Disclosure By The Arbitrator Is Not A Discretionary But A Mandatory Requirement, Non-Disclosure Vitiates The Award: Delhi High Court

The bench of Justices Vibhu Bakhru and Amit Mahajan set aside an arbitral award passed without the arbitrator making the necessary disclosure. The Court held that disclosure is a necessary safeguard to ensure the integrity and efficacy of arbitration, therefore, the same cannot be an option but an obligation.

The Court held that the onus of disclosing the necessary information is on the arbitrator itself and a party cannot be precluded from challenging the award on the ground that it did not raise any such challenge before the arbitrator itself.

The Court also reiterated that an award passed by the unilaterally appointed arbitrator is non est in law.

Facts

The parties entered into a loan-cum-hypothecation agreement dated 12.03.2015. A dispute arose between the parties when the appellants failed to repay the loan amount and defaulted on the monthly instalments. Accordingly, the respondent invoked the arbitration clause and unilaterally appointed the sole arbitrator.

The arbitrator did not make the necessary disclosure and proceeded to decide the dispute between the parties. The arbitrator awarded a sum of Rs. 4,01,987/- in favour of the respondents. Aggrieved by the award, the appellant challenged it under Section 34 of the A&C Act, particularly on the ground of unilateral appointment of arbitrator and non-disclosure of the fact regarding his appointment in the previous arbitrations by the respondents.

The Commercial Court rejected the challenge to the award and held that the arbitrator was required to disclose only those facts which in his opinion gave justifiable doubt as to his independence and impartiality, moreover, the non-disclosure of such facts is not a ground to set aside an arbitral award. It held that non-disclosure of grounds mentioned under 5^th Schedule cannot vitiate the arbitral proceedings or the award.

Aggrieved by the impugned order, the appellant challenged it under Section 34 of the A&C Act.

Contention of the Parties

The appellant challenged the award as well as the impugned order on the following grounds:

• The arbitrator was unilaterally appointed by the respondents, therefore, the award passed by him is non est in law.
• The arbitrator is a panel arbitrator with the respondents and has acted in numerous arbitrations for them, therefore, his appointment was against entry 22 of the 5^th Schedule.
• The arbitrator failed to give the mandatory disclosure as a sequitur, the award passed by him is a nullity.

The respondents raised the following counter-arguments:

• The ground of challenge is related to the number of previous instances wherein the arbitrator has acted as the arbitrator for the respondents, however, the same falls within 5^th Schedule of the Act which does not necessarily leads to the disqualification of the arbitrator, therefore, the arbitral award cannot be challenged on non-compliance of disclosure of an entry mentioned under the 5^th Schedule.
• The appellants failed to raise any objection before the arbitrator, therefore, they cannot challenge the award on that ground under Section 34 of the Act.

Analysis by the Court

The Court observed that admittedly, the arbitrator has been appointed by the respondents as the arbitrator on a number of occasions in the last three years, therefore, within the meaning of Entry 22 of the 5^th Schedule, there arises a reasonable ground as to his independence and impartiality.

The Court held that as per Section 12 of the Act, it is mandatory for the arbitrator to disclose any fact that is likely to give rise as to his independence or impartiality. The Court held that disclosure by the arbitrator under Section 12 r/w 6^th Schedule of the A&C Act is not a discretionary but a mandatory requirement. The Court held that failure of the arbitrator to disclose a fact that might give rise to a justifiable doubt as to his impartiality vitiates the arbitral proceedings as well as the consequent award.

The Court held that disclosure is a necessary safeguard to ensure the integrity and efficacy of arbitration, therefore, the same cannot be an option but an obligation.

The Court held that the onus of disclosing the necessary information is on the arbitrator itself and a party cannot be precluded from challenging the award on the ground that it did not raise any such challenge before the arbitrator itself.

The Court observed that admittedly, the arbitrator was unilaterally appointed by the respondents, therefore, his appointment was in contravention of Section 12(5) of the Act.

Accordingly, the Court set aside the order of the Commercial Court as well as the arbitral award.

Case Title: Ram Kumar v. Shriram Transport Finance Co. Ltd. FAO (COMM.) 60 of 2021.

Citation: 2022 LiveLaw (Del) 1153

Counsel for the Appellants: Appellant in Person

Counsel for the Respondent: Mr. Suraj Kumar Singh, Mr. Bharat Singh and Mr. Devesh Gupta, Advocates.

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