India: Difference In The Concepts Of Independence And Impartiality Of Arbitrator

Last Updated: 22 June 2017
Article by Nilava Bandyopadhyay and Anandini Sood

Most Read Contributor in India, July 2017

Vide the amendment of the Arbitration and Conciliation Act in 2015 following the 246th Law Commission Report, many provisions of the Act were amended suitably to smoothen out the roughed up edges of the 1996 Act. The issue of independence and impartiality of the arbitrator(s) has been discussed in a string of judgments in the pre-amendment era as well.

However, after the 2015 amendment, it was in the case of Assignia-VIL JV v. Rail Vikas Nigam Limited1 that Schedule Fifth and Seventh r/w Section 12 of the amended Act was discussed. In that case, the Respondent made a suggestion to appoint its own employee who was either a present employee or retired employee, as the arbitrator. However, it was held by the Hon'ble Delhi High Court that the request could not be accepted as the arbitration had been invoked after the amended Act came into operation and that if the said request was allowed, the very purpose of amending the Act would be defeated. This judgment followed the league of previous case laws such as ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd.2, Northern Railway Administration, Ministry of Railway v. Patel Engineering Co. Ltd.3 and North Eastern Railway v. Tripple Engineering Works4 wherein the Hon'ble Court held the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in the past. In all the above mentioned judgments, one of the parties to the dispute was a government entity and each time the Court decided that the government entity cannot be allowed to appoint an arbitrator from one of its own employees be it a current employee or retired.

Therefore, after the 2015 amendment, it emerged as a rule of thumb that in cases where there was even the slightest of apprehension of bias on part of the arbitrator on account of Fifth or bar under the Seventh Schedule, the Court will not be wrong in exercising its discretion and appoint the arbitrator(s).

In the recent judgment of Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd.5, the Hon'ble Supreme Court while dealing with similar situation has also dealt in detail about the four pillars, which are the basis of the Arbitration Act in India. The Hon'ble Court also observed that "...Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings."

The section 12(5) of the Arbitration and Conciliation Act, 1996 starts with a non-obstante clause and provides that despite of any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator. The Seventh Schedule in turn provides for various situations under which a person is ineligible to be appointed as an arbitrator.

The Hon'ble Apex Court while deciding the Voestalpine (supra) matter, has held that if a person nominated to be the arbitrator is a retired officer of the government or any statutory corporation or a public sector undertaking and has no connection with the party in dispute, the same would not attract the application of Section 12(5) r/w Schedule Seventh of the amended Act. The Hon'ble Court also went ahead and stated that had this been the intention of the legislature, the Seventh Schedule would have covered such persons as well. The Hon'ble Apex Court has observed that where the panel of persons nominated to be arbitrator(s) consists of experienced ex-employees who are technically sound as well, bias or even real likelihood of bias cannot be attributed to such highly qualified and experienced persons, simply on the ground that they served the Central Government or PSUs, even when they had no connection with the party in dispute. It was also held that the very reason for empanelling these persons is to ensure that technical aspects of the dispute are suitably resolved by utilizing their expertise when they act as arbitrators.

In this case, as there was a peculiar situation that the Petitioner was supposed to nominate its Arbitrator only from the list of five arbitrators provided by DMRC, the Hon'ble Court observed that such a situation has to be countenanced and therefore, direct DMRC to broaden its list and also directed the Petitioner to nominate its Arbitrator from the entire panel not from the short listed five arbitrators.

The Hon'ble Court also directed DMRC to include engineers of repute from private sector, as well as retired judges and reputed lawyers in its list to be prepared by DMRC.

Footnotes

1 Assignia-VIL JV v. Rail Vikas Nigam Limited, 230(2016) DLT235

2 ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corporation Ltd., (2007)5SCC304

3 Northern Railway Administration, Ministry of Railway v. Patel Engineering Co. Ltd., (2008)10SCC240

4 North Eastern Railway v. Tripple Engineering Work, (2014)9SCC288

5 Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation Ltd., AIR2017SC939

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