Arbitrator who suspends proceedings over fee dispute will lose mandate: Bombay High Court

The mandate of an arbitrator who neither resigns nor conducts hearings after unilaterally revising fees will automatically terminate by operation of Section 29A of the Arbitration and Conciliation Act, 1996, the Bombay High Court recently held [SS Trading Company v. SNC Trading Company]..Justice Somasekhar Sundaresan ruled that an arbitrator cannot keep proceedings in suspended animation while insisting on enhanced fees not agreed to by the parties. "The Learned Arbitral Tribunal could have resigned having been unhappy with the fee default. This step was not taken. The Learned Arbitral Tribunal kept the proceedings suspended unless the unilaterally revised fees are paid. The parties did not consent to the enhanced fee. The Learned Arbitral Tribunal could have also continued with the arbitration to eventually exercise a lien on the award under Section 39 of the Act. Doing neither, and keeping the proceedings in suspended animation, also expired with the expiry of the mandate by operation of Section 29A of the Act.".The dispute arose from a 2019 agreement between SS Trading Company and SNC Trading Company, with a sole arbitrator appointed in September 2022. The respondent frequently abstained from hearings and delayed its defence, leading the arbitrator to impose fines and fees of ₹10,000 per sitting, per party. On April 20, 2023, the arbitrator urged the claimant to deposit penalties “due to the respondent” and declared that the tribunal would stand suspended “till funds are arranged”, with no next date. He also stated that the “quoted price of the arbitration being too low” made it difficult to continue. Despite protests over unilateral fee revision and multiple requests for resumption, the arbitrator neither fixed a date after June 2, 2023 nor resigned. Instead, he sought an apology from the claimant. The proceedings never resumed..The Court found that the arbitrator’s order dated April 20, 2023, by which he suspended the arbitration “till funds are arranged”, had no statutory foundation. The arbitrator had recorded that he was “in no position to carry out arbitration proceedings at its own costs”..Justice Sundaresan set out the legal position governing fees and mandate, emphasising that the Act leaves no room for an arbitrator to hold proceedings hostage to an unaccepted fee proposal.Summarising the legal position, the Court stated:“Fees chargeable by the Arbitral Tribunal is a matter for the Arbitral Tribunal to agree upon with the parties;the Arbitral Tribunal may propose the fees to the parties;if the parties do not accept the fee proposal from the Arbitral Tribunal, the Arbitral Tribunal could well take a view that the arbitration proceedings are not worth its while."Once arbitration has commenced, "the Arbitral Tribunal could either resign or proceed with the matter, and eventually exercise the statutory lien on the award.”.The arbitrator in this case did neither. Instead, he demanded higher fees mid-way, suspended the arbitration and refused to resume hearings despite repeated requests from the claimant.This, the Court held, triggered the consequences under Sections 14, 15 and 29A. If neither resignation nor proceeding further is done, a case would be made out to take a view that the tribunal is unwilling to complete the arbitration proceedings without undue delay or that it has effectively withdrawn from office by doing nothing."in such event, since the arbitration agreement would subsist, a new arbitral tribunal would need to be appointed, leaving all contentions on merits open for the newly appointed arbitral tribunal to consider," the Court held..Directing Presolv360 to appoint a sole arbitrator within two weeks, the Court clarified that all proceedings will be held online unless the parties agree otherwise. The new arbitrator will resume the matter from the stage at which it was abandoned..The petitioners were represented by Advocate Aliabbas Delhiwala with Advocate Ankita Karmokar, instructed by L.R. & Associates.The respondent was represented by Advocate Makarand M Kale..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.