Navigating Arbitrator’s Ineligibility - The remedial conundrum under the Arbitration and Conciliation Act 1996

The Arbitration and Conciliation Act, 2016 (“the Act”) was amended on January 1, 2016, by the Arbitration and Conciliation (Amendment) Act, 2015, No. 3 of 2016 (“the Amendment Act”) inter alia to incorporate aspects pertaining to the “ineligibility” of arbitrators.

Prior to the Amendment Act, Sections 12(1) to 12(4) read with Section 13, the Act provided for a “Challenge Procedure” to challenge the appointment of an arbitrator on the basis that he/she may not possess the requisite qualifications, or if there are justifiable doubts as to his/her independence or impartiality. However, the Act did not include provisions regarding ineligibility which can go to the very root of the appointment and the consequent tenability of the arbitral proceedings.

The entire statutory scheme of the Act affords utmost importance to party autonomy and also envisages minimal interference from “Courts” as defined in Section 2(e) of the Act. Accordingly, the legislature acknowledged the necessity to address the requirement of party autonomy and arbitrator’s impartiality.

In view thereof, by way of the Amendment Act, Section 12(5) was inserted to the Act to provide for the circumstances in which “any person… shall be ineligible to be appointed as an arbitrator."

A few instances of unilateral appointments of an arbitrator are:

(i) Where parties agree by contract that only one party would have the exclusive right to appoint; or 

(ii) The arbitrator appointed by the party who has the exclusive right to appoint an arbitrator, appoints another arbitrator; or

(iii) Where one party, contrary to the arbitration agreement subsisting between the parties, appoints an arbitrator without the consent of the other party, and the arbitrator so appointed commences arbitral proceedings. 

The Hon’ble Supreme Court of India in the matter of Perkins addressed the aspect of unilateral appointments. The position can be summarized as follows: a person having an interest in the dispute or in the outcome or decision thereof must not only be ineligible to act as an arbitrator but must also not be eligible to appoint anyone else as an arbitrator and such person cannot and should not have any role in charting out any course to the dispute resolution by having the power to appoint an arbitrator.

However, whilst amendments were introduced to provide for the circumstances that determine ineligibility, there exists no specific/ direct remedial mechanism under Section 12(5) of the Act by which an aggrieved party can seek recourse in cases of appointment of an “ineligible” arbitrator. Nonetheless, as elaborated hereinbelow, an aggrieved party may challenge the mandate of a unilaterally appointed arbitrator under the following provisions of the Act:

(i) Approaching the arbitral tribunal under Section 13 of the Act impugning the appointment; or

(ii) Filing a petition under Section 11 of the Act before the competent court seeking termination of the mandate of a unilaterally appointed “ineligible” arbitrator and seeking a fresh appointment; or

(iii) Filing a petition under Section 14 of the Act seeking termination of the mandate of an “ineligible” arbitrator and substitution thereof by another arbitrator.  

Inapplicability of Section 13

The Hon’ble Supreme Court has in the case of HRD Corporation held:

“Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes 'ineligible' to act as an arbitrator. Once he becomes ineligible, it is clear that, under Section 14(1)(a), he then becomes de jure unable to perform his functions inasmuch as, in law, he is regarded as ineligible. In order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13."

Hence, Section 13 is not an option

Section 11 or Section 14 

Section 11

In Perkins (supra) the Hon’ble apex court held that an aggrieved party can approach a competent court under Section 11(6) of the Act seeking a fresh appointment of an arbitrator. The Court summarized that appointment of an ineligible arbitrator is non-est and it does not inhibit the exercise of jurisdiction by a court under Section 11(6) of the Act. Consequently, it cannot be held that the proceedings under Section 11(6) are not maintainable in law.

Section 14 – The Conundrum Within The Conundrum

Section 14 of the Act inter alia contemplates seeking termination of the mandate of a unilaterally appointed ineligible arbitrator and consequent substitution on the ground that such a Tribunal is unable to perform its function.

A conjoint reading of Section 11(6) and Section 14 of the Act, raises the question of whether an aggrieved party must seek the appointment of a fresh arbitrator by way of applying under Section 11(6) of the Act if the disputes are not arbitrable, or if Section 14 of the Act can be invoked seeking the termination of the appointment of the ineligible arbitrator: 

(a) The scope of Section 11(6) is to constitute an arbitral tribunal, and not to terminate the appointment of an ineligible arbitrator without seeking a fresh appointment. If the relief for a fresh appointment is mandatory, then a party will have to resort to proceedings under Section 16 of the Act, which can result in the passage of considerable time, money and energy.

(b) Section 14(1) of the Act provides that,

“The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator…”

If the expression “shall be substituted” is interpreted as mandatory, then a simpliciter application for seeking termination of the mandate would not be maintainable. If that be so, a party aggrieved by the appointment of an “ineligible” arbitrator who also holds grievances as to the arbitrability of the claims would nonetheless be subjected to arbitral proceedings and consequently be constrained to prefer an application under Section 16 of the Act challenging the arbitrability of the claims.

While the Hon’ble apex court has settled the aspect of unilateral appointments of arbitrators falling within the ambit of Section 12(5), and the inapplicability of Section 13 of the Act to the same, the possible formulations set forth in the present article could be addressed to bring about clarity as to the appropriate remedy to merely terminate a proceeding in which an “ineligible” arbitrator is appointed.

About the authors: Samit Shukla is a Partner, Saloni Shah is a Principal Associate and Abhishek Kothari is an Associate at DSK Legal.