Section 32 Arbitration Act | Termination for Non-Payment of Fees Ends Arbitrator’s Mandate; Remedy Lies in Section 14(2): Supreme Court

“Arbitration is built on procedural self-responsibility... A claimant who can repeatedly initiate proceedings after default squanders the finite capital of the arbitral system”— In a seminal ruling Supreme Court of India, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, partly allowed a civil appeal, settling the vexed question regarding the nature of termination of arbitral proceedings for non-payment of fees and the specific statutory remedy available against such orders.

The controversy originated from a partnership dispute involving a firm named ‘M/s Amritsar Health & Hospitality Services’. Following the invocation of the arbitration clause, the High Court of Punjab and Haryana appointed a Sole Arbitrator in 2020. The Arbitrator fixed the fees in accordance with the Fourth Schedule of the Arbitration and Conciliation Act, 1996, with the consent of the parties. However, complications arose when the Respondent filed a substantial counter-claim, leading to a revision of the fees.

The Appellants expressed their financial inability to pay their share of the fees for the claim and the counter-claim, while the Respondent refused to pay the Appellants' share. Consequently, invoking Section 38 of the Act, the Sole Arbitrator terminated the proceedings on March 28, 2022. The Appellants subsequently approached the High Court under Section 11 for the appointment of a substitute arbitrator, arguing that the mandate had terminated. The High Court rejected the petition, holding that the remedy lay in seeking a recall of the order or moving under Section 14(2), not Section 11.

“The common thread that runs across Sections 25, 30, 32 and 38 of the Act, 1996 respectively, is that although the arbitral proceedings may terminate for varied reasons, yet the consequence of such termination remains the same i.e., the arbitral reference stands concluded and the authority of the tribunal stands extinguished.”

The Legal Conundrum: Source of Power to Terminate

The core legal issue before the Supreme Court was the interplay between Section 32 (Termination of proceedings) and other provisions like Section 25 (Default of party) and Section 38 (Deposits/Fees) which also contemplate termination. The Appellants argued that termination under Section 38 is distinct from Section 32, and thus the remedy should be the appointment of a substitute arbitrator under Section 15 read with Section 11.

Section 32 is the Sole Repository of Termination Power

Justice Pardiwala, authoring the judgment, undertook an exhaustive analysis of the Act and the UNCITRAL Model Law. The Court held that Section 32 of the Act is exhaustive. It clarified that Sections 25, 30, and 38 merely denote the circumstances or triggers under which a Tribunal is empowered to take recourse to Section 32(2) to terminate proceedings.

The Bench rejected the distinction drawn in previous judgments (such as SREI Infrastructure) which suggested that termination under Section 25 or 38 does not result in the termination of the arbitrator's mandate. The Court firmly held that irrespective of the reason—whether final award, withdrawal, settlement, or non-payment of fees—the legal effect is identical: the arbitral tribunal is divested of its authority, and its mandate stands terminated.

“The expression ‘mandate of the Arbitral Tribunal’ is merely descriptive of the function entrusted to the tribunal... Irrespective of the reason for termination... the legal effect is the same: the arbitral tribunal is divested of authority to act in the reference.”

The Remedy: Recall Application followed by Section 14(2)

Perhaps the most significant takeaway for practitioners is the Court’s clarification on the remedy. The Bench acknowledged a legislative lacuna but provided a purposive interpretation to fill the gap. The Court laid down a two-step remedial process for a party aggrieved by an order terminating proceedings:

1. Application for Recall: The aggrieved party must first approach the Arbitral Tribunal itself with an application for recall. The Court held that Tribunals possess inherent power for "procedural review" to correct patent errors or procedural defects.

2. Section 14(2) Petition: If the recall application is dismissed, the remedy is not a fresh Section 11 petition, nor a Writ Petition under Article 227 (except in rare cases). The remedy lies in filing an application before the Court under Section 14(2) of the Act to decide on the termination of the mandate.

The Court clarified that if the Court under Section 14(2) finds the termination erroneous, it can set aside the order and remand the matter or appoint a substitute arbitrator.

“To permit a party who by its own contumacious conduct allowed the proceedings to be terminated in the first instance, to again set the entire mechanism under the Act, 1996 in motion before another set of arbitrators, would defeat the procedural self-responsibility... and lead to ‘Tribunal Hopping’.”

On Arbitrator’s Fees and the Fourth Schedule

The Court also addressed the validity of the termination based on non-payment. Relying on the Afcons judgment, the Bench reiterated that the Fourth Schedule is a model fee schedule. Once parties agree to it, it becomes binding. The Court observed that under Section 38, if one party fails to pay, the other must pay to keep the proceedings alive. Since neither party was willing to pay the requisite fees, the Arbitrator had no option but to terminate.

Legislative Reform and International Best Practices

In a forward-looking segment, the Court analyzed international rules (SIAC, LCIA, HKIAC) which consolidate termination powers into single provisions. The Bench suggested that the proposed Arbitration and Conciliation Bill, 2024, should explicitly define the nature of termination, recognize the Tribunal's power to recall orders, and potentially provide a statutory appeal under Section 37 against termination orders to resolve existing ambiguities.

“The Arbitration and Conciliation Bill, 2024 should explicitly define the nature and effect of termination... A proper remedy against termination orders is the need of the hour.”

While upholding the legal principles applied by the Arbitrator and the High Court, the Supreme Court exercised its discretion under Article 142. Considering the legal uncertainty that existed regarding remedies at the time of termination, the Court partly allowed the appeal and remanded the matter to the High Court for the appointment of a substitute arbitrator as a one-time measure, granting the Appellants a final opportunity to resolve the dispute.

Date of Decision: 08/12/2025