An unwritten rule during war was to not shoot the messenger. The rationale behind this rule was logical i.e. do not shoot the messenger as the messenger is just sharing the news. Despite this rule, in some cases, the carrier of the bad news was, in fact, killed. Similarly, in an arbitration, the losing party often makes the arbitrator a party to the proceedings while challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996. Just like a recipient of bad news frowns at the messenger, a losing party also blames the arbitrator and is tempted to sue the arbitrator. In such cases, arbitral immunity comes to the rescue of the arbitrator and provides essential safeguard to the arbitrator. It is a protection guaranteed by the statute to the arbitrators against any civil liability arising from their adjudicatory function provided that the arbitrator has acted in good faith.
Arbitral immunity is akin to the concept of judicial immunity. Judicial immunity means that a person, against whom a decision has been given by a court, cannot attack the decision of the court by suing the Judge. Therefore, those who perform judge-like functions should be protected from legal proceedings because a losing party is often tempted to involve the arbitrator in a legal proceeding either by making him a party or by compelling him to give testimony in a case. The rationale behind the concept of arbitral immunity is to protect arbitrator’s neutrality and independence.
The UNCITRAL Model Law is silent on arbitral immunity owing to the steep differences in the approach of different nations towards the immunity of arbitrators which has made it difficult to devise one uniform provision for the same. But different countries have inculcated this doctrine in their own suitable ways either by including it in the statute or through judicial interpretations.
The English Arbitration Act, 1996, Section 29(1), Singapore International Arbitration Act, 2012, Section 25, the Australian Commercial Arbitration Act, 2011, Section 39 and the Hong Kong Ordinance, 2011, Section 104 have explicitly included the provision of arbitral immunity in their arbitration statutes whereas countries like Canada have taken the route of judicial interpretations, predominantly from English cases and held that in absence of proof of bad faith or fraud, an arbitrator enjoys immunity from civil liability similar to that of a Judge. The Austrian Supreme Court in the same context determined that an arbitrator can be held liable for damages only if the arbitrator’s decision is overturned by a court and the party is able to prove that the arbitrator was grossly negligent.
As India moves towards making arbitration more robust, the doctrine of arbitral immunity was incorporated to the Arbitration and Conciliation Act, 1996 by the 2019 amendment leading to the addition of Section 42-B which reads as under:
42-B. Protection of action taken in good faith.— 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.
One very important factor for ensuring judicial independence and impartiality is the immunity provided to Judges which protects them from liability of monetary damages in civil court for their acts pursuant to their adjudication. Similarly, it is pertinent to provide arbitrators the said immunity to ensure that the very object of arbitration is not lost.
This need of incorporating arbitral immunity was to shed light on in India much later, when in Rajesh Batra v. Ranbir Singh Ahlawat, the Court took suo motu cognizance of the arbitrator’s jurisdiction and imposed a penalty on the arbitrator for acting beyond his jurisdiction stating that, the arbitrator brazenly proceeded to conduct the proceedings and passed the impugned award.
Before the amendment of 2019, the Act of 1996 did not contain the provision of arbitral immunity in the absence of which, arbitrators had to rely on the rules of the institution which were opted by the parties. Though some institutions like Mumbai Centre for International Arbitration (MCIA), Rule 34.1 have adopted rules providing for exemption of the arbitrator from any liability in case of negligence, many institutions have not done so. The situation becomes worse in ad hoc arbitrations where such immunity lies only at the anvil of the parties.
The importance of adopting the provision of arbitral immunity in India was further advocated in the Report of Srikrishna Committee which recommended the insertion of a clause in the Arbitration and Conciliation Act based on Section 29 of the Arbitration Act, UK which opines that “An arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith.”
Most cases brought against arbitrators are collateral attacks on the award. It is improper for the losing party to make arbitrator a party to the case along with the defendants as once the award is rendered by the arbitrator; he becomes functus officio. The rationale behind this recommendation of Srikrishna Committee was twofold. One was that the immunity of arbitrators is well accepted principally internationally. Secondly, the reason for it being well accepted internationally is that through this immunity the independence of the arbitrators is ensured and the integrity of the arbitral process is maintained.
Arbitral Immunity versus Amendment Act of 2021
The recent amendment of 2021 to the Arbitration and Conciliation Act, 1996 renders the provision of arbitral immunity otiose. The Bill specifies in proviso to Section 36(3) that an unconditional stay on the operation of the arbitral award can be granted if the court is satisfied that the making of the award was affected by fraud or corruption. This paves the way for the judgment-debtor to use this as a ground to resist the enforcement of the award and to seek an unconditional stay on its operation. For seeking an unconditional stay, a judgment-debtor may raise grounds of fraud or corruption in the making of the award. As a result, averments of corruption against the arbitrators may also be raised in the petition which will eventually hamper the reputation of the arbitrator. The Amendment Act of 2021 fails to consider this aspect and Section 42-B does not provide protection to the reputation of the arbitrators from such frivolous challenges as Section 42-B merely protects the arbitrator from any legal proceedings and not from any allegations that a losing party may make against the arbitrator in its pleadings while challenging the arbitral award.
The Way Ahead
The inculcation of arbitral immunity in India is a positive step. It has aimed to not only provide arbitrators the essential protection to conduct the proceedings impartially but is also a testament to the fact that Indian lawmakers are making space for arbitration to evolve in the country and making it more robust.
The interpretation of the term “good faith” will be very crucial in achieving the desired objective of the aforementioned provision. Incidentally, a lot of room is left for ambiguity when it comes to understanding what entails “good faith” in a given context which will have serious repercussions on both the parties and the arbitrator.
There are no safeguards under the Act to prevent the abuse of arbitral immunity. It can be argued that in some cases, the arbitrators will now take refuge of the above-mentioned provision and act arbitrarily according to their own whims and fancies. Further, they will be able to wriggle out of any liability arising in such situations because of the protection granted through this clause. On the other hand, arbitral immunity should also include protection of an arbitrator’s reputation so that no allegations can be made against the arbitrator if he has acted in good faith.
Therefore, if the arbitrator has in fact acted in bad faith, proper redress in the form of damages should be provided to the parties or penalty should be imposed on arbitrator. Similarly, if an arbitrator has acted in good faith, he/she should be granted immunity not only from legal proceedings but such immunity should also protect his/her reputation.
All in all, a lot will depend on the implementation of Section 42-B and how the courts will interpret “good faith”. Arbitrators also have to always keep in mind that they have a moral duty to act responsibly and ethically to avoid any such allegations by the losing party which can harm their integrity and credibility. At the same time, parties to an arbitration must also draft their pleadings responsibly and refrain from dragging the arbitrator unnecessarily while challenging the award.
† Advocate, Supreme Court of India.The author can be reached at email@example.com
The author would like to thank Ruhi Thakkar, Final Year Student at Balasaheb Apte College of Law, Mumbai for her able assistance.