TaxTMI 
TaxTMI 
2017 (3) TMI 1911
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....their continuance. Sections 12(1), 12(3), 12(5) and item 3 of Schedule VII of the amended Arbitration Act fall for consideration. Specifically, whether an arbitrator should stand disqualified or be removed in these circumstances, viz.: the arbitrator is a practicing counsel; he is 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors briefed by various law firm in different matters; one such law firm is the one engaged by one of the parties to the arbitration; the counsel himself has never been briefed by that, or any other, law firm for that particular party, or any of the parties to the arbitration; the arbitrator clarifies in writing that he has never been briefed to appear for that particular party, though he is sometimes briefed in other matters by the law firm in question. Mr Lulia would have it that the fact that the arbitrator, in his practice as counsel, receives with irregular periodicity briefs from the law firm representing a party to the arbitration is sufficient to disqualify him from acting as an arbitrator. It matters not, he says, that the counsel has never acted for that particular client. The counsel is on the "'payroll"' of the ....
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....mbers of the arbitral tribunal passed directions on that date. 7. On 31st January 2017, Mr Lulia wrote to Mr Shah and Mr Dubash asking whether they had in their professional capacities as counsel been engaged by M/s Hariani & Co, who were on record for 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors the 1st Respondent throughout. Paragraph 2 of that letter is also important because in this the present Petitioner is supposed to have instructed Mr Lulia to say that she could not meet the expenses of the three-member arbitral tribunal and she sought instead the appointment of a sole arbitrator. 8. On 31st January 2017, Mr Shah wrote to Mr Lulia saying that although he had been briefed by M/s Hariani & Co in other matters as a practising counsel of the Bombay High Court, he had never appeared for the Claimant (the present 1st Respondent), Metal Power Analytical (India) Pvt Ltd at any time. A copy of this letter is at page 44 of the Petition. On 1st February 2017, Mr Dubash too responded to Mr Lulia in very similar terms. He too confirmed that as counsel he was briefed by several law firms, including M/s Hariani & Co. Some of those were even pending....
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....to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. (5) Notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or 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: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing: Provided further that this sub-section shall not apply to cases where an arbitrator has already been appointed on or before the commencement of the Arbitration and Conciliation (Amendment) Ordinance, 2015." (Emphasis added) 12. Mr Lulia"'s submission is that the wording of Section 12(1)(a), read with Sections 12(3) and 12(5) and item 3 of the VIIth Schedule would operate to automatically disqualify both Mr Shah and Mr Duba....
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....r only then can she maintain such an application in Court and that too only in accordance with Section 34. 15. Section 13 read thus: "S. 13. Challenge Procedure (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors (5) Where an arbitral award is made under sub-section (4), the party chal....
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....e purpose to ensure that there is not only no bias but that there is no reasonable apprehension of bias. This is borne out by the words of Section 12 themselves. In sub-clause (a) of sub-section (1) of Section 12 the words used are "likely to give rise to justifiable doubts as to his independence or impartiality". The entire purpose of Section 12 is thus to ensure impartiality and independence, i.e., freedom from bias. Section 12(1)(a) also speaks of an arbitrator"'s relationship with one of the parties. It then describes the types of disqualifying associations. They may be professional, financial, business or of any other kind (and which seems to me to imply that the words are illustrative, not exhaustive). This association must, however, be with the one of the parties, and it must be such as to give rise, within the meaning of Section 12(3) of a justifiable doubt as to the arbitrator"'s impartiality or independence. 20. Mr Lulia"'s emphasis is, I suspect, more on Section 12(5) and its use of the phrase 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors any person whose relationship with the parties or counsel or the subject matter of th....
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....nterest 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. 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors 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. Explanation 1.The term "close family member" refers to a spouse, sibli....
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.... a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors 6. 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. 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. 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 the company. 10. A close family member of the arbitrator has a significant financial interest in one of the parties or an affiliate of one of the parties. 11. The arbitrator is a legal representative of an entity that is a party in the arbitration. 1....
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....The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties. RELATIONSHIP BETWEEN AN ARBITRATOR AND ANOTHER ARBITRATOR OR COUNSEL 25. The arbitrator and another arbitrator are lawyers in the same law firm. 26. The arbitrator was within the past three years a partner of, or otherwise affiliated with, another arbitrator or any of the counsel in the same 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. 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. 29. The arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm. RELATIONSHIP BETWEEN ARBITRATOR AND PARTY AND OTHERS INVOLVED IN THE ARBITRATION 30. The arbitrator"'s law firm is currently acting adverse to one of the parties or an affiliate of one of th....
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....chedule is an automatic disqualification even if disclosed is not something I am called on to decide in this matter, though it does appear that the non-disclosure is fatal, but the disclosure, if accepted and waived, would not result in a disqualification. Section 12(5) speaks of ineligibility and it is linked to the VIIth Schedule; but the proviso to that sub-section again contemplates a possible waiver. 25. At the broadest level, no arbitrator should be involved in any manner with one of the parties to the dispute or a partner with a lawyer or law firm appearing in the arbitration, or representing the law firm or lawyer personally. 26. A law firm"'s briefing of counsel in other, unrelated matters is on a very different footing. In our profession it very often happens that on a given day a law firm will brief counsel for one client and on the very next day, or perhaps later that very day, will brief another counsel against the first. At no point in their regular practice do counsel appear "'for"' the law firm that briefs them, leaving aside cases where the briefing lawyer or law firm is itself the litigant. In-house counsel or counsel who receive a fee-paid gener....
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....on or ineligibility. The disqualification connection must be between the arbitrator-counsel and the litigant. That this is of the essence is obvious from Item 3 of the two schedules in a given case, where the law firm or lawyer is itself or himself the client, the arbitrator cannot function as such in an arbitration where that very law firm or lawyer is also engaged, though for some other party; for the arbitrator in question would then have before him a party for whom he is engaged. 29. As I noticed earlier, whether Mr Lulia says this or not, the foundation of his case is rooted in an apprehension of bias. That is not dependent on his client"'s averments or his submissions, and I must give him and his client due credit for that correctness and fairness. The rule against bias may, I think, be traced to well-established principles in administrative law, and, specifically the rules against a pecuniary bias and a personal bias. In Craig"'s Administrative Law,1 it is said: The Courts have long insisted that any pecuniary interest disqualifies the decision-maker, be he high or low. The Courts have consistently held that if there was a pecuniary interest, it was not necessary ....
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.... real likelihood of bias on his part, then he should not sit. 31. Wade in Administrative Law draws a distinction between genuine and fanciful cases:5 The Court of Appeal protested against the tendency to impeach judicial decisions "'upon the flimsiest pretexts of bias"', and against "'the erroneous impression that it is more important that justice should appear to be done than should in fact be done"'. Similarly, a deputy High Court judge was not disqualified because the solicitors"' firm of which he was a partner was, without his knowledge, involved in related litigation. Neither was a judge disqualified in a case where one party"'s solicitors were already acting for the judge in relation to his will. And a judge who was the director of a property company, which was the landlord of one of the parties, was not disqualified. The judge did not know of this link but even if he had known, there could in the circumstances, "'not be a real danger of bias. The interest was so minimal that no reasonable and fair-minded person sitting in court would have considered there was a real as opposed to a fanciful danger of a fair trial not being possible."'. 3....
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....d to sit in judgment. Litigants should not be 2nd March 2017 Sheetal Maruti Kurundwade v Metal Power Analytical Pvt Ltd & Ors encouraged to treat judges like members of a jury whom they can challenge off the case, with or without cause. Some litigants have met with a harsher judicial response in this respect. In 1975 a US District Court female judge refused to accede to the request of a Defendant in a sex discrimination case that she should disqualify herself on the ground of bias because she was of the same sex as the Plaintiff and had argued civil rights cases as a lawyer before her appointment to the Bench. A barrister charged with professional misconduct was similarly unsuccessful in his complaint that a disciplinary tribunal, "'the majority of the members of which are practising barristers, is incapable of considering fairly a charge of misconduct brought against a fellow barrister"'. Because judges live in society, they are bound to be affected by the result of many cases that come before the courts. In one of A. P. Herbert"'s Misleading Cases, Sir Ethelred Rutt KC persuaded three Court of Appeal judges that neither they nor any other judges could properly hear an....