Certain thoughts on the rule against bias vis-a-vis the Arbitration Act

This is the second in the Role of a Judge series. Please click here to read the first.. RULE AGAINST BIAS is one of the fundamental principles of natural justice which applies to all judicial and quasi-judicial proceedings. The requirement of impartiality is sometimes expressed in the form nemo judex in re sua or no man should be judge in his own cause. A judge cannot be considered competent to adjudicate a matter in which he is directly or indirectly interested. The question, then, is what constitutes interest in light of the amended provisions of the Arbitration and Conciliation Act, 1996 (‘1996 Act’). A plain reading of the 1996 Act demonstrates that the principles of natural justice is an inalienable part of the arbitral proceedings. The 1996 Act lays down a clear process to be followed - starting with the appointment of an arbitrator, followed by the passing of an arbitral award, and finally, the process to challenge and/or enforce the same. Section 12 of the 1996 ActIndependence and impartiality of the arbitrator are the hallmarks of any arbitration proceedings. Section 12 of the 1996 Act has the objective to induce neutrality of arbitrators viz their independence and impartiality. Section 12 of the 1996 Act mandates that an arbitrator “…shall disclose in writing any circumstances,-(a)such as the existence either direct or indirect, of any past or present relationship with or interest in any 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…”..A plain reading of the 1996 Act demonstrates that the principles of natural justice is an inalienable part of the arbitral proceedings..Fifth and Seventh Schedule of the 1996 ActExplanation 1 to Section 12 states “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.” In other words, an arbitrator is statutorily obligated to disclose the existence of any financial or business or professional relationship or interest with any party in the arbitral proceedings. It is manifest that the main purpose of Section 12 is to provide for neutrality of arbitrators. The Fifth Schedule of the 1996 Act enlists 34 circumstances that “give rise to justifiable doubts as to the independence or impartiality of arbitrators.” The rationale for these grounds is that an arbitrator must not be engaged with any party in any mode or manner wherefrom he derives a financial benefit, or is in a capacity to influence or impact the management or administration of the concerned party. This restriction extends beyond the arbitrator to include their close family members. In essence, neither the arbitrator nor their close family members should be in a position to gain—financially or otherwise—from the success or failure of any party involved in the arbitration. The 1996 Act mandates that an arbitrator must disclose any such engagement or association at the time of appointment, or as soon as it arises during the course of the arbitral proceedings..Role of a judge: When to recuse? .Section 12(5) of the 1996 Act also stipulates that if the arbitrator falls in any one of the categories mentioned in the Seventh Schedule, he is deemed ineligible to act as an arbitrator. This eligibility goes to the core of the matter and the arbitrator becomes de jure, i.e. unable to perform his functions. However, the 1996 Act allows for this ineligibility to be waived through an express agreement by the parties, but only after a dispute has arisen between them. Entries in the Fifth and Seventh Schedules are comprehensiveOne may question whether the grounds listed in the Schedules are adequate to cover all kinds of bias, or if there is scope for adding other circumstances that may also lead to justifiable doubts as to the independence or ineligibility of the arbitrator. From a meaningful reading of the list, it appears that the intent of the legislature was to cover all kinds of external interests only and so it does. In this regard, the Supreme Court of India in Delhi Metro Rail case (2016) has held that the Schedules enumerate a comprehensive list of the circumstances which give rise to justifiable doubts. Further, in the Reliance Industries case (2023), it has been held that Sections 12 and 13 of the 1996 Act, when read together, constitute a complete and independent code for the purpose of trial of allegation of bias. However, in Central Organisation for Railway Electrification (2024) , the Supreme Court held that the power of the court to ensure the appointment of a neutral tribunal is not restricted to Section 12(5). The provisions of Section 12, coupled with the Fifth and Seventh Schedules, would come to the aid (stems from the phrase “shall guide”) of the court in coming to the conclusion on whether the arbitral tribunal maintains the sanctity of a credible remedy or not.In the author’s view, while the Schedules to the 1996 Act, are comprehensive they may not be exhaustive, as they primarily address external interests and do not adequately account for instances when an arbitrator may hold a predetermined view on the subject matter. A notable example is the Microsoft Corporation case (2023), where the Delhi High Court found the arbitrator to be biased due to a “predistinct disposition” against the subject matter of the dispute. Consequently, the arbitral award was set aside on grounds of perceived bias. The Microsoft Corporation case however does not make any reference to the Schedules in the 1996 Act and in any event the circumstance of the aforesaid case fell outside the scope of the Schedules of the 1996 Act. .While the principles of natural justice must always be upheld, especially in cases of alleged bias, courts must exercise caution and judicial restraint..As discussed in the first article, the formation of a predetermined view on the outcome of a case before or during the course of any proceeding is unacceptable, irrespective of whether the prejudgment is formulated before the proceeding or, as a result of premature adjudication, during the proceeding. The law has absolute intolerance for both, and both thus result in the immediate disqualification of a judge. Grievance redressalThe 1996 Act provides for an effective grievance redressal party aggrieved by the bias of an arbitrator. The party has the right to challenge the acts of bias of the arbitrator before the Tribunal itself. Thereafter, the award debtor is also vested with the statutory right to challenge an award under Section 34 of the 1996 Act. Therefore, an award may even be set aside if the bias of the concerned arbitrator is proven to the competent court. ConclusionThe grounds enumerated in the Schedules of the 1996 Act are comprehensive (so far) and reflect a deliberate balance between party autonomy and procedural fairness. These provisions adequately address concerns of bias, particularly from external interests. While the principles of natural justice must always be upheld, especially in cases of alleged bias, courts must exercise caution and judicial restraint. Only in rare and exceptional cases—where the act of bias strikes at the very root of impartiality—should departure from the Schedules be considered. The Microsoft Corporation case, though an exception, may serve as an illustrative example in such extraordinary circumstances. However, it must not be treated as a general standard. Frequent or casual invocation of such exception risks undermining arbitral autonomy and defeating the purpose of streamlined dispute resolution under the 1996 Act.

Certain thoughts on the rule against bias vis-a-vis the Arbitration Act

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