Simply put, Arbitration is a method by which an independent person settles the disputes between parties. The keyword for an Arbitration is 'independent.' Hence, if an Arbitrator is not independent, the whole point of an Arbitration is essentially erased. The independence or impartiality of an Arbitrator is of prime importance.
Section 12(3) of the Arbitration and Conciliation Act of 1996 provides that any ground that gives rise to justifiable doubt as to the independence or impartiality of an Arbitrator is grounds to challenge his appointment as an Arbitrator.
If such grounds exist, the Arbitrator can be removed from his appointment, and another shall be chosen by the parties or in any other way as the case may be.
The grounds that give rise to justifiable doubts about the independence or impartiality of an Arbitrator are provided under the Fifth Schedule of the Arbitration and Conciliation Act of 1996. They are as follows:-
Arbitrator's relationship with the parties or counsel
1. The Arbitrator has a business relationship, either current or previous, with a party as an employee, consultant, advisor, or in any other capacity.
2. Currently, one of the parties or a group affiliated with one of the parties is represented by or advised by the Arbitrator.
3. Currently, the Arbitrator is a representative of the lawyer or the law firm, which is an acting counsel for any one of the parties.
4. Representing one of the parties is the same legal firm where the arbitrator practices.
5. When an affiliate of one of the parties is directly involved in the issues at hand in the Arbitration, the Arbitrator is that party's manager, director, or other member of the management or has a comparable controlling influence.
6. Without the Arbitrator being directly involved, the Arbitrator's law firm had previously been involved in the case but has withdrawn from it.
7. Currently, one of the parties or a subsidiary of one of the parties has a significant business relationship with the Arbitrator's law firm.
8. Despite not receiving a sizable financial benefit from it, the Arbitrator or their firm frequently advises the appointing party or their affiliate.
9. One of the parties and the Arbitrator are closely related. In the case of companies, a close working relationship with those in charge and managing the company.
10. A close relative of the Arbitrator holds a significant financial interest in one of the parties or their affiliates.
11. The Arbitrator is the legal representative of any entity that is a party in the Arbitration.
12. The Arbitrator holds a position of authority over one of the parties, such as a managing partner, director, or member of the management.
13. The Arbitrator is financially interested in one of the parties or the case's resolution.
14. The Arbitrator or their firm earns a substantial financial gain from providing regular advice to the appointing party or their affiliate.
Relationship of the Arbitrator to the Dispute
15. A party or their affiliate has received the Arbitrator's expert opinion or legal assistance on the dispute.
16. The Arbitrator has already been involved in the case.
Arbitrator's direct or indirect interest in the dispute
17. The Arbitrator, either directly or indirectly, holds shares in one of the parties or their affiliate that is privately held.
18. A close relative of the Arbitrator holds a significant financial interest in the outcome of the case.
19. The Arbitrator or a close relative of the Arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute.
Previous services for one of the parties or other involvement in the case
20. Within the past three years, The Arbitrator has served as counsel for one of the parties or their affiliate or has previously advised or been consulted by the party or their affiliate making the appointment in an unrelated matter even though the Arbitrator and the party or their affiliate have no ongoing relationship.
21. Within the past three years, The Arbitrator has served as counsel against one of the parties or their affiliate in an unrelated matter.
22. Within the past three years, The Arbitrator has been appointed (as an Arbitrator) by one of the parties or their affiliate on two or more occasions.
23. Within the past three years, The Arbitrator's law firm has acted for one of the parties or their affiliate, in an unrelated matter, without the involvement of the Arbitrator.
24. The Arbitrator currently serves as an Arbitrator in another Arbitration on a relevant matter involving one of the parties or their affiliate or has served in such capacity within the last three years.
Relationship between an Arbitrator and another Arbitrator or counsel
25. The Arbitrator works for the same legal firm as another Arbitrator.
26. Within the past three years, The Arbitrator was a partner of or otherwise affiliated with another Arbitrator or any of the counsel in the same Arbitration.
27. A lawyer in the Arbitrator's law firm serves as an Arbitrator in a different issue involving the same party or parties or their affiliate.
28. While not helping with the dispute, a close relative of the Arbitrator works as a partner or employee of the legal firm representing one of the parties.
29. Within the past three years, The Arbitrator has been appointed more than three times by the same counsel or the same law firm.
Relationship between Arbitrator and party and others involved in the Arbitration
30. Currently, one of the parties or their affiliate is facing negative actions from the Arbitrator's legal firm.
31. Within the past three years, The Arbitrator had been professionally associated with a party or their affiliate (for example - partner or former employee).
Other circumstances
32. The Arbitrator, either directly or indirectly, holds publicly listed shares, which for any reason constitute a material holding in one of the parties or their affiliate.
33. The Arbitrator is a member of an Arbitration institution and is responsible for allocating authority in disputes.
34. The Arbitrator is a manager, director, or part of the management or has a similar controlling influence in an affiliate of one of the parties, where the affiliate is not directly involved in the matters in dispute in the Arbitration.
Explanation: The term "close relative" refers to a spouse, sibling, child, parent, or life partner.
Explanation: The term "affiliate" encompasses all businesses within a single group of businesses, including the parent company.
Conclusion
Arbitration is an essential method of dispute resolution in civil cases. Maintaining the impartiality of the Arbitrator is equally as important. Therefore, even if any of the grounds discussed above or any other of a similar nature exists, it gives rise to a challenge for dismissal of the Arbitrator from his position in that dispute. This ensures that the Principles of Natural Justice are followed, and proper justice is done in every case.
Frequently Asked Questions
Q. Who is an Arbitrator?
A. An arbitrator is an impartial person or group given the power to resolve the dispute by the disputing parties. The word comes from the Latin arbitrārī, meaning to consider, judge, or arbitrate.
Q. Why does the Indian Evidence Act 1872 not apply to Arbitration?
A. The Indian Evidence Act 1872 does not apply to arbitration proceedings as per Section 1. The Arbitral Tribunal is not bound by the Indian Evidence Act, as per Section 19(1) of the Arbitration and Conciliation Act, 1996. However, principles in the Indian Evidence Act are followed in arbitration proceedings as a rule of general practice.
Q. What are the Merits of Arbitration?
A. Some of the Merits of Arbitration are as follows-
Faster
Cost-effective
Fair
Confidential
Simpler process
Etc.
Q. What are the Demerits of Arbitration?
A. Some of the Demerits of Arbitration are as follows-
Indian Evidence Act does not apply
The consent of parties is essential
Lack of awareness
It doesn't apply to criminal cases
High fees of Arbitrator
Q. What is an ADR?
A. ADR stands for Alternative Dispute Resolution. It is a term used to describe a range of methods to resolve disputes outside the courtroom with the help of an impartial third party. ADR includes:-
Arbitration
Mediation
Conciliation
Negotiation
Judicial Settlement
Lok Adalat
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Really informative and insightful! helped me understand arbitrators in-depth