Abhishek Agarwal v. Union of India & Anr

5. In sum and substance, it is the case of the Petitioner that since the Centre is going to discharge functions of great judicial importance it must be insulated from political and other influences to ensure it is an independent and impartial body. The Petitioner states that the Centre predominantly consists of employees of Central Government. He, therefore, contends that such Members of the Centre cannot make a panel of Arbitrators, where one of the two litigants will be the Central Government itself. It is stated that if such Government representatives are be permitted to appoint their representatives as Arbitrators it will raise an apprehension of bias thereby vitiating the process. On the basis of this, the Petitioner has challenged Section 5 on the ground that it is violative of Section 12(3)(a) of the Arbitration and Conciliation Act, 1996 Act (‘Arbitration Act’), which deals with the independence and impartiality of arbitrators.

6. Per contra, it has been argued on behalf of the Union that the Central Government has not earmarked any role for itself in running the panel of arbitrators, and the Government's role is mainly concerned with providing infrastructure and certain funds to the Centre. In support of this argument the Union, in its counter, has placed reliance upon various provisions of the Act to highlight how the financial, and administrative independence of the Centre is ensured.

7. Heard the Counsel for the Petitioner and Respondents and perused the material on record.

8. An act promulgated by the Legislature cannot be declared unconstitutional lightly, as there exists a strong presumption of constitutionality in favour of it. This Court needs to be certain that the violation of constitutional provisions is so glaring that legislative competence does not stand. A legislation is typically challenged on two grounds: that the legislation violates fundamental rights and on the ground of legislative incompetence or that it is manifestly arbitrary.

9. In the present case, the Petitioner has sought to challenge Section 5 of the Act on the ground that it violates principle of judicial independence.

10. The Impugned Section deals with the composition of the Centre. It states that the members of the Centre would range from retired judges of the Supreme Court of India and High Courts to Secretary of the Department of Legal Affairs, Ministry of Law and Justice or even their representative. These members are supposed to fulfil various important tasks such as promoting alternate modes of dispute resolution, and pertinently, will maintain panels of accredited arbitrators. The creation, and maintenance of this Panel has been dealt with under Section 28 of the Act. Section 28 states that the Centre will establish a ‘Chamber of Arbitration’, consisting of experienced arbitration practitioners, which will empanel and scrutinise the applications for empanelment. Hence, it appears that the Centre is not responsible for the creation of the panel, it will only create the ‘Chamber of Arbitration’, which consists of reputed and well-established arbitrators themselves. This insulates the panel from the influence of the members of the Centre, some of whom would have been nominated by the Central Government. Furthermore, even though the centre would lay down the criteria for empanelment by virtue of Section 28(3) of the Act, Section 32 categorically states that such rules would be placed before both houses of the parliament for 30 days for its approval or modification accordingly. This implies that even the criteria for empanelment would be subjected to legislative scrutiny and approval.

11. It is well settled that a mere apprehension that the Centre, which consists of majority of nominees of Government, will appoint such arbitrators who will have interest in Government which will result in bias and is not well found. A mere apprehension that the Act is capable of being misused is no ground to striking down the vires of the Act. It is now trite law that sweeping attacks made on the likelihood of misuse of a Statute, in the future, cannot possibly succeed. The occasion to complain only arises when such alleged misuse occurs. (Refer to:Indira Nehru Gandhi v. Raj Narain, 1975 Supp SCC 1;Dr B.N. Khare v. State of Delhi, AIR 1950 SC 211; State of W.B. v. Anwar Ali Sarkar, (1952) 1 SCC 1; R.K. Dalmia v. Justice Tendolkar, AIR 1958 SC 538; T.K. Musaliar v. Venkitachalam, AIR 1956 SC 246; Chitralekha v. State of Mysore, AIR 1964 SC 1823; M.R. Deka v. N.E.F. Rly, AIR 1964 SC 600].

12. In the present case, if such misuse is to arise in the future, the Arbitration Act, 1996 ensures there are remedies. Explanation to Section12(1)(b) of the Arbitration and Conciliation Act mandates an Arbitrator to disclose 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 the independence or impartiality of the Arbitrator. The Hon’ble Supreme Court in HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471, expansively went through the provisions of the Section and Schedule and observed as under: -

60. The Commission, however, feels that real and genuine party autonomy must be respected, and, in certain situations, parties should be allowed to waive even the categories of ineligibility as set in the proposed Fifth Schedule. This could be in situations of family arbitrations or other arbitrations where a person commands the blind faith and trust of the parties to the dispute, despite the existence of objective “justifiable doubts” regarding his independence and impartiality. To deal with such situations, the Commission has proposed the proviso to Section 12(5), where parties may, subsequent to disputes having arisen between them, waive the applicability of the proposed Section 12(5) by an express agreement in writing. In all other cases, the general rule in the proposed Section 12(5) must be followed. In the event the High Court is approached in connection with appointment of an arbitrator, the Commission has proposed seeking the disclosure in terms of Section 12(1) and in which context the High Court or the designate is to have “due regard” to the contents of such disclosure in appointing the arbitrator.” (emphasis in original)

14. The enumeration of grounds given in the Fifth and Seventh Schedules have been taken from the IBA Guidelines, particularly from the Red and Orange Lists thereof. The aforesaid guidelines consist of three lists. The Red List, consisting of non-waivable and waivable guidelines, covers situations which are “more serious” and “serious”, the “more serious” objections being non-waivable. The Orange List, on the other hand, is a list of situations that may give rise to doubts as to the arbitrator's impartiality or independence, as a consequence of which the arbitrator has a duty to disclose such situations. The Green List is a list of situations where no actual conflict of interest exists from an objective point of view, as a result of which the arbitrator has no dutyof disclosure. These Guidelines were first introduced in the year 2004 and have thereafter been amended, after seeing the experience of arbitration worldwide. In Part 1 thereof, general standards regarding impartiality, independence and disclosure are set out… *****

20. However, to accede to Shri Divan's submission that because the grounds for challenge have been narrowed as aforesaid, we must construe the items in the Fifth and Seventh Schedules in the most expansive manner, so that the remotest likelihood of bias gets removed, is not an acceptable way of interpreting the Schedules. As has been pointed out by us hereinabove, the items contained in the Schedules owe their origin to the IBA Guidelines, which are to be construed in the light of the general principles contained therein—that every arbitrator shall be impartial and independent of the parties at the time of accepting his/her appointment. Doubts as to the above are only justifiable if a reasonable third person having knowledge of the relevant facts and circumstances would reach the conclusion that there is a likelihood that the arbitrator may be influenced by factors other than the merits of the case in reaching his or her decision. This test requires taking a broad commonsensical approach to the items stated in the Fifth and Seventh Schedules. This approach would, therefore, require a fair construction of the words used therein, neither tending to enlarge or restrict them unduly. It is with these prefatory remarks that we proceed to deal with the arguments of both sides in construing the language of the Seventh Schedule.

13. It appears that the Schedules deal with bias of all nature and magnitude and has in fact been modelled after the International Bar Association Guidelines. Furthermore, as laid down in HRD Corpn., the conditions in the Schedules are not to be read so expansively as to include even the remotest likelihood of bias. In view of the mandate under the Act, the apprehension of the Petitioner is completely ill found.

14. A perusal of the scheme of the Act indicates that Section 18 of the Act provides for removal of members of the Centre. Under this Section, members of the Centre can only be removed if the Supreme Court, on a reference being made to it in this behalf by the Central Government, has reported that the Member, ought to be removed. This further ensures that the members of the Centre are insulated from the influence of the Central Government. The relevant Section reads as under: -

15. The financial independence of the Centre is ensured under Section 25 of the Act, which allows the Centre to draw salaries and fulfil other financial obligations from the fund that Centre needs to maintain. This indicates that the Centre is not solely dependent on the Central Government for its functioning. The following Section reads as under: -

25. (1) The Centre shall maintain a Fund to which shall be credited— (a) all monies provided by the Central Government; (b) all fees and other charges received during or in connection with the arbitration, conciliation, mediation or other proceedings;

(c) all monies received by the Centre for the facilities provided by it to the parties;

(d) all monies received by the Centre in the form of donations, grants, contributions and income from other sources; and the amount received from the investment income. (2) All monies credited to the Fund shall be deposited in such banks or invested in such manner as may be decided by the Centre. xxx (5) The Fund shall be applied towards meeting the salary and other allowances of Members and the expenses of the Centre including expenses incurred in the exercise of its powers and discharge of its duties under this Act. (emphasis supplied)

16. In light of the foregoing, it is evident that the Act has inbuilt safeguards to ensure financial and administrative independence of the Centre.

17. Furthermore, the principles governing arbitral independence under the Arbitration Act have been delineated in Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn. Ltd., (2017) 4 SCC 665. In this case, the Hon’ble Supreme Court adjudged the propriety of the State creating a panel of arbitrators for a proceeding it was a party to. While upholding the validity of such a panel, the Supreme Court held as under: - “30. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broad based panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broad based panel on the aforesaid lines, within a period of two months from today.” (emphasis supplied)

18. In the present case, even if the State is one of the parties, the other party would have an entire broad-based panel to pick their arbitrator from, thus dispelling any apprehension of bias.

19. We cannot lose sight of the fact that there is an urgent need of a credible institutional arbitration centre in India, akin to other jurisdictions such as the Singapore International Arbitration Centre, Hong Kong International Arbitration Centre, and London Court of International Arbitration. These internationally renowned centres are also run with the involvement of their governments respectively. The ‘High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India’, presided over by Justice B. N. Srikrishna, which pointed deficiencies in the pre-existing institutional arbitration landscape and specifically stated the same could be remedied if the Government of India provided institutional backing to an institutional arbitration. Hence, the mere involvement and support of the Government of India does not by itself raise apprehension of bias and impartiality. Furthermore, the Law Commission of India in its 246th Report, while pointing out the importance of institutional arbitration has also stated that recommended that the Government ought to provide land and funds for institutional arbitration to flourish in India. The following was stated:-

20. In light of the scheme of the Act, it is evident that although the Government shall appoint certain members to the Centre, such members have very little to do with the panel of arbitrators. Such panel of arbitrators will be created by a ‘Chamber of Arbitration’, consisting of experienced arbitration practitioners, in accordance with regulations, which would have been accorded legislative assent as well. At this point, we may also mention that the retired judges of various High Courts and the Hon’ble Supreme Court are also supposed to be members of the Centre, which would further lend credence to its impartiality. Due to this, it appears that the Petitioner has moved this Writ Petition on the basis of a simple apprehension or a suspicion of bias, which is ill-founded and without any basis.

21. The apprehension of the Petitioner for the independence of the arbitrators is misconceived. The Petitioner has failed to place on record any material to indicate that the panel of arbitrators would be tainted by bias, this Court does not find the Impugned Section unconstitutional, as being violative of either the basic structure or Section 12(3) of the Arbitration Act.

22. In light of this, the instant Writ Petition is dismissed, along with pending applications, if any.

SATISH CHANDRA SHARMA, C.J. SUBRAMONIUM PRASAD, J DECEMBER 09, 2022 hsk/Sh