When An Arbitrator’s Silence Vitiates An Award: The Expanding Duty Of Disclosure Under Section 12 Of The Arbitration & Conciliation Act, 1996

INTRODUCTION

An Arbitrator’s authority to decide a dispute rests on something more fundamental than the arbitration agreement that appoints them; it rests on the parties’ confidence in the arbitrator’s independence, impartiality and transparency. Section 12 of the Arbitration and Conciliation Act, 1996 (“the Act”) gives statutory expression to that principle by requiring an arbitrator to disclose, before accepting an appointment and throughout the arbitral proceedings, any circumstance that is likely to give rise to justifiable doubts as to their independence or impartiality.

While the statutory obligation appears straightforward, its practical application has repeatedly engaged the attention of Indian courts. Questions have arisen as to what constitutes a disclosable circumstance, whether disclosure must be communicated to every party, whether the obligation is exhausted upon an initial declaration, and the stage until which the duty continues. Through a series of recent judicial pronouncements, the courts have progressively clarified the contours of this continuing obligation.

THE LEGAL FRAMEWORK OF DISCLOSURE

Section 12 of the Act establishes a comprehensive framework to secure the independence and impartiality of arbitrators. Under Section 12(1), a prospective arbitrator is required to disclose, in writing and in the form prescribed under the Sixth Schedule, any circumstance that is likely to give rise to justifiable doubts as to their independence or impartiality, having regard to the grounds specified in the Fifth Schedule. This obligation does not cease upon appointment. Section 12(2) imposes a continuing duty to disclose, without delay and in writing, any such circumstance that arises or comes to the arbitrator's knowledge during the pendency of the arbitral proceedings, unless the parties have already been informed of it. Section 12(5), read with the Seventh Schedule, goes a step further by rendering an arbitrator de jure ineligible where specified relationships or circumstances exist, unless the parties, after the disputes have arisen, expressly waive the applicability of the provision by a written agreement.

Recent judicial decisions have significantly developed the scope and content of these statutory obligations. The cases discussed below illustrate how courts have interpreted the requirements of disclosure, clarified the duration and extent of the duty, and identified circumstances in which non-compliance has resulted in the invalidation of arbitral proceedings and awards.

DISCLOSURE MUST REACH EVERY PARTY

In Bridge Building Construction Co. Pvt. Ltd. v. Bharat Heavy Electricals Ltd.¹, the Delhi High Court considered whether an arbitrator’s disclosure satisfies the statutory mandate if it is communicated only to the party that appointed the arbitrator. Although the arbitrator had furnished a disclosure to BHEL, the petitioner was never shown to have received it. The Court held that such a disclosure was legally insufficient and could not be treated as compliance with Section 12.

Placing reliance on its earlier decision in Ram Kumar v. Shriram Transport Finance Co. Ltd., the Court reiterated that the obligation to disclose rests exclusively upon the arbitrator and cannot be diluted by requiring a party to independently ascertain facts that may bear upon the arbitrator's independence or impartiality. The statutory expression “he shall disclose” casts an affirmative obligation on the arbitrator to ensure that the disclosure is communicated to all parties, thereby enabling each of them to make an informed assessment regarding the arbitrator's suitability to continue with the reference. Since the disclosure had not reached both parties, the Court held that the statutory requirement remained unfulfilled and consequently set aside the arbitral awards.

The High Court’s decision reinforces an important principle: compliance with Section 12 is achieved not merely by making a disclosure, but by effectively communicating it to every party to the arbitration. A disclosure that does not reach all parties defeats the very object of the provision and is no disclosure in the eyes of law.

SIMULTANEOUS APPOINTMENTS REQUIRE DISCLOSURE

In Alupro Building Systems Pvt. Ltd. v. Ozone Overseas Pvt. Ltd.², the Delhi High Court considered whether an arbitrator was under an obligation to disclose that he was simultaneously acting as an arbitrator in several unrelated disputes involving the same party. Although the pending arbitrations arose out of different contracts and concerned different entities, the arbitrator did not disclose his concurrent appointments to the claimant.

The Court held that such non-disclosure constituted a breach of the continuing obligation imposed under Section 12(2) of the Act. It observed that the relevance of the disclosure did not lie in the factual similarity between the disputes, but in the continuing professional relationship between the arbitrator and one of the parties. Simultaneous appointments by the same party were capable of giving rise to justifiable doubts regarding the arbitrator’s independence and impartiality and, therefore, fell squarely within the ambit of the statutory disclosure requirement. Holding that the non-disclosure was contrary to the fundamental policy of Indian law, the Court declared the arbitrator de jure incapable of acting under Sections 14 and 15 of the Act and consequently set aside the arbitral award.

The decision highlights that the obligation to disclose under Section 12 extends beyond the subject matter of the dispute and encompasses circumstances that may reasonably affect perceptions of an arbitrator’s independence. Concurrent engagements by the same party, even in unrelated matters, constitute a material circumstance requiring disclosure.

DISCLOSURE IS A CONTINUING OBLIGATION

In C and E Limited & Anr. v. Gopal Das Bagri and Others³, the Calcutta High Court examined the scope of an arbitrator’s continuing obligation to disclose under Section 12(2) of the Act. At the commencement of the arbitral proceedings, the arbitrator disclosed his previous professional association with the principal of one of the parties, and the parties expressly consented to his continuation. During the course of the arbitration, however, the arbitrator appeared as counsel on multiple occasions for an entity associated with the same party. This subsequent professional engagement was never disclosed to the parties.

The Court held that the initial disclosure did not exhaust the statutory obligation imposed by Section 12(2). Rather, the provision contemplates a continuing duty requiring an arbitrator to disclose, without delay, any new circumstance that may give rise to justifiable doubts regarding the arbitrator’s independence or impartiality. The subsequent engagement, which strengthened the professional relationship previously disclosed, constituted a material development that ought to have been brought to the notice of the parties. Applying the test of a “real danger of bias”, the Court concluded that the failure to make a fresh disclosure vitiated the arbitral process and accordingly set aside the award.

The decision affirms that the duty of disclosure under Section 12 is dynamic and continues throughout the arbitral proceedings. An initial disclosure, even if accepted by the parties, does not absolve an arbitrator from the obligation to disclose subsequent developments that may reasonably affect perceptions of independence or impartiality.

REPEAT ENGAGEMENTS CAN GIVE RISE TO JUSTIFIABLE DOUBTS

In Ram Kumar & Anr. v. Shriram Transport Finance Co. Ltd.⁴, the Delhi High Court analysed whether repeated appointments by the same party constitute a disclosable circumstance under Section 12 of the Act. The arbitrator had made no disclosure whatsoever under Section 12, despite material indicating that he had been appointed by the respondent finance company in numerous similar disputes. The Commercial Court had upheld the appointment on the premise that disclosure was necessary only if the arbitrator himself considered his independence or impartiality to be affected.

The Delhi High Court rejected this interpretation and held that the obligation to disclose under Section 12 is neither subjective nor discretionary. Referring to Entry 22 of the Fifth Schedule, which contemplates appointments by the same party or its affiliates on more than two occasions within the preceding three years, the Court held that repeated appointments constitute a disclosable circumstance as a matter of law. The duty to make such disclosure rests exclusively upon the arbitrator and cannot be avoided on the ground that the arbitrator personally perceives no likelihood of bias. In the absence of the mandatory disclosure, the Court held that the arbitrator was rendered ineligible to continue under Section 12(5), resulting in the invalidation of the arbitral proceedings and the award.

This decision clarifies that the obligation to disclose under Section 12 is governed by an objective statutory standard rather than the arbitrator’s subjective assessment of impartiality. Repeated appointments by the same party are themselves material circumstances requiring disclosure, irrespective of whether the arbitrator believes that such appointments have any bearing on their independence or impartiality.

THE OBLIGATION SUBSISTS UNTIL THE AWARD IS PASSED

In FLFL Travel Retail Lucknow Private Limited v. Airports Authority of India & Anr.⁵, the Delhi High Court considered the temporal scope of an arbitrator’s continuing duty of disclosure under Section 12(2) of the Act. After the conclusion of the hearings, when the arbitral award had been reserved, the respondent appointed the same arbitrator in an unrelated arbitration. Although the arbitrator claimed to have informed the petitioner of this development telephonically, no written disclosure was ever made.

The Court held that the obligation under Section 12(2) does not cease upon the conclusion of arguments but continues until the arbitral award is rendered. Consequently, any circumstance arising during the interregnum between the reservation and pronouncement of the award that may give rise to justifiable doubts regarding the arbitrator’s independence or impartiality must be disclosed in accordance with the statutory mandate. The Court further held that a verbal communication cannot substitute the express requirement under Section 12(2) that the disclosure be made “in writing”. It also rejected the contention that the appointment had been made by a different department of the respondent, observing that the statutory obligation rests upon the arbitrator and cannot be diluted by internal organisational arrangements of a party. In view of the failure to comply with the mandatory disclosure requirement, the Court set aside the arbitral award.

This decision establishes that the continuing obligation under Section 12 extends until the arbitral proceedings culminate in the pronouncement of the award. Equally, it reinforces that compliance with the statutory mandate requires a written disclosure communicated to the parties, and cannot be satisfied through informal or oral communication.

THE EMERGING JUDICIAL CONSENSUS

In view of the foregoing decisions collectively delineating the scope of an arbitrator’s disclosure obligations, the following principles emerge:

• The obligation to disclose is mandatory and objective. The duty does not depend upon the arbitrator’s subjective assessment of whether a circumstance affects their independence or impartiality.
• Disclosure must be made in writing and communicated to every party. Compliance with Section 12 is achieved only when the disclosure is made in writing and reaches all parties to the arbitration.
• The duty of disclosure is a continuing obligation. An initial disclosure at the time of appointment does not exhaust the obligation under Section 12(2). Any subsequent circumstance that may give rise to justifiable doubts regarding an arbitrator’s independence or impartiality must be disclosed promptly as and when it arises.
• The obligation subsists until the arbitral proceedings conclude. The duty to disclose continues throughout the arbitral proceedings and extends until the arbitral award is rendered.
• Repeated or concurrent appointments constitute material circumstances requiring disclosure.
• Non-compliance may vitiate the arbitral proceedings. Where an arbitrator fails to comply with the disclosure obligations under Section 12, and such non-disclosure gives rise to justifiable doubts regarding independence or impartiality, courts have not hesitated to set aside arbitral awards.

CONCLUSION

The recent judicial pronouncements discussed above reflect a consistent and principled approach towards the disclosure obligations imposed by Section 12 of the Arbitration and Conciliation Act, 1996. Indian courts have repeatedly emphasised that disclosure is not a procedural formality but a substantive safeguard that underpins the legitimacy and credibility of the arbitral process. By insisting that disclosures be complete, timely, made in writing, communicated to all parties, and continuously updated throughout the arbitral proceedings, the courts have reinforced the fundamental principle that justice must not only be done but must also be seen to be done in arbitration. The jurisprudence emerging from these decisions leaves little room for uncertainty. Where there is any doubt as to whether a particular circumstance ought to be disclosed, the prudent and statutorily compliant course is to err in favour of disclosure. Transparency not only ensures compliance with Section 12 but also strengthens party confidence in the arbitral process and safeguards the enforceability of the resulting award.

Footnotes

^{1 2023/DHC/000404.}

^{2 2017 SCC OnLine Del 7228.}

^{3 2023 SCC OnLine Cal 2166.}

^{4 2022/DHC/005313.}

^{5 2024/DHC/7800.}

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