Independence and Impartiality: The Fifth and Seventh Schedules

In one line

An arbitrator must be independent and impartial, must say in writing anything that might make a party doubt it, and if his relationship with a party falls in a listed category he cannot be an arbitrator at all.

In exam wording: section 12 of the Arbitration and Conciliation Act 1996 requires a prospective arbitrator to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality, permits a challenge on that ground or for want of agreed qualifications, and, by sub-section (5), renders a person ineligible for appointment where his relationship with the parties, counsel or subject matter falls within the Seventh Schedule.

Why this section was rewritten in 2015

Indian arbitration had a habit that would look extraordinary anywhere else. Government and public sector contracts routinely provided that the arbitrator would be a serving officer of the party itself, often the very department the dispute was with, or that the Managing Director of one party would appoint the arbitrator.

The 2015 amendment attacked this directly. It rewrote section 12(1), inserted section 12(5), and added three Schedules: the Fifth listing grounds that guide justifiable doubts, the Sixth prescribing the form of disclosure, and the Seventh listing relationships that make a person ineligible.

The design is worth stating because it is the answer to a question: why two Schedules? The Fifth Schedule is a warning list; the Seventh Schedule is a bar. A Fifth Schedule circumstance guides whether there are justifiable doubts, and the arbitrator may still act if nobody successfully challenges. A Seventh Schedule relationship makes the person ineligible outright.

Section 12(1): the duty to disclose, before appointment

When a person is approached in connection with his possible appointment, 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 in relation to 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 a period of twelve months.

Clause (b) is the one students forget, and it is the link to section 29A. The Act asks a prospective arbitrator not only whether he is independent but whether he is available, measured against the twelve month limit chapter 360 works through.

Explanation 1: the grounds in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts.