Arbitrator can be dismissed for overcharging

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Rajasthan High Court, while deciding a writ petition, recently held that an arbitrator charging exorbitant fees can have their mandate terminated if they create a doubt in the mind of a party regarding prejudice against it.

In Doshion (P) Ltd v Hindustan Zinc Ltd & Anr, Rajasthan High Court appointed a retired high court judge as a sole arbitrator to adjudicate upon the disputes between the parties in terms of the arbitration agreement and in accordance with the Manual of Procedure for Alternative Dispute Resolution, 2009.

During the arbitration proceedings, the arbitrator fixed the arbitration fee as ₹7.5 million (US$105,000), which was contested by the petitioner and it sought its reconsideration in light of schedule IV of the Arbitration and Conciliation Act, 1996. However, this was declined by the arbitrator. Meanwhile, the high court issued a notification on 23 March 2017 providing for fees to be charged by arbitrators, which was made applicable with effect 23 October 2015. The petitioner made another submission based on the above notification. However, this too was declined. The arbitrator offered a discount by record of proceedings on 26 May 2017 and total fees were fixed at ₹5.5 million.

The petitioner thereafter applied to the commercial court by filing an application under section 14 of the act and sought the arbitrator’s removal. During the pendency of the proceedings before the commercial court, the arbitrator on 1 April 2018 made an ex parte award against the petitioner. As the application for the arbitrator’s removal was dismissed, the petitioner appealed to Rajasthan High Court.

The high court observed that the proceedings before the arbitrator were being held under the shadow of conflict from the beginning. In this case, apart from charging an exorbitant fee, the arbitrator made an ex parte order and posted the matter for final arguments despite the pendency of the writ petition. Accordingly, the court terminated the arbitrator’s mandate under section 14(1)(a) of the act and the petitioner was allowed to appoint a substitute arbitrator.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.