Introduction
Arbitration is a widely recognized alternative dispute resolution mechanism. In some cases, however, one party may feel that the arbitral tribunal’s decision was incorrect or unfair. In such situations, the party may challenge the procedure to the arbitral tribunal for review and potential revision of the decision.
This process is known as “arbitration challenge” and typically involves a thorough examination of the arbitration proceedings to determine whether any procedural irregularities or violations of the arbitration agreement occurred that may have impacted the final decision. This examination is conducted by a competent court or authority designated for this purpose and involves a detailed analysis of the parties’ submissions, evidence presented, and any relevant legal standards or principles that apply to the case.
The outcome of an arbitration challenge can range from a confirmation of the original decision to a full or partial annulment, depending on the nature and severity of the procedural irregularities found.
It is important to note that arbitration challenges should only be pursued in cases where there are legitimate concerns about the fairness and impartiality of the proceedings. With this intent, the Arbitration and Conciliation Act, 1996 was enacted and amended subsequently to meet the requirements of the changing legal scenario with substantial amendments in 2021.
Challenge to arbitral Tribunal
Challenging arbitral tribunal is an essential mechanism for ensuring arbitrators’ independence and competence, impartiality and propriety. Common grounds for challenging arbitrators are conflict of interest, lack of qualifications and improper conduct. The procedures for challenging arbitrators may be governed by the parties’ agreement or, in the absence of contractually agreed procedures, by the parties’ choice of arbitration rules, or by the law of the seat of arbitration.
The parties have freedom to decide the challenge procedure. When a person is approached for his possible appointment as arbitrator, he shall disclose in writing any circumstances, such as existence either direct or indirect, of any past or present relation 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 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 12 months. The obligation of disclosure continues throughout the arbitration proceeding.
The Fifth Schedule gives guiding criteria to determine whether circumstance exist to give rise to justifiable doubts as to independence and impartiality of the arbitrator.
A party may challenge appointment of an arbitrator only for the reasons of which he becomes aware after the appointment is made.
Grounds for Challenge (Section 12 of the Arbitration and Conciliation Act, 1996)
Section 12 of the Act states the grounds on which and arbitrator can be challenged. Additionally, the 2015 amendment to the Act has added a schedule to this section which lays down additional criteria that may give rise to a challenge of an arbitrator.
- When a person has been approached for possible appointment as an arbitrator, he shall disclose in writing any circumstances which are likely to give rise to justifiable doubts about his independence or impartiality.
- From the time of an arbitrator’s appointment and throughout the arbitral proceedings, he shall without delay willingly disclose to the parties in writing any circumstances referred to in sub-section (1) unless it has already been informed to them by him.
- An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts about his independence or impartiality, or
- he does not possess the qualifications agreed to by the parties.
- A party may challenge an arbitrator who has been appointed by the party himself or in whose appointment he has participated, only for reasons of which the party becomes aware after the appointment has been made.
Section 12(5) provides that any person whose relation with parties or counsel of subject matter of dispute falls within Seventh Schedule shall be ineligible. This is notwithstanding any prior agreement to the contrary. However, the parties may waive the applicability of this provision by express agreement in writing, subsequent to disputes have arisen.
Section 13 provides that the parties are free to agree to the procedure to challenge an arbitrator. A party can challenge an arbitrator within 15 days after becoming aware of the constitution of the tribunal or becoming aware of the circumstances of the challenge. The challenge has to be by way of written application stating the reasons to the tribunal.
Termination of mandate and substitution of an arbitrator is explained Section 15 of the Arbitration and Conciliation Act, 1996)
Section 14 of the Arbitration and Conciliation Act,1996 has been modelled on Article 14 of the Model Law which provides various circumstances in which the mandate of an arbitrator fails or becomes impossible to act. In these kind of situations, the mandate of an arbitrator shall be terminated and the arbitrator’s authority shall be terminated
On receipt of the application, the tribunal can either withdraw or shall decide the challenge unless other side agrees to the challenge. If the challenge is not successful, the tribunal shall proceed with arbitration and shall pass award. Once the award is made, the party making the challenge can file application under Section 34 for setting aside of the award
The mandate of the arbitrator terminates if he unable to perform his functions of for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to such termination.
If the controversy still remains, subject to parties’ agreement, a party may apply to Court to decide the termination. On termination of mandate, a substituted arbitrator shall be appointed according to the to the rules that were applicable to the appointment of earlier arbitrator.
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Under what circumstances is the composition or the procedure of the Arbitral Tribunal challengeable?
in the case Narayan Prasad v. Nikunj Lohia & Ors, the honourable court held that when the composition or the procedure of the arbitral tribunal is not in accordance with the agreement of the parties, it can be challenged. Under such circumstances the parties get a right to challenge the award but only if the agreement of the parties is in conflict with a provision of Part I which the parties cannot derogate. In other words, if the composition of the tribunal or the procedure is not in accordance with the agreement of the parties, the parties have the right to challenge, 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.
Conclusion
Whenever a dispute arises between two parties and they decide to resolve the dispute through arbitration, an arbitral tribunal is to be set up. An “arbitral tribunal” means a sole arbitrator or a panel of arbitrators. Their task is to adjudicate and resolve the dispute and to provide an arbitral award. The diverse procedures for challenging arbitrators reflect the tension between the need for arbitrator challenges and the risks of dilatory challenges, which arises from the tension between impartiality and expediency in arbitral decision-making. Arbitration and conciliation Act 2015 amendment was aimed to improve alternative dispute resolution in India and increase reliability on arbitration.
Let’s hope that the problem gets solved, and that the situation gets better with time and the justice delivery system becomes much more efficient and effective with these alternative ways of doing the same.
References
www.brillopedia.net/post/grounds-and-procedure-for-challenging-an-arbitral-tribunal-or-arbitrator
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