Is the Remedy Against a Biased Arbitrator Really Efficacious? By Manish Mehrotra

The fundamental promise of arbitration is to provide a swift, efficient, and, most importantly, impartial alternative to traditional court litigation. Yet, a persistent question plagues the process: what happens when there is doubt about an arbitrator’s independence? Is the legal remedy truly efficacious, or has it become a “dead letter law”?

A Lesson in Misuse of the 1940 Act

To understand today’s struggle, we must look at the Arbitration Act, 1940. The authority of an arbitrator was governed by Section 5, which stated:
“The authority of an appointed arbitrator or umpire shall, unless a contrary intention is expressed in the arbitration agreement, be irrevocable except by leave of the Court.”
This provision was largely misused; parties would challenge an arbitrator “at the drop of a hat” to stall proceedings. The net result was that arbitration stayed stuck in courts for decades, defeating the very purpose of a “quick” resolution.

The 1996 Reform: Struck a New Balance

The Arbitration and Conciliation Act, 1996, based on the UNCITRAL Model Law, sought to fix this by emphasizing “minimal judicial intervention.” This is codified in Section 5:
“Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

For bias specifically, the Act introduced a specific framework:

Section 12 (Grounds for Challenge):
“An arbitrator may be challenged only if— (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties.”

Section 13 (Challenge Procedure): This section dictates that, failing a private agreement, the challenged arbitrator decides their own fate:
“Unless the arbitrator challenged… withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.”

Section 14 (Failure or Impossibility to Act):
“The mandate of an arbitrator shall terminate… if— (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay…”

The Judicial Trend-Thus far
Courts apply the Objective Test: Would a fair-minded and informed observer conclude there was a real possibility of bias?
• International Airport Authority vs. KD Bali (1988): The Supreme Court laid down tough norms, making it a high mountain to climb for any challenger.
• Jivan Kumar Lohia vs. Durga Dutt Lohia (1992): The Court rejected a challenge based on “reasonable apprehension,” reinforcing the strict standard.
• Setech Electronics Ltd. vs. K.N. Memani (1999): The Delhi High Court not only rejected a challenge but imposed costs, signaling a stern stance against perceived stalling tactics.

Notable Exceptions

While the trend is strict, courts have intervened in matters of bias, but rarely:

HMG Engg. (P) Ltd vs. Union of India (1999): The Bombay High Court quashed an award; upheld the plea of bias against the arbitrator who permitted one of the parties to produce additional documents and evidence in absence of the other side and without affording an opportunity of rebutting the same.

Cochin Shipyard Ltd. vs. Apeejay Shipping Ltd. (2015): The Supreme Court clarified that “legal misconduct” Hon’ble Court held “the grounds to prove misconduct of the arbitral proceedings do not pertain to personal misconduct or moral misconduct of the arbitrator as they are on account of non-consideration of relevant documents, recording of minutes during arbitral proceedings, not granting adequate opportunity and violation of principle of natural justice by the arbitrator. The person urging legal misconduct of arbitrator has to satisfy the court from the records of arbitral proceedings that there has been a legal misconduct of part of arbitrator as a consequence of which the award gets vitiated.”

Alcove Industries Ltd. vs. Oriental Structural Engineers Ltd. (2007): The Hon’ble Delhi High Court used Section 14(2) to terminate a mandate, ruling that a “reasonable apprehension of bias” renders an arbitrator de jure unable to perform. While applying the provisions of Section 14(2) of the Arbitration and Conciliation Act it was held that it is well-settled that an arbitrator with regard to whom there is a reasonable apprehension of bias renders himself de-jure unable to perform his functions. The perceived impartiality independence of the arbitrator lies at the core of his mandate. Accordingly, the Hon’ble High Court terminated the mandate of the arbitrator primarily due to the casual approach adopted by the arbitrator in the conduct of the arbitration proceedings and having failed to act without undue delay.

The Hard Truth: “Impractical Remedy”

Despite these provisions, a core issue remains. We have moved from the misuse of the 1940 Act to an opposite extreme. Under the current procedure, we expect an arbitrator to hold against themselves. In real life- only few have the “moral strength” to admit bias.

Why: “In view of a lack of trained and professional arbitrators with utmost integrity in India, this remedy has largely rendered itself a dead letter law.”

If an arbitrator refuses to step down, the party must wait for the final award to challenge it under Section 34. However, the scope of Section 34 is intentionally narrow, often leaving the aggrieved party with no practical utility for their grievance.

The Upshot

The perceived impartiality of an arbitrator lies at the very core of their mandate. Until the anomaly of “self-judging” is resolved, the right to challenge for bias may remain a purely academic interest—a legal fiction in a law evolved for speed, but perhaps lacking in true letter and spirit in so far as the “risk of arbitrator’s bias is concerned”