Navigating the Labyrinth of Arbitrator Challenges in India: A Post-Amendment Analysis

Navigating the Labyrinth of Arbitrator Challenges in India: A Post-Amendment Analysis

I. Introduction

The bedrock of a robust arbitral system is the unimpeachable neutrality of the arbitrator. The trust of the disputing parties and the legitimacy of the arbitral award hinge on the independence and impartiality of the adjudicator. In India, the legal framework governing challenges to an arbitrator's appointment has undergone a transformative evolution, particularly following the Arbitration and Conciliation (Amendment) Act, 2015 ("the 2015 Amendment"). This legislative overhaul, driven by the recommendations of the 246th Law Commission Report, sought to align Indian arbitration law with international best practices and address pervasive concerns about potential bias in arbitrator appointments, especially in contracts involving government entities and public sector undertakings.

This article provides a comprehensive analysis of the law concerning the challenge of an arbitrator's appointment in India. It traces the procedural landscape prior to the 2015 Amendment, delves into the paradigm shift introduced by the new statutory provisions, and critically examines the judicial interpretation of these provisions by the Supreme Court of India and various High Courts. By synthesizing landmark precedents, this analysis elucidates the substantive grounds for challenge, the distinct procedural pathways available to an aggrieved party, and the complex jurisprudence surrounding the doctrine of waiver.

II. The Pre-Amendment Regime: The "Challenge First, Award Later" Doctrine

Prior to the 2015 Amendment, the procedure for challenging an arbitrator was primarily governed by Sections 12 and 13 of the Arbitration and Conciliation Act, 1996 ("the Act"). The principal ground for a challenge was the existence of "circumstances... that give rise to justifiable doubts as to his independence or impartiality, or he does not possess the qualifications agreed to by the parties" (Section 12(3), unamended). The procedure mandated that a party intending to challenge an arbitrator must, within fifteen days of becoming aware of the constitution of the tribunal or the grounds for challenge, submit a written statement of reasons to the arbitral tribunal itself (Section 13(2)).

If the challenge was unsuccessful, the arbitral tribunal was mandated to continue the proceedings and make an award. The challenging party's recourse was not immediate; they had to await the final award and then apply to set it aside under Section 34 of the Act, citing the arbitrator's appointment as a ground. This "challenge first, award later" model, as affirmed in numerous judicial decisions, effectively ousted the jurisdiction of courts during the pendency of the arbitral proceedings regarding such challenges (Satish Chander Gupta And Sons v. Union Of India, 2002; S.P Singla Construction Pvt. Limited v. State Of Himachal Pradesh, 2014). The High Courts consistently held that the arbitral tribunal was the first forum to decide on a challenge to its own composition, thereby limiting premature judicial intervention (National Thermal Power. Corporation Ltd. v. Wig Brothers Builders And Engineers Ltd., 2009).

III. The 2015 Amendment: A Paradigm Shift Towards Neutrality

The 2015 Amendment fundamentally altered the landscape of arbitrator challenges by introducing stringent standards of neutrality. The amendment introduced two critical schedules—the Fifth and Seventh Schedules—which were inspired by the International Bar Association (IBA) Guidelines on Conflicts of Interest. These schedules created a clear demarcation between circumstances giving rise to "justifiable doubts" and those creating absolute "ineligibility".

  • The Fifth Schedule: This schedule lists circumstances that may give rise to justifiable doubts about an arbitrator's independence or impartiality. A challenge on these grounds follows the procedure laid out in Section 13, meaning it is first decided by the tribunal.
  • The Seventh Schedule: This schedule enumerates specific relationships (e.g., employee, consultant, or having a direct business relationship with a party) that render a person statutorily ineligible to be an arbitrator. This ineligibility is absolute and not merely a matter of justifiable doubt.

The most impactful change was the insertion of Section 12(5), which states that notwithstanding any prior agreement, any person whose relationship with the parties, 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. This created a new category of *de jure* (by law) ineligibility that operates independently of the parties' agreement.

IV. Judicial Interpretation of De Jure Ineligibility under Section 12(5)

The Supreme Court of India has, through a series of landmark judgments, clarified the scope and application of Section 12(5) and the Seventh Schedule, creating a robust jurisprudence on arbitrator neutrality.

A. Ineligibility of the Appointing Authority

A pivotal development has been the extension of ineligibility from the arbitrator to the appointing authority itself. In the seminal case of Trf Limited v. Energo Engineering Projects Limited (2017), the Supreme Court held that if a person is statutorily ineligible to act as an arbitrator under Section 12(5), they are also disqualified from nominating another person as an arbitrator. The Court invoked the legal maxim "qui facit per alium facit per se" (what one does through another is done by oneself), reasoning that an ineligible appointer cannot perform through a nominee what they are barred from doing directly. This principle was further cemented in Perkins Eastman Architects Dpc v. Hscc (India) Ltd. (2019), where the Court held that a party who has an interest in the outcome of the dispute cannot have the unilateral power to appoint a sole arbitrator. The Court reasoned that the right to appoint is counterbalanced by the other party's right to a neutral adjudication process. This line of reasoning was reaffirmed in Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited v. Ajay Sales & Suppliers (2021), where the appointment of an arbitrator by the Chairman of one of the parties was set aside, establishing that statutory neutrality under Section 12(5) overrides any conflicting contractual provision.

B. The Procedural Dichotomy: Fifth v. Seventh Schedule Challenges

The Supreme Court in Hrd Corporation v. Gail (India) Limited (2017) delineated two distinct procedural pathways for challenging an arbitrator, depending on the nature of the grounds alleged.

  • Challenge under the Seventh Schedule: If an arbitrator is ineligible *de jure* under Section 12(5) read with the Seventh Schedule, their mandate is terminated by operation of law. The aggrieved party is not required to follow the procedure under Section 13. Instead, they can directly approach the court under Section 14(1)(a) to declare the termination of the mandate, as the arbitrator lacks the inherent jurisdiction to proceed.
  • Challenge under the Fifth Schedule: If the challenge is based on grounds enumerated in the Fifth Schedule, which only give rise to "justifiable doubts," the party must follow the challenge procedure under Section 13. The challenge is first decided by the arbitral tribunal. If the challenge is rejected, the tribunal continues the proceedings, and the aggrieved party can only raise the issue again in an application to set aside the final award under Section 34.

This distinction, also affirmed in BHARAT BROADBAND NETWORK LIMITED v. UNITED TELECOMS LIMITED (2019), is procedurally critical, as it determines whether a party can seek immediate judicial recourse or must wait until the conclusion of the arbitration.

C. The Rigors of Waiver

The proviso to Section 12(5) allows parties to waive the applicability of the Seventh Schedule's ineligibility criteria. However, the Supreme Court has interpreted this provision with exacting strictness. In BHARAT BROADBAND NETWORK LIMITED v. UNITED TELECOMS LIMITED (2019), the Court held that such a waiver cannot be implied from a party's conduct, such as participating in the arbitral proceedings. The waiver must be by an "express agreement in writing" and must be made *after* the disputes have arisen. This ruling effectively nullifies the doctrine of implied waiver or estoppel in the context of *de jure* ineligibility under the Seventh Schedule, ensuring that a fundamental defect in the arbitrator's appointment is not cured by mere acquiescence.

V. Contemporary Issues and Judicial Tensions

A. Justifiable Doubts, Disclosure, and Proactive Neutrality

While the Seventh Schedule deals with absolute ineligibility, the courts continue to grapple with the nuances of "justifiable doubts" under the Fifth Schedule. In Voestalpine Schienen Gmbh v. Delhi Metro Rail Corporation Limited (2017), the Supreme Court, while holding that a panel of retired government employees was not automatically ineligible under the Seventh Schedule, acknowledged the petitioner's apprehensions about impartiality. In a move to bolster perceived neutrality, the Court directed the respondent to broaden its panel to include independent professionals. This demonstrates a proactive judicial approach to safeguarding the integrity of the process, even where absolute disqualification is not established.

Furthermore, the consequence of non-disclosure or improper disclosure under Section 12(1) remains a fact-dependent inquiry. The Delhi High Court in Manish Anand v. Manish Sinha (2018) held that an improper disclosure does not automatically terminate the arbitrator's mandate, indicating that the materiality of the non-disclosed information will be a key factor in any subsequent challenge.

B. The Resurgence of Waiver by Conduct? A Point of Contention

Despite the Supreme Court's clear ruling in BHARAT BROADBAND against implied waiver for Seventh Schedule ineligibility, a potential point of tension is emerging in recent High Court jurisprudence. Decisions such as Arjun Mall Retail Holdings Pvt Ltd v. Gunocen Inc. (2024) and Mr. Sunil Sethi v. M/s Hero Fincorp Ltd. (2024) from the Delhi High Court have suggested that a party that fails to challenge an arbitrator's appointment in a timely manner and participates in the proceedings may be precluded from raising the objection at a later stage, such as in a Section 34 petition. In Arjun Mall Retail, the Court noted that the appointment was never challenged under Section 11(6) and the appellants remained "mute spectators" only to challenge the appointment after suffering an adverse award.

This approach appears to conflict with the "express written waiver" requirement for *de jure* ineligibility. One possible reconciliation is that these High Court judgments may be addressing situations where the challenge was based on grounds other than the Seventh Schedule, or where a party failed to avail a prescribed statutory remedy like a Section 11 application. However, this emerging trend creates a degree of uncertainty and underscores the critical importance for a party to raise objections to an arbitrator's appointment at the earliest possible opportunity, regardless of the nature of the ground, to avoid potential arguments of waiver or estoppel.

VI. Conclusion

The legal framework for challenging an arbitrator's appointment in India has been fundamentally fortified by the 2015 Amendment and the robust jurisprudence that has followed. The Supreme Court has unequivocally prioritized arbitrator neutrality, establishing clear principles that an ineligible person cannot appoint an arbitrator, that *de jure* ineligibility under the Seventh Schedule can be challenged directly before a court, and that any waiver of such ineligibility must be express, written, and post-dispute.

However, the path is not without its complexities. Litigants must carefully distinguish between challenges based on absolute ineligibility and those based on justifiable doubts, as this determines the correct procedural forum and timing. Moreover, the emerging tension between the Supreme Court's strict waiver standard and recent High Court decisions on waiver by conduct highlights a dynamic area of law that may require further clarification. Ultimately, the evolution of this jurisprudence reflects a concerted effort by both the legislature and the judiciary to ensure that arbitration in India stands as a credible, fair, and impartial mechanism for dispute resolution.