Arbitration Selection: Criteria and Process for Selecting Neutral and Qualified Arbitrators

ABSTRACT

Private dispute resolution can be done in a number of traditional ways and arbitration is one of them. It is a form of dispute resolution mechanism that has been given statutory recognition worldwide. Various International Arbitration Institutions have also been formed. In India, the Arbitration and Conciliation Act, of 1996 provides for the different rules and regulations for this mechanism to function properly. The present study briefly enumerates the criteria and procedure for the appointment of an arbitrator in the arbitration proceedings. It states the role of courts and arbitral tribunals in the matter of appointment of arbitrators and arbitration complexities.

INTRODUCTION

The Arbitration process is an Alternate Dispute Resolution Mechanism. According to section 2(a) of the Arbitration and Conciliation Act, 1996, “arbitration” means any arbitration whether or not administered by a permanent arbitral institution.[1] And the “Arbitrator” is the neutral person to whom parties refer their dispute.

Hence it is a quasi-judicial proceeding. This mechanism attempts to resolve disputes fairly, effectively, and privately and tries to minimize the intricacies of courts ultimately reducing the burden of the courts. This process is also cost-effective and flexible. It works on the well-known principle of justice, legal aid, and speedy trial also provided in Article 39 of the Constitution.

In an arbitration process, the disputed parties are free to select their arbitrator according to their preference. Thus it is important to choose an arbitrator wisely who can resolve the dispute properly by adhering to all the rules regulations and legal formalities. Section 11 of the Arbitration and Conciliation Act, 1996, is all about the criteria and process for appointing an arbitrator for the settlement of disputes.

Criteria for Appointment of Arbitrators— 

1. Nationality-

A person of any nationality may be an arbitrator. However, in an International Commercial Arbitration, where the parties belong to different nationalities then the Supreme Court or person or institution designated by that court may appoint an arbitrator of different nationality.

2. Consent of the parties-

The consent of the parties is necessary to appoint a particular arbitrator. A list of arbitrators has been prepared by the parties to choose from them. The parties are free to appoint an arbitrator according to their choice and also the procedure on which they had consented to appoint him. This appointment procedure can be provided in the separate arbitration agreement or in the arbitration clause under the contract made by the parties. In the recent judgment of Overnite Express Limited vs. Delhi Metro Rail Corporation[2] the High Court of Delhi held that a party cannot choose its arbitrator from a narrow panel of arbitrators maintained by the other party. The Court held that due to the restrictive nature of the panel, it limits the choice of the petitioner to choose one arbitrator from the five which amounts to unilateral appointment of an arbitrator. Hence, may create a doubt regarding the arbitrator being partial or biased. [3]

3. Independent and unbiased-

 An arbitrator should be an independent and impartial person. He should not be related to the parties in any way because this may change the dynamics of the case. An arbitrator should not have either directly or indirectly, any past or present relationship whether it is financial, business professional, or any subject matter in dispute, with the parties which may give rise to justifiable doubts as to his independence. Even if there exists any relationship between one of the parties with the arbitrator, it is his obligation to remain unbiased throughout the whole process.

4. Qualification and skills-

The arbitrator must possess qualifications as agreed between the parties in an arbitration agreement. He must possess the knowledge, experience, and expertise required in the process for smoothly resolving the dispute. A skilled and proficient arbitrator can better understand the circumstances of the case and dispose of it within the time frame. The arbitrator’s excellence in the field in which parties are in dispute will be a cherry on the top.

5. Disclosure by the arbitrator-

 Furthermore, an arbitrator has to provide the disclosure of facts in writing that there exists a relationship or interest with the parties, if any. These situations and circumstances may affect his ability to devote sufficient time to the arbitration process and complete it within the stipulated period. This works as evidence in the court in the future.

Process for arbitration selection-

1. Arbitration Agreement and clause-

The parties have discernment that a dispute may arise between them at any point of time in their contractual period. Thus it is preferred that to avoid complications and troubles in the future, everything should be clear out. Hence, the arbitrator can be appointed through an arbitration agreement in writing made between the parties to the dispute by mentioning all the requisites of an arbitrator. The arbitrator can also be appointed when an arbitration clause is inserted in the commercial contract between the parties.

2. Individual and penal selection-

The parties are free to name the mediator of their choice. Although unilateral appointments may seem to be generally prohibited under the amended Act of 2015, exceptions to this rule have emerged in certain appointment procedures. These exceptions involve situations where an arbitrator is selected from a panel that is established, maintained, curated, and overseen by one of the parties involved in the dispute. Such clauses are commonly found in post-tender government contracts, where the selection of the presiding and/or sole arbitrator is to be done from a panel consisting of retired and senior officials from the relevant department.[4]

3. Selection of sole arbitrator-

In the case of sole arbitrator, parties mutually give consent to appoint a particular arbitrator. But, if parties fail to agree on the arbitrator within thirty days from receipt of request by one party from the other party to do so, then the appointment shall be made by the Supreme Court or as the case may be High Court; or person or institution designated by that court.

4. Selection of third arbitrator–

In exceptional cases where parties do not come to conclusion with respect to arbitrator or if there is no agreement between the two parties at that point each party shall appoint an arbitrator and the two appointed arbitrators shall appoint a third arbitrator as the chief arbitrator. If both parties fail to appoint an arbitrator within thirty days from the date of receipt of the application by the other party, or if the selected arbitrators fails to appoint chief arbitrator from the date of their appointment, then on the request of the parties, the court or authority, as the case may be, shall make the appointment.  

5. Duration for appointment by the court-

 When the appointment of arbitrator or arbitrators is made by the Supreme Court or high court or any person or institution, it should be disposed of as soon as possible within sixty days from the date of notice to opposite party. In the Arif Azim Co. Ltd. v. Aptech Ltd.  2024 INSC 155[5] case the Court examined the statutory framework and previous cases and concluded that the Limitation Act was applicable to arbitration proceedings and, also, to applications under Section 11 (6) of the Arbitration Act for appointment of arbitrators. According to the Court, under the Limitation Act, parties have a three-year period from the date when the right to apply accrues to file applications under Section 11(6) of the Arbitration Act.[6]In respect of applications under Section 11(6) of the Act, the Court concluded that the “right to apply” would accrue when there is a failure or refusal on the part of a party to make an appointment as per the agreed procedure pursuant to a valid notice invoking arbitration issued by one of the other parties.

6. Disclosure of facts-

The court will seek a disclosure in writing from the appointed arbitrator to confirm his impartiality and independence in the matter with regards to any relationship or interest. And hence it is also a necessary requirement in selecting an arbitrator.

7. Interference of the court-

After complying with all the steps and requirements of the process the court may interfere in the matter in any point of time, if the parties are agreed.  In the agreed appointment procedure by the parties, a party’s failure to comply with the requirements of the process; or failure of parties or arbitrators to reach the expected agreement in that process; or failure of a person or institution to perform functions and duties assigned to them within the scope of this process, then the parties may request the designated authority or court to take essential measures. However, this may not be required in case where the necessary measures have already been provided in the agreement made between the parties for appointment procedure.

When there are various requests to different courts or its designates for any difficulty arising in the appointment process or in taking important steps in the matter, then that court where first request has been made shall be competent to decide on the matter. The Supreme Court or high court, as the case may be, may make such schemes as it deems fit for the said difficulty.

8. Courts jurisdiction in the matter-

Regardless of any judgement, decree or order of the court, the authority or court, while considering any application in above cases, shall confine to the examination of the existing arbitration agreement and shall not go beyond the boundaries. When the Supreme Court, or the high court delegates its powers to subordinate court, any person or institution designated by that court then this should not be considered as delegation of its judicial powers. Nevertheless, the decision of that authority shall be final and no appeal shall lie against it. In an International arbitration, only Supreme Court has jurisdiction to interfere in the matter. In domestic arbitration, the high court within its local limits has jurisdiction.

In Vidya Drolia vs. Durga Trading Corporation AIR 2019 SC 3498 [7], the Supreme Court authoritatively ruled that court undertakes a “prima facie review” at the referral stage. The prima facie review “is not full review but a primary first review to weed out manifestly and ex – facie non – existent and invalid arbitration agreement and non – arbitral disputes” so as “to cut the deadwood”. The fundamental purpose of the Arbitration Act’s enactment would be defeated if a comprehensive examination was required at the referral stage.

In fact, the Supreme Court in Shree Vishnu Constructions v. The Engineer in Chief, Military Engineering Service, while holding that courts must endeavour in deciding section 11 petitions within a period of six months, observed that delays in appointment of an arbitral tribunal would defeat the purpose behind the enactment of the Arbitration Act. Thus, the scope of court’s enquiry at the referral stage must be extremely limited and confined to the prima facie existence of the arbitration agreement.[8]

9. Payment of fees-

The high court may frame rules for determination of fees to the arbitral tribunal and manner of its payment after considering the rates specified in the fourth schedule of the Arbitration and Conciliation A However in an agreement already made between the parties, the parties may have agreed for the determination of fees as per the rules of arbitral institution.

CONCLUSION

All the qualifications and procedure in arbitration only arises when there is a dispute among the parties in a legal relationship. Thus appointing an arbitrator can be a huge task for the parties because a good arbitrator can make fair decision in the procedure. He’s decision can lead to suffer an innocent person or let him suffer as well. Arbitrator’s decision may change the dynamics of the case. Therefore, the qualities like fairness, neutrality, independence, impartiality and un-biasness are required to be considered as virtuous arbitrator.

References:

[1] ‘A1996-26.Pdf’ <https://www.indiacode.nic.in/bitstream/123456789/1978/3/a1996-26.pdf> accessed 27 June 2024.

[1] ‘AIROnline 2020 Del 844’ <https://www.aironline.in/legal-judgements/AIROnline+2020+Del+844> accessed 27 June 2024.

[1] Tariq Khan, ‘30 Important Judgments on Arbitration by Indian Courts [June- December 2022]’ (Bar and Bench – Indian Legal news, 21 January 2023) <https://www.barandbench.com/columns/30-important-judgments-on-arbitration-by-indian-courts-june-december-2022> accessed 27 June 2024.

[1] ‘India – Arbitration & Dispute Resolution – Appointment Of Arbitrators: Assessing The Balance Between Autonomy And Fairness’ <https://www.mondaq.com/india/arbitration–dispute-resolution/1342044/appointment-of-arbitrators-assessing-the-balance-between-autonomy-and-fairness> accessed 27 June 2024.

[1] Dr Dhananjaya Y Chandrachud, JB Pardiwala and Manoj Misra, ‘M/S Arif Azim Co. Ltd. v. M/S Aptech Ltd.’

[1] ‘To Bar or Not to Bar – the Indian Supreme Court on Limitation and Applications for Appointment of Arbitrators’ (Herbert Smith Freehills | Global law firm) <https://www.herbertsmithfreehills.com/notes/arbitration/2024-05/to-bar-or-not-to-bar-the-indian-supreme-court-on-limitation-and-applications-for-appointment-of-arbitrators> accessed 27 June 2024.

 ‘Vidya Drolia vs Durga Trading Corporation on 14 December, 2020’ <https://indiankanoon.org/docfragment/121987320/?formInput=section%2011%20arbitration> accessed 27 June 2024.

[1] Guest, ‘SC Expands Scope of Enquiry under Section 11 of the Arbitration Act’ (IndiaCorpLaw, 11 September 2023) <https://indiacorplaw.in/2023/09/sc-expands-scope-of-enquiry-under-section-11-of-the-arbitration-act.html> accessed 27 June 2024.