The parties have freedom to decide the challenge procedure.
When a person is approached for his possible appointment as arbitrator, he/she shall disclose in writing (in form specified in Sixth Schedule) any circumstances, such as existence either direct or indirect, of any past or present relation with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of 12 months. The obligation of disclosure continues throughout the arbitration proceeding.
The Fifth Schedule gives guiding criteria to determine whether circumstance exist to give rise to justifiable doubts as to independence and impartiality of the arbitrator.
A party may challenge appointment of an arbitrator only for the reasons of which he becomes aware after the appointment is made.
Section 12(5) provides that any person whose relation with parties or counsel of subject matter of dispute falls within Seventh Schedule shall be ineligible. This is notwithstanding any prior agreement to the contrary. However, the parties may waive the applicability of this provision by express agreement in writing, subsequent to disputes have arisen.
Section 13 provides that the parties are free to agree to the procedure to challenge an arbitrator. A party can challenge an arbitrator within 15 days after becoming aware of the constitution of the tribunal or becoming aware of the circumstances of the challenge. The challenge has to be by way of written application stating the reasons to the tribunal.
On receipt of the application, the tribunal can either withdraw or shall decide the challenge unless other side agrees to the challenge. If the challenge is not successful, the tribunal shall proceed with arbitration and shall pass award. Once the award is made, the party making the challenge can file application under Section 34 for setting aside of the award.
The mandate of the arbitrator terminates if he becomes de jure or de facto unable to perform his functions of for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to such termination. The mandate also terminates where the arbitrator withdraws from the office or the parties agree to such termination.
If the controversy still remains, subject to parties’ agreement, a party may apply to Court to decide the termination. On termination of mandate, a substituted arbitrator shall be appointed according to the to the rules that were applicable to the appointment of earlier arbitrator. On replacement of arbitrator, any previous hearing may be repeated at the discretion of arbitrator.