Non Payment of arbitral fees : Termination of Arbitral proceedings and Remedies Available

Supreme Court Clarifies Power of Arbitral Tribunal to Terminate Proceedings and Remedies Available

Termination of arbitral proceedings under Arbitration and Conciliation Act, 1996 lies solely under Section 32(2); parties must first seek recall before tribunal, then approach court under Section 14(2); fresh Section 11 petition for arbitrator appointment not maintainable.

In a landmark judgment dated December 8, 2025, the Supreme Court of India in the case of Harshbir Singh Pannu and Another v. Jaswinder Singh has provided much-needed clarity on the power of arbitral tribunals to terminate arbitration proceedings under the Arbitration and Conciliation Act, 1996 (“the Act”) and the appropriate remedies available to aggrieved parties.

The dispute arose from a partnership agreement where parties agreed to resolve differences by arbitration. After disputes emerged, the arbitral tribunal fixed fees for adjudicating claims and counterclaims based on the Fourth Schedule of the Act, with initial consent from the parties. However, when the respondent filed a counterclaim, the tribunal revised the fees in accordance with the same schedule but without obtaining fresh consent. The appellants refused to pay the revised fees, leading the sole arbitrator to terminate the arbitral proceedings under Section 38(2) of the Act for non-payment of fees.

The appellants challenged this termination before the Punjab and Haryana High Court, which dismissed their petition and held that the arbitrator was empowered to terminate the proceedings on non-payment of fees. The High Court further held that the appropriate remedy against such termination is to first apply for recall before the arbitral tribunal, and if refused, to approach the court under Section 14(2) of the Act. It also held that a fresh Section 11 petition to appoint an arbitrator is not maintainable.

Aggrieved by this, the appellants appealed to the Supreme Court.

The Supreme Court thoroughly examined the statutory provisions - Sections 25, 30, 32, and 38 of the Act - and the corresponding UNCITRAL Model Law provisions governing arbitration. It emphasized the following key points:

1. Termination of Arbitral Proceedings Solely under Section 32(2):

The Court held that the power of an arbitral tribunal to terminate arbitral proceedings lies exclusively in Section 32(2). Other provisions, such as Sections 25 (default of a party), 30 (settlement), and 38 (deposits), merely specify circumstances that empower the tribunal to invoke Section 32(2) to terminate the proceedings. The phrase "mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings" in Section 32(3) signifies that termination ends the tribunal’s authority regardless of the specific ground for termination.

2. Meaning of Termination and Mandate:

Termination of proceedings under Section 32(2) results in the termination of the arbitrator’s mandate, i.e., the tribunal ceases to have jurisdiction over the dispute. This applies regardless of whether the termination arises from a final award, withdrawal of claims, default, or impossibility to continue.

3. Remedies Against Termination Orders:

Since the Act does not explicitly provide a remedy against an order terminating the proceedings, the Court held that the aggrieved party must first apply to the arbitral tribunal for recall of the termination order. The tribunal’s inherent procedural power allows it to recall such an order to correct errors apparent on the face of the record or overlooked material facts. If the recall application is rejected, the aggrieved party may then approach the court under Section 14(2) to decide on the legality of termination. The Court clarified that filing a fresh Section 11 petition for appointment of an arbitrator is not maintainable in such cases.

4. Fixation and Revision of Arbitral Fees:

The Fourth Schedule of the Act serves as a model fee schedule. The Court upheld its binding nature where parties cannot reach consensus on fees. While the arbitrator must seek consent for fee fixation or revision, if consensus fails, the tribunal may fix fees as per the Fourth Schedule. In this case, the sole arbitrator’s revision of fees in accordance with the Fourth Schedule after the counterclaim was filed was valid. The appellants’ refusal to pay their share was unjustified.

5. Termination for Non-payment of Fees Valid:

Given the appellants’ refusal to pay the fees for their claim and the respondent’s unwillingness to bear the appellants’ share, the tribunal was justified in terminating the proceedings under Section 38. The Court found no infirmity in this termination order.

6. Appointment of Substitute Arbitrator and Fresh Proceedings:

Considering the protracted delay and to ensure dispute resolution, the Supreme Court remanded the matter to the High Court to appoint a substitute arbitrator to conduct fresh arbitration proceedings. The substitute arbitrator may allow amendments to claims and counterclaims, and proceed de novo.

7. International Arbitration Frameworks:

The Court noted that international arbitration rules like the SIAC Rules (2025), LCIA Rules (2020), and HKIAC Rules (2024) consolidate the power to terminate proceedings into a single provision, avoiding confusion present in Indian law. The Court urged the Indian legislature to consider similar consolidation and clarity in the pending Arbitration and Conciliation Bill, 2024.

8. Need for Legislative Reforms:

The Court called upon the Ministry of Law and Justice to address the lacunae and ambiguities in the Act related to termination of proceedings, fee fixation, recall powers, and remedies against termination orders to promote expeditious and efficient arbitration.

In sum, the Supreme Court has reinforced that the termination of arbitral proceedings is a serious and final act that extinguishes the tribunal’s authority and should be exercised with care. Aggrieved parties have a two-tier remedy: recall before the tribunal, followed by judicial review under Section 14(2). Arbitrators must follow statutory and consensual norms for fee fixation, and refusal to pay fees may justify termination. The Court’s directive for fresh appointment and proceedings ensures that justice is not denied due to procedural defaults.

This judgment provides critical guidance for parties, arbitrators, and courts in India and is expected to curb frivolous delays and disputes related to arbitral fees and termination, thereby strengthening arbitration as an effective dispute resolution mechanism.

Statutory provisions: Arbitration and Conciliation Act, 1996 - Sections 11(5), 14(2), 15(2), 23, 25(a), 30, 31(8), 31A, 32(1), 32(2), 32(3), 33, 34(4), 37, 38(1), 38(2), 38(3)

Harshbir Singh Pannu v. Jaswinder Singh, (SC) : Law Finder Doc id # 2819549