Overview
The case described above highlights how the Supreme Court of India interpreted the validity of the ‘termination of arbitrations based on non-payment of arbitral fees’ and ‘scopes of remedies under the Arbitration and Conciliation Act, 1996.’ The case is important since it considers ‘split judicial authorities on under which provision of Sections 25, 30, or 38 a termination under Section 32(2) shall be in accordance with.’ Additionally, it gives ‘comparative and legislative suggestions to improve arbitrations in India.’
Facts
A disagreement arose from a partnership firm, M/s Amritsar Health & Hospitality Services, which was formed under a partnership deed on 31.03.2013 and another on 12.03.2014, which had an arbitration agreement. A disagreement arose among the partners regarding capital and management, following which the appellants issued a legal notice in June 2018 for dissolution and arbitration.
Following this, since no response was received from the respondent, the Punjab & Haryana High Court, vide order dated 02.03.2020, appointed a Sole Arbitrator under Section 11 of the Act, with fees to be fixed in accordance with the Fourth Schedule or by consent.
The claims preferred by the appellants were approximately ?13.65 crores, and the counter-claim presented by the respondent was approximately ?82.78 crores, making the total claim for approximately ?96.43 crores. Based on this, the cost of arbitration before the Sole Arbitrator was fixed at ?37.5 lakhs.
Both parties were in favour of this fixed cost. The appellants based their opposition on financial inability, and the other side alleged a liability of 25% of the cost based on their share in the partnership. However, neither of them paid the mandatory deposits, despite the opportunities. As such, under Section 38, the Sole Arbitrator concluded the arbitrational proceedings on 28.03.2022.
The aggrieved appellants challenged the order of termination, Fourth Schedule, and fee determination under Article 227 before the High Court. Pending this challenge, the apex court in ONGC v. Afcons Gunanusa JV affirmed the constitutional validity of the Fourth Schedule. The High Court subsequently rejected the appeal under Section 11, hence this appeal.
Legal Issues
1. Where exactly can an arbitrator derive the right to stop an arbitration under the Act, 1996?
2. Is the application of Section 25, 30, or 38 cutoffs independent under Section 32(2)?
3. What is the relief available in opposition to an order of an arbitral tribunal to terminate an arbitration based on a failure to pay fees?
4. Whether the order of termination is in accordance with the principles laid down in ONGC v. Afcons?
Decision and Reasoning
The Supreme Court affirmed the dismissal of the arbitral proceedings and disposed of the appeal. The rationale of the Supreme Court is stated -
• Sec. 38 holds a separate power to suspend or terminate an arbitration proceeding in case a deposit is not paid; such a termination is not obligatory under Sec. 32(2).
• Termination for non-payment of fees is not an ‘award’ and therefore not liable to be set aside under Section 34.
• The relevant relief in such situations will be under Section 11, with obvious exceptions being circumstances relevant to each case.
• The parties will not claim arbitrability and then hinder the proceedings by failing to honour charges.
• The Sole Arbitrator was within jurisdiction and observed due process in affording opportunities to both sides.
The Court also underlined the role of party autonomy in combination with procedural discipline, rejecting an abuse of arbitration in delaying the resolution of a dispute.
Case Reference:- Civil Appeal No. 14630 of 2025 [Arising out of Special Leave Petition (Civil) No. 10389 of 2025] Harshbir Singh Pannu and Another Vs. Jaswinder Singh
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