Section 12(1) of the Arbitration and Conciliation Act, 1996 ("the Act" ) provides that a proposed arbitrator shall disclose in writing any circumstances of relation and relationship with subject-matter in dispute and parties respectively, which is likely to give rise to justifiable doubts as to his independence and impartiality. While Section 12(1) of the Act uses the term "shall" to denote the obligation of the proposed arbitrator to disclose, the impact of non-disclosure by the proposed arbitrator under Section 12(1) of the Act on the final award rendered by the Arbitrator/Tribunal is not clearly stated. It must be noted that Section 34(2)(v) of the Act provides that an arbitral award may be set aside if the arbitral procedure was not in accordance with Part I of the Act. However, it was unclear as to whether the disclosure under Section 12(1) of the Act is mandatory for the proposed arbitrator. With this backdrop, the question is whether nondisclosure of circumstances that give rise to justifiable doubts as to independence and impartiality by a proposed arbitrator may be taken as a ground for setting aside the arbitral award under Section 34 of the Act. This aspect has recently been addressed by the Hon'ble Delhi High Court in Ram Kumar and Anr v. Shriram Transport Finance Co Ltd1 ( "the case of Ram Kumar").
In the case of Ram Kumar, the question before the Division Bench of the Hon'ble Delhi High Court was whether the impugned award was vitiated on the ground that the learned Sole Arbitrator had failed to make the necessary disclosure as required under Section 12(1) of the Act. It was undisputed that the Sole Arbitrator had not made any disclosure as required under Section 12(1) of the Act.
This Article discusses the nature of the obligation under Section 12(1) of the Act to disclose the existence of circumstances giving rise to justifiable doubts as to the independence or impartiality of the arbitrator in light of the recent pronouncement of the Delhi High Court in the case of Ram Kumar.
BRIEF FACTS OF THE CASE
Respondent (Claimant before the Arbitral Tribunal) was engaged in the business of hire purchase, lease, and loan-cum-hypothecation in respect of light motor vehicle/medium motor vehicle/ heavy goods vehicle. The Appellant (Defendant before the Arbitral Tribunal) had approached the Respondent seeking finance of Rs. 2,95,500/- and entered into a loan-cumhypothecation agreement on 12.03.2015 for a total agreement value of 3,75,420/-. Upon default in payments, the Respondent sold the seized vehicle for a sum of Rs. 1,20,000/- The arbitration clause was invoked as the appellant alleged that the seized vehicle was sold in a non1transparent manner at a price much below its assessed value.
The award was challenged by the Appellant on the basis that the Sole Arbitrator was biased in favor of the Respondent as the same appointment has been made by the Respondent in several matters.2 The Commercial Court while refusing to set aside the arbitral award under Section 34 of the Act rejected the said contention. The learned Commercial Court had ruled that the impugned award was not liable to be set aside on account that the learned Sole Arbitrator was ineligible to be appointed as an arbitrator by virtue of Section 12(5) of the Act. To this end, the Learned Commercial Court ruled that the arbitrator is required to give a declaration if he finds the disclosure is necessary which affects his independence and impartiality. The Learned Commercial Court did not interpret the disclosure contemplated in Section 12(1) of the Act as being mandatory.
RULING OF THE HON'BLE DELHI HIGH COURT
In the case of Ram Kumar, the Hon'ble Delhi High Court ruled that disclosure under Section 12(1) of the Act is mandatory and not dependent on the discretion of the Arbitrator/Tribunal. The Hon'ble Delhi Court observed that the requirement of making a disclosure is a necessary safeguard for ensuring the integrity and efficacy of arbitration as an alternate dispute resolution mechanism. It is incumbent upon the proposed arbitrator to disclose the number of matters in which he/she has been appointed by either of the parties to the dispute as specified in the Sixth Schedule of the Act. It was held that the person proposed to be appointed as arbitrator was required to be guided by the grounds as stated in the Fifth Schedule of the Act.
Additionally, it is the burden of the proposed arbitrator and not the parties to the dispute to ascertain the circumstances that may give rise to justifiable doubts as to independence and impartiality. The Hon'ble Delhi High Court relied upon the use of the words "he shall disclose" in Section 12(1) of the Act to interpret that it is mandatory for the person who is approached in connection with his possible appointment as an arbitrator, to make a disclosure of all circumstances that may give rise to justifiable doubts as to his independence and impartiality. It is important to note that the learned Commercial Court had faulted the appellant in not filing an application before the Sole Arbitrator seeking a declaration as required under Section 12(5) of the Act. Rejecting the abovesaid ruling of the Learned Commercial Court, the Hon'ble Delhi High Court ruled that once the grounds giving rise to justifiable doubts as to impartiality exist, a failure to make such disclosure vitiates the arbitral proceedings and the impugned award. As stated above, the ancillary duty of ascertaining whether circumstances giving rise to justifiable doubts exists is incumbent upon the proposed arbitrator.
It is also important to note that in Ram Kumar, the appointment of a learned Sole Arbitrator had been made unilaterally by the Respondent and without seeking any concurrence from the Appellant.3 The Appellant had also alleged that the learned Sole Arbitrator was biased in favor of the Respondent as the Respondent in several such matters against various parties had appointed him as an arbitrator.
Pertinently, Hon'ble Delhi High Court in Ram Kumar had directed the Respondent to file an affidavit clearly disclosing whether the learned Sole Arbitrator who had been appointed by the Respondent was also involved in any other matter or was engaged in any professional capacity by the Respondent or any of its affiliates. The Respondent was also directed to disclose the details of such an appointment. Once it was established that material fact that would raise justifiable grounds as to the independence and impartiality had existed, it was held that the learned Sole Arbitrator was required to disclose the same in accordance with Section 12(1) of the Act.
ANALYSIS OF THE RULING
The ruling of the Hon'ble Delhi High Court provides much needed clarity on the obligation of the proposed arbitrator to disclose circumstances, which are likely to give rise to justifiable doubts as to independence and impartiality as stipulated under Section 12(1) of the Act. The judgment in the case of Ram Kumar mandates that the proposed arbitrator before his/her appointment shall disclose circumstances that give rise to justifiable doubt towards their independence and impartiality as an arbitrator. Whether such circumstances exist has to be determined with reference to Schedule V of the Act by the proposed arbitrator. In case it is found that circumstances that give rise to justifiable doubts exist, the proposed arbitrator shall make disclosure as per Schedule VI of the Act as stipulated in Section 12(1) of the Act. In case a disclosure as provided under Section 12(1) of the Act is not made despite the existence of circumstances raising justifiable doubts, the same may constitute a ground for setting aside the award under Section 34 of the Act.
Needless to say that parties and proposed arbitrators must pay due attention to the due and proper compliance of Section 12(1) at the commencement of arbitral proceedings between the parties. The clear enunciation in favour of transparency and fairness would go a long way in promoting the development of arbitration as a preferred dispute resolution process.
1 Ram Kumar and Anr v. Shriram Transport Finance Co Ltd, FAO(COMM) 60/2021 dated 05.12.2022.
2 Ram Kumar & Anr. v. Shriram Transport Finance Co, OMP (Comm.) No. 44/2019 dated 30.06.2020.
3 Hon'ble Delhi High Court referred to the judgment of TRF v. Energo Engineering Projects Ltd, (2017) 8 SCC 377 & Perkins Eastman Architects DPC & Anr v. HSCC (India) Ltd, (2020) 20 SCC 760 & Proddatur Cable TV Digi Services v. Siti Cable Network Limited, (2020) 267 DLT 51 to hold that unilateral appointment of an arbitrator by a party is impermissible.
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