Challenge on arbitrator's bias cannot be raised under Section 14 of A&C Act: Delhi High Court

Challenge on arbitrator's bias cannot be raised under Section 14 of A&C Act: Delhi High Court

The petitioner had approached the court for terminating the tribunal's mandate

The High Court of Delhi has held a challenge to the mandate of the arbitrator on the ground of bias and a justifiable doubt with respect to the independence and impartiality cannot be raised under Section 14 of the Arbitration and Conciliation (A&C) Act, 1996.

The bench comprising Justice Yashwant Varma held that the Section conferred the power on the court to terminate the mandate of the arbitrator and appoint a substitute arbitrator only in circumstances within the 7th Schedule of the Act that dealt with de jure ineligibility of the arbitrator.

However, the ground of bias or justifiable ground as to the independence and impartiality fell within the 5th Schedule read with Section 12(3), wherein only the tribunal could decide on the challenge. The court held that Sections 12, 13 and 14 though appearing to constitute a composite statutory scheme, dealt with the challenge to and termination of the mandate of the arbitrator. But they provided separate causeways to raise a challenge.

In April 2000, the parties had entered a Production Sharing Contract for the development and production of gas discoveries. Thereafter, a dispute arose between the parties, and they were referred to arbitration.

The petitioner alleged that the arbitral tribunal passed certain procedural orders indicating bias. It filed an application under Section 14 before the court for the termination of the tribunal's mandate.

The petitioner challenged the mandate on the grounds:

1) The tribunal passed several procedural orders that indicated it treated them unfairly, denied them a reasonable opportunity, and favored the respondents.

2) The conduct clearly established a bias on its part; therefore, its mandate must be terminated.

3) An issue of bias of the arbitrator in administering the proceedings fell within the ambit of de jure disqualification. Therefore, the court can entertain an application under Section 14 of the Act.

4) If Section 14 is not made applicable to the ground of bias, it would result in the aggrieved party being forced to pursue the challenge before the same tribunal of which bias was alleged.

On the other hand, the respondent objected to the maintainability of the petition on the grounds:

1. Section 14 of the Act can only be invoked when the question of de jure disqualification is involved. However, a question of justifiable doubts as to impartiality falls within Section 12 (3) read with the 4th Schedule. Therefore, only the tribunal can decide on such a challenge and if it rejects the challenge, the only remedy available to a party is to await the passing of the award and challenge under Section 34 of the Act.

The court observed that Section 12 related to a challenge to the jurisdiction of the arbitrator that may be based either on the Fifth or the Seventh Schedule. On justifiable grounds, it was within the ambit of the Fifth Schedule. Thus, only the tribunal had the power to decide on the challenge.

The bench held that the mandate of the arbitrator could only be challenged under Section 14 of the Act if the ground mentioned under the Seventh Schedule was the ground of challenge and there was no provision related to the bias of the arbitrator. It added that Sections 12 and 13 constituted a complete and independent code for the purpose of trial of allegations providing a justifiable doubt on the arbitrator's independence and impartiality involving a bias.

Justice Varma further said that Section 14 contemplated de jure disqualification and there was no need for a detailed inquiry in such cases. However, justifiable grounds involved factual inquiry, which would necessarily have to be undertaken, therefore, only the tribunal could decide on those challenges.

While dismissing the petition as being non-maintainable, the court observed that the fact of the tribunal being empowered to deal with a challenge to its mandate was in consonance with the principle of Kompetenz-Kompetenz enshrined under Section 16 of the Act.