APPOINTMENT OF ARBITRATOR AS PER THE ARBITRATION AND

CONCILIATION (AMENDMENT) ACT 2015

Dr K M Soni, Chief Engineer, CPWD

Mumbai

Disputes & their Resolution

• Part of Life so also part of works contracts

• Avoid the disputes

• Should be resolved at first instance by the parties involved

• Through Conciliation

• Through Arbitration

• Rarely through Courts

CONCILIATION

ARBITRATION

COURT PROCEEDINGS

Cost effective

MUTUAL CONSENT

AVOID DISPUTE

Most

Least

Arbitration

• Needs speedy and economic resolution

• Justified resolution

– Through independent arbitration

– Through impartial arbitration

ARBITRATION

SPEEDY

ECONOMICJUSTIFIED

Speedy resolution

• Probable Reasons for Delay– No Time Limit

– Large number of cases with an arbitrator

– Delay in submission of documents

– Delay by the parties or their legal counsels

– No cap on fee

• New code provides for;– Time limit for arbitration

(12 months from the entering upon the reference)

– Additional fee for award within 6 months

– Termination of arbitration in case of delay

– Cap on number of arbitration cases

– Provision of fast track arbitration

Time limit• The award shall be made within a period of twelve months

from the date the arbitral tribunal enters upon the reference.(Reference means the date on which the arbitrator/all thearbitrators have received notice, in writing, of theirappointment)

• The parties may, by consent, extend the period specified formaking award for a further period not exceeding six months.

• If the award is not made within the period specified or theextended period specified, the mandate of the arbitrator(s)shall terminate unless the Court has extended the periodProvided that while extending the period, if the Court findsthat the proceedings have been delayed for the reasonsattributable to the arbitral tribunal, then, it may orderreduction of fees of arbitrator(s) by not exceeding five percent for each month of such delay.

Time limit

• If the award is made within a period of sixmonths from the date the arbitral tribunalenters upon the reference, the arbitraltribunal shall be entitled to receive suchamount of additional fees as the parties mayagree.

Fast Track Procedure• The parties, while agreeing for resolution of dispute by fast track

procedure, may agree that the arbitral tribunal shall consist of a solearbitrator, chosen by the parties.

• The arbitral tribunal shall follow the following procedure whileconducting arbitration proceedings;

• (a) shall decide the dispute on the basis of written pleadings, documentsand submissions filed by the parties without any oral hearing;

• (b) shall have power to call for any further information/clarification fromthe parties in addition to the pleadings and documents filed by them;

• (c) An oral hearing may be held only, if, all the parties make a request orif the arbitrator considers it necessary for clarifying certain issues;

• (d) may dispense with any technical formalities in oral hearing and adoptprocedure as deemed appropriate for expeditious disposal of the case.

• (e) The award under this section shall be made within a period of sixmonths from the date the arbitral tribunal enters upon the reference.

Economic

• If made within reasonable time, it iseconomic as it saves

– Cost of proceedings

– Cost of individual timings

– Indirect costs

– ------------

Justified =Independent and impartial

arbitration

Just Arbitration

Arbitration

Arbitrator

Qualification and relations with the

parties

Parties

Counsels

Arbitrator

• As per section 12 of the Act “The Chief Justice orthe person or institution designated by him, inappointing an arbitrator, shall have due regardto-

(a) Any qualifications required of the arbitratorby the agreement of the parties; and

(b) Other considerations as are likely to securethe appointment of an independent andimpartial arbitrator

Need of Technical Arbitrators

• Main purpose of appointing arbitrator havingdesired qualification is that he/she wouldunderstand the intricacies of the disputesincluding their implications, analysis of theitems under disputes with respect to the periodduring which the dispute arose and clauses ofthe contract. Thus an engineer who hasexperience of contract management byprofession can handle such disputes easily andalso in right perspective.

Need of Technical Arbitrators

The disputes in works contracts arise at thefollowing stages;

• Before award of work

• On award of work

• During execution

• After completion of work

Independent & impartial arbitrator and ineligibility

• The grounds stated in the Fifth Schedule shallguide in determining whether circumstancesexist which give rise to justifiable doubts asto the independence or impartiality of anarbitrator

• Ineligibility for appointment in the new Act(The Seventh Schedule)

The Fifth Schedule

1. Arbitrator’s relationship with the parties or counsel

2. Relationship of the arbitrator to the dispute

3. Arbitrator’s direct or indirect interest in the dispute

4. Previous services for one of the parties or otherinvolvement in the case

5. Relationship between an arbitrator and anotherarbitrator or counsel

6. Relationship between arbitrator and party andothers involved in the arbitration

7. Other circumstances

Independent and impartial arbitration

Parties/Counsels

• Present and Pastrelationship of theArbitrator with the partiesand their counsels

• Financial Relations of theArbitrator in terms ofshares with any party

• Relations of close familymembers of the arbitratorwith any one of the party

Arbitrator• Disclosure as are likely to secure

the appointment (a) such as theexistence either direct or indirect,of any past or present relationshipwith or interest in any of theparties or in relation to thesubject-matter in dispute,whether financial, business,professional or other kind, whichis likely to give rise to justifiabledoubts as to his independence orimpartiality; and (b) which arelikely to affect his ability to devotesufficient time to the arbitrationand in particular his ability tocomplete the entire arbitrationwithin a period of twelve months.

The fifth scheduleThe following grounds give rise to justifiable doubts as to the independence or

impartiality of arbitrators:Arbitrator’s relationship with the parties or counsel1. The arbitrator is an employee, consultant, advisor or has any other past or present

business relationship with a party.2. The arbitrator currently represents or advises one of the parties or an affiliate of

one of the parties.3. The arbitrator currently represents the lawyer or law firm acting as counsel for one

of the parties.4. The arbitrator is a lawyer in the same law firm which is representing one of the

parties.5. The arbitrator is a manager, director or part of the management, or has a similar

controlling influence, in an affiliate of one of the parties if the affiliate is directlyinvolved in the matters in dispute in the arbitration.

6. The arbitrator’s law firm had a previous but terminated involvement in the casewithout the arbitrator being involved himself or herself. Insertion of new FourthSchedule, Fifth Schedule, Sixth Schedule and Seventh Schedule.

7. The arbitrator’s law firm currently has a significant commercial relationship withone of the parties or an affiliate of one of the parties.

The fifth schedule

8. The arbitrator regularly advises the appointing party or an affiliate of theappointing party even though neither the arbitrator nor his or her firm derives asignificant financial income there from.9. The arbitrator has a close family relationship with one of the parties and in the caseof companies with the persons in the management and controlling the company.10. A close family member of the arbitrator has a significant financial interest in oneof the parties or an affiliate of one of the parties.11.The arbitrator is a legal representative of an entity that is a party in the arbitration.12. The arbitrator is a manager, director or part of the management, or has a similarcontrolling influence in one of the parties.13. The arbitrator has a significant financial interest in one of the parties or theoutcome of the case.14. The arbitrator regularly advises the appointing party or an affiliate of theappointing party, and the arbitrator or his or her firm derives a significant financialincome there from. Relationship of the arbitrator to the dispute

The fifth schedule15. The arbitrator has given legal advice or provided an expert opinion on thedispute to a party or an affiliate of one of the parties.16. The arbitrator has previous involvement in the case. Arbitrator’s direct orindirect interest in the dispute17. The arbitrator holds shares, either directly or indirectly, in one of the parties oran affiliate of one of the parties that is privately held.18. A close family member of the arbitrator has a significant financial interest inthe outcome of the dispute.19. The arbitrator or a close family member of the arbitrator has a closerelationship with a third party who may be liable to recourse on the part of theunsuccessful party in the dispute. Previous services for one of the parties or otherinvolvement in the case20. The arbitrator has within the past three years served as counsel for one of theparties or an affiliate of one of the parties or has previously advised or beenconsulted by the party or an affiliate of the party making the appointment in anunrelated matter, but the arbitrator and the party or the affiliate of the party haveno ongoing relationship.

The fifth schedulejustifiable doubts as to the independence or impartiality

21. The arbitrator has within the past three years served as counsel against one of theparties or an affiliate of one of the parties in an unrelated matter.22. The arbitrator has within the past three years been appointed as arbitrator on two ormore occasions by one of the parties or an affiliate of one of the parties.23. The arbitrator’s law firm has within the past three years acted for one of the parties oran affiliate of one of the parties in an unrelated matter without the involvement of thearbitrator.24. The arbitrator currently serves, or has served within the past three years, as arbitratorin another arbitration on a related issue involving one of the parties or an affiliate of oneof the parties.Relationship between an arbitrator and another arbitrator or counsel25. The arbitrator and another arbitrator are lawyers in the same law firm.26. The arbitrator was within the past three years a partner of, or otherwise affiliatedwith, another arbitrator or any of the counsel in the same arbitration.27. A lawyer in the arbitrator’s law firm is an arbitrator in another dispute involving thesame party or parties or an affiliate of one of the parties.

The fifth schedule

• 28. A close family member of the arbitrator is a partner oremployee of the law firm representing one of the parties,but is not assisting with the dispute.

• 29. The arbitrator has within the past three years receivedmore than three appointments by the same counsel or thesame law firm. Relationship between arbitrator and partyand others involved in the arbitration

• 30. The arbitrator’s law firm is currently acting adverse toone of the parties or an affiliate of one of the parties.

• 31. The arbitrator had been associated within the pastthree years with a party or an affiliate of one of theparties in a professional capacity, such as a formeremployee or partner.

The fifth schedule

Other circumstances• 32. The arbitrator holds shares, either directly or

indirectly, which by reason of number ordenomination constitute a material holding in one ofthe parties or an affiliate of one of the parties that ispublicly listed.

• 33. The arbitrator holds a position in an arbitrationinstitution with appointing authority over thedispute.

• 34. The arbitrator is a manager, director or part of themanagement, or has a similar controlling influence, inan affiliate of one of the parties, where the affiliate isnot directly involved in the matters in dispute in thearbitration.

The fifth schedule

• Explanation 1.—The term “close family member” refers toa spouse, sibling, child, parent or life partner.

• Explanation 2.—The term “affiliate” encompasses allcompanies in one group of companies including theparent company.

• Explanation 3.—For the removal of doubts, it is clarifiedthat it may be the practice in certain specific kinds ofarbitration, such as maritime or commodities arbitration,to draw arbitrators from a small, specialised pool. If insuch fields it is the custom and practice for partiesfrequently to appoint the same arbitrator in differentcases, this is a relevant fact to be taken into account whileapplying the rules set out above.

1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship

with a party.

Business relation

• The connections that exit between entitiesinvolved in the business process. The termbusiness relations refers to the connectionsformed between various stakeholders in thebusiness environment, including relationsbetween employers and employees, employersand business partners, and all the companieswith which a company is associated.

Business relation

• For example, one company's businessrelations may include a long list of customers,vendors, sales leads, potential customers,banks, stock brokers and any municipal, stateand federal governmental agencies.Essentially, business relations are all of theentities with which a business is connectedor expects to have a connection.

Business relation

• Employer and employee

• Employer and business partners

• Employer and legal experts

• Subsidiary companies

• Companies having business dealings

Arbitrator in CPWD/Government organisations

• A CPWD working employee on deputation to MoUD(Employee of a party, else have past business relationswith a party)

• A government employee other than CPWD working ondeputation to MoUD (has past business relations with aparty ?)

• A working government employee as arbitrator in someother organisation (Present business relations with a party?)

• A retired employee of CPWD (has past business relationswith a party ?)

• A retired employee of a central governmentorganisation/other government organisation (has pastbusiness relations with a party ?)

22. The arbitrator has within the past three years been appointed as

arbitrator on two or more occasions by one of the parties or an affiliate of

one of the parties.

Independence and impartiality

The following grounds give rise to justifiabledoubts as to the independence orimpartiality of arbitrators

• The arbitrator has within the past three yearsbeen appointed as arbitrator on two or moreoccasions ----

• So an arbitrator can be appointed only oncewithin three years for justifiable grounds ofindependence and impartiality by a party

Then who is the party?

Arbitrator

Party –I

(Private

Company)

Party-II

(Private

Company)

Arbitrator

Party –I

(Private

Company/contractor)

Party-II

(Government of

India/state

government)

Arbitrator

Party –I

(private

company/contractor)

Party-II

(PSU/Public

Company)

Party in Govt.

• Union of India

• CPWD

• Appointing authority

• Executive Engineer

---- appointed as arbitrator on two or more occasions by one of the parties ------

Appointing authority

• In CPWD General Conditions of Contracts normally Chief Engineer/ADG/SDG is the appointing authority

• In PSUs, normally CMD is the appointing authority

Appointed by the party

• Appointing authority to be defined in govt. organisations

Appointed by the party

• Appointing authority to be defined in a PSU

The Sixth schedule

• The disclosure shall be made by such personin the form specified in the Sixth Schedule.

• NAME: CONTACT DETAILS: PRIOR EXPERIENCE (INCLUDING EXPERIENCEWITH ARBITRATIONS): NUMBER OF ONGOING ARBITRATIONS:CIRCUMSTANCES DISCLOSING ANY PAST OR PRESENT RELATIONSHIPWITH OR INTEREST IN ANY OF THE PARTIES OR IN RELATION TO THESUBJECT-MATTER IN DISPUTE, WHETHER FINANCIAL, BUSINESS,PROFESSIONAL OR OTHER KIND, WHICH IS LIKELY TO GIVE RISE TOJUSTIFIABLE DOUBTS AS TO YOUR INDEPENDENCE OR IMPARTIALITY(LIST OUT): 14 THE GAZETTE OF INDIA EXTRAORDINARY [PART II—CIRCUMSTANCES WHICH ARE LIKELY TO AFFECT YOUR ABILITY TODEVOTE SUFFICIENT TIME TO THE ARBITRATION AND IN PARTICULARYOUR ABILITY TO FINISH THE ENTIRE ARBITRATION WITHIN TWELVEMONTHS (LIST OUT):

The Seventh schedule• Notwithstanding any prior agreement to the

contrary, any person whose relationship,with the parties or counsel or the subject-matter of the dispute, falls under any of thecategories specified in the Seventh Scheduleshall be ineligible to be appointed as anarbitrator:

• Provided that parties may, subsequent todisputes having arisen between them, waivethe applicability of this sub-section by anexpress agreement in writing.

The Seventh schedule

Arbitrator’s relationship with the parties or counsel1. The arbitrator is an employee, consultant, advisor or has any other

past or present business relationship with a party.2. The arbitrator currently represents or advises one of the parties or

an affiliate of one of the parties.3. The arbitrator currently represents the lawyer or law firm acting as

counsel for one of the parties.4. The arbitrator is a lawyer in the same law firm which is

representing one of the parties.5. The arbitrator is a manager, director or part of the management,

or has a similar controlling influence, in an affiliate of one of theparties if the affiliate is directly involved in the matters in disputein the arbitration.

6. The arbitrator’s law firm had a previous but terminatedinvolvement in the case without the arbitrator being involvedhimself or herself.

The Seventh schedule7. The arbitrator’s law firm currently has a significant commercial

relationship with one of the parties or an affiliate of one of theparties.

8. The arbitrator regularly advises the appointing party or an affiliateof the appointing party even though neither the arbitrator nor hisor her firm derives a significant financial income there from.

9. The arbitrator has a close family relationship with one of theparties and in the case of companies with the persons in themanagement and controlling the company.

10. A close family member of the arbitrator has a significant financialinterest in one of the parties or an affiliate of one of the parties.

11. The arbitrator is a legal representative of an entity that is a partyin the arbitration.

12. The arbitrator is a manager, director or part of the management,or has a similar controlling influence in one of the parties.

The Seventh schedule

13. The arbitrator has a significant financial interest in one of the parties orthe outcome of the case.

14. The arbitrator regularly advises the appointing party or an affiliate ofthe appointing party, and the arbitrator or his or her firm derives asignificant financial income therefrom. Relationship of the arbitrator tothe dispute

15. The arbitrator has given legal advice or provided an expert opinion onthe dispute to a party or an affiliate of one of the parties.

16. The arbitrator has previous involvement in the case. Arbitrator’s director indirect interest in the dispute

17. The arbitrator holds shares, either directly or indirectly, in one of theparties or an affiliate of one of the parties that is privately held.

18. A close family member of the arbitrator has a significant financialinterest in the outcome of the dispute.

19. The arbitrator or a close family member of the arbitrator has a closerelationship with a third party who may be liable to recourse on the partof the unsuccessful party in the dispute.

The Seventh schedule

• Explanation 1.—The term “close family member” refers toa spouse, sibling, child, parent or life partner.

• Explanation 2.—The term “affiliate” encompasses allcompanies in one group of companies including theparent company.

• Explanation 3.—For the removal of doubts, it is clarifiedthat it may be the practice in certain specific kinds ofarbitration, such as maritime or commodities arbitration,to draw arbitrators from a small, specialised pool. If insuch fields it is the custom and practice for partiesfrequently to appoint the same arbitrator in differentcases, this is a relevant fact to be taken into account whileapplying the rules set out above.’.

1. The arbitrator is an employee,consultant, advisor or has any otherpast or present business relationshipwith a party.

The Seventh schedule

• 26. Nothing contained in this Act shall applyto the arbitral proceedings commenced, inaccordance with the provisions of section 21of the principal Act, before thecommencement of this Act unless the partiesotherwise agree but this Act shall apply inrelation to arbitral proceedings commencedon or after the date of commencement ofthis Act.

Conclusions

• Appointing authority and Party need to bedefined in the contract document

• Qualification of arbitrator needs to be includedin the contract document, preferably anengineer having experience of contractmanagement

• Definition of Independent and impartialarbitrator as per new Act in the context ofgovernment contracts

• Review of cap on number of arbitration cases tobe referred to arbitrator, particularly ingovernment works

Some references and photos have been taken from internet. The author

gratefully acknowledges their contribution.