Section 13 of Arbitration & Conciliation Act 1996: Objective & Shortcomings!

Section 13 of the Arbitration and Conciliation Act 1996 is the provision that ensures transparency in the process of arbitration. Arbitration is one of the alternative dispute resolution methods that facilitates the process of resolving disputes outside the court. It helps in saving time and resources. However, for ensuring fairness, appointing an impartial and unbiased arbitrator is crucial. Section 13 of the Arbitration and Conciliation Act provides the grounds and procedure to challenge an arbitrator's appointment. 

Object of Section 13 of the Arbitration and Conciliation Act 

The main object of Section 13 is to ensure the integrity of the arbitration process. As it provides an opportunity to the parties to ensure whether the appointed arbitrator is unbiased or not. If the integrity of an arbitrator is questioned, then the procedure given under Section 13 of the Arbitration and Conciliation Act comes into play.

Also read about Section 36 of Arbitration & Conciliation Act.

Steps to Challenge the Role of an Arbitrator 

Section 13 of the Arbitration and Conciliation Act lays down a specific procedure to challenge arbitrators, ensuring that the process is both transparent and fair. The key steps in the challenge procedure are as follows:

Step 1: Submission of a Written Statement

The challenging party must submit a written statement to the arbitral tribunal stating the reasons for the challenge. This challenge can be based on circumstances that cause justifiable doubts about the arbitrator's impartiality or independence, or if the arbitrator does not possess the agreed-upon qualifications. The challenge must be submitted promptly after the appointment of the arbitrator or as soon as the challenging party becomes aware of the circumstances justifying the challenge.

Step 2: Arbitral Tribunal’s Initial Decision

The arbitral tribunal will review the challenge. The challenged arbitrator can voluntarily withdraw, or the other party can agree to the challenge. If neither of these occurs, the tribunal itself decides on the challenge. If the arbitral tribunal rejects the challenge, the challenging party has the option to escalate the matter to a judicial authority.

Step 3: Appeal to a Judicial Authority

If the challenging party is not satisfied with the decision of the arbitral tribunal, they can make an application to a court to decide on the challenge. This application must be made within 30 days from receiving the decision of the arbitral tribunal. The court approached should be one that has jurisdiction over the matter, as specified by the arbitration agreement or applicable national laws.

Step 4: Continuation of Arbitral Proceedings

Even while a challenge is pending before the court, the arbitral tribunal, including the challenged arbitrator, may continue the arbitration proceedings and make an arbitral award. This provision is designed to prevent the challenge process from being misused to unduly delay the arbitration proceedings.

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Significance  of Section 13 of The Arbitration and Conciliation Act 1996

Section 13 of the Arbitration Act has major significance for the overall arbitration proceeding. Some of the key impacts are as follows: 

  • It provides legal means to make sure that disputes are handled by an unbiased arbitrator.

  • It offers a structured process that strengthens the credibility of the arbitration process.

  • Section 13 balances speed and fairness in arbitration process

  • It has major significance in high-stakes commercial arbitration. Where impartiality is crucial.

  •  If a challenge is unsuccessful, parties can seek recourse in court after the final arbitral award, providing an additional layer of protection.

Shortcomings of Section 13 of the Arbitration and Conciliation Act

Despite the clear provisions laid out in Section 13 of the Arbitration and Conciliation Act, there are still challenges faced in its application. The process of challenging an arbitrator can be cumbersome. In cases where arbitral tribunal rejects the challenges, the party has no choice but to wait until the final award is made to take alternative recourse 

The Arbitration and Conciliation Act, 1996, is largely modeled on the UNCITRAL Model Law on International Commercial Arbitration (1985) and the UNCITRAL Conciliation Rules (1980). However, Section 13 of the Act differs slightly from the UNCITRAL Model Law. Under the Act, once the arbitral tribunal has made a decision regarding the appointment of the arbitrator, this decision can only be challenged in court after the arbitral award is passed. In contrast, the UNCITRAL Model allows parties to approach the court immediately without waiting for the award. Additionally, it's important to note that Schedule V and Schedule VII of the Act are based on the IBA guidelines, which are not exhaustive in nature.

Relevant Statutory Provisions in Section 13 of Arbitration & Conciliation Act

Sections 12, 13, and 14 of the Arbitration and Conciliation Act, 1996, address grounds for challenging an arbitrator’s appointment, the procedure for such a challenge, and cases of failure or inability of the arbitrator to act.

  • Section 12(3) outlines the grounds for challenging an arbitrator’s appointment, specifying that a challenge may be based on justifiable doubts about the arbitrator’s independence or impartiality. Explanation 1 to Section 12 clarifies that these grounds are guided by Schedule V of the Act, which follows the IBA guidelines and details situations that could reasonably call an arbitrator’s impartiality into question.

  • Section 13 establishes the procedure for challenging an arbitrator, stating that challenges should align with any procedure mutually agreed upon by the parties. If no such procedure exists, the challenge is addressed by the arbitral tribunal itself. 

  • Section 14 provides for the termination of an arbitrator's mandate and the appointment of a substitute arbitrator when the current arbitrator becomes ineligible, either de jure or de facto. Section 14 is guided by Schedule VII of the Act, also based on the IBA guidelines, ensuring consistency in maintaining arbitrator impartiality.

  • Schedule V of the Act: Schedule V of the Arbitration and Conciliation Act, 1996, provides a list of circumstances that may give rise to justifiable doubts about the independence or impartiality of an arbitrator. These guidelines are largely influenced by the International Bar Association's (IBA) guidelines  on conflicts of interest in international arbitration and serve as a basis for determining whether an arbitrator’s impartiality could be questioned. Key provisions in Schedule V include:

1. Relationship with Parties

2. Previous Engagements

3. Financial or Other Interest

4. Employment or Association

5. Family Connections

  • Schedule VII of the Arbitration and Conciliation Act, 1996, outlines specific conditions under which an arbitrator is deemed ineligible to act. This Schedule is instrumental in ensuring impartiality and preventing conflicts of interest, and, like Schedule V, it is based on the International Bar Association (IBA) guidelines  on conflicts of interest. Key provisions in Schedule VII include:

1. Direct Involvement

2. Ongoing Business Relationship

3. Recent Employment or Association

4. Close Family Connections

5. Involvement in Similar Disputes

Judicial Pronouncements on Section 13 of the Arbitration & Conciliation Act

In the Union of India vs. Reliance Ltd. (2022) case, the Supreme Court of India dealt with key issues related to Section 13 of the Arbitration and Conciliation Act.The court emphasized that challenges to an arbitrator’s appointment, as outlined in Section 13, must follow the prescribed procedure within the arbitration framework. This includes raising objections during the arbitration proceedings rather than waiting to approach the courts at a later stage.The Supreme Court reiterated that under Section 13(5) of the Arbitration Act, the arbitral tribunal itself must first address any objections regarding the arbitrator's impartiality or qualifications. A party dissatisfied with the tribunal's decision may raise the issue only after the final arbitral award is passed, and not during the arbitration process. The court thus reaffirmed the limited scope for judicial intervention during ongoing arbitration proceedings.

Sacheerome Advanced Technologies (SAT) vs. NEC Technologies Pvt. Ltd. (NECI)

The primary issue revolved around the appointment of an arbitrator and the challenge to an arbitrator's independence and impartiality. The court highlighted that Schedule V and Schedule VII of the Arbitration and Conciliation Act, 1996, provide specific criteria for assessing an arbitrator’s impartiality. If an arbitrator falls under Schedule VII, they are ineligible, and any challenge to their appointment can be raised immediately. The judgment reaffirmed that independence and impartiality of arbitrators are critical to the fairness of arbitration proceedings. 

The court held that adherence to impartiality standards under Schedules V and VII is essential, and any conflict with these provisions could disqualify an arbitrator, ensuring the arbitration process remains fair and unbiased.

HRD Corporation (Marcus Oil and Chemical Division) vs. GAIL (India) Ltd. 

The Supreme Court propounded that if the arbitrator has passed an award in earlier arbitration between the same parties about the same dispute, that does not mean it is justifiable grounds for challenging impartiality as per the fifth schedule.  

Afcons Infrastructure Limited Vs. Ircon International Limited

The  Delhi High Court removed the existing panel of retired railway officers and appointed an arbitral panel that was broad-based to work as a railway arbitrator. Merely appointing an ex-employee as an arbitrator does not fall within the purview of Section 12(5) read with the 7th schedule; it gives rise to apprehension in the minds of parties that he may be biased.

UNCITRAL Model Law in Progressive Career Academy Pvt. Ltd. v. FIITJEE Ltd.

The Court reviewed the UNCITRAL Model Law in Progressive Career Academy Pvt. Ltd. vs. FIITJEE Ltd.: 180 (2011) and observed that the Parliament had not fully ratified the Model Law on the subject of arbitral tribunal impartiality. The Court added that deviating from the Model Law indicated that the Indian Parliament opposed any perceived bias-based curial intervention during the interlocutory phase of the arbitral proceedings. The Court decided that only after the award was made would such a challenge be allowed under Section 34 of the A&C Act. 

Conclusion

Section 13 of the Arbitration and Conciliation Act of 1996 guarantees the impartiality of an arbitrator. It provides clear steps to be followed in case a party needs to challenge the arbitrator appointed for the arbitration. It ensures that arbitration remains a credible and fair alternative method of dispute resolution.

FAQs

  1. What is Section 13 of the Arbitration and Conciliation Act, 1996?

Section 13 of the Arbitration and Conciliation Act, 1996, outlines the procedure for challenging the appointment of an arbitrator if there are concerns about impartiality, independence, or qualifications. The challenge must be made within a specified timeframe, and the arbitral tribunal will decide on the challenge.

  1. How can an arbitrator be challenged under Section 13 of the Arbitration and Conciliation Act?

Under Section 13, a party can challenge an arbitrator by submitting reasons related to bias, lack of impartiality, or qualifications within the timeline specified. The challenge is initially decided by the arbitral tribunal, and if rejected, the proceedings continue, but the party can later appeal the decision after the final award.

  1. What happens if the challenge to the arbitrator under Section 13 is rejected?

If the arbitral tribunal rejects the challenge under Section 13, the arbitration proceedings continue with the same arbitrator. The party challenging the arbitrator can raise the issue after the final award by applying for setting aside the award under Section 34 of the Act.

  1. What is the timeline for raising a challenge under Section 13 of the Arbitration and Conciliation Act, 1996?

The challenge must be raised within 15 days from when the party becomes aware of the circumstances that give rise to doubts about the arbitrator’s impartiality or qualifications. If the party fails to challenge within this period, the right to challenge may be waived.

  1. Can a party directly approach the court if their challenge under Section 13 is rejected?

No, a party cannot directly approach the court if their challenge under Section 13 is rejected by the arbitral tribunal. The party must wait until the final arbitral award is made and can then apply to set aside the award under Section 34 on the grounds of an improperly appointed arbitrator.

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