Most commercial entities include arbitration clauses in all of the agreements

that they sign with other entities or sign a separate arbitration agreement
altogether. With such heavy reliance placed on arbitration, the arbitrators
appointed must be impartial. The Supreme Court of India has observed that
the impartiality and the independence of an arbitrator are the hallmarks of
arbitration, and it is a fundamental principle of natural justice.
Section 12 of the Act states the grounds on which an arbitrator can be
challenged. Additionally, the 2015 amendment to the Act has added a schedule
to this section, which lays down additional criteria that may give rise to a
challenge of an arbitrator.

Grounds for Challenge (Section 12 of the Arbitration and Conciliation Act,

1996)
1. When a person has been approached for a possible appointment as an
arbitrator, he shall disclose in writing any circumstances which are likely
to give rise to justifiable doubts about his independence or impartiality.
2. From the time of an arbitrator’s appointment and throughout the
arbitral proceedings, he shall without delay willingly disclose to the
parties in writing any circumstances referred to in subsection (1) unless it
has already been informed to them by him.
3. An arbitrator may be challenged only if
o circumstances exist that give rise to justifiable doubts about his
independence or impartiality, or
o he does not possess the qualifications agreed to by the parties.
4. A party may challenge an arbitrator who has been appointed by the
party himself or in whose appointment he has participated only for
reasons of which the party becomes aware after the appointment has
been made.
Amendment of Section 12 in the year 2015
(i) for sub-section (1), the following sub-section shall be substituted, namely:
(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 about 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 twelve months.
(ii) after sub-section (4), the following sub-section shall be inserted, namely:
(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, after disputes having arisen between
them waive the applicability of this subsection by an express agreement in
writing.

Fifth Schedule
The fifth schedule deals with the following types of relations, which may give
rise to reasonable doubts:
• Any relationship of the arbitrator with the parties or the council.
• Relationship of the arbitrator related to the dispute.
• Any personal interest of the arbitrator in the dispute.
• Any past involvement of the arbitrator with the dispute
• Relationship between the co-arbitrators
• Relationship between arbitrators and parties as well as other who are
involved in the arbitration.
• Other Circumstances.
If a scenario of a case falls under the above headings, then the party can
challenge the arbitrator. The above-mentioned points are extensive headings
with various scenarios to ensure maximum impartiality. Although, ‘Explanation
3’ of this schedule states that if it is a specialized arbitration which involves
niche fields, and it is custom to appoint same arbitrators from a specialized
pool, then it should be noted by applying these rules. None of these headings
can immediately bar an appointment of an arbitrator.

Seventh Schedule
This schedule covers most of the headings stated under the Fifth Schedule. As
this list is not as exhaustive as the Fifth Schedule, it simply acts as a bar to
appoint an arbitrator. This bar can be also waived by the parties by the
agreement in writing.
This schedule covers:
• Any relationship of the arbitrator with the parties or the council.
• Relationship of the arbitrator related to the dispute.
• Any personal interest of the arbitrator in the dispute.

Key Points of Section 12

1. Duty to disclose by the prospective arbitrator
Sub-sections (1) and (2) of Section 12 of the Arbitration and Conciliation
Act,1996 make it mandatory for the prospective arbitrator to disclose to the
parties in writing about any circumstances which are likely to give rise to
justifiable doubts about the arbitrator’s impartiality or independency. The use
of the expression “shall” connotes that these provisions are imperative. An
arbitrator has to discharge his obligation “without delay,” i.e., before he takes
over as an arbitrator.
2. Significance of the word “only” in Section 12(3)
It appears that the word “only” signifies that the grounds mentioned in the
said provisions are available for challenging an arbitrator; thus, other grounds
are not available therein. Any other flimsy grounds cannot be used to challenge
an arbitrator. The Supreme Court in Jiwan Kumar Lohia v. Durgadutt Lohia
observed that a reasonable apprehension of bias in the mind of a reasonable
man can be a good ground for termination of the mandate of an arbitrator.
It is necessary that a reasonable apprehension of bias must be based on
materials and also must be prima facie proved. The Supreme Court in Secretary
to the Government, Transport Department, Madras v. Munnuswamy has held
that any pre-disposition concerning a decision for or against one party, without
giving proper regard to the true merits of the dispute, amounts to bias. Any
reasonable apprehension has to be based on cogent evidence. Only a mere
doubt that an arbitrator is biased would not be sufficient to constitute bias on
the part of an arbitrator.
3. An appointed arbitrator must possess qualifications agreed
to by the parties
It needs to be noted that the old Arbitration Act of 1940 contained no such
prescribed qualification for the appointment of an arbitrator. Whereas in the
present Arbitration and Conciliation Act,1996, namely, Section 12(3), it states
that the appointment of an arbitrator can be challenged if he does not possess
the qualifications agreed to by the parties. This important addition was
essential because several disputes could not be settled due to the lack of
expertise in the field which is in dispute, like mining, engineering, blasting, etc.,
thus, the appointed arbitrator must have specific knowledge in the field
concerning the subject matter of the dispute.
Bombay High Court in the case of Anuptech Equipment Pvt Ltd. v. Ganpati
Cooperative Housing Society Ltd has held that if by any reason the appointed
arbitrator fails to possess the qualification which has been agreed by the
parties in the arbitration agreement, the very appointment of such arbitrator
will be void ab initio as well as the arbitration proceedings would be totally null
and void including any order passed by him.

4. Refusal to act as an Arbitrator

When a person is offered to act as an arbitrator, such a person has the choice
to refuse such an offer expressly or impliedly. An unwilling arbitrator cannot be
compelled to act. The Apex Court in the case of State of West Bengal v.
National Builder has explained the meaning of the expression “refusal” and,
according to the court, “refusal” to act means denial to do something which
one is obliged to do under law.
Thus, under a situation where the arbitrator has declined to grant an extension
of time and close the proceedings and the parties have been directed to
determine their upcoming course of action, in such circumstances, a
reasonable presumption would be drawn that he has declined to continue as
an arbitrator any further. In such a situation, the parties can substitute a new
arbitrator.

5. Power of the court regarding appointment when an

authorised person fails to appoint
The expression “without delay” stated in Section 12(2) of the Arbitration and
Conciliation Act, 1996, denotes that there should not be unreasonable or
undue delay on the part of the arbitrator to disclose when such a person is first
approached for possible appointment as an arbitrator. It needs to be noted that
Sub-section 2(2) of Section 12 also provides that this duty of the arbitrator
needs to be discharged from the time of the appointment and maintained it
throughout the arbitral proceedings. Thus, an arbitrator needs to discharge his
duty “without delay”. This provision is intended to ensure that the parties
receive speedy arbitration and its adjudication.
The Delhi High Court in the case of Union of India v. Somnath Chadha
observed that the most important objective of referring any dispute to an
arbitrator for adjudication is the speedy end of the strife. It was held that any
unreasonable delay or negligence in the appointment of the arbitrator or the
commencement of the proceedings would defeat the purpose of the
arbitration. In these circumstances, the court may intervene and appoint an
arbitrator.
In the case of Sankar and Sankar v. State of West Bengal, it was held that if a
person who is permitted to appoint an arbitrator under arbitration clause
neither appoints such arbitrator not enters on the reference himself and there
is silence for more than one year then it would be a case of failure and
negligence and under such circumstance the court can appoint an arbitrator
himself.
Under what circumstances is the composition or the procedure of the Arbitral
Tribunal challengeable?
The Supreme Court, in the case of Narayan Prasad v. Nikunj Lohia & Ors, held
that when the composition or the procedure of the arbitral tribunal is not by
the agreement of the parties, it can be challenged. Under such circumstances,
the parties get a right to challenge the award, but only if the agreement of the
parties conflicts with a provision of Part I, which the parties cannot derogate. In
other words, if the composition of the tribunal or the procedure is not by the
agreement of the parties, the parties have the right to challenge, but if such
composition or procedure is by the provisions of the Arbitration and
Conciliation Act, 1996, then the party cannot challenge the award.
Procedure for Challenging an Arbitrator (Section 13 of the Arbitration and
Conciliation Act, 1996)
1. Subject to subsection (4), the parties can agree on a procedure for
challenging an arbitrator.
2. If the parties fail to reach an agreement which has been referred to in sub-
section (1), a party who intends to challenge an arbitrator shall within fifteen
days after becoming aware of any circumstances which have been mentioned
under sub-section (3) of Section12 send a written statement of the reasons for
the challenge to the arbitral tribunal.
3. Except if the arbitrator who has been challenged under subsection (2)
withdraws from his office or the other party agrees, the arbitral tribunal shall
decide on the challenge.
4. In case of the failure of the challenge under any procedure which has been
agreed by the parties or under the procedure mentioned under subsection (2),
the arbitral tribunal will continue with the proceedings as well as make an
arbitral award.
5. In such circumstances when an arbitral award has already been made under
subsection (4), the party who is challenging the arbitrator may make an
application by section 34 for setting aside such an arbitral award.
6. When an arbitral award has already been set aside on an application made
under subsection (5), the Court may decide as to whether the arbitrator who
has been challenged is entitled to any fees.
Failure or impossibility to act (Section 14 of the Arbitration and Conciliation
Act, 1996)
Section 14 of the Arbitration and Conciliation Act,1996, has been modelled on
Article 14 of the Model Law, which provides various circumstances in which the
mandate of an arbitrator fails or becomes impossible to act. In these kinds of
situations, the mandate of an arbitrator shall be terminated and/or the
arbitrator’s authority shall be terminated.
1. The mandate of the arbitrator shall terminate, and he shall be substituted by
another arbitrator if–
a) The arbitrator becomes de facto or de jure unable to perform his functions
or for any other reasons fails to act without undue delay; and
b) The arbitrator withdraws from his office or the parties agree to the
termination of his mandate.
2. If there are any controversies regarding any of the grounds referred to in
clause (a) of sub-section 1, then a party may, if not otherwise agreed by the
parties, apply to the court to decide on the termination of the mandate.
3. Under this section or sub-section (3) of section 13, if an arbitrator withdraws
from his office or the parties agree to the termination of the mandate of an
arbitrator, it does not imply any acceptance of the validity of any ground which
is referred to in this section or sub-section (3) of section 12.

Termination of mandate and substitution of an arbitrator (Section 15 of the

Arbitration and Conciliation Act, 1996)
1. In addition to the circumstances referred to in section 13 and 14, the
mandate made by an arbitrator shall be terminated if-
a) If the arbitrator withdraws from his office for any reason; or
b) The parties have an agreement to terminate the arbitrator’s authority.
2. When the mandate of the arbitrator has been terminated, a substitute
arbitrator will be appointed by the rules which were applicable to the
appointment of the arbitrator who was replaced.
3. If not otherwise agreed, when an arbitrator has been replaced under sub-
section (2), any hearing which has been held previously may be repeated at the
discretion of the arbitral tribunal.
4. If not otherwise agreed, any order or ruling of the arbitral tribunal which has
been made prior to the replacement of the arbitrator under this section shall
be held invalid because there has been a change in the composition of the
arbitral tribunal.

Conclusion
The Amendment of the Act which was made in 2015 was aimed to promote
arbitration in India and to provide utmost transparency and reliability on the
same. Section 12 has gained much more importance with the amendment, and
hopefully, it will make arbitration a much popular recourse than judicial courts.
Section 13 has mentioned the procedure which needs to be followed when the
grounds mentioned in Section 12 give rise to challenging an arbitrator. Section
14 and 15 has mentioned various circumstances in which the mandate of an
arbitrator can be terminated. All these sections are the backbone of arbitration
as it helps the parties get justice when the arbitrator is at fault.