Charging Exorbitant Fee Can Lead To Termination Of Arbitrator's Mandate : Rajasthan HC [Read Judgment]

The Rajasthan High Court terminated the mandate of an arbitrator for charging exorbitant fee beyond the prescribed limit.

The fee demanded by the arbitrator, a retired HC judge, was in excess of the fee prescribed as per Schedule IV of the Arbitration & Conciliation Act. The High Court as per notification issued on March 23, 2017, had notified the fee slab,which was given effect from October 23, 2015. 

The High Court held that charging of fee in excess of the prescribed rates amounted to de facto disqualification under Section 14(1)(a) of the  Act, rendering the mandate of the arbitrator liable to be terminated. 

"..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", observed Justice Arun Bhansali while allowing the petition.

The case arose of arbitration proceedings between Doshion Pvt Ltd and Hindustan Zinc Ltd(HZL). In relation to a contractual dispute between these companies, HZL approached the HC seeking appointment of an arbitrator, upon which a retired judge was appointed in September 2016.

The arbitrator fixed the fee as Rs.75 lakhs, which was contested by Doshion  as contrary to Schedule IV. On this, the arbitrator reduced the fee as Rs. 50 lakhs by order passed in May 2017, observing it was "benevolence" and "discount".

Aggrieved, Doshion appraoched the High Court. Meanwhile, the arbitrator set the company ex-parte. The High Court repelled the challenge noting that it was not the proper forum. The company then approached the Commercial Court, seeking to terminate the mandate of the arbitrator and challenging the ex-parte order.

The Commercial Court concluded that the fee was contrary to Schedule IV. Therefore, it directed the arbitrator to refix the fee as per the notification. The ex-parte order was also set aside. However, the Commercial Court refused to terminate the mandate of the arbitrator, holding that charging of excessive fee did not amount to a "dejure/defacto inability" under Section 14(1)(a).

The order of the Commercial Court, to the extent it refused to terminate the mandate of the arbitrator, was challenged in the High Court under a petition filed under Articles 226 & 227 of the Constitution of India. 

Noting that that the concept of dejure and de facto inability has not been defined under the Act, the Court observed :

"in the opinion of this Court in case the events during the conduct of proceedings before the arbitrator leads 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 that the Commercial Court only considered de jure inability. It failed to consider whether the factual situation constituted de facto inability.

The Court further noted that the proceedings before the learned arbitrator since beginning have been continuing under the shadow of conflict regarding determination of fees to be paid by the parties.The petitioner had been constantly objecting to the quantum of fees determined by the arbitrator. 

The arbitrator had also closed the evidence of Doshion and passed ex-parte award on April 1, 2018, despite the pendency of challenge in the Commercial Court.

Taking the totality of the circumstances, the Court held that petitioner will definitely have some doubt as to the conduct of the proceedings and the same would certainly lead to loss of confidence. 

The Court also criticised the use of words "benevolence" and "discount" by the arbitrator in the order which reduced the original fee fixed by Rs.20 lakhs.

The Court terminated the mandate and recalled the original order which appointed the arbitrator. The parties were directed to appoint a substitute arbitrator and commence proceedings from the stage where proceedings stood before ex-parte order was passed. In reaching the conclusions, the Court referred to the decisions of Madras and Delhi High Courts in Madras Fertilizers Limited vs.SICGIL India Limited and National Highways Authority of India vs. Gammon Engineers and Contractor Pvt. Ltd, respectively, which held that dispute regarding fixation of fee will constitute de facto inability under Section 14(1)(a).

Advocate Ankit Sareen appeared for the petitioner in the High Court.

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