Delhi High Court Directs Arbitrator To Refund 6 Lakh Of 14.5 Lakh Fee Paid By Parties

Brief Facts:

The appointed arbitrator initiated proceedings to resolve the disputes between the parties on February 12, 2021, and requested both parties to deposit Rs. 5,00,000/- each. Throughout the arbitration process, the arbitrator issued several procedural orders, including a decision on a Section 17 application under the Arbitration and Conciliation Act, 1996 on March 15, 2021, and subsequent orders spanning from April 19, 2021, to December 23, 2021, addressing various procedural matters and an application for impleadment.

However, on September 5, 2023, the appointed arbitrator resigned. By the date of the hearing, a total of Rs. 14,50,000/- was deposited by the parties, falling short of the directed Rs. 20,00,000/- as fee for the arbitral proceedings. The resignation led to the appointment of a new arbitrator, who commenced proceedings on September 13, 2023. Consequently, the parties approached the Delhi High Court (“High Court”) seeking reimbursement of the fees paid to the former arbitrator.

The Petitioners argued that apart from two applications, only procedural orders were issued over a year by the arbitrator, indicating there was minimal progress in the arbitral proceedings.

Observations by the High Court:

Referring to the Fourth Schedule of the Arbitration Act, which outlines fees payable to arbitrators based on the sum in dispute, the High Court noted that the maximum fee payable to an arbitrator is capped at Rs. 30 lakhs. Given that the quantification of assets under the Family Settlement was not completed, the High Court held it appropriate to consider the highest fees payable under the Arbitration Act as the standard fee for the order. The High Court noted that the reference order explicitly stated that the arbitrator would be entitled to fees in line with the Fourth Schedule to the Arbitration Act.

Upon referring the orders issued by the arbitrator between January 2021 and February 2022, the High Court noted that despite twelve hearings by the Arbitrator, only three substantive orders were issued, and the framing of issues was yet to form. Moreover, the arbitral proceedings were stayed for over a year before the arbitrator resigned.

Considering these factors and the financial status of the parties, who were individual litigants involved in a suit for partition, the High Court held that the deposited amount was substantial. Therefore, with the consent of both parties, the fee of the arbitrator was fixed at Rs. 7,50,000/- by High Court along with an additional Rs. 1,00,000/- for administrative and other expenses.

Consequently, the High Court ordered the refund of the remaining amount out of Rs. 14,50,000/-, amounting to Rs. 6,00,000/-. This sum was directed to be deposited with the Registrar General within four weeks for subsequent release to both parties, with Rs. 3,00,000/- each allotted to the Petitioners and Respondents.

Case Title: Smt. Manju Gupta & Ors. Vs Shri Vilas Gupta & Ors

Citation: 2024 LiveLaw (Del) 383

Case Number: ARB.P. 331/2020 and ARB.P. 773/2022

Advocate for the Petitioners: Mr. S.D. Singh, Mr. Kamla Prasad, Mrs. Meenu Singh, Mr. Siddharth Singh Advs

Advocate for the Respondent: Mr. Ankit Singal & Mr. Samyak Jain, Advs for R-4 – R-6

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