AI Drafter 
TaxTMI 
TaxTMI 
2017 (9) TMI 56
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....ecide this case are as follows. The respondent, GAIL (India), issued a notice inviting tenders for supply of wax generated at GAIL's plant at Pata, Uttar Pradesh for a period of 20 years on an exclusive basis. The appellant successfully tendered for the said contract and the parties entered into an agreement dated April 1, 1999. Disputes arose between the parties, the appellant claiming that GAIL had wrongfully withheld supplies of wax, as a result of which the appellant invoked the arbitration clause included in the agreement. 4. Three earlier arbitrations have taken place between the parties. The present dispute arises from the fourth such arbitration. For the period 2004-2007, an Arbitral Tribunal consisting of Justice A.B. Rohatgi (presiding arbitrator), Justice J.K. Mehra and Justice N.N. Goswamy published an award on April 8, 2006 in which they directed specific performance of the agreement dated April 1, 1999. This award was never challenged and has since become final. 5. For the period 2007-2010, a second arbitration was held consisting of the same panel as the first arbitration. 6. For the period 2010-2013, the same Arbitral Tribunal was constituted. However, whil....
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....argued that if for any reason Justice Doabia's appointment is held to be bad, Justice Lahoti's appointment must follow as being bad as an ineligible arbitrator cannot appoint another arbitrator. He has argued before us that the 2016 Amendment Act, which substituted Section 12(1), read with the Fifth and Seventh Schedules and introduced Section 12(5), has to be read in the context of the grounds for challenge to awards being made narrower than they were under Section 34 of the Act. This being so, it is extremely important that the independence and impartiality of an arbitrator be squarely and unequivocally established, and for this purpose, the grounds contained in the Fifth and Seventh Schedules should be construed in a manner that heightens independence and impartiality. According to learned counsel, once a Seventh Schedule challenge is presented before the Court, the arbitrator becomes ineligible and consequently becomes de jure unable to perform his functions under Section 14 of the Act. 9. Shri Gopal Jain, learned senior advocate appearing in civil appeal arising from SLP(C) No. 20679 of 2017, argued that the object of the 2016 Amendment Act is to appoint neutral arbitrators....
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....y 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 (b) 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 twelve months. Explanation 1.- The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2. - The disclosure shall be made by such person in the form specified in the Sixth Schedule. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) 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 ....
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....parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12." 12. Under Section 12, it is clear that when a person is approached in connection with his possible appointment as an arbitrator, he has to make a disclosure in writing, in which he must state the existence of any direct or indirect present or past relationship or interest in any of the parties or in relation to the subject matter in dispute, which is likely to give justifiable doubts as to his independence or impartiality. He is also to disclose whether he can devote sufficient time to the arbitration, in particular to be able to complete the entire arbitration within a period of 12 months. Such disclosu....
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....'s law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself. (Waivable Red List) 2.3.5 The arbitrator's law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself. 7. The arbitrator's law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties. (Waivable Red List) 2.3.6 The arbitrator's law firm currently has a significant commercial relationship with one of the parties, or an affiliate of one of the parties. 8. The arbitrator regularly advises the appointing party or an affiliate of the appointing party even though neither the arbitrator nor his or her firm derives a significant financial income therefrom. (Waivable Red List) 2.3.7 The arbitrator regularly advises one of the parties, or an affiliate of one of the parties, but neither the arbitrator nor his or her firm derives a significant financial income therefrom. 9. The arbitrator has a close family relationship with one of the parties and in the case of companies with the persons in the management and controlling th....
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....he arbitrator had a prior involvement in the dispute. 17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held. (Waivable Red List) 2.2.1 The arbitrator holds shares, either directly or indirectly, in one of the parties, or an affiliate of one of the parties, this party or an affiliate being privately held. 18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute. (Waivable Red List) 2.2.2 A close family member of the arbitrator has a significant financial interest in the outcome of the dispute. 19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute. (Waivable Red List) 2.2.3 The arbitrator, or a close family member of the arbitrator, has a close relationship with a non-party who may be liable to recourse on the part of the unsuccessful party in the dispute. 20. The arbitrator has within the past three years served as counsel for one of the parties or an affiliate of one of the p....
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....e past three years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same arbitration. (Orange List) 3.3.3 The arbitrator was, within the past three years, a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the arbitration. 27. A lawyer in the arbitrator's law firm is an arbitrator in another dispute involving the same party or parties or an affiliate of one of the parties. (Orange List) 3.3.4 A lawyer in the arbitrator's law firm is an arbitrator in another dispute involving the same party or parties, or an affiliate of one of the parties. 28. A close family member of the arbitrator is a partner or employee of the law firm representing one of the parties, but is not assisting with the dispute. (Orange List) 3.3.5 A close family member of the arbitrator is a partner or employee of the law firm representing one of the parties, but is not assisting with the dispute. 29. The arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm. (Orange List) 3.3.8 The arbitrator has, within the past three years, been appoin....
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....roughout the Application Lists, the term 'affiliate' encompasses all companies in a group of companies, including the parent company. Explanation 3.-For the removal of doubts, it is clarified that it may be the practice in certain specific kinds of arbitration, such as maritime or commodities arbitration, to draw arbitrators from a small, specialized pool. If in such fields it is the custom and practice for parties frequently to appoint the same arbitrator in different cases, this is a relevant fact to be taken into account while applying the rules set out above. Footnote 5.- It may be the practice in certain types of arbitration, such as maritime, sports or commodities arbitration, to draw arbitrators from a smaller or specialised pool of individuals. If in such fields it is the custom and practice for parties to frequently appoint the same arbitrator in different cases, no disclosure of this fact is required, where all parties in the arbitration should be familiar with such custom and practice. "THE SIXTH SCHEDULE [See section 12 (1)(b)] NAME: CONTACT DETAILS: PRIOR EXPERIENCE (INCLUDING EXPERIENCE WITH ARBITRATIONS): NU....
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....or has a similar controlling influence in one of the parties. 13. The arbitrator has a significant financial interest in one of the parties or the outcome of the case. 14. The arbitrator regularly advises the appointing party or an affiliate of the appointing party, and the arbitrator or his or her firm derives a significant financial income therefrom. Relationship of the arbitrator to the dispute 15. The arbitrator has given legal advice or provided an expert opinion on the dispute to a party or an affiliate of one of the parties. 16. The arbitrator has previous involvement in the case. Arbitrator's direct or indirect interest in the dispute. 17. The arbitrator holds shares, either directly or indirectly, in one of the parties or an affiliate of one of the parties that is privately held. 18. A close family member of the arbitrator has a significant financial interest in the outcome of the dispute. 19. The arbitrator or a close family member of the arbitrator has a close relationship with a third party who may be liable to recourse on the part of the unsuccessful party in the dispute. Explanat....
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....r's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the aforesaid grounds. It is clear, therefore, that any challenge contained in the Fifth Schedule against the appointment of Justice Doabia and Justice Lahoti cannot be gone into at this stage, but will be gone into only after the Arbitral Tribunal has given an award. Therefore, we express no opinion on items contained in the Fifth Schedule under which the appellant may challenge the appointment of either arbitrator. They will be free to do so only after an award is rendered by the Tribunal. 14. Confining ourselves to ineligibility, it is important to note that the Law Commission by its 246th Report of August, 2014 had this to say in relation to the amendments made to Section 12 and the insertion of the Fifth and Seventh Schedules: "59. The Commission has proposed the requirement of having specific disclosures by the arbitrator, at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the inco....
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....The enumeration of grounds given in the Fifth and Seventh Schedules have been taken from the IBA Guidelines, particularly from the Red and Orange Lists thereof. The aforesaid guidelines consist of three lists. The Red List, consisting of non-waivable and waivable guidelines, covers situations which are "more serious" and "serious", the "more serious" objections being non-waivable. The Orange List, on the other hand, is a list of situations that may give rise to doubts as to the arbitrator's impartiality or independence, as a consequence of which the arbitrator has a duty to disclose such situations. The Green List is a list of situations where no actual conflict of interest exists from an objective point of view, as a result of which the arbitrator has no duty of disclosure. These guidelines were first introduced in the year 2004 and have thereafter been amended, after seeing the experience of arbitration worldwide. In Part 1 thereof, general standards regarding impartiality, independence and disclosure are set out. General principle 1 reads as follows: "IBA Guidelines on Conflicts of Interest in International Arbitration (1) General Principle: Every arbi....
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....n-independence and non-impartiality of such arbitrator (though contractually agreed upon) would render him ineligible to conduct the arbitration. The genesis behind this rational is that even when an arbitrator is appointed in terms of contract and by the parties to the contract, he is independent of the parties. Functions and duties require him to rise above the partisan interest of the parties and not to act in, or so as to further, the particular interest of either parties. After all, the arbitrator has adjudicatory role to perform and, therefore, he must be independent of parties as well as impartial. The United Kingdom Supreme Court has beautifully highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj, (2011) 1 WLR 1872 : 2011 UKSC 40] in the following words: (WLR p. 1889, para 45) "45. ... the dominant purpose of appointing an arbitrator or arbitrators is the impartial resolution of the dispute between the parties in accordance with the terms of the agreement and, although the contract between the parties and the arbitrators would be a contract for the provision of personal services, they were not personal services under the direction of the parties." ....
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....arbitrator. Likewise, that person is treated as incompetent to perform the role of arbitrator, who is a manager, director or part of the management or has a single controlling influence in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Likewise, persons who regularly advised the appointing party or affiliate of the appointing party are incapacitated. A comprehensive list is enumerated in Schedule 5 and Schedule 7 and admittedly the persons empanelled by the respondent are not covered by any of the items in the said list." 17. It will be noticed that Items 1 to 19 of the Fifth Schedule are identical with the aforesaid items in the Seventh Schedule. The only reason that these items also appear in the Fifth Schedule is for purposes of disclosure by the arbitrator, as unless the proposed arbitrator discloses in writing his involvement in terms of Items 1 to 34 of the Fifth Schedule, such disclosure would be lacking, in which case the parties would be put at a disadvantage as such information is often within the personal knowledge of the arbitrator only. It is for this reason that it appears tha....
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.... 20. However, to accede to Shri Divan's submission that because the grounds for challenge have been narrowed as aforesaid, we must construe the items in the Fifth and Seventh Schedules in the most expansive manner, so that the remotest likelihood of bias gets removed, is not an acceptable way of interpreting the Schedules. As has been pointed out by us hereinabove, the items contained in the Schedules owe their origin to the IBA Guidelines, which are to be construed in the light of the general principles contained therein - that every arbitrator shall be impartial and independent of the parties at the time of accepting his/her appointment. Doubts as to the above are only justifiable if a reasonable third person having knowledge of the relevant facts and circumstances would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case in reaching his or her decision. This test requires taking a broad common-sensical approach to the items stated in the Fifth and Seventh Schedules. This approach would, therefore, require a fair construction of the words used therein, neither tending to enlarge or restrict them undul....
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....ularly" is missing from Items 1 and 2, it is clear that the arbitrator, if he is an "advisor", in the sense of being a person who has a business relationship in Item 1, or is a person who "currently" advises a party or his affiliates in Item 2, connotes some degree of regularity in both items. The advice given under any of these items cannot possibly be one opinion given by a retired Judge on a professional basis at arm's length. Something more is required, which is the element of being connected in an advisory capacity with a party. Since Justice Lahoti has only given a professional opinion to GAIL, which has no concern with the present dispute, he is clearly not disqualified under Item 1. 23. Coming to Justice Doabia's appointment, it has been vehemently argued that since Justice Doabia has previously rendered an award between the same parties in an earlier arbitration concerning the same disputes, but for an earlier period, he is hit by Item 16 of the Seventh Schedule, which states that the arbitrator should not have previous involvement "in the case". From the italicized words, it was sought to be argued that "the case" is an ongoing one, and a previous arbitration award del....
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...., but not as arbitrator. It was also faintly argued that Justice Doabia was ineligible under Items 1 and 15. Appointment as an arbitrator is not a "business relationship" with the respondent under Item 1. Nor is the delivery of an award providing an expert "opinion" i.e. advice to a party covered by Item 15. 25. The fact that Justice Doabia has already rendered an award in a previous arbitration between the parties would not, by itself, on the ground of reasonable likelihood of bias, render him ineligible to be an arbitrator in a subsequent arbitration. As has been stated in H. v. L & others, [2017] 1 W.L.R. 2280 at 2288-2289: "26. If authority were needed it is to be found in AMEC Capital Projects Ltd v Whitefriars City Estates Ltd [2005] 1 All ER 723. An adjudicator had decided a case without jurisdiction as a result of defects in the procedural mechanism for his appointment. His adjudication was set aside and he was then reappointed to decide the same dispute, between the same parties, and decided it in the same way. At first instance it was held that his second adjudication should be set aside for apparent bias because, amongst other things, he had already decided t....
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.... 28. The position in Bermuda Form arbitrations is accurately summarised in a leading textbook, Liability Insurance in International Arbitration, 2nd ed (2011), at para 14.32 in these terms: "14.32 Commencing a Bermuda Form Arbitration The decision in Locabail (UK) Ltd v Bayfield Properties Ltd [2000] QB 451, and the foregoing discussion, is also relevant in the fairly common situation where a loss, whether from boom or batch, gives rise to a number of arbitrations against different insurers who have subscribed to the same programme. A number of arbitrations may be commenced at around the same time, and the same arbitrator may be appointed at the outset in respect of all these arbitrations. Another possibility is that there are successive arbitrations, for example because the policyholder wishes to see the outcome of an arbitration on the first layer before embarking on further proceedings. A policyholder, who has been successful before one tribunal, may then be tempted to appoint one of its members (not necessarily its original appointee, but possibly the chairman or even the insurer's original appointee) as arbitrator in a subsequent arbitration. Similarly,....
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....)." 27. The judgment referred to in Russell is reported in Locabail v. Bayfield, (2000) 1 All E.R. 65. In paragraph 89 thereof, the Court of Appeal stated: "We have found this a difficult and anxious application to resolve. There is no suggestion of actual bias on the part of the recorder. Nor, quite rightly, is any imputation made as to his good faith. His voluntary disclosure of the matters already referred to show that he was conscious of his judicial duty. The views he expressed in the articles relied on are no doubt shared by other experienced commentators. We have, however, to ask, taking a broad commonsense approach, whether a person holding the pronounced pro-claimant anti-insurer views expressed by the recorder in the articles might not unconsciously have leant in favour of the claimant and against the defendant in resolving the factual issues between them. Not without misgiving, we conclude that there was on the facts here a real danger of such a result. We do not think a lay observer with knowledge of the facts could have excluded that possibility, and nor can we. We accordingly grant permission to appeal on this ground, allow the defendant's appeal and o....