REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.    11126   OF 2017 (ARISING OUT OF S.L.P. (C) NO. 20679 OF 2017)

HRD CORPORATION (MARCUS OIL  AND CHEMICAL DIVISION)                 …APPELLANTS

VERSUS

GAIL (INDIA) LIMITED (FORMERLY GAS  AUTHORITY OF INDIA LTD.)    …RESPONDENT

WITH

CIVIL APPEAL NO. 11127  OF 2017 (ARISING OUT OF S.L.P. (C) NO. 20675 OF 2017)

J U D G M E N T

R.F. Nariman, J.    

1. Leave granted.

2. The present appeals raise interesting questions relating to the

applicability of Sections 12 and 14 of the Arbitration and Conciliation

Act, 1996, in particular with respect to sub-section (5) of Section 12

added by the Arbitration and Conciliation (Amendment) Act, 2015 (Act

3 of 2016) (hereinafter referred to as the 2016 Amendment Act).  

3. Briefly stated, the relevant facts necessary to decide this case

are as follows.  The respondent, GAIL (India), issued a notice inviting

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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, while the proceedings were pending, Justice

Goswamy  expired  and  Justice  T.S.  Doabia  was  appointed  in  his

place.  Justice A.B. Rohatgi resigned on February 17, 2013 as the

presiding arbitrator, as a result  of  which Justice S.S.  Chadha was

appointed  to  fill  his  vacancy.   This  third  arbitration  proceeding

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culminated into two separate awards, both dated July 22, 2015. The

appellant has filed a petition under Section 34 of the Act assailing the

said awards, which is pending before the Delhi High Court.  

7. In  respect  of  the  period  from  2016  to  2019,  initially,  the

appellant  nominated  Justice  K.  Ramamoorthy  as  its  arbitrator.

However, he withdrew from the case on December  14,  2016 and

Justice Mukul Mudgal was nominated as arbitrator in his place. The

respondent  appointed  Justice  Doabia,  and  Justice  Doabia  and

Justice  K.  Ramamoorthy  appointed  Justice  K.K.  Lahoti  to  be  the

presiding arbitrator, before Justice K.  Ramamoorthy withdrew from

the case.  Two applications have been filed by the appellant under

Section 12 of  the Act,  one seeking termination of  the mandate of

Justice Doabia and the other seeking termination of the mandate of

Justice Lahoti. These two applications were heard and disposed of by

an order dated February 16, 2017.  Justice Lahoti, with whom Justice

Doabia concurred, held that they were entitled to continue with the

arbitration.  Justice Mukul Mudgal, on the other hand, concurred in

the  appointment  of  Justice  Lahoti  but  held  that  Justice  Doabia’s

appointment  was  hit  by  certain  clauses  of  the  Fifth  and  Seventh

Schedules to the Act and, therefore, that his mandate has terminated.

As  against  this  order, OMP No.22/2017 was  filed  before  a  single

Judge of the Delhi High Court who then dismissed both the petitions.  

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8. Shri Shyam Divan, learned senior advocate appearing in civil

appeal arising out of SLP(C) No. 20679 of 2017 and Shri Gopal Jain,

learned senior advocate, appearing in civil appeal arising of SLP(C)

No. 20675 of 2017 have assailed the judgment of the single Judge.

According to Shri Divan, the appointment of Justice Lahoti squarely

attracted Items 1, 8 and 15 of the Seventh Schedule thereby making

him ineligible to act as arbitrator.  He also argued that Items 20 and

22 contained in the Fifth Schedule are also attracted to the facts of

this  case,  thereby  giving  rise  to  justifiable  doubts  as  to  his

independence or impartiality.  He further 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

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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 who are

independent and fair in their decision making. According to learned

counsel, Justice Doabia was ineligible as he squarely fell within Items

1,  15  and  16  of  the  Seventh  Schedule,  the  last  Item  16  being

contrasted  with  Explanation  3  thereof.   According  to  him,  Justice

Doabia has not disclosed in writing circumstances which are likely to

affect his ability to devote sufficient time to the arbitration and for this

reason  also,  his  appointment  should  be  set  aside.   According  to

learned  counsel,  once  Justice  Doabia’s  appointment  falls,  Justice

Lahoti’s appointment also falls.

10. Ms. Vanita Bhargava, learned counsel appearing on behalf of

the respondent,  has argued,  referring  to  various provisions  of  the

Seventh Schedule, that neither Justice Doabia nor Justice Lahoti are

ineligible to act as arbitrators. According to her, the list in the Fifth and

Seventh Schedules is  taken from the International  Bar Association

Guidelines on Conflicts of Interest in International Arbitration, 2014

(hereinafter  referred  to  as  IBA  Guidelines)  and  must  be  read  in

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consonance therewith.  Once that is done, it becomes plain that Item

16 would not apply to Justice Doabia for the simple reason that he

should be an arbitrator who has had previous involvement in the very

dispute at hand and not in an earlier arbitration. For this purpose, she

contrasted Item 16 with Items 22 and 24 of the Fifth Schedule. She

also  argued  that  the  point  regarding  non  disclosure  on  grounds

contained in Section 12(1)(b) is an afterthought and has never been

argued  before  either  the  Arbitral  Tribunal  or  the  single  Judge.

According  to  her, the  single  Judge is  right  in  holding  that  Justice

Lahoti’s appointment is not hit by Item 1 of the Seventh Schedule nor

is Justice Doabia’s appointment hit by Item 16 of the same Schedule,

and the reasoning contained in the judgment being correct need not

be interfered with.  

11. Having heard learned counsel for both the sides, it is necessary

to first set out the statutory scheme contained in Sections 12 to 14 of

the Act. These Sections read as under:-

“Sec. 12 Grounds for challenge.- (1) When a person is approached in connection with his possible appointment as an arbitrator, he 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; 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.

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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 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.” “Sec. 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.

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(4) If a challenge under any procedure agreed upon by the parties  or  tinder  the  procedure  under  sub-section  (2)  is  not successful,  the  arbitral  tribunal  shall  continue  the  arbitral proceedings and make an arbitral award.

(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.

(6) Where an arbitral  award is  set  aside on an application made  under  sub-section  (5),  the  Court  may  decide  as  to whether the arbitrator who is challenged is entitled to any fees.”

“Sec. 14. Failure or impossibility to act. –  (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if-

(a) he becomes de jure or  de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the 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.

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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 disclosure is to be made in a form

specified in the Sixth Schedule, grounds stated in the Fifth Schedule

being  a  guide  in  determining  whether  such  circumstances  exist.

Unlike the scheme contained in the IBA Guidelines, where there is a

non-waivable Red List, parties may, subsequent to disputes having

arisen between them, waive the applicability of the items contained in

the Seventh Schedule by an express agreement in writing. The Fifth,

Sixth and Seventh Schedules are important for determination of the

present disputes, and are set out with the corresponding provisions of

the IBA Guidelines hereunder:

“THE FIFTH SCHEDULE [See section 12 (1)(b)]

The following grounds give rise to justifiable doubts as to the independence or impartiality of arbitrators:

Fifth Schedule Corresponding provision in the IBA Guidelines

1.  The  arbitrator  is  an employee,  consultant, advisor or has any other past or  present  business relationship with a party.

(Non-Waivable Red List) 1.1  There  is  an  identity between a party and the arbitrator, or the arbitrator is  a  legal representative or  employee of  an  entity that  is  a  party  in  the arbitration.

2.  The  arbitrator  currently represents or advises one of

(Waivable Red List) 2.3.1  The  arbitrator

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the  parties  or  an  affiliate  of one of the parties.

currently  represents  or advises one of the parties, or an affiliate of one of the parties.

3.  The  arbitrator  currently represents the lawyer or law firm  acting  as  counsel  for one of the parties.

(Waivable Red List) 2.3.2  The  arbitrator currently  represents  or advises  the  lawyer  or  law firm  acting  as counsel  for one of the parties.

4. The arbitrator is a lawyer in the same law firm which is representing  one  of  the parties.

(Waivable Red List) 2.3.3  The  arbitrator  is  a lawyer in the same law firm as  the  counsel  to  one  of the parties.

5.  The  arbitrator  is  a manager, director  or  part  of the  management,  or  has  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.

(Waivable Red List) 2.3.4  The  arbitrator  is  a manager,  director  or member of the supervisory board, or has a controlling influence  in  an  affiliate  of one  of  the  parties,  if  the affiliate is directly involved in the matters in dispute in the arbitration.

6.  The  arbitrator’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

(Waivable Red List) 2.3.7  The  arbitrator regularly  advises  one  of the parties, or an affiliate of one  of  the parties,  but

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or  her  firm  derives  a significant  financial  income therefrom.

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.

(Waivable Red List) 2.3.8  The arbitrator  has a close  family relationship with one of the parties, or with a manager, director or member of the supervisory board,  or  any  person having  a  controlling influence  in  one  of the parties,  or  an  affiliate  of one of the parties, or with a counsel  representing  a party.

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.

(Waivable Red List) 2.3.9  A  close  family member  of  the  arbitrator has  a  significant  financial or personal 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.

(Non-Waivable Red List) 1.1  There  is  an  identity between  a  party  and the arbitrator,  or  the  arbitrator is a legal representative or employee of an entity that is a party in the arbitration.

12.  The  arbitrator  is  a manager, director  or  part  of the  management,  or  has  a similar  controlling  influence in one of the parties.

(Non-Waivable Red List) 1.2  The  arbitrator  is  a manager,  director  or member of the supervisory board, or has a controlling influence  on  one  of  the parties or an entity that has a  direct  economic  interest in  the  award  to  be rendered in the arbitration.

13.  The  arbitrator  has  a significant  financial  interest in  one of  the parties  or  the

(Non-Waivable Red List) 1.3  The  arbitrator  has  a significant  financial  or

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outcome of the case. personal 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.

(Non-Waivable Red List) 1.4  The arbitrator or his or her  firm  regularly  advises the party, or an affiliate of the party, and the arbitrator or  his  or  her  firm  derives significant financial income therefrom.

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.

(Waivable Red List) 2.1.1  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.

(Waivable Red List) 2.1.2  The 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

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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  parties  or  has previously  advised  or  been consulted by the party or an affiliate  of  the  party  making the  appointment  in  an unrelated  matter,  but  the arbitrator and the party or the affiliate of the party have no ongoing relationship.

(Orange List) 3.1.1  The  arbitrator  has, within the past three years, served as counsel for one of the parties, or an affiliate of  one  of  the parties,  or has  previously  advised  or been consulted  by  the party, or an affiliate of the party,  making  the appointment  in  an unrelated  matter,  but  the arbitrator and the party, or the  affiliate  of  the  party, have no  ongoing relationship.

21. The arbitrator has within the past  three years served as  counsel  against  one  of the  parties  or  an  affiliate  of one  of  the  parties  in  an unrelated matter.

(Orange List) 3.1.2  The  arbitrator  has, within the past three years, served as counsel against one  of the  parties,  or  an affiliate  of  one  of  the parties,  in  an  unrelated matter.

22. The arbitrator has within the  past  three  years  been appointed  as  arbitrator  on two  or  more  occasions  by one  of  the  parties  or  an affiliate of one of the parties.

(Orange List)  3.1.3  The  arbitrator  has, within the past three years, been  appointed  as arbitrator  on  two  or  more occasions  by  one  of  the parties,  or an  affiliate  of one of the parties.

23.  The arbitrator’s law firm has  within  the  past  three years  acted  for  one  of  the parties or an affiliate of one of the parties in an unrelated matter  without  the involvement of the arbitrator.

(Orange List) 3.1.4  The  arbitrator’s  law firm  has,  within  the past three  years,  acted  for  or against one of the parties, or an affiliate of one of the parties,  in  an  unrelated matter  without the involvement  of  the arbitrator.

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24.  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.

(Orange List) 3.1.5  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.

25.  The  arbitrator  and another  arbitrator  are lawyers in the same law firm.

(Orange List) 3.3.1  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.

(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  appointed  on  more than  three  occasions  by the  same  counsel,  or  the same law firm.

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30.  The arbitrator’s law firm is currently acting adverse to one  of  the  parties  or  an affiliate of one of the parties.

(Orange List) 3.4.1  The  arbitrator’s  law firm  is  currently acting adversely  to  one  of  the parties,  or an  affiliate  of one of the parties.

31.  The arbitrator  had been associated  within  the  past three years with a party or an affiliate of one of the parties in  a  professional  capacity, such as a  former  employee or partner.

(Orange List) 3.4.2  The  arbitrator  has been  associated  with  a party, or an affiliate of one of  the  parties,  in  a professional capacity, such as  a  former employee  or partner.

32.  The  arbitrator  holds shares,  either  directly  or indirectly, which by reason of number  or  denomination constitute a material  holding in  one  of  the  parties  or  an affiliate of one of the parties that is publicly listed.

(Orange List) 3.5.1  The  arbitrator  holds shares,  either  directly  or indirectly, that by reason of number or  denomination constitute  a  material holding  in  one  of  the parties,  or  an affiliate  of one  of  the  parties,  this party  or affiliate  being publicly listed.

33.  The  arbitrator  holds  a position  in  an  arbitration institution  with  appointing authority over the dispute.

(Orange List) 3.5.3 The arbitrator holds a position with the appointing authority  with  respect  to the dispute.

34.  The  arbitrator  is  a manager, director  or  part  of the  management,  or  has  a similar  controlling  influence, in  an  affiliate  of  one  of  the parties, where the affiliate is not  directly  involved  in  the matters  in  dispute  in  the arbitration.

(Orange List) 3.5.4  The  arbitrator  is  a manager,  director  or member of the supervisory board, or has a controlling influence on an affiliate of one  of  the  parties,  where the  affiliate is  not  directly involved  in  the  matters  in dispute in the arbitration.

Explanation  1.—The  term “close family member” refers to  a  spouse,  sibling,  child, parent or life partner.

Footnote  3.— Throughout the  Application  Lists,  the term ‘close family member’ refers to a: spouse, sibling,

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child, parent or life partner, in  addition  to  any  other family member with whom a close relationship exists.

Explanation  2.—The  term “affiliate”  encompasses  all companies  in  one  group  of companies  including  the parent company.

Footnote  4.— Throughout 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): NUMBER OF ONGOING ARBITRATIONS:

CIRCUMSTANCES  DISCLOSING  ANY  PAST  OR PRESENT RELATIONSHIP WITH OR INTEREST IN ANY OF  THE  PARTIES  OR  IN  RELATION  TO  THE SUBJECT-MATTER  IN  DISPUTE,  WHETHER

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FINANCIAL,  BUSINESS,  PROFESSIONAL OR OTHER KIND,  WHICH  IS  LIKELY  TO  GIVE  RISE  TO JUSTIFIABLE DOUBTS AS TO YOUR INDEPENDENCE OR IMPARTIALITY (LIST OUT):

CIRCUMSTANCES  WHICH  ARE  LIKELY TO  AFFECT YOUR ABILITY TO DEVOTE SUFFICIENT TIME TO THE ARBITRATION AND IN PARTICULAR YOUR ABILITY TO FINISH THE ENTIRE ARBITRATION WITHIN TWELVE MONTHS (LIST OUT):”

“THE SEVENTH SCHEDULE [See section 12 (5)]

Arbitrator’s relationship with the parties or counsel 1. The arbitrator is an employee, consultant,  advisor or has any other past or present business relationship with a party. 2.  The arbitrator  currently represents or  advises one of the parties or an affiliate of one of the parties. 3.  The arbitrator  currently represents the lawyer  or  law firm acting as counsel for one of the parties. 4. The arbitrator is a lawyer in the same law firm which is representing one of the parties. 5.  The  arbitrator  is  a  manager,  director  or  part  of  the management, or has 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. 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.

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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. 12.  The arbitrator  is  a  manager, director  or  part  of  the management, 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. Explanation 1.—The term “close family member” refers to a spouse, sibling, child, parent or life partner. Explanation  2.—The  term  “affiliate”  encompasses  all companies  in  one  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,

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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.”

13. After the 2016 Amendment Act, a dichotomy is made by the Act

between  persons  who  become  “ineligible”  to  be  appointed  as

arbitrators,  and persons about  whom justifiable  doubts  exist  as  to

their independence or impartiality.  Since ineligibility goes to the root

of the appointment, Section 12(5) read with the Seventh Schedule

makes it clear that if the arbitrator falls in any one of the categories

specified in the Seventh Schedule, he becomes “ineligible” to act as

arbitrator.  Once he becomes ineligible, it is clear that, under Section

14(1)(a), he then becomes  de jure  unable to perform his functions

inasmuch  as,  in  law,  he  is  regarded  as  “ineligible”.   In  order  to

determine  whether  an  arbitrator  is  de  jure  unable  to  perform  his

functions,  it  is  not  necessary  to  go  to  the  Arbitral  Tribunal  under

Section 13.  Since such a person would lack inherent jurisdiction to

proceed any further, an application may be filed under Section 14(2)

to the Court to decide on the termination of his/her mandate on this

ground. As opposed to this, in a challenge where grounds stated in

the Fifth Schedule are disclosed, which give rise to justifiable doubts

as to the arbitrator’s independence or impartiality, such doubts as to

independence or impartiality have to be determined as a matter of

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fact in the facts of the particular challenge by the Arbitral  Tribunal

under Section 13.  If a challenge is not successful, and the Arbitral

Tribunal  decides  that  there  are  no  justifiable  doubts  as  to  the

independence or impartiality of the arbitrator/arbitrators, the Tribunal

must then continue the arbitral proceedings under Section 13(4) and

make an award.  It is only after such award is made, that the party

challenging the arbitrator’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

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relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the  incorporation  of  the  Fourth  Schedule,  which  has drawn  from  the  Red  and  Orange  lists  of  the  IBA Guidelines  on  Conflicts  of  Interest  in  International Arbitration,  and which would be treated as a “guide” to determine whether circumstances exist which give rise to such justifiable doubts. On the other hand, in terms of the proposed section 12 (5) of the Act and the Fifth Schedule which incorporates the categories from the Red list of the IBA Guidelines (as above),  the  person  proposed to  be appointed  as  an  arbitrator  shall  be  ineligible to  be  so appointed,  notwithstanding  any  prior  agreement to  the contrary.  In  the  event  such  an  ineligible  person  is purported to be appointed as an arbitrator, he shall be de jure deemed to  be  unable  to  perform his  functions,  in terms  of  the  proposed  explanation  to  section  14. Therefore, while the disclosure is required with respect to a  broader  list  of  categories  (as  set  out  in  the  Fourth Schedule, and as based on the Red and Orange lists of the IBA Guidelines), the ineligibility to be appointed as an arbitrator (and the consequent  de jure inability to so act) follows  from  a  smaller  and  more  serious  sub-set  of situations (as set out in the Fifth Schedule, and as based on the Red list of the IBA Guidelines). 60.  The  Commission,  however,  feels  that  real and genuine party  autonomy  must  be  respected,  and,  in certain  situations,  parties  should  be  allowed  to  waive even the categories of ineligibility as set in the proposed Fifth  Schedule.  This  could  be  in  situations  of  family arbitrations  or  other  arbitrations  where  a  person commands the blind faith and trust of the parties to the dispute,  despite  the  existence  of  objective  “justifiable doubts”  regarding his  independence and impartiality. To deal with such situations, the Commission has proposed the  proviso  to  section  12  (5),  where  parties  may, subsequent to  disputes  having  arisen  between  them, waive the applicability of the proposed Section 12 (5) by an express agreement in writing. In all other cases, the general  rule  in  the  proposed  section  12  (5)  must  be followed.  In  the event  the High Court  is  approached in connection  with  appointment  of  an  arbitrator,  the Commission  has  proposed  seeking  the  disclosure  in terms of  section  12  (1)  and  in  which  context  the  High

21

Court  or  the  designate  is  to  have  “due  regard”  to  the contents of such disclosure in appointing the arbitrator.”

15. 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 arbitrator shall be impartial and independent of the parties at the time of accepting an appointment to serve and  shall  remain  so  until  the  final  award  has  been rendered  or  the  proceedings  have  otherwise  finally terminated.”

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On “conflicts of interest”, guidelines laid down are as follows: “(2) Conflicts of Interest

(a) An arbitrator shall decline to accept an appointment or, if the arbitration has already been commenced, refuse to continue to act as an arbitrator, if he or she has any doubt as to his or her ability to be impartial or independent.

(b) The same principle applies if facts or circumstances exist, or have arisen since the appointment, which, from the  point  of  view  of  a  reasonable  third  person  having knowledge of the relevant facts and circumstances, would give  rise  to  justifiable  doubts  as  to  the  arbitrator’s impartiality  or  independence,  unless  the  parties  have accepted  the  arbitrator  in  accordance  with  the requirements set out in General Standard 4.

(c)  Doubts  are  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 as presented by the parties in reaching his or her decision.

(d)  Justifiable  doubts  necessarily  exist  as  to  the arbitrator’s  impartiality  or  independence  in  any  of  the situations described in the Non-Waivable Red List.”

16. In  Voestalpine  Schienen  GmbH v.  Delhi  Metro  Rail

Corporation Ltd., (2017) 4 SCC 665 at 687-689, in the context of a

Section 11 application made under the Act, this Court had occasion to

delve into the independence and impartiality of  arbitrators and the

guidelines that are laid down in the Fifth and Seventh Schedule.  This

Court stated:

“20. Independence  and  impartiality  of  the  arbitrator  are the hallmarks of any arbitration proceedings. Rule against bias is one of the fundamental principles of natural justice which  applied  to  all  judicial  and  quasi-judicial

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proceedings. It is for this reason that notwithstanding the fact that relationship between the parties to the arbitration and the arbitrators themselves are contractual in nature and the source of an arbitrator's appointment is deduced from  the  agreement  entered  into  between  the  parties, notwithstanding  the  same  non-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.”

21. Similarly, Cour de Cassation, France, in a judgment delivered  in  1972  in Consorts  Ury [Fouchard,  Gaillard, Goldman  on  International  Commercial  Arbitration 562 (Emmanuel Gaillard & John Savage eds., 1999) {quoting Cour  de  cassation  [Cass.]  [Supreme  Court  for  judicial matters] Consorts  Ury v. S.A.  des  Galeries  Lafayette, Cass. 2e civ.,  13-4-1972, JCP, Pt.  II,  No. 17189 (1972) (France)}], underlined that:

“an independent mind is indispensable in the exercise  of  judicial  power,  whatever  the source of that power may be, and it is one of the essential qualities of an arbitrator.”

22. Independence  and  impartiality  are  two  different

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concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is  a  more  subjective  concept  as  compared  to independence. Independence, which is more an objective concept, may, thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while  partiality  will  more  likely  surface  during  the arbitration proceedings.

23. It also cannot be denied that the Seventh Schedule is based on IBA guidelines which are clearly regarded as a representation  of  international  based  practices  and  are based on statutes, case law and juristic opinion from a cross-section  on  jurisdiction.  It  is  so  mentioned  in  the guidelines itself.

24. xxx xxx xxx

25. Section 12 has been amended with the objective to induce neutrality of arbitrators viz. their independence and impartiality. The amended provision is enacted to identify the “circumstances” which give rise to “justifiable doubts” about the independence or impartiality of the arbitrator. If any of those circumstances as mentioned therein exists, it will give rise to justifiable apprehension of bias. The Fifth Schedule to the Act enumerates the grounds which may give rise to justifiable doubts of this nature. Likewise, the Seventh Schedule mentions those circumstances which would attract the provisions of sub-section (5) of Section 12 and nullify any prior agreement to the contrary. In the context of this case, it is relevant to mention that only if an arbitrator is an employee, a consultant, an advisor or has any past or present business relationship with a party, he is rendered ineligible to act as an 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

25

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 that  Items 1 to 19 also appear  in  the Fifth

Schedule.  

18. Shri Divan is right in drawing our attention to the fact that the

246th Law Commission  Report  brought  in  amendments  to  the  Act

narrowing  the  grounds  of  challenge  co-terminus  with  seeing  that

independent, impartial and neutral arbitrators are appointed and that,

therefore,  we  must  be  careful  in  preserving  such  independence,

impartiality  and  neutrality  of  arbitrators.   In  fact,  the  same  Law

Commission  Report  has  amended  Sections  28  and  34  so  as  to

narrow grounds of challenge available under the Act.  The judgment

in ONGC v. Saw Pipes Ltd, (2003) 5 SCC 705, has been expressly

done away with.  So has the judgment in  ONGC v.  Western Geco

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International  Ltd.,  (2014)  9 SCC 263.   Both Sections 34 and 48

have  been  brought  back  to  the  position  of  law  contained  in

Renusagar Power Plant Co Ltd.  v. General Electric Co., (1994)

Supp (1) SCC 644, where “public policy” will now include only two of

the three things set out  therein,  viz.,  “fundamental policy of  Indian

law” and “justice or morality”.  The ground relating to “the interest of

India” no longer obtains.  “Fundamental policy of Indian law” is now to

be  understood  as  laid  down  in  Renusagar  (supra).  “Justice  or

morality”  has  been  tightened  and  is  now  to  be  understood  as

meaning only basic notions of justice and morality i.e. such notions as

would shock the conscience of the Court as understood in Associate

Builders v.  Delhi  Development  Authority,  (2015)  3  SCC  49.

Section  28(3)  has  also  been amended to  bring  it  in  line  with  the

judgment of this Court in Associate Builders (supra), making it clear

that the construction of the terms of the contract is primarily for the

arbitrator to decide unless it is found that such a construction is not a

possible one.

19. Thus,  an  award  rendered  in  an  international  commercial

arbitration – whether in India or abroad – is subject to the same tests

qua setting aside under Section 34 or enforcement under Section 48,

as the case may be.  The only difference is that in an arbitral award

governed  by  Part  I,  arising  out  of  an  arbitration  other  than  an

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international commercial arbitration, one more ground of challenge is

available viz. patent illegality appearing on the face of the award. The

ground of patent illegality would not be established, if there is merely

an erroneous application of the law or a re-appreciation of evidence.  

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 unduly.  It  is  with these

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prefatory remarks that we proceed to deal with the arguments of both

sides in construing the language of the Seventh Schedule.  

21. Coming to the challenge in the present case, Justice Lahoti’s

appointment is challenged on the ground that the arbitrator has been

an advisor  to  GAIL in  another  unconnected matter  and,  therefore,

Justice Lahoti should be removed. In his disclosure statement made

on 24.11.2016, Justice Lahoti had said:

“That on a legal issue between GAIL and another Public Sector Undertaking, an opinion was given by me to GAIL, in the year 2014, but it has no concern with respect to the present matter.  I  am an Arbitrator  in a pending matter between  M/s.  Pioneer  Power  Limited  and  GAIL (India) Limited.”   

22. Shri Divan has pressed before us that since on a legal issue

between GAIL and another public sector undertaking an opinion had

been given by Justice Lahoti to GAIL in the year 2014, which had no

concern  with  respect  to  the  present  matter,  he  would  stand

disqualified under Item 1 of the Seventh Schedule. Items 8 and 15

were also faintly argued as interdicting Justice Lahoti’s appointment.

Item 8 would have no application as it is nobody’s case that Justice

Lahoti “regularly” advises the respondent. And Item 15 cannot apply

as no legal  opinion qua the dispute at  hand was ever given.  On

reading Item 1 of the Seventh Schedule, it is clear that the item deals

with “business relationships”.   The words “any other” show that the

first part of Item 1 also confines “advisor” to a “business relationship”.

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The arbitrator must, therefore, be an “advisor” insofar as it concerns

the  business  of  a  party.  Howsoever  widely  construed,  it  is  very

difficult to state that a professional relationship is equal to a business

relationship,  as,  in  its  widest  sense,  it  would  include  commercial

relationships of all  kinds, but would not include legal advice given.

This becomes clear if it is read along with Items 2, 8, 14 and 15, the

last item specifically dealing with “legal advice”.  Under Items 2, 8 and

14, advice given need not be advice relating to business but can be

advice of any kind.  The importance of contrasting Item 1 with Items

2, 8 and 14 is that the arbitrator should be a regular advisor under

items 2, 8 and 14 to one of the parties or the appointing party or an

affiliate thereof, as the case may be. Though the word “regularly” 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.  

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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 delivered by Justice

Doabia  between  the  same  parties  and  arising  out  of  the  same

agreement would incapacitate his appointment in the present case.

We are afraid we are unable to agree with this contention. In this

context, it is important to refer to the IBA Guidelines, which are the

genesis of the items contained in the Seventh Schedule. Under the

waivable Red List of the IBA Guidelines, para 2.1.2 states:

“The Arbitrator had a prior involvement in the dispute.”

24. On  reading  the  aforesaid  guideline  and  reading  the  heading

which appears with Item 16, namely “Relationship of the arbitrator to

the dispute”, it is obvious that the arbitrator has to have a previous

involvement in the very dispute contained in the present arbitration.

Admittedly, Justice Doabia has no such involvement.  Further, Item

16 must be read along with Items 22 and 24 of the Fifth Schedule.

The disqualification contained in Items 22 and 24 is not absolute, as

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an arbitrator who has, within the past three years, been appointed as

arbitrator  on  two  or  more  occasions  by  one  of  the  parties  or  an

affiliate,  may  yet  not  be  disqualified  on  his  showing  that  he  was

independent and impartial  on the earlier two occasions. Also, if  he

currently  serves  or  has  served  within  the  past  three  years  as

arbitrator  in  another  arbitration  on  a  related  issue,  he  may  be

disqualified under Item 24, which must then be contrasted with Item

16.  Item 16 cannot be read as including previous involvements in

another arbitration on a related issue involving one of the parties as

otherwise Item 24 will be rendered largely ineffective.  It must not be

forgotten that Item 16 also appears in the Fifth Schedule and has,

therefore,  to  be harmoniously read with Item 24. It  has also been

argued by learned counsel  appearing on behalf  of  the respondent

that the expression “the arbitrator” in Item 16 cannot possibly mean

“the  arbitrator”  acting  as  an  arbitrator,  but  must  mean  that  the

proposed arbitrator is a person who has had previous involvement in

the case  in  some other  avatar.  According to  us,  this  is  a  sound

argument  as “the arbitrator”  refers to the proposed arbitrator. This

becomes clear, when contrasted with Items 22 and 24,  where the

arbitrator  must  have  served  “as  arbitrator”  before  he  can  be

disqualified. Obviously, Item 16 refers to previous involvement in an

advisory or other capacity in the very dispute, but not as arbitrator.  It

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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 the  same  issue.  The  Court  of  Appeal  reversed  the decision. Dyson LJ said:

“20.  In  my judgment,  the mere fact  that  the tribunal  has  previously  decided  the  issue  is not of itself sufficient to justify a conclusion of apparent  bias.  Something  more  is  required. Judges are assumed to be trustworthy and to understand that  they should approach every case with an open mind. The same applies to adjudicators,  who  are  almost  always professional persons. That is not to say that, if it  is asked to re-determine an issue and the evidence and arguments are merely a repeat of  what  went before,  the tribunal will  not  be

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likely to reach the same conclusion as before. It  would  be  unrealistic,  indeed  absurd,  to expect the tribunal in such circumstances to ignore  its  earlier  decision  and  not  to  be inclined to come to the same conclusion as before,  particularly  if  the  previous  decision was  carefully  reasoned.  The  vice  which  the law  must  guard  against  is  that  the  tribunal may  approach  the  rehearing  with  a  closed mind.  If  a  judge  has  considered  an  issue carefully  before  reaching  a  decision  on  the first occasion, it cannot sensibly be said that he  has  a  closed  mind  if,  the  evidence  and arguments being the same as before, he does not  give  as  careful  a  consideration  on  the second  occasion  as  on  the  first.  He  will, however,  be  expected  to  give  such reconsideration of the matter as is reasonably necessary for him to be satisfied that his first decision was correct. As I have said, it will be a  most  unusual  case  where  the  second hearing  is  for  practical  purposes  an  exact rerun of the first. 21.  The  mere  fact  that  the  tribunal  has decided  the  issue  before  is  therefore  not enough for apparent bias. There needs to be something  of  substance  to  lead  the fair-minded  and  informed  observer  to conclude that there is a real possibility that the tribunal  will  not  bring  an  open  mind  and objective judgment to bear.”

27.  Those  comments  apply  with  as  much  force  to arbitrators in international reinsurance arbitration as they do  to  adjudicators  in  building  disputes.  Just  as  an arbitrator or adjudicator can be expected to bring an open mind and objective judgment to bear when redetermining the same question on the same evidence between the same parties, it is all the more so where the evidence is different  and  heard  in  a  reference  between  different parties. 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:

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“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, if insurer A has been successful in the first arbitration, insurer B may in practice learn of this success and the identity  of  the arbitrators  who have upheld insurer A's arguments. It follows from Locabail  and  AMEC  Capital  Projects  Ltd  v Whitefriars  City  Estates Ltd  [2005]  1  All  ER 723 that an objection to the appointment of a member  of  a  previous  panel  would  not  be sustained  simply  on  the  basis  that  the arbitrator had previously decided a particular issue in favour of one or other party. It equally follows  that  an  arbitrator  can  properly  be appointed at the outset in respect of a number of  layers  of  coverage,  even though he may then  decide  the  dispute  under  one  layer before hearing the case on another layer.”

26. We  were,  however,  referred  to  Russell  on  Arbitration  (23rd

edition), in which the learned author has referred to the ground of

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bias in the context of previous views expressed by an arbitrator.  In

Chapter 4-124, the learned author states as follows:

“In certain circumstances, previously expressed views of an arbitrator, which suggest a certain pre-disposition to a particular  course  of  action,  outcome  or  in  favour  of  a party, can constitute  grounds for  removal.   One of  the Locabail v. Bayfield applications ([2000] 1 All E.R. 65 at 92-93) against a judge was successful on this basis.  The judge had written four strongly worded articles which led the Court to conclude that an objective apprehension of bias may arise on the part of one of the parties.  However, a challenge against a sole arbitrator in a trade arbitration which alleged apparent bias because the arbitrator had previously  been  involved  in  a  dispute  with  one  of  the parties failed.  The judge found this on the facts to be no more  than  “an  ordinary  incident  of  commercial  life” occurring in the relatively small field of trade arbitrations where  it  was  thought  the  parties  and  arbitrators  were quite  likely  to  have  had  prior  dealing  with  each  other (Rustal Trading Ltd. v. Gill and Duffas SA [2000] 1 Lloyd’s Rep. 14).  Similarly, the fact  that an insurance arbitrator had previously given  a  statement  in  another  arbitration (and  may  have  been  called  to  give  evidence subsequently)  about  the  meaning  of  a  standard  form clause which might have had a tentative bearing on the present  arbitration  would  not  give  grounds  for  removal (Argonaut Insurance Co v. Republic Insurance Co [2003] EWHC 547).”

 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

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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 order a retrial. We should not be thought  to  hold  any view at  all  on the likely  or  proper outcome of any retrial.”

28. We  have  not  been  shown  anything  to  indicate  that  Justice

Doabia would be a person holding a pronounced anti-claimant view

as in  Locabail  (supra).  Therefore, we are satisfied that there is no

real possibility that Justice Doabia will not bring an open mind and

objective judgment to bear on arguments made by the parties in the

fourth arbitration, which may or may not differ from arguments made

in the third arbitration.  

29. The appointment of Justice Doabia was also attacked on the

ground  that  he  had  not  made  a  complete  disclosure,  in  that  his

disclosure statement did not indicate as to whether he was likely to

devote sufficient time to the arbitration and would be able to complete

it within 12 months.  We are afraid that we cannot allow the appellant

to  raise  this  point  at  this  stage  as  it  was  never  raised  earlier.

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Obviously, if Justice Doabia did not indicate anything to the contrary,

he  would  be  able  to  devote  sufficient  time  to  the  arbitration  and

complete the process within 12 months.  

30. It was also faintly urged that the arbitrator must  without delay

make  a  disclosure  to  the  parties  in  writing.  Justice  Doabia’s

disclosure was by a letter dated October 31, 2016 which was sent to

the  Secretary  General  of  the  International  Centre  for  Alternative

Dispute Resolution (ICADR). It has come on record that for no fault of

Justice Doabia, the ICADR, through oversight, did not handover the

said letter or a copy thereof to the appellant until November 24, 2016,

which is stated in its letter dated November 29, 2016.  This contention

also, therefore, need not detain us.    

31. It  was  then argued that  under  Explanation 3  to  the Seventh

Schedule, maritime or commodities arbitration may draw arbitrators

from a small,  specialized pool,  in which case it  is the custom and

practice for parties to appoint the same arbitrator in different cases.

This is in contrast to an arbitrator in other cases where he should not

be appointed more than once.  We are afraid that this argument again

cannot  be countenanced for  the simple  reason that  Explanation 3

stands by itself and has to be applied as a relevant fact to be taken

into account.  It  has no indirect  bearing on any of  the other  items

mentioned in the Seventh Schedule.   

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32. This being the case,  we are satisfied that  the learned single

Judge’s  judgment  requires  no  interference.   The  appeals  are,

accordingly, dismissed.  

                                                                …………………………J. (R.F. Nariman)

…………………………J. (Sanjay Kishan Kaul)

New Delhi; August 31, 2017

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