Madras High Court: In an application filed under Section 39 of the Arbitration and Conciliation Act, 1996 to direct Justice F.M. Ibrahim Khalifulla, Former Supreme Court Judge, to release the lien on the Award dated 30-04-2021 and consequently to provide a complete, signed copy of the said Award to the applicant, Abdul Quddhose, J. gave the following directions:
The Registrar General was directed to endorse the Fixed Deposit Receipt for a sum of Rs.15,00,000/-, which is now lying to the credit of these applications together with accrued interest in favour of the Arbitrator as expeditiously as possible, without any further delay.
The Insolvency Professional (‘IP’) appointed by the National Company Law Tribunal (‘NCLT’) was directed to pay the Arbitrator the balance amount of Rs.44,73,750/- on a priority basis from and out of the funds of the applicant. Further, IP was also directed to pay costs of Rs.5,00,000/- to the Arbitrator on account of these vexatious applications filed, which amounts to abuse of process.
A Former Judge of the Supreme Court was appointed as the Sole Arbitrator to adjudicate the dispute between the applicant and the first respondent/ claimant. Both the parties to the dispute participated in the Arbitration, which culminated in the passing of the Arbitral Award dated 30-04- 2021. The claimant has paid its portion of the Arbitrator’s fee and cost. However, the applicant failed to pay the balance Arbitrator’s fee and cost amounting to Rs.59,73,750/-. The Arbitrator has exercised his statutory lien as per the provisions of Section 39(1) of the Arbitration and Conciliation Act, 1996 for non- payment of his fees/costs by the applicant.
As per the applicant, the Arbitrator has imposed and demanded exorbitant Arbitration fees/costs from the applicant and has wrongfully exercised lien on the Award for the alleged non-payment of the Arbitrator’s fees. It is also the case of the applicant that since the applicant is facing CIRP proceedings before the NCLT, the Arbitrator’s fees cannot be paid to the Arbitrator.
After taking note of ONGC v. Afcons Gunanusa JV, 2022 SCC OnLine SC 1122, the Court reiterated that the Arbitrator cannot determine his fees without consulting the parties, upholding the significance of party autonomy. Further, the term “costs” and “fees” are two different paradigms, where costs shall include Arbitrator’s fees. However, an Arbitral Tribunal cannot pass a binding order on its fees, while determining the amount of costs. The Arbitrator in terms of Section 39(1) of the Act, can exercise his lien over the Arbitral Award if any payment remains outstanding. Similarly, a party can approach the Court to review the fees demanded by the Arbitrator under Section 39(2) of the Act, if it believes that the fees are unreasonable.
Concerning the present dispute, the Court said the applicant, though having agreed to pay the fees of the Arbitrator as per the schedule of fees, has taken a complete U-turn by making false allegations against the Arbitrator as if he has charged his fees exorbitantly and has refused to pay the sum of Rs.59,73,750/-. The Court noted that the applicant has agreed to the terms of the Arbitrator unconditionally by accepting the Minutes of the Arbitral proceedings regarding the payment of the Arbitrator’s fees by signing the same. Thus, it said that he has frivolously filed these applications under Section 39(2) of the Arbitration and Conciliation Act, 1996, which undoubtedly amounts to abuse of process of Court and law.
The Court said that in Afcons case (supra), the law relating to arbitrator’s fees was settled. Further, it was observed that the fixation of fees by an Arbitrator depends upon (a) complexity of the disputes, (b) difficulty or novelty of the questions involved, (c) the skill, specialised knowledge and responsibility of the Arbitral Tribunal, (d) number and importance of documents to be studied, (e) value of the property involved or the amount or the sum in issue and (f) importance of the dispute to the parties. The Court said that in the case on hand, the decision making involved all aspects.
The Court said that a Former Supreme Court Judge’s fee cannot be equated to a regular Arbitrator. Justice F.M. Ibrahim Khalifulla’s experience as a Chief Justice of Jammu and Kashmir High Court and as a Judge of the Supreme Court will certainly add enormous value /weight to an Arbitral Award.
Further, it said that despite knowing the Arbitrator’s credentials, the applicant has recklessly filed these applications under Section 39(2) of the Arbitration and Conciliation Act, 1996 seeking for reduction of the Arbitrator’s fees and for revision of the same by this Court by making false allegations against him, as if he has claimed exorbitant fees from the applicant without any basis. The Fourth schedule to the
The Court noted that the parties had agreed to pay the Arbitrator’s fees as per the Minutes recorded by the Arbitrator in the various meetings held by the Arbitrator during the Arbitral proceedings. Statements of accounts were also furnished by the Arbitrator regarding his balance fees payable, which were also duly acknowledged by both the parties to the dispute. They did not raise any hue and cry during the pendency of the Arbitral proceedings regarding the Arbitrator’s fees fixed by the Arbitrator which was fixed only with the consent of both the parties during the Arbitral proceedings.
Thus, as no dispute was raised during the Arbitral proceedings with regard to the quantum of Arbitrator’s fee/ cost, the question of entertaining these applications at this stage will not arise. Thus, the Court rejected the application for being vexatious and for abuse of process of Court and Law.
Moreover, the Court said that the moratorium order dated 08-08-2023 passed by the NCLT does not prohibit the Insolvency Professional / Liquidator from paying the fees of the Arbitrator who is liable to be paid in respect of the arbitration between the applicant and the first respondent, which has culminated in the passing of the Arbitral Award, dated 30-04-2021, which is much prior to the moratorium order dated 08-08-2023. Further, it said that if the Arbitrators are not paid their fees / costs on account of the moratorium order, the object of arbitration will get defeated, as competent Arbitrators will hesitate to become Arbitrators in a dispute involving Companies facing financial crisis.
After taking note of the guidelines of IBBI dated 12-06-2018 about fee and other expenses incurred by IP or Corporate Insolvency Resolution Process., the Court said that the payment of the fee payable to an Arbitrator appointed by the Court by the Insolvency Professional cannot be held to be unreasonable. The fees payable to an Arbitrator appointed by this Court have to be necessarily treated as costs incurred for Corporate Insolvency Resolution Process.
The Court also said that an arbitrator appointed by this Court cannot be left high and dry. His fees / costs are paramount, and they have to be treated as preferential payments even in case where CIRP proceedings are pending before the NCLT, which has passed a moratorium order. The Arbitrator’s fees stand on a higher pedestal and has to be treated as a priority payment. His fees/costs for the services rendered by him during the arbitration and for pronouncement of the Arbitral Award cannot be deferred / deprived.
Thus, it said that unless the applicant pays the agreed balance Arbitrator’s fees, the lien exercised by the Arbitrator’s under Section 39(1) of the Arbitration and Conciliation Act, 1996 will not get extinguished.
[EDAC Engineering Ltd v Industrial Fans (India) Pvt Ltd, 2023 SCC OnLine Mad 6010, Order dated 31-08-2023]
Advocates who appeared in this case :
For Applicant: Advocate G.Veerapathiran
For Respondents: Advocate Jyothi, Advocate Vinithra Srinivasan