RS ce ae VR Sh ER At igh oa iene Samet ne 8S Rep ARBITRATION 165 purchase deal. Hence the i aside. pugned order of High Court is liable to set Grounds for challenge (S. 12). (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,— (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.]' (Explanation 1.—The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.]* (Explanation 2.—The disclosure shall be made by such person in the form specified in the Sixth Schedule.}* (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if— (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. (5) Notwithstanding 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: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]* Section 12, is on the pattern of Article 12 of the Model Law which Provides grounds for challenge to an arbitrator and to enforce that justice, = Srounds for’ cn Subs. by Act 3 of 2016, Sec. 8(i) for Section 12(1) (w.r.ef. 23-10-2015). Section 12(1) before substitution, stood as under: "S. 12 (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality." 2. Ins. by Act 3 of 2016, Sec. 8(i) to Section 12(1) (w.r.e.f. 23-10-2015). 3. Ins. by Act 3 of 2016, Sec. 8(i) to Section 12(1) (ware, 23-10-2015). 4. Ins. by Act 3 of 2016, Sec. &(ii) (w.re.f. 23-10-2015).166 ALTERNATIVE DISPUTE REDRESSAL SYSTEM fair play, impartiality and independency must be followed by an arbitrator, This Section 12 of the Act, 1996 is analogous to Section 11 of the Act, 1940. Section 12(1) contains an expectation of an honest wilful disclosure from a prospective arbitrator to make in writing such disclosures which is likely to cause doubt as to his independence or impartiality as an arbitrator, As per the object of this Section 12(1) a prospective arbitrator is duty bound to disclose his antecedent which is likely to affect his role as an arbitrator. Section 12(2) lays down duty of an arbitrator since he has been appointed as an arbitrator and throughout the arbitral proceeding if any circumstances mentioned in Section 12(1) arise, to be disclosed in writing to the parties, unless the parties have already been informed by an arbitrator, Section 12(8) provides ground for challenging the arbitrator, when,— G) the cirtumstances present cause justifiable doubts to his independence or impartiality, or (i) found not qualified as per the agreement between the parties. Thus, sub-section (3) averts the flimsy ground to challenge by providing good reasonable grounds to challenge the arbitrator. In Jiwan Kumar Lohia v. Durga Dutt Lohia,' the Supreme Court of India said, that “Reasonable apprehension of bias in the mind of a reasonable man, can be a good ground for the termination of the mandate of an arbitrator". Section 12(4) provides estoppel against a party to challenge who had knowledge of any ground mentioned in sub-section (3) before the appointment of an arbitrator, if this is not so, a party may challenge an arbitrator appointed by him and it does not matter if he has participated in appointment but he could know only after the appointment. @) Duty to disclose is cast on the prospective arbitrator Sub-sections (1) and (2) of Section 12 of the Arbitration and Conciliation Act, 1996 make it mandatory for the prospective arbitrator i.e., before the appointment as an arbitrator to disclose to the parties in dispute in writing any circumstances likely to give rise to justifiable doubts as to his impartiality or independence.” Undoubtedly, the use of expression "shall" connotes that these provisions are imperative. An arbitrator has to discharge this duty "without delay" i.e., before he takes over as an arbitrator. It is the mandate of Sections 12(1) and 12(2) of the Act, 1996. It is submitted that an arbitrator has to follow the principle of natural justice and fair play while conducting arbitration. Gi) The word "only" in Section 12(3)—Significance of It is well settled that sub-section (3) of Section 12 provides statutory grounds for challenging an arbitrator. Section 12(3) of the Act provides as 1. AIR 1992 SC 188, 189., 2. Nandyal Cooperative Spinning Mills v. K.V. Mohan Rao, (1993) 2 SCC 654. ®we ARBITRATION under ‘— ‘An arbitrator may be challenged “only” if— (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties." It appears from the above provisions that the word "only" signifies that the ground mentioned in the said provision is available for challenging an arbitrator, thus other grounds for challenge not available therein. Thus, an arbitrator cannot be challenged on flimsy grounds. However, the Apex Court in Jiwan Kumar Lohia v. Durgadutt Lohia,' observed that a reasonable apprehension of bias in the mind of a reasonable man can be a good ground for termination of the mandate of an arbitrator. It is necessary that a reasonable apprehension of bias must be based on materials and also it must be prima facie proved. The Apex Court in Secretary to the Government, Transport Department, Madras v. Munnuswamy,” has held that a pre-disposition to decide for or against one party, without proper regard to the true merits of the dispute amounts to bias. A reasonable apprehension must be based on cogent evidence. Mere doubt that an arbitrator is biased, would not be sufficient to constitute bias on the part of an arbitrator. It is to be noted that the old Arbitration Act, 1940 contained no such prescribed qualification for the appointment of an arbitrator. Whereas the present Arbitration and Conciliation Act, 1996, namely, Section 12(3) provides that the appointment of an arbitrator may be challenged if he does not possess the qualification agreed to by the parties. Because in the field of arbitration it was realised that a number of disputes could not be settled due to lack of expertise in the field which is in dispute like engineering, mining, manufacturing and blasting etc., thus an arbitrator is required to have specific knowledge in the field relating to the subject-matter of the dispute in hand. In other words an arbitrator should be well versed in the field concerning the subject-matter of the dispute. (iii) Expression "refusal" to act as arbitrator—Meuning of When a person is offered to act as an arbitrator, he can refuse such offer expressly or impliedly. Thus, an unwilling arbitrator cannot be compelled to act. The Supreme Court in State of West Bengal v. National Builder, explained the meaning of the expression "refusal" and according to the court "refusal" to act means denial to do something which one is obliged to do under law. Thus, where the arbitrator declined to grant extension of time and closed the proceedings and the parties were directed to determine their future course of action, in such circumstances a reasonable presumption would be drawn that he has declined to continue as arbitrator any further." 1, AIR 1992 SC 188. 2. AIR 1988 SC 2232. 3. AIR 1994 SC 200. 4, State of U.P, v. Sandul Singh, AIR 1985 All. 67.168. ALTERNATIVE DISPUTE REDRESSAL SYSTEM Wherein a nominated porson/arbitrator in accordance with the arbitration agreement, declined to act as an arbitrator or refused to conduct arbitration proceedings, it does not frustrate the arbitration clause, in such situation the parties can substitute a new arbitrator,' (iv) Power of the court regarding appointment if authorised person fails to appoint The expressions “without delay" as occurring in Section 12(2) of the Arbitration and Conciliation Act, 1996 means there should not be undue or unreasonable delay on the part of arbitrator's duty to disclose when such person is first approached in connection with his possible appointment as an arbitrator. Sub-section (2) of Section 12 provides that this duty of the arbitrator has to be discharged from the time a person is appointed as an arbitrator and maintain it throughout the arbitral proceedings. Hence, an arbitrator has to discharge this duty "without delay". This provision is intended to ensure speedy arbitration and its adjudication. The Delhi High Court in Union of India v. Somnath Chadha,’ observed that "the main object of referring a dispute to an arbitrator for adjudication is the speedy end of the strife. This object in the court’s view stands frustrated on account of unreasonable neglect on the part of the appellant/claimant to promote the conduct of arbitration proceedings." Tt was held that delay or negligence in appointment of arbitrator or commencement of arbitration proceedings would defeat the very purpose of the arbitration itself. It is to be reiterated that the scope of arbitration is to avoid the prolong litigation in the courts. It is an aid to speedy decision. In these circumstances the court may intervene and appoint arbitrator. In Ved Prakash Mittal v. Union of India, the Full Bench of the Delhi High Court held that an opportunity is given by the court to designated officer to exercise his power of appointment of arbitrator within a stipulated period failing which the court would appoint the arbitrator itself. Where the office of the designated officer is abolished the court can appoint an arbitrator under Section 8 of the Arbitration Act, 1940.‘ Similarly, in Sankar and Sankar v. State of West Bengal,’ it was held that if a person permitted to appoint arbitrator under Arbitration Clause neither appoints an arbitrator nor enters on the reference himself and there is silence for more than one year it would be a clear case of failure and neglect. In that event the court can appoint an arbitrator itself. (v) Appointed arbitrator must possess qualifications agreed to by the parties . In Anuptech Equipment Put. Ltd. v. Ganpati Cooperative Housing Society Ltd.,> the Bombay High Court has held that if the appointed 1. Sabyasachi Das v. Swapan Das, (1994) 1 Arb. LR 75 (Cal). 2. 1984 R.L.R. 452 (Del.). 3. AIR 1985 Del. 325 (F-.B.). 4, D.R. Gupta y. Steel Authority of India Ltd., AIR 1985 Ori. 224; see also Union of India vy. Om Prakash, AIR 1987 All. 138. 5. AIR 1992 Cal. 365.ARBITRATION 169 arbitrator does not possess the qualifications agreed to by the parties in the arbitration agreement, his very appointment is void ab initio and the arbitration proceedings would be totally null and void and any order passed by him, e.g., terminating arbitration proceedings for default of a party in filing claim statement, would be a nullity. (vi) When the composition or the procedure of Arbitral Tribunal is challengeable The Apex Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia & others,! has held that when the composition or the procedure of Arbitral Tribunal or the procedure is not in accordance with agreement of the parties, it is challengeable. In such situation the parties get a right to challenge the award but it can only be challenged if the agreement of the parties is in conflict with a provision of Part I which the parties cannot derogate. In the present case the Apex Court observed that when the composition or the procedure is not in accordance with the agreement of the parties then the parties get a right to challenge such arbitral award. But even in such a case the right to challenge the arbitral award is restricted. It can only be challenged if the agreement of the parties is in conflict with provision of Part I which the parties cannot derogate. In other words, even if the composition of the arbitral tribunal or the arbitral procedure is not in accordance with the agreement of the parties but if such composition or procedure is in accordance with the provisions of the Arbitration and Conciliation Act, 1996, then the party cannot challenge the award. It is submitted that now it is clear that when the composition or the procedure of the Arbitral Tribunal is not in accordance with the agreement of the parties then the parties get a right to challenge the award and it can only be challanged if the agreement of the parties is in conflict with provision of Part I of the said Act which the parties cannot derogate. Challenge procedure (S. 13). (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (5) Where an arbitral award is made under sub-section (4), the party 8. AIR 1999 Bom. 219. 1, 2000 (2) Supreme 69.