Navigating Challenges to Arbitrator Authority in Arbitration

Arbitration works well only when the person deciding the dispute is fair, neutral, and competent. But what happens when one party believes the arbitrator is biased or lacks the qualifications to adjudicate? This is where the right to challenge an arbitrator becomes critical. Under the Arbitration and Conciliation Act, 1996, Indian law provides a structured mechanism that allows parties to raise concerns about an arbitrator’s independence or impartiality – protecting the integrity of the entire arbitration process.

Why the right to challenge an arbitrator matters 🔗

Arbitration is built on trust. Unlike litigation in courts, where judges are appointed by the state, arbitrators are typically chosen by the parties themselves or through an institutional process. This selection process creates a unique vulnerability – the possibility that an arbitrator may have personal, financial, or professional connections with one of the parties.

If a party suspects bias but has no way to raise the issue, the entire arbitration outcome becomes questionable. The challenge mechanism exists to address exactly this risk. It ensures that parties retain meaningful control over the fairness of the proceedings, even after the tribunal has been constituted. Without it, arbitration would lose the credibility that makes it a preferred alternative to court litigation in the first place.

Grounds for challenging an arbitrator under the Act 🔗

The legal foundation for challenging an arbitrator in India is found primarily in Section 12 of the Arbitration and Conciliation Act, 1996. This provision was significantly strengthened by the 2015 amendments, which drew heavily from the IBA Guidelines on Conflicts of Interest in International Arbitration (2014) and the recommendations of the Law Commission of India.

Disclosure obligations on arbitrators 🔗

Section 12(1) mandates that any person approached for possible appointment as an arbitrator must disclose in writing any circumstances that are likely to give rise to justifiable doubts about their independence or impartiality. This is not a one-time requirement – it is an ongoing duty throughout the arbitration. If new circumstances emerge during the proceedings, the arbitrator must disclose them promptly to all parties.

The types of circumstances that must be disclosed include any past or present relationship with the parties, any financial interest in the dispute’s outcome, prior involvement in the same or a related matter, and professional or personal connections with the parties’ legal representatives. Failure to make proper disclosures can have serious consequences, including the vitiation of both the arbitral proceedings and the resulting award.

The Fifth and Seventh Schedules 🔗

The 2015 amendments introduced two crucial schedules to supplement Section 12. The Fifth Schedule lists illustrative grounds and circumstances that give rise to justifiable doubts about an arbitrator’s independence or impartiality. These are modelled on the “Orange List” of the IBA Guidelines and are treated as guidance rather than absolute bars.

The Seventh Schedule, on the other hand, is far more decisive. If an arbitrator’s relationship with the parties, their counsel, or the subject matter falls under any category listed in the Seventh Schedule, that person is automatically ineligible to serve as an arbitrator. Under Section 12(5), this ineligibility applies regardless of any prior agreement between the parties – though the parties may waive it through an express written agreement made after the dispute has arisen.

The key difference between the two schedules is important to understand. A challenge based on the Fifth Schedule raises questions about doubts – it does not render the arbitrator automatically disqualified. A challenge based on the Seventh Schedule, however, strikes at the very root of the arbitrator’s authority and makes them de jure ineligible to continue.

The challenge procedure under Section 13 🔗

Once a party identifies grounds to challenge an arbitrator, the procedure for doing so is laid down in Section 13 of the Act. This is a carefully structured process designed to balance speed, fairness, and minimal disruption to the arbitration.

Party autonomy in deciding the procedure 🔗

Section 13(1) gives the parties the freedom to agree on their own procedure for challenging an arbitrator. This reflects the principle of party autonomy that is central to arbitration. Many institutional arbitration rules – such as those of the Indian Council of Arbitration or the Mumbai Centre for International Arbitration – already prescribe their own challenge procedures, and parties who opt for institutional arbitration would follow those rules.

Default statutory procedure 🔗

If the parties have not agreed on a specific challenge procedure, the default mechanism under Section 13(2) kicks in. A party wishing to challenge an arbitrator must send a written statement of reasons for the challenge to the arbitral tribunal. This must be done within 15 days of either becoming aware of the constitution of the tribunal, or becoming aware of circumstances that give rise to justifiable doubts about the arbitrator’s independence or impartiality.

This 15-day window is crucial. If a party fails to file the challenge within this period, it may amount to an implied waiver of the right to challenge. The written statement must set out all the relevant facts that support the allegation of bias or lack of impartiality, supported by reasoning that connects these facts to the arbitrator’s conduct or circumstances.

Decision on the challenge 🔗

Under Section 13(3), once the challenge is filed, the challenged arbitrator has the option to voluntarily withdraw from office. If the arbitrator does not withdraw, and the other party does not agree to the challenge, the arbitral tribunal itself decides the matter. This provision has attracted significant debate, as it effectively makes the arbitrator a judge in their own cause.

If the challenge is unsuccessful, Section 13(4) provides that the arbitral tribunal continues with the proceedings and renders an arbitral award. The challenging party is not left without a remedy – they can later seek to have the award set aside under Section 34 of the Act on the grounds that the tribunal was improperly constituted or that the arbitrator lacked impartiality.

Section 14: when ineligibility goes to the root of appointment 🔗

Section 14 addresses a different kind of challenge – cases where the arbitrator becomes de jure (as a matter of law) or de facto (as a matter of fact) unable to perform their functions, or fails to act without undue delay. Unlike Section 13, where the challenge is decided by the tribunal itself, a Section 14 challenge goes before a court for determination.

This distinction matters greatly in practice. If the arbitrator’s disqualification falls under the Seventh Schedule – meaning the arbitrator is inherently ineligible – a party can approach the court directly under Section 14(2) to seek termination of the arbitrator’s mandate. The court’s intervention is warranted here because the challenge goes to the very foundation of the arbitrator’s jurisdiction, not merely to the exercise of discretion.

Section 14 also addresses practical situations like the arbitrator’s death, physical incapacity, or persistent refusal to act. In all such cases, the mandate terminates and a substitute arbitrator must be appointed under Section 15 in accordance with the original rules of appointment.

Key judicial pronouncements 🔗

Indian courts have extensively interpreted the interplay between Sections 12, 13, and 14, creating a body of jurisprudence that clarifies how challenges should be handled in practice.

HRD Corporation v. GAIL (India) Limited (2018) 🔗

This is one of the most significant Supreme Court decisions on arbitrator challenges. The case involved challenges to two arbitrators – Justice Doabia, who had rendered awards in previous arbitrations between the same parties, and Justice Lahoti, who had given a legal opinion to one of the parties in an unrelated matter. The Supreme Court held that an arbitrator’s involvement in a prior arbitration between the same parties does not automatically establish bias or ineligibility in a subsequent arbitration. What matters is involvement in the specific dispute at hand.

The Court also drew a clear line between the Fifth and Seventh Schedules. Challenges under the Fifth Schedule (justifiable doubts) must go through the Section 13 procedure before the tribunal, and if unsuccessful, can only be raised again at the stage of setting aside the award under Section 34. Challenges under the Seventh Schedule (ineligibility), on the other hand, go to the root of the appointment, and the court can intervene under Section 14 to terminate the arbitrator’s mandate.

BHEL v. CN Garg 🔗

In this case, the Delhi High Court upheld the constitutional validity of Section 13. The Court ruled that a challenge based on allegations of bias and prejudice would be covered under Section 34(2)(b)(ii) of the Act at the stage of setting aside the award. If the court finds merit in such allegations, the award must be set aside. This decision was subsequently upheld by the Supreme Court.

The CORE II judgment 🔗

In a more recent development, the Supreme Court reaffirmed the principle that equal treatment of parties is fundamental to the arbitration process, particularly when selecting arbitrators. The Court ruled that public sector undertakings cannot require the opposite party to choose an arbitrator solely from their curated panel, as this would undermine the fairness expected in arbitration. The judgment applied these principles prospectively to avoid disrupting pending proceedings.

Practical challenges and criticisms of the current framework 🔗

While the statutory framework is detailed, it is not without its criticisms. The most prominent concern is the “judge in his own cause” problem created by Section 13. When the arbitral tribunal itself decides on a challenge to one of its members, there is an inherent structural conflict. An arbitrator who does not wish to withdraw can simply decide the challenge in their own favour and continue sitting on the tribunal.

This is a departure from the UNCITRAL Model Law, which allows parties to approach a court immediately if the tribunal rejects the challenge. Under the Indian Act, the party must wait until the final award is made and then raise the issue under Section 34 – a process that can take years.

Another practical difficulty is the 15-day limitation period for filing a challenge. In complex commercial disputes, it can be genuinely difficult for parties to uncover circumstances of bias within such a short window, especially when the arbitrator’s connections or interests are not immediately apparent.

There is also the question of overlapping grounds between the Fifth and Seventh Schedules. Courts have sometimes struggled to determine whether a particular circumstance falls under one schedule or the other, which directly affects whether the challenge is heard by the tribunal or the court.

Termination of mandate and substitution of arbitrators 🔗

When a challenge succeeds – whether through Section 13 or Section 14 – the consequences are governed by Section 15 of the Act. The mandate of the challenged arbitrator terminates, and a substitute arbitrator is appointed according to the same rules that applied to the original appointment.

Unless the parties agree otherwise, hearings previously held may be repeated at the discretion of the newly constituted tribunal. However, any orders or rulings made prior to the replacement are not automatically invalid solely because of the change in composition. This provision balances the need for a fresh, fair hearing with the practical concern of not wasting the time and effort already invested in the proceedings.

Importantly, if an arbitrator withdraws after a challenge is filed, this withdrawal does not imply that the grounds for the challenge were valid. This protects the arbitrator’s reputation in situations where they choose to step aside voluntarily rather than contest the challenge.

The role of IBA Guidelines and international best practices 🔗

India’s arbitrator challenge framework is closely aligned with international standards. The Fifth and Seventh Schedules are drawn from the IBA Guidelines’ categorisation of conflicts into “Red,” “Orange,” and “Green” lists. The Red List covers situations where a conflict is so serious that the arbitrator must not serve regardless of disclosure, the Orange List covers situations that require disclosure and may give rise to challenges, and the Green List covers situations that do not require disclosure.

The 2015 amendments to the Arbitration Act brought India closer to this international framework, making the Indian arbitration regime more attractive to foreign parties considering India as a seat of arbitration. As the Supreme Court has observed, the schedules are not exhaustive, and courts should assess each challenge on its own facts rather than applying the categories mechanically.

Key takeaways for parties and practitioners 🔗

For anyone involved in arbitration in India, there are a few practical points worth noting. First, always check the background and potential conflicts of a proposed arbitrator thoroughly before the appointment is formalised. It is far easier to raise concerns before the tribunal is constituted than to challenge an arbitrator after proceedings have begun. Second, if grounds for challenge are discovered, the 15-day clock starts ticking immediately – delays can amount to a waiver. Third, maintain a clear record of any disclosures (or failures to disclose) made by the arbitrator, as this documentation becomes critical if the award is later challenged under Section 34. Finally, understand the distinction between the Fifth and Seventh Schedule – it determines whether your challenge will be heard by the tribunal or by a court, and that distinction has significant consequences for the timeline and outcome of the dispute.

What do you think? Should Indian law follow the UNCITRAL Model by allowing parties to approach courts immediately when a tribunal rejects their challenge, rather than requiring them to wait until the final award? And do you think the current disclosure framework under the Fifth and Seventh Schedules strikes the right balance between protecting party rights and avoiding unnecessary disruption to arbitration proceedings?

References

1. https://www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf
2. https://www.scconline.com/blog/post/2024/11/14/supreme-court-unilateral-appointment-arbitrator-independence/
3. https://trilegal.com/magazine/arbitrator-dilemma-dignified-exit-or-jurisdictional-challenges-insights-issue-8.html
4. https://indiankanoon.org/doc/1137274/
5. https://theidrc.com/content/adr-faqs/what-is-section-13-of-arbitration-and-conciliation-act
6. https://www.argus-p.com/updates/updates/challenge-to-appointment-of-an-arbitrator-on-the-grounds-of-independence-or-impartiality-lies-under-section-13-of-the-arbitration-and-conciliation-act-1996/
7. https://blog.ipleaders.in/repeat-appointment-of-arbitrators-as-a-ground-of-challenge-hrd-corporation-v-gail-india-limited/
8. https://jgu.edu.in/mappingADR/hrd-v-gail-amendment-and-the-appointment-of-the-arbitrator/
9. https://www.lexology.com/library/detail.aspx?g=3eee2834-d934-4f01-8550-bdc4993c125b
10. https://thelegalschool.in/blog/section-13-of-arbitration-and-conciliation-act
11. https://www.lexology.com/library/detail.aspx?g=78071b78-36d3-44cb-820d-6b35637cb2e1