New avenue to breaches of confidentiality under Indian Arbitration Law
Anshika Kaushik
Second Year, B.A. LL.B, NLIU, Bhopal
Introduction
The Indian Arbitration Act provides for two key principles for maintaining the integrity of the arbitral proceedings which are independence and impartiality of the arbitrator coupled with confidentiality in the arbitration proceedings. These principles go to the root of the arbitration law in India and are pivotal in making India a robust arbitration place.[i] The present case particularly deals with the intersection of these principles.
The issue becomes pertinent to discuss because the law governing confidentiality in arbitration proceedings is not clearly outlined in the act. In other words, one of the shortcomings in the act is that the law pertaining to confidentiality is not clearly stipulated. The act simply provides that it shall be the arbitrator’s onus to maintain that confidentiality throughout the arbitral proceedings, however the act is silent as to how it will be given effective meaning or to say that jurisprudence around confidentiality is not properly outlined in the act.
The author critically analyses the recent ruling by the Delhi High Court in the case of Kamaladitya Constructions Pvt. Ltd. v. UOI and its implication in context of such gap in the Indian arbitration law.
The present case poses a situation where the arbitrator’s appointment is challenged on grounds of independence, impartiality and breach of confidentiality. One question which the case brings out is whether legal ramifications in the form of termination of mandate under section 42A be brought via an application under section 12 of the act challenging the appointment of the arbitrator OR whether termination of mandate can be one of the ramifications in a case for breach of confidentiality via an application under section 12 of the act.
What is the Present Case?
The factual matrix of the case provides that the parties invoked the arbitration clause and went ahead with the arbitration. Afterwards the petitioner alleged that there exist reasonable doubts that Ld. Arbitrator has some financial interest in the outcome of the case as he is trying to get more arbitration assignment from the respondents. Apart from this other instances which raised doubts regarding the independence and impartiality of the arbitrator were also highlighted like not allowing the petitioner to present his case in totality, blatantly ignoring the contract provisions, evidences and policy letters cited by the petitioner thereby not affording reasonable opportunity to be heard to the petitioner under section 18 of the act and the most drastic instance of the case was when the petitioner alleged that during one of the sitting the counsels representing the petitioner saw that the award was released prematurely by the Ld. Arbitrator to the respondents. As a consequence, the petitioner filed an application for terminating the mandate of the arbitrator as he has become de jure unbale to perform his function under section 14(1) (a) and was ineligible to act as arbitrator under section 12 read with seventh schedule. The case also raises the issue of confidentiality in light of the premature release of the award by the respondent. Now the crucial question which comes up is that how to deal with such instances of breach of confidentiality where the act is silent on the recourse to breach of confidentiality. Another concern which the case highlights is whether section 13 and 14 provide avenues to remedy such breaches.
Understanding the provisions involved
To delve in to the discussion first it is crucial to understand the provisions involved in the case and the intent behind it. Section 12 provides for the grounds to challenge the appointment of the arbitrator where reasonable doubts exists as to the independence and impartiality of the arbitrator. The section comes in to play at two stages first when a person is approached for his possible appointment and second after he has actually been appointed. In the first case the arbitrator has to make the required disclosure at the time he is approached and a successful challenge lies if the grounds under the fifth schedule are satisfied. In the second case even if the party has submitted itself to the arbitrator, the appointment can still be challenged later if the conditions under the seventh schedule are satisfied. However, the point to be noted is that existence of such ground should come to the notice after the appointment is made and not at the time disclosure was made.
Difference in effect of Section 13 and Section 14 of the Act.
In the present case application was made under both section 13 and 14 of the act since the challenge to the arbitrator can be made under both the sections but the implications differ. Under section 13 challenge is successful when the grounds mentioned in the fifth or seventh schedule are satisfied. And if such a challenge is rejected then parties cannot approach the court until after the award is made. This ensures maintaining party autonomy and minimum court interference. This also aligns with the basic tenets of timeliness and efficiency in Indian arbitration. Section 14 on the other hand permits challenges brought directly to court emphasizing upon the principles of independence and impartiality which is attached to the Indian arbitration.
Case was brought under section 13 since ground pertaining to financial interest in the seventh schedule was satisfied consequently section 14 also applied since now the arbitrator has become de jure incapable to act as arbitrator. In the case of HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd the court has deliberated extensively on the difference between the fifth and the seventh schedule. The court clarified that under section 12(5) read with seventh schedule the person becomes ineligible and is de jure unable to perform his functions as per section 14 (1) (a) and therefore the party bypassing section 13 can directly approach the court under section 14(2) wherein the court shall decide on the issue of termination of mandate of the arbitrator. However, where the case pertains to section 14 the issue is of “ineligibility” and if the challenge is successful, it shall mean that the tribunal does not hold the authority or the jurisdiction to deal with the matter and it results in immediate termination of the mandate of the arbitrator without waiting until the release of the award.
Addressing the Gap
The Indian arbitration act puts extensive significance on maintaining confidentiality during the arbitration proceedings however the act nowhere mentions as to what shall be the legal ramifications involved in such a breach. The act does not specify the extent of confidentiality which shall be maintained or what are the possible instances which can constitute breach of confidentiality or whether it is a matter of appeal. remedy to such breaches is also not outlined in the act. It is in light of such a lacuna that the present case holds significance.
The court in this case finally ordered in favour of the petitioner and terminated the mandate of the Ld. Arbitrator. First the court emphasised on maintaining the principles of independence, impartiality and confidentiality in the Indian arbitration. The court had called upon a report from DIAC which disclosed that while the arbitrator was dictating the award it was been typed by the P.A. on large screen. Therefore, the court was of the opinion that the award was visible to the respondents constituting breach of constitutionality. The same was also supported by the affidavit of the counsel for the petitioners. The court further held that confidentiality has to maintained in strictest sense and the arbitrator while dictating the award cannot reveal it to the parties not even to the staff of the DIAC or any third party for that matter.
The case is significant for two reasons first that despite the application being filed under section 13 and 14 the court’s reasoning in the final order terminating the mandate was solely based on section 42 A. Secondly even though breach of confidentiality is not a ground to challenge the arbitrator, termination was done solely on ground of breach of confidentiality. In practice it is very rare and difficult that an arbitrator’s mandate is terminated however the court in the instance case construed the breach of confidentiality very strictly resulting in termination of mandate. The case therefore makes it clear that even though the law is silent on recourse to confidentiality breaches it cannot go ignored simply and consequences can still be attached one being termination of mandate.
The present case is not the first time where the court pressed on the importance of these principles but it is first time where breach of section 42A has resulted in termination of mandate. Even earlier the court has held that principles of impartiality and confidentiality are so fundamental and cannot be disregarded at any stage and must be followed without any exception.[ii] Independence and impartiality are the foundational ideas attached to the principle of confidentiality and must be applied in a cohesive manner. Impartiality and confidentiality are the rules against bias and are fundamental principle of natural justice. [iii]Further the paramount intent behind appointing an arbitrator is that resolution is done in a fair and impartial manner. In this context, the present case is a significant development.
Conclusion and Way Forward
In conclusion the recent ruling in the case of Kamaladitya Constructions Pvt. Ltd. v. UOI highlights critical juncture in the Indian arbitration law. It is usually difficult to end the mandate and find a new arbitrator in Indian arbitration practice since it is mostly subjective and demanding to prove. Usually, the courts take cautious approach while dealing with such applications this is done to maintain the integrity of the arbitration proceedings and not prolonging the process which in turn increases cost. Efforts are made to keep the character of arbitration as an alternate dispute resolution with minimum court interference. However, where there is high threshold as to the justifiable doubts the court should come to the recourse appropriately.[iv] In this context present case exemplifies such a balanced approach.
The case stands out for two reasons first that it has again cleared the law around section 12, 13 and 14 read with fifth and seventh schedule of the act aligning with the principles set in the cases of HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd. and Perkins Eastman Architects DPC v. HSCC (India) Ltd. Secondly the court has significantly ruled and cleared the jurisprudence around section 42A. This is the first time where the court has attached legal ramifications to breaches under section 42A, and has terminated the mandate solely on this very reason irrespective the application being filed under section 13 and 14. Earlier to this even though section 42A and various cases provided the significance of confidentiality the law was silent on possible remedies to such breaches. However further elucidations are still needed since termination of mandate is just one possible recourse relating to one aspect of confidentiality. To have a robust jurisprudence around confidentiality more needs to explained. The same can be done by way of well deliberated legislative effort, or by way of making amendments. One other option also can be adding a schedule to section 42A which shall give broad outline as to what can be probable instances of breaches. But the task does not stop here dealing with the aftermath of such breaches and remedies is an ongoing challenge and requires immediate resolution. In all concerted effort is required to foster trust and efficiency in Indian Arbitration law.
References:
[i] Law Commission, Amendment to the Arbitration and Conciliation Act, 1996 (Law Comm No.246,2014) para 60
[ii] Bharat Broadband Network Limited v United Telecoms Limited (2019) ibclaw.in 153 SC
[iii] Bharat Broadband Network Limited v United Telecoms Limited [2019]5SCC755.
[iv] Voestapline Schienen Gmbh v. Delhi Metro Rail Corp. Ltd [2017] 4 SCC 665, Bharat Broadband Network Limited v. United Telecoms Limited [2019]5SCC755.
