termination of mandate of
arbitrator & SECTION 42-A ARBITRATION & CONCILIATION ACT
The
arbitration is an important alternate mode of redressal of disputes between
parties. The Arbitrator is a creature of the agreement and party by private
agreement may decide to get the dispute adjudicated through arbitration. The
arbitrator, once enters into reference, unless opts to recuse himself or
otherwise acts on application u/s 16 of the Arbitration & Conciliation Act
1996 (as amended and upto date) and in short referred to hereinafter as “Act”
or “said Act” decides that it has no jurisdiction, shall publish award. This is
mandate of law. Of course, the exception is also carved out i.e the mandate of
Arbitration can be terminated by the courts if the same falls within Section 14
of the said Act and as per the circumstances enumerated under section 12 &
13 and in Seventh Schedule. In such an event substitute Arbitrator may have to
be appointed u/s 15 (2) of the Act. As narrated, the circumstances under which
the mandate of arbitrator can be terminated are illustrated and now it is
amplified as per Seventh Schedule of Arbitration & Conciliation Act and
also in case the arbitrator is de jure
incapable of acting as an arbitrator, the mandate of the Arbitrator can be
terminated. The Arbitration & Conciliation act 1996 (As amended and up to
date) has also highlighted that the declaration u/s 12 of the Act shall have to
be given by the Arbitrator as regards his independence and impartiality and
challenge procedure are contained therein.
The
Arbitration & Conciliation (Amendment) Act 2019) contains a specific
provision i.e Section 42 A of the
Arbitration & Conciliation Act, 1996 that stipulates termination of mandate
of arbitrator stands inserted w.e.f 30.08.2019. That will be dealt with little later.
SECTION 12 of ARBITRATION &
CONCILIATION ACT
The
provision was amended and certain provisions were inserted in statute book
w.e.f 30.08.2019. A bare perusal of terms of
Sections 12 of the Act shall display the details as regards requisites of the independence
and impartiality of arbitrator a sine qua
non. Section 12 (2), for instance, requires disclosure by an arbitrator, of
any event or circumstance which is mandatorily to be shared with the parties – in
case, such circumstances arise after the appointment of Arbitrator, then Section
12 (3) stipulates the further course. It lays out the grounds of challenge
to an arbitrator if “justifiable doubts” exist in relation to his “independence or impartiality”. Similarly,
going one step forward, Section 12 (4) restricts challenge by parties after appointment of an arbitrator, but, only
for reasons which he becomes aware after appointment is made.
Section 12 (5) of the act was made part of the Act w.e.f.
23.10.2016; The said provision begins with a non-obstante clause overriding any “prior agreement to the
contrary” and stipulates that any person with any kind of relationship set out
in the Seventh Schedule (which outlines & specific heads and types of
relationships - professional, familiar or associational) that will render one ineligible
for appointment as arbitrator. The proviso
to Section 12 (5) however makes a provision to enable the parties to
waive the ineligibility conditions under Section 12 (5) (read with
Seventh Schedule) by express agreement in writing.
In this regard it may be relevant to refer to the judgment
reported as Chennai
Metro Rail Ltd vs. Transtonnelstroy Afcons JV 2023 SCC OnLine SC 1370 the
Supreme Court has held as under:
28.
At this stage it would be crucial to notice that the court made a
differentiation. It stated, firstly, that a disclosure in writing about
circumstances likely to give justifiable doubts is to be made, at the stage of
appointment, and then stated that the disclosure can be challenged
under Section 12 (1) to 12 (4) read with Section 13. The court
however underlined that in the next category where the person became ineligible
to be appointed as arbitrator, there was no need for a challenge to be laid
before the arbitrator. In such circumstances outlined in Section 12
(5) , the party aggrieved could directly
approach the court under Section 14(1) (a). It was further underlined that
in all cases under Section 12 (5), there is no challenge procedure to be
availed of and that if the arbitrator continues at such, the ground of being
unable to perform his function since he falls in any of the categories
enumerated in the Seventh Schedule, the party concern may apply to the court.
29.
It is, therefore, evident that the rules for disqualification or ineligibility
are fairly clear. The ineligibility which attaches to the appointment is the
first category: it is contained in Section 12 91) read with the explanation and
the Fifth Schedule to the Act. As recounted earlier this schedule has 34 items.
In the event any of these circumstances exist, the appointment of the
arbitrator is barred. The second category is where the arbitrator to start with
is eligible but after appointment incurs any, or becomes subject, to any of the
conditions, as enumerated in the Fifth Schedule. In that event, it is open to
the party to claim that there could be justifiable doubts about his independence
or impartiality. The remedy even then, would be that the party has to seek
recourse and apply to the arbitrator in the first stance by virtue of Section
13(2). The wording of Section 13 (2) clarifies that a party who
intends to challenge the arbitrator, after becoming aware of certain
circumstances which lead to justifiable doubts, that party has to within 15
days [of becoming aware] approach the tribunal and seek a ruling. In the event
the party is not successful under Section 13 (4), the tribunal is duty
bound to continue with the proceedings. When the award is made, it can be
subjected to challenge under Section 34, by operation of Section 13
(5). Clearly, then the substantive grounds and the procedure applicable in
relation to situations where justifiable reasons exist or arise, for
questioning the eligibility of a tribunal to decide the reference are
enumerated in Section 12 and 13 .
SECTION 13
OF ARBITRATION
& CONCILIATION ACT
Turning forward to Section 13 , to begin with Section 13 (1) of the
Act deals with the challenge procedure which enables parties to agree on a
procedure to challenge the arbitrator, whereas Section 13 (2) stipulates that
if there is no agreement, the party who intends to challenge the arbitrator has
to, within 15 days after becoming aware of the tribunal’s constitution or
within fifteen days after becoming aware of any circumstances referred to
in Section 12 (3) apply in writing to the reasons for challenge to a
tribunal. It may be noted that Section 12 (3), prescribes the grounds of
challenge to existence of circumstances, giving rise to justifiable doubts
about tribunal’s independence or impartiality and Section 13(2) provides that
if the arbitrator does not withdraw or the other party does not, in the absence
of the other party agreeing according to the challenge; the tribunal shall have
to decide upon it. If the challenge is unsuccessful, then by virtue of Section
13(4), the tribunal would continue with the proceedings and publish award. Section
13(5) states that any party can challenge the arbitrator’s decision, after
the award is published under Section 34 of the Act. Significantly, Section
13(6) keeps open the issue of fee to be payable to the arbitrator in the
event, the award is set aside on the ground under Section 13(5).
SECTION 14 & 15 OF ARBITRATION &
CONCILIATION ACT
Section 14 deals with the contingency of failure or
impossibility of the arbitrator or tribunal to act and stipulates that the
mandate of an arbitrator shall terminate and he shall be substituted by another
“if he becomes de jure or de facto unable to perform its functions
or for other reasons fails to act without undue delay or withdraws from his
office or parties agrees to the termination of his mandate”. By Section
14(2) if a controversy remains, concerning the grounds referred to
in Section 14(1), the Court may be approached by the parties to decide
upon the issue of termination on mandate.
It is held by Supreme
Court in HRD
Corporation (Marcus Oil and Chemical Division) vs. Gail (India) Limited
(Formerly Gas Authority of India Ltd.), 2017 SCCOnline SC 1024 that:
13. After the 2016
Amendment Act, a dichotomy is made by the Act between persons who become “ineligible”
to be appointed as arbitrators, and persons about whom justifiable doubts exist
as to their independence or impartiality. 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
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. Since such a person
would lack inherent jurisdiction to proceed any further, an application may be
filed under Section 14 (2) to the Court to decide on the termination of
his/her mandate on this ground. As
opposed to this, in a challenge where grounds stated in the Fifth Schedule are
disclosed, which give rise to justifiable doubts as to the arbitrator’s
independence or impartiality, such doubts as to independence or impartiality
have to be determined as a matter of fact in the facts of the particular
challenge by the Arbitral Tribunal under Section 13. If a challenge
is not successful, and the Arbitral Tribunal decides that there are no
justifiable doubts as to the independence or impartiality of the
arbitrator/arbitrators, the Tribunal must then continue the arbitral
proceedings under Section 13(4) and make an award. It is only
after such award is made, that the party challenging the arbitrator’s
appointment on grounds contained in the Fifth Schedule may make an application
for setting aside the arbitral award in accordance with Section 34 on
the aforesaid grounds. It is clear, therefore, that any challenge contained in
the Fifth Schedule against the appointment cannot be gone into at this stage,
but will be gone into only after the Arbitral Tribunal has given an award.
Therefore, we express no opinion on items contained in the Fifth Schedule under
which the appellant may challenge the appointment of either arbitrator. They
will be free to do so only after an award is rendered by the Tribunal”.
The Supreme Court while giving purposive
interpretation of Section 15 (2) of the Act has held as under in a matter reported
as Shailesh
Dhairyawan vs. Mohan Balkrishna Lulla- (2016) 3 SCC 619:
“Once we keep in
mind the aforesaid fundamental aspects of the arbitration, the irresistible
conclusion would be that whenever parties agree for mediation, and even name a
specific arbitrator with no specific provision for appointment of another
arbitrator on the recusal/withdrawal of the said arbitrator, the said omission
is made up by Section 15(2) of the Act and unless arbitration
agreement between the parties provides a categorical prohibition or debarment
in resolving a question or dispute or difference between the parties by a
substitute arbitrator in case of death or the named arbitrator or
non-availability of the said arbitrator, Courts have the power to appoint
substitute arbitrator, which power is given by Section 15(2) of
the Act as this provision is to be given liberal interpretation so as to apply
to all possible circumstances under which the mandate of the earlier arbitrator
may be terminated”.
The
aforesaid discussion clearly reflected that mandate of arbitrator could be
terminated if the aforesaid circumstances as encapsulated in Section 12, 13 and
14 ( as amend4ed and up to date) are duly met and there are categorical
judicial precedents in this regard. However, another circumstances are now
added by virtue of the amendment in 2019 Act and Section 42-A is now added in
the Act.
SECTION 42-A of Arbitration &
Conciliation Act
The
Section 42-A of the Arbitration & Conciliation Act 1996) after it is
provided for w.e.f 30.08.2019 by virtue of the amendment Act, reads as under:
“42A.
Confidentiality of information.--
Notwithstanding anything contained by any other law for the time being in
force, the arbitrator, the arbitral institution and the parties to the
arbitration agreement shall maintain confidentially of all arbitral proceedings
except award where its disclosure is necessary for the purpose of implementation
and enforcement of award.”
Recently, the hon’ble Delhi High Court
in O.M.P. (T) (COMM.) 112/2023 and in a matter captioned as KAMLADITYYA
CONSTRUCTION PVT LTD Versus UNION OF INDIA has dealt with the issue of
confidentiality as included in section 42-A of Arbitration &
Conciliation Act while terminating the mandate of arbitrator. A petition under
Section 14(1)(2) and 15(2) read with the Seventh Schedule of the Arbitration
& Conciliation Act, 1996 was preferred, thereby termination of the mandate
of the Arbitrator was prayed for and appointment of a substituted Arbitrator
was sought. It was claimed that the learned Arbitrator openly and pre-maturely
revealed the Award with respect to several claims of the petitioner to the respondent.
It was therefore prayed that the ld Arbitrator had flouted the provisions of
confidentiality under Section 42 A of the Arbitration & Conciliation
Act, 1996. It is also alleged by the petitioner that the ld Arbitrator was
requesting the respondent to appoint him in more arbitrations. The ld counsel
for the respondent however denied any such allegations.
The
hon’ble High Court has observed as under:
9. A
perusal of the section shows that strictest of confidentiality is required to
be maintained with regard to arbitration proceedings and the Award. The
Arbitrator is exercising an important function of adjudicating the dispute
between the parties and cannot reveal the Award to either of the parties, even
while dictating it to the staff of DIAC. The report of DIAC seems to suggest
that the arbitral award was visible to the respondent on the hearing of
12.09.2023. The affidavit of the counsel for the petitioner also is supporting
the above stance.
Consequently, the mandate of the ld Arbitrator was terminated
and a new Arbitrator was appointed in his place and it was ordered that the
proceedings shall continue from the stage of final arguments in terms of
section 29 A (6) of the Arbitration & Conciliation Act.
Section
42-A was inserted acting upon the recommendations of Justice Sri krishna
Committee as it was felt that confidentiality of the arbitral proceedings shall
have to be secured. The maintaining confidentiality of arbitral proceedings and
failure to observe that by an arbitrator has now become a ground as per Section
42-A of the Act and the mandate of Arbitrator could be terminated on that count
as well.
The
experts have expressed reservation as regards desirability of insertion of
Section 42-A in the Act and perceive it as stumbling block to the process of
arbitration. According to many the provision Section 42-A of the Act shall act
as inbuilt prohibition to arbitral process and that is contrary to the object
of arbitration as speedy and alternate mode of process of redressal. Moreover,
when the arbitrator suffers from any incapacity of disability so as to render
him unsuitable or if the continuing with proceedings is akin to impossibility,
in that event, the arbitrator shall be rendered de jure incapable and the courts are empowered to terminate the
mandate of arbitrator. Of course, death of arbitrator or resignation shall any
way result into termination of arbitral proceedings. In the above backdrop, it
is felt that there was no need of providing for section 42-A in the statute
book. However, the fact remains that section 42-A of the Act is there in the
statute book and Delhi High Court has also acted on it in KAMLADITYYA
CONSTRUCTION (supra) while invoking the
said clause and terminating the mandate of arbitrator.
--------
Anil
K Khaware
Founder
& Senior Associate
Societylawandjustice.com
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