TERMINATION OF ARBITRATOR AND FEES PAYABLE TO HIM

An arbitrator or an Arbitral Tribunal is not always statutory. It is, ordinarily, a forum chosen by the parties for resolution of their disputes. An Arbitral Tribunal with the consent of the parties decides their disputes.  The Arbitrator is entitled a fee as stipulated in Fourth Schedule of the Arbitration and Conciliation Act, 1996 (‘Act’ for short). The arbitrator can claim administrative expenses on actual basis.

Section 14 of the Act provides that the mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if-

(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and

(b) he withdraws from his office or the parties agree to the termination of his mandate.

Section 15 of the Act provides for the termination of the mandate of the arbitrator and substitution of arbitrator.

In MOHAN LAL FATEHPURIA Versus M/s BHARAT TEXTILES & ORS. - 2025 (12) TMI 872 - Supreme Court, the appellants husband and wife. They formed a partnership firm with respondent Nos. 3 and 4. They executed a partnership deed on 18.05.1992, which contains an arbitration clause. The respondent No.1 Bharat Textiles was registered as a partnership firm on 05.01.2007. Disputes have arisen between the parties. The appellants filed two applications before the High Court for the appointment of arbitrator. The High Court appointed one Shri Anjum Javed, as an arbitrator. The High Court also held that the arbitrator is entitled fees as per 4^th Schedule to the Act.

The arbitrator started the arbitration proceedings on 20.05.2020. The arbitrator issued various directions on various dates. The arbitrator directed the parties to the dispute to deposit various amounts as administrative expenses. The respondents challenged the said directions under Section 14 of the Act and also filed application under Section 15 for the termination of the arbitrator. The said applications were dismissed by the High Court and held that the fee payable to the arbitrator in respect of administration is as per the actual expenses incurred. The High Court directed the parties to approach the Arbitrator for the fixation of administrative expenses. In regard to the termination of the mandate of arbitrator, the High Court held that the sole arbitrator is neither de jure nor de facto ineligible to act an arbitrator.  

After this the arbitrator gave directions to deposit the administrative expenses on 09.07.2022, 06.01.2023 and 14.08.2023. The appellants sought time of the Tribunal so as to enable them to move an application under section 29A(4) of the Act, which provides that if the award is not made within the period specified in 29A (1) or the extended period specified under section 29A(3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period. On knowing this application, the arbitrator adjourned the proceedings on 31.08.2023 sine die.

The appellants against filed an application under Section 29A(6) before the High Court for the substitution of the arbitrator and sought for the extension of the tenure of the arbitration. The High Court, on 22.04.2025 held that fee must be charged by the sole arbitrator strictly in accordance with Fourth Schedule and administrative expenses only on actuals with disclosure to the parties. The High Court declined the prayer of the appellants for the substitution of the arbitrator and directed the arbitrator to conclude the arbitration within four months from the date of its order.

The appellant filed the present appeal before Supreme Court. The appellant submitted the following before the Supreme Court-

• The sole arbitrator acted in contravention of the initial order of appointment dated 13.03.2020 and charged the fee and expenses in excess of Fourth Schedule.
• The sole arbitrator also violated the directions issued in the order dated 28.01.2022 passed by the High Court.
• The High Court ought to have appreciated that the power of substitution of an arbitrator is wider under Section 29A(6) of the Act and is not restricted to the grounds in Sections 14 and 15 of the Act.

The respondents submitted the following before the Supreme Court-

• No ground is made out for substitution of the sole arbitrator.
• The petitions filed by the respondents under Sections 14 and 15 of the Act have been rejected on 24.01.2022, therefore, a substitute arbitrator under Section 29A(6) of the Act, cannot be appointed.
• In case this Court directs substitution of an arbitrator, the respondents requested that a former judge be appointed, as the sole arbitrator.

The High Court considered the submissions made by both the parties. The High Court analysed the provisions of Section 29A of the Act which provides the time limit for arbitral award. The High Court observed that Section 29A was inserted vide amendment Act No. 3 of 2016. The said amendment was made due to widespread criticism of delay in conducting the arbitration proceedings, as the delay is against the avowed object of the Act i.e., speedy resolution of the dispute. Section 29A(1) mandates that an award has to be made within a period of twelve months from the date of completion of pleadings under Section 23(4) of the Act. 29A(3) enables the parties by consent to extend the period specified in sub-section (1) for making the award for a further period not exceeding six months. Section 29A(4) mandates that if the award is not made within the period mentioned in sub-section (1) or the extended period specified in sub-section (3), the mandate of the Arbitrator shall terminate, unless the court, has, either prior to or after the expiry of the period so specified, extended the period. Section 29A(6) provides that while extending the period referred to in subsection (4), the court may substitute one or all of the Arbitrators and if one or all of the Arbitrators are substituted, the arbitral proceeding shall continue from the stage already reached.

The High Court further observed that the Arbitrator entered the reference on 20.05.2020. The arbitrator directed the parties to the arbitration to deposit the amount as the administrative expenses. The period for completion of the arbitration, i.e., 6 months, expired on 19.11.2020. The period from 15.03.2020 till 28.02.2022 deserves to be excluded on account of pandemic caused by Covid-19 virus. The arbitration is to be completed on 28.02.2023, i.e., one year from the initiation of arbitration from 01.03.2022. But the arbitrator failed to completed the proceedings within one year. The parties did not apply for extension of period to pass an award.  The sole arbitrator, in view of mandate contained in Section 29A(4) became functus officio.

On expiry of the initial period of six month and extended period of six months, the Arbitral Tribunal becomes functus officio but not in absolute terms.  The termination of arbitral mandate is conditional upon the filing of an application for extension and cannot be treated termination stricto sensu. On expiry of initial period or extended period, the arbitrator cannot proceed with the arbitration proceeding and his mandate terminates, subject to an order which may be passed by the Court in a proceeding under Section 29A(4) of the Act.

The Supreme Court held that the High Court erred in granting an extension when the mandate of the sole arbitrator ceased to exist. The Supreme Court set aside the impugned order of the High Court dated 22.04.2025. Since the mandate of the sole arbitrator was terminated the Supreme Court appointed Mr. Justice Najmi Waziri, Former Judge of Delhi High Court as the substituted sole arbitrator.