The foundation of the arbitration lies in the independence and impartiality of the arbitrator while dealing with the arbitration matters. But many a times, a situation arose that there were reasons for parties to suspect the impartiality and independence of the arbitrators. On one side the parties have only limited rights to challenge an arbitrator award and on the other side there was no mechanism to challenge such an arbitrator. Internationally various efforts were taken by Arbitral Institutions and other law associations to establish a system to ensure neutrality of arbitrators.

The first guidelines which were globally recognized was “IBA Rules on Conflict of interest in International Arbitrations” which listed various types of relationship of the arbitrator with either the party or the counsel. The objective of the above said Rules was to avoid people who are closely related to the parties or counsels, be appointed as arbitrator. Even though the said IBA rules must be accepted by the parties to make it part of the arbitration procedure, many parties come forward to incorporate the rules in their arbitration clause.

UNCITRAL Model law (Article 13) provided for challenging of the arbitrator in a court of law on the ground of neutrality and hence in many countries courts can be approached for removal of arbitrators on the ground of neutrality. All the popular International Arbitral Institutions have the procedure of seeking disclosure of the arbitrator about his relationship with the parties and counsel before confirming the appointment. They also have in-house procedure to deal with the challenges to the arbitrator. Hence all over the world parties challenging the arbitrator is in practice.

But while drafting Arbitration and Conciliation Act, 1996, the said provision was not provided in the Indian Act, may be to avoid court interferences in arbitration proceedings, on the context of neutrality of arbitrators. Hence as per S.13 of the Act, the party who has some information about the arbitrator, which may impact the neutrality, it should place it before the tribunal and challenge that appointment. If the arbitrator after hearing the parties decides to step down, then the new arbitrator can be appointed as per the provisions of the arbitration agreement. If he chooses to dismiss the challenge and continues with the arbitration, the party must wait till the award. If he is aggrieved by the award, then while challenging the award he can also raise bias as an additional ground. Such an ineffective scheme did not work and it adversely affected the confidence of the stake holders in the arbitration process itself.

More over in India, the said situation wrongly used by the Government, Public sector Companies and big private sector companies. They started compelling parties who wish to enter contract with them, to accept one sided contracts, which gave them the powers to appoint the arbitrator. Using those powers, they started appointing either their own officers or some selected persons and those arbitrators always tried to protect the interest of the Government or PSU or the big companies. Hence arbitration was losing its value.

The relief came by way of Arbitration and Conciliation (Amendment) Act, 2015 which brought in two major changes in the original 1996 Act. The changes include the mandatory declaration by the arbitrators under S.12 about their relationship with the parties and counsels and Schedule VII which has listed certain disqualifications, to be appointed as arbitrators based on his relationship with parties or counsels. Hence if any of the appointed arbitrator is having a disqualification, under Schedule VII of the Act, then, a party can challenge his continuance as an arbitrator. Since there is no clear procedure prescribed in the Act, there was an impression that even if an arbitrator has a disqualification under Schedule VII, if he does not quit even after the challenge of the party, the parties must wait till the pronouncement of the award to challenge the same. Such an impression defeated the purpose of declaration as well as the introduction of Schedule VII.

In a recent Judgment of Delhi High Court in Dream Valley Farms Pvt Limited Vs Religere Finvest Ltd., it was held that a misleading declaration by the arbitrator about the relationship with parties violates S.12(1) of the Act and hence S.14 can be invoked and arbitrator can be removed by the Court. In another recent Judgment of Delhi High court in West Haryana High ways Projects Pvt limited Vs National Highways Authority of India 2017 SCC online Del 8373, held that the dis-qualification under Schedule VII is a Dejure disqualification that means a disqualification by law. Hence the High Court has the power to entertain an application under S.14 of the Arbitration and Conciliation Act, 1996 and replace the arbitrator, if he has a disqualification under Schedule VII of the Act. The above said interpretations of the High court gives correct meaning to the declaration of the arbitrator under S.12 and Schedule VII of the Act.