Case Note & Summary
The petitioner, The Comedy Store, a UK company, and the respondent, Horseshoe Entertainment & Hospitality Pvt. Ltd., entered into a Share Subscription and Shareholder's Agreement dated 13th November 2008 and a Trademark License Agreement dated 25th November 2008. Disputes arose, and the petitioner invoked arbitration. An arbitral tribunal was constituted on 26th September 2013, which directed each party to pay USD 25,000 as advance fees. The respondent filed an application under Section 38 of the Arbitration and Conciliation Act, 1996, seeking exemption from paying its share due to financial difficulty, which was rejected. Subsequently, the tribunal passed orders on 12th April 2016 and 14th May 2016 terminating the arbitration proceedings. The petitioner filed petitions under Sections 14 and 15 of the Act challenging these termination orders and seeking appointment of a substitute arbitrator. The court found that the tribunal did not provide a reasonable opportunity to the petitioner before terminating the mandate, violating principles of natural justice. The court set aside the termination orders and appointed a substitute arbitrator to continue the proceedings.
Headnote
A) Arbitration - Termination of Mandate of Arbitrator - Sections 14 and 15 of the Arbitration and Conciliation Act, 1996 - The petitioner challenged the termination of arbitration proceedings by the erstwhile tribunal on the ground of non-payment of fees. The court held that the tribunal failed to provide a reasonable opportunity to the petitioner before terminating the mandate, and thus the termination orders were set aside. The court appointed a substitute arbitrator. (Paras 1-10)
B) Arbitration - Fees of Arbitrator - Section 38 of the Arbitration and Conciliation Act, 1996 - The respondent sought exemption from paying its share of fees due to financial difficulty. The tribunal rejected the application. The court did not interfere with that decision but focused on the procedural impropriety in the termination. (Paras 2-3)
Issue of Consideration
Whether the orders dated 12th April 2016 and 14th May 2016 terminating the arbitration proceedings are valid and whether a substitute arbitrator should be appointed.
Final Decision
The court set aside the orders dated 12th April 2016 and 14th May 2016 terminating the arbitration proceedings and appointed a substitute arbitrator to continue the proceedings.
Law Points
- Termination of mandate of arbitrator
- Substitution of arbitrator
- Sections 14 and 15 of Arbitration and Conciliation Act
- 1996
- Reasonable opportunity of hearing
- Natural justice
Case Details
2016 LawText (BOM) (08) 229
Arbitration Petition (L) No.738 of 2016 and Arbitration Petition (L) No.739 of 2016
Mr. Rajiv Kumar, Senior Advocate a/w Mr. Amit Jamsandekar a/w Mr. Vishal Maheshwari a/w Mr. Dhiraj Mhetre a/w Ms. Zaibaa Thingna i/by M/s. Khaitan Legal Associates for the petitioner. Mr. Zal Andharujina a/w Mr. Rahul Dwarkadas a/w Mr. Dharam Sharma i/by M/s. Dharam & Co. for the respondent.
Horseshoe Entertainment & Hospitality Pvt. Ltd.
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Nature of Litigation
Petition under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996 challenging termination of arbitration proceedings and seeking appointment of substitute arbitrator.
Remedy Sought
The petitioner sought setting aside of termination orders dated 12th April 2016 and 14th May 2016 and appointment of a sole arbitrator in substitution of the erstwhile tribunal.
Filing Reason
The erstwhile tribunal terminated the arbitration proceedings without providing reasonable opportunity to the petitioner.
Previous Decisions
The tribunal had rejected the respondent's application under Section 38 for exemption from paying fees. The tribunal then terminated the proceedings.
Issues
Whether the termination orders dated 12th April 2016 and 14th May 2016 are valid?
Whether a substitute arbitrator should be appointed under Section 15 of the Act?
Submissions/Arguments
The petitioner argued that the tribunal did not provide a reasonable opportunity before terminating the mandate.
The respondent contended that the termination was justified due to non-payment of fees.
Ratio Decidendi
An arbitral tribunal cannot terminate its mandate without providing a reasonable opportunity to the parties to be heard, as per principles of natural justice. Failure to do so renders the termination invalid, and the court may appoint a substitute arbitrator under Section 15 of the Arbitration and Conciliation Act, 1996.
Judgment Excerpts
By these petitions filed under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996, the petitioner has impugned the orders dated 12th April 2016 and 14th May 2016 terminating the arbitration proceedings and seeks appointment of a sole arbitrator in substitution of erstwhile arbitral tribunal.
Procedural History
The parties entered into agreements in 2008. Disputes arose, and arbitration was invoked. Tribunal constituted on 26th September 2013. Respondent filed application under Section 38 on 30th May 2014, which was rejected. Tribunal passed termination orders on 12th April 2016 and 14th May 2016. Petitioner filed these petitions on an unspecified date.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 14, 15, 38
