Introduction
In an unusual turn of events, a Spanish criminal court found a Spanish arbitrator guilty of contempt of court in an international contract dispute and sentenced him to six months in jail1. The ruling was tied to the arbitrator's role in an ongoing case alleging breach of contract against Malaysia filed by the descendants of a sultan who ruled part of the region in the late 1800s. The descendants of the sultan filed a claim for breach of agreement in Spain after the UK Foreign and Commonwealth Office rejected the request. The arbitrator awarded claimants $ 14.9 billion and filed enforcement actions for payment in various jurisdictions across Europe. The court banned him from practicing as an arbitrator for one year for knowingly disobeying rulings and orders from the Madrid High Court of Justice. This ruling raised a conversation around the immunity exercised by arbitrators across jurisdictions which is necessary for them to perform their duties without being intimidated or interfered with by any party2.
The source of arbitral immunity can be traced back to the English common law doctrine of immunity under Floyd & Barker3 which held that Judges of English common law courts cannot be sued for their actions performed in their judicial capacity in competing courts.
Indian Law on Arbitral Immunity
The Indian legislature incorporated a provision for arbitrator's immunity from Civil Liabilities by incorporating Section 42B to the Arbitration and Conciliation Act of 1996 [hereafter the Act]. This was a positive step towards structuring the Indian arbitration principles in consistency with international practices. The Chartered Institute of Arbitrators in 2015 had laid down a framework for evaluating the best arbitral seats4 which included "immunity for arbitrators from civil liability for anything done or omitted to be done in good faith as an arbitrator."
The high-level committee to review the institutionalization of Arbitration mechanism in India accordingly recommended the incorporation of a provision for arbitral immunity in the Act, which resulted in the incorporation of Section 42B in 2019 which read that:
"No suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder."
However, the wordings of the provision provide that such suits or other legal proceeding would not be initiated for anything "which is in good faith done or intended to be done under this Act", which leaves a grey area for such acts of the Arbitrator which can be construed against his or her duties or portray plain lousy faith on their behalf.
Recommendations of the Srikrishna Committee
The B.N. Srikrishna Committee was formed to review the instutionalization of arbitration mechanism in India5. They were tasked with identifying the roadblocks to the development of institutional arbitration, examining specific issues affecting the Indian landscape, and preparing a roadmap for making India "a robust centre for international and domestic arbitration."
Based on the recommendation of the Committee6, Section 42B was inserted in the A&C Act, however the exception of cases of bad faith has not been expressly incorporated in the provision.
The Committee had explained that the immunity was granted based on the well-accepted principle that any individual who is performing a judicial or quasi-judicial act should be granted immunity for the same.
The committee had opined that in the absence of any provision for immunity, the arbitrators rely on the institutional arbitral rules for seeking immunity. The Rules of Domestic Commercial Arbitration of the Indian Council of Arbitration7, the Rules of International Commercial Arbitration of the Indian Council of Arbitration8, Delhi International Arbitration Centre (Arbitration Proceeding) Rules9 and the Mumbai Centre for International Arbitration10 all contain provision for immunity.
However, in cases of ad hoc arbitration, the arbitrators do not enjoy immunity, unless decided upon by the parties.
Before incorporation of Section 42B of the Act
The Hon'ble Delhi High Court in Rajesh Batra vs Ranbir Singh Ahlawat11 while adjudicating on a petition under Section 34 of the Act, was posed with a scenario where the Respondents had unilaterally appointed the arbitrator without the consent of the Petitioner and the Arbitrator assumed jurisdiction on such unilateral nomination. The Hon'ble DHC not only held the impugned award to be patently illegal but also imposed costs on the arbitrator for brazenly conducting the proceedings and passing the impugned award.
After the incorporation of Section 42B of the Act
The Madras High Court in Kothari Industrial Corporation Ltd. v. M/S Southern Petrochemicals Industries and Anr.12 while adjudicating on a petition under Section 34 of A&C Act 1996 wherein the arbitrator was impleaded in the appeal, held that arbitrators should not be unnecessarily impleaded unless any personal or specific allegations have been made against the arbitrator. The court noted that:
"It is a pernicious practice in this court to implead arbitrators or arbitral tribunals when there is no need to do so. Often, arbitrators are embarrassed upon receipt of notice. It is only in a rare case when a personal allegation is made against an arbitrator may such arbitrator be impleaded".
Recourse to arbitral immunity
It is pertinent to note that the Section 42B does not provide any exception to the underlying arbitral immunity. However, in cases where there is such act or omission on behalf of the arbitrator, the Act provides for the following recourses:
- Failure or impossibility to act under Section 14 of the Act: The Section 14 of the Act provides for the de jure or de facto inability of the arbitrator to perform his duties. In such a scenario the arbitrator shall be removed or substituted. Section 14 r/w Section 12(5) would result in the removal of the arbitrator on the counts of bias.
- Inability to pass the arbitral award within stipulated time limit under Section 29A of the Act: If the court finds that the proceedings have been delayed for the reasons attributable to the arbitral tribunal, it may order reduction of fees of arbitrators by not exceeding 5% for each month of the delay.
- Setting aside of the award under Section 34 r/w Section 36 of the Act: An arbitral award can be inter alia set aside on the ground of fraud and corruption in the making of the award.
Conclusion
The provision of immunity is imperative for the arbitrators to carry out their duties, however, it is pertinent that such immunity is accompanied by certain safeguards to prevent its abuse. The interpretation of the term "good faith" is crucial for achieving the desired result from the inclusion of the section. Incidentally, there exists a grey area resulting from the interpretation of "good faith". The safeguard or misuse of the immunity under the act will depend on how the courts will interpret "good faith".
Footnotes
1. Emily R. Siegel, Arbitrator's Guilty Verdict Puts UK Funder's Investment at Risk, Bloomberg Law, https://news.bloomberglaw.com/business-and-practice/arbitrators-guilty-verdict-puts-uk-funders-investment-at-risk, Jan 9, 2024
2. Bianca Castro, Arbitrator jail sentence and ban
raises questions in 'highly unusual' case, The Law
Scoiety Gazette,
https://www.lawgazette.co.uk/news/arbitrator-in-149bn-case-jailed-following-intervention-by
malaysia/5118364.article#:~:text=Arbitrator%20jail%20sentence%20and%20ban%20raises
%20questions%20in%20'highly%20unusual'%20case&text=The%20jailing%20of%20an%20arbitrator,
of%20process%2C%20experts%20have%20warned, Jan 19, 2024
3. Barker v. Town of Floyd, 61 A.D. 92 (N.Y. App. Div. 1901)
4. A framework for evaluating the best arbitral seats, Chartered Institute of Arbitrators (Nov 20, 2018) https://ciarb.org/resources/features/a-framework-for-evaluating-the-best-arbitral-seats/
5. Press Information Bureau, Constitution of high-level committee to review Institutionalization of Arbitration Mechanism in India, (Issued on December 29, 2016)
6. Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, July 30, 2017, chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf
7. Rule 79, Indemnity of Secretariat and Arbitrator, Rules of Domestic Commercial Arbitration of the Indian Council of Arbitration,
8. Rule 28. Indemnity of the Council, the Committee, the Governing Body, the Chairman, the President, the Registrar and the Arbitrators; Rules of International Commercial arbitration of the ICA
9. Rule 34. Exclusion and Waiver of Liability; Delhi International Arbitration Centre (Arbitration Proceeding) Rules 2023
10. Rule 34. Rule 34. Exclusion and Waiver of Liability; Mumbai Centre for International Arbitration Rules 2016
11. Rajesh Batra v. Ranbir Singh Ahlawat; 2011 SCC OnLine Del 3308
12. Kothari Industrial Corporation Limited v. Southern Petrochemicals Industries Corporation Limited; 2021 SCC OnLine Mad 5325
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