Order Terminating Proceedings For Non-Payment Of Arbitral Fees Can Be Challenged U/S 14 A&C Act, Not Through Writ Petition: Bombay HC

The Bombay High Court held that when the arbitration proceedings are terminated under section 38(2) of the Arbitration and Conciliation Act, 1996 (Arbitration Act) for non-payment of arbitral fees, the proper remedy is to file application under section 14 of the Arbitration Act and not a writ petition. Justice Manish Pitale held that “in situations where the arbitral proceedings are terminated, a remedy of Section 34 of the Arbitration Act is evidently not available and there appears to be a vacuum in the Arbitration Act while providing remedies in such situations.This Court and the Supreme Court found that remedy under Section 34 of the Arbitration Act was not available. In such a situation, after taking note of the legislative vacuum in such circumstances, it was laid down that the aggrieved party ought to invoke Section 14 of the Arbitration Act to raise a grievance with regard to such an order terminating the arbitral proceedings.” Background: The arbitral tribunal comprising three retired judges of the Bombay High Court had terminated the proceedings due to the petitioner's failure to pay the arbitral fees amounting to ₹9 lakh per member despite multiple reminders. While terminating the proceedings, the petitioner's claims were rejected and the respondents were allowed to pursue their counter claims. The tribunal also imposed costs of ₹10 lakh on the petitioner for its non-compliance. Aggrieved, the petitioner had filed a writ petition stating that the termination was drastic and without jurisdiction. The petitioner submitted that the tribunal exceeded its jurisdiction under section 38(2) by terminating the proceedings. Since there was no specific remedy challenging the termination of the proceedings, the writ petition was maintainable. Lastly, it was argued that substantial amounts had already been paid therefore the extreme measure of termination of the proceedings was unwarranted. Per contra, the petitioner admittedly failed to deposit amounts from time to time, despite chances having been granted and undertakings having been given to the arbitral tribunal, and therefore, the petitioner cannot raise any grievance with regard to the impugned order passed by the arbitral tribunal. Findings: The court at the outset observed that the tribunal is empowered to terminate the proceedings under section 38(2) of the Arbitration Act when a party fails to deposit its share of fees. Referring to sections 31(8) and 31A of the Act, the court observed that the fees and expenses of the arbitrators form part of costs of arbitration, therefore the tribunal acted within its jurisdiction. It held that “the arbitral tribunal, while exercising power under Section 38(2), can certainly pass an order where a party fails to deposit amounts towards fees of the arbitrators. Therefore, it cannot be said that the impugned order was without jurisdiction.” Rejecting plea of violation of natural justice, the court observed that the petitioner had been given sufficient opportunities to pay arrears but failed to comply. The plea of financial difficulty did not also inspire confidence. The court held that “the tribunal has shown indulgence more than expected… The claimant did not show bona fides by making even part payment.” On maintainability, the court held that although order of termination of the proceedings is not amenable to jurisdiction under section 34, this legislative vacuum can be bridged by invoking section 14 of the Act. It relied on Lalitkumar Sanghavi v. Dharamdas and Ramchandra Udaysinh Jadhavrao v. Girish Avhad. The court held that “even if termination under Section 38(2) is distinct from Section 32(2)(c), in absence of a direct remedy under the Act, the aggrieved party may invoke Section 14 to raise a grievance regarding such termination.” Case Title: Marvel Sigma Homes Private Limited through its Director Vishwajeet Subhash Jhavar Vs. Sanjay Jasubhai Desai and others Case Number: WRIT PETITION NO.3319 OF 2024 Judgment Date: 03/10/2025 Click Here To Read/Download The Order

Order Terminating Proceedings For Non-Payment Of Arbitral Fees Can Be Challenged U/S 14 A&C Act, Not Through Writ Petition: Bombay HC

Mohd Malik Chauhan

Tags