Aggarwal v. Hemant Agarwal and Ors. (2024) ibclaw.in 40 HC.
[18] The Arbitration and Conciliation Act, 1996, §29A, No. 26, Acts of Parliament, 1996 (India).
