Moratorium Under IBC Does Not Bar Payment Of Fees To Arbitrator Due Prior To Moratorium: Madras High Court

The High Court of Madras has held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 does not affect the payment of fees to the arbitrator for the award passed before the moratorium was declared. The bench of Justice Abdul Quddhose has held that mere initiation of insolvency proceedings against an entity should not be a ground to deny the legitimate fees to the arbitral tribunal. It observed that arbitrators provide essential services which are saved by Section 14(2) of the IBC. Moreover, it observed that when the award has been passed against the corporate debtor (CD) and the lien has been exercised by the arbitrator against the CD, the payment of arbitrator’s fees would be treated as part of costs of CIRP as it would enable the CD to challenge an unfavourable award. Facts Pursuant to a dispute between the parties, the Court had appointed the arbitrator (2nd respondent) under Section 11 of the A&C Act. In the order appointing the arbitrator, the Court had granted liberty to the arbitrator to fix his fees in consultation with both the parties. Pursuant thereto, the arbitrator entered reference and his fees was fixed. It was agreed that the arbitrator would be paid for the number of hearings and no fixed amount was decided. The parties filed their respective pleadings. During the arbitration proceedings both the parties defaulted in making timely payments to the arbitrator as his fees which led the arbitrator to exercise his power of lien on award as provided under Section 39(1) of the Act. However, the first respondent (claimant in arbitration) cleared its dues and the award was delivered to it. But, the applicant (respondent in arbitration) instead of clearing its dues choose to file an application under Section 39(2) of the Act praying the High Court for release of lien and challenging the fees as due to arbitrator as exorbitant and excessive. Contention of the Parties The applicant sought the release of lien and delivery of the award on the following grounds: The second respondent/arbitrator has imposed and demanded exorbitant fees and has wrongly exercised lien on the award. The fees demanded by the arbitrator is in excess and above the amount permissible under the IVth schedule to the Act.The applicant is admitted under insolvency and a moratorium is declared against it, therefore, it cannot be burdened with the payment of an such a big amount. The second respondent made the following counter arguments: The fees were fixed with the mutual agreement of the parties. The applicant had never contested the amount of fees as fixed by the arbitrator and it is only when the award was made that the said ground was taken by the applicant as an afterthought.Periodical statement of account was filed by the arbitrator indicating every meeting and the outstanding payment.The arbitrator has rightly exercised its statutory right granted under Section 39(1) of the Act and the award can be delivered to the applicant on the payment of the due amount. Analysis by the Court Firstly, the Court examined the law on the fees of the arbitrator. The Court referred to the decision of the Supreme Court in ONGC v. Afcons Gunanusa, wherein the Apex Court had noted that fee schedule prescribed in Schedule IV of the Arbitration and Conciliation Act, 1996 is not mandatory and that parties to Arbitration may choose another fee structure for the Arbitrator by agreement, therefore, the arbitrator would be at liberty to determine his fees with the consent of the parties. The Court observed that both the parties had consented to the fixation of the fees by the arbitrator and the same is recorded in several orders passed by the arbitrator and the fees determined by the arbitrator was never contested by the applicant during the arbitral proceedings and it had only sought time to pay the remaining fees. The Court held that once a party has unconditionally accepted the fees fixed by the arbitral tribunal during the arbitral proceeding cannot later challenge the fees of the arbitral tribunal by filing petition under Section 39(2) of the A&C Act. The Court clarified that as per Section 39(1) of the Act, the arbitral tribunal possesses a lien on the award to cover any outstanding arbitration costs, and it has the authority to withhold the award's delivery until these costs are settled. Additionally, the Court emphasized that once a party unconditionally accepts the fees set by the tribunal during arbitration, they cannot later challenge the fees as unreasonable and request the release of the lien under Section 39(2). The Court observed that the arbitrator had filed periodical statement of account which had all the details of the date of hearing, number of meetings/sittings held and the outstanding fees of the arbitrator. The Court observed that the applicant had never disputed ...

Moratorium Under IBC Does Not Bar Payment Of Fees To Arbitrator Due Prior To Moratorium: Madras High Court

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