Upholding the Independence, Impartiality, and Accountability of Arbitrators

If you have ever been in a dispute and agreed to let a neutral third party decide the outcome, you already understand the basic premise of arbitration. But here is the catch – what if that “neutral” third party turns out to have a personal stake in the matter? The entire purpose of arbitration falls apart. That is precisely why the independence, impartiality, and accountability of arbitrators are treated as non-negotiable principles under Indian law. These concepts ensure that arbitration remains a credible, fair, and efficient alternative to traditional court litigation.

Why independence and impartiality matter in arbitration 🔗

Arbitration places the entire weight of a proceeding on the arbitrator, who essentially performs the role of a judge. If even one party suspects the arbitrator is biased, the legitimacy of the entire process is compromised. Indian courts have repeatedly stated that both independence and impartiality are hallmarks of any arbitration proceeding, and the absence of either renders the arbitrator ineligible to conduct the proceedings.

But what exactly do these two terms mean? They are related but distinct. Independence refers to the arbitrator’s freedom from any external relationship – financial, professional, or personal – with the parties involved. It is an objective standard that can be assessed even before proceedings begin. For instance, if the CEO of a company involved in a dispute is appointed as an arbitrator, that individual clearly lacks independence.

Impartiality, on the other hand, is a more subjective concept. It refers to the arbitrator’s state of mind – whether they are predisposed toward or against either party. Impartiality often surfaces during the course of proceedings, such as when an arbitrator consistently favours one side or denies the other party a fair opportunity to present arguments.

The legal framework: Section 12 of the Arbitration and Conciliation Act, 1996 🔗

The primary legislative safeguard for arbitrator neutrality in India is Section 12 of the Arbitration and Conciliation Act, 1996. Prior to its amendment, this section required a prospective arbitrator to disclose any circumstances likely to create justifiable doubts about their independence or impartiality. However, the original provision was considered insufficient because it did not clearly define what constituted such doubts, nor did it impose strong enough consequences for non-disclosure.

The Arbitration and Conciliation (Amendment) Act, 2015 brought sweeping changes to Section 12, significantly strengthening the disclosure regime and introducing concrete standards for evaluating arbitrator bias. The amendment was guided by the 246th Report of the Law Commission of India and drew heavily from the IBA Guidelines on Conflicts of Interest in International Arbitration.

The mandatory disclosure obligation 🔗

Under the amended Section 12(1), any person approached for potential appointment as an arbitrator must disclose in writing any circumstances – whether direct or indirect, past or present – involving a relationship with the parties or the subject matter of the dispute that could raise justifiable doubts about their neutrality. This duty is not a one-time requirement. Under Section 12(2), the obligation continues throughout the arbitration proceedings; arbitrators must disclose relevant circumstances to the parties without delay at any point during the process.

The form for this disclosure is specified in the Sixth Schedule of the Act. The arbitrator must confirm their independence, their lack of relationships with the parties, and their ability to devote adequate time to the arbitration – including completing proceedings within the stipulated 12-month timeframe.

The Fifth Schedule: grounds for justifiable doubts 🔗

One of the most significant additions through the 2015 Amendment was the Fifth Schedule, which provides an exhaustive list of grounds that can give rise to justifiable doubts about an arbitrator’s independence or impartiality. These grounds are modelled on the IBA Guidelines’ Orange and Red Lists and cover scenarios such as the arbitrator having a financial interest in one of the parties, the arbitrator’s law firm having prior involvement in the case, or the arbitrator having previously advised one of the parties on the dispute.

A person who does not fall under any of these listed grounds is generally presumed to be independent and impartial.

The Seventh Schedule: automatic ineligibility 🔗

The Seventh Schedule goes a step further. Under Section 12(5), if an arbitrator’s relationship with the parties, their counsel, or the subject matter of the dispute falls within any category listed in the Seventh Schedule, that person is automatically ineligible to serve as an arbitrator – regardless of any prior agreement between the parties.

The Seventh Schedule lists specific disqualifying relationships, including situations where the arbitrator is an employee, consultant, or advisor of a party; currently represents or advises one of the parties; is a lawyer in the same firm representing a party; holds shares in a privately held party; has a significant financial interest in the outcome; or has given legal advice on the dispute to a party.

There is only one exception: after a dispute has arisen, both parties may expressly agree in writing to waive this ineligibility. This waiver provision exists to accommodate situations such as family arbitrations where parties may have complete trust in an individual despite the existence of objective grounds for doubt.

Challenging an arbitrator: the procedure under Section 13 🔗

If a party believes an arbitrator lacks independence or impartiality, Section 13 of the Act provides the challenge mechanism. The parties are free to agree on a challenge procedure. In the absence of such agreement, a party must submit a written statement setting out the reasons for the challenge within 15 days of either becoming aware of the tribunal’s constitution or of discovering the relevant circumstances.

If the challenged arbitrator does not voluntarily withdraw and the other party does not accept the challenge, the tribunal itself decides the matter. Should the challenge fail, the aggrieved party can pursue the matter further under Section 34 when seeking to set aside the arbitral award. Additionally, under Section 14, if an arbitrator falls within the Seventh Schedule categories, they are considered de jure unable to perform their functions, and a party can directly approach the court for termination of their mandate without first going through the tribunal under Section 13.

Accountability of arbitrators: ensuring responsible conduct 🔗

Accountability in arbitration extends beyond the initial appointment stage. It encompasses the entire conduct of the arbitrator during proceedings. The 2015 Amendment reinforced accountability in several ways.

First, the continuous disclosure obligation means arbitrators cannot simply make a one-time declaration and then ignore emerging conflicts. Any new relationship or interest that develops during the proceedings must be promptly communicated to the parties.

Second, the Arbitration and Conciliation (Amendment) Act, 2019 further strengthened the institutional framework by proposing the establishment of the Arbitration Council of India (ACI). This body was envisaged to set standards for arbitrator qualifications, maintain a register of accredited arbitrators, and create a framework for professional accountability. While the ACI’s full operationalisation has faced delays, its conceptual inclusion in the law signals India’s intent to build an institutional ecosystem for arbitrator oversight.

Third, arbitrators in India are now required to complete proceedings within specific time limits – 12 months from the completion of pleadings under Section 29A, extendable by six months with party consent. This provision was introduced to combat the long-standing problem of delays in arbitration, which themselves undermine the accountability and credibility of the process.

The landmark CORE II judgment (2024): reshaping arbitrator appointment standards 🔗

No discussion on arbitrator independence in India is complete without examining the Supreme Court’s landmark ruling in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), delivered on 8 November 2024 by a five-judge Constitution Bench.

The case involved an arbitration clause in a railway contract that allowed CORE, a government body, to curate a panel of retired railway officers from which the other party was required to select its arbitrators. The Supreme Court, in a 3:2 majority decision, ruled this arrangement invalid.

Key holdings of the CORE II judgment 🔗

The Court held that arbitration clauses permitting one party to unilaterally appoint a sole arbitrator, or mandating the opposing party to select arbitrators from a panel curated exclusively by the other side, violate the principles of equality and fairness embedded in the Arbitration Act. The Court specifically found that such clauses in public-private contracts breach Article 14 of the Constitution, which guarantees equality before the law.

The judgment extended the applicability of Section 18 of the Arbitration Act – which requires equal treatment of parties – to all stages of arbitration, including the appointment of arbitrators. The Court reasoned that independence and impartiality can only be meaningfully ensured when both parties participate equally in constituting the tribunal.

Importantly, the Court did not bar public sector undertakings from maintaining panels of potential arbitrators. However, it made clear that the opposing party cannot be compelled to select arbitrators exclusively from such a panel. This ruling overturned the earlier CORE I decision from 2020, which had upheld such appointment mechanisms.

Significance for arbitration practice 🔗

CORE II has far-reaching consequences. It effectively ends the widespread practice – particularly in government contracts – of one party controlling the entire arbitrator selection process. The judgment reinforces that party autonomy, while fundamental to arbitration, cannot override the requirements of fairness and equal treatment. Going forward, parties drafting arbitration clauses must ensure that the appointment mechanism does not give disproportionate control to one side.

The constitutional dimension: natural justice and Article 14 🔗

Indian arbitration law does not treat arbitrator neutrality as merely a procedural requirement – it elevates it to a constitutional imperative. The Supreme Court has consistently held that Article 14 of the Constitution reinforces the principle of impartiality in arbitration by requiring that all proceedings – judicial, quasi-judicial, or contractual – remain fair and non-arbitrary.

In Union of India v. Tulsiram Patel, the Supreme Court clarified that natural justice is part of the constitutional guarantee of equality, and any deviation from fair treatment constitutes a violation of Article 14. This reasoning extends directly to arbitration, which, although rooted in contract, is subject to expectations of fairness as set by law.

The evolution from apparent bias to actual safeguards 🔗

Before the 2015 Amendment, Indian law struggled with the distinction between apparent and actual bias. The pre-amendment framework primarily addressed actual bias – situations where an arbitrator had demonstrably acted unfairly. This was a difficult standard to meet because proving a sitting arbitrator’s bias in real time is inherently challenging.

The 2015 Amendment shifted the focus to apparent bias – whether the circumstances surrounding an arbitrator’s appointment or relationships would lead a reasonable, informed third person to conclude that there is a likelihood of the arbitrator being influenced by factors other than the merits. This “reasonable third person” test, drawn from the IBA Guidelines, is now the operational standard in Indian arbitration law.

Key judicial decisions that shaped this evolution include Voestalpine Schienen GmbH v. Delhi Metro Rail Corporation, which emphasised the importance of constituting a neutral tribunal; TRF Ltd. v. Energo Engineering Projects Ltd., which held that a person ineligible to serve as an arbitrator cannot appoint one either; and Perkins Eastman Architects DPC v. HSCC (India) Ltd., which invalidated clauses allowing unilateral appointment of sole arbitrators. Together with CORE II, these decisions form a consistent line of judicial reasoning that has progressively strengthened arbitrator accountability in India.

Practical implications for parties and practitioners 🔗

For law students and practitioners, understanding these principles has direct practical relevance. When drafting arbitration clauses, parties should ensure the appointment mechanism reflects equal participation. In government or PSU contracts, clauses that previously relied on curated panels from one side must now be revised to comply with the CORE II standard.

For arbitrators, the message is clear: disclose early, disclose completely, and disclose continuously. Any failure to reveal material relationships – even those that appear minor – can lead to challenges, termination of mandate, and potentially the setting aside of an award under Section 34.

For parties entering arbitration, due diligence on the proposed arbitrator is essential. Examining whether any Seventh Schedule categories apply, reviewing the arbitrator’s prior engagements, and assessing potential conflicts are steps that should be taken before consenting to an appointment.

What do you think? Given the Supreme Court’s increasingly strict stance on arbitrator independence, will these standards encourage more parties to opt for institutional arbitration over ad hoc arrangements? And do you believe the waiver provision under Section 12(5) – which allows parties to agree to an otherwise ineligible arbitrator after disputes arise – adequately balances flexibility with fairness?

References

1. https://www.legalserviceindia.com/legal/article-16923-a-critical-analysis-of-the-independence-and-impartiality-of-arbitrators-in-india.html
2. https://www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf
3. https://www.opkhaitan.com/the-independence-and-impartiality-of-arbitrators/
4. https://www.pslchambers.com/article/the-standard-of-independence-and-impartiality-of-an-arbitrator-and-conflict-of-interests-surrounding-it/
5. https://ibclaw.in/the-seventh-schedule-of-the-arbitration-and-conciliation-act-1996/
6. https://blog.ipleaders.in/impartiality-independence-arbitrators/
7. https://www.legal500.com/guides/chapter/india-international-arbitration/
8. https://www.scconline.com/blog/post/2024/11/08/unilateral-appointment-arbitrator-public-private-contracts-violate-article-14-supreme-court/
9. https://acuitylaw.co.in/supreme-court-holds-a-private-entity-cannot-be-forced-to-appoint-arbitrators-from-a-panel-curated-by-a-public-entity/
10. https://www.barandbench.com/view-point/appointment-arbitrators-supreme-court-balance-party-autonomy-equality
11. https://www.scconline.com/blog/post/2024/11/14/supreme-court-unilateral-appointment-arbitrator-independence/