Arbitrator’s Inaction Over Fees Deemed Withdrawal: Bombay High Court

The court held that an arbitrator who unilaterally revises fees and suspends proceedings indefinitely neither resigns nor proceeds, effectively triggering their withdrawal from office and the termination of their mandate by law.

MUMBAI, INDIA – The Bombay High Court, in a significant ruling that reinforces the principles of party autonomy and procedural integrity in arbitration, has held that an arbitrator who suspends proceedings indefinitely following a dispute over a unilateral fee revision is deemed to have withdrawn from office. Justice Somasekhar Sundaresan concluded that such inaction, coupled with the relentless ticking of the statutory clock, terminates the arbitrator's mandate by both "effective withdrawal" under Section 15 and by "efflux of time" under Section 29A of the Arbitration and Conciliation Act, 1996.

The judgment in S.S. Trading Company Limited v. S.N.C. Trading Company provides critical clarity on the permissible conduct of an arbitral tribunal when faced with non-payment of fees. It firmly establishes that an arbitrator cannot hold proceedings in a state of "sine die limbo" and must choose between resigning or continuing the process and exercising a statutory lien on the final award.

Factual Matrix: A Dispute Over Fees Derails Proceedings

The case arose from a commercial dispute between S.S. Trading Company Limited, a petitioner super-stockist, and S.N.C. Trading Company, a respondent consignee agent. After arbitration was initiated in September 2022 over an alleged fraud of ₹1.05 crore, the proceedings took an unexpected turn. The sole arbitrator initially proceeded, even granting interim relief by freezing the respondent's bank accounts due to repeated non-appearance.

However, in April 2023, the arbitrator inexplicably demanded that the petitioner cover the respondent's share of costs and unilaterally revised the fee structure. The tribunal then issued an order stating, "This Tribunal stands suspended till funds are arranged to support the process," effectively adjourning the matter indefinitely.

The petitioner vehemently protested this move, citing the Supreme Court's landmark judgment in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV , which prohibits arbitrators from unilaterally determining their own fees. Despite the petitioner offering to pay under protest to move the matter forward, the arbitrator refused to schedule further hearings and instead demanded an apology, leading to a complete impasse. This compelled the petitioner to approach the High Court seeking the appointment of a substitute arbitrator under Sections 11 and 15 of the Arbitration Act.

The Court’s Analysis: Inaction as Effective Withdrawal

Justice Sundaresan’s analysis delved into the interplay between several key provisions of the Arbitration Act to address the arbitrator's conduct. The court found that the arbitrator’s actions—or lack thereof—triggered multiple grounds for the termination of the mandate.

1. The Prohibition on Unilateral Fee Revisions

At the heart of the issue was the arbitrator's unilateral fee enhancement. The Court relied heavily on the Supreme Court's ratio in ONGC v. Afcons , stating, “Arbitrators do not have the power to unilaterally issue binding and enforceable orders determining their own fees. A unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions...”

Justice Sundaresan clarified that the arbitrator’s revised fee demand was merely a "proposal." When the parties did not consent, the arbitrator was left with two legitimate options: resign or continue the proceedings. The court noted, "The Learned Arbitral Tribunal could have resigned having been unhappy with the fee default... The Learned Arbitral Tribunal could have also continued with the arbitration to eventually exercise a lien on the award under Section 39 of the Act."

2. Deemed Withdrawal and Failure to Act

By choosing neither to resign nor proceed, the arbitrator created a procedural deadlock. The court interpreted this inaction as both a failure to act without undue delay under Section 14(1)(a) and an "effective withdrawal from office" under Section 15(1)(a). The order suspending the proceedings "unless the unilaterally revised fees are paid" was deemed an abdication of the arbitrator's duty to conduct the proceedings expeditiously.

The judgment emphasized that an arbitrator cannot simply "hold on to" the case while refusing to conduct it. Such conduct was found to be untenable, as it frustrates the very purpose of arbitration as an efficient dispute resolution mechanism.

3. The Inexorable Effect of Section 29A

The Court further found that, irrespective of the arbitrator's actions, the mandate had terminated by operation of law. Section 29A of the Act prescribes a twelve-month timeline for making an award from the date the pleadings are complete. Justice Sundaresan observed that the clock under this section "would be ticking in the mean-time."

The statement of defence was belatedly filed on April 15, 2023. The Court calculated that even if this filing were accepted, the twelve-month period would expire on April 14, 2024. The judgment stated, “While there may have been an impasse since then, with a war of words between the arbitrator and the Petitioner making matters worse, and the arbitrator neither resigning nor conducting the proceedings, evidently, the mandate stood terminated by operation of law.” This finding underscores that statutory timelines continue to run regardless of any suspension orders issued by the tribunal, providing a crucial backstop against indefinite delays.

Legal Implications and Guidance for Practitioners

This ruling offers vital guidance for arbitrators, legal counsel, and parties involved in arbitration:

• For Arbitrators: The judgment serves as a clear directive on professional conduct in fee-related disputes. An arbitrator’s fee structure must be agreed upon with the parties. If a fee dispute arises mid-stream, the arbitrator's recourse is limited. They may resign, or they must continue the proceedings and secure their unpaid costs through the statutory lien available under Section 39 on the final award. Indefinitely suspending proceedings is not a permissible option and risks termination of their mandate.
• For Parties and Counsel: This decision empowers parties who find themselves in a procedural stalemate due to an arbitrator's refusal to proceed over fees. It confirms that inaction can be legally construed as a withdrawal, providing a solid basis to petition the court for a substitute arbitrator. Furthermore, the Court’s strong reliance on Section 29A provides an additional, objective ground for termination, reminding practitioners to diligently track statutory deadlines.
• Strengthening Arbitration Integrity: By curtailing the ability of an arbitrator to use procedural suspension as leverage in a fee dispute, the judgment fortifies the integrity and efficiency of the arbitral process. It reaffirms that party autonomy is paramount and that the arbitrator's role is to facilitate, not obstruct, the resolution of disputes.

Conclusion: Appointing a Substitute

Having established that the sole arbitrator's mandate was terminated on multiple grounds, the Bombay High Court allowed the petition. The court exercised its power to ensure the continuation of the proceedings, directing the online dispute resolution institution, Presolv360, to appoint a substitute sole arbitrator to adjudicate the disputes.

This judgment is a robust reaffirmation of the judiciary's role in supervising the arbitral process and ensuring that it remains a fair, efficient, and party-driven mechanism for justice. It sends an unequivocal message that while arbitrators are entitled to their fees, they cannot become judges in their own cause or bring proceedings to a grinding halt to enforce a disputed financial claim.