BY MAHAK YADAV AND RISHI VERMA, FOURTH- YEAR STUDENTS AT NLIU, BHOPAL
INTRODUCTION
The Supreme Court’s decision in Harshbir Singh Pannu v. Jaswinder Singh marks a crucial turning point in the development of the Indian arbitration law. The judgement addresses a significant question of whether an arbitral tribunal can terminate proceedings when a party defaults on its share of fees. Further, it also examines whether such termination can be revived by the appointment of a new arbitrator. This issue is of high relevance because, if left unaddressed, the party’s refusal to pay arbitral fees can be leveraged to disrupt and derail the arbitral process and thereby undermine the very objective of arbitration, which is to promote party autonomy, speed, and efficiency. Therefore, the Supreme Court’s ruling not only seeks to clarify the scope and applicability of Sections 38(1) and 38(2) of the Arbitration and Conciliation Act, 1996 (A&C Act), but also seeks to strengthen the procedural discipline of arbitration in India.
This article seeks to briefly analyse the Supreme Court’s ruling and identify potential rigidity in treating non-payment of fees as jurisdictional finality. It also seeks to suggest some refinements by drawing on flexible global practices from the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), Singapore International Arbitration Centre (SIAC) and Hong Kong International Arbitration Centre (HKIAC) rules and concludes with how a graduated approach to fee defaults can enhance procedural fairness, arbitral efficiency, and party autonomy in India.
BACKGROUND
The dispute began as a result of a partnership arrangement entered into between Jaswinder Singh (Respondent) and Sukhdev Kaur Grewal (Appellant No. 2) in 2013 for establishing a partnership firm engaged in the healthcare sector. Subsequently, Harshbir Singh Pannu (Appellant No. 1) was also inducted as a partner through another written agreement. The partnership agreement included an arbitration clause, which provided that any dispute or differences arising between the parties would be resolved through arbitration only.
In 2017, disputes arose over the capital contributions and the management of the firm’s affairs. Consequently, the Appellants issued a legal notice to the Respondent, seeking that the partnership be dissolved. The Appellants also invoked the arbitration clause and requested that the Respondent appoint a neutral arbitrator under the partnership agreement. However, due to the absence of any response, the Appellants approached the High Court under Section 11 of the A&C Act, which appointed a sole arbitrator.
Later, both sides challenged the arbitral fee determination by the sole arbitrator. However, the sole arbitrator rejected the Respondent’s objections and held that Section 38 required both of the parties to share the fees equally. Thus, due to non-payment, the arbitral proceedings were eventually terminated, and thereafter, the appellants sought the High Court’s intervention for the appointment of a new arbitrator, which the court declined. This sequence of events led the matter to be placed before the Supreme Court.
INTERPRETING TERMINATION: UNIFORMITY ACROSS SECTIONS 25, 30, 32 AND 38
The court mainly dealt with three issues: firstly, omission of the expression “Mandate of the Arbitral Tribunal” in Sections 25, 30, 38; Secondly, Interplay of Sections 25, 30, and 38 with Section 32; and thirdly, Use of Section 11 as a curative or revival provision.
- THE OMISSION OF THE EXPRESSION “MANDATE OF THE ARBITRAL TRIBUNAL” IN SECTION 25, 30, 38 DOES NOT ALTER THEIR TERMINATION EFFECT
The court held that it does not agree with earlier judgments such as SREI Infrastructure and Sai Babu, which treated termination under Section 25(a) as fundamentally different from termination under Section 32(2). In both cases, it was held that in Section 25(a) only the proceedings come to an end, whereas in Section 32(2) the mandate of the arbitral tribunal also gets terminated. Thus, unlike Section 25(a), no option of recall would lie in cases covered by Section 32 of the A&C Act. In the present case, the Court clarified that the requirement of “sufficient cause” in Section 25(a) only governs when the tribunal may terminate proceedings; it does not change the nature or effect of the termination once ordered.
Further, by relying on the UNCITRAL Model Law’s drafting history, the Court noted that “sufficient cause” applies to all situations under Article 25 and merely regulates the tribunal’s discretion. Thus, the Court held that the phrase “mandate of the arbitral tribunal shall terminate” in Section 32 is only descriptive of the tribunal’s role and authority. Its inclusion does not mean that termination under Section 32 is different in substance from termination under other provisions, because in all cases, once proceedings are terminated, the tribunal’s authority to continue adjudication necessarily comes to an end.
- THE INTERPLAY OF SECTIONS 25, 30, AND 38 WITH SECTION 32.
The court clarified that although the phrase “terminate the proceedings” is present in Sections 25, 30, and 38, it does not grant termination rights on its own. In the case of Lalitkumar v. Sanghavi, it was held that Section 32 of the Act is comprehensive and applies to all situations in which arbitral proceedings are terminated under the A&C Act. Similarly, by relying on Datar Switchgear, the court reiterated that the phrase “terminate the proceedings” in Sections 25, 30, and 38 of the A&C Act, respectively, only refers to the termination power enshrined in Section 32(2) of the A&C Act. Therefore, the court observed that even though Sections 25, 30, 32, and 38 of the A&C Act deal with different situations in which arbitral proceedings may come to an end, they all share the same outcome.
- EXHAUSTION OF ARBITRAL REFERENCE AND THE INAPPLICABILITY OF SECTION 11
Furthermore, the Supreme Court also clarified that Section 11 cannot be invoked as a curative or revival provision. It relied on landmark cases such as Maharashtra State Electricity Board v. Bharat Heavy Electricals Limited, where it was held that the A&C Act is a complete code in itself and the courts have no power under Section 11 to entertain a second request for appointment of an arbitrator unless the order terminating the proceedings is set aside. Thus, it held that once arbitral proceedings have been validly terminated under Section 32(2), it exhausts the arbitral reference and renders the tribunal functus officio. In essence, the court held that the termination under Section 38 ends the entire arbitration, not merely the arbitrator’s mandate. This means the parties cannot invoke Section 11 again or seek a fresh arbitrator. Their only remedy is to challenge or seek a recall of the termination order itself. Thus, the court seeks to reinforce the point that when the parties fail to act in accordance with the procedural boundaries, the law will not support them unjustly.
CRITIQUE: CONFLATION OF NON-PAYMENT WITH JURISDICTIONAL FINALITY
The Supreme Court in this case provides an important clarification regarding the end of the arbitral tribunal’s mandate. However, the court’s approach to non-payment of fees under section 38 raises concerns when compared to international practices. The court states that non-payment results in consequences similar to termination under section 32. This means the tribunal will no longer have the authority to decide the matter if the parties do not pay the fees. By supporting this interpretation, the court is prioritizing formal certainty over flexibility and the autonomy of the parties.
The ICC Arbitration Rules, 2021, take a broader view of this situation. Under Article 37, the ICC sets up an advance on costs and also allows the non-defaulting party to pay the defaulting party’s share. However, if the payment is not made, there is no immediate termination of the tribunal’s mandate. Instead, the secretary-general, after consultation with the arbitral tribunal, can suspend the work rather than terminating the mandate and can set up a timeframe of not less than 15 days to comply with the payment obligations. And if the party fails to comply, their claims will be considered as withdrawn, but it doesn’t prevent them from raising the same claims in another proceeding. This approach considers that non-payment can be fixed rather than immediately terminating the tribunal’s mandate.
The LCIA Rules, 2020, take a similar approach. Article 24.8 does not mandate termination of the tribunal’s mandate even if non-payment persists; rather, it allows for withdrawal of the defaulting party’s claim or counterclaim. This withdrawal is not final and is subject to terms that allow reinstatement when payment is made. This read with Article 22.1(xi) makes it clear that LCIA treats non-payment as a procedural default that does not automatically terminate the tribunal’s mandate, and termination is treated as the last resort.
The SIAC Rules, 2025, address non-payment in a detailed way. Rule 56.5 empowers the registrar to order the tribunal or the SIAC secretariat to suspend the proceedings in part or in whole. They are also empowered to set a time limit on the expiry of which the claim will be considered as withdrawn, but this withdrawal does not operate as final, and the proceedings can be revived if payment is made. Further, Rule 43.3 makes it clear that non-payment leads to termination only when an institutional decision determines that further continuation is not warranted. This framework suggests that non-payment doesn’t automatically terminate the mandate.
The HKIAC rules, 2024, show reluctance to outrightly end the tribunal’s mandate due to non-payment. Article 41.4 allows the arbitral tribunal to suspend or terminate the arbitration. Alternatively, the tribunal can choose to move forward with claims or counterclaims at its discretion. The position in India after Pannu differs from this clear decision to move forward, even if payment is not made.
This comparative analysis shows a clear preference for gradual actions regarding non-payment instead of quickly ending the tribunal’s authority. Institutional rules like ICC, SIAC, LCIA, and HKIAC emphasize suspending proceedings, setting deadlines for compliance, and allowing payment by the non-defaulting party. They also permit withdrawing claims or counterclaims without prejudice. Terminating the tribunal’s mandate is seen as a last resort under these rules, taken only after confirming that ongoing proceedings are not feasible.
In this situation, the approach in Pannu appears more rigid. These ruling speeds up the process of ending the tribunal’s mandate and overlooks the key procedural safeguards. This differs from international practices that suggest non-payment can be resolved instead of immediately terminating the mandate. This comparison shows that it is not always important to sacrifice flexibility in order to establish clear rules in arbitration. The handling of fee defaults in India could be revised so that termination does not become the norm.
THE OPTIMAL JURISDICTIONAL MODEL AND ITS ADOPTION IN INDIA
A comparative reading of the ICC, LCIA, SIAC, and HKIAC frameworks reveals a consistent institutional preference for graduated responses to fee defaults over automatic termination of the tribunal’s mandate. Of these, the SIAC Rules, 2025, present the most balanced framework. Under Rule 56.5, the Registrar may suspend proceedings, set a payment deadline, and deem claims withdrawn only upon non-compliance, with revival remaining possible upon subsequent payment. When read alongside Rule 43.3, the SIAC framework strikes the most coherent balance between procedural discipline and party autonomy. The ICC, LCIA, and HKIAC rules, while protective of the tribunal’s mandate, either lack sequential clarity or vest excessive discretion in the tribunal without a structured escalation path.
India would benefit from adopting a graduated framework modelled on the SIAC Rules. The ruling in Harshbir Singh Pannu conflates a financial default, which is inherently curable, with a jurisdictional event of permanent finality, depriving parties of any intermediate recourse and creating an asymmetry where fee withholding can be weaponised to frustrate proceedings. A graduated statutory mechanism would address this structural gap while preserving the procedural discipline the Court sought to enforce.
India can adopt this through legislative amendment or institutional rule reform. Section 38 could be amended to introduce a mandatory suspension period upon non-payment, during which the non-defaulting party may advance the defaulting party’s share, with termination contingent upon the expiry of that period. Alternatively, institutions such as the Mumbai Centre for International Arbitration (MCIA) and the Delhi International Arbitration Centre (DIAC) could incorporate rules modelled on SIAC Rule 56.5 without requiring statutory intervention. Either route would allow India to retain the procedural certainty endorsed in Pannu while aligning with the globally accepted principle that non-payment is a curable default, not an irreversible jurisdictional event.
CONCLUSION
The decision in Harshbir Singh Pannu v. Jaswinder Singh provided much-needed clarity to an area of uncertainty that has existed in Indian Arbitration law with respect to the consequences of termination of arbitral proceedings. By ruling that the termination of an arbitration under Section 38 will have the same effect on the proceedings as if the arbitration were terminated under Section 32, the court has reinforced procedural clarity and has curtailed the possibility of parties using strategic non-payment as a means of delaying the arbitration indefinitely. This helps in reinforcing the integrity of the process of arbitration and in delineating the statutory limits of judicial intervention.
However, the comparative analysis demonstrates that certainty does not necessarily require the sacrifice of flexibility. International arbitral regimes consistently treat non-payment of fees as a procedural difficulty capable of being addressed through suspension of proceedings, conditional withdrawal of claims, close institutional supervision and revival mechanisms. Termination of the tribunal’s mandate is ordinarily treated as a measure of last resort. While the approach adopted in Pannu is internally consistent with the scheme of the A&C Act, it departs from this graduated framework model by conferring immediate jurisdictional finality to a financial default.
Thus, as India continues to develop into an arbitration-friendly country, this decision opens the door to greater consideration of the treatment and regulation of arbitral fees within Arbitral Proceedings. A recalibrated statutory or institutional approach aligning with international best practices can help in providing similar levels of certainty achieved by the judgment while, at the same time, helping in promoting the procedural flexibility and fairness.
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