Controversy surrounding Excessive Fees: Rajasthan High Court terminates mandate of Arbitrator
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Controversy surrounding Excessive Fees: Rajasthan High Court terminates mandate of Arbitrator

Murali Krishnan

The Rajasthan High Court has terminated the mandate of an arbitrator due to a long drawn controversy which had originated because of the arbitrator charging excessive fees.

A single judge Bench of Arun Bhansali held that the controversy due to the petitioner challenging the arbitrator’s mandate and the commercial court consequently reducing the arbitrator’s fees has rendered the arbitrator de jure/de facto unable to perform his functions effectively. Hence, it warranted that his mandate be terminated under Section 14(1)(a) of the Arbitration Act.

The judgment came in an appeal preferred by the petitioner, Doshion Private Limited challenging the decision of the Commercial Court, Jaipur which had partly allowed the petition and directed the arbitrator to resettle his fees but declined to terminate the mandate of the arbitrator.

Advocate Ankit Sareen appeared for the petitioner while advocates Sachin Acharya and Shridhar Mehta represented the respondents.

Background

The brief facts of the case are as follows.

In a dispute arising between the parties i.e. the petitioner and the respondent no.1 (‘HZL’), the Rajasthan High Court, on an application filed by the HZL, appointed the sole arbitrator to adjudicate upon the dispute.

During the course of arbitration proceedings, the arbitrator fixed the fee for arbitration to be Rs. 75 lakh, which was contested by the petitioner and it sought its reconsideration in the light of Schedule IV of the Act, which prayer was declined by the arbitrator.

Meanwhile, a notification dated came to be issued by the High Court in March 2017 providing for the charging of fees by the arbitrators, which was made applicable with effect from October 23, 2015. Based on the above notification, again a submission was made before the learned arbitrator regarding the quantum of fees. The arbitrator once again declined the prayer but offered a discount of Rs.20 lakh as a show of “benevolence”.

The petitioner then moved the High Court for terminating the mandate of the arbitrator but the same was declined on the ground that it was not maintainable. The petitioner was instead given the liberty to approach the concerned jurisdictional court.

The petitioner thereafter approached the Commercial Court by filing an application under Section 14 of the Act seeking removal/substitution of the learned arbitrator. However, even as the same was pending, the arbitrator went ahead and passed an ex-parte award. The petitioner brought the same to the notice of the commercial court.

The commercial court gave its final ruling on the application. It held that law does not permit to charge any fee beyond the fee prescribed under the schedule IV attached to Arbitration Act and the 2017 notification of High Court. It, therefore, directed the High Court to revise his fees to bring it in consonance with Schedule IV and the notification. It also set aside the ex-parte award passed by the arbitrator.

It, however, declined to terminate the mandate of the arbitrator instead directing the arbitrator to join the parties in the proceedings from the stage pending before him at the time of filing of the Section 14 application.

The petitioner then filed a writ petition against the verdict in the High Court. Meanwhile, the proceedings before the arbitrator re-commenced pursuant to the order of the Commercial Court.

Even during the pendency of the writ petition before the High court, the arbitrator continued with the proceedings before him though the petitioner had sought adjournment since the High court was seized of the issue of the mandate of the arbitrator.

Judgment

The question before the High Court was whether the mandate of the arbitrator could be terminated in the light of the controversy that came about due to the excessive fees charged by the arbitrator.

At the outset, the Court went on to analyse Section 14 of the Arbitration Act. It observed that the said section provides for termination of the mandate of the arbitrator if he becomes de jure or de facto unable to perform his functions.

The phrase ‘de jure or de facto unable to perform his functions’ has not been defined and/or elaborated in any manner in the Act, it noted. However, in case the events during the conduct of proceedings before the arbitrator lead to a doubt in the mind of a party regarding prejudice against it and qua the impartial conduct of proceedings before the arbitral tribunal, the said situation would fall within de facto inability of the arbitrator to perform his functions, the Court held.

It then noted that the Commercial Court in its order dealt with only the issue of de jure inability of the arbitrator, in the circumstances which came before it but did not deal with the overall fact situation.

The Court proceeded to disapprove the manner in which the arbitrator conducted the proceedings, particularly him passing ex-parte order and also closing the evidence of the petitioner and posting the matter for final arguments despite the pendency of the writ petition.

“Apparently, there was no necessity for the learned arbitrator in again closing the evidence of the petitioner and posting the matter for final arguments despite pendency of matter before this Court and this Court being forced to request the learned arbitrator first to adjourn the matter and then stay the further proceedings.”

The long drawn controversy in petitioner challenging the quantum of fees fixed by the arbitrator, the commercial court reversing the determination of fees made by the arbitrator, the petitioner filing writ petition to terminate the mandate of the arbitrator, the arbitrator passing ex-parte order etc were all factors which the court held as rendering the arbitrator de jure/de facto unable to perform his functions effectively.

“Because of long drawn controversy in petitioner challenging the quantum of fees before the learned arbitrator, moving application before the Commercial Court, wherein, the determination of fees made by the learned arbitrator has been reversed and then again filing the present proceedings before this Court seeking termination of the mandate of the learned arbitrator, more importantly the learned arbitrator during the pendency of the proceedings before the Commercial Court passing an ex-parte award and during the pendency of present petition before this Court, again closing evidence of the petitioner and fixing the matter for final arguments, taking the totality of above facts and circumstances of the case, this Court is of the considered view that the learned arbitrator has been rendered de jure/de facto unable to perform his functions effectively warranting his mandate to be terminated under Section 14(1)(a) of the Act and the determination made by the Commercial Court in this regard, therefore, cannot be sustained.”

The Court, therefore, allowed the writ petition and terminated the mandate of the arbitrator. The Court also held that parties may appoint a substitute arbitrator in terms of the arbitration agreement between them within a period of 15 days.

Read the judgment below.

Doshian-Private-Ltd.-Hindustan-Zinc-Limited.pdf
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