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Report No. 176

2.10.1 Section 13 -

Rejection of request for making a provision for appeal in section 37(2) against interlocutory orders of the arbitral tribunal rejecting a plea of bias or disqualification: proposed Explanation II in section 34(2)

Though there were strong pleas for an interlocutory appeal under Section 37 (2), we have rejected this plea, as stated below. Of course, Explanation II is added in Section 34 (2) to clarify existing position. The main debate here is that section 13 must be brought into conformity with the Model Law and that if a plea of bias or disqualification of arbitrators is raised, it should be decided as a preliminary issue by the arbitrators and if the plea is not accepted, there should be an immediate right of appeal.

Where the arbitrator has accepted the plea of bias or disqualification, no application to the Court is contemplated and this is rightly so. There is no need to provide any appeal in as much as when the arbitrator himself agrees with the plea, he has only to withdraw. Section 13(4) requires the continuation of arbitration proceedings in the event of the arbitral tribunal rejecting a plea of bias on grounds referred to in sec. 12.

The remedy in sec. 13(5) is that the rejection of the plea by the arbitral tribunal can be questioned after the award, and it is said that this is not a fair procedure and may ultimately result in waste of money and time, if the plea is upheld by the court ultimately. It is also pointed out that even though sec.13(5) contemplates an application to set aside the award after it is made to the Court under sec.34 out no such right to question the award on these grounds has been included in sec. 34. Sec. 34(2)(v), it is said, does not, meet the situation.

Moreover, the word 'only' used in sec. 34 runs counter in respect of the provision under sec. 13(5). Therefore, section 34(2) is, to be amended to clarify existing position by adding Explanation II. A provision is proposed to be made in section 34 by way of Explanation to clarify that the applicant can question the order of rejection of the plea of bias by the arbitral tribunal as permitted by section 13(5). Though this remedy is mentioned in section 13(5), this is omitted in section 34. Further, the use of the word 'only' in section 34(2) has created a doubt. It is, therefore, proposed to add an Explanation below section 34(2) as follows by way of clarification:-

In sub-section (2), the 'Explanation' shall be numbered as 'Explanation 1' and after the Explanation 1 so renumbered, the following Explanation shall be inserted ,namely:-

"Explanation.- II For the removal of doubts, it is hereby declared that while seeking to set aside an arbitral award under sub-section (1), the applicant may include the pleas questioning the decision of the arbitral tribunal rejecting -

(i) a challenge made under sub-section (2) of section 13;

(ii) the plea made under sub-section (2) or sub-section (3) of section 16."

2.10.2 Now the question is whether it is desirable to provide for an immediate appeal to the Court under sec. 37 against the decision of arbitral tribunal rejecting the plea of bias or disqualification or whether such challenge can only be after the award?

In case any challenge to the decision rejecting the plea of bias or disqualification is to be provided, should it be said in sec. 13(4) that pending the decision in the Court, the arbitral tribunal 'may' go ahead with the arbitral proceedings, by replacing the word 'shall'. The English Act, 1996 does not contain any provision for challenging an arbitral tribunal before the same tribunal and a decision thereon.

On the other hand it provides in sec.24 a procedure before the Court for removal of the arbitral tribunal. The Model Law and the 1996 Act do not provide any direct approach to the Court for removal of arbitrators. The Model Law in Art. 13 provides for an immediate appeal against an interlocutory order of the arbitral tribunal rejecting a plea of bias or disqualification, while the said remedy is omitted in the 1996 Act in sec. 13 as well as in sub section (2) of sec. 37.

2.10.3 A plea that sec.13(4) is arbitrary or discriminatory in not providing for any appeal under sec.34 or sec.37, when the plea of bias or disqualification is rejected, has been negatived in M. Mohan Reddy vs. UOI (2000(1) Arb L.R. 39 (AP). A writ petition challenging the appointment of an arbitrator was held not maintainable in view of the procedure under the Act (See Punjab Elect. Board vs. Indane Ltd.) (2000(1) Pun L.R.4).

The Bombay High Court has held in Kitiku Imports Trade Pvt. Ltd. vs. Savithri Metals Ltd. (1999(2) Ab. L.R. 405) that the only remedy where the plea of bias is rejected is to wait till the award is passed and then challenge the award and that the spirit and scheme of the Act is not to permit any immediate intervention by the Court for that would result in stay of proceedings. Of course, in Anup Tech. Equipment P. Ltd. vs. Ms. Ganpati Coop. Housing Society (AIR 1999 Bom 219) it was held by the same court that the arbitral tribunal's decision can be challenged under Art. 226.

It is not possible for us to agree with this decision of Bombay High Court in Anup Technical Equipment (P) Ltd. case. In various discussions on the Consultation Paper with retired Judges and lawyers, two extreme views emerged, one view stating that it would be waste of money and time if there is no immediate appeal and if the award is ultimately set aside. The other view, equally vehement, was that any immediate court interference would be abused by filing frivolous objections against the award.

The first view is supported by the fact that there is a similar provision in the Model Law and there is also no provision for removal. Even sec.15 does not cover such a situation. It is true, the Model Law provides in Art.13(3) an immediate right of appeal and the challenge to the arbitrator's decision on bias can be made in the Court within 30 days. It also says that the decision of the Court is not to be subject to further appeal. While the request in the Court is pending, the arbitral tribunal (including the challenged arbitrator) 'may' continue the arbitral proceedings and make an award.

In the Consultation Paper (Annexure -II), this provision was proposed to be added in sec.37 and also that the word 'shall' in sec.13(4) be replaced by the word 'may'. It has been suggested by the proponents of 'no immediate appeal' that even if the word shall is replaced by 'may' in sec.13(4) that may not solve the problem in as much as the arbitral tribunal may in most cases decide not to go ahead when its decision is under challenge.

On the other hand, there have been articles in Indian legal journals strongly suggesting that 'bias' is so crucial a matter which cannot be allowed to remain unchallenged immediately. It is true that several countries have adopted the Model Law providing immediate appeal against an order rejecting a plea of bias and also in using the word 'may' in relation to continuance of proceedings by the arbitral tribunal (See sec.1037(3) of German Arbitration Act, 1998, sec.13(2) of Schedule to the Australian Act, Art. 13(3) of the Canadian Act, 1985, Art. 13(3) of the Schedule to the Ireland Act, 1998, Art. 1393 of the first schedule of the New Zealand Act, 1999).

The UN Commission in its Report (1985) on the adoption of the Model Law also considered this question elaborately (see paras 121 to 134) and finally came to the conclusion that if the plea of bias is rejected, there must be an immediate appeal. It considered different alternatives. It considered (in para 122) the plea that if Art. 13(3) is deleted, it would 'reduce the risk of dilatory tactics'. It also considered pleas that, at any rate, Art. 13(3) may be restricted to cases of a single arbitrator or a majority against whom a plea of bias was raised.

Another suggestion was that it should be left to the tribunal whether to permit immediate Court intervention or not, when a plea of bias was refused. On the other hand, there were suggestions (para 123) that pending court decision, the arbitral tribunal should not be allowed to go ahead since such 'continuation would cause unnecessary waste of time and costs if the court later sustained the challenge or that it should not go forward if the court granted a stay'.

After considering all these suggestions the UN Commission observed that the 'prevailing view, however, was to retain the system adopted in Art. 13 of the Model Law since it would strike an apparent balance between the need for preventing obstruction or dilatory tactics and the desire of avoiding waste of time and money. Before us reliance was also placed on the opinion of certain writers for providing an immediate appeal. Mr. Aron Broches, Kluwer in the Commentary on UNCITRAL Model Law, 1990 has no doubt said:

"At the Working Group's fourth session, a resolution was adopted which, on the one hand, permitted immediate recourse to the Court, with the attendant risk that such recourse may be used a delaying tactic and, on the other hand, permitted (but did not oblige) the arbitral tribunal to continue the arbitral proceedings.

This enables the tribunal either to limit the adverse effects on an unjustified challenge for dilatory purposes by continuing the proceedings, or to suspend the proceedings where it considers that the interest of the parties is best served by getting the challenge question out of the way rather than letting them run the risk of waste of time and money on an award which may ultimately be set aside under article 34."

Adverting to the US procedure (which is not UNCITRAL except in some states) where immediate intervention in matters where a plea of bias is rejected, Redfern and Hunter say that there the procedure is unsatisfactory as parties are not allowed to challenge the decision till the award is made. They have mentioned this in para 4.65 referring to Florsynth Inc. vs. Rickhote (750 F.2d. 171(1984), Hunt vs. Mobil Oil Corpn. (583F. Suppl.1092(1984) and Morelite Construction Corp. vs. New York City District Carpenters benefit Funds, 748.F 2d.79 (1984), as follows:

"This means that a party with a valid objection to the composition of the tribunal would have to make an objection "on the record" and then wait until the end of the case before challenging the award (with the attendant waste of time and money if the challenge is successful)". In this context, they have suggested as follows (para 5.42):

"Usually the appropriate course for an arbitral tribunal is to issue an interim award on jurisdiction, if asked to do so. This enables the parties to know where they stand at an early stage; and it will save them spending time and money on arbitral proceedings that prove to be invalid."

While the above argument in favour of providing an immediate appeal under sub section (2) of sec. 37 against an order of the arbitral tribunal refusing a plea of bias or disqualification is strong and it will be rather unfortunate if one has to question the rejection of the plea only after the award is passed, the Commission feels that if an immediate appeal is provided, the party who wants to delay the arbitral proceedings will, in almost every case, file an objection before the arbitral tribunal pleading bias or other disqualification even at the commencement of the proceedings, and then file an appeal under sec. 37(2).

There is indeed a lot of scope for abuse. Even if we say that pending the appeal, the arbitral proceedings may be continued, still the arbitral tribunal, in most cases, may be inclined to wait the result of the appeal. After due deliberation, the Commission is of the opinion that there should not be an immediate right of appeal under sec. 37 where the plea of bias or disqualification raised under sec. 13 is rejected by the arbitral tribunal. Hence, no amendment is contemplated in section 37(2) for the above situation arising under sec. 13.



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