If a party fails or refuses to pay the fees of an arbitral tribunal, several options are available to the tribunal to enforce the payment of its fees.
For instance, an “arbitral tribunal has the discretion to apportion the costs (including arbitrators’ fees and expenses) between the parties in terms of section 31(8) and section 31A of the Arbitration Act and also demand deposit (advance on cost) in accordance with section 38 of the Arbitration Act.” [ONGC v. Afcons Gunanusa JV].
An arbitral tribunal also has the power in terms of Section 38(2) of the Arbitration and Conciliation Act, 1996 to direct the non-erring party to pay the share of the deposit of the erring party. In a situation where both parties fail to pay for their share of the deposit ordered to be paid by the arbitral tribunal in respect of the claim or counterclaim, the arbitral tribunal has the power to suspend or terminate the arbitral proceedings in respect of such claim or counterclaim, as the case may be.
The tribunal also has the power to keep a lien on the award. In the matter of Rehmat Ali Baig v. Minocher M Deboo, the Bombay High Court held that the arbitral tribunal’s power to have a lien on the award does not override its power to terminate the arbitral proceedings.
Application of Section 27(5) to orders by arbitral tribunal on its fees
The Supreme Court in ONGC v. Afcons has also observed,
“If while fixing costs or deposits, the arbitral tribunal makes any finding relating to arbitrators’ fees (in the absence of an agreement between the parties and arbitrators), it cannot be enforced in favour of the arbitrators.”
Clearly, in the absence of an agreement between the parties, an arbitrator has no power to enforce its orders relating to its fees/deposits. However, where the fees of the arbitral tribunal have been fixed with the agreement/consent of the parties, and there is a default of such an order, the question that would arise is – whether such an order can be enforced by an arbitral tribunal by taking recourse to Section 27(5) of the Arbitration Act?
In my view, such an order would be viable on a conjoint reading of Section 17(2), Section 27(5) and paragraphs 6, 7 and 9 of Alka Chandewar v. Shamshul Ishwar Khan.
In 2017, the Supreme Court, placing reliance on the 246th Law Commission Report, held that Section 17(2) was inserted into the Arbitration Act in order to provide a “complete solution” and there was no longer a requirement to follow the “cumbersome” procedure set out in Section 27(5) whereby the arbitral tribunal is required to apply to the High Court to enforce/seek contempt of its orders.
Prior to the Arbitration and Conciliation (Amendment) Act, 2015, there was no statutory provision giving teeth to the orders of an arbitral tribunal. Recognising this lacuna in the law, the Delhi High Court in the matter of Sri Krishan v. Anand gave Section 27(5) an expansive reading. In the Court’s opinion, while Section 27(5) was couched under the heading “court assistance in taking evidence”, the wording of Section 27(5) was wide enough to cover any default of the order of the arbitral tribunal or acts which are contumacious. Further, the court had the power to proceed against the errant party “either under the provision of contempt of the Courts Act (or) under the provision of Order 39 Rule 2A CPC”.
The Law Commission recognised the need for providing “teeth to the interim orders of the arbitral tribunal…”, and it was in this context that the 246th Report recommended the insertion of Section 17(2) to the Arbitration Act, which was added through the 2015 amendment.
Interplay between Section 17(2) and Section 27(5)
Any order issued by the arbitral tribunal under Section 17 is “deemed to be an order of the Court” and enforceable under the Code of Civil Procedure, 1908, in the same manner as if it were an order of the court. Therefore, an aggrieved party can enforce any order of an arbitral tribunal, just as any other litigant could if a court order were violated. And in such an event, the process stipulated by Section 27(5) would not need to be followed.
It is important to note, that while there is no distinction in the manner of enforcement of an arbitral order and a court order, the remedy of Section 17(2) is available only in cases of violation of orders passed by the arbitral tribunal under Section 17, and not otherwise. This is due to the presence of the words “under this section” after the words “any order issued by the arbitral tribunal” in Section 17(2).
In Alka Chandewar, the Bombay High Court held that Section 27(5) had to be read in the context of the entirety of Section 27 and not in isolation, and was confined to violation by a party “in respect of taking evidence”. The Supreme Court disagreed with the limited reading of Section 27(5) by the High Court, and held that “any contempt to the Arbitral Tribunal” would fall “within its ken”.
A conjoint reading of Sections 17(2), 27(5) and paragraphs 6, 7, and 9 of Alka Chandewar will reveal that any other order, other than one passed by an arbitral tribunal under Section 17, can be enforced provided the arbitral tribunal follows the mandate of Section 27(5) of the Arbitration Act. Seen in this light, there are two distinct methods of enforcing an order of an arbitral tribunal under the Arbitration Act –
(i) an order passed under Section 17 can be enforced directly by an aggrieved party in court as if it were any order of the court; and
(ii) an order other than one passed by the arbitral tribunal under Section 17, can only be enforced by the arbitral tribunal by making a representation to court for contempt of its order.
Clearly, an order passed by the arbitral tribunal which falls outside the domain of a Section 17 order would be enforceable by an arbitral tribunal by making a representation to the court for contempt of its order under the second category stated above. While the Supreme Court in ONGC v. Afcons states, “unilateral determination of fees violates the principles of party autonomy and the doctrine of the prohibition of in rem suam decisions, i.e., the arbitrators cannot be a judge of their own private claim against the parties regarding their remuneration”, there is no bar on an arbitral tribunal enforcing its order for the payment of fees, arrived at by mutual consent, under Section 27(5).
The author recognises the invaluable inputs and assistance of Hina Shaheen, Advocate. This article was first published on Bar and Bench. You can read the original article by following the link – https://www.barandbench.com/columns/how-does-an-arbitral-tribunal-enforce-payment-of-its-fees
