Judgement Briefs

Alternative Dispute Resolution

Entertainment City Ltd. v. Aspek Media Pvt. Ltd.

2020 SCC OnLine Del 2648

Citation
2020 SCC OnLine Del 2648
Court
Delhi High Court
Date
3 June 2020
Bench
C. Hari Shankar, J.

Facts

  • Entertainment City and Aspek Media entered into a commercial contract containing an arbitration clause.
  • Disputes arose, and the Delhi High Court appointed a retired judge as sole arbitrator under Section 11.
  • The court’s appointment order did not fix the arbitrator’s fees.
  • The arbitrator later determined fees for the proceedings.
  • Entertainment City objected that:
  • the fees were substantially higher than the Fourth Schedule to the Arbitration Act;
  • its financial condition made payment difficult;
  • the arbitrator had insisted upon payment; and
  • the mandate should therefore be terminated.
  • It filed proceedings invoking Sections 12 and 14.
  • Entertainment City argued that the fee demand:
  • created doubts concerning impartiality;
  • violated the statutory fee framework; and
  • made the arbitrator de jure or de facto unable to continue.
  • Aspek Media resisted the petition.

Issue

  • Whether disagreement over arbitrator’s fees is a ground of challenge under Section 12.
  • Whether the Fourth Schedule automatically binds every arbitrator appointed by a High Court.
  • Whether financial inability to pay terminates the arbitrator’s mandate under Section 14.

Rule

  • Section 12(3) permits challenge where:
  • circumstances create justifiable doubts regarding independence or impartiality; or
  • the arbitrator lacks agreed qualifications.
  • Section 12(4) restricts challenges by a party that participated in the appointment but does not create an independent ground of removal.
  • Section 14 applies where an arbitrator becomes:
  • de jure unable;
  • de facto unable; or
  • otherwise fails to act without undue delay.
  • The Fourth Schedule is a model fee schedule.
  • It does not automatically govern every ad hoc arbitration unless:
  • applicable High Court rules adopt it;
  • the appointment order incorporates it;
  • the parties agree to it; or
  • institutional rules make it binding.
  • A fee dispute alone does not establish bias or legal incapacity.

Application

  • The arbitrator had been appointed by the High Court, but the appointment order did not specify that the Fourth Schedule would govern.
  • The arbitration was not shown to be administered under rules automatically incorporating that schedule.
  • Entertainment City therefore could not treat the Fourth Schedule as an inflexible statutory ceiling.
  • The Court distinguished:
  • an unlawful fee demand contrary to an agreed or binding scale; from
  • a disagreement over a fee fixed in an ad hoc arbitration where no binding scale was prescribed.
  • The second situation did not make the arbitrator de jure incapable of acting.
  • The petitioner's financial difficulty also did not alter the arbitrator’s legal competence.
  • A party’s lack of resources may require:
  • negotiation;
  • instalments;
  • institutional assistance; or
  • another practical arrangement, but it does not automatically terminate the mandate.
  • The Court rejected reliance on Section 12(4).
  • That subsection only limits a party’s ability to challenge an arbitrator whom it appointed or helped appoint.
  • It does not add “excessive fees” as a substantive ground of challenge.
  • No material established that the arbitrator:
  • favoured Aspek Media;
  • had a relationship with either side;
  • possessed an interest in the outcome; or
  • lacked the agreed qualifications.
  • The fee issue therefore did not create justifiable doubts under Section 12(3).
  • Nor was the arbitrator de facto unable to perform.
  • He remained willing and capable of conducting the case.
  • The Court acknowledged that arbitrator fees must be reasonable and transparent.
  • However, Section 14 cannot be converted into a general fee-review jurisdiction.
  • Where the fee is governed by agreement or a binding court order, a clear violation may produce a different result.
  • No such violation existed here.

Conclusion

  • The Delhi High Court dismissed the petition.
  • It held that the Fourth Schedule did not automatically govern the arbitration.
  • Disagreement over fees and the petitioner’s financial difficulty did not establish bias or inability under Sections 12 and 14.
  • Use this case for: an arbitrator’s mandate cannot ordinarily be terminated merely because a party considers the ad hoc fee excessive.