M/S Apex International Constructions vs. Model Economic Township LTD

Facts

M/s Apex International Constructions (appellant) challenged an order of the Commercial Court, Gurugram, which dismissed its petition under Section 34 of the Arbitration and Conciliation Act, 1996. The appellant sought to set aside three aspects: (i) a procedural order by the arbitral tribunal declining to adjudicate claims due to non-payment of arbitral fees; (ii) a final award partly allowing the respondent's counter-claim for Rs. 36,000/-; and (iii) an award of Rs. 50 lacs in costs to the respondent. The appellant and respondent entered into a contract for construction work. Disputes arose, leading to arbitration. The arbitral tribunal was constituted, and parties agreed to share arbitral fees equally. The respondent paid its share and the appellant's share for counter-claims. The appellant defaulted on its share of fees for its claims, despite multiple opportunities and an undertaking. Consequently, the tribunal rejected the appellant's claims. The appellant's subsequent application to recall this order was also dismissed. The final award partly allowed the respondent's counter-claim and awarded costs.

Held

The Court held that the order dated 29.03.2022, by which the appellant's claims were 'rejected', was in substance a termination of the arbitral proceedings concerning the appellant's unfunded claims, as per the second proviso to Section 38(2) of the Arbitration and Conciliation Act, 1996. This termination was a statutorily prescribed consequence of the appellant's persistent default, for which it had been repeatedly forewarned. The Court found that this was not an adjudication amenable to the grounds under Section 34 of the Act and, having attained finality upon the failure of the recall application, it did not merit revival. Regarding the final award dated 22.08.2022, the Court held that the partial allowance of counter-claim No. 3 and the award of costs of Rs. 50 lacs were based on plausible findings of facts and represented a permissible view, which could not be interfered with within the limited scope of interference under Section 37 of the Act. The Court also noted that the appellant's pleas were inherently contradictory, as it assailed the order for 'rejection' while simultaneously raising a plea of failure to render accounts under Section 38(3), thus being estopped from approbating and reprobating.

Key Issues

1. Whether the arbitral tribunal had the power to 'reject' the appellant's claims on account of non-payment of arbitral fees, or whether its only recourse was to suspend or terminate proceedings under Section 38 of the Arbitration and Conciliation Act, 1996, or retain a lien on the award for unpaid costs under Section 39. Appellant's arguments: Section 38 of the Act is exhaustive regarding consequences for non-payment, allowing only suspension or termination of proceedings for unfunded claims. The tribunal lacked the power to 'reject' claims. The appropriate recourse was to retain a lien on the award for unpaid costs. There is a distinction between rejection, termination of mandate, and termination of proceedings, each with distinct remedies. Respondent's arguments: The judgment does not record specific arguments from the respondent regarding this issue, but the Commercial Court's reasoning, upheld by the High Court, implies that the tribunal was competent to decline adjudication for non-payment of fees.