Section 12(5) of the Arbitration and Conciliation Act, 1996, introduced in 2015, makes certain persons ineligible to act as arbitrator, notwithstanding any prior agreement to the contrary. The disqualifying relationships are listed in the Seventh Schedule.
The Seventh Schedule covers close relationships with a party, its counsel or the dispute: for example, being an employee, consultant or advisor of a party, being a manager or director of a party, having a significant financial interest in a party or the outcome, having a close family relationship with a party, or having previously advised on the dispute.
The key point is that this ineligibility cannot be overridden by the arbitration clause itself. Many older contracts — especially government and public-sector contracts — named an officer of one party as the arbitrator. Such appointments are now invalid, and awards made by an ineligible arbitrator are vulnerable to challenge.
There is one route to waive the bar: after the dispute has arisen, the parties may waive the applicability of Section 12(5) by an express agreement in writing. Merely participating in the proceedings without objection is not enough — the waiver must be express and written.
When drafting or reviewing arbitration clauses, avoid naming any person connected to either party as arbitrator. Name an institution or a neutral appointment mechanism instead.