Baseless Allegations By Parties U/s 13(2), A&C Act Needlessly Tarnishes Reputation Of Arbitrators: Himachal Pradesh High Court

Section 13(2) of the Arbitration and Conciliation Act, 1996 pertains to the procedure for challenging an Arbitrator. It states that a party who becomes aware of any circumstances that may give rise to justifiable doubts regarding the impartiality or independence of an Arbitrator, or if circumstances exist that may disqualify the Arbitrator as agreed upon by the parties, must communicate those concerns in writing to the Arbitrator. This allows the Arbitrator the opportunity to respond to the allegations and defend their position before any further action is taken.

Brief Facts:

The Himachal Pradesh High Court (“High Court”) appointed an arbitrator to resolve the dispute between the Petitioners and the Respondents. Following this, the Arbitrator fulfilled the requirement of submitting a declaration under Section 12 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Notices were issued to the concerned parties on the same date for appearance before the Arbitrator, with the parties appearing on February 9, 2023. Statement of claims and defense were also filed by the respective Respondents and Petitioners.

While the arbitral proceedings were going, the Petitioners filed an application under Section 14 of the Arbitration Act in the High Court. They raised concerns regarding a purported relationship between one of the Respondents and the Arbitrator, without specifying details. They argued that this alleged relationship hindered the Arbitrator's impartiality and thus compromised the arbitration process, referring to Section 14 of the Arbitration Act in conjunction with the 7th Schedule of the Arbitration Act.

Observations by the High Court:

The High Court noted that the Petitioners failed to communicate their apprehensions regarding the Arbitrator's impartiality directly to the Arbitrator which is mandated by Section 13(2) of the Arbitration Act. It held that the Arbitrator was not given an opportunity to address or refute the claims made against him by the Petitioners.

The High Court held that there is an unfortunate tendency of parties to impugn the motives of Arbitrators without affording them the opportunity, as mandated by Section 13(2) of the Arbitration Act, to refute such allegations. The High Court held that such baseless accusations could needlessly tarnish the reputation of Arbitrators and undermine the arbitration process. The High Court highlighted the importance of upholding procedural fairness and cautioned against prematurely assuming the disqualification of an Arbitrator without allowing them to address the allegations raised against them.

The High Court noted that the Arbitrator decided to withdraw from the proceedings. However, it emphasized that parties should not unilaterally presume an Arbitrator's disqualification under the 7th Schedule of the Arbitration Act and approach the court without first providing the Arbitrator with the opportunity to respond.

Furthermore, the High Court expressed concern about the potential ramifications of subjecting Arbitrators, especially retired High Court Judges, to unwarranted challenges to their reputation in court. Such actions, the High Court warned, could embolden unscrupulous litigants to manipulate the arbitration process by levying unfounded allegations against Arbitrators, thereby causing unnecessary embarrassment and disruption.

In light of the Arbitrator's decision to step down and the need to resolve the dispute between the parties, the High Court appointed Justice B.S. Walia, a former Judge of the Punjab and Haryana High Court, as the new Arbitrator.

Case Title: Pawan Sahni & others vs Satish Sharma & others

Citation: 2024 LiveLaw (HP) 16

Case Number: Arb. Case No. 923 of 2023

Advocate for the Petitioners: Mr. Navneet Kumar Bhalla, Advocate.

Advocate for the Respondent: Mr. Sudhir Thakur, Senior Advocate with Mr. Karun Negi, Advocate, for respondents no. 1 & 2. Mr. Neeraj Gupta, Senior Advocate with Ms. Parul Negi, Advocate, for respondent no. 5.

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