Challenging Bias in Indian Arbitration: An Illusory Remedy?

[Umang Bhat Nair is a 5th year student at NALSAR University of Law, Hyderabad]

The Delhi High Court’s decision in Union of India v. Reliance Industries Ltd. (9 December 2022) added to an already long list of cases (for e.g., see here, here and here) holding that section 14 of the Arbitration & Conciliation Act [“A&C Act”] cannot be resorted to for challenging an arbitrator’s ruling on grounds of bias. Alongside other High Court and Supreme Court decisions, the single judge of the Delhi High Court was heavily influenced by the decision of a two-judge bench of the Supreme Court in HRD Corporation (Marcus Oil and Chemical Division  v. Gail (India) Ltd. Although the Supreme Court decision in HRD Corporation limited itself to a minimal discussion on section 14 and its legislative scheme, the Delhi High Court takes this interpretation further and lays down multiple grounds in favour of its approach, further cementing the position of law on section 14. These arguments may be broadly categorised into the following substantive headings:

  1. Only disqualifications given in the Seventh Schedule of the A&C Act are capable of de jure disqualifying an arbitrator under that legislation (paragraphs 28 to 31); and
  2. Allowing a section 14 challenge to an arbitrator’s bias would be contrary to well-settled rules of interpretation (paragraph 32 onwards)

Both arguments will be tested in the following sections to assess whether the current position of law requires serious reconsideration and revision by the Supreme Court, should it be faced with a similar dilemma again.

Whether de jure disqualifications under the Act are solely recognisable in the Seventh Schedule?

The Delhi High Court, in paragraphs 30 and 38, expressly answered the above question in the affirmative. However, limiting de jure disqualifications to the Seventh Schedule alone would directly vitiate a fundamental aspect of how conflicts of interest function. An arbitrator’s obligation to be independent and impartial in the proceedings is mostly worded similarly across domestic arbitration legislations and institutional rules. The UNCITRAL Model Law, the Indian A&C Act, and the SIAC Rules use the words “independent and impartial”, the UK Arbitration Act mandates “impartiality” only, while the Swiss Arbitration Law requires them to be “independent.” The core reason behind why these laws and rules are drafted is that the principles of natural justice must be respected in any proceeding, whether judicial or quasi-judicial. This is well established in Indian jurisprudence by the Supreme Court decisions of Perkins Eastman and Voestalpine. In the same line of decisions, it was consistently held that the rule against bias, being a fundamental principle of natural justice, would invariably require arbitrators to “rise above the partisan interest of the parties and not to act in, or as to further, the particular interest of either parties……[and] he must be independent of parties as well as impartial.”

It is evident from the above quoted line that the rule against bias has judicially been recognised to include both concepts of independence and impartiality. Both concepts are different and cannot be conflated into one. While independence is tested by an objective assessment of the relationship between party and arbitrator, impartiality is a subjective concept that is likely to become relevant only during the arbitration proceedings. Yet, confusingly, the current position of law enunciated by the Delhi High Court only recognises the ineligibilities caused by provisions of the Seventh Schedule as de jure disqualifications. However, there are two important reasons why this position of law is flawed and dismissive of maintaining the integrity of the arbitration

First, there is a strong argument to be made that the Seventh Schedule only considers the ‘objective’ independence standard of an arbitrator. None of the situations listed in the Schedule deal with partiality of an arbitrator in the proceedings. Does this imply that impartiality of an arbitrator is of lesser concern than their independence? It is argued that to take such a position severely undercuts the integrity of arbitration that the A&C Act ought to guarantee. A lack of independence does not alarm a party unless it is accompanied by their apprehensions to the arbitrator’s ability to be impartial in the proceedings. However, a lack of impartiality and presence of bias in the proceedings directly attacks the integrity of an arbitration, especially in the eyes of the aggrieved party. In fact, it is on this principled ground that section 24 of the UK Arbitration Act that deals with ‘removal of arbitrator’ focuses on “impartiality” and not “independence”.

Consider a situation of issue conflict (which has internationally been proven as a ground for disqualification of an arbitrator) wherein the arbitrator has previously written an article close to the subject matter of the dispute expressing an opinion formed prior to any arguments by either party. This situation is not covered under the Seventh Schedule and, thus, the arbitrator need not disclose this fact. This previously expressed publication may affect the arbitrator’s partiality in a subconscious way, for example, in the form of harsher questioning for the side opposing his opinion. Even if this is disclosed and the affected party challenges the arbitrator under section 13, the arbitrator may simply dismiss this challenge on the ground that this situation is not covered under the Seventh Schedule. It is a waste of both parties’ time and money if parties are to be subjected to the pre-judgement of such an arbitrator without any recourse to approach an independent court until after a final award is pronounced. Given the lack of impartiality in the proceedings owing to an arbitrator’s pre-judgement of issues involved, if the court does find a conflict of interest, any setting aside of an award at that stage shall frustrate the entire effort that went into attempting to resolve the dispute so far.

Second, even from a policy perspective, the Seventh Schedule should not be read as an exhaustive list such that it becomes the sole indicator of de jure disqualifications. The IBA Guidelines on Conflicts of Interest in International Arbitration, on which the Seventh Schedule is based, themselves state that the varied situations listed in them are not to be considered exhaustive and neither could they ever be so. In an ever-complicating world, where we see commercial relationships appear in many forms, it would render the A&C Act outdated very soon to mandate that parties must pigeonhole their de jure disqualification objections in a limited set of situations for which the origin text, the IBA Guidelines, itself states that they could never be exhaustive. It may be appropriate to note here that the IBA Guidelines, on which the Schedules base their provisions, were last revised way back in 2014.

Whether a challenge to an arbitrator’s bias under section 14 is contrary to well-settled rules of interpretation and violative of the evident scheme and intent of the legislature?

The Delhi High Court, in paragraph 32 of its judgement, answered the above question in the affirmative. The Court held that the trinity of provisions, sections 12 to 14, appear to form separate causeways for challenges to be made and do not naturally flow one after the other. Sections 12 and 13 were read together to constitute a complete independent code for adjudicating on allegations of arbitrator bias. This was justified by reasoning that the rules of interpretation state that the literal text of a statute must be adhered to unless there is any doubt to its express language or if it would lead to an absurdity. It is agreed that this rule of interpretation is well-established and holds great merit in being followed. However, it is inaccurate to state that the plain text of section 14 does not contemplate an allegation of bias and lack of impartiality in the proceedings being raised under the provision. This inaccuracy stems from the flawed understanding that an arbitrator can be disqualified de jure only under the Seventh Schedule situations. When the A&C Act itself requires an arbitrator to be both independent and impartial, the same having been confirmed by the SC, it is confusing as to why the current position of law accords a certain superiority to objections to the arbitrator’s independence only. It was also held that the express absence of a court appeal provision in section 13 by the legislature, on the lines Article 13 of the UNCITRAL Model Law, may be indicative of the intention not to allow for the same on grounds of judicial non-interference in the arbitration. However, an equally important indication, if not more, of the legislature’s intent is its commitment to ensuring independence and impartiality of the arbitrator. Therefore, the rules of interpretation do not explain why a suit for terminating the mandate of the arbitrator under section 14 cannot be maintained for possible bias that is threatening the integrity of the arbitration proceedings.

Concluding remarks

It has been demonstrated how the current position of law on maintainability of a section 14 application on grounds of bias is insufficient on multiple grounds, including: rendering the word “impartial” inferior to “independent” in the A&C Act; stunting the growth of a dynamic arbitration law by limiting conflict challenges to a list that was never intended to be exhaustive; and furthering an interpretation that goes against central hallmarks of arbitration.

It is submitted that the question must not be one of ‘maintainability’ as much as it should be one of ‘sustainability.’ There is no objection to the ideal of an expedited arbitration with minimal judicial interference. However, this must not come at the risk of subjecting parties to arbitration proceedings with a partisan arbitrator, resulting in a final award that is likely to set aside immediately. Therefore, it is recommended that the judiciary attempt to strike a balance between non-interference in arbitration and interference when necessary to safeguard the time and resources of the parties. In cases where it is evident that the latter stands to be threatened due to the arbitrator’s bias, the courts must exercise their powers to save the parties from an arbitration proceeding with a highly likely frustrated end.

– Umang Bhat Nair

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