When a person will be ineligible to act as an Arbitrator

By Azeez Nazar Sabri

The main objective of the Arbitration law is to provide speedy, inexpensive and fair trial by an Impartial Tribunal. Arbitration law gives autonomy to the parties and limits the intervention of the court.

Since the Arbitration Act give autonomy to the parties to appoint the Arbitrator(s), the independence and Impartiality of an Arbitrator is indispensable as an independent and impartial mind is essential in the exercise of the judicial power.    

Section 12 of the Arbitration and Conciliation Act, 1996 has been amended in 2015 Amendment. This amendment has been made with a view to ensure the independence and impartially of the Arbitrators. The amendment provision identifies the “Circumstances” which give rise to “Justifiable doubts” about the independence and impartially of the Arbitrator. The fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Similarly, Seventh Schedule stipulates those circumstances which would attract the provisions of Sub-section (5) of Section 12, which makes person ineligible to be appointed as an arbitrator.

Following amendments have been made in sub-section (1) & (5) of Section 12.

Subsection (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 period of twelve months.

Explanation 1: The ground stated in the fifth Schedule shall guide in determining to the justifiable doubts as to the independence or impartially of an arbitrator.

Subsection (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.

The Seventh Schedule

The Seventh Schedule specified the following categories of the Arbitrator relationship with the parties or counsel, which disqualifies a person for the position of arbitrator.

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with the party.

2. The arbitrator currently represents or advises one of the parties or an affiliate of one of the parties.

3. The arbitrator currently represents the lawyer or law firm acting as counsel for one of the parties.

4. The arbitrator is a lawyer in the same law firm which is representing one of the parties.

5. 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 if the affiliate is directly involved in the matters in dispute in the arbitration.

6. The arbitrator’s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.

7. The arbitrator’s law firm currently has assigned commercial relationship with one of the parties or an affiliate of one the parties.

8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom.

9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling the company.

10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of the one of the parties.

11. The arbitrator is a legal representative of an entity that is a party in the arbitration.

12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.

13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case.

14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom.

15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties.

16. The arbitrator has previously involvement in the case.

17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held.    

18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute.

19. The arbitrator or a close family member 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.

The close family member mentioned in the seventh schedule refers to a spouse, sibling, child, parent or life partner. “Affiliate” encompasses all companies in one group of companies including the parent company.

If the above circumstances/ grounds exist then a person shall not be illegible to be appointed as an arbitrator. If he does not disclose the above circumstance at the time of his appointment, his appointment can be challenged by the aggrieved party.