In arbitration proceedings the impartiality of the arbitrator and the fact that he/she is eligible to perform their duties is of paramount importance as the same becomes a subject matter of challenge u/s 12,13, and 14 of the Act. Section 12 envisages the grounds upon which the appointment of an arbitrator can be challenged followed by Section 13 which lays down the procedure of the said challenge. Section 14 of the Act deals with the inability of the arbitrator to carry out his/her official duties for reasons which specifically fall in seventh schedule of the Act. In such an event the parties are at liberty to approach the court for termination of mandate of the said arbitrator u/s Section 14(2). It is often assumed that Section 14 of the Act provides an additional remedy to the parties to challenge the appointment of the arbitrator notwithstanding the procedure laid down in Section 13 of the Act. In order to arrive at the crux of the issue it is imperative to give brief a outlook of the said sections.
Section 12 of the Act lays down the following grounds upon which the appointment of an arbitrator can be challenged: –
a. If circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or
b. If he/she does not possess the qualifications agreed to by the parties.
In addition to the aforesaid, section 12 also imposes a moral duty upon the proposed arbitrator to disclose to the parties in writing if he/she has any interest, whether direct or indirect in relation to the subject matter in dispute.
Explanation 1 to the said section stipulates that 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. Therefore, fifth schedule of the Act becomes a guiding principle in order to initiate a challenge u/s Section12(3)(a) of the Act.
Section 13 of the Act lays down the procedure to be followed in the event the parties seek to challenge the appointment of the arbitrator on grounds envisaged in Section 12(3) of the Act. As per Section 13, the parties may formulate their own procedure to challenge an arbitrator, however, if the parties fail to form a procedure then sub section 2 takes precedence which states that a party, intending to challenge an arbitrator, shall within 15 days after becoming aware of the constitution of the Arbitral Tribunal or after becoming aware of any circumstance referred in Section 12(3), send a written statement of the reasons for the challenge to the Tribunal. The Arbitral Tribunal shall then decide on the challenge and if the challenge under sub section 2 is not successful then the arbitral Tribunal under sub section 4 shall continue the arbitral proceedings and make an arbitral award. Sub section 5 states that the party challenging the arbitrator may make an application for setting aside such an arbitral award. Sub Section 4 and 5 of Section 13 are reproduced hereinbelow:
“(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 challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.”
(emphasis supplied)
From bare perusal of the aforesaid, it can be clearly discerned that the only recourse available to the challenging party if their application u/s 13(2) of the Act is rejected is to wait for the award passed by the arbitrator and then challenge the said award in accordance with Section 34 of the Act.
On the other hand, Section 14 of the Act states that the mandate of an arbitrator shall stand terminated if-
a. He becomes de jure or defacto unable to perform his functions;
b. He withdraws from his office or the parties agree to the termination of his mandate.
Section 14(2) directs the parties to approach the Court in order to decide on the termination u/s 14(1)(a). It is noteworthy that u/s 13, the parties must approach the tribunal itself for challenging the integrity of the arbitrator, however, u/s 14 the parties must approach the court for termination of the arbitrator. Furthermore, in order to ascertain if the the arbitrator has become de jury or defect unable to perform his functions, recourse has to be made to Seventh Schedule of the Act. The dichotomy envisaged in Section 13 and 14 of the Act to challenge the arbitrator fell for consideration before the Hon’ble Delhi High Court in the matter of HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd12017 SCC OnLine Del 8034 wherein the Delhi High Court very categorically held that insofar a challenge to the Arbitral Tribunal in the circumstances referred in Section 12(3) of the Act is concerned, recourse to Section 14 of the Act would not be available. However, in a case where a person is ineligible to act as an arbitrator in terms of Section 12(5) of the Act, a petition under Section 14 may be maintainable. The aforesaid decision of the High Court was upheld by the Hon’ble Supreme Court in the matter of HRD Corporation (Marcus Oil and Chemical Division) v. GAIL (India) Ltd2(2018) 12 SCC 471 wherein the Supreme Court held as follows:
“12. 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”.
…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. (emphasis supplied)
The aforesaid decision of the Supreme Court was followed by the Delhi High Court in the matter of Sacherome Advanced Technologies vs NEC Technologies Pvt. Ltd.3O.M.P. (T) (COMM) 34 of 2022. The facts in brief of the said matter were that the petitioner had approached the Delhi High Court u/s 14(2) for termination of the arbitrator citing likelihood of bias on his part. The High Court held in the following terms:
“14.It is well settled that a petition under Section 14(1) of the A&C Act cannot be filed to challenge appointment of the Arbitral Tribunal on grounds as set out under Section 12(3) of the A&C Act. Any party seeking to challenge the appointment of the arbitrator is required to do so in accordance with the procedure set out in Section 13 of the A&C Act. In the first instance, the said challenge is required to be considered by the Arbitral Tribunal. In terms of Sub-section (3) of Section 13 of the A&C Act, the learned Arbitrator could either withdraw from the office failing which the Arbitral Tribunal is required to decide the said challenge. In terms of Sub-section (4) of Section 13 of the A&C Act, if the challenge is not successful, the Arbitral Tribunal is required to continue with the arbitral proceedings and make an award. In such circumstances, the only recourse available to a party challenging the appointment of an Arbitrator under Section 13 of the A&C Act, is to await for the arbitral award and if aggrieved, take recourse to the provisions as set out under Section 34 of the A&C Act. “ (emphasis supplied)
A similar view was echoed in Union of Inida vs Reliance Industries Ltd. and Ors.4O.M.P.(T) (COMM.) 125/2022. Therefore, in essence, a Section 12(3) challenge is guided by the provisions of Section 13. Sub-sections (4) and (5) thereof provide the consequences which would ensue once such a challenge fails. They mandate that in such an eventuality, the proceedings before the Arbitral Tribunal would have to be continued and terminate only once an award is rendered. It is only once the award is passed by the Arbitrator, the challenging party can assail the same in accordance with Section 34 of the Act. The provision does not contemplate a curial challenge being raised or pursued at the intermediate stage. Recognising the right to raise such a challenge at the interim stage by recourse to Section 14(1)(a) would clearly be contrary to the evident legislative intent and resolve to debar such a recourse.
CONCLUSION
Section 12 and 13 of the Act provide two separate set of mechanisms to challenge the mandate of the arbitrator. The grounds of challenge under Section 12 are mentioned therein viz. if justifiable doubts exist regarding his independence or impartiality and if he does not possess the qualifications agreed to by the parties. In this regard recourse is to be made to the fifth schedule of the Act for ascertaining if any justifiable doubts exist as to the impartiality of the arbitrator. An Application has to be made to the Arbitral Tribunal itself for challenging the mandate of arbitrator under Section 12 and 13.
Section 14 on the other hand, envisages a separate set of mechanism to challenge the mandate of arbitrator if he becomes de jure or de facto unable to perform his functions. The question whether he has become de jure or de facto unable to perform his functions is to be ascertained by taking recourse to seventh schedule of the Act. An application to challenge the mandate of arbitrator under Section 14 lies before the Court unlike the challenge procedure laid down in Section 13.
Therefore, in the backdrop of the aforementioend judgments it can be clearly discerned that when a party seeks to challenge the appointment of an arbitrator under grounds envisaged u/s 12(3) of the Act then the machinery set out in section 13 of the Act is set in motion and the party must move an application before the Arbitral Tribunal u/s 13(2). If the challenge is rejected then, in light of the aforesaid judgments, the only recourse available to the party is to wait for the arbitral award and challenge the same u/s 34 of the Act. Therefore, an Application u/s 14 of the Act shall not be maintainable once an application under section 13(2) of the Act is rejected by the Tribunal.
