Constitutional laws in India

Arbitration and elements of Natural Justice

Arbitration as a method of dispute resolution involving one or more neutral third parties, who are agreed to by the disputing parties and whose decision is binding
Author of the article: Sambit Swain & Mehak Khanna - Amity Law School (Five Year Law Course)
Constitutional Lawyers in India
Legal Service
  • Arbitration and elements of Natural Justice
    The Black's Law dictionary, defines arbitration as a method of dispute resolution involving one or more neutral third parties, who are agreed to by the disputing parties and whose decision is binding. In order to realize the mentioned components of the definition it is essential and necessary for a legislation that supplements a legal binding, to the process and award of arbitration.

    In India, the first piece of legislation was in the form of the Arbitration Act, 1940 on the pattern of English Arbitration Act, 1934 & it remained in force until it was replaced by the new Arbitration and Conciliation Act, 1996. The Arbitration and Conciliation Act 1996 not only possessed the essential features of arbitration that is, as a less expensive, efficient and effective tool of Alternate Dispute Resolution but was also more comprehensive in its outlook than the Arbitration Act 1940.

    The new Act defined the term International Commercial Arbitration, it stated the qualification required for an Arbitrator, it abolished the umpire system, reduced the interference of the Court in various regards and also provided for the enforcement of foreign awards made under the New York Convention and the Geneva Convention.

    Thereby the arbitration and Conciliation Act1996 made a significant contribution to the Alternative Dispute Resolution means and it has remained so.

    However, there remain a few loopholes in the legislation; that on occasions form a distinct part of conflict in the course of Alternative Dispute Resolution.
    It is pertinent to notice Section 13 of the Act, which states the challenge procedure to remove an arbitrator from the tribunal.

    Section 13 (3) of the Arbitration and Conciliation Act 1996 states as follows

    (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.

    It is to be noted; that the arbitrator who is being challenged; remains in the arbitral tribunal and hence decides about his own competence as an arbitrator; which is completely against the principle of natural justice. Equity has often been regarded as a synonym for Natural Justice by jurists from the dawn of civilization and fairness is an integral part of it. The principle of Nemo Judex in Causa Sua that is no man shall be the judge of his own cause remains as one of the bedrocks of natural Justice. Under Section 13(3) of the Act the Arbitrator himself would adjudicate his own competence by being part of the tribunal, thereby creating doubts of biasness and unfair justice to be meted.

    The competence of the arbitrator on the ground of biasness has been laid down by the Hon'ble Supreme Court in the case of Jiwan Kumar Lohia vs Durgadutt Lohia The test of likelihood of bias is whether a reasonable person, in possession of relevant information would have thought that bias was likely and whether the person concerned was likely to be disposed to decide the matter only in a particular way.

    In the present scenario, that the fact that a judge is adjudicating his own competence, certainly forms a reasonable ground for apprehension of bias. The Hon'ble Apex Court in Bihar State Mineral Development, Corp. v. Encon Builders (I) Pvt. Ltd, while referring to Russell on Arbitration, stated:
    A distinction is made between actual bias and apparent bias. Actual bias is rarely established but clearly provides grounds for removal. Moreover, there is a suspicion of bias, which has been variously described as apparent or unconscious or imputed bias. In such majority of cases it is often emphasized that the challenger does not go so far as to suggest the arbitrator is actually biased, rather some form of some objective apprehension of bias exists.
    In relevance to the present picture, there is certainly a clear unambiguous apprehension of bias that is to be created out of the peculiar situation as the arbitrator becomes the judge of his own cause.

    The proper approach for the judge is not to look at his own mind and ask himself, however, honestly, am I biased but to look at the mind of the party before him. Therefore it is to be carefully perceived that the challenge to the arbitrator adjudicating his own competence is in no manner a doubt or imputation to the character of the arbitrator, instead it is the apprehension of biasness that forms the ground of appeal that has arisen from a situation. Hence it has to be acknowledged that Section 13(2) is speculative and needs clarity.

    As Salmond said Natural justice is justice in deed and in truth, while legal justice is justice declared and recognized by law and enforced in law courts. He maintains that natural justice is the ideal and the truth, of which legal justice is the more or less imperfect realization and expression. Therefore, we can always correct the legal justice so as to be in consonance with justice in deed and truth. In regards to Section 13 of the Arbitration and Conciliation Act, 1996 the need arises for an express provision, stating the challenged arbitrator not to be a part of the tribunal deciding his competence.

    To, conclude the lines of Lord Hewart C.J would be aptly suited; It is of fundamental importance that justice should not only be done but should manifestly and undoubtedly been seen to be done.

    The author can be reached at: [email protected] / Print This Article

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