Delhi High Court Stays Arbitral Proceedings Where Petitioner's Defence Was Struck-Off Due To Non-Payment Of Arbitral Fees

The Delhi High Court bench of Justice Sanjeev Narula has held that the striking off of the defence of the Petitioner for non-payment of arbitral fees is a drastic measure that exceeds the jurisdiction of the Arbitrator. The Court observed that under Section 38(2) of the Arbitration and Conciliation Act, 1996, the Tribunal should allow the proceedings to continue with the Claimant bearing the costs initially, subject to recovery in the final award. The court, exercising its supervisory jurisdiction under Article 227 of the Constitution, stayed the arbitration proceedings pending before the Sole Arbitrator under the aegis of the Delhi International Arbitration Centre (DIAC). Brief Facts: Disputes had arisen between the parties from a Subscription and Shareholding Agreement executed in July 2004. The parties were referred to Arbitration under the aegis of DIAC. The petitioner filed her statement of defence. During the hearings, the Petitioner expressed her inability to deposit her share of the arbitral fees due to financial constraints. The Arbitral, however, Tribunal directed her to pay the fees. Despite several reminders from the Tribunal, the Petitioner did not deposit the fees. Through the impugned order, the Petitioner's defence was struck off on account of non-payment of fees. The Petitioner filed the writ petition challenging the impugned order. Contentions of the Parties: Counsel for the Petitioner submitted that the case involved rare and exceptional circumstances justifying intervention of the court under Article 226. It was contended that closing a party's right to contest arbitral proceedings is an extreme measure which should only be exercised if it is expressly provided for in the Arbitration & Conciliation Act or the DIAC (Arbitration Proceedings) Rules, 2023. Under Section 38 of the Act and Rule 33 of the DIAC Rules, the Respondent could be directed to pay the balance arbitral fee. If the Respondent refuses, DIAC may either terminate or continue the proceedings while retaining a lien on the award under Section 39 of the Act. Per contra, Counsel for the Respondents submitted that since Petitioner did not comply with the directions of the Tribunal, the Tribunal was justified in passing the impugned order. Observations: The Court stated that supervisory jurisdiction under Article 227 should be exercised sparingly. However, interference is warranted when there is a manifest disregard of justice or a fundamental violation of procedural law. The court noted that “Section 38(2) of the Arbitration and Conciliation Act stipulates that parties shall deposit equal shares of the arbitral fees. The first proviso to Section 38(2) allows the other party to pay the other party's share who fails to pay. The second proviso provides that if the required deposits are not paid, the Arbitral Tribunal may suspend or terminate the proceedings.” The court held that the Tribunal ought not to have struck off the defence if the Petitioner did not pay the fee. It held that the Tribunal should have permitted the proceedings to continue with Respondent bearing the petitioner's share of fees, which would be recoverable through the final award. By striking off the defense, the Tribunal exceeded its jurisdiction. Therefore, the court stayed the Arbitral proceedings before DIAC. Case Title: Sumana Verma vs. Arti Kapur & Anr.Citation: 2024 LiveLaw (Del) 1295 Case Number: W.P. (C ) 16203/2024 Counsel for Petitioner: Mr. Ashish Dholakia, Senior Advocate with Mr. Sambit Nanda, Ms. Samaya Khanna, Mr. Subodhday, Advocates. Counsel for Respondents: Murari Tiwari, Mr. Rahul Kumar, Ms. Nimisha Gupta, Mr. Manoj Kumari, Mr. Arvind Pandey, Advocates. Date of Order: 25.11.2024 Click Here To Read/Download The Order

Delhi High Court Stays Arbitral Proceedings Where Petitioner's Defence Was Struck-Off Due To Non-Payment Of Arbitral Fees

Tazeen Ahmed

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