Neutrality in Arbitration Proceedings

Written By: Aishwarya Sethi

A case comment on Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited & Ors v. M/s Ajay Sales & Suppliers

(Decided on 9-09-2021)


In the recent times, there has been an evident incline in the number of disputes being referred to arbitration and other alternative dispute resolution methods owing to the benefits that come with such processes, the most prominent being the neutrality and impartiality of the arbitrator or the mediator.

The Hon’ble Supreme Court, in Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited & Ors v. M/s Ajay Sales & Suppliers, reemphasized on the importance of the arbitrator being a neutral and impartial third party. While analyzing the effect of an arbitration clause which stated that the Chairman of one of the parties will be the arbitrator himself, the Court opined that the conditions for the eligibility of an arbitrator have to be read as a whole as impartiality and independence of an arbitrator are paramount.

Facts of the Case

The parties entered into a distributorship agreement, the dispute resolution clause of which contained an arbitration clause and it provided that all disputes and differences arising out of or in any way touching or concerning the agreement, whatsoever   shall   be   referred   to   the   sole   Arbitrator, the Chairman, Jaipur Zila Dugdh Utpadak Sahkari Sangh Ltd., and his decision would be final and binding for the parties. The respondent made representation pointing out his   grievance/dispute and proceedings began before the sole arbitrator. However, during the pendency of the arbitration proceedings   before   the Chairman, the respondent firm approached the High   Court for appointment of an arbitrator in exercise of powers under Section 11 of the Act and invoking the arbitration contained the Agreement. The said application was opposed by the petitioners herein.  It was submitted that once the respondent firm approached the Chairman and   participated in the arbitration proceedings, it could not approach the High Court to appoint an arbitrator under Section 11 of the Act.

The conundrum

The Rajasthan High Court allowed the Section 11 application which led to the instant Special Leave Petitions being filed before the Hon’ble Apex Court. The issue which arose for consideration before the Court was whether an interested person can be appointed as the arbitrator if the agreement permits the same and whether the principles of neutrality and impartiality of the arbitrator could be sidelined in such scenarios.

The Decision

The Hon’ble Supreme Court upheld the decision of the High Court of Rajasthan allowing the Section 11 applications for the appointment of arbitrator on the grounds that the independence and impartiality of an arbitrator are paramount and must be adhered to. The Apex Court observed that the rule against bias is a fundamental principle natural justice, which applied to all judicial and quasi-judicial proceedings. Thus, even when an arbitrator is appointed in terms of contract and by parties to the contract, he must be independent of the parties. If an arbitrator falls within any one of the categories specified in the Seventh Schedule, he becomes ineligible to act as an arbitrator.

The Court relied on the dicta in the decision of Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., (2017) 4 SCC 665 where it was observed and held by the Court that the main purpose of inserting Section 12(5) of the Act, supposed to be read with the seventh schedule, was to provide for ‘neutrality of arbitrators.’  Further, the Court reiterated that when the arbitration clause finds foul with the amended provisions of Sub­section (5) of Section 12 read with Seventh Schedule, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator as may be permissible. The Court while recognizing that the word ‘Chairman’ has not been expressly used in the seventh schedule to make such a person ineligible, held that the same would be covered under various clauses of the schedule and did not need an express mention.

The court further considered the dicta laid down in the case of Bharat Broadband   Network   Limited v. United Telecoms  Limited,  (2019) 5 SCC 755 and reiterated that the only way in which this ineligibility can be removed, again, in law, is that parties may, after disputes have arisen between them, waive the applicability of this   sub­section   by an   “express agreement in writing”. Obviously, the “express agreement in writing” has reference to a person who is interdicted by the Seventh Schedule, but who is stated by parties (after the disputes have arisen between them) to be a person in whom they have faith notwithstanding the fact that such person is interdicted by the Seventh Schedule.


It can thus, be concluded that the Court while upholding the appointment of a sole arbitrator, highlighted the importance of maintaining impartiality and neutrality in arbitration proceedings, reiterating that they form the essence of ADR processes and cannot be done away with. Thus, even when an arbitrator is appointed in terms of contract and by the parties to the contract, he must be independent of the parties in accordance with the principles of natural justice, neutrality and independence.

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