Arbitration functions today as a modern substitute to litigation with its enhanced efficiency together with adaptability. The credibility of arbitration depends entirely on impartiality among the panel of arbitrators. Under Section 12 of the Arbitration and Conciliation Act, 1996 select prerequisites exist to enforce arbitrator disclosure of possible bias and preserve complete impartiality during arbitration proceedings. Parties can challenge an arbitrator under the provision because it provides complete transparency regarding conflicts of interest.
The 2016 amendment expanded the security measures by establishing standardized disclosure procedures and specifying particular relationships which make arbitrators ineligible to participate. This article examines the essential clauses and effects alongside the importance of Section 12 regarding arbitration integrity.
Key Provisions of Section 12 of Arbitration and Conciliation Act
The Arbitration and Conciliation Act of 1996 through Section 12 provides important requirements to maintain arbitrator impartiality and independence. The requirements to disclose and the specified grounds for challenges along with disqualification standards found in Section 12 of Arbitration and Conciliation Act create essential provisions for upholding impartiality in arbitration procedures.
1. Duty of Disclosure Before Appointment
When approached for appointment, an arbitrator must disclose in writing any factors that may raise justifiable doubts about their independence or impartiality.
The disclosure must include:
Past or Present Relationship with any party involved in the dispute.
Interest in the Subject Matter—whether financial, business, professional, or personal.
Any factor that may affect their ability to complete arbitration within 12 months.
Key Explanation:
Fifth Schedule: Lists factors that may create doubts about an arbitrator’s impartiality.
Sixth Schedule: Specifies the format for disclosure.
2. Duty of Continuous Disclosure After Appointment
Once appointed, an arbitrator must immediately disclose any new circumstances that may compromise their impartiality.
This duty applies throughout the arbitration process if new information arises.
3. Grounds for Challenging an Arbitrator
A party may challenge an arbitrator based on two key grounds:
(a) Independence or Impartiality Issues
If justifiable doubts arise regarding an arbitrator’s fairness or neutrality.
This includes personal, financial, business, or other conflicts of interest.
(b) Lack of Agreed Qualifications
If the arbitrator does not meet the qualifications agreed upon by the parties.
Learn the Key Differences between Arbitrator vs Lawyer
4. When Can a Party Challenge an Arbitrator?
A party can challenge an arbitrator they appointed only if:
They discover new information after the appointment that justifies the challenge.
Example: If a party finds out after the appointment that the arbitrator has undisclosed business ties with the opposing party, they can challenge the appointment.
Also, Learn How to Become an Arbitrator in India
5. Absolute Ineligibility Under the Seventh Schedule
An arbitrator cannot be appointed if they have a relationship with:
Any of the parties
Legal counsel of the parties
The subject matter of the dispute
These restrictions are listed in the Seventh Schedule and override any prior agreement.
6. Can This Ineligibility Be Waived?
Yes, but only after the dispute has arisen.
The parties must expressly agree in writing to waive the restriction.
Implications of Section 12 of Arbitration and Conciliation Act
Through Section 12 of the Act arbitration receives essential provisions that establish arbitration practices based on neutrality combined with fairness and transparency. The Indian arbitration procedures now comply with worldwide best practices through both mandatory disclosure requirements and bias prevention procedures which boosts arbitration user confidence as their dispute resolution choice.
1. Ensuring Fair and Impartial Arbitration
Section 12 builds trust as well as credibility in arbitration by requiring arbitrators to disclose potential conflicts.
This method stops arbitrators with improper biases from shaping the dispute resolution.
2. Strengthening Transparency and Accountability
Organized disclosure standards bring about greater transparency in systems.
Parties gain better insight to determine if the appointed arbitrators meet their standards.
3. Aligning Indian Arbitration with Global Standards
India enhanced its position as a favorable location for arbitration by incorporating international best practices through the 2016 amendments.
Also, Learn How to Draft an Arbitration Agreement?
Case Laws related to Section 12 of Arbitration and Conciliation Act
The analysis of Section 12 of the Arbitration and Conciliation Act, 1996 becomes more practical when it incorporates relevant cases from the courts. Several crucial judgments have defined how people interpret Section 12 of the Arbitration and Conciliation Act, 1996.
1. Bharat Broadband Network Limited v. United Telecoms Limited (2019)
Summary: In this landmark judgment, the Supreme Court emphasized the mandatory nature of Section 12(5) of the Act. According to the Seventh Schedule a person belonging to any of the listed categories becomes ineligible for arbitrator appointments which can be voided by an express written agreement following dispute emergence. The dispute emphasized once more that arbitrators need both impartiality and independence to run effective arbitral processes.
Key Takeaway: Unilateral choice of arbitrators by ineligible parties under the Seventh Schedule proves invalid according to the decision thus upholding arbitration process neutrality.
2. Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (2020)
Summary: The Supreme Court addressed the issue of unilateral appointments where one party had the exclusive right to appoint the sole arbitrator. Courts declared those arbitration clauses unconstitutional which could introduce bias since they violated the Act's principles about impartiality and fairness. Such adjudication affects arbitration clauses which give parties unilateral control over appointing arbiter selection committees.
Key Takeaway: The court rejects arbitration provisions that let one party select the arbitrator on their own because this protects equal and impartial arbitration terms.
3. Smaaash Entertainment Pvt. Ltd. v. Pvt. Ltd. (2020)
Summary: The Delhi High Court dealt with a scenario where an arbitrator failed to disclose circumstances that could affect their impartiality, as mandated by Section 12. The Court declared the arbitral award invalid because arbitrators must follow complete disclosure requirements to guarantee arbitration process integrity.
Key Takeaway: The case demonstrates why arbitrators need to make complete honest declarations to maintain unbiased proceedings and maintain arbitration integrity.
Key Takeaways
Mandatory Disclosure: Arbitration players need to reveal any conflict risks that would affect their impartiality prior to taking their position and during arbitration activities.
Grounds for Challenge: Arbitrators can be challenged if there are doubts about their neutrality or if they lack required qualifications.
Limited Right to Challenge Own Appointee: A party can only challenge their chosen arbitrator if new information emerges after appointment.
Seventh Schedule Restrictions: An arbitrator becomes disqualified when specific relationships exist unless the parties write down their consent to waive this restriction.
Promotes Fairness: Section 12 enhances the credibility of arbitration by preventing conflicts of interest and bias.
Also, Get to Know Which are the Key Negotiation Skills in ADR?
Summing Up
The integrity of arbitration depends heavily on Section 12 because it secures a fair process where parties submit their disputes before impartial qualified arbitral tribunals. The provision works to eliminate biases and conflicts thus supporting India's growth as an arbitration center recognized at home and abroad.
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FAQs of Section 12 of the Arbitration and Conciliation Act, 1996
Q1. What is Section 12 of Arbitration and Conciliation Act, 1996?
Section 12 provides reasons for challenging an arbitrator regarding their independence, impartiality, or qualifications for ensuring fairness during arbitration proceedings.
Q2. At what time shall an arbitrator disclose any such conflict of interests?
An arbitrator must disclose any past or present relationships, financial interests, or other conflicts before appointment and throughout the arbitration process.
Q3. How does Section 12 promote fairness in arbitration?
Strict disclosure requirements enable transparency while challenge procedures for biased arbitrators ensure neutrality and efficiency of the given process.
Q4. Can a party challenge an arbitrator they appointed?
Yes, but only if they become aware of new circumstances after the appointment which cast doubt on the impartiality of the arbitrator.
Q5. What does the Seventh Schedule enumerate?
The Seventh Schedule enumerates relationships which render a person automatically ineligible to serve as an arbitrator to ensure impartiality in resolving disputes.
Q6. Can parties waive the ineligibility of an arbitrator?
Yes, but only once a dispute has occurred, and they have to do so in an express written agreement.
