M/s EDAC Engineering Ltd vs M/s.Industrial Fans (India) Pvt. Ltd. Application Nos.2080 and 4609 of 2021
Facts:
1.Application No.2080 of 2021 has been filed to direct the second respondent (Arbitrator) to release the lien on the Arbitral Award dated 30.04.2021 and consequently to provide a complete signed copy of the Arbitral Award dated 30.04.2021 to the applicant.
2.Application No.4609 of 2021 has been filed to fix the fees of the second respondent/Arbitrator, who has passed the Arbitral Award dated 30.04.2021.
3.The applicant is the respondent in the Arbitration and the first respondent is the claimant. Pursuant to the Orders passed by this Court dated 20.03.2018 in O.A. No.1259 of 2017 under Section 11 of the Arbitration and Conciliation Act, 1996, the second respondent, a Former Judge of the Hon’ble Supreme Court was appointed as the Sole Arbitrator to adjudicate the dispute between the applicant and the first respondent.
3.Both the parties to the dispute participated in the Arbitration, which has culminated in the passing of the Arbitral Award dated 30.04.2021. The first respondent (claimant) has paid its portion of the Arbitrator’s fee and cost. However, the applicant, who is the respondent in the Arbitration, failed to pay the balance Arbitrator’s fee and cost amounting to Rs.59,73,750/-. The second respondent (Arbitrator) has exercised his statutory lien as per the provisions of Section 39(1) of the Arbitration and Conciliation Act 1996 for non payment of his fees/costs by the applicant.
4.The Arbitrator has not delivered the Original Award dated 30.04.2021 to the applicant, but has delivered the same only to the first respondent, who has paid its portion of the Arbitrator’s fee/cost. Aggrieved by the exercise of the statutory lien by the Arbitrator under Section 39(1) of the Arbitration and Conciliation Act 1996, these applications have been filed under Section 39(2) of the Arbitration and Conciliation Act 1996 seeking for the release of the lien and for revising the fees / cost payable to the arbitrator by the applicant.
Issue: Whether the lien is liable to be released ?
Arguments:
Applicant:
1.Counsel for applicant submitted that the Arbitrator (second respondent) has imposed and demanded exorbitant Arbitration fees/costs from the applicant and has wrongfully exercised lien on the Award for the alleged non payment of the Arbitrator’s fee/cost as per the provisions of Section 39(1) of the Arbitration and Conciliation Act 1996.
2.Counsel also submitted that since the applicant is facing CIRP proceedings before the National Company Law Tribunal, the Arbitrator’s fees cannot be paid to the Arbitrator (second respondent).
Respondent:
1.Counsel for Respondent submitted that only based on a mutual agreement between the parties to the dispute, which has been recorded in the Minutes of the Arbitrator’s proceedings, the Arbitrator’s fee/cost was fixed. According to him, the first respondent has already paid the Arbitrator’s fee/cost as per the agreement and it is only the applicant, which is the respondent in the Arbitration, who has not paid the balance fees/costs payable to the Arbitrator. According to the Arbitrator(second respondent), a sum of Rs.59,73,750/- is still due and payable by the applicant towards the balance Arbitrator’s fee/cost, which they have failed and neglected to pay despite there being an agreement to that effect, which has been recorded in his Minutes in the Arbitral proceedings.
Decision:
Rationale:
1.Hon’ble Court noted that by its Order dated 20.03.2018, appointed the second respondent as the Sole Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 and granted him liberty to fix his fees. It also noted that the details of the Arbitral fee payable to the second respondent was clarified in the Minutes of the Arbitral Proceedings dated 12.04.2019 and the Tripartite Agreement was signed by the second respondent (Arbitrator) and the counsels for the claimant and the first respondent in the Arbitral Proceeding.
2.It is undoubtedly clear that the applicant, though having agreed to pay the fees of the Arbitrator as per the schedule of fees, which was recorded in the Minutes of the Arbitral proceedings, has taken a complete U-turn by making false allegations against the Arbitrator as if he has charged his fees exorbitantly and has refused to pay the sum of Rs.59,73,750/-, which is the Arbitrator’s fees payable by the applicant towards its share in the Arbitral proceedings.
3.The court also held that the applicant has frivolously filed these applications under section 39(2) of the Arbitration and Conciliation Act, 1996, which undoubtedly amounts to abuse of process of Court and law.
4.The moratorium order dated 08.08.2023 passed by the National Company Law Tribunal does not prohibit the Insolvency Professional / Liquidator from paying the fees of the Arbitrator who is liable to be paid in respect of the arbitration between the applicant and the first respondent, which has culminated in the passing of the Arbitral Award, dated 30.04.2021, which is much prior to the moratorium order dated 08.08.2023. The order of moratorium will come into effect only from 08.08.2023 and will not apply to the payment of the Arbitrator’s fees which is an admitted liability of the applicant as seen from the Minutes of the Arbitral Proceedings recorded by the Arbitrator and the said liability was payable by the applicant as early as in the year 2021 itself.
5.As observed earlier the said order also does not prohibit payment of arbitrator’s fees which was liable to be paid by the applicant in the year 2021 itself, much prior to the passing of the moratorium order, dated 08.08.2023. The payment to the Arbitrator(second respondent), who was appointed by orders of this Court under Section 11 of the Arbitration and Conciliation Act, 1996 has to be treated on par with the liquidator’s costs.
6.If the Arbitrators are not paid their fees / costs on account of the moratorium order passed by the National Company Law Tribunal, the object of arbitration will get defeated as competent Arbitrators will hesitate to become Arbitrators in a dispute involving Companies facing financial crisis.
7.The court directed the Insolvency Professional appointed for the applicant by the National Company Law Tribunal is directed to pay the second respondent (Arbitrator) the balance amount of Rs.44,73,750/- payable to the Arbitrator(second respondent) on a priority basis from and out of the funds of the applicant as such payment will only entitle the applicant / IRP to obtain release of the statutory lien exercised by the Arbitrator (second respondent) over the Arbitral Award.
Order Copy:
