Order Of Arbitral Tribunal Terminating Proceedings For Non-Payment Of Tribunal Fees Cannot Be Recalled: Telangana High Court

The bench of Justices P. Naveen Rao and Nagesh Bheempaka held that once the arbitral proceedings are terminated under Section 32(2)(c) of the Act, the tribunal becomes functus oficio and it cannot continue with the arbitral proceedings merely on the grounds that the parties did not take the issue of termination seriously and continued with the arbitral proceedings.

The Court held that the tribunal cannot revive the arbitral proceedings once it has been terminated by an order of the tribunal and it the limited power it has is to correct any computation errors, any clerical or typographical errors or any other errors of a similar nature or to give an interpretation of a specific point or part of the award under Sections 33 and 34(4) of the Act.

Facts

The parties entered into a concession agreement dated 18.08.2007 wherein the respondent was to carry out works related to designing, construction, development, finance, operation and maintenance of eight lane access-controlled expressway under Phase II-A programme of the Outer Ring Road to Hyderabad from Tukkuguda to Shamshabad on Build Operate and Transfer (BOT) basis. Clause 39 of the agreement provided for resolution of dispute by way of arbitration.

A dispute arose between the parties related to non-payment of dues by the petitioner. Accordingly, the respondent invoked the arbitration clause and nominated its arbitrator. Subsequently, the petitioner also nominated its arbitrator, however, the two-arbitrator failed to nominate the presiding arbitrator which accordingly was appointed by the Court under Section 11(6) of the Act.

By the 5^th procedural order dated 10.09.2022, the arbitral tribunal laid down the terms of the payment of tribunal fees. Before the tribunal the parties sought adjournment to arrive at an amicable settlement. Accordingly, the proceedings were adjourned, however, again a request was made to adjourn the proceedings for two months to allow the parties to reach the terms of negotiation. The tribunal, vide order dated 10.09.2022, acceded to the request for adjournment but subject to the parties depositing the fees of the tribunal in terms of the 5^th procedural order and failure of the parties to comply with the directions, would result in the termination of the arbitral proceedings.

The respondent complied with the requirement and deposited the fees of the tribunal, however, the petitioner did not make the payment as directed. Thereafter, the proceedings continued but the petitioner filed an application under Section 32 of the Act on the ground that the proceedings already stood terminated by the order dated 10.09.2022. The tribunal by a 2:1 verdict dismissed the application and decided to decide the dispute on its merits on the ground that the order was under Section 38 of the Act and the tribunal has the power to recall the order.

Aggrieved by the dismissal of its application, the petitioner filed a revision petition under Article 227 of the Constitution.

Contention of the Parties

• Proviso to Section 38(2) empowers the tribunal to terminate the arbitral proceedings in cases where any or both the parties do not pay their share of fees and costs.
• The order dated of the tribunal dated 10.09.2022 was specific in terms that on failure of any of the parties to make the payment of arbitral fees, the arbitration proceedings would stand terminated and it shall be construed that the parties do not have any interest in the arbitration.
• The order passed by the tribunal is also akin to an order under Section 32(2)(c) of the Act that empowers the tribunal to terminate the arbitral proceedings when it finds that the continuation of the proceedings has for any reason become unnecessary or impossible.

The respondent countered the petitioner’s argument by making the following submissions:

• The tribunal has rightly rejected the petitioner’s application for termination of the proceedings as the condition laid down in the order dated 10.09.2022 was complied with by the petitioner which had deposited the tribunal fees as directed. Thus, the observation of the tribunal regarding the termination of the proceeding would not come into effect as the order has been substantially complied with.
• The petitioner continued to participate in the arbitral proceedings, therefore, it could not object to tribunal’s jurisdiction. Moreover, the threat of termination was not taken seriously by both the parties as they continued to participate in the proceedings after the order dated 10.09.2022.
• The order dated 10.09.2022 was not an order under Section 32 of the Act which could not be recalled, therefore, it was within the competence of the tribunal to continue with the arbitral proceedings despite anything contained in the order.

Analysis by the Court

The Court observed that the tribunal in its order dated 10.09.2022 made a specific finding in paragraph 6 regarding the termination of the proceedings on failure of any party to pay the tribunal’s fees in terms of the 5^th procedural order dated 11.02.2022 as their failure would show that the parties are not interested in the continuation of the arbitral proceedings.

The Court observed that proviso to Section 38(2) empowers the tribunal to terminate the arbitral proceedings in cases where any or both the parties do not pay their share of fees and costs. Further, Section 32(2)(c) empowers the tribunal to terminate the proceedings if its continuation has become unnecessary or impossible.

The Court held that it is impossible to conduct arbitral proceedings when one of the parties failed to deposit the amount and does not co-operate. The Court held that it is impossible to continue arbitral proceedings if one of the parties are not keen in participating in the arbitral proceedings by not depositing the amount. Thus, having regard to the conduct of one of the parties, petitioners herein, in not depositing the fee directed to be paid by the Arbitral Tribunal, it was impossible for the Arbitral Tribunal to proceed with the case.

The Court held that order dated of the tribunal dated 10.09.2022 was specific in terms that on failure of any of the parties to make the payment of arbitral fees, the arbitration proceedings would stand terminated and it shall be construed that the parties do not have any interest in the arbitration and the order is also akin to an order under Section 32(2)(c) of the Act.

It further held that merely because the parties continued to participate in the arbitral proceedings it would not empower the tribunal to revive the proceedings for the reason that the when the statute operates the field, the conduct of the parties has no relevance.

Accordingly, the Court allowed the revision petition and held that the tribunal has no jurisdiction to continue with the arbitral proceedings.

Case Title: Hyderabad Metropolitan Development Authority v. Ramky Elsamex Hyderabad Ring Road Limited, Civil Revision Petition no. 865 of 2023

Date: 21.04.2023

Counsel for the Petitioner: Mr. Rajiv Shankar Dvivedi with Mr. Y.Rama Rao

Counsel for the Respondent: Mr. D.Prakash Reddy, Senior Advocate with Mr. M.Pranav

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