1. The Original Petition is filed to appoint a fresh Arbitrator terminating the present Arbitrator and fix the Arbitrator's remuneration as not more than Rs. 6 lakhs in all payable by the petitioner and respondent.
2. The Madras Fertilizers Limited (MFL) a public sector undertaking has filed the above Petition under Section 14 r/w 11(6) of the Act 1996.
3. The brief facts leading to the above Petition are as under:
The petitioner entered into an agreement for the supply of Co2, a by-product of the petitioner Company with the first respondent. The first respondent agreed to pay the required price. Dispute arose regarding payment and the first respondent declined to pay the amount as per the reading recorded by the flow meter. The petitioner filed C.S No. 299 of 2003 for the recovery of the amounts due and the first respondent filed a Petition under Section 11 of the Act 1996 in O.P No. 338 of 2003. This Court by Order dated 1.04.2006 appointed the second respondent, a retired Chief Justice of the Himachal Pradesh High Court as the sole Arbitrator.
4. The first respondent as claimant filed a Claim Petition before the second respondent and the petitioner filed a reply statement and made a counter claim. The first respondent herein has filed a reply to the counter statement. Draft issues were also filed.
5. On 3.8.2005, the second respondent suggested that a total fee of Rs. 15 lakhs be fixed as remuneration besides a reading fee and writing fee of Rs. 1 lakh and the expenses for the conduct of the arbitration have to be borne by the parties. The petitioner paid a sum of Rs. 50,000/- towards their share of the reading and writing fee.
6. The petitioner was informed by the Counsel and the officers of the petitioner about the decision of the Arbitrator fixing his fee at Rs. 15 lakhs. As the petitioner is a sick Company incurring loss, the petitioner already finding it difficult to honour the commitment to its employees and third parties. Therefore, the fee fixed by the Arbitrator at Rs. 15 lakhs is beyond the reach of the petitioner. Hence, the petitioner sent a letter to the second respondent on 9.9.2005 informing that their share of Rs. 7.5 lakhs towards fee is beyond the financial realities of the petitioner and requesting the second respondent to accept a sum of Rs. 3 lakhs as their share of Arbitration fees. The second respondent could not accept the request and the petitioner was informed that the first respondent tendered their share of fees payable to the second respondent.
7. As the fees fixed by the Arbitrator is beyond the capability of the petitioner, the non-payment resulted in the temporary cessation of the arbitration proceedings. In such circumstance, the second respondent cannot be expected to proceed with arbitration and according to the petitioner, the second respondent has become de jure unable to perform his function and hence they have filed the above Petition for the aforesaid prayer.
8. The first respondent entered appearance through their Counsel and filed a counter statement.
9. In their counter statement, the first respondent submitted that the above petition is not at all maintainable as neither the ingredients of Section 14 nor the provisions of Section 11(6) of Act 1996 are present in the above matter.
10. It is stated by the first respondent that the second respondent fixed the fees at Rs. 15 lakhs after having a discussion with the first respondent and the petitioner represented by the petitioner's Counsel and officers. Having accepted and consented to the fixation of fee at Rs. 15 lakhs, it is not open to the petitioner, now to unilaterally fixed their share at Rs. 3 lakhs only. Further, the first respondent questioned the claim of the petitioner that they are running at loss and they are not capable of meeting the Arbitrator's fees. Even otherwise, according to the first respondent the non-payment of fees by the petitioner would not automatically result in the temporary cessation of arbitration proceedings. The Arbitrator is always willing to go ahead with the proceedings, but it is the petitioner who is not ready and who has put a spoke in the wheels of the arbitration proceedings. Hence, they prayed for dismissal of the above Petition.
11. Heard Mr. Somayaji, learned Senior Counsel for the petitioner and Mr. T.K Seshadri, learned Senior Counsel for the first respondent. I have also gone through the documents and judgments cited in support of their submissions.
12. The learned Senior Counsel for the petitioner submitted that the above facts would definitely attract Section 14(1)(a) of the Act 1996 and therefore the mandate of the Arbitrator is to be terminated. The learned Senior Counsel further submitted that the minutes of the proceedings dated 19.9.2005 was not at all signed by the Arbitrator and the contents of the minutes dated 19.9.2005 are not in good taste. In that unsigned minutes dated 19.9.2005, the second respondent Arbitrator mentioned that the Arbitral Tribunal did not have anything to do with the sustaining of losses by MFL and the amount fixed by way of remuneration cannot be considered to be on the higher side. In view of this, the learned Senior Counsel submitted that the arbitration have come to a standstill and the second respondent has become de jure unable to perform his function and therefore considering the controversy in the fixation of fees, this Court has to terminate the mandate of the Arbitrator. The learned Senior Counsel relied on the decision of the Bombay High Court reported in Amiraj Construction Company v. State of Maharashtra and others, 1988 (1) Arb L.R 278, to submit that if in any arbitration, the Arbitrators demand any unreasonable fees, such conduct is liable to be considered as misconduct, warranting superseding the Arbitral Tribunal.
13. Per contra, the learned Senior Counsel for the first respondent submitted that neither Section 14 nor Section 11 of the Act 1996 would apply in the present case and therefore Original Petition is not at all maintainable. The learned Senior Counsel further drew my attention to the proceedings of the second meeting of the Arbitral Tribunal held on 3.8.2005, according to which, the fee of Rs. 15 lakhs was fixed by the second respondent after discussion with both sides and after considering the amount involved in the claim and the counter claim. The learned Senior Counsel therefore submitted that it is not not open to the petitioner to question the fixation of fee after giving consent for the same. The learned Senior Counsel referred to Section 5, 15, 31(8) and 38 of the Act 1996 to contend that no ground has been made out by the petitioner to terminate the mandate of the Arbitrator. The learned Senior Counsel further pointed out that the decision of the Bombay High Court cited supra, and referred to by the other side will not apply to the facts of the present case as that was the decision rendered in the context of Arbitration Act, 1940 in which some of the Arbitrators are Government Arbitrators who filed inflated and exorbitant bills. He in turn relied on a decision of this Court reported in E. Logistics P. Ltd. and another v. Financial Technologies India Ltd. and others, 2007 (136) Comp. case 368 (Mad), to submit that Section 14(1)(a) & (b) of the Act 1996 will not apply to the facts of the present case.
14. I have considered the rival submissions with regard to facts and citations.
15. The prayer in the above Petition is (1) to terminate the mandate of the present Arbitrator, (2) to appoint a fresh Arbitrator, (3) to fix the remuneration of the Arbitrator as not more than Rs. 6 lakhs in all payable by the petitioner and the respondent.
16. Now, let me consider the first prayer which is to terminate the mandate of the present Arbitrator.
17. This Court in O.P No. 338 of 2003 on 1.04.2005 appointed the second respondent as the sole Arbitrator to resolve the disputes between the parties. By the very same order, this Court granted liberty to the second respondent to fix his own remuneration and the same shall be shared by both the parties in equal proportion.
18. It is not in dispute that in the second meeting held on 3.8.2005, the second respondent Arbitrator fixed his remuneration at Rs. 15 lakhs. This meeting was attended by the Counsel for the petitioner herein, and the petitioner's Company Secretary, Additional Manager and Deputy Manager (Legal). Thereafter, by letter dated 9.9.2005, the General Manager (Personnel and Administration) of the petitioner, wrote a letter to the Arbitrator, expressing their inability to pay the fee of Rs. 7.5 lakhs towards their share of the fees to the Arbitrator, and requesting the second respondent to permit them to pay a sum of Rs. 3 lakhs as full fee payable by them. It is also not in dispute that the first respondent has already paid their share of fees Rs. 7.5 lakhs. The unsigned minutes dated 19.9.2005 was filed by the first respondent in their typed set of papers. In that minutes dtated 19.9.2005, the second respondent held that Counsel for the petitioner accepted the remuneration fixed earlier was in order and the amount could be paid as directed earlier. Because of the controversy, the petitioner did not participate in the third meeting held on 4.3.2006 and the fourth meeting held on 13.3.2006 on the pretext of the Counsel being engaged otherwise. In the light of the above facts, the second respondent could not proceed with the arbitration. Whether these developments would attract Section 14(1)(a) of the Act, 1996 is the question that is to be decided in this Petition.
19. Section 14 reads as under:
â14. Failure or impossibility to actâ
(1) The mandate of an Arbitrator shall terminate ifâ
(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.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this Section or sub-section (3) of Section 13, an Arbitrator withdraws from his office or a party agrees to the termination of the mandate of an Arbitrator, it shall not imply acceptance of the validity of any ground referred to in this Section or sub-section (3) of Section 12.â
20. The learned Senior Counsel for the petitioner submits that because of the exorbitant fees fixed by the second respondent, the petitioner is not in a position to pay their share of fee resulting in the cessation of Arbitration proceedings. Therefore, the second respondent has become de jure unable to perform his function warranting termination of his mandate. But the learned Senior Counsel for the first respondent submitted that it is the petitioner who is not attending the arbitration proceedings and the second respondent is always willing to go ahead with the proceedings and therefore according to him, the Section 14 will not apply.
21. After considering and weighing both the submissions, I find force in the submission of the learned Senior Counsel for the petitioner.
22. In this case, the petitioner is aggrieved by the fees fixed by the second respondent and they made it very clear that they will not pay Rs. 7.5 lakhs being their share of arbitration fees in the light of the financial condition of the petitioner Company. But the Arbitrator found that the fees fixed by him was already accepted by the Counsel and therefore he did not heed to the request of the petitioner to reduce their share of fees of Rs. 7.50 lakhs to Rs. 3 lakhs. Though various reasons were given by the petitioner for not attending the subsequent proceedings before the second respondent, it is obvious that they are aggrieved by the fees fixed by the second respondent and that is why now they have approached this Court to terminate the mandate of the second respondent.
23. The words used in Section 14(1)(a) is that the mandate of an Arbitrator shall terminate if he has become de jure unable to perform his functions. (emphasis supplied). It is true that the second respondent is ready to go ahead with the proceedings, but somehow, the proceedings got bogged down in the light of the controversy with regard to fixation of fees by the second respondent. The word âPerform his functions used in Section 14(1)(a) will simply performing his functions effectively without any bias and with full confidence of both the parties. Performing this functions does not simply going through the motion without instilling confidence in the minds of the parties.
24. Now, if the mandate is not terminated and the second respondent is permitted to continue with Arbitration proceedings, it will amount to forcing a higher fee on the petitioner which they are not capable of paying. Further, after these controversies, disputes, exchange of correspondences, etc. with regard to fixation of fee, if the second respondent continues the Arbitration proceedings, the petitioner may not be in a proper frame of mind to proceed with the arbitration before the second respondent. They will definitely have some doubt as to the conduct of the Arbitrator and this doubt would certainly lead to loss of confidence. Therefore, such an unpleasant situation is to be avoided in the best interest of the parties including the Arbitrator.
25. Further, it was brought to my attention that this Court issued a circular under the authority of the Hon'ble Chief Justice on 31.03.2006 superseeding the earlier Circular dated 20.03.2006 In the new circular the Hon'ble Chief Justice has approved the following scale of fee for arbitration proceedings:
Sl. No.
When the Claim is Rs.
Arbitration fees per day upto Rs.
Subject to maximum Rs.
1.
Up to 10 lakhs
5000
50,000
2.
10 to 50 lakhs
5000
75,000
3.
55 lakhs and above
5000
1,00,000
26. A perusal of the fees fixed by the Hon'ble Chief Judge would reveal that the maximum fees fixed by him for arbitration proceedings is Rs. 1 lakh. It is true that the second respondent is not named in the Panel of Arbitrators constituted by the Hon'ble Chief Justice. It is equally true that the second respondent fixed his fees at Rs. 15 lakhs on 3.8.2005 prior to the first Circular dated 20.03.2006 But a comparison of the fees fixed by the Hon'ble Chief Justice and the second respondent Arbitrator would definitely make it very clear that the fees fixed by the second respondent is on the higher side, justifying the petitioner which is a Public Sector undertaking facing financial problems, requesting the second respondent for reduction of fees. However, the second respondent is not ready to accede to the request as he is of the opinion that as the Counsel for the petitioner has already consented to for the fixation of fees, the petitioner should pay the same as fixed by him. In this context, the learned Senior Counsel for the petitioner has rightly submitted that the acceptance of the fees by the Counsel is not the criterion, but it is the ability and capacity of the petitioner to pay the same. I am also of the considered view that even if the Counsel gives her consent, it is not binding on the petitioner, as it is the petitioner who is the right person to decide about its financial capability and ability. Besides this, the petitioner wrote letters to the second respondent informing about its financial conditions and requesting him to reduce his fees.
27. Because of this long drawn controversy with regard to fixation of fees by the second respondent, the arbitration proceedings could not make a headway. Therefore, taking into considerations the totality of the facts and circumstances, I am of the considered view that the second respondent has become de jure unable to perform his function effectively warranting his mandate to be terminated as per Section 14(1)(a) of the Act 1996.
28. Hence, I am inclined to terminate the mandate of the second respondent herein.
29. The other prayers in the Petition are (1) to appoint a fresh Arbitrator, and (2) to fix his remuneration as not more than Rs. 6 lakhs. These prayers fall under Section 11(6) of the Act and the Hon'ble Chief Justice is a competent person under Section 11(6) of the Act to decide these prayers.
30. Hence, I direct the Registry to post this O.P No. 148 of 2006 before the Hon'ble Chief Justice for further orders in this Original Petition.
In the result, the Original Petition is partly allowed in the above terms.