Introduction:
This Article discusses the position in law when the Arbitral Tribunal has terminated the arbitral proceedings on account of non-payment of fees due to the Arbitral Tribunal. Under Section 38(2) 1 of the Act, where one party fails to pay its share of the deposit, the other party may pay the said share of the deposit. Provided that where the other party also does not pay the share, in that case the arbitral tribunal may choose to either suspend or terminate the arbitral proceedings in respect of such claims or counterclaims.
The termination of arbitral proceedings has a specific connotation under the Act. As per Section 32(1)2 of the Act, arbitration proceedings are terminated either when a final decision (award) is made or by an order of the Arbitral Tribunal under the grounds mentioned in sub-section (2) which are as follows:
a) If the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute;
b) If the parties agree on the termination of the proceedings, or;
c) If the Tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.
Conceivably, the non-payment of fees is covered under sub-clause (c) of Section 32(1) of the Act. Therefore, in case of non-payment of the Arbitral fees, the Tribunal can terminate the arbitral proceedings under Section 38(2) of the Act or Section 32(2)(c) of the Act on the ground that the continuation of proceedings has become unnecessary or impossible. Additionally, in case the proceedings are terminated under 32(2) of the Act, the mandate of the arbitral tribunal shall also be terminated simultaneously in terms of Section 32(3) of the Act.
Here, it is important to note the difference between termination of the 'mandate of arbitrator' and termination of the arbitral proceedings. As per Sections 14(1)(a) 3 and 15(1)(a)4 of the Act, arbitrator's mandate is terminated if they cannot act, withdraw, or if both parties agree. The Hon'ble Delhi High Court in the case of Chemical Sales Corp. v. A & A Laxmi Sales & Service5, held that, if the arbitration proceedings have been terminated, the Claimant cannot continue unless the termination order is set aside, however, if only the arbitrator's mandate expires, a substitute arbitrator can be appointed. Section 29A of the Act provides for the mandate of the arbitral tribunal and recourse against the expiry of the mandate of arbitral tribunal. However, in case of termination of arbitral proceedings under Section 32(2)(c) of the Act, the mandate of the arbitral tribunal also expires at the same time vide Section 32(3)
Judicial Approach to Termination of Arbitral Proceedings
The first question is whether the arbitral tribunal which has passed the order terminating the arbitral proceedings can revive the same via an application for review and recall of its orders. In the case of Sai Babu Vs. Clariya Steels Pvt. Ltd.6, the appointed sole arbitrator terminated proceedings u/s 32(2)(c) of the A&C Act, 1996. However, while deciding an application to recall the aforesaid order, the learned arbitrator passed an order stating that, as good reasons had been made out in the affidavit for recall, he was inclined to recall the order even though under the Act, in law, it may be difficult to do so. A revision filed against the aforesaid order was dismissed by the High Court on 14.06.2017. Thereafter, the Hon'ble Supreme Court while deciding the SLP filed by the Claimant against the dismissal of the Writ Petition filed before the Karnataka High Court by order dated 14.06.2017, held that,
"...It is clear, therefore, that a distinction was made by this Court between the mandate terminating Under Section 32 and proceedings coming to an end Under Section 25. This Court has clearly held that no recall application would, therefore, lie in cases covered Section 32(3)."
The correct course of action i.e. filing of application under Section 14 read with Section 15 of the Act has been provided by the judgments of the Hon'ble Supreme Court. In the case of Lalitkumar V. Sanghavi (D) Th. L.Rs. and Ors. vs. Dharamdas V. Sanghavi and Ors.7, the Hon'ble Supreme Court addressed the issue of termination of arbitral proceedings after the original applicant's death. The Court found that the arbitral tribunal's order terminating the proceedings was made under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996, which allows for termination when continuation of proceedings becomes impossible or unnecessary. The Supreme Court clarified that the proper remedy for challenging such a termination is not to seek the appointment of a new tribunal under Section 11 or to file a writ petition under Articles 226 or 227 of the Constitution. Instead, the aggrieved party must approach the appropriate court under Section 14(2) of the Act to determine the legality of the termination. Section 14(2)8 of the Arbitration & Conciliation Act, 1996 provides that if there is any persisting controversy surrounding the termination of the mandate of the arbitrator on any grounds mentioned in Sub-Clause (a) of Section 14, then the parties may approach the Court to decide on the issue of termination of the mandate of arbitrator. Correspondingly, a substitute arbitrator can be appointed under section 15(2)9 of the Act for continuation of arbitral proceedings.
In Angelique International Ltd. v. SSJV Projects10, the Delhi High Court addressed the issue of whether the termination of arbitration proceedings by the arbitrator—specifically under circumstances where the claimant was not prosecuting its claims—constituted a termination under Section 32(2)(c) of the Arbitration and Conciliation Act, 1996. The court found that such a termination amounts to a final award, and clarified that the appropriate remedy for an aggrieved party is not to seek the appointment of a new tribunal or to file a writ petition, but rather to challenge the termination by making an application to the court under Section 14(2) of the Act to determine whether the arbitrator's decision to terminate the proceedings was justified.
In the case of Harshbir Singh Pannu and Ors. vs. Jaswinder Singh11, the Punjab and Haryana High Court addressed the issue of whether a substitute arbitrator could be appointed after arbitral proceedings were terminated under Section 38 of the Act, due to non-payment of fees by the parties. The court clarified that the termination of arbitral proceedings under Section 32(2)(c) of the Act, where the tribunal finds that continuation has become unnecessary or impossible, such as for non-payment of fees, is distinct from the mere termination of the arbitrator's mandate. The court held that once proceedings are terminated under this provision, the appropriate remedy is not to seek the appointment of a new tribunal or to file a writ petition, but rather to challenge the validity of the termination order by applying to the court under Section 14(2) of the Act, which allows the court to decide whether the grounds for termination were justified.
In Supreme Infrastructure India Ltd. v. NATRIP Implementation Society12, the Arbitral Tribunal terminated the proceedings on account of the non-payment of fees, and its twelve-month time limit had also expired at the time of passing of the aforesaid arbitral order. When the Tribunal was approached a second time for revival of arbitration, the Tribunal pointed out that the mandate has already expired at the time of the passing of the order for termination of proceedings. The Hon'ble Delhi High Court treated this as an issue under section 29-A of the Act instead of section 14 or section 15, and extended the Tribunal's mandate, allowing the proceedings to continue.
Conclusion
In light of the foregoing discussion, it can be concluded that if there is a termination order under section 32(2) or 38(2) of the Act on account of non-payment of arbitral fees, a party must go to court under section 14(2) read with Section 15 of the Act for substitution of the arbitral tribunal. Correspondingly, the mandate of the arbitral tribunal in terms of Section 29A may also require extension by the Court.
Footnotes
1 Deposits, Section 38, Arbitration & Conciliation Act, 1996.
2 Termination of Proceedings, Section 32, Arbitration & Conciliation Act, 1996.
3 Failure or impossibility to Act, Section 14(1), Arbitration & Conciliation Act, 1996.
4 Termination of mandate and substitution of arbitrator, Section 15, Arbitration & Conciliation Act, 1996.
5 Para 10-11, Chemical Sales Corp. v. A & A Laxmi Sales & Service; MANU/DE/3570/2011
6 Para 3 2019; Sai Babu Vs. Clariya Steels Pvt. Ltd.; 2019 (5) SCJ 503
7 Para 14-17; Lalitkumar V. Sanghavi (D) Th. L.Rs. and Ors. vs. Dharamdas V. Sanghavi and Ors.; (2014)7SCC255
8 Section 14(2), Arbitration & Conciliation Act, 1996.
9 Section 15(2), Arbitration & Conciliation Act, 1996.
10 Para 32, Angelique International Ltd. v. SSJV Projects, 2018 SCC OnLine Del 8287
11 Para 14, Harshbir Singh Pannu and Ors. v. Jaswinder Singh, MANU/PH/0040/2025
12 Para 33, Supreme Infrastructure India Ltd v. Natrip Implementation Society (Natis) Constituted for Execution of National Automotive Testing and R and D Infrastructure Project, (O.M.P. (T) (COMM.) 76/2020) (Delhi High Court)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
