CHAPTER 3
Section 10(1) of the Arbitration and Conciliation Act provides that the parties to an arbitration agreement are free to determine the number of arbitrators, provided that such number shall not be an even number.
Section 10(2) of the Act lays down that failing the determination referred to in section 10(1), the arbitral tribunal shall consist of a sole arbitrator.
The number of arbitrator is dealt with in section 10 of the Act which is a part of machinery provided for the working of arbitration agreement. Section 10 leaves it to the parties to determine the number of arbitrators subject to the condition that such number shall not be an even number. In case the parties fail to determine the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.
In M.M.T.C. Ltd. v. Sterlite Industries Ltd., MANU/SC/1298/1996 : (1996) 6 SCC 716: AIR 1997 SC 605, an arbitration clause in a contract provides that each party shall nominate one arbitrator and the two arbitrators shall then appoint an umpire before proceeding with the reference. Disputes arose between the parties whereupon the respondent appointed an arbitrator under the agreement after the coming into force of the Arbitration and Conciliation Act, 1996. But the appellant contended that the arbitration clause providing for the appointment of even number of arbitrators was not a valid arbitration agreement in view of section 10(1) of the Act and that the only remedy in such a case was by way of suit and not by arbitration. It was further contended that there was no failure to determine the number of arbitrators in the arbitration agreement and as such section 10(2) of the Act providing that the arbitral tribunal shall consist of a sole arbitrator was not attracted.
The Supreme Court held that there is noting in section 7 of the Act which defines arbitration agreement to indicate that the requirement of the number of arbitrators is a part of the arbitration agreement and therefore, the validity of an arbitration agreement does not depend on the number of arbitrators
specified therein. An arbitration agreement specifying an even number of arbitrators cannot be a ground to render the arbitration agreement invalid. In the instant case, in view of the term in the arbitration agreement that the two arbitrators would appoint an umpire, the requirement of section 10(1) was satisfied i.e., the arbitration agreement was not for an even number of arbitrators and sub-section 2 of section 10 was not attracted. The arbitration agreement was deemed to be one providing for three arbitrators. As each of the parties had appointed their own arbitrators, section 11(3) was attracted, according to which the two arbitrators were required to appoint a third arbitrator to act as the presiding arbitrator.
Since in the instant case, both the arbitrators had failed to appoint a third arbitrator, the Supreme Court directed the Chief Justice of Bombay High Court to appoint the third arbitrator under section 11(4)(b) of the Act.
In Narayan Prasad Lohia v. Nikunj Kumar Lohia, 2002 (1) Arb LR 493 (SC): 2002 AIR SCW 898, the parties agreed to resolve their disputes through two named arbitrators. Both the parties participated in the arbitral proceedings. But after award was given, the respondents applied to the Calcutta High Court for setting aside the award, inter alia, on the ground that arbitration by two arbitrators was invalid as it was inconsistent with the mandatory requirements of section 10(1). The High Court accepted this contention but the Supreme Court in appeal overturned the decision of the High Court. The Supreme Court held that the provision of section 10 providing that the number of arbitrators shall not be an even number, is a derogable provision and objection based on it could be waived. Thus, an award is not liable to be set aside on the mere ground that the number of arbitrators was an even number, when the parties had agreed upon an even number.
II.
Section 11(1) of the Arbitration and Conciliation Act, 1996 provides that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
Regarding the procedure for appointment of an arbitrator, Section 11(2) of the Act lays down that the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
Section 11(3) of the Act provides that in an arbitration with three arbitrators, if the parties fail to agree on a procedure for appointment of arbitrator or arbitrators, each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. But if a party fails to appoint an arbitrator within 30 days from the receipt of a request to do so from the other party; or the two appointed arbitrators fail to agree on the third arbitrator within 30 days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.1
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1. Section 11(4).
Section 11(5) of the Act then lays down that in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within 30 days from receipt of a request by one party from the other party to so agree, then upon request of a party, the appointment shall be made by the Chief Justice or any person or institution designated by him.
Section 11(6) of the Act provides that where under an appointment procedure agreed upon by the parties,-
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
Section 11(7) lays down that a matter entrusted by sub-section (4) or subsection (5) or sub-section (6) of section 11 of the Act to the Chief Justice or the person or institution designated by him is final.
For dealing with the matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) of section 11, the Chief Justice may make such scheme as he may deem appropriate.1
In appointing an arbitrator, the Chief Justice or the person or institution designated by him shall have due regard to-
(a) any qualifications required of the arbitrator by the agreement of the parties; and
(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.2
Section 11(11) of the Act provides that where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made shall alone be competent to decide on the request.
Section 11(12)(a) of the Act lays down that in case of an international commercial arbitration, the reference to Chief Justice under section 11 shall be construed as a reference to the Chief Justice of India.
In any other arbitration, the reference to Chief Justice under section 11 shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situated and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.3
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1. Section 11(10).
2. Section 11(8).
3. Section 11(12)(b).
Section 11(9) of the Act provides that in the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
There is right to apply for appointment of arbitrator for seeking reference to arbitration on receipt of respondent's reply to notice. The period of limitation of 3 years would start running from that date. Hence it was held that the application filed under section 11 beyond 3 years would be barred by limitation (A.P. Beverages Corpn. Ltd. v. M/s. IBM Global Services India Ltd., MANU/AP/0026/2011 : AIR 2011 AP 122).
The following are the requirements of a valid appointment of arbitrator/s-
1. The party appointing an arbitrator must give proper notice of appointment of the arbitrator to the other party or parties. If the party appointing an arbitrator, do not give notice to the other party informing about the appointment of an arbitrator, the appointment of the arbitral tribunal will be invalid and the resulting award void.
2. The person who is to be appointed as the arbitrator must be informed about his appointment. This is necessary because, before giving his consent, he has to consider whether he should accept the appointment.
3. The consent of the person who is to be appointed as arbitrator to act as the arbitrator must be obtained before his appointment. He has to review all aspects before accepting appointment. [Trader Export S.A. v. Valkswagenwerk AG, La Loma, (1970) 1 Lloyd's Rep 62 (64)]
Appointment of an arbitrator will not be made unless there is an arbitration agreement between the parties. If the arbitration agreement is denied, the court must decide that question before passing an order for appointment of an arbitrator [Chhogalal v. N.G. Finance and Co., AIR 1966 Raj 181].
In I.S. Rekhi v. Delhi Development Authority, MANU/SC/0271/1988 : AIR 1988 SC 1007, the Supreme Court held that the existence of a dispute is essential for appointment of an arbitrator.
A plea at the time of appointment of an arbitrator that the claims that would be referred to arbitrator are barred by limitation or are covered within excepted matters, is not entertained. Whether the claims are barred by limitation or are covered by excepted matters will be matters for consideration of the arbitrator when he is appointed. At the time of the appointment of an arbitrator, it is not for the court to decide such question [Wazir Chand v. Union of India, MANU/SC/0262/1966 : AIR 1967 SC 990].
One of the advantages of arbitration is that it allows parties to submit a dispute to judges of their own choice. The parties are free to determine any odd number of arbitrators. Failing such determination, the arbitral tribunal shall consist of a sole arbitrator. The parties may mention the name of a person who is to be appointed as the arbitrator. In cases of arbitration with more than one arbitrator, the parties may agree on all the arbitrators to be appointed or each of the parties may appoint one arbitrator who in turn appoint a third arbitrator. Usually it is difficult to reach an agreement upon a sole arbitrator. In cases where the agreement is silent as to the constitution of the tribunal, it will be presumed that the reference is to the single arbitrator. Appointment of an arbitrator is a contract between the arbitrator on the one side, and the parties on the other and therefore, if the appointment of the arbitrator is not consensual, the arbitrator has no power to make a binding order or award and if he makes any award it will be a nullity.
In Dharma Prathishthanam v. Madhok Construction Pvt. Ltd., (2004) 3 Arb LR 432 (SC), the respondent appointed an arbitrator and gave notice to the appellant of the appointment to which the appellant did not respond. Then, the respondent referred certain disputes to the arbitrator who heard the matter and made an arbitral award. But the appellant did not participate in the arbitration proceedings. After the making of award by the arbitrator, the respondent filed an application to the court for making the award rule of the court to which the appellant filed objection. The Supreme Court held that the impugned award was a nullity, and hence liable to be set aside.
In case of consensual appointment of an arbitrator by parties, there is no particular formalities or procedure to be followed. However, usually one of the parties submit to his opponent a name or list of names, for choice of arbitrator. If the opponent agrees with the choice, one or both of the parties may approach the person for his appointment. If he consents, they send to him a written invitation to accept the reference, in response to which he sends a written acceptance. However, acceptance of the offer to be appointed as an arbitrator is not necessary to complete the appointment [K.S. Dwarka Dass Kapadia v. Indian Engineering Co., MANU/MH/0035/1969 : AIR 1969 Bom 227, affirmed by Supreme Court in K.S. Dwarka Das Kapadia v. Indian Engineering Co., AIR 1972 SC 1528]. The appointment is complete as soon as it is made. Appointment of an arbitrator by a party is complete only on its communication to the other party. Thus, if a party makes the appointment within the statutory period of 30 days on receipt of a request from the other party, but does not communicate it to the other party within 30 days, he cannot be said to have appointed his arbitrator within 30 days of receipt of the request from the other party to appoint an arbitrator.
Section 11(4) of the Act provides that in case of an arbitration with three arbitrators under section 11(3),-
i. if a party fails to appoint an arbitrator within 30 days from the receipt of a request to do so from the other party; or
ii. the two appointed arbitrators fail to agree on the third arbitrator within 30 days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
Section 11(5) lays down that in case of an arbitration with a sole arbitrator, if the parties fail to agree on a procedure or on the arbitrator within 30 days from receipt of a request by one party from the other party to so agree, then on request of a party, the appointment shall be made by the Chief Justice or any person or institution designated by him.
Section 11(6) provides that where under an appointment procedure agreed upon by the parties,-
i. a party fails to act as required under that procedure; or
ii. the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
iii. a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
An arbitration clause may provide that appointment of an arbitrator shall be made by a person designated in the agreement either by name or as the holder for the time being of any office or appointment. Such a clause is usually found in government & contracts. In cases where the persona designate defaults in making an appointment, the case would be covered by the provisions of section 11(6)(c) and a party may request the Chief Justice or his designate to take a necessary measure. If the appointment is made by any person other than the person designated in the agreement, an award made by such arbitrator is null and void. It is to be noted that it is not necessary for the designated authority conferred with the power to make appointment of an arbitrator, to consult the parties to the agreement before appointing an arbitrator.
In P. Kumaran v. Executive Engineer, 1999 (3) Arb LR 98, there was a term in the arbitration clause that no person other than a person appointed by Chief Engineer or Administrative Head of Goa, Daman and Diu P.W.D. should act as arbitrator, and if for any reason, that was not possible, the matter was not to be referred to arbitration at all. It was held that this term was inconsistent with the provision of section 11(6)(c) of the Arbitration and Conciliation Act, 1996, and therefore there is no hindrance to allowing the application for appointment of arbitrator. The application for appointment of arbitrator was allowed and an arbitrator appointed.
In National Research Development Corporation of India v. Synthetic Industrial Chemicals Pvt. Ltd., 1998 (1) Arb LR 114, the arbitration clause provided for arbitration of dispute between the parties by the Chairman of National Research Development Corporation or his nominee. The Chairman of NRDC, Mr. G.S. Sidhu accepted the reference and proceeded with the arbitration. Meanwhile, he was transferred and consequently ceased to hold the office of Chairman. One of the parties raised the objection that since he ceased to hold the office of Chairman his authority as arbitrator had come to an end. But rejecting the objection, he proceeded with arbitration and gave an award. The Delhi High Court held that crucial date to be seen was when the reference was made. Dr. Sidhu was the Chairman when reference was made. The reference was validly made to him. Once an arbitrator validly entered upon the reference, he alone was competent to continue the arbitration and take it to its logical end by giving the award. In the circumstances of the present case, Dr. Sidhu, despite the fact that he ceased to hold the office of Chairman subsequent to entering upon the reference, was competent to continue the arbitration proceedings.
Section 11(10) empowers the Chief Justice of India and Chief Justices of the High Courts to make such schemes as they may deem appropriate for dealing with matters regarding appointment of arbitrator under sub-sections 4, 5 and 6 of section 11 of the Act. The Chief Justice of India, in exercise of this power has made the scheme.
The scheme provides the procedural machinery for processing the request for appointment of arbitrators. It also empowers the Chief Justice to amend the scheme from time to time.
The Chief Justices of the High Courts have also made their own schemes for appointment of arbitrators when an application is made for the purpose.
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 qualification agreed to by the parties. [Section 12(3)]
The appointment cannot be challenged on any other ground.
Section 12(1) of the Act provides that 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.
Section 12(2) then lays down that an arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
An arbitrator ought to be an indifferent and impartial person between the disputants. He must be disinterested and unbiased. He should have no connection, direct or indirect, with a party so that it creates an appearance of partiality. The test is whether a reasonable person who was not a party to the dispute would think it likely that the connection was close enough to cause the arbitrator to be biased [Metropolitan Properties v. Lannon, (1969) 1 QB 577; Simmons v. Secy. of State for the Environment, 1985 JBL 253]. In International Airports Authority of India v. K.D. Bali, MANU/SC/0197/1988 : (1988) 2 SCC 360, the Supreme Court held that it is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased. The apprehension must be judged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person.
In V.K. Dewan and Co. v. Delhi Jal Board, 2004 (2) Arb LR 444 (Del), it was held that mere suspicion cannot be made a ground for concluding that the arbitrator would not act fairly or impartially. Only a well founded and justifiable doubt about the arbitrator covered by this section can be made a ground for terminating the mandate of an arbitrator.
In the Mission Insurance case,1 the presiding arbitrator was found to have spent two nights in a hotel room of a female lawyer representing the successful party. This facts gave rise to a strong presumption of a justifiable doubt as to the impartiality of the arbitrator and as a result the arbitral award of US $ 92 million made by the arbitrator was overturned.
An arbitrator must be independent i.e., there must not be a dependant relationship between the parties and the arbitrators, which may effect or at least appear to affect the arbitrators freedom of judgment. Impartiality denotes that quality of the arbitrators' mind which enables him or her to decide the issues without a disposition to favour one side over the other. Impartiality is the antonym of bias. The question whether an arbitrator is impartial, is a question of fact, and depends on whether he can resolve the dispute objectively.
Regarding the qualification of the arbitrator, the parties may agree upon certain qualifications, required of an arbitrator which may be necessary for the subject-matter of the dispute. Such qualification may be expressly specified in the arbitration clause or the submission agreement.
Section 13(1) of the Arbitration and Conciliation Act, 1996, provides that the parties are free to agree on a procedure for challenging an arbitrator.
Section 13(2) then lays down the if the parties fail to agree on a procedure for challenging an arbitrator, a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances that give rise to justifiable doubts as to his independence, or impartiality, or that he does not possess the qualification agreed to by the parties, send a written statement of the reasons for the challenge to the arbitral tribunal.
Section 13(3) provides that unless the arbitrator who is challenged under section 13(2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
Section 13(4) lays down that if a challenge under any procedure agreed upon by the parties or under the procedure prescribed by sub-section (2) of section 13 is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
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1. Reported in Wall Street Journal, 14 Feb, 1990.
Where an arbitral award is made under sub-section (4) of section 13, the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34 of the Act, and if the arbitral award is set aside on such an application, the court may decide as to whether the arbitrator who is challenged is entitled to any fees.
In Asiatic Salvors v. Dodsal Pvt. Ltd., MANU/MH/0299/1987 : AIR 1987 Bom 335, it was held that where the parties are aware of the bias of the arbitrator some months prior to the commencement of the arbitration, and although they did not participate in the arbitration proceedings, yet allowed the proceedings to continue and culminate into an award, it was held that the petitioners could not be allowed to raise objection and seek setting aside of the award on the ground of bias.
In Ramsahai Sheduram v. Harishchandra Duttchandji, MANU/MP/0051/1963 : AIR 1963 MP 143, it was held that if a party discovers that the arbitrator suffers from a personal disqualification which the party could not have ascertained with due diligence at the time of reference, the party must take immediate steps to stop arbitration. If the party fails to go to the court for revocation of reference and takes part in arbitration proceedings, he cannot later on challenge the award on that ground.
Usually in contracts with Government on Corporations, there is an arbitration clause which provides that in case of any dispute arising between the parties it will be referred for arbitration to any officer of the Government or the corporation. This by itself is no ground to hold that the officer will be biased in discharging his duty as an arbitrator.
In State of Andhra Pradesh v. Balineni Subba Reddy, 1990 (1) Andh LT 398, it was held that the general presumption must be that all the officers are honest and they are discharging their duties lawfully, unless the contrary is proved. The general presumption cannot be drawn that merely because a named arbitrator has already worked in that department or is working, he is having a bias. There is no hard and fast rule that Government officials should not be appointed as arbitrators. The parties are bound by the agreement under which they agree that an arbitrator from out of the panel of arbitrators can be appointed.
In Union of India v. V.S. Ravindra Reddy, 1998 (2) Arb LR 557, where the procedure agreed for appointment of arbitrators as incorporated in one of the clauses of a contract was that there would be two arbitrators who would be railway officers, it was held that it was not open to a contractor to contend that as the two arbitrators were railway officers, they were under the influence of the Railway and would be biased.
But there are certain circumstances under which a presumption can be drawn that the arbitrator who is an employee of one of the parties is biased, e.g., in Union of India v. P.M. Imbichibi, MANU/KE/0383/1998 : AIR 1998 Ker 72, there was dispute as to revision of rates for licence fee of railway lands. The designated arbitrator was the railway general manager. In his capacity as general manager, he had filed a counter affidavit in the proceedings in which he had taken a definite stand in favour of the enhancement of licence fee. It was held that the application for removal of the arbitrator on this ground must have entertained a serious apprehension about the general manager's ability to arrive at a fair decision. It was held that the court was justified in appointing another arbitrator.
IV.
Section 14(1) of the Arbitration and Conciliation Act, 1996, provides that the mandate of an arbitrator shall terminate if-
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
Section 15(1) of the Act lays down that in addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate-
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties. Section 14(2) lays down that if a controversy remains concerning the arbitrator becoming de jure or de facto unable to perform his functions or for other reasons failing to act without undue delay, a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. [Section 15(2)] Where an arbitrator is replaced under section 15(2), any hearings previously held may be repeated at the discretion of the arbitral tribunal. [Section 15(3)] Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator shall not be invalid solely because there has been a change in the composition of the arbitral tribunal. [Section 15(4)] An arbitrator is de jure unable to perform his functions when he is debarred by law from continuing in office. An arbitrator is de facto unable to perform his function when due to certain fact situations he is unable to perform his functions e.g., ill health etc. It is to be noted that termination of arbitral proceedings is different from termination at the mandate of arbitrator or arbitrators. Termination of arbitral proceedings is governed by section 32. In a given case, an arbitral proceeding may not come to an end though the mandate of the arbitrator might have come to an end.
In Sarathy Engg. Corpn v. Municipal Corpn. of Delhi, 1988 (1) Arb LR 79, it was held that where the arbitrator does not start arbitration proceedings with reasonable dispatch and so much so that he fails even to issue notice to the parties, he is liable to be removed and another arbitrator should be appointed in his place.
In Assudomal Dwarkadas v. Jessmal Jethanand, AIR 1933 Sind 115, it was held that where an arbitrator did not act for nearly three years, he neglected to act and it was open to the court to appoint another arbitrator in his place.
In Union of India v. Prabhat Kumar and Bros., 1995 Supp (4) SCC 525, an arbitration agreement provided for reference to an engineer officer to be appointed by a third party. The arbitrator so appointed retired during the pendency of the proceedings. It was held by the Supreme Court that the retirement resulted in the termination of the authority of the arbitrator. A new arbitrator would be appointed and the proceedings would be deemed to have continued before the new arbitrator.
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