The Hon'ble Apex Court in Voestalpine Schienan GMBH V. Delhi Metro Rail Corporation Limited[1] observed that "Rule against bias is one of the fundamental principles of natural justice which [is to be] applied to all judicial and quasi-judicial proceedings. It is for this reason. non-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration."

Improper Functioning
The improper functioning of an arbitral tribunal constituted under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") can be broadly attributed to either-

1. incompetency of the tribunal or
2. bias.
    

In such a case, the appointment of the tribunal may be terminated in any of the following ways:

1. Due to de facto or de jure inability / undue delay in performing its function-
• tribunal may withdraw from office either on its own accord or
• parties may by agreement among themselves terminate the tribunal {Sec.14(1}) or
2. As per section 15(1)(a) the arbitrator/s may recuse himself/ themselves for any reason other than those mentioned in section 14(1) or
3. According to section 15(1)(b) the parties may by agreement among themselves terminate the tribunal for any reason other than those mentioned in section 14(1) or
4. by filing a petition to the tribunal itself for termination of the tribunal u/s 13(2) on any of the grounds mentioned in section 12 or
5. By filing a petition in court (as defined in section 2(e) for termination of the tribunal u/s 14(2).

Deviation From UNCITRAL Model Law
The Act is based on the UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976. Article 13(3) of the Model Law says that where a party unsuccessfully challenges an Arbitrator for lack of independence or impartiality / lack of qualifications agreed to by parties before the Arbitral Tribunal itself, then an appeal by such unsuccessful party lies to the court/other authority from such decision.

However, the Indian Act has not adopted Article 13(3) of the UNCITRAL Model Law which means that once an Arbitrator judges on his own independence or impartiality / qualifications, the aggrieved party will have to wait for an award to be passed & thereafter he can raise the issue in an appeal u/s 34.

This has led to clamours for change by the Indian legal fraternity, from the very inception of the Act. Even, the Law Commission of India in it's One Hundred And Seventy Sixth Report on the Arbitration And Conciliation (Amendment) Bill, 2001 strongly advised for incorporation of the said Article 13(3) into the Act, although in vain.

Independence & Impartiality Vis-a-Vis 5th and 7th Schedule
The Fifth Schedule appended to the Act contains a list of grounds giving rise to justifiable doubts as to the independence or impartiality of an arbitrator. The Seventh Schedule to the Act lists out the grounds which makes a person unsuitable for being appointed as an arbitrator.

Section 12(5) of the Act says that if the matter falls under any of the items mentioned in the Seventh Schedule, then such a person shall be ineligible to act as an arbitrator, irrespective of there being any prior agreement to the contrary. The parties may, however, subsequent to the disputes having arisen, waive the applicability of this provision by entering into an express agreement in writing.

Process of Challenging Appointment for Bias
The Hon'ble Apex Court in it's judgment in Bharat Broadband Network Limited V. United Telecoms Limited,[2] held that "the scheme of Sections 12, 13 and 14, is that where an arbitrator discloses in writing such matter which is likely to give justifiable doubts as to his independence or impartiality, the appointment of such arbitrator may be challenged under Sections 12(1) to 12(4) read with Section 13 before the arbitrator itself.

However, where such person becomes "ineligible" to be appointed as an arbitrator, there is no question of challenge to such arbitrator before the same arbitrator. Then the case would fall under Section 12(5) of the Act and then Section 14(1)(a) of the Act gets attracted inasmuch as the arbitrator becomes, as a matter of law (i.e. de jure), unable to perform his functions under Section 12(5), and thus ineligible to be appointed as an arbitrator."

Recently, the Supreme Court clarified in Swadesh Kumar Agarwal V. Dinesh Kumar Agarwal & Ors, etc., etc.[3] that, "where there is a dispute/controversy on the mandate of the arbitrator being terminated on the ground mentioned in section 14(1)(a), such a dispute has to be raised before the "court", defined under section 2(e) of the Act, 1996 and such a dispute cannot be decided on an application filed under section 11(6) of the Act, 1996."

Biases Outside the Scope of 5th & 7th Schedule
In Voestalpine Schienen GmbH v. DMRC (supra), the court observed that Independence of the arbitrator can be directly ascertained by the parties at the outset of the arbitration proceedings. However, instances of partiality are more likely to become apparent as the arbitration proceedings unfold.

These schedules primarily focus on the notion of the arbitrator's "independence" concerning their relationship with the parties and the subject matter. However, these schedules might not adequately address concerns related to potential bias or procedural misconduct, even if the arbitrator meets the criteria of independence outlined in the fifth and seventh schedules.

For example, a challenge to an arbitrator based on actual bias can arise where the arbitrator has pre-judged the dispute or shown undue leniency to a party in their filings or filed a criminal case against one of the parties, etc. A question arises as to whether these matters could be raised before the court u/s 14 or are these to be decided by the tribunal itself? The answer to this seems to depend on whether the particular issue is covered under any item contained in the Seventh schedule. If so, then the court can u/s 14 terminate the mandate of the tribunal as held recently by the Delhi HC in Union of India v. Reliance Industries[4].

With regard to interpretation of schedule Five & Seven, the Apex court in HRD Corporation V. GAIL (India) Limited[5] observed that the doubts about impartiality are valid only if a reasonable third party, with knowledge of the relevant facts, would conclude that there is a likelihood of the arbitrator being influenced by factors other than the merits of the case. This test necessitates a common-sense approach to the items in the Fifth and Seventh Schedules, construing the words fairly without undue expansion or restriction.

Conclusion
The Fifth Schedule (read with Section 12(1)(a) of the Act lists out the various circumstances giving rise to "justifiable doubts as to the independence and impartiality" of an arbitrator, while the Seventh Schedule (read with Section 12(5) of the Act relates to instances which directly result in the "ineligibility" of a person from being appointed as an arbitrator unless the parties had expressly waived the applicability of the provision in writing after the agreement was entered into, thus creating two different sets of circumstances.



End-Notes:

1. (2017) 4 SCC 665
2. (2019) 5 SCC 755
3. (2022) 10 SCC 235
4. 2022 SCC Online Del 4310
5. (2018) 12 SCC 471